Item 16. FORM 10-K SUMMARY

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Item 16. FORM 10-K SUMMARY

None.

SIGNATURES

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


	UDR, Inc.

Date: February 18, 2021	By:	/s/ Thomas W. Toomey
		Thomas W. Toomey
		Chairman of the Board and Chief Executive Officer (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on February 18, 2021 by the following persons on behalf of the registrant and in the capacities indicated.



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

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

/s/ Tracy L. Hofmeister		/s/ Jon A. Grove
Tracy L. Hofmeister		Jon A. Grove
Senior Vice President – Chief Accounting Officer		Director
(Principal Accounting Officer)

/s/ James D. Klingbeil		/s/ Clint D. McDonnough
James D. Klingbeil		Clint D. McDonnough
Lead Independent Director		Director

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

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

		/s/ Diane M. Morefield
		Diane M. Morefield
		Director

SIGNATURES


	UNITED DOMINION REALTY, L.P.

	By:	UDR, Inc., its sole general partner

Date: February 18, 2021	By:	/s/ Thomas W. Toomey
		Thomas W. Toomey
		Chairman of the Board and Chief Executive Officer (Principal Executive Officer)



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

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

/s/ Tracy L. Hofmeister		/s/ Jon A. Grove
Tracy L. Hofmeister		Jon A. Grove
Senior Vice President – Chief Accounting Officer of the General Partner		Director of the General Partner
(Principal Accounting Officer)

/s/ James D. Klingbeil		/s/ Clint D. McDonnough
James D. Klingbeil		Clint D. McDonnough
Lead Independent Director of the General Partner		Director of the General Partner

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

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

		/s/ Diane M. Morefield
		Diane M. Morefield
		Director

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE


	PAGE
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT

UDR, INC.:

Reports of Independent Registered Public Accounting Firm	F-2

Consolidated Balance Sheets at December 31, 2020 and 2019	F-6

Consolidated Statements of Operations for the years ended December 31, 2020, 2019, and 2018	F-7

Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2020, 2019, and 2018	F-8

Consolidated Statements of Changes in Equity for the years ended December 31, 2020, 2019, and 2018	F-9

Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019, and 2018	F-10

Notes to Consolidated Financial Statements	F-12

UNITED DOMINION REALTY, L.P.:

Report of Independent Registered Public Accounting Firm	F-58

Consolidated Balance Sheets at December 31, 2020 and 2019	F-61

Consolidated Statements of Operations for the years ended December 31, 2020, 2019, and 2018	F-62

Consolidated Statements of Comprehensive Income/(Loss) for the years ended December 31, 2020, 2019, and 2018	F-63

Consolidated Statements of Changes in Capital for the years ended December 31, 2020, 2019, and 2018	F-64

Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019, and 2018	F-65

Notes to Consolidated Financial Statements	F-66

SCHEDULES FILED AS PART OF THIS REPORT

UDR, INC.:

Schedule III- Summary of Real Estate Owned	S-1

UNITED DOMINION REALTY, L.P.:

Schedule III- Summary of Real Estate Owned	S-6

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

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of UDR, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of UDR, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income/(loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and the financial statement schedule listed in the accompanying Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 18, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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

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

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.


	Indicators of Impairment of Real Estate Owned and Investment in Unconsolidated Joint Ventures
Description of the Matter	At December 31, 2020, the Company’s real estate owned, net and investment in and advances to unconsolidated joint ventures, net were approximately $8.5 billion and $600.2 million, respectively. As more fully described in Note 2 to the consolidated financial statements, the Company periodically evaluates these assets for indicators of impairment, and this includes, among other things, judgments based on factors such as operational performance, market conditions, the Company’s intent and ability to hold each asset, as well as any significant cost overruns on development or redevelopment

Indicators of Impairment of Real Estate Owned and Investment in Unconsolidated Joint Ventures

Description of the Matter

At December 31, 2020, the Company’s real estate owned, net and investment in and advances to unconsolidated joint ventures, net were approximately $8.5 billion and $600.2 million, respectively. As more fully described in Note 2 to the consolidated financial statements, the Company periodically evaluates these assets for indicators of impairment, and this includes, among other things, judgments based on factors such as operational performance, market conditions, the Company’s intent and ability to hold each asset, as well as any significant cost overruns on development or redevelopment

F - 2

	communities. During 2020, the Company did not recognize an impairment related to real estate owned, net or any other than temporary impairments related to its investment in unconsolidated joint ventures. Auditing the Company’s evaluation for indicators of impairment was complex due to a high degree of subjectivity in the identification of events or changes in circumstances that may indicate an impairment of its real estate owned or that the value of its investment in unconsolidated joint ventures may be other than temporarily impaired. Differences or changes in these judgments could have a material impact on the Company’s analysis.
How We Addressed the Matter in Our Audit	We tested the Company’s internal controls over the asset impairment evaluation process. This included testing controls over management’s determination and review of the considerations used in the impairment indicator analysis. Our procedures with regards to the Company’s evaluation for indicators of impairment included, among others, testing the completeness and accuracy of management’s impairment analysis and evaluating management’s judgments determining whether indicators of impairment were present. For example, we performed inquires of management, considered historical operating results and the current market conditions, performed an independent assessment using both internally and externally available information, read the minutes of the meetings of the Board of Directors, and reviewed the Company’s development and redevelopment costs.
	Accounting for acquisitions of real estate investment properties
Description of the Matter	During 2020, the Company acquired real estate investment properties, including one real estate investment property for which the Company held a previous unconsolidated equity interest. These transactions were accounted for as asset acquisitions. The aggregate increase in real estate and other assets due to these acquisitions was approximately $422.0 million. As more fully described in Note 3 to the consolidated financial statements, the total consideration was allocated to land, land improvements, buildings and improvements, and real estate intangible assets based on their relative fair value. Auditing the Company’s acquisition of real estate investment properties is complex and requires a higher degree of auditor judgment due to the significant assumptions that are utilized in the determination of the relative fair values of the assets acquired. The significant assumptions used in management’s analysis to estimate the fair value of these components includes capitalization rates, market comparable prices for similar land parcels, market rental rates, leasing commission rates as well as the time it would take to lease any acquired buildings that were vacant at acquisition.
How We Addressed the Matter in Our Audit	We tested the Company’s internal controls over the acquisition of real estate investment properties and the resulting purchase price allocations. This included testing controls over management’s identification of the assets acquired and liabilities assumed and evaluating the methods and significant assumptions used by the Company to develop such estimates. Our testing of the fair values of the assets acquired included, among others, evaluating the selection of the Company's valuation model and testing the significant assumptions discussed above as well as the completeness and accuracy of the underlying data. For example, we compared management’s assumptions to observable market transactions and replacement costs associated with the fair value of the land and buildings and improvements. For in-place leases, we compared management’s assumptions to published market data for comparable leases, related leasing commissions and the amount of time it would take to lease up the space to stabilization assuming the space was vacant at acquisition. We involved our real estate valuation specialists to assist in evaluating the significant assumptions listed above. In addition, we performed sensitivity tests on the significant assumptions to evaluate the change in the fair value resulting from changes in the assumptions.

F - 3

/s/ Ernst & Young LLP

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

Denver, Colorado

February 18, 2021

F - 4

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of UDR, Inc.

Opinion on Internal Control Over Financial Reporting

We have audited UDR, Inc.’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, UDR, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, and the related consolidated statements of operations, comprehensive income/(loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and the financial statement schedule listed in the accompanying Index at Item 15(a) and our report dated February 18, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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

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

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

Definition and Limitations of Internal Control Over Financial Reporting

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

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

/s/ Ernst & Young LLP

Denver, Colorado

February 18, 2021

F - 5

UDR, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


	December 31,		December 31,
	2020		2019
ASSETS
Real estate owned:
Real estate held for investment	$	12,706,940	$	12,532,324
Less: accumulated depreciation		(4,590,577)		(4,131,330)
Real estate held for investment, net		8,116,363		8,400,994
Real estate under development (net of accumulated depreciation of $1,010 and $23, respectively)		246,867		69,754
Real estate held for disposition (net of accumulated depreciation of $13,779 and $0, respectively)		102,876		—
Total real estate owned, net of accumulated depreciation		8,466,106		8,470,748
Cash and cash equivalents		1,409		8,106
Restricted cash		22,762		25,185
Notes receivable, net		157,992		153,650
Investment in and advances to unconsolidated joint ventures, net		600,233		588,262
Operating lease right-of-use assets		200,913		204,225
Other assets		188,118		186,296
Total assets	$	9,637,533	$	9,636,472

LIABILITIES AND EQUITY
Liabilities:
Secured debt, net	$	862,147	$	1,149,441
Unsecured debt, net		4,114,401		3,558,083
Operating lease liabilities		195,592		198,558
Real estate taxes payable		29,946		29,445
Accrued interest payable		44,760		45,199
Security deposits and prepaid rent		49,008		48,353
Distributions payable		115,795		109,382
Accounts payable, accrued expenses, and other liabilities		110,999		90,032
Total liabilities		5,522,648		5,228,493

Commitments and contingencies (Note 15)

Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		856,294		1,018,665

Equity:
Preferred stock, no par value; 50,000,000 shares authorized:
8.00% Series E Cumulative Convertible; 2,695,363 and 2,780,994 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively		44,764		46,200
Series F; 14,440,519 and 14,691,274 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively		1		1
Common stock, $0.01 par value; 350,000,000 shares authorized:
296,611,579 and 294,588,305 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively		2,966		2,946
Additional paid-in capital		5,881,383		5,781,975
Distributions in excess of net income		(2,685,770)		(2,462,132)
Accumulated other comprehensive income/(loss), net		(9,144)		(10,448)
Total stockholders’ equity		3,234,200		3,358,542
Noncontrolling interests		24,391		30,772
Total equity		3,258,591		3,389,314
Total liabilities and equity	$	9,637,533	$	9,636,472

See accompanying notes to consolidated financial statements.

F - 6

UDR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)


	Year Ended December 31,
	2020		2019		2018
REVENUES:
Rental income	$	1,236,096	$	1,138,138	$	1,035,105
Joint venture management and other fees		5,069		14,055		11,754
Total revenues		1,241,165		1,152,193		1,046,859
OPERATING EXPENSES:
Property operating and maintenance		201,944		178,947		169,078
Real estate taxes and insurance		180,450		150,888		133,912
Property management		35,538		32,721		28,465
Other operating expenses		22,762		13,932		12,100
Real estate depreciation and amortization		608,616		501,257		429,006
General and administrative		49,885		51,533		46,983
Casualty-related charges/(recoveries), net		2,131		474		2,121
Other depreciation and amortization		10,013		6,666		6,673
Total operating expenses		1,111,339		936,418		828,338
Gain/(loss) on sale of real estate owned		119,277		5,282		136,197
Operating income		249,103		221,057		354,718

Income/(loss) from unconsolidated entities		18,844		137,873		(5,055)
Interest expense		(202,706)		(170,917)		(134,168)
Interest income and other income/(expense), net		6,274		15,404		6,735
Income/(loss) before income taxes		71,515		203,417		222,230
Tax (provision)/benefit, net		(2,545)		(3,838)		(688)
Net income/(loss)		68,970		199,579		221,542
Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		(4,543)		(14,426)		(18,215)
Net (income)/loss attributable to noncontrolling interests		(161)		(188)		(221)
Net income/(loss) attributable to UDR, Inc.		64,266		184,965		203,106
Distributions to preferred stockholders — Series E (Convertible)		(4,230)		(4,104)		(3,868)
Net income/(loss) attributable to common stockholders	$	60,036	$	180,861	$	199,238

Income/(loss) per weighted average common share:
Basic	$	0.20	$	0.63	$	0.74
Diluted	$	0.20	$	0.63	$	0.74

Weighted average number of common shares outstanding:
Basic		294,545		285,247		268,179
Diluted		294,927		286,015		269,483

See accompanying notes to consolidated financial statements.

F - 7

UDR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(In thousands)


	Year Ended December 31,
	2020		2019		2018
Net income/(loss)	$	68,970	$	199,579	$	221,542
Other comprehensive income/(loss), including portion attributable to noncontrolling interests:
Other comprehensive income/(loss) - derivative instruments:
Unrealized holding gain/(loss)		(3,382)		(8,437)		4,806
(Gain)/loss reclassified into earnings from other comprehensive income/(loss)		4,827		(2,770)		(1,948)
Other comprehensive income/(loss), including portion attributable to noncontrolling interests		1,445		(11,207)		2,858
Comprehensive income/(loss)		70,415		188,372		224,400
Comprehensive (income)/loss attributable to noncontrolling interests		(4,845)		(13,788)		(18,680)
Comprehensive income/(loss) attributable to UDR, Inc.	$	65,570	$	174,584	$	205,720

See accompanying notes to consolidated financial statements.

F - 8

UDR, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(In thousands, except per share data)


							Distributions		Accumulated Other Comprehensive
	Preferred		Common		Paid-in		in Excess of		Income/(Loss),		Noncontrolling
	Stock		Stock		Capital		Net Income		net		Interests		Total
Balance at December 31, 2017	$	46,201	$	2,678	$	4,651,205	$	(1,871,603)	$	(2,681)	$	9,564	$	2,835,364
Net income/(loss) attributable to UDR, Inc.		—		—		—		203,106		—		—		203,106
Net income/(loss) attributable to noncontrolling interests		—		—		—		—		—		175		175
Contribution of noncontrolling interests in consolidated real estate		—		—		—		—		—		108		108
Repurchase of common shares		—		(6)		(19,982)		—		—		—		(19,988)
Long Term Incentive Plan Unit grants/(vestings), net		—		—		—		—		—		7,305		7,305
Other comprehensive income/(loss)		—		—		—		—		2,614		—		2,614
Exercise of stock options, net		—		8		(23,061)		—		—		—		(23,053)
Issuance/(forfeiture) of common and restricted shares, net		—		(1)		(507)		—		—		—		(508)
Issuance of common shares through public offering, net		—		72		299,753		—		—		—		299,825
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership and DownREIT Partnership		—		4		13,324		—		—		—		13,328
Common stock distributions declared ($1.29 per share)		—		—		—		(348,079)		—		—		(348,079)
Preferred stock distributions declared-Series E ($1.3968 per share)		—		—		—		(3,868)		—		—		(3,868)
Adjustment to reflect redemption value of redeemable noncontrolling interests		—		—		—		(43,552)		—		—		(43,552)
Balance at December 31, 2018		46,201		2,755		4,920,732		(2,063,996)		(67)		17,152		2,922,777
Net income/(loss) attributable to UDR, Inc.		—		—		—		184,965		—		—		184,965
Net income/(loss) attributable to noncontrolling interests		—		—		—		—		—		125		125
Contribution of noncontrolling interests in consolidated real estate		—		—		—		—		—		125		125
Long Term Incentive Plan Unit grants/(vestings), net		—		—		—		—		—		13,370		13,370
Other comprehensive income/(loss)		—		—		—		—		(10,381)		—		(10,381)
Issuance/(forfeiture) of common and restricted shares, net		—		—		2,088		—		—		—		2,088
Issuance of common shares through public offering, net		—		158		725,157		—		—		—		725,315
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership and DownREIT Partnership		—		33		133,998		—		—		—		134,031
Common stock distributions declared ($1.37 per share)		—		—		—		(395,113)		—		—		(395,113)
Preferred stock distributions declared-Series E ($1.4832 per share)		—		—		—		(4,104)		—		—		(4,104)
Adjustment to reflect redemption value of redeemable noncontrolling interests		—		—		—		(183,884)		—		—		(183,884)
Balance at December 31, 2019	$	46,201	$	2,946	$	5,781,975	$	(2,462,132)	$	(10,448)	$	30,772	$	3,389,314
Net income/(loss) attributable to UDR, Inc.		—		—		—		64,266		—		—		64,266
Net income/(loss) attributable to noncontrolling interests		—		—		—		—		—		99		99
Redemption of noncontrolling interests in consolidated real estate		—		—		—		—		—		(125)		(125)
Long Term Incentive Plan Unit grants/(vestings), net		—		—		—		—		—		(6,355)		(6,355)
Other comprehensive income/(loss)		—		—		—		—		1,304		—		1,304
Issuance/(forfeiture) of common and restricted shares, net		—		1		2,886		—		—		—		2,887
Cumulative effect upon adoption of ASC 326		—		—		—		(2,182)		—		—		(2,182)
Issuance of common shares through public offering, net		—		21		102,213		—		—		—		102,234
Conversion of Series E Cumulative Convertible shares		(1,436)		1		1,435		—		—		—		—
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership and DownREIT Partnership		—		3		12,663		—		—		—		12,666
Common stock distributions declared ($1.44 per share)		—		—		—		(425,233)		—		—		(425,233)
Repurchase of common shares				(6)		(19,789)		—		—		—		(19,795)
Preferred stock distributions declared-Series E ($1.5592 per share)		—		—		—		(4,230)		—		—		(4,230)
Adjustment to reflect redemption value of redeemable noncontrolling interests		—		—		—		143,741		—		—		143,741
Balance at December 31, 2020	$	44,765	$	2,966	$	5,881,383	$	(2,685,770)	$	(9,144)	$	24,391	$	3,258,591

See accompanying notes to consolidated financial statements.

F - 9

UDR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except for share data)


	Year Ended December 31,
	2020		2019		2018
Operating Activities
Net income/(loss)	$	68,970	$	199,579	$	221,542
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization		618,629		507,923		435,679
(Gain)/loss on sale of real estate owned		(119,277)		(5,282)		(136,197)
(Income)/loss from unconsolidated entities		(18,844)		(137,873)		5,055
Return on investment in unconsolidated joint ventures		20,664		5,179		4,248
Amortization of share-based compensation		19,616		24,330		14,244
Loss on extinguishment of debt, net		49,190		29,594		3,299
Other		12,193		10,364		1,699
Changes in operating assets and liabilities:
(Increase)/decrease in operating assets		(44,670)		(10,956)		(13,880)
Increase/(decrease) in operating liabilities		(2,155)		7,846		24,987
Net cash provided by/(used in) operating activities		604,316		630,704		560,676

Investing Activities
Acquisition of real estate assets		(407,829)		(1,370,770)		—
Proceeds from sales of real estate investments, net		277,886		38,000		247,031
Development of real estate assets		(121,240)		(25,401)		(150,238)
Capital expenditures and other major improvements — real estate assets		(163,105)		(167,188)		(112,359)
Capital expenditures — non-real estate assets		(11,008)		(17,159)		(4,850)
Investment in unconsolidated joint ventures		(76,073)		(93,059)		(112,025)
Distributions received from unconsolidated joint ventures		49,342		72,441		42,683
Purchase deposits on pending acquisitions		(1,530)		(12,160)		(1,000)
Repayment/(issuance) of notes receivable, net		(7,285)		(111,391)		(22,790)
Net cash provided by/(used in) investing activities		(460,842)		(1,686,687)		(113,548)

Financing Activities
Payments on secured debt		(425,839)		(162,253)		(279,243)
Proceeds from the issuance of secured debt		160,930		162,500		80,000
Payments on unsecured debt		(300,000)		(700,000)		—
Net proceeds from the issuance of unsecured debt		959,419		1,099,816		299,994
Net proceeds/(repayment) of commercial paper		(110,000)		198,885		(198,885)
Net proceeds/(repayment) of revolving bank debt		11,441		16,567		(21,751)
Proceeds from the issuance of common shares through public offering, net		102,234		725,315		299,825
Repurchase of common shares		(19,795)		—		(19,988)
Distributions paid to redeemable noncontrolling interests		(32,038)		(31,580)		(32,457)
Distributions paid to preferred stockholders		(4,217)		(4,063)		(3,836)
Distributions paid to common stockholders		(419,350)		(383,079)		(342,241)
Payment of prepayment and extinguishment costs		(62,645)		(27,782)		(3,178)
Other		(12,734)		(13,943)		(38,307)
Net cash provided by/(used in) financing activities		(152,594)		880,383		(260,067)
Net increase/(decrease) in cash, cash equivalents, and restricted cash		(9,120)		(175,600)		187,061
Cash, cash equivalents, and restricted cash, beginning of year		33,291		208,891		21,830
Cash, cash equivalents, and restricted cash, end of year	$	24,171	$	33,291	$	208,891

Supplemental Information:
Interest paid during the period, net of amounts capitalized, and cash paid for operating leases	$	172,326	$	169,558	$	132,466
Cash paid/(refunds received) for income taxes		1,029		1,519		625
Non-cash transactions:
Transfer of investment in and advances to unconsolidated joint ventures to real estate owned	$	14,700	$	288,108	$	—
Transfer of investment in and advances to unconsolidated joint ventures to joint venture member		—		60,625		—
Secured debt assumed in the consolidation of unconsolidated joint ventures		—		551,800		—
Acquisition of intellectual property in exchange for cancellation of secured note receivable		2,250		—
Recognition of allowance for credit losses		2,182		—
Recognition of operating lease right-of-use assets		—		94,349		—
Recognition of operating lease liabilities		—		88,336		—
Right-of-use assets obtained in exchange for operating lease liabilities remeasurement		—		111,055		—
Vesting of LTIP Units		23,501		14,742		4,397
Development costs and capital expenditures incurred, but not yet paid		31,387		16,635		10,304

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UDR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(In thousands, except for share data)


	Year Ended December 31,
	2020		2019		2018
Conversion of Operating Partnership and DownREIT Partnership noncontrolling interests to common stock (303,146 shares in 2020; 3,165,780 shares in 2019; and 348,057 shares in 2018)		12,666		134,031		13,328
Dividends declared, but not yet paid		115,795		109,382		97,666

The following reconciles cash, cash equivalents, and restricted cash to amounts as shown above:
Cash, cash equivalents, and restricted cash, beginning of year:
Cash and cash equivalents	$	8,106	$	185,216	$	2,038
Restricted cash		25,185		23,675		19,792
Total cash, cash equivalents, and restricted cash as shown above	$	33,291	$	208,891	$	21,830
Cash, cash equivalents, and restricted cash, end of year:
Cash and cash equivalents	$	1,409	$	8,106	$	185,216
Restricted cash		22,762		25,185		23,675
Total cash, cash equivalents, and restricted cash as shown above	$	24,171	$	33,291	$	208,891

See accompanying notes to consolidated financial statements.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

CONSOLIDATION AND BASIS OF PRESENTATION

Organization and Formation

UDR, Inc. (“UDR,” the “Company,” “we,” or “our”) is a self-administered real estate investment trust, or REIT, that owns, operates, acquires, renovates, develops, redevelops, and manages apartment communities generally in high barrier-to-entry markets located in the United States. The high barrier-to-entry markets are characterized by limited land for new construction, difficult and lengthy entitlement process, expensive single-family home prices and significant employment growth potential. At December 31, 2020, our consolidated apartment portfolio consisted of 149 consolidated communities located in 21 markets consisting of 48,283 apartment homes. In addition, the Company has an ownership interest in 5,295 completed or to-be-completed apartment homes through unconsolidated joint ventures or partnerships, including 2,165 apartment homes owned by entities in which we hold preferred equity investments.

Basis of Presentation

The accompanying consolidated financial statements of UDR include its wholly-owned and/or controlled subsidiaries (see Note 4, Variable Interest Entities, for further discussion). All significant intercompany accounts and transactions have been eliminated in consolidation. Certain previously reported amounts have been reclassified to conform to the current financial statement presentation.

The accompanying consolidated financial statements include the accounts of UDR and its subsidiaries, including United Dominion Realty, L.P. (the “Operating Partnership” or the “OP”) and UDR Lighthouse DownREIT L.P. (the “DownREIT Partnership”). As of December 31, 2020 and 2019, there were 184.8 million and 184.1 million units, respectively, in the Operating Partnership (“OP Units”) outstanding, of which 176.2 million, or 95.3% and 176.2 million, or 95.7%, respectively, were owned by UDR and 8.6 million, or 4.7% and 7.9 million, or 4.3%, respectively, were owned by outside limited partners. As of December 31, 2020 and 2019, there were 32.4 million units in the DownREIT Partnership (“DownREIT Units”) outstanding, of which 18.7 million, or 57.8% and 18.4 million, or 56.8%, respectively, were owned by UDR (including 13.5 million DownREIT Units, or 41.6% and 13.5 million, or 41.6%, that were held by the Operating Partnership as of December 31, 2020 and 2019, respectively) and 13.7 million, or 42.2% and 14.0 million, or 43.2%, respectively, were owned by outside limited partners. The consolidated financial statements of UDR include the noncontrolling interests of the unitholders in the Operating Partnership and DownREIT Partnership.

The Company evaluated subsequent events through the date its financial statements were issued. No significant recognized or non-recognized subsequent events were noted other than those in Note 2, Significant Accounting Policies, Note 3, Real Estate Owned, Note 5, Joint Ventures and Partnerships and Note 7_, Secured and Unsecured Debt, net_.

SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The updated standard will be effective for the Company on January 1, 2022; however, early adoption of the ASU is permitted on January 1, 2021. The Company is currently evaluating the effect that the updated standard will have on the consolidated financial statements and related disclosures.

In April 2020, the FASB issued a Staff Q&A on accounting for leases during the COVID-19 pandemic, focused on the application of lease guidance in ASC 842, Leases. The Q&A states that some lease contracts may contain explicit or implicit enforceable rights and obligations that require lease concessions if certain circumstances arise that are beyond the control of the parties to the contract. Therefore, entities would need to perform a lease-by-lease analysis to determine

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

whether contractual provisions in an existing lease agreement provide enforceable rights and obligations related to lease concessions.

The FASB determined it would be acceptable for entities to not perform a lease-by-lease analysis regarding rent concessions resulting from COVID-19, and to instead make a policy election regarding rent concessions, which would give entities the option to account or not to account for these rent concessions as lease modifications if the total payments required by the modified contract are substantially the same or less than the total payments required by the original contract. Entities making the election to account for these rent concessions as lease modifications would recognize the effects of rent abatements and rent deferrals on a prospective straight-line basis over the remainder of the modified contract.

We have made the election to not perform a lease-by-lease analysis to determine whether contractual provisions in an existing lease agreement provide enforceable rights and obligations related to lease concessions. By electing the FASB relief, we have also made an accounting policy election to account for rent abatements and rent deferrals given to lessees due to the COVID-19 pandemic as lease modifications. The lease concessions given to lessees due to the COVID-19 pandemic did not have a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. The ASU has not had a material impact on the consolidated financial statements and the Company does not expect the ASU to have a material impact on the consolidated financial statements on a prospective basis.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The standard required entities to estimate a lifetime expected credit loss for most financial assets, including trade and other receivables, held-to-maturity debt securities, loans and other financial instruments, and to present the net amount of the financial instrument expected to be collected. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which amended the transition requirements and scope of ASU 2016-13 and clarified that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the leases standard. The updated standard became effective for the Company on January 1, 2020 and was adopted on a modified retrospective basis through a cumulative-effect adjustment to retained earnings of approximately $2.2 million on that date, which was primarily associated with our notes receivable. The Company concluded the cumulative effect was not material to our consolidated financial statements. Disclosures were updated pursuant to the requirements of the ASU.

Real Estate

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

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

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

F - 13

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

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

Quarterly or when changes in circumstances warrant, UDR will assess our real estate properties for indicators

of impairment. The judgments regarding the existence of impairment indicators are based on certain factors. Such factors include, among other things, operational performance, market conditions, the Company’s intent and ability to hold the related asset, as well as any significant cost overruns on development properties.

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

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

For the years ended December 31, 2020, 2019 and 2018, we did not record any impairments on our real estate properties.

Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets which are 30 to 55 years for buildings, 10 to 35 years for major improvements, and 3 to 10 years for furniture, fixtures, equipment, and other assets.

Predevelopment, development, and redevelopment projects and related costs are capitalized and reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation. The Company capitalizes costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. These costs, excluding the direct costs of development and redevelopment and capitalized interest, for the years ended December 31, 2020, 2019, and 2018 were $12.0 million, $8.4 million and $7.5 million, respectively. During the years ended December 31, 2020, 2019, and 2018, total interest capitalized was $7.0 million, $5.1 million and $10.6 million, respectively. As each home in a capital project is completed and becomes available for lease-up, the Company ceases capitalization on the related portion and depreciation commences over the estimated useful life.

Cash and Cash Equivalents

F - 14

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

purchased to be cash equivalents. The majority of the Company’s cash and cash equivalents are held at major commercial banks.

Restricted Cash

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

Real Estate Sales Gain Recognition

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

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

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

To the extent that the Company acquires a controlling financial interest in a property that it previously accounted for as an equity method investment, the Company will not remeasure its previously held interest if the acquisition is treated as an asset acquisition. The Company will include the carrying amount of its previously held equity method interest along with the consideration paid and transaction costs incurred in determining the amounts to allocate to the related assets and liabilities acquired on its Consolidated Balance Sheets. When treated as an asset acquisition, the Company will not recognize a gain or loss on consolidation of a property.

Allowance for Credit Losses

The Company accounts for allowance for credit losses under the current expected credit loss (“CECL”) impairment model for its financial assets, including trade and other receivables, held-to-maturity debt securities, loans and other financial instruments, and presents the net amount of the financial instrument expected to be collected. The CECL impairment model excludes operating lease receivables. The CECL impairment model requires an estimate of expected credit losses, measured over the contractual life of an instrument, that considers forecasts of future economic conditions in addition to information about past events and current conditions. Based on this model, we analyze the following criteria, as applicable in developing allowances for credit losses: historical loss information, the borrower’s ability to make scheduled payments, the remaining time to maturity, the value of underlying collateral, projected future performance of the borrower and macroeconomic trends.

The Company measures credit losses of financial assets on a collective (pool) basis when similar risk characteristics exist. If the Company determines that a financial asset does not share risk characteristics with its other financial assets, the Company evaluates the financial asset for expected credit losses on an individual basis. Allowance for credit losses are recorded as a direct reduction from an asset’s amortized cost basis. Credit losses and recoveries are recorded in Interest income and other income/(expense), net on the Consolidated Statements of Operations. Recoveries of financial assets previously written off are recorded when received. For the year ended December 31, 2020, the Company recorded $0.7 million of credit losses on the Consolidated Statements of Operations.

The Company has made the optional election provided by the standard not to measure allowance for credit losses for accrued interest receivables as the Company writes off any uncollectible accrued interest receivables in a timely manner. The Company periodically evaluates the collectability of its accrued interest receivables. A write-off is

F - 15

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

recorded when the Company concludes that all or a portion of its accrued interest receivable balance is no longer collectible.

Notes Receivable

Notes receivable relate to financing arrangements which are typically secured by real estate, real estate related projects or other assets. Certain of the loans we extend may include characteristics such as options to purchase the project within a specific time window following expected project completion. These characteristics can cause the loans to fall under the definition of a variable interest entity (“VIE”), and thus trigger consolidation consideration. We consider the facts and circumstances pertinent to each loan, including the relative amount of financing we are contributing to the overall project cost, decision making rights or control we hold, and our rights to expected residual gains or our obligations to absorb expected residual losses from the project. If we are deemed to be the primary beneficiary of a VIE due to holding a controlling financial interest, the majority of decision making control, or by other means, consolidation of the VIE would be required. The Company has concluded that it is not the primary beneficiary of the borrowing entities.

Additionally, we analyze each loan arrangement that involves real estate development to consider whether the loan qualifies for accounting as a loan or as an investment in a real estate development project. The Company has evaluated its real estate loans, where appropriate, for accounting treatment as loans versus real estate development projects, as required by ASC 310-10. For each loan, the Company has concluded that the characteristics and the facts and circumstances indicate that loan accounting treatment is appropriate.

The following table summarizes our Notes receivable, net as of December 31, 2020 and 2019 (dollars in thousands):


	Interest rate at		Balance Outstanding
	December 31,		December 31,		December 31,
	2020		2020		2019
Note due October 2020 (a)	8.00	%	$	—	$	2,250
Note due February 2021 (b)	N/A			4,000		—
Note due May 2022 (c)	8.00	%		20,000		20,000
Note due October 2022 (d)	4.75	%		115,000		115,000
Note due January 2023 (e)	10.00	%		19,685		16,400
Notes Receivable				158,685		153,650
Allowance for credit losses				(693)		—
Total notes receivable, net			$	157,992	$	153,650

(a)	In March 2020, the Company entered into a purchase agreement to acquire all of the unaffiliated third party’s intellectual property in exchange for cancellation of the secured note and accrued interest. All property acquired was recorded in Other assets on the Consolidated Balance Sheets.

(b)	In May 2020, the Company entered into a promissory note with an unaffiliated third party with an aggregate commitment of $4.0 million, in connection with the sale of an operating community. No interest is due on the promissory note and the note matures in February 2021.

In January 2021, the unaffiliated third party repaid the $4.0 million promissory note.

(c)	The Company has a secured note with an unaffiliated third party with an aggregate commitment of $20.0 million, all of which has been funded. The note is secured by a parcel of land and related land improvements.

In September 2020, the developer defaulted on the loan. As a result of the default, the Company expects to take title to the property pursuant to a deed in lieu of foreclosure. At that time, the Company will reclassify the related balance as Real estate owned on the Consolidated Balance Sheet and anticipates recording a minor gain on extinguishment of the secured note based upon the property’s fair market value on the date of the title transfer.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

(d)

The Company has a secured note with an unaffiliated third party with an aggregate commitment of $115.0 million, all of which has been funded. Interest payments are due when the loan matures. The note is secured by a first priority deed of trust on a 259 apartment home operating community in Bellevue, Washington, which was 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 gave the Company the option to acquire the community at a fixed price of $170.0 million. In August 2020, the Company exercised the purchase option. The purchase is expected to close in 2021. The deposit is generally nonrefundable other than due to a failure of closing conditions pursuant to the terms of the agreement. If the Company fails to close the purchase other than due to seller’s failure or other breaches in the purchase option agreement, per the terms of the agreement, the note will be modified to extend the maturity date to 10 years following the date the temporary certificate of occupancy was issued, which was July 2020. Upon modification, the loan would be interest only for the first three years and after such date payments will be based on a 30-year amortization schedule.

(e)

The Company has a secured note with an unaffiliated third party with an aggregate commitment of $20.0 million, of which $19.7 million has been funded, including $3.3 million funded during the year ended December 31, 2020. Interest payments are due monthly. The note matures at the earliest of the following: (a) the closing of any private or public capital raising in the amount of $5.0 million or greater; (b) an acquisition; (c) acceleration in the event of default; or (d) January 2023.

During 2020, the terms of this secured note were amended to increase the aggregate commitment from $16.4 million to $20.0 million, to extend the maturity date of the note to January 2023 and to provide that the April 2020 through July 2020 interest payments are deferred and paid when the note matures.

In January 2021, the terms of this secured note were amended to increase the aggregate commitment from $20.0 million to $22.0 million. Interest payments are due monthly and the maturity date of the note remains in January 2023.

The Company recognized $9.1 million, $5.5 million, and $4.1 million of interest income and zero, $8.5 million, and zero of promoted interest from notes receivable during the years ended December 31, 2020, 2019, and 2018, respectively, none of which was related party interest. Interest income and promoted interest are included in Interest income and other income/(expense), net on the Consolidated Statements of Operations.

Investment in Joint Ventures and Partnerships

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

In determining whether a joint venture or partnership is a VIE, the Company considers: the form of our ownership interest and legal structure; the size of our investment; the financing structure of the entity, including necessity of subordinated debt; estimates of future cash flows; ours and our partner’s ability to participate in the decision making related to acquisitions, disposition, budgeting and financing of the entity; obligation to absorb losses and preferential returns; nature of our partner’s primary operations; and the degree, if any, of disproportionality between the economic and voting interests of the entity. As of December 31, 2020 and 2019, the Company did not determine any of our joint ventures or partnerships to be VIEs.

We evaluate our investments in unconsolidated joint ventures for events or changes in circumstances that indicate there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. These factors include, but are not limited to, age of the venture, our intent and ability to retain our investment in the entity, the financial condition and long-term prospects of the entity, the

F - 17

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

fair value of the property of the joint venture, and the relationships with the other joint venture partners and its lenders. The amount of loss recognized is the excess of the investment’s carrying amount over its estimated fair value. If we believe that the decline in fair value is temporary, no impairment is recorded. The aforementioned factors are taken into consideration as a whole by management in determining the valuation of our equity method investments. Should the actual results differ from management’s judgment, the valuation could be negatively affected and may result in a negative impact to our Consolidated Financial Statements.

Derivative Financial Instruments

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

Redeemable Noncontrolling Interests in the Operating Partnership and DownREIT Partnership

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

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

Income Taxes

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

Income taxes for our TRS are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rate is recognized in earnings in the period of the enactment date. The Company’s deferred tax assets/(liabilities) are generally the result of differing depreciable lives on capitalized assets, temporary differences between book and tax basis of assets and liabilities and timing of expense recognition for certain accrued liabilities. As of December 31, 2020 and 2019, UDR’s net deferred tax asset/(liability) was $(3.2) million and $(1.6) million, respectively, and are recorded in Accounts payable, accrued expenses and other liabilities on the Consolidated Balance Sheets.

F - 18

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

GAAP defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. GAAP also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition. The Company recognizes its tax positions and evaluates them using a two-step process. First, UDR determines whether a tax position is more likely than not (greater than 50 percent probability) to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, the Company will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement.

The Company invests in assets that qualify for federal investment tax credits (“ITC”) through our TRS. An ITC reduces federal income taxes payable when qualifying depreciable property is acquired. The ITC is determined as a percentage of cost of the assets. The Company accounts for ITCs under the deferral method, under which the tax benefit from the ITC is deferred and amortized as a tax benefit into Tax (provision)/benefit, net on the Consolidated Statements of Operations over the book life of the qualifying depreciable property. The ITCs are recorded in Accounts payable, accrued expenses and other liabilities on the Consolidated Balance Sheets.

UDR had no material unrecognized tax benefit, accrued interest or penalties at December 31, 2020. UDR and its subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions. The tax years 2017 through 2019 remain open to examination by tax jurisdictions to which we are subject. When applicable, UDR recognizes interest and/or penalties related to uncertain tax positions in Tax (provision)/benefit, net on the Consolidated Statements of Operations.

Principles of Consolidation

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

Discontinued Operations

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

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

Stock-Based Employee Compensation Plans

The Company measures the cost of employee services received in exchange for an award of an equity instrument based on the award’s fair value on the grant date and recognizes the cost as stock-based compensation expense over the period during which the employee is required to provide service in exchange for the award, which is generally the vesting period. For performance based awards, the Company remeasures the fair value based on the estimated achievement of the performance criteria each balance sheet date with adjustments made on a cumulative basis until the award is settled and the final compensation is known. Stock-based compensation expense is only recognized for performance based awards that we expect to vest, which we estimate based upon an assessment of the probability that the performance criteria will be achieved. Stock-based compensation expense associated with awards is updated for actual forfeitures. The fair value for market based awards issued by the Company is calculated utilizing a Monte Carlo simulation and the fair value for stock options issued by the Company is calculated utilizing the Black-Scholes-Merton formula. For further discussion, see Note 10, Employee Benefit Plans.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

Advertising Costs

All advertising costs are expensed as incurred and reported on the Consolidated Statements of Operations within the line item Property operating and maintenance. During the years ended December 31, 2020, 2019, and 2018, total advertising expense was $7.9 million, $6.5 million, and $6.7 million, respectively.

Cost of Raising Capital

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

Comprehensive Income/(Loss)

Comprehensive income/(loss), which is defined as the change in equity during each period from transactions and other events and circumstances from nonowner sources, including all changes in equity during a period except for those resulting from investments by or distributions to stockholders, is displayed in the accompanying Consolidated Statements of Comprehensive Income/(Loss). For the years ended December 31, 2020, 2019, and 2018, the Company’s other comprehensive income/(loss) consisted of the gain/(loss) (effective portion) on derivative instruments that are designated as and qualify as cash flow hedges, (gain)/loss on derivative instruments reclassified from other comprehensive income/(loss) into earnings, and the allocation of other comprehensive income/(loss) to noncontrolling interests. The (gain)/loss on derivative instruments reclassified from other comprehensive income/(loss) is included in Interest expense on the Consolidated Statements of Operations. See Note 14, Derivatives and Hedging Activity, for further discussion. The allocation of other comprehensive income/(loss) to redeemable noncontrolling interests during the years ended December 31, 2020, 2019, and 2018 was $0.1 million, $(0.8) million, and $0.2 million, respectively.

Forward Sales Agreements

The Company utilizes forward sales agreements for the future issuance of its common stock. When the Company enters into a forward sales agreement, the contract requires the Company to sell its shares to a counterparty at a predetermined price at a future date. The net sales price and proceeds attained by the Company will be determined on the dates of settlement, with adjustments during the term of the contract for the Company’s anticipated dividends as well as for a daily interest factor that varies with changes in the federal funds rate. The Company generally has the ability to determine the dates and method of settlement (i.e., gross physical settlement, net share settlement or cash settlement), subject to certain conditions and the right of the counterparty to accelerate settlement under certain circumstances.

The Company accounts for the shares of common stock reserved for issuance upon settlement as equity in accordance with ASC 815-40, Contracts in Entity's Own Equity, which permits equity classification when a contract is considered indexed to its own stock and the contract requires or permits the issuing entity to settle the contract in shares (either physically or net in shares).

The guidance establishes a two-step process for evaluating whether an equity-linked financial instrument is considered indexed to its own stock, first, evaluating the instrument’s contingent exercise provisions and second, evaluating the instrument’s settlement provisions. When entering into forward sales agreements, we determined that (i) none of the agreement’s exercise contingencies are based on observable markets or indices besides those related to the market for our own stock price; and (ii) none of the settlement provisions preclude the agreements from being indexed to our own stock.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

Before the issuance of shares of common stock, upon physical or net share settlement of the forward sales agreements, the Company expects that the shares issuable upon settlement of the forward sales agreements will be reflected in its diluted income/(loss) per share calculations using the treasury stock method. Under this method, the number of shares of common stock used in calculating diluted income/(loss) per share is deemed to be increased by the excess, if any, of the number of shares of common stock that would be issued upon full physical settlement of the forward sales agreements over the number of shares of common stock that could be purchased by the Company in the open market (based on the average market price during the period) using the proceeds receivable upon full physical settlement (based on the adjusted forward sale price at the end of the reporting period). When the Company physically or net share settles any forward sales agreement, the delivery of shares of common stock would result in an increase in the number of weighted average common shares outstanding and dilution to basic income/(loss) per share. (See Note 8, Income/(Loss) per Share for further discussion.)

Impact of COVID-19 Pandemic

The Company continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its business. The extent of the pandemic’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic and the duration of government measures to mitigate the pandemic, all of which continue to be uncertain and difficult to predict.

Given the uncertainty, we cannot predict the effect on future periods, but the adverse impact that could occur on the Company’s future financial condition, results of operations and cash flows could be material, including, but not limited to, as a result of extended eviction moratoriums, additional rent deferrals, payment plans, lease concessions, waiving late payment fees, charges from potential adjustments to the carrying amount of receivables, and asset impairment charges.

During the year ended December 31, 2020, the Company performed an analysis in accordance with the ASC 842, Leases, guidance to assess the collectibility of its operating lease receivables in light of the COVID-19 pandemic. This analysis included an assessment of collectibility of current and future rents and whether those lease payments were no longer probable of collection. In accordance with the leases guidance, if lease payments are no longer deemed to be probable over the life of the lease contract, we recognize revenue only when cash is received, and all existing contractual operating lease receivables and straight-line lease receivables are reserved.

As a result of its analysis, the Company reserved approximately $13.5 million of multifamily tenant lease receivables and approximately $6.0 million of retail tenant lease receivables (inclusive of $3.3 million of reserves on straight-line lease receivables) for its wholly-owned communities and communities held by joint ventures. In aggregate, the reserve is reflected as a $18.4 million reduction to Rental income and a $1.1 million reduction to Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations for the year ended December 31, 2020. The impact to deferred leasing commissions was not material for the year ended December 31, 2020.

During the year ended December 31, 2020, the Company recorded an impairment charge of $3.1 million on its investment in equity securities of a non-core investment. The Company did not recognize any other adjustments to the carrying amounts of assets or asset impairment charges due to the COVID-19 pandemic for the year ended December 31, 2020.

Use of Estimates

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

Market Concentration Risk

The Company is subject to increased exposure from economic and other competitive factors specific to markets where the Company holds a significant percentage of the carrying value of its real estate portfolio. At

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

December 31, 2020, the Company held greater than 10% of the carrying value of its real estate portfolio in each of the Orange County, California; Metropolitan D.C., New York, New York and Boston, Massachusetts markets.

REAL ESTATE OWNED

Real estate assets owned by the Company consist of income producing operating properties, properties under development, land held for future development, and held for disposition properties. As of December 31, 2020, the Company owned and consolidated 149 communities in 13 states plus the District of Columbia totaling 48,283 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of December 31, 2020 and 2019 (dollars in thousands):


	December 31,		December 31,
	2020		2019
Land	$	2,139,765	$	2,164,032
Depreciable property — held and used:
Land improvements		233,823		224,964
Building, improvements, and furniture, fixtures and equipment		10,292,782		10,102,758
Real estate intangible assets		40,570		40,570
Under development:
Land and land improvements		73,702		29,226
Building, improvements, and furniture, fixtures and equipment		174,175		40,551
Real estate held for disposition:
Land and land improvements		15,184		—
Building, improvements, and furniture, fixtures and equipment		101,471		—
Real estate owned		13,071,472		12,602,101
Accumulated depreciation (a)		(4,605,366)		(4,131,353)
Real estate owned, net	$	8,466,106	$	8,470,748

	(a)	Accumulated depreciation is inclusive of $5.8 million of accumulated amortization related to real estate intangible assets.

Acquisitions

In January 2020, the Company acquired a 294 apartment home operating community located in Tampa, Florida for approximately $85.2 million. The Company increased its real estate assets owned by approximately $83.1 million and recorded approximately $2.1 million of in-place lease intangibles.

In January 2020, the Company increased its ownership interest from 49% to 100% in a 276 apartment home operating community located in Hillsboro, Oregon, for a cash purchase price of approximately $21.6 million. In connection with the acquisition, the Company repaid approximately $35.6 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 (see Note 5, Joint Ventures and Partnerships). The Company accounted for the consolidation as an asset acquisition resulting in no gain or loss upon consolidation and increased its real estate assets owned by approximately $67.8 million and recorded approximately $1.7 million of in-place lease intangibles.

In August 2020, the Company acquired a to-be-developed parcel of land located in King of Prussia, Pennsylvania for approximately $16.2 million.

In November 2020, the Company acquired a 672 apartment home operating community located in Tampa, Florida for approximately $122.5 million. The Company increased its real estate assets owned by approximately $119.4 million and recorded approximately $3.1 million of in-place lease intangibles.

In December 2020, the Company acquired a 400 apartment home operating community located in Herndon, Virginia for approximately $128.6 million. The Company increased its real estate assets owned by approximately $125.9 million and recorded approximately $2.7 million of in-place lease intangibles.

F - 22

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

In January 2021, the Company acquired a 300 apartment home operating community located in Franklin, Massachusetts for approximately $77.4 million. In connection with the acquisition, the Company assumed a 4.39% fixed rate mortgage note payable secured by the community with an outstanding balance of approximately $51.8 million. The note is interest only until February 2024 and after such date payments will be based on a 30-year amortization schedule until its maturity in January 2029.

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 an equity investment 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 $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 (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 $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.

F - 23

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

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 (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 $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, and recognized a net gain on sale of $114.9 million at our share. 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 summarizes the 10 communities, one development community and four land parcels acquired from the UDR/MetLife II and the UDR/MetLife Vitruvian Park® joint ventures:


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.

F - 24

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

Dispositions

In May 2020, the Company sold an operating community located in Bellevue, Washington with a total of 71 apartment homes for gross proceeds of $49.7 million, resulting in a gain of approximately $29.6 million. The sale was partially financed by the Company through the issuance of a promissory note totaling $4.0 million which was repaid in January 2021. (See Note 2, Significant Accounting Policies for further discussion.) 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 of an operating community in Tampa, Florida, in January 2020.

In May 2020, the Company sold an operating community located in Kirkland, Washington with a total of 196 apartment homes for gross proceeds of $92.9 million, resulting in a gain of approximately $31.7 million.

In October 2020, the Company sold an operating community located in Alexandria, Virginia with a total of 332 apartment homes for gross proceeds of $145.0 million, resulting in a gain of approximately $58.0 million. The proceeds were designated for a tax-deferred Section 1031 exchange and were used to pay a portion of the purchase price for acquisitions in November and December 2020.

In February 2021, the Company sold an operating community in Anaheim, California with a total of 386 apartment homes for gross proceeds of $156.0 million, resulting in a gain of approximately $50.8 million.

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 of 2019, the lessee exercised the purchase option resulting in this sale by the Company and the ground lease being terminated.

Prior to the sale, the purchase option was not deemed to be a bargain purchase option. This ground lease existed as of the adoption of the new lease accounting guidance on January 1, 2019 and we did not reassess lease classification per the practical expedient provided by the standard. As a result, this ground lease continued to be classified as an operating lease and the land parcel subject to the ground lease continued to be recognized in Real estate held for investment on our Consolidated Balance Sheets until the sale in June 2019.

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.

Developments

At December 31, 2020, the Company was developing five wholly-owned communities totaling 1,378 homes, 202 of which have been completed, in which we have an investment of $247.9 million. The communities are estimated to be completed between the first quarter of 2021 and the second quarter of 2023.

Other Activity

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

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

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

Amortization of Intangible Assets

The following table provides a summary of the aggregate amortization for the intangible assets acquired in the acquisition of real estate for each of the next five years and thereafter (in thousands):


	Unamortized Balance as of December 31, 2020		2021		2022		2023		2024		2025		Thereafter
Real estate intangible assets, net (a)	$	34,782	$	2,840	$	2,740	$	2,643	$	2,525	$	2,436	$	21,598
In-place lease intangible assets, net (b)		2,631		553		518		403		375		318		464
Total	$	37,413	$	3,393	$	3,258	$	3,046	$	2,900	$	2,754	$	22,062

	(a)	Real estate intangible assets, net is recorded net of accumulated amortization of $5.8 million in Real estate held for investment, net on the Consolidated Balance Sheets. For the year ended December 31, 2020, $3.1 million of amortization expense was recorded in Depreciation and Amortization on the Consolidated Statement of Operations.

	(b)	In-place lease intangible assets, net is recorded net of accumulated amortization of $6.0 million in Other assets on the Consolidated Balance Sheets. For the year ended December 31, 2020, $46.1 million was recorded in _Depreciation and Amortizatio_n on the Consolidated Statement of Operations.

VARIABLE INTEREST ENTITIES

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

See the consolidated financial statements of the Operating Partnership presented within this Report and Note 4, Unconsolidated Entities, to the Operating Partnership’s consolidated financial statements for condensed summarized financial information of the DownREIT Partnership.

JOINT VENTURES AND PARTNERSHIPS

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

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

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

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

The following table summarizes the Company’s investment in and advances to unconsolidated joint ventures and partnerships, net, which are accounted for under the equity method of accounting as of December 31, 2020 and 2019 (dollars in thousands):


		Number of	Number of
		Operating	Apartment
		Communities	Homes	Investment at				UDR’s Ownership Interest				Income/(loss) from investments
	Location of	December 31,	December 31,	December 31,		December 31,		December 31,		December 31,		Year Ended December 31,
Joint Venture	Properties	2020	2020	2020		2019		2020		2019		2020		2019		2018
Operating:
UDR/MetLife I	Los Angeles, CA	1	150	$	26,426	$	28,812	50.0	%	50.0	%	$	(2,639)	$	(2,108)	$	(2,750)
UDR/MetLife II	Various	7	1,250		151,353		150,893	50.0	%	50.0	%		(1,044)		117,574		2,954
Other UDR/MetLife Joint Ventures (h)	Various	5	1,437		82,072		98,441	50.6	%	50.6	%		(10,444)		(6,349)		(7,639)
West Coast Development Joint Ventures (c)	Los Angeles, CA	1	293		30,080		34,907	47.0	%	47.0	%		(325)		(993)		(237)
Sold Joint Ventures					—		—	—	%	—	%		—		6,123		(7,694)
Investment in and advances to unconsolidated joint ventures, net, before preferred equity investments and other investments				$	289,931	$	313,053					$	(14,452)	$	114,247	$	(15,366)



							Investment at				Income/(loss) from investments
Developer Capital Program				Years To	UDR		December 31,		December 31,		Year Ended December 31,
and Other Investments (a)	Location	Rate		Maturity	Commitment (b)		2020		2019		2020		2019		2018
Preferred equity investments:
West Coast Development Joint Ventures (c)	Hillsboro, OR	6.5	%	N/A	$	—	$	—	$	17,064	$	(46)	$	(447)	$	865
1532 Harrison	San Francisco, CA	11.0	%	1.5		24,645		34,135		30,585		3,519		3,147		2,228
1200 Broadway (d)	Nashville, TN	8.0	%	1.7		55,558		69,330		63,958		5,309		4,888		2,970
Junction	Santa Monica, CA	12.0	%	1.6		8,800		11,699		10,379		1,321		1,169		406
1300 Fairmount (d)	Philadelphia, PA	Variable		2.6		51,393		59,544		51,215		4,843		3,098		159
Essex	Orlando, FL	12.5	%	2.6		12,886		16,770		14,804		1,965		1,639		258
Modera Lake Merritt (d)	Oakland, CA	9.0	%	3.2		27,250		30,928		22,653		2,592		1,067		—
Thousand Oaks (e)	Thousand Oaks, CA	9.0	%	4.1		20,059		17,919		—		763		—		—
Vernon Boulevard (f)	Queens, NY	13.0	%	4.5		40,000		42,360		—		2,348		—		—
Other investments:
The Portals (g)	Washington, D.C.	11.0	%	N/A		—		—		48,181		5,745		5,012		3,692
Other investment ventures	N/A	N/A		N/A	$	34,500		22,870		13,598		4,937		4,053		(267)
Total Preferred Equity Investments and Other Investments								305,555		272,437		33,296		23,626		10,311

Total Joint Ventures and Developer Capital Program Investments, net (h)							$	595,486	$	585,490	$	18,844	$	137,873	$	(5,055)

(a)

The Developer Capital Program is the program through which the Company makes investments, including preferred equity investments, mezzanine loans or other structured investments that may receive a fixed yield on the investment and may include provisions pursuant to which the Company participates in the increase in value of the property upon monetization of the applicable property and/or holds fixed price purchase options.

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

(c)

In January 2020, the Company increased its ownership interest from 49% to 100% in a 276 apartment home operating community located in Hillsboro, Oregon, for a cash purchase price of approximately $21.6 million. As a result, in January 2020, the Company consolidated the operating community and it is no longer accounted for as a preferred equity investment in an unconsolidated joint venture (see Note 3, Real Estate Owned).

In January 2021, the joint venture sold its remaining community, a 293 home operating community in Los Angeles, California, for a sales price of approximately $121.0 million. As a result, the Company will record a gain on the sale of approximately $2.5 million in the first quarter of 2021.

(d)	The Company’s preferred equity investment receives a variable percentage of the value created from the project upon a capital or liquidating event.

(e)	In February 2020, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 142 apartment home community in Thousand Oaks, CA. The Company’s preferred equity

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

investment of up to $20.1 million earns a preferred return of 9.0% per annum and receives a variable percentage of the value created from the project upon a capital or liquidating event. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and, therefore, accounts for it under the equity method of accounting.

(f)

In July 2020, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 534 apartment home community in Queens, New York. The Company’s preferred equity investment of $40.0 million earns a preferred return of 13.0% per annum and receives a variable percentage of the value created from the project upon a capital or liquidating event. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and accounts for it under the equity method of accounting.

(g)

The Company previously entered into a joint venture agreement with an unaffiliated joint venture partner. The joint venture made a mezzanine loan to a third-party developer of a 373-apartment home community in Washington, D.C. In December 2020, the mezzanine loan was paid in full and the Company redeemed its investment. The Company received cash of $53.7 million, consisting of its investment of $38.6 million and contractually accrued interest of $15.1 million**.**

(h)	As of December 31, 2020 and 2019, the Company’s negative investment in 13th and Market Properties LLC of $4.7 million and $2.8 million, respectively, is included in Other UDR/MetLife Joint Ventures in the table above and recorded in Accounts payable, accrued expenses, and other liabilities on the Consolidated Balance Sheet.

In January 2021, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 356 apartment home community in Herndon, Virginia. The Company’s preferred equity investment of $30.2 million earns a preferred return of 9.0% per annum and receives a variable percentage of the value created from the project upon a capital or liquidating event. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and accounts for it under the equity method of accounting.

As of December 31, 2020 and 2019, the Company had deferred fees of $8.4 million and $9.0 million, respectively, which will be recognized through earnings over the weighted average life of the related properties, upon the disposition of the properties to a third party, or upon completion of certain development obligations.

The Company recognized management fees of $5.1 million, $14.0 million, and $11.6 million during the years ended December 31, 2020, 2019, and 2018, respectively, for management of the communities held by the joint ventures and partnerships. The management fees are included in Joint venture management and other fees on the Consolidated Statements of Operations.

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

We consider various factors to determine if a decrease in the value of our Investment in and advances to unconsolidated joint ventures, net is other-than-temporary. These factors include, but are not limited to, age of the venture, our intent and ability to retain our investment in the entity, the financial condition and long-term prospects of the entity, and the relationships with the other joint venture partners and its lenders. Based on the significance of the unobservable inputs, we classify these fair value measurements within Level 3 of the valuation hierarchy. The Company did not incur any other-than-temporary impairments in the value of its investments in unconsolidated joint ventures during the years ended December 31, 2020, 2019, and 2018.

F - 28

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

Condensed summary financial information relating to the unconsolidated joint ventures’ and partnerships’ operations (not just our proportionate share), is presented below for the years ended December 31, 2020, 2019, and 2018 (dollars in thousands):


											Developer
					Other		West Coast		Total		Capital Program
As of and For the	UDR/		UDR/		UDR/MetLife		Development		Excluding		and Other
Year Ended December 31, 2020	MetLife I		MetLife II		Joint Ventures		Joint Ventures		DCP		Investments		Total
Condensed Statements of Operations:
Total revenues	$	9,480	$	56,274	$	57,781	$	8,668	$	132,203	$	16,189	$	148,392
Property operating expenses		4,978		21,951		22,870		4,477		54,276		8,232		62,508
Real estate depreciation and amortization		5,980		18,912		35,454		3,338		63,684		3,495		67,179
Operating income/(loss)		(1,478)		15,411		(543)		853		14,243		4,462		18,705
Interest expense		(3,075)		(15,386)		(17,457)		(1,344)		(37,262)		(3,121)		(40,383)
Other income/(loss)		—		204		—		63		267		35		302
Net realized/unrealized gain/(loss) on held investments		—		—		—		—		—		36,141		36,141
Net income/(loss)	$	(4,553)	$	229	$	(18,000)	$	(428)	$	(22,752)	$	37,517	$	14,765

Condensed Balance Sheets:
Total real estate, net	$	114,192	$	650,593	$	589,822	$	—	$	1,354,607	$	550,198	$	1,904,805
Real estate assets held for sale		—		—		—		88,458		88,458		—		88,458
Cash and cash equivalents		2,585		4,369		7,049		—		14,003		8,275		22,278
Other assets		1,622		14,133		6,214		—		21,969		128,925		150,894
Total assets		118,399		669,095		603,085		88,458		1,479,037		687,398		2,166,435
Third party debt, net		70,946		416,364		454,153		—		941,463		247,247		1,188,710
Liabilities held for sale		—		—		—		55,440		55,440		—		55,440
Accounts payable and accrued liabilities		3,507		6,764		8,593		—		18,864		21,692		40,556
Total liabilities		74,453		423,128		462,746		55,440		1,015,767		268,939		1,284,706
Total equity	$	43,946	$	245,967	$	140,339	$	33,018	$	463,270	$	418,459	$	881,729


											Developer
					Other		West Coast		Total		Capital Program
As of and For the	UDR/		UDR/		UDR/MetLife		Development		Excluding		and Other
Year Ended December 31, 2019	MetLife I		MetLife II		Joint Ventures		Joint Ventures		DCP		Investments		Total
Condensed Statements of Operations:
Total revenues	$	9,834	$	151,226	$	102,888	$	14,058	$	278,006	$	11,242	$	289,248
Property operating expenses		4,533		54,445		39,542		6,829		105,349		3,432		108,781
Real estate depreciation and amortization		5,787		44,077		50,579		5,440		105,883		—		105,883
Gain/(loss) on sale of real estate (a)		—		—		115,516		—		115,516		—		115,516
Operating income/(loss)		(486)		52,704		128,283		1,789		182,290		7,810		190,100
Interest expense		(3,070)		(44,825)		(27,647)		(4,656)		(80,198)		—		(80,198)
Net gain/(loss) on revaluation of assets and liabilities (b)		—		458,195		25,711		—		483,906		—		483,906
Other income/(loss)		—		—		—		159		159		(68)		91
Net realized/unrealized gain/(loss) on held investments		—		—		—		—		—		26,417		26,417
Net income/(loss)	$	(3,556)	$	466,074	$	126,347	$	(2,708)	$	586,157	$	34,159	$	620,316

Condensed Balance Sheets:
Total real estate, net	$	120,055	$	663,492	$	621,335	$	140,224	$	1,545,106	$	355,975	$	1,901,081
Cash and cash equivalents		2,317		4,208		7,973		5,692		20,190		9,633		29,823
Other assets		1,053		9,777		5,400		1,305		17,535		155,406		172,941
Total assets		123,425		677,477		634,708		147,221		1,582,831		521,014		2,103,845
Third party debt, net		70,890		425,303		454,972		90,498		1,041,663		106,385		1,148,048
Accounts payable and accrued liabilities		4,037		9,303		9,757		3,440		26,537		28,577		55,114
Total liabilities		74,927		434,606		464,729		93,938		1,068,200		134,962		1,203,162
Total equity	$	48,498	$	242,871	$	169,979	$	53,283	$	514,631	$	386,052	$	900,683

(a)	Represent the gains on the sale of three operating communities at the UDR/KFH joint venture level.

(b)	Represent the net gains on the revaluation of the assets and liabilities to fair value of 15 operating communities at the UDR/MetLife II joint venture level and one development community and four land parcels at the UDR/MetLife Vitruvian Park® joint venture level prior to their distribution to the Company or MetLife in November 2019. The

F - 29

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

net gain on revaluation of assets and liabilities to fair value was recognized at the joint venture level as the respective joint ventures distributed their equity interests in the real estate to the Company or MetLife at fair value.

For the approximately 50% ownership interest acquired in the 10 operating communities, one development community and four land parcels described above, the Company deferred its share of the net gain on revaluation of approximately $131.5 million and recorded it as a reduction of the carrying amount of real estate owned. (see Note 3, Real Estate Owned). For the 50% ownership interest acquired in the five communities by MetLife, the Company recognized a net gain on sale of $114.9 million at our share, when the communities were disposed of by the UDR/MetLife II joint venture.


											Developer				UDR/
					Other		West Coast		Total		Capital Program				MetLife
For the	UDR/		UDR/		UDR/MetLife		Development		Excluding		and Other				Vitruvian
Year Ended December 31, 2018	MetLife I		MetLife II		Joint Ventures		Joint Ventures		DCP		Investments		Total		Park®
Condensed Statements of Operations:
Total revenues	$	3,187	$	158,738	$	108,766	$	16,392	$	287,083	$	5,977	$	293,060	$	26,096
Property operating expenses		3,066		56,403		44,048		8,830		112,347		1,789		114,136		13,732
Real estate depreciation and amortization		3,392		44,721		59,419		7,679		115,211		—		115,211		9,495
Operating income/(loss)		(3,271)		57,614		5,299		(117)		59,525		4,188		63,713		2,869
Interest expense		(1,872)		(49,118)		(30,198)		(6,175)		(87,363)		—		(87,363)		(6,051)
Other income/(loss)		—		—		—		148		148		—		148		—
Net income/(loss)	$	(5,143)	$	8,496	$	(24,899)	$	(6,144)	$	(27,690)	$	4,188	$	(23,502)	$	(3,182)

LEASES

Lessee - Ground and Office Leases

UDR owns six communities that are subject to ground leases, under which UDR is the lessee, expiring between 2043 and 2103, inclusive of extension options we are reasonably certain will be exercised. All of these leases are classified as operating leases through the lease term expiration based on our election of the practical expedient provided by the leasing standard. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the remaining lease term. We currently do not hold any finance leases. The Company also elected the short-term lease exception provided by the leasing standard and therefore only recognizes right-of-use assets and lease liabilities for leases with a term greater than one year. No leases qualified for the short-term lease exception during the years ended December 31, 2020 and 2019.

As of December 31, 2020 and 2019, the Operating lease right-of-use assets were $200.9 million and $204.2 million, respectively, and the Operating lease liabilities were $195.6 million and $198.6 million, respectively, on our Consolidated Balance Sheet related to our ground leases. The value of the Operating lease right-of-use assets exceeds the value of the Operating lease liabilities due to prepaid lease payments and intangible assets for ground leases acquired in the purchase of real estate. The calculation of these amounts includes minimum lease payments over the remaining lease term (described further in the table below). Variable lease payments are excluded from the right-of-use assets and lease liabilities and are recognized in earnings in the period in which the obligation for those payments is incurred.

As the discount rate implicit in the leases was not readily determinable, we determined the discount rate for these leases utilizing the Company’s incremental borrowing rate at a portfolio level, adjusted for the remaining lease term, and the form of underlying collateral.

The weighted average remaining lease term for these leases was 43.9 years and 44.7 years at December 31, 2020 and 2019, respectively, and the weighted average discount rate was 5.0% at both December 31, 2020 and 2019.

F - 30

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

Future minimum lease payments and total operating lease liabilities from our ground leases as of December 31, 2020 are as follows (dollars in thousands):


	Ground Leases
2021	$	12,442
2022		12,442
2023		12,442
2024		12,442
2025		12,442
Thereafter		442,778
Total future minimum lease payments (undiscounted)		504,988
Difference between future undiscounted cash flows and discounted cash flows		(309,396)
Total operating lease liabilities (discounted)	$	195,592

For purposes of recognizing our ground lease contracts, the Company uses the minimum lease payments, if stated in the agreement. For ground lease agreements where there is a rent reset provision based on a change in an index or a rate (i.e., changes in fair market rental rates or changes in the consumer price index) but that does not include a specified minimum lease payment, the Company uses the current rent over the remainder of the lease term. If there is a contingency upon which some or all of the variable lease payments that will be paid over the remainder of the lease term are based, which is resolved such that those payments now meet the definition of lease payments, the Company will remeasure the right-of-use asset and lease liability on the reset date. For the year ended December 31, 2019, Operating lease right-of-use assets and Operating lease liabilities increased by $111.1 million due to future minimum payments on two of our ground leases becoming fixed for the remainder of their terms.

The components of operating lease expenses were as follows (dollars in thousands):


	Year Ended December 31,
	2020		2019
Lease expense:
Contractual lease expense	$	12,821	$	8,272
Variable lease expense (a)		119		664
Total operating lease expense (b)(c)	$	12,940	$	8,936

	(a)	Variable lease expense includes adjustments such as changes in the consumer price index and payments based on a percentage of income of the lessee.

	(b)	Lease expense is reported within the line item Other operating expenses on the Consolidated Statements of Operations.

	(c)	For the year ended December 31, 2020, Operating lease right-of-use assets and Operating lease liabilities amortized by $3.3 million and $3.0 million, respectively, and for the year ended December 31, 2019, Operating lease right-of-use assets and Operating lease liabilities amortized by $1.2 million and $0.8 million, respectively. Due to the net impact of the amortization, the Company recorded $0.3 million and $0.4 million of total operating lease expense during the year ended December 31, 2020 and 2019, respectively.

Lessor - Apartment Home, Retail and Commercial Space Leases

UDR’s communities and retail and commercial space are leased to tenants under operating leases. As of December 31, 2020, our apartment home leases generally have initial terms of 12 months or less and represent approximately 97.3% of our total lease revenue. As of December 31, 2020, our retail and commercial space leases generally have initial terms of between 5 and 15 years and represent approximately 2.7% of our total lease revenue. Our apartment home leases are generally renewable at the end of the lease term, subject to potential increases in rental rates, and our retail and commercial space leases generally have renewal options, subject to associated increases in rental rates due to market-based or fixed-price renewal options and certain other conditions. (See Note 16, Reportable Segments for further discussion around our major revenue streams and disaggregation of our revenue.)

F - 31

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

We previously owned a parcel of land subject to a ground lease under which UDR was the lessor, expiring in 2065. The ground lease included a purchase option for the lessee to acquire the land during specific periods of the ground lease term. In June 2019, the lessee exercised the purchase option and acquired the parcel of land for $38.0 million. (See Note 3, Real Estate Owned for further discussion.)

Future minimum lease payments from our retail and commercial leases as of December 31, 2020 are as follows (dollars in thousands):


	Retail and Commercial Leases
2021	$	23,970
2022		22,749
2023		20,855
2024		19,132
2025		15,972
Thereafter		70,396
Total future minimum lease payments (a)	$	173,074

	(a)	We have excluded our apartment home leases from this table as our apartment home leases generally have initial terms of 12 months or less.

Certain of our leases with retail and commercial tenants provide for the payment by the lessee of additional variable rent based on a percentage of the tenant’s revenue. The amounts shown in the table above do not include these variable percentage rents. The Company recorded variable percentage rents of $0.2 million and $0.4 million during the years ended December 31, 2020 and 2019, respectively.

F - 32

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

SECURED AND UNSECURED DEBT, NET

The following is a summary of our secured and unsecured debt at December 31, 2020 and 2019 (dollars in thousands):


	Principal Outstanding				As of December 31, 2020
					Weighted		Weighted
					Average		Average	Number of
	December 31,		December 31,		Interest		Years to	Communities
	2020		2019		Rate		Maturity	Encumbered
Secured Debt:
Fixed Rate Debt
Mortgage notes payable (a)	$	824,550	$	884,869	3.31	%	7.2	11
Credit facilities (b)		—		204,590	—	%	—	—
Deferred financing costs and other non-cash adjustments (b)		10,665		33,046
Total fixed rate secured debt, net		835,215		1,122,505	3.31	%	7.2	11
Variable Rate Debt
Tax-exempt secured notes payable (c)		27,000		27,000	0.84	%	11.2	1
Deferred financing costs		(68)		(64)
Total variable rate secured debt, net		26,932		26,936	0.84	%	11.2	1
Total Secured Debt, net		862,147		1,149,441	3.23	%	7.3	12
Unsecured Debt:
Variable Rate Debt
Borrowings outstanding under unsecured credit facility due January 2023 (d) (p)		—		—	—	%	2.1
Borrowings outstanding under unsecured commercial paper program due January 2021 (e) (p)		190,000		300,000	0.27	%	0.1
Borrowings outstanding under unsecured working capital credit facility due January 2022 (f)		28,024		16,583	0.97	%	1.0
Term Loan due September 2023 (d) (p)		35,000		35,000	1.05	%	2.8
Fixed Rate Debt
Term Loan due September 2023 (d) (p)		315,000		315,000	2.55	%	2.8
3.75% Medium-Term Notes due July 2024 (net of discounts of $0 and $470, respectively) (g) (p)		—		299,530	—	%	—
8.50% Debentures due September 2024		15,644		15,644	8.50	%	3.7
4.00% Medium-Term Notes due October 2025 (net of discounts of $327 and $396, respectively) (h) (p)		299,673		299,604	4.53	%	4.8
2.95% Medium-Term Notes due September 2026 (i) (p)		300,000		300,000	2.89	%	5.7
3.50% Medium-Term Notes due July 2027 (net of discounts of $458 and $529, respectively) (p)		299,542		299,471	3.50	%	6.5
3.50% Medium-Term Notes due January 2028 (net of discounts of $835 and $954, respectively) (p)		299,165		299,046	3.50	%	7.0
4.40% Medium-Term Notes due January 2029 (net of discounts of $5 and $5, respectively) (j) (p)		299,995		299,995	4.27	%	8.1
3.20% Medium-Term Notes due January 2030 (net of premiums of $12,412 and $2,281, respectively) (k) (p)		612,412		402,281	3.32	%	9.0
3.00% Medium-Term Notes due August 2031 (net of discounts of $1,027 and $1,123, respectively) (l) (p)		398,973		398,877	3.01	%	10.6
2.10% Medium-Term Notes due August 2032 (net of discounts of $408 and $0, respectively) (m) (p)		399,592		—	2.10	%	11.6
1.90% Medium-Term Notes due March 2033 (net of discounts of $1,471 and $0, respectively) (n) (p)		348,529		—	1.90	%	12.2
3.10% Medium-Term Notes due November 2034 (net of discounts of $1,221 and $1,309, respectively) (o) (p)		298,779		298,691	3.13	%	13.8
Other		10		13
Deferred financing costs		(25,937)		(21,652)
Total Unsecured Debt, net		4,114,401		3,558,083	2.98	%	8.1
Total Debt, net	$	4,976,548	$	4,707,524	2.91	%	8.0

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

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

Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon payments due at maturity. As of December 31, 2020, secured debt encumbered $1.4 billion or 10.6% of UDR’s total real estate owned based upon gross book value ($11.7 billion or 89.4% of UDR’s real estate owned based on gross book value is unencumbered).

(a) At December 31, 2020, fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from July 2024 through February 2031 and carry interest rates ranging from 2.62% to 4.12%.

In July 2020, the Company refinanced a 4.35% fixed rate mortgage note payable due in November 2020 with a balance of $79.3 million with a $160.9 million, 2.62% fixed rate mortgage note payable due in 2031. The Company incurred net extinguishment costs of $0.5 million in connection with the refinancing. The incremental proceeds were used to reduce the Company’s borrowings under its unsecured commercial paper program.

During the years ended December 31, 2020 and 2019, the Company prepaid $111.1 million and zero, respectively, of its fixed rate mortgage notes payable with proceeds from the issuance of senior unsecured medium-term notes. The Company incurred net extinguishment costs of $8.5 million, zero and $0.5 million during years ended December 31, 2020, 2019, and 2018, respectively, which was included in Interest expense on the Consolidated Statements of Operations.

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

(b) During the year ended December 31, 2020, the Company prepaid the $201.9 million outstanding balance under its secured credit facility with New York Life with proceeds from the issuance of senior unsecured medium-term notes. The Company incurred net extinguishment costs of $9.0 million during the year ended December 31, 2020, which was included in Interest expense on the Consolidated Statements of Operations.

During the years ended December 31, 2020, 2019, and 2018, the Company had $22.4 million, $3.0 million, and $3.0 million, respectively, of amortization of the fair market adjustment of debt assumed in the acquisition of properties inclusive of its fixed rate mortgage notes payable and credit facilities, which was included in Interest expense on the Consolidated Statements of Operations. The unamortized fair market adjustment was a net premium of $12.9 million and $35.3 million at December 31, 2020 and 2019, respectively.

(c) The variable rate mortgage note payable secures a tax-exempt housing bond issue that matures in March 2032. Interest on this note is payable in monthly installments. As of December 31, 2020, the variable interest rate on the mortgage note was 0.84%.

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

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.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

The Company previously entered into an interest rate swap to hedge against the interest rate risk on the Term Loan, which expired in January 2021. As of December 31, 2020, the all-in weighted average interest rate, inclusive of the impact of the interest rate swap, was 2.55%. In January 2021, the Company entered into three interest rate swaps to hedge against interest rate risk on the Term Loan until July 2022. The all-in weighted average interest rate, inclusive of the impact of the interest rate swaps, is 1.07%.

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

The following is a summary of short-term bank borrowings under the Revolving Credit Facility at December 31, 2020 and 2019 (dollars in thousands):


	December 31,			December 31,
	2020			2019
Total revolving credit facility	$	1,100,000		$	1,100,000
Borrowings outstanding at end of year (1)		—			—
Weighted average daily borrowings during the year ended		42,186			55
Maximum daily borrowings during the year ended		375,000			20,000
Weighted average interest rate during the year ended		1.4	%		2.6	%
Interest rate at end of the year		—	%		—	%

(1)	Excludes $2.8 million and $2.9 million of letters of credit at December 31, 2020 and 2019, respectively.

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

The following is a summary of short-term bank borrowings under the unsecured commercial paper program at December 31, 2020 and 2019 (dollars in thousands):


	December 31,			December 31,
	2020			2019
Total unsecured commercial paper program	$	500,000		$	500,000
Borrowings outstanding at end of year		190,000			300,000
Weighted average daily borrowings during the year ended		227,090			173,353
Maximum daily borrowings during the year ended		500,000			435,000
Weighted average interest rate during the year ended		0.9	%		2.5	%
Interest rate at end of the year		0.3	%		2.0	%

In January 2021, the entire $190.0 million of outstanding unsecured commercial paper as of December 31, 2020 was repaid at maturity with additional proceeds of unsecured commercial paper with maturity dates in February 2021 and proceeds under the Working Capital Credit Facility.

(f) The Company has a working capital credit facility, which provides for a $75.0 million unsecured revolving credit facility (the “Working Capital Credit Facility”) with a previously scheduled maturity date of January 15, 2021. Based on the Company’s current credit rating, the Working Capital Credit Facility has an interest rate equal to LIBOR plus a margin of 82.5 basis points. Depending on the Company’s credit rating, the margin ranges from 75 to 145 basis points.

In July 2020, the Company extended its working capital credit facility maturity date from January 15, 2021 to January 14, 2022.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

The following is a summary of short-term bank borrowings under the Working Capital Credit Facility at December 31, 2020 and 2019 (dollars in thousands):


	December 31,			December 31,
	2020			2019
Total working capital credit facility	$	75,000		$	75,000
Borrowings outstanding at end of year		28,024			16,583
Weighted average daily borrowings during the year ended		20,132			23,487
Maximum daily borrowings during the year ended		54,974			66,170
Weighted average interest rate during the year ended		1.4	%		3.1	%
Interest rate at end of the year		1.0	%		2.6	%

(g) In July 2020, the Company announced that it commenced a cash tender offer for any and all of its outstanding 3.75% unsecured medium-term notes due July 2024 (the “2024 Notes”). Pursuant to the tender offer, on July 21, 2020, the Company completed the purchase of $116.9 million aggregate principal amount of the 2024 Notes, or 39.0% of the $300.0 million aggregate principal amount of the 2024 Notes. The tender offer consideration was $1,101.92 for each $1,000 principal amount of the 2024 Notes, plus accrued and unpaid interest to, but not including, July 21, 2020. The Company incurred net extinguishment costs of $12.8 million during the year ended December 31, 2020, which was included in Interest expense on the Consolidated Statements of Operations.

In December 2020, the Company redeemed the remaining $183.1 million aggregate principal amount of the 2024 Notes. The Company incurred $21.1 million in make-whole expense upon redemption of these notes.

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

(i) The Company previously entered into forward starting interest rate swaps to hedge against interest rate risk on $100.0 million of this debt. The all-in weighted average interest rate, inclusive of the impact of these interest rate swaps, was 2.89%.

(j) The Company previously entered into forward starting interest rate swaps to hedge against interest rate risk on $150.0 million of the initial $300.0 million issued. The all-in weighted average interest rate, inclusive of the impact of these interest rate swaps, was 4.27%.

(k) The Company previously entered into forward starting interest rate swaps to hedge against the interest rate risk of this debt. In connection with the additional $100.0 million issued in October 2019, the Company entered into treasury lock agreements to hedge against interest rate risk on all of this debt.

In February 2020, the Company issued an additional $200.0 million of 3.20% senior unsecured medium-term notes due 2030 (the “2030 Notes”). Interest is payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2020. The notes were priced at 105.660% of the principal amount at issuance. This was a further issuance of the 2030 Notes, and forms a single series with, the $300.0 million aggregate principal amount of the Company’s 2030 Notes that were issued in July 2019 and the $100.0 million aggregate principal amount of the Company’s 2030 Notes that were issued in October 2019.

As of the completion of the offerings, the aggregate principal amount of outstanding 2030 Notes was $600.0 million. The all-in weighted average interest rate, inclusive of the impact of the forward starting swaps and treasury locks, was 3.32% for the 2030 Notes.

(l) The Company entered into a treasury lock agreement to hedge against interest rate risk on $150.0 million of this debt. The all-in weighted average interest rate, inclusive of the impact of the treasury lock, was 3.01%.

(m) In July 2020, the Company issued $400.0 million of 2.10% senior unsecured medium-term notes due August 1, 2032. Interest is payable semi-annually in arrears on February 1 and August 1. The notes were priced at 99.894% of the principal amount at issuance. The Company used a portion of the net proceeds to fund the purchase of

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

the 2024 Notes accepted pursuant to the tender offer described above and to prepay $245.8 million of 4.64% secured debt due in 2023. The combined prepayment and make-whole amounts for the purchase of the 2024 Notes and the prepayment of the secured debt due in 2023, inclusive of the acceleration of fair market value adjustments originally recorded on secured debt assumed in property acquisitions, totaled approximately $24.0 million, which was included in Interest expense on the Consolidated Statements of Operations.

(n) In December 2020, the Company issued $350.0 million of 1.90% senior unsecured medium-term notes due March 15, 2033 (the “2033 Notes”). Interest is payable semi-annually in arrears on March 15 and September 15. The notes were priced at 99.578% of the principal amount at issuance. The Company used the net proceeds for the repayment of debt, including the redemption of the remaining $183.1 million aggregate principal amount (plus the make-whole amount of approximately $21.1 million) of its 2024 Notes, $67.5 million of secured debt maturing in 2023, and outstanding indebtedness under our commercial paper program and working capital credit facility. The 2033 Notes were issued as “green” bonds and, as a result, the Company will allocate an amount equal to the net proceeds from the sale of the 2033 Notes to fund eligible green projects.

(o) 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 3.13%.

(p) The Operating Partnership is the guarantor of this debt.

The aggregate maturities, including amortizing principal payments on secured and unsecured debt, of total debt for the next ten years subsequent to December 31, 2020 are as follows (dollars in thousands):


	Total Fixed		Total Variable		Total		Total			Total
Year	Secured Debt		Secured Debt		Secured Debt		Unsecured Debt			Debt
2021	$	1,097	$	—	$	1,097	$	190,000	(a)	$	191,097
2022		1,140		—		1,140		28,024			29,164
2023		1,183		—		1,183		350,000			351,183
2024		95,280		—		95,280		15,644			110,924
2025		173,189		—		173,189		300,000			473,189
2026		51,070		—		51,070		300,000			351,070
2027		1,111		—		1,111		300,000			301,111
2028		122,466		—		122,466		300,000			422,466
2029		144,584		—		144,584		300,000			444,584
2030		72,500		—		72,500		600,000			672,500
Thereafter		160,930		27,000		187,930		1,450,000			1,637,930
Subtotal		824,550		27,000		851,550		4,133,668			4,985,218
Non-cash (b)		10,665		(68)		10,597		(19,267)			(8,670)
Total	$	835,215	$	26,932	$	862,147	$	4,114,401		$	4,976,548

(a)	All unsecured debt due in the remainder of 2021 is related to the Company’s commercial paper program.

(b)	Includes the unamortized balance of fair market value adjustments, premiums/discounts, and deferred financing costs. For the years ended December 31, 2020 and 2019, the Company amortized $4.4 million and $4.2 million, respectively, of deferred financing costs into Interest expense.

We were in compliance with the covenants of our debt instruments at December 31, 2020.

On February 11, 2021, the Company priced an offering of $300.0 million of 2.10% senior unsecured medium-term notes due 2033. The notes were priced at 99.592% of the principal amount of the notes. The Company intends to use the net proceeds to repay indebtedness, including the redemption of its $300.0 million 4.00% senior unsecured medium-term notes due October 2025 (plus the make-whole amount and accrued and unpaid interest), to fund potential acquisitions, or for other general corporate purposes. The settlement of the offering is expected to occur on February 26, 2021, subject to the satisfaction of customary closing conditions.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

INCOME/(LOSS) PER SHARE

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


	Year Ended December 31,
	2020		2019		2018
Numerator for income/(loss) per share:
Net income/(loss)	$	68,970	$	199,579	$	221,542
Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		(4,543)		(14,426)		(18,215)
Net (income)/loss attributable to noncontrolling interests		(161)		(188)		(221)
Net income/(loss) attributable to UDR, Inc.		64,266		184,965		203,106
Distributions to preferred stockholders — Series E (Convertible)		(4,230)		(4,104)		(3,868)
Income/(loss) attributable to common stockholders - basic and diluted	$	60,036	$	180,861	$	199,238

Denominator for income/(loss) per share:
Weighted average common shares outstanding		294,808		285,509		268,513
Non-vested restricted stock awards		(263)		(262)		(334)
Denominator for basic income/(loss) per share		294,545		285,247		268,179
Incremental shares issuable from assumed conversion of unvested LTIP Units and unvested restricted stock		382		768		1,304
Denominator for diluted income/(loss) per share		294,927		286,015		269,483

Income/(loss) per weighted average common share:
Basic	$	0.20	$	0.63	$	0.74
Diluted	$	0.20	$	0.63	$	0.74

Basic income/(loss) per common share is computed based upon the weighted average number of common shares outstanding. Diluted income/(loss) per common share is computed based upon the weighted average number of common shares outstanding plus the common shares issuable from the assumed conversion of the OP Units and DownREIT Units, convertible preferred stock, stock options, unvested long-term incentive plan units (“LTIP Units”), unvested restricted stock and continuous equity program forward sales agreements. Only those instruments having a dilutive impact on our basic income/(loss) per share are included in diluted income/(loss) per share during the periods. For the years ended December 31, 2020, 2019, and 2018, the effect of the conversion of the OP Units, DownREIT Units, LTIP Units, the Company’s Series E preferred stock and shares issuable upon settlement of forward sales agreements was not dilutive and therefore not included in the above calculation.

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, 2020, the Company sold 2.1 million shares of common stock through its ATM program pursuant to the Company’s forward sales agreement described below.

In connection with any forward sales agreement under the Company’s ATM program, the relevant forward purchasers will borrow from third parties and, through the relevant sales agent, acting in its role as forward seller, sell a number of shares of the Company’s common stock equal to the number of shares underlying the agreement. The Company does not initially receive any proceeds from any sale of borrowed shares by the forward seller.

During the year ended December 31, 2020, the Company entered into forward sales agreements under its ATM program for a total of 2.1 million shares of common stock at a weighted average initial forward price per share of $49.56. The initial forward price per share received by the Company upon settlement was determined on the

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

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 2020, the Company settled all 2.1 million shares sold under the forward sales agreement at a weighted average forward price per share of $48.23, 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 $3.9 million, for net proceeds of $102.3 million. Aggregate net proceeds from such sales, after deducting related expenses, was $102.2 million.

As of December 31, 2020, we had 9.6 million shares of common stock available for future issuance under the ATM program.

During the year ended December 31, 2020, the Company repurchased 0.6 million shares of its common stock at an average price of $33.11 per share for total consideration of approximately $19.8 million under its share repurchase program.

The following table sets forth the additional shares of common stock outstanding by equity instrument if converted to common stock for each of the years ended December 31, 2020, 2019, and 2018 (in thousands):


	Year Ended December 31,
	2020	2019	2018
OP/DownREIT Units	22,310	22,773	24,548
Convertible preferred stock	2,950	3,011	3,011
Stock options, unvested LTIP Units and unvested restricted stock	382	768	1,304

STOCKHOLDERS’ EQUITY

UDR has an effective registration statement that allows the Company to sell an undetermined number of debt and equity securities as defined in the prospectus. The Company had the ability to issue 350.0 million shares of common stock and 50.0 million shares of preferred shares as of December 31, 2020.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

The following table presents the changes in the Company’s issued and outstanding shares of common and preferred stock for the years ended December 31, 2020, 2019 and 2018:


	Common	Preferred Stock
	Stock	Series E	Series F
Balance at December 31, 2017	267,822	2,781	15,852
Issuance/(forfeiture) of common and restricted shares, net	47	—	—
Issuance of common shares upon exercise of stock options	772	—	—
Issuance of common shares through public offering	7,150	—	—
Repurchase of common shares	(593)	—	—
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership	11	—	—
Adjustment for conversion of noncontrolling interest of unitholders in the DownREIT Partnership	337	—	—
Forfeiture of Series F shares	—	—	(50)
Balance at December 31, 2018	275,546	2,781	15,802
Issuance/(forfeiture) of common and restricted shares, net	50	—	—
Issuance of common shares through public offering	7,500	—	—
Issuance of common shares though ATM program	6,988	—	—
Issuance of common shares through forward sales agreement	1,339	—	—
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership	1,969	—	—
Adjustment for conversion of noncontrolling interest of unitholders in the DownREIT Partnership	1,196	—	—
Forfeiture of Series F shares	—	—	(1,111)
Balance at December 31, 2019	294,588	2,781	14,691
Issuance/(forfeiture) of common and restricted shares, net	104	—	—
Issuance of common shares through forward sales public offering, net (forward sales agreement)	2,121	—	—
Repurchase of common shares	(597)	—	—
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership	3	—	—
Adjustment for conversion of noncontrolling interest of unitholders in the DownREIT Partnership	300	—	—
Conversion of Series E Cumulative Convertible shares	93	(86)	—
Forfeiture of Series F shares	—	—	(250)
Balance at December 31, 2020	296,612	2,695	14,441

Common Stock

The Company has an equity distribution agreement which allows it from time to time, through its sales agents, to offer and sell up to 20.0 million shares of its common stock. Sales of such shares will be made by means of ordinary brokers’ transactions on the NYSE at market prices. In July 2017, the Company updated its equity distribution agreement to also permit the entry into separate forward sales agreements to or through its forward purchasers. As of December 31, 2020, 9.6 million shares were available for sale under the continuous equity program.

During the year ended December 31, 2020, the Company entered into the following equity transactions for our common stock:

	●	Issued 2.1 million shares of common stock through a forward sales agreement under the Company’s ATM program at a forward price per share of $48.23, for aggregate net proceeds of approximately $102.2 million after deducting related expenses;

	●	Repurchased 0.6 million shares of common stock at a weighted average price per share of $33.11, for total consideration of approximately $19.8 million

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

	●	Issued 0.1 million shares of common stock through the Company’s 1999 Long-Term Incentive Plan (the “LTIP”);

	●	Issued 0.3 million shares of common stock upon redemption of DownREIT Units, resulting in the forfeiture of 0.3 million Series F Preferred shares; and

	●	Converted 0.1 million Series E Cumulative Convertible shares into 0.1 million shares of common stock.

Distributions are subject to the approval of the Board of Directors and are dependent upon our strategy, financial condition and operating results. UDR’s common distributions for the years ended December 31, 2020, 2019, and 2018 totaled $1.44, $1.37, and $1.29 per share, respectively.

Preferred Stock

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

Distributions declared on the Series E for the years ended December 31, 2020, 2019, and 2018 were $1.56, $1.48, and $1.40 per share, respectively. The Series E is not listed on any exchange. At December 31, 2020 and 2019, a total of 2,695,363 and 2,780,994, respectively, shares of the Series E were outstanding.

UDR is authorized to issue up to 20.0 million shares of the Series F Preferred Stock (“Series F”). The Series F may be purchased by holders of OP Units and DownREIT Units, at a purchase price of $0.0001 per share. OP/DownREIT Unitholders are entitled to subscribe for and purchase one share of UDR’s Series F for each OP/DownREIT Unit held. During the years ended December 31, 2020 and 2019, 0.3 million and 1.1 million of the Series F shares were forfeited upon the conversion of OP Units and DownREIT Units into Company common stock, respectively.

At December 31, 2020 and 2019, a total of 14.4 million and 14.7 million shares, respectively, of the Series F were outstanding with an aggregate purchase value of $1,444 and $1,469, respectively. Holders of the Series F are entitled to one vote for each share of the Series F they hold, voting together with the holders of our common stock, on each matter submitted to a vote of security holders at a meeting of our stockholders. The Series F does not entitle its holders to dividends or any other rights, privileges or preferences.

Distribution Reinvestment and Stock Purchase Plan

UDR’s Distribution Reinvestment and Stock Purchase Plan (the “Stock Purchase Plan”) allows common and preferred stockholders the opportunity to purchase, through the reinvestment of cash dividends and by making additional cash payments, additional shares of UDR’s common stock. From inception through December 31, 2008, shareholders have elected to utilize the Stock Purchase Plan to reinvest their distribution for the equivalent of 10.0 million shares of Company common stock. Shares in the amount of 11.0 million were reserved for issuance under the Stock Purchase Plan as of December 31, 2020. During the year ended December 31, 2020, UDR acquired all shares issued through the open market.

EMPLOYEE BENEFIT PLANS

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

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

outside trustees to promote the success of the Company by linking individual’s compensation via grants of share based payment.

During the year ended December 31, 2015, the LTIP was amended to set forth the terms of new classes of partnership interests in the Operating Partnership designated as LTIP Units. LTIP Units are designed to qualify as “profits interests” in the Operating Partnership for federal income tax purposes, meaning that initially they are not economically equivalent in value to a share of our common stock, but over time can increase in value to one-for-one parity with common stock by operation of special tax rules applicable to profits interests. Until and unless such parity is reached, the value that an executive will realize for a given number of vested LTIP units is less than the value of an equal number of shares of our common stock.

As of December 31, 2020, 19.0 million shares were reserved on an unadjusted basis for issuance upon the grant or exercise of awards under the LTIP. As of December 31, 2020, there were 5.6 million common shares available for issuance under the LTIP.

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

A summary of UDR’s LTIP Units and restricted stock activities during the year ended December 31, 2020 is as follows (shares in thousands):


	LTIP Units			Restricted Stock
					Weighted
		Weighted			Average Fair
		Average Fair			Value Per
	Number of	Value Per		Number	Restricted
	LTIP Units	LTIP Unit		of shares	Stock
Balance, December 31, 2019	858	$	37.77	248	$	37.29
Granted	641		42.64	188		44.16
Vested	(772)		39.29	(174)		36.74
Forfeited	—		—	(25)		45.68
Balance, December 31, 2020	727	$	41.58	237	$	42.31

As of December 31, 2020, the Company had granted 6.5 million shares of restricted stock and 3.5 million LTIP Units under the LTIP.

Stock Option Plan

The Company has no unexercised stock options outstanding and no remaining compensation expense related to unvested stock options as of December 31, 2020.

During the years ended December 31, 2020, 2019, and 2018, respectively, we did not recognize any net compensation expense related to outstanding stock options.

Restricted Stock Awards

Restricted stock awards are granted to Company employees, officers, and directors. The restricted stock awards are valued based upon the closing sales price of UDR common stock on the date of grant. Compensation expense is recorded under the straight-line method over the vesting period, which is generally three to four years. Restricted stock awards earn dividends payable in cash. Some of the restricted stock grants are based on the Company’s performance and are subject to adjustment during the initial one year performance period. For the years ended December 31, 2020, 2019, and 2018, we recognized $5.3 million, $4.8 million, and $4.3 million of compensation expense, net of capitalization,

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

related to the amortization of restricted stock awards, respectively. The total remaining compensation cost on unvested restricted stock awards was $2.4 million and had a weighted average remaining contractual life of 2.4 years as of December 31, 2020.

Short-Term Incentive Compensation

In January 2020, certain officers of the Company were awarded a STI Unit grant under the 2020 Long-Term Incentive Program (“2020 LTI”). The STI Unit awards represent short-term incentive compensation for the officers and were valued for compensation expense purposes based upon the closing sales price of UDR common stock on the date of grant in accordance with ASC 718, Compensation - Stock Compensation, or $40.77 per unit, inclusive of a discount due to uncertainty associated with the STI Unit reaching parity with the value of a share of UDR common stock. Compensation expense is recorded under the straight-line method over the vesting period, which is one year. The STI Unit awards are primarily based on the Company’s performance and are subject to adjustment based on performance against predefined metrics during the one-year performance period. For the year ended December 31, 2020, we recognized $3.1 million of compensation expense, net of capitalization, related to the amortization of STI Unit awards. As the STI Unit awards vest over a one-year period, there was no remaining unrecognized compensation expense as of December 31, 2020**.**

In January 2019, certain officers of the Company were awarded a STI Unit grant under the 2019 Long-Term Incentive Program (“2019 LTI”). The STI Unit awards represent short-term incentive compensation for the officers and were valued for compensation expense purposes based upon the closing sales price of UDR common stock on the date of grant in accordance with ASC 718, Compensation - Stock Compensation, or $33.40 per unit, inclusive of a discount due to uncertainty associated with the STI Unit reaching parity with the value of a share of UDR common stock. Compensation expense is recorded under the straight-line method over the vesting period, which is one year. The STI Unit awards are primarily based on the Company’s performance and are subject to adjustment based on performance against predefined metrics during the one-year performance period. For the year ended December 31, 2019, we recognized $7.2 million of compensation expense, net of capitalization, related to the amortization of STI Unit awards. As the STI Unit awards vest over a one-year period, there was no remaining unrecognized compensation expense as of December 31, 2019.

Long-Term Incentive Compensation

In January 2020, certain officers of the Company were awarded either a restricted stock grant or an LTIP Unit grant, or a combination of both, under the 2020 LTI. For both restricted stock grants and LTIP Unit grants, thirty percent of the 2020 LTI award is based upon FFO as Adjusted over a two-year period and will vest fifty percent on the two-year anniversary and fifty percent on the three-year anniversary. Fifteen percent of the 2020 LTI award is based upon relative FFO as Adjusted over a three-year period and will vest 100% at the end of the three-year performance period. The remaining fifty-five percent of the 2020 LTI award is based on Total Shareholder Return (“TSR”) as measured relative to comparable apartment REITs over a three-year period and as measured relative to the Nareit Equity REITs Total Return Index over a three-year period whereby both will vest 100% at the end of the three-year performance periods. The portion of the restricted stock grant based upon FFO as Adjusted was valued for compensation expense purposes based upon the closing sales price of UDR common stock on the date of grant or $46.12 per share. Because LTIP Units are granted at the maximum potential payout and there is uncertainty associated with an LTIP Unit reaching parity with the value of a share of UDR common stock, the portion of the LTIP Unit grant based upon the two-year FFO as Adjusted was valued for compensation expense purposes at $21.24 per unit on the grant date, inclusive of a 7.9% discount, and the portion of the LTIP Unit grant based upon the three-year FFO as Adjusted was valued for compensation expense purposes at $22.23 per unit on the grant date, inclusive of a 3.6% discount. The portion of the restricted stock grant based upon relative TSR was valued for compensation expense purposes at $53.94 per share for the comparable apartment REITs component and $49.35 per share for the Nareit Equity REITs Total Return Index component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 16.0%. The portion of the LTIP Unit grant based upon relative TSR was valued for compensation expense purposes at $26.18 per unit, inclusive of a 3.6% discount, for the comparable apartment REITs component and $23.98 per unit, inclusive of a 3.6% discount, for the Nareit Equity REITs Total Return Index component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 16.0%.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

In January 2019, certain officers of the Company were awarded either a restricted stock grant or an LTIP Unit grant, or a combination of both, under the 2019 LTI. For both restricted stock grants and LTIP Unit grants, thirty percent of the 2019 LTI award is based upon FFO as Adjusted over a one-year period and will vest fifty percent on the one-year anniversary and fifty percent on the two-year anniversary. Fifteen percent of the 2019 LTI award is based upon relative FFO as Adjusted over a three-year period and will vest 100% at the end of the three-year performance period. The remaining fifty-five percent of the 2019 LTI award is based on Total Shareholder Return (“TSR”) as measured relative to comparable apartment REITs over a three-year period and as measured relative to the Nareit Equity REITs Total Return Index over a three-year period whereby both will vest 100% at the end of the three-year performance periods. The portion of the restricted stock grant based upon FFO as Adjusted was valued for compensation expense purposes based upon the closing sales price of UDR common stock on the date of grant or $38.39 per share. Because LTIP Units are granted at the maximum potential payout and there is uncertainty associated with an LTIP Unit reaching parity with the value of a share of UDR common stock, the portion of the LTIP Unit grant based upon the one-year FFO as Adjusted was valued for compensation expense purposes at $17.47 per unit on the grant date, inclusive of a 9% discount, and the portion of the LTIP Unit grant based upon the three-year FFO as Adjusted was valued for compensation expense purposes at $18.24 per unit on the grant date, inclusive of a 5% discount. The portion of the restricted stock grant based upon relative TSR was valued for compensation expense purposes at $43.63 per share for the comparable apartment REITs component and $43.42 per share for the Nareit Equity REITs Total Return Index component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 21.0%. The portion of the LTIP Unit grant based upon relative TSR was valued for compensation expense purposes at $20.89 per unit, inclusive of a 5% discount, for the comparable apartment REITs component and $20.79 per unit, inclusive of a 5% discount, for the Nareit Equity REITs Total Return Index component on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 21.0%.

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

For the years ended December 31, 2020, 2019, and 2018, we recognized $10.2 million, $12.4 million and $9.9 million, respectively, of compensation expense, net of capitalization, related to the amortization of the awards. The total remaining compensation cost on unvested LTI awards was $9.8 million and had a weighted average remaining contractual life of 1.6 years as of December 31, 2020.

Profit Sharing Plan

Our profit sharing plan (the “Plan”) is a defined contribution plan covering all eligible full-time employees. Under the Plan, UDR makes discretionary profit sharing and matching contributions to the Plan as determined by the

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

Compensation Committee of the Board of Directors. Aggregate provisions for contributions, both matching and discretionary, which are included in General and administrative on UDR’s Consolidated Statements of Operations for the years ended December 31, 2020, 2019, and 2018, was $1.5 million, $1.2 million, and $1.3 million, respectively.

INCOME TAXES

For 2020, 2019, and 2018, UDR believes that we have complied with the REIT requirements specified in the Code. As such, the REIT would generally not be subject to federal income taxes.

For income tax purposes, distributions paid to common stockholders may consist of ordinary income, qualified dividends, capital gains, unrecaptured section 1250 gains, return of capital, or a combination thereof. Distributions that exceed our current and accumulated earnings and profits constitute a return of capital rather than taxable income and reduce the stockholder’s basis in their common shares. To the extent that a distribution exceeds both current and accumulated earnings and profits and the stockholder’s basis in the common shares, it generally will be treated as a gain from the sale or exchange of that stockholder’s common shares. Taxable distributions paid per common share were taxable as follows for the years ended December 31, 2020, 2019 and 2018 (unaudited):


	Year Ended December 31,
	2020		2019		2018
Ordinary income	$	1.032	$	0.981	$	0.774
Qualified ordinary income		0.004		0.004		0.006
Long-term capital gain		0.298		0.021		0.058
Unrecaptured section 1250 gain		0.089		0.063		0.233
Nondividend distributions		—		0.281		0.207
Total	$	1.423	$	1.350	$	1.278

We have a TRS that is subject to federal and state income taxes. A TRS is a C-corporation which has not elected REIT status and as such is subject to United States federal and state income tax. The components of the provision for income taxes are as follows for the years ended December 31, 2020, 2019, and 2018 (dollars in thousands):


	Year Ended December 31,
	2020		2019		2018
Income tax (benefit)/provision
Current
Federal	$	(148)	$	1,466	$	220
State		1,374		735		396
Total current		1,226		2,201		616
Deferred
Federal		894		1,266		66
State		451		371		6
Investment tax credit		(26)		—		—
Total deferred		1,319		1,637		72
Total income tax (benefit)/provision	$	2,545	$	3,838	$	688

Deferred income taxes are provided for the change in temporary differences between the basis of certain assets and liabilities for financial reporting purposes and income tax reporting purposes. The expected future tax rates are based

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

upon enacted tax laws. The components of our TRS deferred tax assets and liabilities are as follows for the years ended December 31, 2020, 2019, and 2018 (dollars in thousands):


	Year Ended December 31,
	2020		2019		2018
Deferred tax assets:
Federal and state tax attributes	$	6	$	22	$	28
Other		147		87		70
Total deferred tax assets		153		109		98
Valuation allowance		(23)		(19)		(16)
Net deferred tax assets		130		90		82
Deferred tax liabilities:
Book/tax depreciation and basis		(638)		(367)		—
Other investment ventures		(2,665)		(1,291)		(17)
Other		(67)		(67)		(67)
Total deferred tax liabilities		(3,370)		(1,725)		(84)
Net deferred tax assets/(liabilities)	$	(3,240)	$	(1,635)	$	(2)

Income tax provision/(benefit), net from our TRS differed from the amounts computed by applying the U.S. statutory rate of 21% to pretax income/(loss) for the years ended December 31, 2020, 2019, and 2018 as follows (dollars in thousands):


	Year Ended December 31,
	2020		2019		2018
Income tax provision/(benefit)
U.S. federal income tax provision/(benefit)	$	1,240	$	2,905	$	321
State income tax provision		1,434		1,013		527
Other items		(165)		(139)		(167)
Solar credit amortization		(26)		—		—
ITC basis adjustment		58		56		—
Valuation allowance		4		3		7
Total income tax provision/(benefit)	$	2,545	$	3,838	$	688

As of December 31, 2020, the Company had federal net operating loss carryovers (“NOL”) of $27.1 million expiring in 2032 through 2035 and state NOLs of $66.8 million expiring in 2021 through 2032. A portion of these attributes are still available to the subsidiary REITs, but are carried at a zero effective tax rate.

The Company’s Tax benefit/(provision), net was $(2.5) million, $(3.8) million and $(0.7) million for the years ended December 31, 2020, 2019 and 2018, respectively. The decrease of $1.3 million was primarily attributable to a $2.0 million tax on a promoted interest in 2019 and offset by an increase in state tax of $0.4 million due to the California net operating loss suspension. GAAP defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The financial statements reflect expected future tax consequences of income tax positions presuming the taxing authorities’ full knowledge of the tax position and all relevant facts, but without considering time values. GAAP also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition.

The Company evaluates our tax position using a two-step process. First, we determine whether a tax position is more likely than not (greater than 50 percent probability) to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company will then determine the amount of benefit to recognize and record the amount of the benefit that is more likely than not to be realized upon ultimate settlement. As of December 31, 2020 and 2019, UDR has no material unrecognized income tax benefits/(provisions), net.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

The Company files income tax returns in federal and various state and local jurisdictions. The tax years 2017 through 2019 remain open to examination by the major taxing jurisdictions to which the Company is subject.

NONCONTROLLING INTERESTS

Redeemable Noncontrolling Interests in the Operating Partnership and DownREIT Partnership

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

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

The following table sets forth redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership for the years ended December 31, 2020 and 2019 (dollars in thousands):


	Year Ended December 31,
	2020		2019
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership, beginning of year	$	1,018,665	$	972,740
Mark-to-market adjustment to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		(143,741)		183,884
Conversion of OP Units/DownREIT Units to Common Stock		(12,666)		(134,031)
Net income/(loss) attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		4,543		14,426
Distributions to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		(34,149)		(32,270)
Vesting of Long-Term Incentive Plan Units		23,501		14,742
Allocation of other comprehensive income/(loss)		141		(826)
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership, end of year	$	856,294	$	1,018,665

Noncontrolling Interests

Noncontrolling interests represent interests of unrelated partners and unvested LTIP Units in certain consolidated affiliates, and are presented as part of equity on the Consolidated Balance Sheets since these interests are not redeemable. Net (income)/loss attributable to noncontrolling interests was $(0.2) million, $(0.2) million, and $(0.2) million during the years ended December 31, 2020, 2019, and 2018, respectively.

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

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

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

FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS

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

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

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

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

The estimated fair values of the Company’s financial instruments either recorded or disclosed on a recurring basis as of December 31, 2020 and 2019 are summarized as follows (dollars in thousands):


					Fair Value at December 31, 2020, Using
	Total				Quoted
	Carrying				Prices in
	Amount in				Active
	Statement of				Markets		Significant
	Financial		Fair Value		for Identical		Other		Significant
	Position at		Estimate at		Assets or		Observable		Unobservable
	December 31,		December 31,		Liabilities		Inputs		Inputs
	2020 (a)		2020		(Level 1)		(Level 2)		(Level 3)
Description:
Notes receivable, net (b)	$	157,992	$	170,411	$	—	$	—	$	170,411
Derivatives - Interest rate contracts (b)		2		2		—		2		—
Total assets	$	157,994	$	170,413	$	—	$	2	$	170,411

Derivatives - Interest rate contracts (c)	$	167	$	167	$	—	$	167	$	—
Secured debt instruments - fixed rate: (d)
Mortgage notes payable		837,473		854,084		—		—		854,084
Secured debt instruments - variable rate: (d)
Tax-exempt secured notes payable		27,000		27,000		—		—		27,000
Unsecured debt instruments: (d)
Working capital credit facility		28,024		28,024		—		—		28,024
Commercial paper program		190,000		190,000		—		—		190,000
Unsecured notes		3,922,314		4,283,045		—		—		4,283,045
Total liabilities	$	5,004,978	$	5,382,320	$	—	$	167	$	5,382,153

Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership (e)	$	856,294	$	856,294	$	—	$	856,294	$	—

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020


					Fair Value at December 31, 2019, Using
	Total				Quoted
	Carrying				Prices in
	Amount in				Active
	Statement of				Markets		Significant
	Financial		Fair Value		for Identical		Other		Significant
	Position at		Estimate at		Assets or		Observable		Unobservable
	December 31,		December 31,		Liabilities		Inputs		Inputs
	2019 (a)		2019		(Level 1)		(Level 2)		(Level 3)
Description:
Notes receivable, net (b)	$	153,650	$	160,197	$	—	$	—	$	160,197
Derivatives - Interest rate contracts (c)		6		6		—		6		—
Total assets	$	153,656	$	160,203	$	—	$	6	$	160,197

Derivatives - Interest rate contracts (c)	$	142	$	142	$	—	$	142	$	—
Secured debt instruments - fixed rate: (d)
Mortgage notes payable		906,228		898,329		—		—		898,329
Credit facilities		218,490		213,661		—		—		213,661
Secured debt instruments - variable rate: (d)
Tax-exempt secured notes payable		27,000		27,000		—		—		27,000
Unsecured debt instruments: (d)
Working capital credit facility		16,583		16,583		—		—		16,583
Commercial paper program		300,000		300,000		—		—		300,000
Unsecured notes		3,263,152		3,397,622		—		—		3,397,622
Total liabilities	$	4,731,595	$	4,853,337	$	—	$	142	$	4,853,195

Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership (e)	$	1,018,665	$	1,018,665	$	—	$	1,018,665	$	—

(a)	Balances include fair market value adjustments and exclude deferred financing costs.

(b)	See Note 2, Significant Accounting Policies.

(c)	See Note 14, Derivatives and Hedging Activity.

(d)	See Note 7, Secured and Unsecured Debt, Net.

(e)	See Note 12, Noncontrolling Interests.

There were no transfers into or out of any of the levels of the fair value hierarchy during the year ended December 31, 2020.

Financial Instruments Carried at Fair Value

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

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

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2020 and 2019, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. In conjunction with the FASB’s fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

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

Financial Instruments Not Carried at Fair Value

At December 31, 2020, the fair values of cash and cash equivalents, restricted cash, accounts receivable, prepaids, real estate taxes payable, accrued interest payable, security deposits and prepaid rent, distributions payable and accounts payable approximated their carrying values because of the short term nature of these instruments. The estimated fair values of other financial instruments, which includes notes receivable and debt instruments, are classified in Level 3 of the fair value hierarchy due to the significant unobservable inputs that are utilized in their respective valuations.

DERIVATIVES AND HEDGING ACTIVITY

Risk Management Objective of Using Derivatives

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

Cash Flow Hedges of Interest Rate Risk

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

The changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in Accumulated other comprehensive income/(loss), net on the Consolidated Balance Sheets and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the years ended December 31, 2020, 2019, and 2018, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

Amounts reported in Accumulated other comprehensive income/(loss), net on the Consolidated Balance Sheets related to derivatives that will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. Through December 31, 2021, the Company estimates that an additional $1.7 million will be reclassified as an increase to Interest expense.

As of December 31, 2020, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollars in thousands):


	Number of
Product	Instruments	Notional
Interest rate swaps and caps (a)	2	$	334,880

(a)	In addition to the interest rate swaps summarized above, the Company entered into three additional interest rate swaps with a total notional value of $315.0 million that became effective in January 2021 upon maturity of the $315.0 million notional value interest rate swap summarized above.

Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of GAAP. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. As of December 31, 2020, no derivatives not designated as hedges were held by the Company.

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

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of December 31, 2020 and 2019 (dollars in thousands):


	Asset Derivatives				Liability Derivatives
	(included in Other assets)				(included in Other liabilities)
	Fair Value at:				Fair Value at:
	December 31,		December 31,		December 31,		December 31,
	2020		2019		2020		2019
Derivatives designated as hedging instruments:
Interest rate products	$	2	$	6	$	167	$	142

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

The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the years ended December 31, 2020, 2019, and 2018 (dollars in thousands):


													Gain/(Loss) Recognized in
							Gain/(Loss) Reclassified						Interest expense
	Unrealized holding gain/(loss)						from Accumulated OCI into						(Amount Excluded from
	Recognized in OCI						Interest expense						Effectiveness Testing)
Derivatives in Cash Flow Hedging Relationships	2020		2019		2018		2020		2019		2018		2020		2019		2018

Interest rate products	$	(3,382)	$	(8,437)	$	4,806	$	(4,827)	$	2,770	$	1,948	$	—	$	—	$	—


	Year Ended
	December 31,
	2020		2019		2018
Total amount of Interest expense presented on the Consolidated Statements of Operations	$	202,706	$	170,917	$	134,168

The Company did not recognize any gain/(loss) in Interest income and other income/(expense), net related to derivatives not designated during each of the years ended December 31, 2020, 2019, and 2018.

F - 51

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

Credit-risk-related Contingent Features

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

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

Tabular Disclosure of Offsetting Derivatives

The Company has elected not to offset derivative positions on the consolidated financial statements. The tables below present the effect on its financial position had the Company made the election to offset its derivative positions as of December 31, 2020 and 2019 (dollars in thousands):


			Gross		Net Amounts of		Gross Amounts Not Offset
			Amounts		Assets		in the Consolidated
	Gross		Offset in the		Presented in the		Balance Sheet
	Amounts of		Consolidated		Consolidated				Cash
	Recognized		Balance		Balance Sheets		Financial		Collateral
Offsetting of Derivative Assets	Assets		Sheets		(a)		Instruments		Received		Net Amount
December 31, 2020	$	2	$	—	$	2	$	—	$	—	$	2

December 31, 2019	$	6	$	—	$	6	$	(3)	$	—	$	3

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


			Gross		Net Amounts of		Gross Amounts Not Offset
			Amounts		Liabilities		in the Consolidated
	Gross		Offset in the		Presented in the		Balance Sheet
	Amounts of		Consolidated		Consolidated				Cash
	Recognized		Balance		Balance Sheets		Financial		Collateral
Offsetting of Derivative Liabilities	Liabilities		Sheets		(a)		Instruments		Posted		Net Amount
December 31, 2020	$	167	$	—	$	167	$	—	$	—	$	167

December 31, 2019	$	142	$	—	$	142	$	(3)	$	—	$	139

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

F - 52

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

15. COMMITMENTS AND CONTINGENCIES

Commitments

Real Estate Commitments

The following summarizes the Company’s real estate commitments at December 31, 2020 (dollars in thousands):


	Number	UDR's			UDR's Remaining
	Properties	Investment (a)			Commitment
Wholly-owned — under development	5	$	247,877		$	243,623
Joint ventures:
Preferred equity investments	1		17,919	(b)		2,921	(b)
Other investments	-		22,870			19,245
Total		$	288,666		$	265,789

(a)	Represents UDR’s investment as of December 31, 2020.

(b)	Represents UDR’s investment in and remaining commitment for Thousand Oaks, which is under development as of December 31, 2020.

Contingencies

Litigation and Legal Matters

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

REPORTABLE SEGMENTS

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

UDR owns and operates multifamily apartment communities that generate rental and other property related income through the leasing of apartment homes to a diverse base of tenants. The primary financial measures for UDR’s apartment communities are rental income and net operating income (“NOI”). Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. NOI is defined as rental income less direct property rental expenses. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI is property management expense, which is calculated as 2.875% of property revenue, and land rent. Property management expense covers costs directly related to consolidated property operations, inclusive of corporate management, regional supervision, accounting and other costs. UDR’s Chief Operating Decision Maker utilizes NOI as the key measure of segment profit or loss.

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

	●	Same-Store Communities represent those communities acquired, developed, and stabilized prior to January 1, 2019 and held as of December 31, 2020. A comparison of operating results from the prior year is meaningful as these communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the community is not classified as held for disposition within the current year. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

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

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

All revenues are from external customers and no single tenant or related group of tenants contributed 10% or more of UDR’s total revenues during the years ended December 31, 2020, 2019, and 2018.

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

Lease Revenue

Lease revenue related to leases is recognized on an accrual basis when due from residents or tenants in accordance with ASC 842, Leases. Rental payments are generally due on a monthly basis and recognized on a straight-line basis over the noncancellable lease term because collection of the lease payments was probable at lease commencement, inclusive of any periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option. In addition, in circumstances where a lease incentive is provided to tenants, the incentive is recognized as a reduction of lease revenue on a straight-line basis over the lease term.

Lease revenue also includes all pass-through revenue from retail and residential leases and common area maintenance reimbursements from retail leases. These services represent non-lease components in a contract as the Company transfers a service to the lessee other than the right to use the underlying asset. The Company has elected the practical expedient under the leasing standard to not separate lease and non-lease components from its resident and retail lease contracts as the timing and pattern of revenue recognition for the non-lease component and related lease component are the same and the combined single lease component would be classified as an operating lease.

Other Revenue

Other revenue is generated by services provided by the Company to its retail and residential tenants and other unrelated third parties. Revenue is measured based on consideration specified in contracts with customers. The Company recognizes revenue when it satisfies a performance obligation by providing the services specified in a contract to the customer. These fees are generally recognized as earned.

Joint venture management and other fees

The Joint venture management and other fees revenue consists of management fees charged to our equity method joint ventures per the terms of contractual agreements and other fees. Joint venture fee revenue is recognized monthly as the management services are provided and the fees are earned or upon a transaction whereby the Company earns a fee. Joint venture management and other fees are not allocable to a specific reportable segment or segments.

The following table details rental income and NOI for UDR’s reportable segments for the years ended December 31, 2020, 2019, and 2018, and reconciles NOI to Net income/(loss) attributable to UDR, Inc. on the Consolidated Statements of Operations (dollars in thousands):

F - 54

UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020


	Year Ended December 31,
	2020		2019		2018
Reportable apartment home segment lease revenue
Same-Store Communities (a)
West Region	$	385,959	$	402,901	$	387,215
Mid-Atlantic Region		211,633		211,401		205,324
Northeast Region		108,073		122,008		119,540
Southeast Region		123,993		120,289		116,011
Southwest Region		65,713		64,970		63,287
Non-Mature Communities/Other		302,920		180,668		111,272
Total segment and consolidated lease revenue	$	1,198,291	$	1,102,237	$	1,002,649

Reportable apartment home segment other revenue
Same-Store Communities (a)
West Region	$	11,803	$	12,339	$	10,738
Mid-Atlantic Region		6,329		7,216		6,357
Northeast Region		2,697		2,760		2,623
Southeast Region		5,395		6,444		6,223
Southwest Region		2,543		2,793		2,664
Non-Mature Communities/Other		9,038		4,349		3,851
Total segment and consolidated other revenue	$	37,805	$	35,901	$	32,456

Total reportable apartment home segment rental income
Same-Store Communities (a)
West Region	$	397,762	$	415,240	$	397,953
Mid-Atlantic Region		217,962		218,617		211,681
Northeast Region		110,770		124,768		122,163
Southeast Region		129,388		126,733		122,234
Southwest Region		68,256		67,763		65,951
Non-Mature Communities/Other		311,958		185,017		115,123
Total segment and consolidated rental income	$	1,236,096	$	1,138,138	$	1,035,105

Reportable apartment home segment NOI
Same-Store Communities (a)
West Region	$	295,065	$	315,812	$	300,745
Mid-Atlantic Region		152,131		154,082		148,057
Northeast Region		65,553		83,832		84,059
Southeast Region		88,518		88,467		85,219
Southwest Region		42,931		42,210		39,631
Non-Mature Communities/Other		209,504		123,900		74,404
Total segment and consolidated NOI		853,702		808,303		732,115
Reconciling items:
Joint venture management and other fees		5,069		14,055		11,754
Property management		(35,538)		(32,721)		(28,465)
Other operating expenses		(22,762)		(13,932)		(12,100)
Real estate depreciation and amortization		(608,616)		(501,257)		(429,006)
General and administrative		(49,885)		(51,533)		(46,983)
Casualty-related (charges)/recoveries, net		(2,131)		(474)		(2,121)
Other depreciation and amortization		(10,013)		(6,666)		(6,673)
Gain/(loss) on sale of real estate owned		119,277		5,282		136,197
Income/(loss) from unconsolidated entities		18,844		137,873		(5,055)
Interest expense		(202,706)		(170,917)		(134,168)
Interest income and other income/(expense), net		6,274		15,404		6,735
Tax (provision)/benefit, net		(2,545)		(3,838)		(688)
Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		(4,543)		(14,426)		(18,215)
Net (income)/loss attributable to noncontrolling interests		(161)		(188)		(221)
Net income/(loss) attributable to UDR, Inc.	$	64,266	$	184,965	$	203,106

	(a)	Same-Store Community population consisted of 37,607 apartment homes.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2020

The following table details the assets of UDR’s reportable segments as of December 31, 2020 and 2019 (dollars in thousands):


	December 31,		December 31,
	2020		2019
Reportable apartment home segment assets:
Same-Store Communities (a):
West Region	$	3,732,329	$	3,696,544
Mid-Atlantic Region		2,255,449		2,222,405
Northeast Region		1,507,878		1,500,597
Southeast Region		827,683		806,830
Southwest Region		614,647		600,350
Non-Mature Communities/Other		4,133,486		3,775,375
Total segment assets		13,071,472		12,602,101
Accumulated depreciation		(4,605,366)		(4,131,353)
Total segment assets — net book value		8,466,106		8,470,748
Reconciling items:
Cash and cash equivalents		1,409		8,106
Restricted cash		22,762		25,185
Notes receivable, net		157,992		153,650
Investment in and advances to unconsolidated joint ventures, net		600,233		588,262
Operating lease right-of-use assets		200,913		204,225
Other assets		188,118		186,296
Total consolidated assets	$	9,637,533	$	9,636,472

	(a)	Same-Store Community population consisted of 37,607 apartment homes.

Markets included in the above geographic segments are as follows:

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

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

	iii.	Northeast Region — Boston and New York

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

	v.	Southwest Region — Dallas, Austin and Denver

(1)

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F - 57

Report of Independent Registered Public Accounting Firm

The Partners

United Dominion Realty, L.P.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of United Dominion Realty, L.P. (the Partnership) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income/(loss), changes in capital and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and the financial statement schedule listed in the accompanying Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Partnership at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

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

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

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

Critical Audit Matters

F - 58


	Indicators of Impairment of Real Estate Owned and Investment in Unconsolidated Entities
Description of the Matter	At December 31, 2020, the Partnership’s real estate owned, net and investment in unconsolidated entities were approximately $2.2 billion and $51.3 million, respectively. As more fully described in Note 2 to the consolidated financial statements, the Partnership periodically evaluates these assets for indicators of impairment, and this includes, among other things, judgments based on factors such as operational performance, market conditions, the Partnership’s intent and ability to hold each asset, as well as any significant cost overruns on development or redevelopment communities. During 2020, the Partnership did not recognize an impairment related to real estate owned, net or any other than temporary impairments related to its investment in unconsolidated entities. Auditing the Partnership’s evaluation for indicators of impairment was complex due to a high degree of subjectivity in the identification of events or changes in circumstances that may indicate an impairment of its real estate owned or that the value of its investment in unconsolidated entities may be other than temporarily impaired. Differences or changes in these judgments could have a material impact on the Partnership’s analysis.
How We Addressed the Matter in Our Audit	We tested the Partnership’s internal controls over the asset impairment evaluation process. This included testing controls over management’s determination and review of the considerations used in the impairment indicator analysis. Our procedures with regards to the Partnership’s evaluation for indicators of impairment included, among others, testing the completeness and accuracy of management’s impairment analysis and evaluating management’s judgments determining whether indicators of impairment were present. For example, we performed inquires of management, considered historical operating results and the current market conditions, performed an independent assessment using both internally and externally available information, read the minutes of the meetings of the Board of Directors, and reviewed the Partnership’s development and redevelopment costs.
	Accounting for acquisitions of real estate investment properties
Description of the Matter	During 2020, the Partnership acquired real estate investment properties. These transactions were accounted for as asset acquisitions. The aggregate increase in real estate and other assets due to these acquisitions was approximately $251.1 million. As more fully described in Note 3 to the consolidated financial statements, the total consideration was allocated to land, land improvements, buildings and improvements, and real estate intangible assets based on their relative fair value. Auditing the Partnership’s acquisition of real estate investment properties is complex and requires a higher degree of auditor judgment due to the significant assumptions that are utilized in the determination of the relative fair values of the assets acquired. The significant assumptions used in management’s analysis to estimate the fair value of these components includes capitalization rates, market comparable prices for similar land parcels, market rental rates, leasing commission rates as well as the time it would take to lease any acquired buildings that were vacant at acquisition.
How We Addressed the Matter in Our Audit	We tested the Partnership’s internal controls over the acquisition of real estate investment properties and the resulting purchase price allocations. This included testing controls over management’s identification of the assets acquired and liabilities assumed and evaluating the methods and significant assumptions used by the Partnership to develop such estimates. Our testing of the fair values of the assets acquired included, among others, evaluating the selection of the Partnership’s valuation model and testing the significant assumptions discussed above as well as the completeness and accuracy of the underlying data. For example, we compared management’s assumptions to observable market transactions and replacement costs associated

F - 59

with the fair value of the land and buildings and improvements. For in-place leases, we compared management’s assumptions to published market data for comparable leases, related leasing commissions and the amount of time it would take to lease up the space to stabilization assuming the space was vacant at acquisition. We involved our real estate valuation specialists to assist in evaluating the significant assumptions listed above. In addition, we performed sensitivity tests on the significant assumptions to evaluate the change in the fair value resulting from changes in the assumptions.

/s/ Ernst & Young LLP

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

Denver, Colorado

February 18, 2021

F - 60

UNITED DOMINION REALTY, L.P.

CONSOLIDATED BALANCE SHEETS

(In thousands, except for unit data)


	December 31,		December 31,
	2020		2019
ASSETS
Real estate owned:
Real estate held for investment	$	4,043,725	$	3,875,160
Less: accumulated depreciation		(1,892,011)		(1,796,568)
Total real estate owned, net of accumulated depreciation		2,151,714		2,078,592
Cash and cash equivalents		26		24
Restricted cash		15,062		13,998
Investment in unconsolidated entities		51,302		76,222
Operating lease right-of-use assets		202,438		205,668
Other assets		37,025		24,241
Total assets	$	2,457,567	$	2,398,745
LIABILITIES AND CAPITAL
Liabilities:
Secured debt, net	$	99,104	$	99,071
Notes payable due to the General Partner		810,700		637,233
Operating lease liabilities		197,135		200,001
Real estate taxes payable		3,107		2,801
Accrued interest payable		205		217
Security deposits and prepaid rent		18,485		17,946
Distributions payable		66,833		63,364
Accounts payable, accrued expenses, and other liabilities		13,566		12,226
Total liabilities		1,209,135		1,032,859

Commitments and contingencies (Note 11)

Capital:
Partners’ capital:
General partner:
110,883 OP Units outstanding at December 31, 2020 and December 31, 2019		779		859
Limited partners:
184,724,677 and 183,952,659 OP Units outstanding at December 31, 2020 and December 31, 2019, respectively		1,230,923		1,347,622
Accumulated other comprehensive income/(loss), net		(49)		—
Total partners’ capital		1,231,653		1,348,481
Noncontrolling interests		16,779		17,405
Total capital		1,248,432		1,365,886
Total liabilities and capital	$	2,457,567	$	2,398,745

See accompanying notes to the consolidated financial statements.

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UNITED DOMINION REALTY, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per unit data)


	Year Ended December 31,
	2020		2019		2018
REVENUES:
Rental income	$	428,747	$	441,773	$	431,920

OPERATING EXPENSES:
Property operating and maintenance		69,213		67,710		67,400
Real estate taxes and insurance		56,247		51,057		47,140
Property management		12,326		12,701		11,878
Other operating expenses		16,138		9,488		8,864
Real estate depreciation and amortization		143,005		139,975		143,481
General and administrative		17,987		18,014		16,889
Casualty-related charges/(recoveries), net		793		853		951
Total operating expenses		315,709		299,798		296,603
Gain/(loss) on sale of real estate owned		57,960		—		75,507

Operating income		170,998		141,975		210,824

Income/(loss) from unconsolidated entities		(5,543)		(8,313)		43,496
Interest expense		(2,831)		(1,639)		(8,733)
Interest expense on notes payable due to the General Partner		(26,526)		(28,028)		(14,102)
Net income/(loss)		136,098		103,995		231,485
Net (income)/loss attributable to noncontrolling interests		(1,869)		(1,832)		(1,722)
Net income/(loss) attributable to OP unitholders	$	134,229	$	102,163	$	229,763

Net income/(loss) per weighted average OP Unit - basic and diluted	$	0.73	$	0.56	$	1.25

Weighted average OP Units outstanding - basic and diluted		184,753		184,034		183,609

See accompanying notes to the consolidated financial statements.

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UNITED DOMINION REALTY, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(In thousands)


	Year Ended December 31,
	2020		2019		2018
Net income/(loss)	$	136,098	$	103,995	$	231,485
Other comprehensive income/(loss), including portion attributable to noncontrolling interests:
Other comprehensive income/(loss) - derivative instruments:
Unrealized holding gain/(loss)		(49)		—		—
Other comprehensive income/(loss), including portion attributable to noncontrolling interests		(49)		—		—
Comprehensive income/(loss)		136,049		103,995		231,485
Comprehensive (income)/loss attributable to noncontrolling interests		(1,869)		(1,832)		(1,722)
Comprehensive income/(loss) attributable to OP unitholders	$	134,180	$	102,163	$	229,763

See accompanying notes to consolidated financial statements.

F - 63

UNITED DOMINION REALTY, L.P.

CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL

(In thousands)


			Limited						Accumulated				Advances
	Class A		Partners		UDR, Inc.				Other		Total		(to)/from
	Limited		and LTIP		Limited		General		Comprehensive		Partners’		General		Noncontrolling
	Partner		Units		Partner		Partner		Income/(Loss), net		Capital		Partner		Interests		Total
Balance at December 31, 2017	$	67,474	$	283,568	$	1,112,298	$	955	$	—	$	1,464,295	$	397,899	$	12,936	$	1,875,130
Net income/(loss)		2,221		9,977		217,426		139		—		229,763		—		1,722		231,485
Distributions		(2,328)		(10,718)		(224,637)		(144)		—		(237,827)		—		—		(237,827)
OP Unit redemptions for common shares of UDR		—		(416)		416		—		—		—		—		—		—
Adjustment to reflect limited partners’ capital at redemption value		2,034		4,295		(6,329)		—		—		—		—		—		—
Long-Term Incentive Plan Unit grants		—		15,839		—		—		—		15,839		—		—		15,839
Conversion of Advances (to)/from the General Partner to notes payable		—		—		—		—		—		—		(257,204)		—		(257,204)
Net change in advances (to)/from the General Partner		—		—		—		—		—		—		(140,695)		(839)		(141,534)
Balance at December 31, 2018		69,401		302,545		1,099,174		950		—		1,472,070		—		13,819		1,485,889
Net income/(loss)		971		3,404		97,727		61		—		102,163		—		1,832		103,995
Distributions		(2,396)		(9,063)		(241,207)		(152)		—		(252,818)		—		—		(252,818)
OP Unit redemptions for common shares of UDR		—		(79,010)		79,010		—		—		—		—		—		—
Adjustment to reflect limited partners’ capital at redemption value		13,827		39,638		(53,465)		—		—		—		—		—		—
Long-Term Incentive Plan Unit grants		—		27,066		—		—		—		27,066		—		—		27,066
Net contributions/(distributions) to/(from) noncontrolling interests		—		—		—		—		—		—		—		1,754		1,754
Balance at December 31, 2019		81,803		284,580		981,239		859		—		1,348,481		—		17,405		1,365,886
Net income/(loss)		1,272		4,984		127,893		80		—		134,229		—		1,869		136,098
Distributions		(2,524)		(10,281)		(253,598)		(160)		—		(266,563)		—		—		(266,563)
OP Unit redemptions for common shares of UDR		—		(110)		110		—		—		—		—		—		—
Adjustment to reflect limited partners’ capital at redemption value		(13,234)		(30,986)		44,220		—		—		—		—		—		—
Long-Term Incentive Plan Unit grants		—		15,555		—		—		—		15,555		—		—		15,555
Unrealized gain/(loss) on derivative financial investments		—		—		—		—		(49)		(49)		—		—		(49)
Net contributions/(distributions) to/(from) noncontrolling interests		—		—		—		—		—		—		—		(2,495)		(2,495)
Balance at December 31, 2020	$	67,317	$	263,742	$	899,864	$	779	$	(49)	$	1,231,653	$	—	$	16,779	$	1,248,432

See accompanying notes to the consolidated financial statements.

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UNITED DOMINION REALTY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Year Ended December 31,
	2020		2019		2018
Operating Activities
Net income/(loss)	$	136,098	$	103,995	$	231,485
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization		143,005		139,975		143,481
(Gain)/loss on sale of real estate owned		(57,960)		—		(75,507)
(Income)/loss from unconsolidated entities		5,543		8,313		(43,496)
Other		5,233		3,534		1,771
Changes in operating assets and liabilities:
(Increase)/decrease in operating assets		(15,340)		1,084		(3,260)
Increase/(decrease) in operating liabilities		1,104		(1,808)		1,194
Net cash provided by/(used in) operating activities		217,683		255,093		255,668

Investing Activities
Acquisition of real estate assets		(250,727)		—		—
Proceeds from sales of real estate investments, net		143,952		—		98,533
Capital expenditures and other major improvements — real estate assets		(52,641)		(62,397)		(44,227)
Distributions received from unconsolidated entities		19,377		18,491		17,377
Net cash provided by/(used in) investing activities		(140,039)		(43,906)		71,683

Financing Activities
Advances (to)/from the General Partner, net		—		—		(348,381)
Proceeds from the issuance of secured debt		—		72,500		—
Payments on secured debt		—		—		(133,205)
Issuance/(repayment) of notes payable to the General Partner		(61,784)		(272,913)		169,577
Distributions paid to partnership unitholders		(14,783)		(10,064)		(12,705)
Payments of financing costs		(11)		—		—
Other		—		(376)		(1,821)
Net cash provided by/(used in) financing activities		(76,578)		(210,853)		(326,535)
Net increase/(decrease) in cash, cash equivalents, and restricted cash		1,066		334		816
Cash, cash equivalents, and restricted cash, beginning of year		14,022		13,688		12,872
Cash, cash equivalents, and restricted cash, end of year	$	15,088	$	14,022	$	13,688

Supplemental Information:
Interest paid during the period, net of amounts capitalized, and cash paid for operating leases	$	42,423	$	38,400	$	17,173
Non-cash transactions:
Development costs and capital expenditures incurred but not yet paid		3,649		2,913		2,056
Recognition of operating lease right-of-use assets		—		94,174		—
Recognition of operating lease liabilities		—		88,161		—
Right-of-use assets obtained in exchange for new operating lease liabilities remeasurements		—		111,055		—
Right-of-use asset obtained in exchange for new operating lease liability		316		1,443		—
LTIP Unit grants		15,555		27,066		15,839
Distributions declared but not yet paid		66,833		63,364		59,461
Conversion of Advances (to)/from the General Partner to notes payable		—		—		257,204

The following reconciles cash, cash equivalents, and restricted cash to the total of the same amounts as shown above:
Cash, cash equivalents, and restricted cash, beginning of year
Cash and cash equivalents	$	24	$	125	$	293
Restricted cash		13,998		13,563		12,579
Total cash, cash equivalents, and restricted cash as shown above	$	14,022	$	13,688	$	12,872
Cash, cash equivalents, and restricted cash, end of year
Cash and cash equivalents	$	26	$	24	$	125
Restricted cash		15,062		13,998		13,563
Total cash, cash equivalents, and restricted cash as shown above	$	15,088	$	14,022	$	13,688

See accompanying notes to the consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020

CONSOLIDATION AND BASIS OF PRESENTATION

United Dominion Realty, L.P. (“UDR, L.P.,” the “Operating Partnership,” “we” or “our”) is a Delaware limited partnership, that owns, acquires, renovates, redevelops, manages, and disposes of multifamily apartment communities generally located in high barrier to entry markets located in the United States. The high barrier to entry markets are characterized by limited land for new construction, difficult and lengthy entitlement process, expensive single-family home prices and significant employment growth potential. UDR, L.P. is a subsidiary of UDR, Inc. (“UDR” or the “General Partner”), a self-administered real estate investment trust, or REIT, through which UDR conducts a significant portion of its business. During the years ended December 31, 2020, 2019, and 2018, rental revenues of the Operating Partnership represented 35%, 39%, and 42%, respectively, of the General Partner’s consolidated rental revenues. As of December 31, 2020, the Operating Partnership’s apartment portfolio consisted of 53 communities located in 15 markets consisting of 17,174 apartment homes.

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

As of December 31, 2020, there were 184.8 million OP Units outstanding, of which 176.2 million, or 95.3%, were owned by UDR and affiliated entities and 8.6 million, or 4.7%, were owned by non-affiliated limited partners. There were 184.1 million OP Units outstanding as of December 31, 2019, of which 176.2 million, or 95.7%, were owned by UDR and affiliated entities and 7.9 million, or 4.3%, were owned by non-affiliated limited partners. See Note 10, Capital Structure.

As sole general partner of the Operating Partnership, UDR owned all 0.1 million general partner OP units, or 0.1%, of the total OP Units outstanding as of December 31, 2020 and 2019. At December 31, 2020 and 2019, there were 184.7 million and 184.0 million, respectively, of limited partner OP Units outstanding, of which 1.9 million were Class A Limited Partnership Units as of both periods. Of the limited partner OP Units outstanding, UDR owned 176.1 million, or 95.3%, and 176.1 million, or 95.7%, at December 31, 2020 and 2019, respectively. The remaining 8.6 million, or 4.7%, and 7.9 million, or 4.3%, of the limited partner OP Units outstanding were held by outside limited partners at December 31, 2020 and 2019, respectively, of which 1.8 million were Class A Limited Partnership units as of both periods. See Note 10, Capital Structure.

The Operating Partnership evaluated subsequent events through the date its financial statements were issued. No significant recognized or non-recognized subsequent events were noted other than those noted in Note 6, Debt, Net.

SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The updated standard will be effective for the Operating Partnership on January 1, 2022; however, early adoption of the ASU is permitted on January 1, 2021. The Operating Partnership is currently evaluating the effect that the updated standard will have on the consolidated financial statements and related disclosures.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020

or implicit enforceable rights and obligations that require lease concessions if certain circumstances arise that are beyond the control of the parties to the contract. Therefore, entities would need to perform a lease-by-lease analysis to determine whether contractual provisions in an existing lease agreement provide enforceable rights and obligations related to lease concessions.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, the Operating Partnership elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Operating Partnership continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. The ASU has not had a material impact on the consolidated financial statements and the Operating Partnership does not expect the ASU to have a material impact on the consolidated financial statements on a prospective basis.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The standard required entities to estimate a lifetime expected credit loss for most financial assets, including trade and other receivables, held-to-maturity debt securities, loans and other financial instruments, and to present the net amount of the financial instrument expected to be collected. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which amended the transition requirements and scope of ASU 2016-13 and clarified that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the leases standard. The updated standard became effective for the Operating Partnership on January 1, 2020 and was adopted on a modified retrospective basis. However, as the Operating Partnership’s financial assets primarily relate to receivables arising from operating leases, the ASU did not have a material impact on the consolidated financial statements. Disclosures were updated pursuant to the requirements of the ASU.

Real Estate

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DECEMBER 31, 2020

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

Quarterly or when changes in circumstances warrant, we will assess our real estate properties for indicators of impairment. The judgments regarding the existence of impairment indicators are based on certain factors. Such factors include, among other things, operational performance, market conditions, the Operating Partnership’s intent and ability to hold the related asset, as well as any significant cost overruns on development properties.

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

For the years ended December 31, 2020, 2019 and 2018, the Operating Partnership did not record any impairments on our real estate properties.

Predevelopment, development, and redevelopment projects and related costs are capitalized and reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation. The Operating Partnership capitalizes costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. These costs, excluding the direct costs of development and redevelopment and capitalized interest, for the years ended December 31, 2020, 2019, and 2018 were $0.9 million, $0.8 million, and less than $0.1 million, respectively. During the years ended December 31, 2020, 2019, and 2018, total interest capitalized was $0.1 million, $0.2 million, and less than $0.1 million, respectively. As each home in a capital project is completed and becomes available for lease-up, the Operating Partnership ceases capitalization on the related portion and depreciation commences over the estimated useful life.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020

Cash and Cash Equivalents

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

Restricted Cash

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

Real Estate Sales Gain Recognition

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

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

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

To the extent that the Operating Partnership acquires a controlling financial interest in a property that it previously accounted for as an equity method investment, the Operating Partnership will not remeasure its previously held interest if the acquisition is treated as an asset acquisition. The Operating Partnership will include the carrying amount of its previously held equity method interest along with the consideration paid and transaction costs incurred in determining the amounts to allocate to the related assets and liabilities acquired on its Consolidated Balance Sheets. When treated as an asset acquisition, the Operating Partnership will not recognize a gain or loss on consolidation of a property.

Derivative Financial Instruments

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

Noncontrolling Interests

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

Income Taxes

The taxable income or loss of the Operating Partnership is reported on the tax returns of the partners. Accordingly, no provision has been made in the accompanying financial statements for federal or state income taxes on

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DECEMBER 31, 2020

income that is passed through to the partners. However, any state or local revenue, excise or franchise taxes that result from the operating activities of the Operating Partnership are recorded at the entity level. The Operating Partnership’s tax returns are subject to examination by federal and state taxing authorities. Net income for financial reporting purposes differs from the net income for income tax reporting purposes primarily due to temporary differences, principally real estate depreciation and the tax deferral of certain gains on property sales. The differences in depreciation result from differences in the book and tax basis of certain real estate assets and the differences in the methods of depreciation and lives of the real estate assets.

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

Management of the Operating Partnership has reviewed all open tax years (2017 through 2019) of tax jurisdictions and concluded there is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns.

Principles of Consolidation

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

Discontinued Operations

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

Allocation of General and Administrative Expenses

The Operating Partnership is charged directly for general and administrative expenses it incurs. The Operating Partnership is also charged with other general and administrative expenses that have been allocated by the General Partner to each of its subsidiaries, including the Operating Partnership, based on reasonably anticipated benefits to the parties. (See Note 7, Related Party Transactions.)

Advertising Costs

All advertising costs are expensed as incurred and reported on the Consolidated Statements of Operations within the line item Property operating and maintenance. During the years ended December 31, 2020, 2019, and 2018, total advertising expense was $2.9 million, $1.9 million, and $1.9 million, respectively.

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DECEMBER 31, 2020

Comprehensive Income/(Loss)

Comprehensive income/(loss), which is defined as the change in capital during each period from transactions and other events and circumstances from nonowner sources, including all changes in capital during a period except for those resulting from investments by or distributions to unitholders, is displayed in the accompanying Consolidated Statements of Comprehensive Income/(Loss). For the years ended December 31, 2020, 2019, and 2018, the Operating Partnership’s other comprehensive income/(loss) consisted of the gain/(loss) (effective portion) on derivative instruments that are designated as and qualify as cash flow hedges and (gain)/loss reclassified from other comprehensive income/(loss) into earnings. The (gain)/loss reclassified from other comprehensive income/(loss) is included in Interest expense on the Consolidated Statements of Operations. See Note 9, Derivatives and Hedging Activity, for further discussion.

Impact of COVID-19 Pandemic

The Operating Partnership continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its business. The extent of the pandemic’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic and the duration of government measures to mitigate the pandemic, all of which continue to be uncertain and difficult to predict.

Given the uncertainty, we cannot predict the effect on future periods, but the adverse impact that could occur on the Operating Partnership’s future financial condition, results of operations and cash flows could be material, including, but not limited to, as a result of extended eviction moratoriums, additional rent deferrals, payment plans, lease concessions, waiving late payment fees, charges from potential adjustments to the carrying amount of receivables, and asset impairment charges.

During the year ended December 31, 2020, the Operating Partnership performed an analysis in accordance with the ASC 842, Leases, guidance to assess the collectibility of its operating lease receivables in light of the COVID-19 pandemic. This analysis included an assessment of collectibility of current and future rents and whether those lease payments were no longer probable of collection. In accordance with the leases guidance, if lease payments are no longer deemed to be probable over the life of the lease contract, we recognize revenue only when cash is received, and all existing contractual operating lease receivables and straight-line lease receivables are reserved.

As a result of its analysis, the Operating Partnership reserved approximately $5.5 million of multifamily tenant lease receivables and approximately $3.5 million of retail tenant lease receivables (inclusive of $2.2 million of reserves on straight-line lease receivables) for its wholly-owned communities. In aggregate, the reserve is reflected as a $9.0 million reduction to Rental income on the Consolidated Statements of Operations for the year ended December 31, 2020. The impact to deferred leasing commissions was not material for the year ended December 31, 2020.

The Operating Partnership did not recognize any other adjustments to the carrying amounts of assets or asset impairment charges due to the COVID-19 pandemic for the year ended December 31, 2020.

Use of Estimates

Market Concentration Risk

The Operating Partnership is subject to increased exposure from economic and other competitive factors specific to those markets where it holds a significant percentage of the carrying value of its real estate portfolio at December 31, 2020, the Operating Partnership held greater than 10% of the carrying value of its real estate portfolio in each of the Orange County, California, San Francisco, California; Metropolitan D.C. and New York, New York markets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020

REAL ESTATE OWNED

Real estate assets owned by the Operating Partnership consist of income producing operating properties, properties under development, land held for future development, and sold or held for disposition properties. At December 31, 2020, the Operating Partnership owned and consolidated 53 communities in nine states plus the District of Columbia totaling 17,174 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of December 31, 2020 and 2019 (dollars in thousands):


	December 31,		December 31,
	2020		2019
Land	$	730,559	$	711,256
Depreciable property — held and used:
Land improvements		101,470		96,864
Buildings, improvements, and furniture, fixtures and equipment		3,211,696		3,067,040
Real estate owned		4,043,725		3,875,160
Accumulated depreciation		(1,892,011)		(1,796,568)
Real estate owned, net	$	2,151,714	$	2,078,592

Acquisitions

In November 2020, the Operating Partnership acquired a 672 apartment home operating community located in Tampa, Florida for approximately $122.5 million. The Operating Partnership increased its real estate assets owned by approximately $119.4 million and recorded approximately $3.1 million of in-place lease intangibles.

In December 2020, the Operating Partnership acquired a 400 apartment home operating community located in Herndon, Virginia for approximately $128.6 million. The Operating Partnership increased its real estate assets owned by approximately $125.9 million and recorded approximately $2.7 million of in-place lease intangibles.

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

Dispositions

In October 2020, the Operating Partnership sold an operating community located in Alexandria, Virginia with a total of 332 apartment homes for gross proceeds of $145.0 million, resulting in a gain of approximately $58.0 million. The proceeds were designated for a tax-deferred Section 1031 exchange and were used to pay a portion of the purchase price for acquisitions in November and December 2020.

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

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.

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.

Other Activity

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

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DECEMBER 31, 2020

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

UNCONSOLIDATED ENTITIES

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

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

As of December 31, 2020, the DownREIT Partnership owned 12 communities with 5,657 apartment homes. The Operating Partnership’s investment in the DownREIT Partnership was $51.3 million and $76.2 million as of December 31, 2020 and 2019, respectively.

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

We consider various factors to determine if a decrease in the value of our Investment in unconsolidated entities is other-than-temporary. These factors include, but are not limited to, age of the entity, our intent and ability to retain our investment in the entity, the financial condition and long-term prospects of the entity, and the relationships with the other joint venture partners and its lenders. Based on the significance of the unobservable inputs, we classify these fair value measurements within Level 3 of the valuation hierarchy. The Operating Partnership did not incur any other-than-temporary impairments in the value of its investments in unconsolidated joint ventures during the years ended December 31, 2020, 2019 and 2018.

Condensed summary financial information relating to the DownREIT Partnership (not just our proportionate share), is presented below for the years ended December 31, 2020, 2019 and 2018 (dollars in thousands):


	December 31,		December 31,
	2020		2019
Total real estate, net	$	1,042,449	$	1,106,703
Cash and cash equivalents		23		20
Note receivable from the General Partner		306,594		222,853
Other assets		7,940		4,829
Total assets	$	1,357,006	$	1,334,405

Secured debt, net	$	506,605	$	427,592
Other liabilities		28,800		28,087
Total liabilities		535,405		455,679
Total capital	$	821,601	$	878,726

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020


	Year Ended
	December 31,
	2020		2019		2018
Total revenue	$	130,597	$	128,621	$	138,121
Property operating expenses		(51,888)		(51,747)		(56,998)
Real estate depreciation and amortization		(82,092)		(82,283)		(85,872)
Gain/(loss) on sale of real estate		—		—		24,053
Operating income/(loss)		(3,383)		(5,409)		19,304
Interest expense		(15,599)		(15,648)		(14,456)
Other income/(loss)		8,466		8,061		4,884
Net income/(loss)	$	(10,516)	$	(12,996)	$	9,732

LEASES

Lessee - Ground and Equipment Leases

The Operating Partnership owns six communities that are subject to ground leases, under which the Operating Partnership is the lessee, expiring between 2043 and 2103, inclusive of extension options we are reasonably certain will be exercised. All of these leases are classified as operating leases through the lease term expiration based on our election of the practical expedient provided by the leasing standard. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the remaining lease term. In addition, the Operating Partnership leases equipment at seven communities from the General Partner, pursuant to leases that expire in 2030. We currently do not hold any finance leases. The Operating Partnership also elected the short-term lease exception provided by the leasing standard and therefore only recognizes right-of-use assets and lease liabilities for leases with a term greater than one year. No leases qualified for the short-term lease exception during the years ended December 31, 2020 and 2019.

As of December 31, 2020 and 2019, the Operating lease right-of-use assets were $202.4 million and $205.7 million, respectively, and the Operating lease liabilities were $197.1 million and $200.0 million, respectively, on our Consolidated Balance Sheets related to our ground and equipment leases. The value of the Operating lease right-of-use assets exceeds the value of the Operating lease liabilities due to prepaid lease payments and intangible assets for ground leases acquired in the purchase of real estate. The calculation of these amounts includes minimum lease payments over the remaining lease term (described further in the table below). Variable lease payments are excluded from the right-of-use assets and lease liabilities and are recognized in earnings in the period in which the obligation for those payments is incurred.

As the discount rate implicit in the leases was not readily determinable, we determined the discount rate for these leases utilizing the Operating Partnership’s incremental borrowing rate at a portfolio level, adjusted for the remaining lease term, and the form of underlying collateral.

The weighted average remaining lease term for these leases was 43.7 years and 44.4 years at December 31, 2020 and 2019, respectively, and the weighted average discount rate was 5.0% at both December 31, 2020 and 2019.

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DECEMBER 31, 2020

Future minimum lease payments and total operating lease liabilities from our ground and equipment leases as of December 31, 2020 are as follows (dollars in thousands):


	Ground Leases		Equipment Leases		Total
2021	$	12,442	$	179	$	12,621
2022		12,442		183		12,625
2023		12,442		187		12,629
2024		12,442		191		12,633
2025		12,442		195		12,637
Thereafter		442,778		813		443,591
Total future minimum lease payments (undiscounted)		504,988		1,748		506,736
Difference between future undiscounted cash flows and discounted cash flows		(309,396)		(205)		(309,601)
Total operating lease liabilities (discounted)	$	195,592	$	1,543	$	197,135

For purposes of recognizing our ground lease contracts, the Operating Partnership uses the minimum lease payments, if stated in the agreement. For ground lease agreements where there is a rent reset provision based on a change in an index or a rate (i.e., changes in fair market rental rates or changes in the consumer price index) but that does not include a specified minimum lease payment, the Operating Partnership uses the current rent over the remainder of the lease term. If there is a contingency, upon which some or all of the variable lease payments that will be paid over the remainder of the lease term are based, which is resolved such that those payments now meet the definition of lease payments, the Operating Partnership will remeasure the right-of-use asset and lease liability on the reset date. For the year ended December 31, 2019, Operating lease right-of-use assets and Operating lease liabilities increased by $111.1 million due to future minimum payments on two of our ground leases becoming fixed for the remainder of their terms.

For the years ended December 31, 2020 and 2019, Operating lease right-of-use assets and Operating lease liabilities increased by $0.3 million and $1.4 million, respectively, due to the Operating Partnership entering into new equipment leases.

The components of operating lease expenses from our ground and equipment leases were as follows (dollars in thousands):


	Year Ended December 31,
	2020		2019
Ground lease expense:
Contractual ground lease rent expense	$	12,821	$	8,272
Variable ground lease expense (a)		119		664
Total ground lease expense (b)		12,940		8,936
Contractual equipment lease expense (b)		155		19
Total operating lease expense (c)	$	13,095	$	8,955

	(a)	Variable ground lease expense includes adjustments such as changes in the consumer price index and payments based on a percentage of income of the lessee.

	(b)	Ground lease and equipment lease expense are reported within the line item Other operating expenses on the Consolidated Statements of Operations.

	(c)	For the year ended December 31, 2020, Operating lease right-of-use assets and Operating lease liabilities amortized by $3.5 million and $3.2 million, respectively, and for the year ended December 31, 2019, Operating lease right-of-use assets and Operating lease liabilities amortized by $1.0 million and $0.7 million, respectively. Due to the net impact of the amortization, the Operating Partnership recorded $0.3 million and $0.3 million of total operating lease expense during the years ended December 31, 2020 and 2019, respectively, due to the net impact of the amortization.

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DECEMBER 31, 2020

Lessor - Apartment Home and Retail and Commercial Leases

The Operating Partnership’s communities and retail and commercial space are leased to tenants under operating leases. As of December 31, 2020, our apartment home leases generally have initial terms of 12 months or less and represent 97.7% of our total lease revenue. As of December 31, 2020, our retail and commercial space leases generally have initial terms between 5 and 15 years and represent approximately 2.3% of our total lease revenue. Our apartment home leases are generally renewable at the end of the lease term, subject to potential increases in rental rates, and our retail and commercial space leases generally have renewal options, subject to associated increases in rental rates and certain other conditions. (See Note 12, Reportable Segments for further discussion around our major revenue streams and disaggregation of our revenue.)

Future minimum lease payments from our retail and commercial leases as of December 31, 2020 are as follows (dollars in thousands):


	Retail and Commercial Leases
2021	$	6,808
2022		6,389
2023		6,110
2024		5,368
2025		4,777
Thereafter		9,115
Total future minimum lease payments (a)	$	38,567

	(a)	We have excluded our apartment home leases from this table as our apartment home leases generally have initial terms of 12 months of less.

Certain of our leases with retail and commercial tenants provide for the payment by the lessee of additional variable rent based on a percentage of the tenant’s revenue. The amounts shown in the table above do not include these variable percentage rents. The Operating Partnership recorded variable percentage rents of less than $0.1 million and $0.1 million during the years ended December 31, 2020 and 2019.

DEBT, NET

Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon payments due at maturity. For purposes of classification in the following table, variable rate debt with a derivative financial instrument designated as a cash flow hedge is deemed as fixed rate debt due to the Operating

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DECEMBER 31, 2020

Partnership having effectively established the fixed interest rate for the underlying debt instrument. Secured debt consists of the following as of December 31, 2020 and 2019 (dollars in thousands):


	Principal Outstanding				As of December 31, 2020
							Weighted
					Weighted		Average
	December 31,		December 31,		Average		Years to	Communities
	2020		2019		Interest Rate		Maturity	Encumbered
Fixed Rate Debt
Mortgage note payable	$	72,500	$	72,500	3.10	%	9.1	1
Deferred financing costs		(328)		(365)
Total fixed rate secured debt, net		72,172		72,135	3.10	%	9.3	1
Variable Rate Debt
Tax-exempt secured note payable	$	27,000	$	27,000	0.84	%	11.2	1
Deferred financing costs		(68)		(64)
Total variable rate secured debt, net		26,932		26,936	0.84	%	11.2	1
Total Secured Debt, Net	$	99,104	$	99,071	2.54	%	9.7	2

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

Fixed Rate Debt

Mortgage note payable. At December 31, 2020, the Operating Partnership had a fixed rate mortgage note payable for $72.5 million with an interest rate of 3.10%. Interest payments are due monthly and the note matures in February 2030.

Variable Rate Debt

Tax-exempt secured note payable. The variable rate mortgage note payable for $27.0 million that secures a tax-exempt housing bond issue that matures in March 2032. Interest on this note is payable in monthly installments. The mortgage note payable has an interest rate of 0.84% as of December 31, 2020.

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 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, $600 million of medium-term notes due January 2030, $400 million of medium-term notes due August 2031, $400 million of medium-term notes due August 2032, $350 million of medium-term notes due March 2033 and $300 million of medium-term notes due November 2034. As of December 31, 2020 and 2019, the General Partner did not have an outstanding balance under the unsecured revolving credit facility and had $190.0 million and $300.0 million, respectively, outstanding under its unsecured commercial paper program.

On February 11, 2021, the General Partner priced an offering of $300.0 million of 2.10% senior unsecured medium-term notes due 2033. The notes were priced at 99.592% of the principal amount of the notes. The General Partner intends to use the net proceeds to repay indebtedness, including the redemption of its $300.0 million 4.00% senior unsecured medium-term notes due October 2025 (plus the make-whole amount and accrued and unpaid interest), to fund potential acquisitions, or for other general corporate purposes. The settlement of the offering is expected to occur on February 26, 2021, subject to the satisfaction of customary closing conditions. The Operating Partnership will be the guarantor of the debt.

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DECEMBER 31, 2020

RELATED PARTY TRANSACTIONS

Shared Services

The Operating Partnership self-manages its own properties and is party to an Inter-Company Employee and Cost Sharing Agreement with the General Partner. This agreement provides for reimbursements to the General Partner for the Operating Partnership’s allocable share of costs incurred by the General Partner for (a) general and administrative costs, and (b) shared services of corporate level property management employees and related support functions and costs. See further discussion below.

Allocation of General and Administrative Expenses

The General Partner shares various general and administrative costs, employees and other overhead costs with the Operating Partnership including legal assistance, acquisitions analysis, marketing, human resources, IT, accounting, rent, supplies and advertising, and allocates these costs to the Operating Partnership first on the basis of direct usage when identifiable, with the remainder allocated based on the reasonably anticipated benefits to the parties. The general and administrative expenses allocated to the Operating Partnership by UDR were $13.4 million, $13.8 million, and $13.5 million during the years ended December 31, 2020, 2019 and 2018, respectively, and are included in General and administrative on the Consolidated Statements of Operations. In the opinion of management, this method of allocation reflects the level of services received by the Operating Partnership from the General Partner.

During the years ended December 31, 2020, 2019 and 2018, the Operating Partnership also reimbursed the General Partner $16.9 million, $16.9 million, and $15.2 million, respectively, for shared services related to corporate level property management costs incurred by the General Partner. These shared cost reimbursements are initially recorded within the line item General and administrative on the Consolidated Statements of Operations, and a portion related to property management costs is reclassified to Property management on the Consolidated Statements of Operations.

Notes Payable to the General Partner

The following table summarizes the Operating Partnership’s Notes payable due to the General Partner as of December 31, 2020 and 2019 (dollars in thousands):


	Interest rate at		Balance Outstanding
	December 31,		December 31,		December 31,
	2020		2020		2019
Note due August 2021	5.34	%	$	5,500	$	5,500
Note due December 2023	5.18	%		83,196		83,196
Note due April 2026	4.12	%		184,638		184,638
Note due November 2028	4.69	%		133,205		133,205
Note due December 2028 (a)	2.91	%		404,161		230,694
Total notes payable due to the General Partner			$	810,700	$	637,233

(a)

There is no limit on the total commitments under this unsecured revolving note. Interest is incurred on the unpaid principal balance at a variable interest rate equivalent to the General Partner’s weighted average interest rate on borrowings, or 2.91% as of December 31, 2020. The note matures on December 1, 2028. To the extent there is an outstanding principal balance on the revolving note payable, the General Partner, at its discretion, can demand payment at any time prior to the stated maturity date of the note.

Certain limited partners of the Operating Partnership have provided guarantees or reimbursement agreements related to these notes payable. The guarantees were provided by the limited partners in conjunction with their contribution of properties to the Operating Partnership. The Operating Partnership recognized interest expense on the notes payable of $26.5 million, $28.0 million and $14.1 million for the years ended December 31, 2020, 2019, and 2018, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020

FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS

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

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

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

The estimated fair values of the Operating Partnership’s financial instruments either recorded or disclosed on a recurring basis as of December 31, 2020 and 2019 are summarized as follows (dollars in thousands):


					Fair Value at December 31, 2020, Using
	Total				Quoted
	Carrying				Prices in
	Amount in				Active
	Statement of				Markets		Significant
	Financial		Fair Value		for Identical		Other		Significant
	Position at		Estimate at		Assets or		Observable		Unobservable
	December 31,		December 31,		Liabilities		Inputs		Inputs
	2020 (a)		2020		(Level 1)		(Level 2)		(Level 3)
Description:
Derivatives- Interest rate contracts (b)	$	2	$	2	$	—	$	2	$	—
Total assets	$	2	$	2	$	—	$	2	$	—

Secured debt instrument - fixed rate: (c)
Mortgage note payable	$	72,500	$	75,182	$	—	$	—	$	75,182
Secured debt instrument - variable rate: (c)
Tax-exempt secured note payable		27,000		27,000		—		—		27,000
Unsecured debt instruments: (d)
Notes payable due to the General Partner		810,700		810,700		—		—		810,700
Total liabilities	$	910,200	$	912,882	$	—	$	—	$	912,882

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DECEMBER 31, 2020


					Fair Value at December 31, 2019, Using
					Quoted
	Total				Prices in
	Carrying				Active
	Amount in				Markets
	Statement of				for Identical		Significant
	Financial		Fair Value		Assets		Other		Significant
	Position at		Estimate at		or		Observable		Unobservable
	December 31,		December 31,		Liabilities		Inputs		Inputs
	2019 (a)		2019		(Level 1)		(Level 2)		(Level 3)
Description:
Secured debt instruments - fixed rate: (c)
Mortgage notes payable	$	72,500	$	71,976	$	—	$	—	$	71,976
Secured debt instrument - variable rate: (c)
Tax-exempt secured note payable		27,000		27,000		—		—		27,000
Unsecured debt instruments: (d)
Notes payable due to the General Partner		637,233		637,233		—		—		637,233
Total liabilities	$	736,733	$	736,209	$	—	$	—	$	736,209

(a)	Balances exclude deferred financing costs.

(b)	See Note 9, Derivatives and Hedging Activity.

(c)	See Note 6, Debt, Net.

(d)	See Note 7, Related Party Transactions.

There were no transfers into or out of each of the levels of the fair value hierarchy during the year ended December 31, 2020.

Financial Instruments Carried at Fair Value

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

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

Although the General Partner, on behalf of the Operating Partnership, has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2020 and 2019, the Operating Partnership has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Operating Partnership has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. In conjunction with the FASB’s fair value measurement guidance, the Operating Partnership made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

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DECEMBER 31, 2020

Financial Instruments Not Carried at Fair Value

As of December 31, 2020, the fair values of cash and cash equivalents, restricted cash, accounts receivable, prepaids, real estate taxes payable, accrued interest payable, security deposits and prepaid rent, distributions payable and accounts payable approximated their carrying values because of the short term nature of these instruments. The estimated fair values of other financial instruments, which includes debt instruments, are classified in Level 3 of the fair value hierarchy due to the significant unobservable inputs that are utilized in their respective valuations.

DERIVATIVES AND HEDGING ACTIVITY

Risk Management Objective of Using Derivatives

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

Cash Flow Hedges of Interest Rate Risk

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

The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated other comprehensive income/(loss), net on the Consolidated Balance Sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the year ended December 31, 2020, one derivative was designated as a cash flow hedge by the Operating Partnership. No derivatives designated as cash flow hedges were held by the Operating Partnership in 2019 and 2018.

Amounts reported in Accumulated other comprehensive income/(loss), net on the Consolidated Balance Sheets related to derivatives that will be reclassified to interest expense as interest payments are made on the Operating Partnership’s variable-rate debt. Through December 31, 2021, the Operating Partnership estimates that less than $0.1 million will be reclassified as an increase to Interest expense.

As of December 31, 2020, the Operating Partnership had the following outstanding interest rate derivative that was designated as cash flow hedge of interest risk (dollars in thousands):


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

Derivatives not designated as hedges are not speculative and are used to manage the Operating Partnership’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of GAAP. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. As of December 31, 2020, no derivatives not designated as hedges were held by the Operating Partnership.

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DECEMBER 31, 2020

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

The table below presents the fair value of the Operating Partnership’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of December 31, 2020 and 2019 (dollars in thousands):


	Asset Derivatives				Liability Derivatives
	(included in Other assets)				(Included in Other liabilities)
	Fair Value at:				Fair Value at:
	December 31,		December 31,		December 31,		December 31,
	2020		2019		2020		2019
Derivatives designated as hedging instruments:
Interest rate caps	$	2	$	—	$	—	$	—

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

The tables below present the effect of the Operating Partnership’s derivative financial instruments on the Consolidated Statements of Operations for the years ended December 31, 2020, 2019, and 2018 (dollars in thousands):


													Gain/(Loss) Recognized in
							Gain/(Loss) Reclassified						Interest expense
	Unrealized holding gain/(loss)						from Accumulated OCI into						(Amount Excluded from
	Recognized in OCI						Interest expense						Effectiveness Testing)
Derivatives in Cash Flow Hedging Relationships	2020		2019		2018		2020		2019		2018		2020		2019		2018
Interest rate caps	$	(49)	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


	Year Ended
	December 31,
	2020		2019		2018
Total amount of Interest expense presented on the Consolidated Statements of Operations (a)	$	2,831	$	1,639		8,733

	(a)	Excludes Interest expense on notes payable due to the General Partner for the years ended December 31, 2020, 2019, and 2018.

Credit-risk-related Contingent Features

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

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

CAPITAL STRUCTURE

General Partnership Units

The General Partner has complete discretion to manage and control the operations and business of the Operating Partnership, which includes but is not limited to the acquisition and disposition of real property, construction of buildings and making capital improvements, and the borrowing of funds from outside lenders or UDR and its subsidiaries to finance such activities. The General Partner can generally authorize, issue, sell, redeem or purchase any OP Unit or securities of the Operating Partnership without the approval of the limited partners. The General Partner can

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DECEMBER 31, 2020

also approve, with regard to the issuances of OP Units, the class or one or more series of classes, with designations, preferences, participating, optional or other special rights, powers and duties including rights, powers and duties senior to limited partnership interests without approval of any limited partners except holders of Class A Limited Partnership Units. There were 0.1 million General Partnership units outstanding at December 31, 2020 and 2019, all of which were held by UDR.

Limited Partnership Units

As of December 31, 2020 and 2019, there were 184.7 million and 184.0 million, respectively, of limited partnership units outstanding, of which 1.9 million were Class A Limited Partnership Units for both periods. UDR owned 176.1 million, or 95.3%, and 176.1 million, or 95.7%, of OP Units outstanding at December 31, 2020 and 2019, respectively, of which 0.1 million were Class A Limited Partnership Units for both periods. The remaining 8.6 million, or 4.7%, and 7.9 million, or 4.3%, of OP Units outstanding were held by non-affiliated limited partners at December 31, 2020 and 2019, respectively, of which 1.8 million were Class A Limited Partnership Units for both periods.

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

The non-affiliated limited partners’ capital is adjusted to redemption value at the end of each reporting period with the corresponding offset against UDR’s limited partner capital account based on the redemption rights noted above. The aggregate value upon redemption of the then-outstanding OP Units held by non-affiliated limited partners was $331.0 million and $366.4 million as of December 31, 2020 and 2019, respectively, based on the value of UDR’s common stock at each period end. A limited partner has no right to receive any distributions from the Operating Partnership on or after the date of redemption of its OP Units.

Class A Limited Partnership Units

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

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

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DECEMBER 31, 2020

The following table shows OP Units outstanding and OP Unit activity as of and for the years ended December 31, 2020, 2019, and 2018 (units in thousands):


			UDR, Inc.
	Class A			Class A
	Limited	Limited	Limited	Limited	General
	Partners	Partners	Partner	Partner	Partner	Total
Ending balance at December 31, 2017	1,752	7,361	174,006	121	111	183,351
Vesting of LTIP Units	—	286	—	—	—	286
OP redemptions for UDR stock	—	(11)	11	—	—	—
Ending balance at December 31, 2018	1,752	7,636	174,017	121	111	183,637
Vesting of LTIP Units	—	427	—	—	—	427
OP redemptions for UDR stock	—	(1,969)	1,969	—	—	—
Ending balance at December 31, 2019	1,752	6,094	175,986	121	111	184,064
Vesting of LTIP Units	—	772	—	—	—	772
OP redemptions for UDR stock	—	(3)	3	—	—	—
Ending balance at December 31, 2020	1,752	6,863	175,989	121	111	184,836

LTIP Units

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

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

Allocation of Profits and Losses

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

COMMITMENTS AND CONTINGENCIES

Contingencies

Litigation and Legal Matters

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

REPORTABLE SEGMENTS

F - 84

UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020

Partnership has the same Chief Operating Decision Maker as that of its parent, the General Partner. The Chief Operating Decision Maker consists of several members of UDR’s executive management team who use several generally accepted industry financial measures to assess the performance of the business for our reportable operating segments.

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

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

● Same-Store Communities represent those communities acquired, developed, and stabilized prior to January 1, 2019 and held as of December 31, 2020. A comparison of operating results from the prior year is meaningful as these communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the community is not classified as held for disposition within the current year. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

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

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

All revenues are from external customers and no single tenant or related group of tenants contributed 10% or more of the Operating Partnership’s total revenues during the years ended December 31, 2020, 2019, and 2018.

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

Lease Revenue

F - 85

UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020

from its resident and retail lease contracts as the timing and pattern of revenue recognition for the non-lease component and related lease component are the same and the combined single lease component would be classified as an operating lease.

Other Revenue

Other revenue is generated by services provided by the Operating Partnership to its retail and residential tenants and other unrelated third parties. The Operating Partnership recognizes revenue when it satisfies a performance obligation by providing the services specified in a contract to the customer. These fees are generally recognized as earned.

F - 86

UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020

The following table details rental income and NOI for the Operating Partnership’s reportable segments for the years ended December 31, 2020, 2019, and 2018, and reconciles NOI to Net income/(loss) attributable to OP unitholders on the Consolidated Statements of Operations (dollars in thousands):


	Year Ended December 31,
	2020		2019		2018
Reportable apartment home segment lease revenue
Same-Store Communities (a)
West Region	$	240,776	$	248,474	$	238,886
Mid-Atlantic Region		50,566		50,975		50,131
Northeast Region		27,701		32,224		31,693
Southeast Region		52,471		50,795		49,132
Southwest Region		7,118		7,632		7,463
Non-Mature Communities/Other		35,559		37,658		41,577
Total segment and consolidated lease revenue	$	414,191	$	427,758	$	418,882
Reportable apartment home segment other revenue
Same-Store Communities (a)
West Region	$	7,388	$	7,873	$	7,161
Mid-Atlantic Region		1,593		1,706		1,489
Northeast Region		476		646		622
Southeast Region		2,542		2,925		2,764
Southwest Region		217		301		238
Non-Mature Communities/Other		2,340		564		764
Total segment and consolidated other revenue	$	14,556		14,015	$	13,038
Total reportable apartment home segment rental income
Same-Store Communities (a)
West Region	$	248,164	$	256,347	$	246,047
Mid-Atlantic Region		52,159		52,681		51,620
Northeast Region		28,177		32,870		32,315
Southeast Region		55,013		53,720		51,896
Southwest Region		7,335		7,933		7,701
Non-Mature Communities/Other		37,899		38,222		42,341
Total segment and consolidated rental income	$	428,747	$	441,773	$	431,920
Reportable apartment home segment NOI
Same-Store Communities (a)
West Region	$	186,290	$	196,302	$	187,664
Mid-Atlantic Region		36,043		36,830		36,028
Northeast Region		17,340		24,103		24,578
Southeast Region		37,577		37,340		35,948
Southwest Region		5,199		5,621		5,125
Non-Mature Communities/Other		20,838		22,810		28,037
Total segment and consolidated NOI	$	303,287	$	323,006	$	317,380
Reconciling items:
Property management		(12,326)		(12,701)		(11,878)
Other operating expenses		(16,138)		(9,488)		(8,864)
Real estate depreciation and amortization		(143,005)		(139,975)		(143,481)
General and administrative		(17,987)		(18,014)		(16,889)
Casualty-related (charges)/recoveries, net		(793)		(853)		(951)
Gain/(loss) on sale of real estate owned		57,960		—		75,507
Income/(loss) from unconsolidated entities		(5,543)		(8,313)		43,496
Interest expense		(29,357)		(29,667)		(22,835)
Net (income)/loss attributable to noncontrolling interests		(1,869)		(1,832)		(1,722)
Net income/(loss) attributable to OP unitholders	$	134,229	$	102,163	$	229,763

	(a)	Same-Store Community population consisted of 15,609 apartment homes.

F - 87

UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2020

The following table details the assets of the Operating Partnership’s reportable segments as of December 31, 2020 and 2019 (dollars in thousands):


	December 31,		December 31,
	2020		2019
Reportable apartment home segment assets
Same-Store Communities (a):
West Region	$	2,037,133	$	2,011,495
Mid-Atlantic Region		551,003		541,481
Northeast Region		410,406		408,703
Southeast Region		361,497		352,790
Southwest Region		144,959		144,210
Non-Mature Communities/Other		538,727		416,481
Total segment assets		4,043,725		3,875,160
Accumulated depreciation		(1,892,011)		(1,796,568)
Total segment assets - net book value		2,151,714		2,078,592
Reconciling items:
Cash and cash equivalents		26		24
Restricted cash		15,062		13,998
Investment in unconsolidated entities		51,302		76,222
Operating lease right-of-use assets		202,438		205,668
Other assets		37,025		24,241
Total consolidated assets	$	2,457,567	$	2,398,745

	(a)	Same-Store Community population consisted of 15,609 apartment homes.

Markets included in the above geographic segments are as follows:

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

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

	iii.	Northeast Region — Boston and New York

	iv.	Southeast Region — Tampa, Nashville and Other Florida

	v.	Southwest — Denver

F - 88

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UDR, INC.

SCHEDULE III — REAL ESTATE OWNED

DECEMBER 31, 2020

(In thousands)


											Gross Amount at Which
			Initial Costs								Carried at Close of Period
									Costs of
									Improvements
									Capitalized
			Land and		Buildings		Total Initial		Subsequent		Land and		Buildings &		Total
			Land		and		Acquisition		to Acquisition		Land		Buildings		Carrying		Accumulated		Date of	Date
	Encumbrances		Improvements		Improvements		Costs		Costs		Improvements		Improvements		Value		Depreciation		Construction(a)	Acquired
WEST REGION
Harbor at Mesa Verde	$	—	$	20,476	$	28,538	$	49,014	$	23,282	$	22,317	$	49,979	$	72,296	$	37,780	1965/2003	Jun-03
27 Seventy Five Mesa Verde		—		99,329		110,644		209,973		106,411		116,177		200,207		316,384		147,609	1979/2013	Oct-04
Huntington Vista		—		8,055		22,486		30,541		14,742		9,302		35,981		45,283		27,136	1970	Jun-03
Missions at Back Bay		—		229		14,129		14,358		4,129		11,052		7,435		18,487		5,837	1969	Dec-03
Eight 80 Newport Beach - North		—		62,516		46,082		108,598		46,676		69,331		85,943		155,274		64,662	1968/2000/2016	Oct-04
Eight 80 Newport Beach - South		—		58,785		50,067		108,852		37,225		60,961		85,116		146,077		59,802	1968/2000/2016	Mar-05
Foxborough		—		12,071		6,187		18,258		5,034		12,576		10,716		23,292		8,033	1969	Sep-04
1818 Platinum Triangle		—		16,663		51,905		68,568		4,556		17,090		56,034		73,124		33,489	2009	Aug-10
Beach & Ocean		—		12,878		—		12,878		39,458		13,121		39,215		52,336		15,074	2014	Aug-11
The Residences at Bella Terra		—		25,000		—		25,000		129,847		25,658		129,189		154,847		58,013	2013	Oct-11
Los Alisos at Mission Viejo		—		17,298		—		17,298		70,880		16,685		71,493		88,178		30,904	2014	Jun-04
The Residences at Pacific City		—		78,085		—		78,085		276,948		78,227		276,806		355,033		55,308	2018	Jan-14
ORANGE COUNTY, CA		—		411,385		330,038		741,423		759,188		452,497		1,048,114		1,500,611		543,647
2000 Post Street		—		9,861		44,578		54,439		37,292		14,417		77,314		91,731		46,827	1987/2016	Dec-98
Birch Creek		—		4,365		16,696		21,061		10,462		1,409		30,114		31,523		18,789	1968	Dec-98
Highlands Of Marin		—		5,996		24,868		30,864		29,045		8,086		51,823		59,909		39,256	1991/2010	Dec-98
Marina Playa		—		6,224		23,916		30,140		14,413		1,336		43,217		44,553		26,198	1971	Dec-98
River Terrace		—		22,161		40,137		62,298		8,941		22,998		48,241		71,239		33,870	2005	Aug-05
CitySouth		—		14,031		30,537		44,568		39,859		16,681		67,746		84,427		51,728	1972/2012	Nov-05
Bay Terrace		—		8,545		14,458		23,003		7,598		11,679		18,922		30,601		12,980	1962	Oct-05
Highlands of Marin Phase II		—		5,353		18,559		23,912		11,361		5,782		29,491		35,273		21,081	1968/2010	Oct-07
Edgewater		—		30,657		83,872		114,529		13,128		30,804		96,853		127,657		61,120	2007	Mar-08
Almaden Lake Village		27,000		594		42,515		43,109		9,940		981		52,068		53,049		33,775	1999	Jul-08
388 Beale		—		14,253		74,104		88,357		15,269		14,643		88,983		103,626		48,151	1999	Apr-11
Channel @ Mission Bay		—		23,625		—		23,625		131,470		24,039		131,056		155,095		56,161	2014	Sep-10
SAN FRANCISCO, CA		27,000		145,665		414,240		559,905		328,778		152,855		735,828		888,683		449,936
Crowne Pointe		—		2,486		6,437		8,923		9,928		3,237		15,614		18,851		11,696	1987	Dec-98
Hilltop		—		2,174		7,408		9,582		6,882		3,053		13,411		16,464		9,868	1985	Dec-98
The Hawthorne		—		6,474		30,226		36,700		9,397		7,137		38,960		46,097		27,979	2003	Jul-05
The Kennedy		—		6,179		22,307		28,486		4,403		6,317		26,572		32,889		17,882	2005	Nov-05
Hearthstone at Merrill Creek		—		6,848		30,922		37,770		9,325		7,311		39,784		47,095		24,773	2000	May-08
Island Square		—		21,284		89,389		110,673		7,991		21,674		96,990		118,664		61,271	2007	Jul-08
elements too		—		27,468		72,036		99,504		20,580		30,347		89,737		120,084		67,882	2010	Feb-10
989elements		—		8,541		45,990		54,531		5,668		8,683		51,516		60,199		29,943	2006	Dec-09
Lightbox		—		6,449		38,884		45,333		1,265		6,474		40,124		46,598		15,968	2014	Aug-14
Ashton Bellevue		—		8,287		124,939		133,226		3,185		8,368		128,043		136,411		30,424	2009	Oct-16
TEN20		—		5,247		76,587		81,834		4,110		5,293		80,651		85,944		19,241	2009	Oct-16
Milehouse		—		5,976		63,041		69,017		929		6,007		63,939		69,946		17,016	2016	Nov-16
CityLine		—		11,220		85,787		97,007		420		11,228		86,199		97,427		21,804	2016	Jan-17
CityLine II		—		3,723		56,843		60,566		451		3,723		57,294		61,017		8,079	2018	Jan-19
SEATTLE, WA		—		122,356		750,796		873,152		84,534		128,852		828,834		957,686		363,826
Boronda Manor		—		1,946		8,982		10,928		11,521		3,363		19,086		22,449		12,517	1979	Dec-98
Garden Court		—		888		4,188		5,076		6,791		1,616		10,251		11,867		6,763	1973	Dec-98
Cambridge Court		—		3,039		12,883		15,922		18,790		5,721		28,991		34,712		19,495	1974	Dec-98
Laurel Tree		—		1,304		5,115		6,419		7,999		2,469		11,949		14,418		7,870	1977	Dec-98
The Pointe At Harden Ranch		—		6,388		23,854		30,242		34,192		10,392		54,042		64,434		35,017	1986	Dec-98
The Pointe At Northridge		—		2,044		8,028		10,072		12,411		3,624		18,859		22,483		12,598	1979	Dec-98
The Pointe At Westlake		—		1,329		5,334		6,663		8,198		2,361		12,500		14,861		8,071	1975	Dec-98
MONTEREY PENINSULA, CA		—		16,938		68,384		85,322		99,902		29,546		155,678		185,224		102,331
Rosebeach		—		8,414		17,449		25,863		6,859		8,917		23,805		32,722		17,614	1970	Sep-04
Tierra Del Rey		—		39,586		36,679		76,265		9,294		40,031		45,528		85,559		28,994	1998	Dec-07
The Westerly		—		48,182		102,364		150,546		43,809		50,893		143,462		194,355		91,044	1993/2013	Sep-10
Jefferson at Marina del Rey		—		55,651		—		55,651		94,879		61,607		88,923		150,530		57,719	2008	Sep-07
LOS ANGELES, CA		—		151,833		156,492		308,325		154,841		161,448		301,718		463,166		195,371
Verano at Rancho Cucamonga Town Square		—		13,557		3,645		17,202		59,704		24,355		52,551		76,906		44,276	2006	Oct-02
Windemere at Sycamore Highland		—		5,810		23,450		29,260		5,513		6,371		28,402		34,773		22,167	2001	Nov-02

S - 1

UDR, INC.

SCHEDULE III — REAL ESTATE OWNED - (Continued)

DECEMBER 31, 2020

(In thousands)


											Gross Amount at Which
			Initial Costs								Carried at Close of Period
									Costs of
									Improvements
									Capitalized
			Land and		Buildings		Total Initial		Subsequent		Land and		Buildings &		Total
			Land		and		Acquisition		to Acquisition		Land		Buildings		Carrying		Accumulated		Date of	Date
	Encumbrances		Improvements		Improvements		Costs		Costs		Improvements		Improvements		Value		Depreciation		Construction(a)	Acquired
Strata		—		14,278		84,242		98,520		1,086		14,278		85,328		99,606		5,273	2010	Nov-19
OTHER SOUTHERN CA		—		33,645		111,337		144,982		66,303		45,004		166,281		211,285		71,716
Tualatin Heights		—		3,273		9,134		12,407		9,974		4,285		18,096		22,381		13,414	1989	Dec-98
Hunt Club		—		6,014		14,870		20,884		8,861		6,564		23,181		29,745		18,262	1985	Sep-04
The Arbory		—		4,366		63,457		67,823		375		4,366		63,832		68,198		3,990	2018	Jan-20
PORTLAND, OR		—		13,653		87,461		101,114		19,210		15,215		105,109		120,324		35,666
TOTAL WEST REGION		27,000		895,475		1,918,748		2,814,223		1,512,756		985,417		3,341,562		4,326,979		1,762,493
MID-ATLANTIC REGION
Dominion Middle Ridge		—		3,311		13,283		16,594		16,175		4,452		28,317		32,769		17,485	1990	Jun-96
Dominion Lake Ridge		—		2,366		8,387		10,753		10,034		3,170		17,617		20,787		13,548	1987	Feb-96
Presidential Greens		—		11,238		18,790		30,028		13,875		11,878		32,025		43,903		25,745	1938	May-02
The Whitmore		—		6,418		13,411		19,829		25,175		7,624		37,380		45,004		30,124	1962/2008	Apr-02
Ridgewood -apts side		—		5,612		20,086		25,698		13,198		6,482		32,414		38,896		25,282	1988	Aug-02
Waterside Towers		—		13,001		49,657		62,658		33,767		50,752		45,673		96,425		31,613	1971	Dec-03
Wellington Place at Olde Town		—		13,753		36,059		49,812		21,633		14,971		56,474		71,445		43,548	1987/2008	Sep-05
Andover House		—		183		59,948		60,131		7,059		320		66,870		67,190		41,876	2004	Mar-07
Sullivan Place		—		1,137		103,676		104,813		15,501		1,867		118,447		120,314		76,621	2007	Dec-07
Delancey at Shirlington		—		21,606		66,765		88,371		7,683		21,713		74,341		96,054		46,351	2006/2007	Mar-08
View 14		—		5,710		97,941		103,651		6,254		5,785		104,120		109,905		55,928	2009	Jun-11
Signal Hill Apartments		—		13,290		—		13,290		72,684		25,594		60,380		85,974		44,807	2010	Mar-07
Capitol View on 14th		—		31,393		—		31,393		97,182		31,478		97,097		128,575		46,206	2013	Sep-07
Domain College Park		—		7,300		—		7,300		60,855		7,526		60,629		68,155		26,385	2014	Jun-11
1200 East West		—		9,748		68,022		77,770		3,650		9,888		71,532		81,420		20,981	2010	Oct-15
Courts at Huntington Station		—		27,749		111,878		139,627		4,923		28,115		116,435		144,550		39,391	2011	Oct-15
Eleven55 Ripley		—		15,566		107,539		123,105		5,122		15,897		112,330		128,227		32,511	2014	Oct-15
Arbor Park of Alexandria		160,930		50,881		159,728		210,609		6,975		51,562		166,022		217,584		55,367	1969/2015	Oct-15
Courts at Dulles		—		14,697		83,834		98,531		10,718		14,782		94,467		109,249		33,782	2000	Oct-15
Newport Village		127,600		55,283		177,454		232,737		24,041		55,725		201,053		256,778		68,828	1968	Oct-15
1301 Thomas Circle		—		27,836		128,191		156,027		1,543		27,842		129,728		157,570		11,545	2006	Aug-19
Crescent Falls Church		—		13,687		88,692		102,379		1,101		13,694		89,786		103,480		6,495	2010	Nov-19
Station on Silver		—		16,661		109,198		125,859		11		16,661		109,209		125,870		600	2018	Dec-20
METROPOLITAN, D.C.		288,530		368,426		1,522,539		1,890,965		459,159		427,778		1,922,346		2,350,124		795,019
Calvert's Walk		—		4,408		24,692		29,100		9,911		5,196		33,815		39,011		26,175	1988	Mar-04
20 Lambourne		—		11,750		45,590		57,340		12,428		12,454		57,314		69,768		36,827	2003	Mar-08
Domain Brewers Hill		—		4,669		40,630		45,299		2,719		4,833		43,185		48,018		24,816	2009	Aug-10
Rodgers Forge		—		15,392		67,958		83,350		5,183		15,565		72,968		88,533		8,648	1945	Apr-19
Towson Promenade		58,600		12,599		78,847		91,446		1,571		12,607		80,410		93,017		5,829	2009	Nov-19
BALTIMORE, MD		58,600		48,818		257,717		306,535		31,812		50,655		287,692		338,347		102,295
Gayton Pointe Townhomes		—		826		5,148		5,974		31,643		3,600		34,017		37,617		31,703	1973/2007	Sep-95
Waterside At Ironbridge		—		1,844		13,239		15,083		10,278		2,642		22,719		25,361		17,564	1987	Sep-97
Carriage Homes at Wyndham		—		474		30,997		31,471		10,870		4,158		38,183		42,341		29,877	1998	Nov-03
Legacy at Mayland		—		1,979		11,524		13,503		35,084		5,546		43,041		48,587		39,006	1973/2007	Dec-91
RICHMOND, VA		—		5,123		60,908		66,031		87,875		15,946		137,960		153,906		118,150
TOTAL MID-ATLANTIC REGION		347,130		422,367		1,841,164		2,263,531		578,846		494,379		2,347,998		2,842,377		1,015,464
NORTHEAST REGION
10 Hanover Square		—		41,432		218,983		260,415		29,075		41,815		247,675		289,490		116,732	2005	Apr-11
21 Chelsea		—		36,399		107,154		143,553		15,361		36,530		122,384		158,914		62,144	2001	Aug-11
View 34		—		114,410		324,920		439,330		114,384		116,048		437,666		553,714		227,237	1985/2013	Jul-11
95 Wall Street		—		57,637		266,255		323,892		10,873		58,084		276,681		334,765		156,590	2008	Aug-11
Leonard Pointe		—		38,010		93,204		131,214		1,406		38,016		94,604		132,620		12,161	2015	Feb-19
One William		—		6,422		75,527		81,949		906		6,459		76,396		82,855		7,574	2018	Aug-19
NEW YORK, NY		—		294,310		1,086,043		1,380,353		172,005		296,952		1,255,406		1,552,358		582,438
Garrison Square		—		6,475		91,027		97,502		25,999		6,617		116,884		123,501		60,567	1887/1990	Sep-10
Ridge at Blue Hills		25,000		6,039		34,869		40,908		5,909		6,470		40,347		46,817		23,250	2007	Sep-10
Inwood West		80,000		20,778		88,096		108,874		14,388		19,826		103,436		123,262		59,007	2006	Apr-11

S - 2

UDR, INC.

SCHEDULE III — REAL ESTATE OWNED - (Continued)

DECEMBER 31, 2020

(In thousands)


											Gross Amount at Which
			Initial Costs								Carried at Close of Period
									Costs of
									Improvements
									Capitalized
			Land and		Buildings		Total Initial		Subsequent		Land and		Buildings &		Total
			Land		and		Acquisition		to Acquisition		Land		Buildings		Carrying		Accumulated		Date of	Date
	Encumbrances		Improvements		Improvements		Costs		Costs		Improvements		Improvements		Value		Depreciation		Construction(a)	Acquired
14 North		72,500		10,961		51,175		62,136		13,923		11,483		64,576		76,059		38,209	2005	Apr-11
100 Pier 4		—		24,584		—		24,584		203,340		24,825		203,099		227,924		61,812	2015	Dec-15
345 Harrison		—		32,938		—		32,938		328,608		44,894		316,652		361,546		44,083	2018	Nov-11
Currents on the Charles		—		12,580		70,149		82,729		1,571		12,693		71,607		84,300		7,350	2015	Jun-19
The Commons at Windsor Gardens		—		34,609		225,515		260,124		13,146		34,613		238,657		273,270		27,794	1969	Aug-19
Charles River Landing		—		17,068		112,777		129,845		1,094		17,070		113,869		130,939		8,229	2010	Nov-19
Lenox Farms		94,050		17,692		115,899		133,591		3,002		17,695		118,898		136,593		8,616	2009	Nov-19
Lodge at Ames Pond		—		12,645		70,653		83,298		1,872		12,645		72,525		85,170		5,320	2010	Nov-19
BOSTON, MA		271,550		196,369		860,160		1,056,529		612,852		208,831		1,460,550		1,669,381		344,237
Park Square		—		10,365		96,050		106,415		1,321		10,484		97,252		107,736		11,306	2018	May-19
PHILADELPHIA, PA		—		10,365		96,050		106,415		1,321		10,484		97,252		107,736		11,306
TOTAL NORTHEAST REGION		271,550		501,044		2,042,253		2,543,297		786,178		516,267		2,813,208		3,329,475		937,981
SOUTHEAST REGION
Summit West		—		2,176		4,710		6,886		13,247		4,027		16,106		20,133		14,234	1972	Dec-92
The Breyley		—		1,780		2,458		4,238		19,516		3,912		19,842		23,754		19,568	1977/2007	Sep-93
Lakewood Place		—		1,395		10,647		12,042		13,985		3,257		22,770		26,027		18,921	1986	Mar-94
Cambridge Woods		—		1,791		7,166		8,957		13,118		3,612		18,463		22,075		15,045	1985	Jun-97
Inlet Bay		—		7,702		23,150		30,852		21,301		10,609		41,544		52,153		34,547	1988/1989	Jun-03
MacAlpine Place		—		10,869		36,858		47,727		14,572		12,417		49,882		62,299		36,966	2001	Dec-04
The Vintage Lofts at West End		—		6,611		37,663		44,274		23,410		15,868		51,816		67,684		36,077	2009	Jul-09
Peridot Palms		—		6,293		89,752		96,045		1,446		6,305		91,186		97,491		11,914	2017	Feb-19
The Preserve at Gateway		—		4,467		43,723		48,190		1,390		4,471		45,109		49,580		5,053	2013	May-19
The Slade at Channelside		—		10,216		72,786		83,002		2,015		10,258		74,759		85,017		4,719	2009	Jan-20
Andover Place at Cross Creek		—		11,702		107,761		119,463		76		11,709		107,830		119,539		1,223	1997/1999	Nov-20
TAMPA, FL		—		65,002		436,674		501,676		124,076		86,445		539,307		625,752		198,267
Seabrook		—		1,846		4,155		6,001		10,785		3,194		13,592		16,786		11,946	1984/2004	Feb-96
Altamira Place		—		1,533		11,076		12,609		23,989		4,040		32,558		36,598		29,899	1984/2007	Apr-94
Regatta Shore		—		757		6,608		7,365		18,996		2,396		23,965		26,361		21,164	1988/2007	Jun-94
Alafaya Woods		—		1,653		9,042		10,695		13,417		2,871		21,241		24,112		17,240	1989/2006	Oct-94
Los Altos		—		2,804		12,349		15,153		14,349		4,587		24,915		29,502		20,338	1990/2004	Oct-96
Lotus Landing		—		2,185		8,639		10,824		13,198		3,121		20,901		24,022		15,939	1985/2006	Jul-97
Seville On The Green		—		1,282		6,498		7,780		8,929		1,920		14,789		16,709		11,816	1986/2004	Oct-97
Ashton @ Waterford		—		3,872		17,538		21,410		7,597		4,607		24,400		29,007		17,840	2000	May-98
Arbors at Lee Vista		—		6,692		12,860		19,552		17,453		7,759		29,246		37,005		22,157	1992/2007	Aug-06
ORLANDO, FL		—		22,624		88,765		111,389		128,713		34,495		205,607		240,102		168,339
Legacy Hill		—		1,148		5,867		7,015		11,324		2,041		16,298		18,339		13,833	1977	Nov-95
Hickory Run		—		1,469		11,584		13,053		14,873		2,684		25,242		27,926		18,126	1989	Dec-95
Carrington Hills		—		2,117		—		2,117		39,856		5,016		36,957		41,973		28,441	1999	Dec-95
Brookridge		—		708		5,461		6,169		7,786		1,495		12,460		13,955		9,894	1986	Mar-96
Breckenridge		—		766		7,714		8,480		7,329		1,539		14,270		15,809		10,882	1986	Mar-97
Colonnade		—		1,460		16,015		17,475		9,392		2,440		24,427		26,867		17,504	1998	Jan-99
The Preserve at Brentwood		—		3,182		24,674		27,856		11,689		4,187		35,358		39,545		27,778	1998	Jun-04
Polo Park		—		4,583		16,293		20,876		18,537		6,216		33,197		39,413		27,438	1987/2008	May-06
NASHVILLE, TN		—		15,433		87,608		103,041		120,786		25,618		198,209		223,827		153,896
The Reserve and Park at Riverbridge		—		15,968		56,401		72,369		17,261		16,900		72,730		89,630		52,555	1999/2001	Dec-04
OTHER FLORIDA		—		15,968		56,401		72,369		17,261		16,900		72,730		89,630		52,555
TOTAL SOUTHEAST REGION		—		119,027		669,448		788,475		390,836		163,458		1,015,853		1,179,311		573,057
SOUTHWEST REGION
Thirty377		25,000		24,036		32,951		56,987		21,167		26,212		51,942		78,154		36,152	1999/2007	Aug-06
Legacy Village		90,000		16,882		100,102		116,984		26,248		21,391		121,841		143,232		79,544	2005/06/07	Mar-08
Addison Apts at The Park		—		22,041		11,228		33,269		14,434		31,199		16,504		47,703		11,917	1977/78/79	May-07
Addison Apts at The Park II		—		7,903		554		8,457		7,752		11,055		5,154		16,209		3,682	1970	May-07
Addison Apts at The Park I		—		10,440		634		11,074		1,883		8,453		4,504		12,957		2,993	1975	May-07
Savoye		—		8,432		50,483		58,915		2,508		8,471		52,952		61,423		3,868	2009	Nov-19
Savoye 2		—		6,451		56,615		63,066		1,232		6,461		57,837		64,298		4,165	2011	Nov-19

S - 3

UDR, INC.

SCHEDULE III — REAL ESTATE OWNED - (Continued)

DECEMBER 31, 2020

(In thousands)


											Gross Amount at Which
			Initial Costs								Carried at Close of Period
									Costs of
									Improvements
									Capitalized
			Land and		Buildings		Total Initial		Subsequent		Land and		Buildings &		Total
			Land		and		Acquisition		to Acquisition		Land		Buildings		Carrying		Accumulated		Date of	Date
	Encumbrances		Improvements		Improvements		Costs		Costs		Improvements		Improvements		Value		Depreciation		Construction(a)	Acquired
Fiori on Vitruvian Park		49,553		7,934		78,575		86,509		2,090		7,938		80,661		88,599		5,878	2013	Nov-19
Vitruvian West Phase 1		41,317		6,273		61,418		67,691		852		6,279		62,264		68,543		4,739	2018	Nov-19
DALLAS, TX		205,870		110,392		392,560		502,952		78,166		127,459		453,659		581,118		152,938
Barton Creek Landing		—		3,151		14,269		17,420		25,130		5,439		37,111		42,550		31,281	1986/2012	Mar-02
Residences at the Domain		—		4,034		55,256		59,290		15,761		4,608		70,443		75,051		44,676	2007	Aug-08
Red Stone Ranch		—		5,084		17,646		22,730		6,068		5,704		23,094		28,798		13,419	2000	Apr-12
Lakeline Villas		—		4,148		16,869		21,017		4,066		4,674		20,409		25,083		12,009	2002	Apr-12
AUSTIN, TX		—		16,417		104,040		120,457		51,025		20,425		151,057		171,482		101,385
Steele Creek		—		8,586		130,400		138,986		6,012		8,640		136,358		144,998		25,139	2015	Oct-17
DENVER, CO		—		8,586		130,400		138,986		6,012		8,640		136,358		144,998		25,139
TOTAL SOUTHWEST REGION		205,870		135,395		627,000		762,395		135,203		156,524		741,074		897,598		279,462
TOTAL OPERATING COMMUNITIES		851,550		2,073,308		7,098,613		9,171,921		3,403,819		2,316,045		10,259,695		12,575,740		4,568,457
REAL ESTATE UNDER DEVELOPMENT
Vitruvian West Phase 2		—		6,451		15,798		22,249		34,775		6,451		50,573		57,024		1,010
Cirrus		—		13,853		—		13,853		53,272		13,853		53,272		67,125		—
5421 at Dublin Station		—		8,922		—		8,922		48,877		8,922		48,877		57,799		—
440 Penn Street		—		27,135		—		27,135		18,784		27,135		18,784		45,919		—
Village at Valley Forge		—		17,341		—		17,341		2,669		17,341		2,669		20,010		—
TOTAL REAL ESTATE UNDER DEVELOPMENT		—		73,702		15,798		89,500		158,377		73,702		174,175		247,877		1,010
LAND
Vitruvian Park®		—		39,609		4,997		44,606		17,076		46,664		15,018		61,682		2,818
TOTAL LAND		—		39,609		4,997		44,606		17,076		46,664		15,018		61,682		2,818
HELD FOR DISPOSITION
Parallel		—		15,181		100,595		115,776		879		15,184		101,471		116,655		13,779
TOTAL HELD FOR DISPOSITION		—		15,181		100,595		115,776		879		15,184		101,471		116,655		13,779
COMMERCIAL
Brookhaven Shopping Center		—		—		—		—		29,927		7,793		22,134		29,927		14,646
TOTAL COMMERCIAL		—		—		—		—		29,927		7,793		22,134		29,927		14,646
Other (b)		—		—		—		—		14,007		—		14,007		14,007		94
1745 Shea Center I		—		3,034		20,534		23,568		2,016		3,086		22,498		25,584		4,562
TOTAL CORPORATE		—		3,034		20,534		23,568		16,023		3,086		36,505		39,591		4,656
TOTAL COMMERCIAL & CORPORATE		—		3,034		20,534		23,568		45,950		10,879		58,639		69,518		19,302
Deferred Financing Costs and Other Non-Cash Adjustments		10,597
TOTAL REAL ESTATE OWNED	$	862,147	$	2,204,834	$	7,240,537	$	9,445,371	$	3,626,101	$	2,462,474	$	10,608,998	$	13,071,472	$	4,605,366

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

(b)	Includes unallocated accruals and capital expenditures.

The aggregate cost for federal income tax purposes was approximately $12.3 billion at December 31, 2020 (unaudited).

The estimated depreciable lives for all buildings in the latest Consolidated Statements of Operations are 30 to 55 years.

S - 4

UDR, INC.

SCHEDULE III — REAL ESTATE OWNED - (Continued)

DECEMBER 31, 2020

(In thousands)

3-YEAR ROLLFORWARD OF REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION

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


	2020		2019		2018
Balance at beginning of the year	$	12,602,101	$	10,196,159	$	10,177,206
Real estate acquired		413,488		2,241,163		—
Capital expenditures and development		299,986		195,981		214,898
Real estate sold		(244,103)		(31,202)		(195,945)
Balance at end of the year	$	13,071,472	$	12,602,101	$	10,196,159

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


	2020		2019		2018
Balance at beginning of the year	$	4,131,353	$	3,654,160	$	3,330,166
Depreciation expense for the year		560,876		477,193		426,006
Accumulated depreciation on sales		(86,863)		—		(102,012)
Balance at end of year	$	4,605,366	$	4,131,353	$	3,654,160

S - 5

UNITED DOMINION REALTY, L.P.

SCHEDULE III — REAL ESTATE OWNED

DECEMBER 31, 2020

(In thousands)


											Gross Amount at Which
			Initial Costs								Carried at Close of Period
									Cost of
									Improvements
									Capitalized
							Total Initial		Subsequent to				Buildings &						Date of
			Land and Land		Building and		Acquisition		Acquisition		Land and Land		Buildings		Total Carrying		Accumulated		Construction
	Encumbrances		Improvements		Improvements		Costs		Costs		Improvements		Improvements		Value		Depreciation		(a)	Date Acquired
WEST REGION
Harbor at Mesa Verde	$	—	$	20,476	$	28,538	$	49,014	$	23,282	$	22,317	$	49,979	$	72,296	$	37,780	1965/2003	Jun-03
27 Seventy Five Mesa Verde		—		99,329		110,644		209,973		106,411		116,177		200,207		316,384		147,609	1979/2013	Oct-04
Huntington Vista		—		8,055		22,486		30,541		14,742		9,302		35,981		45,283		27,136	1970	Jun-03
Missions at Back Bay		—		229		14,129		14,358		4,129		11,052		7,435		18,487		5,837	1969	Dec-03
Eight 80 Newport Beach - North		—		62,516		46,082		108,598		46,676		69,331		85,943		155,274		64,662	1968/2000/2016	Oct-04
Eight 80 Newport Beach - South		—		58,785		50,067		108,852		37,225		60,961		85,116		146,077		59,802	1968/2000/2016	Mar-05
ORANGE COUNTY, CA		—		249,390		271,946		521,336		232,465		289,140		464,661		753,801		342,826
2000 Post Street		—		9,861		44,578		54,439		24,689		11,126		68,002		79,128		39,177	1987/2016	Dec-98
Birch Creek		—		4,365		16,696		21,061		10,462		1,409		30,114		31,523		18,789	1968	Dec-98
Highlands Of Marin		—		5,996		24,868		30,864		29,045		8,086		51,823		59,909		39,256	1991/2010	Dec-98
Marina Playa		—		6,224		23,916		30,140		14,413		1,336		43,217		44,553		26,198	1971	Dec-98
River Terrace		—		22,161		40,137		62,298		8,941		22,998		48,241		71,239		33,870	2005	Aug-05
CitySouth		—		14,031		30,537		44,568		39,859		16,681		67,746		84,427		51,728	1972/2012	Nov-05
Bay Terrace		—		8,545		14,458		23,003		7,598		11,679		18,922		30,601		12,980	1962	Oct-05
Highlands of Marin Phase II		—		5,353		18,559		23,912		11,361		5,782		29,491		35,273		21,081	1968/2010	Oct-07
Edgewater		—		30,657		83,872		114,529		13,128		30,804		96,853		127,657		61,120	2007	Mar-08
Almaden Lake Village		27,000		594		42,515		43,109		9,940		981		52,068		53,049		33,775	1999	Jul-08
SAN FRANCISCO, CA		27,000		107,787		340,136		447,923		169,436		110,882		506,477		617,359		337,974
Crowne Pointe		—		2,486		6,437		8,923		9,928		3,237		15,614		18,851		11,696	1987	Dec-98
Hilltop		—		2,174		7,408		9,582		6,882		3,053		13,411		16,464		9,868	1985	Dec-98
The Kennedy		—		6,179		22,307		28,486		4,403		6,317		26,572		32,889		17,882	2005	Nov-05
Hearthstone at Merrill Creek		—		6,848		30,922		37,770		9,325		7,311		39,784		47,095		24,773	2000	May-08
Island Square		—		21,284		89,389		110,673		7,991		21,674		96,990		118,664		61,271	2007	Jul-08
SEATTLE, WA		—		38,971		156,463		195,434		38,529		41,592		192,371		233,963		125,490
Boronda Manor		—		1,946		8,982		10,928		11,521		3,363		19,086		22,449		12,517	1979	Dec-98
Garden Court		—		888		4,188		5,076		6,791		1,616		10,251		11,867		6,763	1973	Dec-98
Cambridge Court		—		3,039		12,883		15,922		18,790		5,721		28,991		34,712		19,495	1974	Dec-98
Laurel Tree		—		1,304		5,115		6,419		7,999		2,469		11,949		14,418		7,870	1977	Dec-98
The Pointe At Harden Ranch		—		6,388		23,854		30,242		34,192		10,392		54,042		64,434		35,017	1986	Dec-98
The Pointe At Northridge		—		2,044		8,028		10,072		12,411		3,624		18,859		22,483		12,598	1979	Dec-98
The Pointe At Westlake		—		1,329		5,334		6,663		8,198		2,361		12,500		14,861		8,071	1975	Dec-98
MONTEREY PENINSULA, CA		—		16,938		68,384		85,322		99,902		29,546		155,678		185,224		102,331
Rosebeach		—		8,414		17,449		25,863		6,859		8,917		23,805		32,722		17,614	1970	Sep-04
Tierra Del Rey		—		39,586		36,679		76,265		9,294		40,031		45,528		85,559		28,994	1998	Dec-07
LOS ANGELES, CA		—		48,000		54,128		102,128		16,153		48,948		69,333		118,281		46,608
Verano at Rancho Cucamonga Town Square		—		13,557		3,645		17,202		59,704		24,355		52,551		76,906		44,276	2006	Oct-02
OTHER SOUTHERN CA		—		13,557		3,645		17,202		59,704		24,355		52,551		76,906		44,276
Tualatin Heights		—		3,273		9,134		12,407		9,974		4,285		18,096		22,381		13,414	1989	Dec-98
Hunt Club		—		6,014		14,870		20,884		8,861		6,564		23,181		29,745		18,262	1985	Sep-04
PORTLAND, OR		—		9,287		24,004		33,291		18,835		10,849		41,277		52,126		31,676
TOTAL WEST REGION		27,000		483,930		918,706		1,402,636		635,024		555,312		1,482,348		2,037,660		1,031,181
MID-ATLANTIC REGION
Ridgewood -apts side		—		5,612		20,086		25,698		13,198		6,482		32,414		38,896		25,282	1988	Aug-02
Wellington Place at Olde Town		—		13,753		36,059		49,812		21,633		14,971		56,474		71,445		43,548	1987/2008	Sep-05
Andover House		—		183		59,948		60,131		7,059		320		66,870		67,190		41,876	2004	Mar-07
Sullivan Place		—		1,137		103,676		104,813		15,438		1,870		118,381		120,251		76,556	2007	Dec-07
Courts at Huntington Station		—		27,749		111,878		139,627		4,923		28,115		116,435		144,550		39,391	1973	Dec-98
Station on Silver		—		16,661		109,198		125,859		11		16,661		109,209		125,870		600	2018	Dec-20
METROPOLITAN D.C.		—		65,095		440,845		505,940		62,262		68,419		499,783		568,202		227,253
Calvert's Walk		—		4,408		24,692		29,100		9,911		5,196		33,815		39,011		26,175	1988	Mar-04
20 Lambourne		—		11,750		45,590		57,340		12,428		12,454		57,314		69,768		36,827	2003	Mar-08
BALTIMORE, MD		—		16,158		70,282		86,440		22,339		17,650		91,129		108,779		63,002
TOTAL MID-ATLANTIC REGION		—		81,253		511,127		592,380		84,601		86,069		590,912		676,981		290,255

S - 6

UNITED DOMINION REALTY, L.P.

SCHEDULE III — REAL ESTATE OWNED - (Continued)

DECEMBER 31, 2020

(In thousands)


											Gross Amount at Which
			Initial Costs								Carried at Close of Period
									Cost of
									Improvements
									Capitalized
							Total Initial		Subsequent to				Buildings &						Date of
			Land and Land		Building and		Acquisition		Acquisition		Land and Land		Buildings		Total Carrying		Accumulated		Construction
	Encumbrances		Improvements		Improvements		Costs		Costs		Improvements		Improvements		Value		Depreciation		(a)	Date Acquired
NORTHEAST REGION
10 Hanover Square		—		41,432		218,983		260,415		29,075		41,815		247,675		289,490		116,732	2005	Apr-11
95 Wall Street		—		57,637		266,255		323,892		10,873		58,084		276,681		334,765		156,590	2008	Aug-11
NEW YORK, NY		—		99,069		485,238		584,307		39,948		99,899		524,356		624,255		273,322
14 North		72,500		10,961		51,175		62,136		13,923		11,483		64,576		76,059		38,209	2005	Apr-11
BOSTON, MA		72,500		10,961		51,175		62,136		13,923		11,483		64,576		76,059		38,209
TOTAL NORTHEAST REGION		72,500		110,030		536,413		646,443		53,871		111,382		588,932		700,314		311,531
SOUTHEAST REGION
Inlet Bay		—		7,702		23,150		30,852		21,301		10,609		41,544		52,153		34,547	1988/1989	Jun-03
MacAlpine Place		—		10,869		36,858		47,727		14,572		12,417		49,882		62,299		36,966	2001	Dec-04
Andover Place at Cross Creek		—		11,702		107,761		119,463		76		11,709		107,830		119,539		1,223	1997/1999	Nov-20
TAMPA, FL		—		30,273		167,769		198,042		35,949		34,735		199,256		233,991		72,736
Legacy Hill		—		1,148		5,867		7,015		11,324		2,041		16,298		18,339		13,833	1977	Nov-95
Hickory Run		—		1,469		11,584		13,053		14,873		2,684		25,242		27,926		18,126	1989	Dec-95
Carrington Hills		—		2,117		—		2,117		39,856		5,016		36,957		41,973		28,441	1999	Dec-95
Brookridge		—		708		5,461		6,169		7,786		1,495		12,460		13,955		9,894	1986	Mar-96
Breckenridge		—		766		7,714		8,480		7,329		1,539		14,270		15,809		10,882	1986	Mar-97
Polo Park		—		4,583		16,293		20,876		18,537		6,216		33,197		39,413		27,438	1987/2008	May-06
NASHVILLE, TN		—		10,791		46,919		57,710		99,705		18,991		138,424		157,415		108,614
The Reserve and Park at Riverbridge		—		15,968		56,401		72,369		17,261		16,900		72,730		89,630		52,555	1999/2001	Dec-04
OTHER FLORIDA		—		15,968		56,401		72,369		17,261		16,900		72,730		89,630		52,555
TOTAL SOUTHEAST REGION		—		57,032		271,089		328,121		152,915		70,626		410,410		481,036		233,905
SOUTHWEST REGION
Steele Creek		—		8,586		130,400		138,986		6,012		8,640		136,358		144,998		25,139	2015	Oct-17
DENVER, CO		—		8,586		130,400		138,986		6,012		8,640		136,358		144,998		25,139
TOTAL SOUTHWEST REGION		—		8,586		130,400		138,986		6,012		8,640		136,358		144,998		25,139
TOTAL OPERATING COMMUNITIES		99,500		740,831		2,367,735		3,108,566		932,423		832,029		3,208,960		4,040,989		1,892,011
Other (b)		—		—		—		—		2,736		—		2,736		2,736		—
TOTAL CORPORATE		—		—		—		—		2,736		—		2,736		2,736		—
Deferred Financing Costs		(396)
TOTAL REAL ESTATE OWNED	$	99,104	$	740,831	$	2,367,735	$	3,108,566	$	935,159	$	832,029	$	3,211,696	$	4,043,725	$	1,892,011

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

(b)	Includes unallocated accruals and capital expenditures.

The aggregate cost for federal income tax purpose was approximately $3.4 billion at December 31, 2020 (unaudited).

The estimated depreciable lives for all buildings in the latest Consolidated Statements of Operations are 30 to 55 years.

S - 7

UNITED DOMINION REALTY, L.P.

SCHEDULE III — REAL ESTATE OWNED - (Continued)

DECEMBER 31, 2020

(In thousands)

3-YEAR ROLLFORWARD OF REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION

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


	2020		2019		2018
Balance at beginning of the year	$	3,875,160	$	3,811,985	$	3,816,956
Real estate acquired		245,322		—		—
Capital expenditures and development		52,661		63,175		44,353
Real estate sold		(129,418)		—		(49,324)
Balance at end of year	$	4,043,725	$	3,875,160	$	3,811,985

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


	2020		2019		2018
Balance at beginning of the year	$	1,796,568	$	1,658,161	$	1,543,652
Depreciation expense for the year		140,095		138,407		141,683
Accumulated depreciation on sales		(44,652)		—		(27,174)
Balance at end of year	$	1,892,011	$	1,796,568	$	1,658,161

S - 8

Previous: Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES