Item 6. SELECTED FINANCIAL DATA

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Item 6. SELECTED FINANCIAL DATA

The following tables set forth selected consolidated financial and other information of UDR, Inc. and of the Operating Partnership as of and for each of the years in the five-year period ended December 31, 2019. The tables should be read in conjunction with each of UDR, Inc.’s and the Operating Partnership’s respective consolidated financial

statements and the notes thereto, and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere in this Report.


	UDR, Inc.
	Year Ended December 31,
	(In thousands, except per share data
	and apartment homes owned)
	2019		2018		2017		2016		2015
OPERATING DATA:
Rental income	$	1,138,138	$	1,035,105	$	984,309	$	948,461	$	871,928
Net income/(loss)		199,579		221,542		132,655		320,380		357,159
Distributions to preferred stockholders		4,104		3,868		3,708		3,717		3,722
Net income/(loss) attributable to common stockholders		180,861		199,238		117,850		289,001		336,661
Common stock distributions declared		395,113		348,079		331,974		315,102		289,500
Income/(loss) per weighted average common share — basic	$	0.63	$	0.74	$	0.44	$	1.09	$	1.30
Income/(loss) per weighted average common share — diluted	$	0.63	$	0.74	$	0.44	$	1.08	$	1.29
Weighted average number of Common Shares outstanding — basic		285,247		268,179		267,024		265,386		258,669
Weighted average number of Common Shares outstanding — diluted		286,015		269,483		268,830		267,311		263,752
Weighted average number of Common Shares outstanding, OP Units/DownREIT Units and Common Stock equivalents outstanding — diluted		311,799		297,042		296,672		295,469		276,699
Common stock distributions declared - per share	$	1.37	$	1.29	$	1.24	$	1.18	$	1.11
Balance Sheet Data:
Real estate owned, at cost (a)	$	12,602,101	$	10,196,159	$	10,177,206	$	9,615,753	$	9,190,276
Accumulated depreciation (a)		4,131,353		3,654,160		3,330,166		2,923,625		2,646,874
Total real estate owned, net of accumulated depreciation (a)		8,470,748		6,541,999		6,847,040		6,692,128		6,543,402
Total assets		9,636,472		7,711,728		7,733,273		7,679,584		7,663,844
Secured debt, net (a)		1,149,441		601,227		803,269		1,130,858		1,376,945
Unsecured debt, net		3,558,083		2,946,560		2,868,394		2,270,620		2,193,850
Total liabilities		5,228,493		3,816,211		3,949,771		3,673,132		3,816,797
Total stockholders’ equity		3,358,542		2,905,625		2,825,800		3,093,110		2,899,755
Number of Common Shares outstanding		294,588		275,546		267,822		267,259		261,845
Other Data (a)
Total consolidated apartment homes owned (at end of year)		47,010		39,931		39,998		39,454		40,728
Weighted average number of consolidated apartment homes owned during the year		42,579		39,406		39,692		40,543		39,501
Cash Flow Data:
Cash provided by/(used in) operating activities	$	630,704	$	560,676	$	518,915	$	536,568	$	457,162
Cash provided by/(used in) investing activities		(1,686,687)		(113,548)		(407,406)		(112,720)		(265,538)
Cash provided by/(used in) financing activities		880,383		(260,067)		(111,785)		(429,282)		(201,648)
Funds from Operations (b):
Funds from operations attributable to common stockholders and unitholders — basic	$	629,279	$	570,254	$	538,916	$	527,096	$	455,565
Funds from operations attributable to common stockholders and unitholders — diluted		633,383		574,122		542,624		530,813		459,287

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

(b)

Funds from operations (“FFO”) attributable to common stockholders and unitholders is defined as Net income/(loss) attributable to common stockholders (computed in accordance with GAAP), excluding impairment write-downs of depreciable real estate related to the main business of the Company or of investments in non-consolidated investees that are directly attributable to decreases in the fair value of depreciable real estate held by the investee, gains and losses from sales of depreciable real estate related to the main business of the Company and income taxes directly associated with those gains and losses, plus real estate depreciation and amortization, and after adjustments for noncontrolling interests, and the Company’s share of unconsolidated partnerships and joint ventures. This definition conforms with the National Association of Real Estate Investment Trust’s (“Nareit”) definition issued in April 2002 and restated in November 2018. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, Nareit created FFO as a supplemental measure of a REIT’s operating performance. In the computation of diluted FFO, if OP Units, DownREIT Units, unvested restricted stock, unvested LTIP Units, stock options, and the shares of Series E Cumulative Convertible Preferred Stock are dilutive, they are included in the diluted share count.

Management considers FFO a useful metric for investors as the Company uses FFO in evaluating property acquisitions and its operating performance, and believes that FFO should be considered along with, but not as an alternative to, net income and cash flow as a measure of the Company’s activities in accordance with GAAP. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of funds available to fund our cash needs.

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

United Dominion Realty, L.P.

Year Ended December 31,

(In thousands, except per OP unit data

and apartment homes owned)


	2019		2018		2017		2016		2015
OPERATING DATA:
Rental income	$	441,773	$	431,920	$	419,377	$	404,415	$	440,408
Net income/(loss)		103,995		231,485		107,855		79,262		215,063
Net income/(loss) attributable to OP unitholders		102,163		229,763		106,307		77,818		213,301
Income/(loss) per weighted average OP Unit — basic and diluted	$	0.56	$	1.25	$	0.58	$	0.42	$	1.16
Weighted average number of OP Units outstanding — basic and diluted		184,034		183,609		183,344		183,279		183,279
Balance Sheet Data:
Real estate owned, at cost (a)	$	3,875,160	$	3,811,985	$	3,816,956	$	3,674,704	$	3,630,950
Accumulated depreciation (a)		1,796,568		1,658,161		1,543,652		1,408,815		1,281,258
Total real estate owned, net of accumulated depreciation (a)		2,078,592		2,153,824		2,273,304		2,265,889		2,349,647
Total assets		2,398,745		2,304,590		2,395,573		2,415,535		2,554,808
Secured debt, net (a)		99,071		26,929		159,845		433,974		475,964
Total liabilities		1,032,859		818,701		520,443		797,036		833,478
Total partners’ capital		1,348,481		1,472,070		1,464,295		1,578,202		1,713,412
Advances (to)/from the General Partner		—		—		397,899		19,659		(11,270)
Number of OP units outstanding		184,064		183,637		183,351		183,279		183,279
Other Data:
Total consolidated apartment homes owned (at end of year) (a)		16,434		16,434		16,698		16,698		16,974
Cash Flow Data:
Cash provided by/(used in) operating activities	$	255,093	$	255,668	$	235,257	$	228,941	$	224,396
Cash provided by/(used in) investing activities		(43,906)		71,683		(105,989)		(9,455)		23,485
Cash provided by/(used in) financing activities		(210,853)		(326,535)		(128,846)		(221,483)		(247,747)

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

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

Forward-Looking Statements

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

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

	●	general economic conditions;

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

	●	the failure of acquisitions to achieve anticipated results;

	●	possible difficulty in selling apartment communities;

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

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

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

	●	development and construction risks that may impact our profitability;

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

	●	risks from climate change that impacts our properties or operations;

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

	●	risks from cybersecurity breaches of our information technology systems and the information technology systems of our third party vendors and other third parties;

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

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

	●	our failure to succeed in new markets;

	●	risks that third parties who have an interest in or are otherwise involved in projects in which we have an interest, including mezzanine borrowers, joint venture partners or other investors, do not perform as expected;

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

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

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

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

	●	changes in real estate laws, tax laws, rent control or stabilization laws or other laws affecting our business.

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

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

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

The following discussion should be read in conjunction with the consolidated financial statements appearing elsewhere herein and is based primarily on the consolidated financial statements for the years ended December 31, 2019, and 2018 of each UDR, Inc. and United Domination Realty, L.P.

This section of this Form 10-K generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018 of UDR, Inc. and United Domination Realty, L.P. Discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

UDR, Inc.:

Business Overview

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

At December 31, 2019, our consolidated real estate portfolio consisted of 148 communities located in 13 states plus the District of Columbia consisting of 47,010 apartment homes. In addition, we have an ownership interest in 5,268 completed or to-be-completed apartment homes through unconsolidated joint ventures or partnerships, including 2,138 apartment homes owned by entities in which we hold preferred equity investments.

Critical Accounting Policies and Estimates

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

Cost Capitalization

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

In addition to construction costs, we capitalize costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. As each home in a capital project is completed and becomes available for lease-up, the Company ceases capitalization on the related portion. The costs capitalized are reported on the Consolidated Balance Sheets as Total Real Estate Owned, Net of Accumulated Depreciation. Amounts capitalized during the years ended December 31, 2019, 2018, and 2017 were $13.5 million, $18.1 million, and $27.4 million, respectively.

Investment in Unconsolidated Entities

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

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

Impairment of Long-Lived Assets

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

value represent our best estimate based primarily upon unobservable inputs (defined as Level 3 inputs in the fair value hierarchy) related to rental rates, operating costs, growth rates, discount rates, capitalization rates, industry trends and reference to market rates and transactions.

Real Estate Investment Properties

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

REIT Status

We are a Maryland corporation that has elected to be treated for federal income tax purposes as a REIT. A REIT is a legal entity that holds interests in real estate and is required by the Code to meet a number of organizational and operational requirements, including a requirement that a REIT must distribute at least 90% of our REIT taxable income (other than our net capital gain) to our stockholders. If we were to fail to qualify as a REIT in any taxable year, we will be subject to federal and state income taxes at the regular corporate rates and may not be able to qualify as a REIT for four years. Based on the net earnings reported for the year ended December 31, 2019 in our Consolidated Statements of Operations, we would have incurred federal and state GAAP income taxes if we had failed to qualify as a REIT.

Summary of Real Estate Portfolio by Geographic Market

The following table summarizes our market information by major geographic markets as of and for the year ended December 31, 2019:


		December 31, 2019					Year Ended December 31, 2019
			Percentage		Total				Monthly		Net
	Number of	Number of	of Total		Carrying		Average		Income per		Operating
	Apartment	Apartment	Carrying		Value (in		Physical		Occupied		Income
Same-Store Communities	Communities	Homes	Value		thousands)		Occupancy		Home (a)		(in thousands)
West Region
Orange County, CA	10	4,434	9.1	%	$	1,136,843	96.3	%	$	2,354	$	93,659
San Francisco, CA	11	2,751	7.0	%		877,780	96.8	%		3,749		91,310
Seattle, WA	15	2,837	7.9	%		995,474	96.7	%		2,536		61,596
Los Angeles, CA	4	1,225	3.6	%		458,190	96.6	%		2,903		30,433
Monterey Peninsula, CA	7	1,565	1.4	%		182,630	96.6	%		1,893		26,938
Other Southern California	2	654	0.9	%		109,360	96.7	%		1,998		11,408
Portland, OR	2	476	0.4	%		50,395	96.6	%		1,605		6,546
Mid-Atlantic Region
Metropolitan D.C.	21	7,799	16.2	%		2,044,663	97.4	%		2,094		133,309
Richmond, VA	4	1,358	1.2	%		151,727	97.4	%		1,392		16,571
Baltimore, MD	3	720	1.2	%		153,951	97.0	%		1,727		9,785
Southeast Region
Orlando, FL	9	2,500	1.8	%		233,098	96.4	%		1,409		28,766
Nashville, TN	8	2,260	1.8	%		220,568	97.5	%		1,333		25,707
Tampa, FL	7	2,287	2.1	%		265,646	96.9	%		1,453		26,017
Other Florida	1	636	0.7	%		87,518	96.1	%		1,652		7,977
Northeast Region
New York, NY	3	1,452	8.2	%		1,034,350	97.9	%		4,550		48,435
Boston, MA	4	1,388	3.7	%		466,247	96.1	%		2,945		35,397
Southwest Region
Dallas, TX	7	2,345	2.3	%		288,923	96.8	%		1,365		23,261
Austin, TX	4	1,272	1.3	%		167,217	97.3	%		1,524		13,328
Total/Average Same-Store Communities	122	37,959	70.8	%		8,924,580	96.9	%	$	2,180		690,443
Non-Mature, Commercial Properties & Other	26	9,051	28.6	%		3,607,744						117,866
Total Real Estate Held for Investment	148	47,010	99.4	%		12,532,324						808,309
Real Estate Under Development (b)	—	—	0.6	%		69,777						(6)
Total Real Estate Owned	148	47,010	100.0	%		12,602,101					$	808,303
Total Accumulated Depreciation						(4,131,353)
Total Real Estate Owned, Net of Accumulated Depreciation					$	8,470,748

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

(b)	As of December 31, 2019, the Company was developing three wholly owned communities with a total of 878 apartment homes, none of which have been completed.

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

Our Same-Store Communities segment represents those communities acquired, developed, and stabilized prior to January 1, 2018 and held as of December 31, 2019. These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the communities are not classified as held for disposition at year end. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

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

Liquidity and Capital Resources

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

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

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

In July 2017, the Company entered into an ATM sales agreement under which the Company may offer and sell up to 20.0 million shares of its common stock, from time to time, to or through its sales agents and may enter into separate forward sales agreements to or through its forward purchasers. Upon entering into the ATM sales agreement, the Company simultaneously terminated the sales agreement for its prior at-the-market equity offering program, which was entered into in April 2017, which replaced the prior at-the-market equity offering program entered into in April 2012. During the year ended December 31, 2019, the Company sold 7.0 million shares of common stock through its ATM program for aggregate gross proceeds of approximately $316.5 million at a weighted average price per share of $45.29. Aggregate net proceeds from such sales, after deducting related expenses, including commissions paid to the sales agents of approximately $4.0 million, were approximately $312.3 million, which were primarily used to fund the Company’s recent acquisitions. As of December 31, 2019, we had 11.7 million shares of common stock available for future issuance under the ATM program.

In July 2019, the Company issued $300.0 million of 3.20% senior unsecured medium-term notes due January 15, 2030. Interest is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020. The notes were priced at 99.66% of the principal amount at issuance. The Company previously entered into forward starting interest rate swaps to hedge against the interest rate risk of this debt. The all-in weighted average interest rate, inclusive of the impact of these interest rate swaps, was 3.42%. The Company used the net proceeds for the repayment of debt, including amounts outstanding under the Company’s commercial paper program and Working Capital Credit Facility, and for other general corporate purposes. The Operating Partnership is the guarantor of this debt.

In August 2019, the Company issued $400.0 million of 3.00% senior unsecured medium-term notes due August 15, 2031. Interest is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2020. The notes were priced at 99.71% of the principal amount at issuance. In combination with the issuance, the Company entered into a treasury lock agreement to hedge against interest rate risk of this debt. The all-in weighted average interest rate, inclusive of the impact of the treasury lock, was 3.01%. The Company used the net proceeds for the repayment of debt, including the repayment of all $300.0 million aggregate principal amount (plus the make whole amount of approximately $5.4 million) of its 3.70% senior unsecured medium-term notes due October 1, 2020, and to fund potential acquisitions or for other general corporate purposes. The Operating Partnership is the guarantor of this debt.

In August 2019, the Company sold 7.5 million shares of its common stock for aggregate gross proceeds of approximately $349.9 million at a price per share of $46.65. Aggregate net proceeds from the sale, after offering-related expenses, were approximately $349.8 million, which were used for planned acquisitions of assets, working capital and general corporate purposes.

In September 2019, the Company entered into a forward sales agreement under its ATM program for 1.3 million shares of common stock at an initial forward price per share of $47.68. The initial forward price per share received by the Company upon settlement was determined on the applicable settlement date based on adjustments made to the initial forward price to reflect the then-current federal funds rate and the amount of dividends paid to holders of UDR common stock over the term of the forward sales agreement.

In December 2019, the Company settled all 1.3 million shares sold under the forward sales agreement at a forward price per share of $47.41, which is inclusive of adjustments made to reflect the then-current federal funds rate, the amount of dividends paid to holders of UDR common stock and commissions paid to sales agents of approximately $0.6 million, for net proceeds of $63.5 million. Aggregate net proceeds from such sales, after deducting related expenses, were $63.2 million. As of December 31, 2019, we had 11.7 million shares of common stock available for future issuance under the ATM program.

In October 2019, the Company issued $100.0 million of 3.20% senior unsecured medium-term notes due 2030 and $300.0 million of 3.10% senior unsecured medium-term notes due 2034. Interest is payable semi-annually in arrears on January 15 and July 15 for the 2030 notes, and May 1 and November 1 for the 2034 notes. The 2030 notes were priced at 103.32% of the principal amount at issuance, and the 2034 notes were priced at 99.56% of the principal amount at issuance. In combination with the issuance, the Company entered into treasury lock agreements to hedge against interest rate risk on all of this debt. The all-in weighted average interest rate, inclusive of the impact of the treasury locks, was 3.24% for the 2030 notes and 3.13% for the 2034 notes. The Company used the net proceeds for the repayment of all $400.0 million aggregate principal amount (plus the make-whole amount of approximately $22.0 million and accrued and unpaid interest) of its 4.63% senior unsecured medium-term notes due January 2022. The 2034 notes were issued as “green” bonds and, as a result, the Company allocated the net proceeds from the sale of the 2034 notes to fund eligible green projects, including previously incurred development costs related to properties that have received at least a LEED Silver certification. The Operating Partnership is the guarantor of each of the 2030 notes and the 2034 notes.

The 2030 notes were a further issuance of, and form a single series with, the $300.0 million aggregate principal amount of the Company’s 3.20% notes due 2030 that were issued on July 2, 2019. As of the completion of the offering, the aggregate principal amount of outstanding 2030 notes was $400.0 million.

Future Capital Needs

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

During 2020, we have approximately $110.6 million of secured debt maturing, inclusive of principal amortization, and $300.0 million of unsecured debt maturing, comprised solely of unsecured commercial paper. During 2019, we prepaid $300.0 million of unsecured debt previously due in October 2020 with proceeds from the senior unsecured medium-term notes issued in August 2019, prepaid $400.0 million of unsecured debt previously due in January 2022 with proceeds from the senior unsecured medium-term notes issued in October 2019, and anticipate repaying the remaining debt due in 2020 with cash flow from our operations, proceeds from debt or equity offerings, proceeds from dispositions of properties, or from borrowings under our credit agreements and our unsecured commercial paper program.

Statements of Cash Flows

The following discussion explains the changes in Net cash provided by/(used in) operating activities, Net cash provided by/(used in) investing activities, and Net cash provided by/(used in) financing activities that are presented in our Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018.

Operating Activities

For the year ended December 31, 2019, our Net cash provided by/(used in) operating activities was $630.7 million compared to $560.7 million for 2018. The increase in cash flow from operating activities was primarily due to improved net operating income, primarily driven by revenue growth at communities, net operating income from communities acquired in 2019, and changes in operating assets and liabilities.

Investing Activities

For the year ended December 31, 2019, Net cash provided by/(used in) investing activities was $(1.7) billion compared to $(113.5) million for 2018. The increase in cash used in investing activities was primarily due to the acquisitions made during the year, a decrease in proceeds from the sales of real estate investments and an increase in the issuance of notes receivable and capital expenditures and other major improvements, partially offset by a decrease in spend for development of real estate assets and investment in unconsolidated joint ventures and an increase in distributions received from unconsolidated joint ventures.

Acquisitions

In January 2019, the Company increased its ownership interest from 49% to 100% in a 386 apartment home operating community located in Anaheim, California, for a cash purchase price of approximately $33.5 million. In connection with the acquisition, the Company repaid approximately $59.8 million of joint venture construction financing. 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. The Company accounted for the consolidation as an asset acquisition resulting in no gain upon consolidation and increased its real estate assets owned by approximately $115.7 million and recorded approximately $2.4 million of in-place lease intangibles.

In January 2019, the Company increased its ownership interest from 49% to 100% in a 155 apartment home operating community located in Seattle, Washington, for a cash purchase price of approximately $20.0 million. In connection with the acquisition, the Company repaid approximately $26.0 million of joint venture construction financing. 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. The Company accounted for the consolidation as an asset acquisition resulting in no gain upon consolidation and increased its real estate assets owned by approximately $58.1 million and recorded approximately $2.4 million of real estate intangibles and approximately $0.6 million of in-place lease intangibles.

In January 2019, the Company acquired a to-be-developed parcel of land located in Washington, D.C. for approximately $27.1 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 apartment home operating community located in Brooklyn, New York for approximately $132.1 million. The Company increased its real estate assets owned by approximately $97.5 million and recorded approximately $33.6 million of real estate intangibles and approximately $1.0 million of in-place lease intangibles.

In February 2019, the Company acquired a 381 apartment home operating community located in St. Petersburg, Florida for approximately $98.3 million**.** The Company increased its real estate assets owned by approximately $96.0 million and recorded approximately $2.3 million of in-place lease intangibles.

In April 2019, the Company acquired a 498 apartment home operating community located in Towson, Maryland for approximately $86.4 million. The Company increased its real estate assets owned by approximately $82.5 million and recorded approximately $3.9 million of in-place lease intangibles.

In May 2019, the Company acquired a 313 apartment home operating community located in King of Prussia, Pennsylvania for approximately $107.3 million. The Company increased its real estate assets owned by approximately $106.4 million and recorded approximately $0.9 million of in-place lease intangibles.

In May 2019, the Company acquired a 240 apartment home operating community located in St. Petersburg, Florida for approximately $49.4 million. The Company increased its real estate assets owned by approximately $48.2 million and recorded approximately $1.2 million of in-place lease intangibles.

In June 2019, the Company acquired a 200 apartment home operating community located in Waltham, Massachusetts for approximately $84.6 million. The Company increased its real estate assets owned by approximately $82.6 million and recorded approximately $2.0 million of in-place lease intangibles.

In August 2019, the Company acquired a 914 apartment home operating community located in Norwood, Massachusetts for approximately $270.2 million. The Company increased its real estate assets owned by approximately $260.1 million and recorded approximately $10.1 million of in-place lease intangibles.

In August 2019, the Company acquired a 185 apartment home operating community located in Englewood, New Jersey for approximately $83.6 million. The Company increased its real estate assets owned by approximately $77.5 million and recorded approximately $4.6 million of real estate intangibles and approximately $1.5 million of in-place lease intangibles.

In August 2019, the Company purchased a 292 apartment home operating community in Washington, D.C., directly from the UDR/KFH joint venture, thereby increasing its ownership interest from 30% to 100%, for a purchase price at 100% of approximately $184.0 million, before $2.8 million of closing costs incurred by UDR at acquisition. The Company accounted for the consolidation as an asset acquisition, resulting in no gain upon consolidation, and increased its real estate assets owned by approximately $156.0 million and recorded approximately $5.9 million of in-place lease intangibles.

In November 2019, the Company acquired the approximately 50% ownership interest not previously owned in 10 UDR/MetLife operating communities, one development community and four land parcels valued at $1.1 billion, or $564.2 million at UDR’s share, and sold its approximately 50% ownership interest in five UDR/MetLife operating communities valued at $645.8 million, or $322.9 million at UDR’s share, to MetLife. The Company paid $109.2 million directly to MetLife to complete the transaction. As a result, the Company consolidated the 10 operating communities, one development community and four land parcels, and they are no longer accounted for as equity method investments in an unconsolidated joint venture (see Note 5, Joint Ventures and Partnerships). The Company accounted for the consolidation as an asset acquisition resulting in no gain upon consolidation and increased its real estate assets owned by approximately $977.8 million and recorded approximately $30.0 million of in-place lease intangibles. In connection with the acquisition, the Company assumed six secured fixed rate mortgage notes payable and one credit facility secured by four communities with a combined outstanding balance of $518.4 million and estimated fair value of $551.8 million. The Company recorded the debt at its fair value in Secured debt, net on the Consolidated Balance Sheets.

The following table is a summary of the 10 communities, one development community and four land parcels acquired from the UDR/MetLife joint venture:


Property	Type	Number of Homes	Location
Strata	Operating Community	163	San Diego, CA
Crescent Falls Church	Operating Community	214	Washington, D.C.
Charles River Landing	Operating Community	350	Boston, MA
Lodge at Ames Pond	Operating Community	364	Boston, MA
Lenox Farms	Operating Community	338	Boston, MA
Towson Promenade	Operating Community	379	Baltimore, MD
Savoye	Operating Community	394	Addison, TX
Savoye2	Operating Community	351	Addison, TX
Fiori on Vitruvian Park ®	Operating Community	391	Addison, TX
Vitruvian West	Operating Community	383	Addison, TX
Vitruvian West Phase 2 (a)	Development Community	366	Addison, TX
Vitruvian Park ®	4 Land Parcels	N/A	Addison, TX

	(a)	The number of apartment homes for the community under development presented in the table above is based on the projected number of total homes upon completion of development. As of December 31, 2019, no apartment homes had been completed.

During the year ended December 31, 2018, the Company did not have any acquisitions of real estate.

Dispositions

In June 2019, the Company sold a parcel of land located in Los Angeles, California for $38.0 million, resulting in a gain of approximately $5.3 million. Prior to the sale, the parcel of land was subject to a ground lease, under which UDR was the lessor, scheduled to expire in 2065. The ground lease included a purchase option for the lessee to acquire the land during specific periods of the ground lease term. During the second quarter, the lessee exercised the purchase option resulting in the sale by the Company and the ground lease being terminated.

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 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.

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

Capital Expenditures

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

For the year ended December 31, 2019, total capital expenditures of $158.0 million or $3,710 per stabilized home, which in aggregate include recurring capital expenditures and major renovations, were spent across our portfolio, excluding development, as compared to $112.6 million or $2,857 per stabilized home for the prior year.

The increase in total capital expenditures was primarily due to:

	●	an increase of $27.4 million in spend for our operations platform, which includes smart home installations in certain of our properties;

	●	an increase of 56.2%, or $12.8 million, in major renovations, which include major structural changes and/or architectural revisions to existing buildings; and

	●	an increase of 11.6%, or $4.1 million, in asset preservation expenditures, such as building interiors, building exteriors, and landscaping and grounds.

The following table outlines capital expenditures and repair and maintenance costs for all of our communities, excluding real estate under development, for the years ended December 31, 2019 and 2018 (dollars in thousands):


							Per Home
	Year Ended December 31,						Year Ended December 31,
	2019		2018		% Change		2019		2018		% Change
Turnover capital expenditures	$	11,192	$	11,009	1.7	%	$	263	$	279	(5.7)	%
Asset preservation expenditures		40,054		35,906	11.6	%		941		911	3.3	%
Total recurring capital expenditures		51,246		46,915	9.2	%		1,204		1,190	1.2	%
NOI enhancing improvements (a)		43,689		42,905	1.8	%		1,026		1,089	(5.8)	%
Major renovations (b)		35,569		22,774	56.2	%		835		578	44.5	%
Operations platform		27,445		—	—			645		—	—
Total capital expenditures	$	157,949	$	112,594	40.3	%	$	3,710	$	2,857	29.8	%
Repair and maintenance expense	$	43,525	$	35,273	23.4	%	$	1,022	$	895	14.2	%
Average home count (c)		42,579		39,406	8.1	%

	(a)	NOI enhancing improvements are expenditures that result in increased income generation or decreased expense growth.

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

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

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

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

Consolidated Real Estate Under Development and Redevelopment

At December 31, 2019, our development pipeline consisted of three wholly-owned communities located in Denver, Colorado, Dublin, California, and Addison, Texas, totaling 878 homes, none of which have been completed, with a budget of $278.5 million, in which we have a carrying value of $69.8 million. The communities are estimated to be completed between the first quarter of 2021 and the second quarter of 2022. During 2019, we incurred $26.4 million for development costs, a decrease of $123.8 million as compared to costs incurred in 2018 of $150.2 million.

At December 31, 2019, the Company was redeveloping 653 apartment homes, 250 of which have been completed, at two wholly-owned communities, located in Boston, Massachusetts and New York, New York, both of which are expected to be completed in the first quarter of 2021. The redevelopments include the renovation of building exteriors, corridors, and common area amenities as well as individual apartment homes.

During the year ended December 31, 2019, we incurred $35.6 million in major renovations, which include major structural changes and/or architectural revisions to existing buildings, an increase of $12.8 million as compared to $22.8 million incurred in 2018.

Unconsolidated Joint Ventures and Partnerships

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

The Company’s Investment in and advances to unconsolidated joint ventures and partnerships, net, are accounted for under the equity method of accounting. For the year ended December 31, 2019:

	●	we made investments totaling $93.1 million in our unconsolidated joint ventures, including contributions of $67.0 million to four unconsolidated investments under our Developer Capital Program, which earn preferred returns ranging from 9.0% to 12.5%;

	●	our proportionate share of the net income/(loss) of the joint ventures and partnerships was $137.9 million, including a $114.9 million gain from the disposition of five operating communities from our UDR/MetLife II joint venture, a $10.6 million gain from the sale of two operating communities from our UDR/KFH joint venture, and a $4.6 million unrealized gain recorded on an unconsolidated technology investment; and

	●	we received distributions of $77.6 million, of which $5.2 million were operating cash flows and $72.4 million were investing cash flows.

We evaluate our investments in unconsolidated joint ventures and partnerships when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. The Company did not recognize any other-than-temporary impairments in the value of its investments in unconsolidated joint ventures or partnerships during the years ended December 31, 2019 and 2018.

Notes Receivable, net

Notes receivable relate to financing arrangements that are typically secured by real estate or real estate related

projects.

The following significant activities occurred during the year ended December 31, 2019:

	●	in January 2019, a $5.6 million secured note was repaid in full along with the contractually accrued interest of $0.2 million and an additional $8.5 million of promoted interest in conjunction with the unaffiliated third party being acquired; and

	●	in November 2019, the Company entered into a secured note with an unaffiliated third party with an aggregate commitment of $115.0 million, all of which was funded during the year ended December 31, 2019. Interest payments are due when the loan matures. The note is secured by a first priority deed of trust on a 259 home operating community in Bellevue, Washington, which is expected to be completed in 2020. When the note was funded, the Company also entered into a purchase option agreement and paid a deposit of $10.0 million, which will provide the Company the option to acquire the community at a fixed price of $170.0 million.

Financing Activities

For the years ended December 31, 2019 and 2018, Net cash provided by/(used in) financing activities was $880.4 million and $(260.1) million, respectively.

The following significant financing activities occurred during the year ended December 31, 2019:

	●	issuance of $300 million of 3.20% senior unsecured medium-term notes due 2030 (3.42% effective rate after the effect of a cash flow hedge), for net proceeds of approximately $296.6 million;

	●	issuance of $400 million of 3.00% senior unsecured medium-term notes due 2031 (3.01% effective rate after the effect of a cash flow hedge), for net proceeds of approximately $395.7 million, $300.0 million of which was used to repay 3.70% medium-term notes due in October 2020;

	●	issuance of $100 million of 3.20% senior unsecured medium-term notes due 2030 (3.24% effective rate after the effect of a cash flow hedge), and issuance of $300 million of 3.10% senior unsecured medium-term notes due 2034 (3.13% effective rate after the effect of a cash flow hedge), for net proceeds of approximately $398.6 million, which was used to repay $400.0 million of 4.63% medium-term notes due in January 2022;

	●	net proceeds of $198.9 million from the Company’s unsecured commercial paper program;

	●	net proceeds of $16.6 million from the Company’s unsecured revolving credit facilities;

	●	repayments of $162.3 million of secured debt, which was offset by net proceeds of $162.5 million from the issuance of secured debt;

	●	sale of 7.5 million shares of common stock in an underwritten public offering for net proceeds of approximately $349.8 million at a price per share of $46.65;

	●	sale of 7.0 million shares of common stock under our ATM program for proceeds of $312.3 million at an weighted average price per share of $45.29;

	●	sale of 1.3 million shares of common stock under our forward sales agreement for net proceeds of $63.5 million at a price per share of $47.41; and

	●	distributions of $383.1 million to our common stockholders.

The following significant financing activities occurred during the year ended December 31, 2018:

	●	issuance of $300.0 million of 4.40% senior unsecured medium-term notes due 2029 (4.27% effective rate after the effect of a cash flow hedge), for net proceeds of approximately $300.0 million;

	●	net repayment of $198.9 million on our unsecured commercial paper program;

	●	net repayment of $21.8 million on the Company’s unsecured revolving credit facilities;

	●	repayment of $279.2 million of secured debt;

	●	issuance of $80.0 million of secured debt;

	●	sale of 7.2 million shares of common stock for aggregate net proceeds of $299.8 million at a price per share of $41.98;

	●	repurchase of common shares for approximately $20.0 million; and

	●	distributions of $342.2 million to our common stockholders.

Credit Facilities and Commercial Paper Program

During the year ended December 31, 2019, the Company prepaid the $90.0 million outstanding balance under its secured credit facility with Fannie Mae from proceeds received from the refinancing of the debt. This transaction was accounted for as a debt modification.

In November 2019, the Company assumed a secured credit facility with New York Life with an outstanding balance of $205.0 million and a fair value of $219.3 million in connection with the acquisition of the approximately 50% ownership not previously owned in four operating communities from the UDR/MetLife joint venture. The credit facility is a pooled facility and secured by those four properties. The credit facility is due in January 2023 and has an interest rate of 4.90% (see Note 3, Real Estate Owned).

The Company has a $1.1 billion unsecured revolving credit facility and a $350.0 million unsecured term loan. The Credit Agreement for these facilities 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.

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.

As of December 31, 2019, we had no outstanding borrowings under the Revolving Credit Facility, leaving $1.1 billion of unused capacity (excluding $2.9 million of letters of credit at December 31, 2019), and $350.0 million of outstanding borrowings under the Term Loan.

We have a working capital credit facility, which provides for a $75 million unsecured revolving credit facility (the “Working Capital Credit Facility”) with a scheduled maturity date of January 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.

As of December 31, 2019, we had $16.6 million of outstanding borrowings under the Working Capital Credit Facility, leaving $58.4 million of unused capacity.

The bank revolving credit facilities and the term loan are subject to customary financial covenants and limitations, all of which we were in compliance with at December 31, 2019.

We have an unsecured commercial paper program. Under the terms of the program, we may issue unsecured commercial paper up to a maximum aggregate amount outstanding of $500 million. The notes are sold under customary terms in the United States commercial paper market and rank pari passu with all of our other unsecured indebtedness. The notes are fully and unconditionally guaranteed by the Operating Partnership. As of December 31, 2019, we had issued $300.0 million of commercial paper, for one month terms, at a weighted average annualized rate of 1.99%, leaving $200.0 million of unused capacity.

Interest Rate Risk

We are exposed to interest rate risk associated with variable rate notes payable and maturing debt that has to be refinanced. We do not hold financial instruments for trading or other speculative purposes, but rather issue these financial instruments to finance our portfolio of real estate assets. Interest rate sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. Our earnings are affected as changes in short-term interest rates impact our cost of variable rate debt and maturing fixed rate debt. We had $378.6 million in variable rate debt that is not subject to interest rate swap contracts as of December 31, 2019. If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by $3.5 million based on the average balance outstanding during the year.

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

The Company also utilizes derivative financial instruments to manage interest rate risk and generally designates these financial instruments as cash flow hedges. See Note 14, Derivatives and Hedging Activities, in the Notes to the UDR Consolidated Financial Statements included in this Report for additional discussion of derivate instruments.

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


	Year Ended December 31,
	2019		2018		2017
Net cash provided by/(used in) operating activities	$	630,704	$	560,676	$	518,915
Net cash provided by/(used in) investing activities		(1,686,687)		(113,548)		(407,406)
Net cash provided by/(used in) financing activities		880,383		(260,067)		(111,785)

Results of Operations

The following discussion explains the changes in results of operations that are presented in our Consolidated Statements of Operations for the years ended December 31, 2019 and 2018.

Net Income/(Loss) Attributable to Common Stockholders

Net income/(loss) attributable to common stockholders was $180.9 million ($0.63 per diluted share) for the year ended December 31, 2019, as compared to $199.2 million ($0.74 per diluted share) for the comparable period in the prior year. The decrease resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

	●	a gain of $5.3 million on the sale of a parcel of land in Los Angeles, California during the year ended December 31, 2019, as compared to gains of $136.2 million on the sale of two operating communities with a total of 868 apartment homes in Huntington Beach, California and Fairfax, Virginia, during the year ended December 31, 2018;

	●	an increase in depreciation expense of $72.3 million primarily due to communities acquired in 2019 and homes delivered from our development communities in 2018, partially offset by a decrease from sold communities and fully depreciated assets; and

	●	an increase in interest expense of $36.7 million primarily due to the early pay off of debt during 2019, resulting in prepayment costs, higher average debt balances, and lower capitalized interest.

This was partially offset by:

	●	an increase in total property NOI of $76.2 million primarily due to higher revenue per occupied home and NOI from operating communities, including those acquired in 2019 and recently developed communities, partially offset by a decrease from sold communities in 2018;

	●	an increase in interest income and other income/(expense), net of $8.7 million, primarily attributable to an $8.5 million promoted interest on the prepayment of a note to a multifamily technology company; and

	●	an increase in income/(loss) from unconsolidated entities of $143.0 million, primarily attributable to a $114.9 million gain from the disposition of five operating communities from our UDR/MetLife II joint venture, a $10.6 million gain recognized on the sale of two operating properties from our UDR/KFH joint venture, a $4.6 million unrealized gain recorded on an unconsolidated technology investment, and an increase in Developer Capital Program investment.

Apartment Community Operations

Our net income results are primarily from NOI generated from the operation of our apartment communities. The Company defines NOI, which is a non-GAAP financial measure, as rental income less direct property rental expenses. Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI is property management expense which is calculated as 2.875% of property revenue to cover the regional supervision and accounting costs related to consolidated property operations and land rent.

Management considers NOI a useful metric for investors as it is a more meaningful representation of a community’s continuing operating performance than net income as it is prior to corporate-level expense allocations, general and administrative costs, capital structure and depreciation and amortization.

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

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


	Year Ended						Year Ended
	December 31, (a)						December 31, (b)
	2019		2018		% Change		2018		2017		% Change
Same-Store Communities:
Same-Store rental income	$	962,269	$	928,849	3.6	%	$	939,726	$	908,361	3.5	%
Same-Store operating expense (c)		(271,826)		(265,087)	2.5	%		(267,332)		(257,919)	3.6	%
Same-Store NOI		690,443		663,762	4.0	%		672,394		650,442	3.4	%

Non-Mature Communities/Other NOI:
Stabilized, non-mature communities NOI (d)		79,007		11,968	560.2	%		18,427		13,767	33.8	%
Acquired communities NOI		5,830		—	—	%		—		—	—	%
Redevelopment communities NOI		18,571		21,875	(15.1)	%		—		—	—	%
Development communities NOI		(8)		4,374	(100.2)	%		11,221		(295)	NM	*
Non-residential/other NOI		13,174		18,609	(29.2)	%		20,530		16,640	23.4	%
Sold and held for disposition communities NOI		1,286		11,527	(88.8)	%		9,543		17,949	(46.8)	%
Total Non-Mature Communities/Other NOI		117,860		68,353	72.4	%		59,721		48,061	24.3	%
Total property NOI	$	808,303	$	732,115	10.4	%	$	732,115	$	698,503	4.8	%

*	Not meaningful

(a)	Same-Store consists of 37,959 apartment homes.

(b)	Same-Store consists of 37,673 apartment homes.

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

(d)	Represents non-mature communities that have achieved 90% occupancy for three consecutive months but do not meet the criteria to be included in Same-Store Communities.

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


	Year Ended December 31,
	2019		2018		2017
Net income/(loss) attributable to UDR, Inc.	$	184,965	$	203,106	$	121,558
Joint venture management and other fees		(14,055)		(11,754)		(11,482)
Property management		32,721		28,465		27,068
Other operating expenses		13,932		12,100		9,060
Real estate depreciation and amortization		501,257		429,006		430,054
General and administrative		51,533		46,983		48,566
Casualty-related charges/(recoveries), net		474		2,121		4,335
Other depreciation and amortization		6,666		6,673		6,408
(Gain)/loss on sale of real estate owned		(5,282)		(136,197)		(43,404)
(Income)/loss from unconsolidated entities		(137,873)		5,055		(31,257)
Interest expense		170,917		134,168		128,711
Interest income and other (income)/expense, net		(15,404)		(6,735)		(1,971)
Tax provision/(benefit), net		3,838		688		(240)
Net income/(loss) attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		14,426		18,215		10,933
Net income/(loss) attributable to noncontrolling interests		188		221		164
Total property NOI	$	808,303	$	732,115	$	698,503

Same-Store Communities

Our Same-Store Community properties (those acquired, developed, and stabilized prior to January 1, 2018 and held on December 31, 2019) consisted of 37,959 apartment homes and provided 85.4% of our total NOI for the year ended December 31, 2019.

NOI for our Same-Store Community properties increased 4.0%, or $26.7 million, for the year ended December 31, 2019 compared to the same period in 2018. The increase in property NOI was attributable to a 3.6%, or $33.4 million, increase in property rental income, which was partially offset by a 2.5%, or $6.7 million, increase in operating expenses. The increase in property income was primarily driven by a 2.8%, or $24.3 million, increase in rental rates and a 10.8%, or $10.1 million, increase in reimbursement, ancillary and fee income. Physical occupancy stayed the same at 96.9% and total monthly income per occupied home increased 3.5% to $2,180.

The increase in operating expenses was primarily driven by a 15.4%, or $5.1 million, increase in repair and maintenance expense due to the increased use of third party vendors, partially offset by a 8.3%, or $4.9 million, decrease in personnel expense as a result of fewer employees, and a 4.5%, or $4.8 million, increase in real estate taxes, which was primarily due to higher assessed valuations.

The operating margin (property net operating income divided by property rental income) was 71.8% and 71.5% for the years ended December 31, 2019 and 2018, respectively.

Non-Mature Communities/Other

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

The remaining 14.6%, or $117.9 million, of our total NOI during the year ended December 31, 2019 was generated from our Non-Mature Communities/Other. NOI from Non-Mature Communities/Other increased by 72.4%, or $49.5 million, for the year ended December 31, 2019 as compared to the same period in 2018. The increase was primarily attributable to a $67.0 million increase in NOI from stabilized, non-mature communities, primarily due to communities acquired in 2019 and recently developed communities, partially offset by a $10.2 million decrease in NOI from sold and held for disposition communities in 2018 and a $5.4 million decrease in non-residential/other NOI.

Real estate depreciation and amortization

For the years ended December 31, 2019 and 2018, the Company recognized real estate depreciation and amortization of $501.3 million and $429.0 million, respectively. The increase in 2019 as compared to 2018 was primarily attributable to communities acquired in 2019 and homes delivered from our development communities in 2018, partially offset by a decrease from sold communities and fully depreciated assets.

Gain/(Loss) on Sale of Real Estate Owned

During the year ended December 31, 2019, the Company recognized a gain of $5.3 million on the sale of a parcel of land in Los Angeles, California.

During the year ended December 31, 2018, the Company recognized gains of $136.2 million on the sale of two operating communities in Huntington Beach, California, and Fairfax, Virginia.

Income/(Loss) from Unconsolidated Entities

For the years ended December 31, 2019 and 2018, we recognized income/(loss) from unconsolidated entities of $137.9 million and $(5.1) million, respectively. The increase of $143.0 million was primarily due to:

	●	gains of $114.9 million from the disposition of five operating communities from our UDR/MetLife II joint venture, a $10.6 million gain from the sale of two operating communities in our UDR/KFH joint venture, and a $4.6 million unrealized gain recorded on an unconsolidated technology investment during the year ended December 31, 2019.

As compared to:

	●	no acquisitions or dispositions from the Company’s unconsolidated entities during the year ended December 31, 2018.

Interest expense

For the years ended December 31, 2019 and 2018, the Company recognized interest expense of $170.9 million and $134.2 million, respectively. The increase in 2019 as compared to 2018 was primarily attributable to higher average debt balances, lower capitalized interest, and the early pay off of debt during 2019, resulting in prepayment costs of $27.4 million.

Interest income and other income/(expense), net

For the years ended December 31, 2019 and 2018, the Company recognized interest income and other income/(expense), net of $15.4 million and $6.7 million, respectively. The increase in 2019 as compared to 2018 was primarily attributable to an $8.5 million promoted interest on the prepayment of a note to a multifamily technology company.

Inflation

We believe that the direct effects of inflation on our operations have been immaterial. While the impact of inflation primarily impacts our results of operations as a result of wage pressures and increases in utilities and material costs, the majority of our apartment leases have initial terms of 12 months or less, which generally enables us to compensate for any inflationary effects by increasing rental rates on our apartment homes. Although an extreme escalation in costs could have a negative impact on our residents and their ability to absorb rent increases, we do not believe this has had a material impact on our results for the year ended December 31, 2019.

Off-Balance Sheet Arrangements

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

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2019 (dollars in thousands):


	Payments Due by Period
Contractual Obligations	2020		2021-2022		2023-2024		Thereafter		Total
Long-term debt obligations	$	410,645	$	24,325	$	1,071,797	$	3,191,919	$	4,698,686
Interest on debt obligations (a)		152,654		296,955		254,358		436,894		1,140,861
Letters of credit		2,894		—		—		—		2,894
Operating lease obligations:
Ground leases (b)		12,584		25,168		25,168		466,436		529,356
	$	578,777	$	346,448	$	1,351,323	$	4,095,249	$	6,371,797

(a)	Interest payments on variable rate debt instruments are based on each debt instrument’s respective year-end interest rate at December 31, 2019.

(b)	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.

During 2019, we incurred gross interest costs of $176.0 million, of which $5.1 million was capitalized.

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

Funds from Operations

Funds from Operations as Adjusted

FFO as Adjusted (“FFOA”) attributable to common stockholders and unitholders is defined as FFO excluding the impact of non-comparable items including, but not limited to, acquisition related costs, prepayment costs/benefits associated with early debt retirement, impairment write downs or gains and losses on sales of real estate or other assets incidental to the main business of the Company and income taxes directly associated with those gains and losses, casualty-related expenses and recoveries, severance costs and legal and other costs.

Management believes that FFOA is useful supplemental information regarding our operating performance as it provides a consistent comparison of our operating performance across time periods and allows investors to more easily

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

Adjusted Funds from Operations

Adjusted FFO (“AFFO”) attributable to common stockholders and unitholders is defined as FFOA less recurring capital expenditures on consolidated communities that are necessary to help preserve the value of and maintain functionality at our communities. Therefore, management considers AFFO a useful supplemental performance metric for investors as it is more indicative of the Company’s operational performance than FFO or FFOA.

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

The following table outlines our reconciliation of Net income/(loss) attributable to common stockholders to FFO, FFOA, and AFFO for the years ended December 31, 2019, 2018, and 2017 (dollars in thousands):


	Year Ended December 31,
	2019		2018		2017
Net income/(loss) attributable to common stockholders	$	180,861	$	199,238	$	117,850
Real estate depreciation and amortization		501,257		429,006		430,054
Noncontrolling interests		14,614		18,436		11,097
Real estate depreciation and amortization on unconsolidated joint ventures		57,954		61,871		57,102
Cumulative effect of change in accounting principle		—		(2,100)		—
Net gain on the sale of unconsolidated depreciable property		(125,407)		—		(35,363)
Net gain on the sale of depreciable real estate owned		—		(136,197)		(41,824)
FFO attributable to common stockholders and unitholders, basic	$	629,279	$	570,254	$	538,916
Distribution to preferred stockholders — Series E (Convertible)		4,104		3,868		3,708
FFO attributable to common stockholders and unitholders, diluted	$	633,383	$	574,122	$	542,624
Income/(loss) per weighted average common share, diluted	$	0.63	$	0.74	$	0.44
FFO per weighted average common share and unit, basic	$	2.04	$	1.95	$	1.85
FFO per weighted average common share and unit, diluted	$	2.03	$	1.93	$	1.83
Weighted average number of common shares and OP/DownREIT Units outstanding — basic		308,020		292,727		291,845
Weighted average number of common shares, OP/DownREIT Units, and common stock equivalents outstanding — diluted		311,799		297,042		296,672

Impact of adjustments to FFO:
Costs/(benefit) associated with debt extinguishment and other	$	29,594	$	3,476	$	9,212
Promoted interest on settlement of note receivable, net of tax		(6,482)		—		—
Acquisition-related costs/(fees)		—		—		371
Legal and other costs		3,660		1,622		—
Net gain on the sale of non-depreciable real estate owned		(5,282)		—		(1,580)
Unrealized gain on unconsolidated investments, net of tax		(3,300)		—		—
Joint venture development success fee		(3,750)		—		—
Severance costs and other restructuring expense		390		114		624
Casualty-related charges/(recoveries), net		636		2,364		4,504
Casualty-related charges/(recoveries) on unconsolidated joint ventures, net		(374)		—		(881)
	$	15,092	$	7,576	$	12,250
FFOA attributable to common stockholders and unitholders, diluted	$	648,475	$	581,698	$	554,874

FFOA per weighted average common share and unit, diluted	$	2.08	$	1.96	$	1.87

Recurring capital expenditures		(51,246)		(46,915)		(46,034)
AFFO attributable to common stockholders and unitholders, diluted	$	597,229	$	534,783	$	508,840

AFFO per weighted average common share and unit, diluted	$	1.92	$	1.80	$	1.72

The following table is our reconciliation of FFO share information to weighted average common shares outstanding, basic and diluted, reflected on the UDR Consolidated Statements of Operations for the years ended December 31, 2019, 2018, and 2017 (shares in thousands):


	Year Ended December 31,
	2019	2018	2017
Weighted average number of common shares and OP/DownREIT Units outstanding — basic	308,020	292,727	291,845
Weighted average number of OP/DownREIT Units outstanding	(22,773)	(24,548)	(24,821)
Weighted average number of common shares outstanding — basic per the Consolidated Statements of Operations	285,247	268,179	267,024

Weighted average number of common shares, OP/DownREIT Units, and common stock equivalents outstanding — diluted	311,799	297,042	296,672
Weighted average number of OP/DownREIT Units outstanding	(22,773)	(24,548)	(24,821)
Weighted average number of Series E Cumulative Convertible Preferred shares outstanding	(3,011)	(3,011)	(3,021)
Weighted average number of common shares outstanding — diluted per the Consolidated Statements of Operations	286,015	269,483	268,830

United Dominion Realty, L.P.:

Business Overview

United Dominion Realty, L.P. (the “Operating Partnership” or “UDR, L.P.”) is a Delaware limited partnership formed in February 2004 and organized pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act. The Operating Partnership is the successor-in-interest to United Dominion Realty, L.P., a limited partnership formed under the laws of Virginia, which commenced operations on November 4, 1995. Our sole general partner is UDR, Inc., a Maryland corporation (“UDR” or the “General Partner”), which conducts a substantial amount of its business and holds a substantial amount of its assets through the Operating Partnership. At December 31, 2019, the Operating Partnership’s real estate portfolio included 52 communities located in nine states and the District of Columbia with a total of 16,434 apartment homes.

As of December 31, 2019, UDR owned 0.1 million units of our general partnership interests and 176.1 million units of our limited partnership interests (the “OP Units”), or approximately 95.7% of our outstanding OP Units. By virtue of its ownership of our OP Units and being our sole general partner, UDR has the ability to control all of the day-to-day operations of the Operating Partnership. Unless otherwise indicated or unless the context requires otherwise, all references in this section of this Report to the Operating Partnership or “we,” “us” or “our” refer to UDR, L.P. together with its consolidated subsidiaries, and all references in this section to “UDR” or the “General Partner” refer solely to UDR, Inc.

UDR is a self-administered real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages apartment communities. The General Partner was formed in 1972 as a Virginia corporation and changed its state of incorporation from Virginia to Maryland in June 2003. At December 31, 2019, the General Partner’s consolidated real estate portfolio included 148 communities located in 13 states and the District of Columbia with a total of 47,010 apartment homes. In addition, the General Partner had an ownership interest in 5,268 completed or to-be-completed apartment homes through unconsolidated joint ventures or partnerships, including 2,138 apartment homes owned by entities in which we hold preferred equity investments.

Critical Accounting Policies and Estimates

in Note 2, Significant Accounting Policies, to the Notes to the Operating Partnership’s Consolidated Financial Statements included in this Report.

Cost Capitalization

In addition to construction costs, we capitalize costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. As each home in a capital project is completed and becomes available for lease-up, the Operating Partnership ceases capitalization on the related portion. The costs capitalized are reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation. Amounts capitalized during the years ended December 31, 2019, 2018, and 2017 were $1.0 million, less than $0.1 million, and $0.5 million, respectively.

Investment in Unconsolidated Entities

Impairment of Long-Lived Assets

Real Estate Investment Properties

acquisition and subsequently leased at market rental rates. As such, the determination of fair value considers the present value of all cash flows expected to be generated from the property including an initial lease-up period. We determine the fair value of in-place leases by assessing the net effective rent and remaining term of the lease relative to market terms for similar leases at acquisition. In addition, we consider the cost of acquiring similar leases, the foregone rents associated with the lease-up period, and the carrying costs associated with the lease-up period. The fair value of in-place leases is recorded and amortized as amortization expense over the remaining average contractual lease period.

Summary of Real Estate Portfolio by Geographic Market

The following table summarizes our market information by major geographic markets as of and for the year ended December 31, 2019:


		December 31, 2019					Year Ended December 31, 2019
			Percentage		Total				Monthly		Net
	Number of	Number of	of Total		Carrying		Average		Income per		Operating
	Apartment	Apartment	Carrying		Value (in		Physical		Occupied		Income
Same-Store Communities	Communities	Homes	Value		thousands)		Occupancy		Home (a)		(in thousands)
West Region
Orange County, CA	5	3,119	19.3	%	$	746,563	96.6	%	$	2,294	$	64,202
San Francisco, CA	9	2,185	15.8	%		611,297	96.7	%		3,380		66,392
Seattle, WA	5	932	5.9	%		228,999	96.4	%		2,145		16,450
Los Angeles, CA	2	344	3.0	%		116,446	96.5	%		2,830		8,165
Monterey Peninsula, CA	7	1,565	4.7	%		182,630	96.6	%		1,894		26,938
Other Southern California	1	414	2.0	%		75,165	96.7	%		2,112		7,609
Portland, OR	2	476	1.3	%		50,395	96.6	%		1,605		6,546
Mid-Atlantic Region
Metropolitan D.C.	6	2,068	14.5	%		563,044	96.9	%		2,153		35,765
Baltimore, MD	2	540	2.7	%		106,373	96.7	%		1,551		6,648
Southeast Region
Nashville, TN	6	1,612	4.0	%		155,209	97.5	%		1,312		18,009
Tampa, FL	2	942	2.8	%		110,064	97.4	%		1,531		11,354
Other Florida	1	636	2.3	%		87,518	96.1	%		1,652		7,977
Northeast Region
New York, NY	1	503	8.6	%		333,946	97.8	%		3,976		17,419
Boston, MA	1	387	1.9	%		74,757	95.3	%		2,123		6,684
Total/Average Same-Store Communities	50	15,723	88.8	%		3,442,406	96.8	%	$	2,215	$	300,158
Non-Mature, Commercial Properties & Other	2	711	11.2	%		432,754						22,848
Total Real Estate Owned	52	16,434	100.0	%		3,875,160					$	323,006
Total Accumulated Depreciation						(1,796,568)
Total Real Estate Owned, Net of Accumulated Depreciation					$	2,078,592

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

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

Our Same-Store Communities segment represents those communities acquired, developed, and stabilized prior to January 1, 2018 and held as of December 31, 2019. These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the communities are not held for disposition at year end. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

Liquidity and Capital Resources

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

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

Future Capital Needs

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

As of December 31, 2019, the Operating Partnership did not have any debt maturing in 2020.

Statements of Cash Flows

Operating Activities

For the year ended December 31, 2019, Net cash provided by/(used in) operating activities was $255.1 million compared to $255.7 million for 2018. The decrease in cash flow from operating activities was primarily due to an increase in interest expense and changes in operating assets and liabilities, partially offset by an increase in net operating income, primarily driven by revenue growth at communities.

Investing Activities

For the year ended December 31, 2019, Net cash provided by/(used in) investing activities was $(43.9) million compared to $71.7 million for 2018. The decrease in cash provided by investing activities was primarily due to proceeds received from the sale of an operating community and a commercial office building in 2018 and an increase in capital expenditures and other major improvements during the year ended December 31, 2019, compared to the same period in 2018.

Acquisitions

During the years ended December 31, 2019 and 2018, the Operating Partnership did not have any acquisitions of real estate.

Dispositions

During the year ended December 31, 2019, the Operating Partnership did not have any dispositions of real estate.

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.

Financing Activities

For the year ended December 31, 2019, Net cash provided by/(used in) financing activities was $(210.9) million compared to $(326.5) million for 2018. The decrease in cash used in financing activities was primarily due to an increase in proceeds from the issuance of secured debt, a decrease in payments on secured debt and a decrease in advances to the General Partner, partially offset by the repayment of notes payable to the General Partner.

Guarantor on Unsecured Debt

The Operating Partnership is the 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, a $350 million term loan due September 2023, $300 million of medium-term notes due July 2024, $300 million of medium-term notes due October 2025, $300 million of medium-term notes due September 2026, $300 million of medium-term notes due July 2027, $300 million of medium-term notes due January 2028, $300 million of medium-term notes due January 2029, $400 million of medium-term notes due January 2030, $400 million of medium-term notes due August 2031, and $300 million of medium-term notes due November 2034. As of December 31, 2019 and 2018, the General Partner did not have an outstanding balance under the unsecured revolving credit facility and had $300.0 million and $101.1 million, respectively, outstanding under its unsecured commercial paper program.

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

Interest Rate Risk

We are exposed to interest rate risk associated with variable rate notes payable and maturing debt that has to be refinanced. We do not hold financial instruments for trading or other speculative purposes, but rather issue these financial instruments to finance our portfolio of real estate assets. Interest rate sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. Our earnings are affected as changes in short-term interest rates impact our cost of variable rate debt and maturing fixed rate debt. We had $27.0 million in variable rate debt that is not subject to interest rate swap contracts as of December 31, 2019. If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by $0.3 million based on the average balance at December 31, 2019.

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

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

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


	Year Ended December 31,
	2019		2018		2017
Net cash provided by/(used in) operating activities	$	255,093	$	255,668	$	235,257
Net cash provided by/(used in) investing activities		(43,906)		71,683		(105,989)
Net cash provided by/(used in) financing activities		(210,853)		(326,535)		(128,846)

Results of Operations

The following discussion explains the changes in results of operations that are presented in our Consolidated Statements of Operations for the years ended December 31, 2019 and 2018.

Net Income/(Loss) Attributable to OP Unitholders

Net income/(loss) attributable to OP unitholders was $102.2 million ($0.56 per diluted OP Unit) for the year ended December 31, 2019 as compared to net income of $229.8 million ($1.25 per diluted OP Unit) for the comparable period in the prior year. The decrease in net income attributable to OP unitholders resulted primarily from the following items, which are discussed in further detail elsewhere within this Report:

	●	no gains on the sale of real estate during the year ended December 31, 2019, as compared to gains of $75.5 million on the sale of an operating community in Orange County, California with a total of 264 apartment homes and a commercial office building in Fairfax, Virginia in 2018;

	●	losses from unconsolidated entities of $8.3 million for the year ended December 31, 2019 as compared to income of $43.5 million for the year ended December 31, 2018, primarily due to the sale of an operating community held in the DownREIT Partnership in 2018; and

	●	an increase in interest expense on notes payable to the General Partner of $13.9 million primarily due to the conversion in 2018 of the Advances (to)/from the General Partner capital balance into an unsecured revolving note payable with the General Partner.

This was partially offset by:

	●	an increase in total property NOI of $5.6 million primarily due to higher revenue per occupied home and NOI from operating communities, partially offset by a decrease from communities sold in 2018.

Apartment Community Operations

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

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

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


	Year Ended						Year Ended
	December 31, (a)				%		December 31, (b)				%
	2019		2018		Change		2018		2017		Change
Same-Store Communities:
Same-Store rental income	$	404,442	$	390,647	3.5	%	$	413,081	$	398,144	3.8	%
Same-Store operating expense (c)		(104,284)		(100,815)	3.4	%		(108,371)		(105,917)	2.3	%
Same-Store NOI		300,158		289,832	3.6	%		304,710		292,227	4.3	%

Non-Mature Communities/Other NOI:
Stabilized, non-mature communities NOI (d)		5,621		5,125	9.7	%		5,125		1,180	334.3	%
Redevelopment communities NOI		12,773		14,878	(14.1)	%		—		—	—	%
Non-residential/other NOI		4,454		6,634	(32.9)	%		6,634		4,665	42.2	%
Sold and held for disposition communities NOI		—		911	(100.0)	%		911		8,769	(89.6)	%
Total Non-Mature Communities/Other NOI		22,848		27,548	(17.1)	%		12,670		14,614	(13.3)	%
Total property NOI	$	323,006	$	317,380	1.8	%	$	317,380	$	306,841	3.4	%

(a)	Same-Store consists of 15,723 apartment homes.

(b)	Same-Store consists of 15,941 apartment homes.

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

(d)	Represents non-mature communities that have achieved 90% occupancy for three consecutive months but do not meet the criteria to be included in Same-Store Communities.

The following table is our reconciliation of Net income/(loss) attributable to OP unitholders to total property NOI for the years ended December 31, 2019, 2018 and 2017 (dollars in thousands):


	Year Ended December 31,
	2019		2018		2017
Net income/(loss) attributable to OP unitholders	$	102,163	$	229,763	$	106,307
Property management		12,701		11,878		11,533
Other operating expenses		9,488		8,864		6,833
Real estate depreciation and amortization		139,975		143,481		152,473
General and administrative		18,014		16,889		17,875
Casualty-related charges/(recoveries), net		853		951		1,922
(Gain)/loss on sale of real estate owned		—		(75,507)		(41,272)
(Income)/loss from unconsolidated entities		8,313		(43,496)		19,256
Interest expense		29,667		22,835		30,366
Net income/(loss) attributable to noncontrolling interests		1,832		1,722		1,548
Total property NOI	$	323,006	$	317,380	$	306,841

Same-Store Communities

Our Same-Store Community properties (those acquired, developed, and stabilized prior to January 1, 2018 and held as of December 31, 2019) consisted of 15,723 apartment homes and provided 92.9% of our total NOI for the year ended December 31, 2019.

NOI for our Same-Store Community properties increased 3.6%, or $10.3 million, for the year ended December 31, 2019 compared to 2018. The increase in property NOI was primarily attributable to a 3.5%, or $13.8 million, increase in property rental income, which was partially offset by a 3.4%, or $3.5 million, increase in operating expenses. The increase in property income was primarily driven by a 2.8%, or $10.2 million, increase in rental rates and a 10.9%, or $4.5 million, increase in reimbursement, ancillary and fee income. Physical occupancy increased 0.1% to 96.8% and total monthly income per occupied home increased 3.5% to $2,215.

The increase in operating expenses was primarily driven by an 18.2%, or $2.5 million, increase in repair and maintenance expense due to the increased use of third party vendors, partially offset by an 8.1%, or $1.9 million,

decrease in personnel expense as a result of fewer employees, and a 6.5%, or $2.4 million, increase in real estate taxes, which was primarily due to higher assessed valuations.

The operating margin (property net operating income divided by property rental income) was 74.2% for both of the years ended December 31, 2019 and 2018.

Non-Mature Communities/Other

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

The remaining 7.1%, or $22.8 million, of our total NOI during the year ended December 31, 2019 was generated from our Non-Mature Communities/Other. NOI from Non-Mature Communities/Other decreased 17.1%, or $4.7 million, for the year ended December 31, 2019 as compared to the same period in 2018. The decrease was primarily driven by a decrease in NOI of $2.2 million from non-residential/other communities, a decrease of $2.1 million from redevelopment communities, and a decrease of $0.9 million from sold and held for disposition communities, which was partially offset by an increase in NOI of $0.5 million from stabilized, non-mature communities.

Real Estate Depreciation and Amortization

For the year ended December 31, 2019, real estate depreciation and amortization decreased by 2.5%, or $3.5 million, as compared to the same period in 2018. The decrease was primarily due to the sale of an operating community and a commercial office building in 2018 and fully depreciated assets.

Real Estate Taxes and Insurance

For the year ended December 31, 2019, real estate taxes and insurance increased by 8.3%, or $3.9 million, as compare to 2018, which was primarily due to higher assessed valuations in 2019.

Income/(Loss) in Unconsolidated Entities

For the years ended December 31, 2019 and 2018, we recognized income/(loss) from unconsolidated entities of $(8.3) million and $43.5 million, respectively. The decrease from unconsolidated entities as compared to the prior year was primarily attributable to the sale of an operating community in 2018 held in the DownREIT Partnership.

Gain/(Loss) on Sale of Real Estate Owned

During the year ended December 31, 2019, the Operating Partnership did not recognize any gains on the sale of real estate. During the year ended December 31, 2018, the Operating Partnership recognized total gains of $75.5 million on the sale of an operating community in Orange County, California with a total of 264 apartment homes and a commercial office building in Fairfax, Virginia.

Interest Expense

For the year ended December 31, 2019, interest expense increased by 29.9%, or $6.8 million, as compared to 2018, which was primarily due to the conversion in 2018 of the Advances (to)/from the General Partner capital balance into an unsecured revolving note payable with the General Partner.

Inflation

Off-Balance Sheet Arrangements

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2019 (dollars in thousands):


	Payments Due by Period
Contractual Obligations	2020		2021-2022		2023-2024		Thereafter		Total
Long-term debt obligations	$	—	$	—	$	—	$	99,500	$	99,500
Interest on debt obligations (a)		2,732		5,464		5,464		14,922		28,582
Operating lease obligations — ground leases (b)		12,584		25,168		25,168		466,436		529,356
Operating lease obligations — equipment leases		152		315		329		869		1,665
	$	15,316	$	30,632	$	30,632	$	580,858	$	657,438

(a)	Interest payments on variable rate debt instruments are based on each debt instrument’s respective year-end interest rate at December 31, 2019.

(b)

For purposes of our ground lease contracts, the Operating Partnership uses the minimum lease payment, if stated in the agreement. For ground lease agreements where there is a 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.

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