Item 6. SELECTED FINANCIAL DATA

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Not Applicable.

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

Forward-Looking Statements

This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, without limitation, statements concerning property acquisitions and dispositions, development activity and capital expenditures, capital raising activities, rent growth, occupancy, rental expense growth and expected or potential impacts of the novel coronavirus disease (“COVID-19”) pandemic. Words such as “expects,” “anticipates,” “intends,” “plans,” “likely,” “will,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Such factors include, among other things, the impact of the COVID-19 pandemic and measures intended to prevent its spread or address its effect, unfavorable changes in the apartment market, changing economic conditions, the impact of inflation/deflation on rental rates and property operating expenses, expectations concerning the availability of capital and the stability of the capital markets, the impact of competition and competitive pricing, acquisitions, developments and redevelopments not achieving anticipated results, delays in completing developments and redevelopments, delays in completing lease-ups on schedule or at expected rent and occupancy levels, expectations on job growth, home affordability and demand/supply ratio for multifamily housing, expectations concerning development and redevelopment activities, expectations on occupancy levels and rental rates, expectations concerning joint ventures and partnerships with third parties, expectations that automation will help grow net operating income, and expectations on annualized net operating income.

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

	●	the impact of the COVID-19 pandemic and measures intended to prevent its spread or address its effects;

	●	general economic conditions;

	●	unfavorable changes in apartment market and economic conditions that could adversely affect occupancy levels and rental rates, including as a result of COVID-19;

	●	the failure of acquisitions to achieve anticipated results;

	●	possible difficulty in selling apartment communities;

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

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

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

	●	development and construction risks that may impact our profitability;

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

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

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

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

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

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

	●	our failure to succeed in new markets;

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

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

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

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

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

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

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

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

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

COVID-19 Update

See Part I, Item 1. “Business – COVID-19 Update” above for more information on the impact of COVID-19 on the Company.

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The following discussion should be read in conjunction with the consolidated financial statements appearing elsewhere herein and is based primarily on the consolidated financial statements for the years ended December 31, 2020, and 2019 of each UDR, Inc. and United Domination Realty, L.P.

This section of this Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019 of UDR, Inc. and United Domination Realty, L.P. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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UDR, Inc.:

Business Overview

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

At December 31, 2020, our consolidated real estate portfolio included of 149 communities in 13 states plus the District of Columbia totaling of 48,283 apartment homes. In addition, we have 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. The Same-Store Community apartment home population for the year ended December 31, 2020, was 37,607.

Critical Accounting Policies and Estimates

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

Cost Capitalization

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

In addition to construction costs, we capitalize costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. As each home in a capital project is completed and becomes available for lease-up, the Company ceases capitalization on the related portion. The costs capitalized are reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation. Amounts capitalized during the years ended December 31, 2020, 2019, and 2018 were $19.0 million, $13.5 million, and $18.1 million, respectively.

Investment in Unconsolidated Entities

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

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

Impairment of Long-Lived Assets

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 Company’s intent and ability to hold the related asset, as well as any significant cost overruns on development properties.

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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.

Real Estate Investment Properties

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

REIT Status

We are a Maryland corporation that has elected to be treated for federal income tax purposes as a REIT. A REIT is a legal entity that holds interests in real estate and is required by the Code to meet a number of organizational and operational requirements, including a requirement that a REIT must distribute at least 90% of our REIT taxable income (other than our net capital gain) to our stockholders. If we were to fail to qualify as a REIT in any taxable year, we will be subject to federal and state income taxes at the regular corporate rates and may not be able to qualify as a REIT for four years. Based on the net earnings reported for the year ended December 31, 2020 in our Consolidated Statements of Operations, we would have incurred federal and state GAAP income taxes if we had failed to qualify as a REIT.

Summary of Real Estate Portfolio by Geographic Market

The following table summarizes our market information by major geographic markets as of and for the year ended December 31, 2020:

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​	​	​	​	December 31, 2020						​	Year Ended December 31, 2020
​		​		​		Percentage		Total			​		Monthly			Net
​	​	Number of	​	Number of	​	of Total	​	Carrying		​	Average	​	Income per		​	Operating
​	​	Apartment	​	Apartment	​	Carrying	​	Value (in		​	Physical	​	Occupied		​	Income
Same-Store Communities	​	Communities	​	Homes	​	Value	​	thousands)		​	Occupancy	​	Home (a)		​	(in thousands)
West Region								​					​			​
Orange County, CA		10		4,434		8.8	%	$	1,145,371		96.5	%	$	2,328	​	$	91,704
San Francisco, CA		11		2,751		6.8	%	​	885,036		91.5	%	​	3,501	​	​	76,760
Seattle, WA		13		2,570		6.8	%		889,749		96.7	%		2,471	​		53,010
Monterey Peninsula, CA		7		1,565		1.4	%		185,224		96.6	%		1,940	​		27,587
Los Angeles, CA		4		1,225		3.5	%		463,167		95.5	%		2,765	​		27,585
Other Southern California		2		654		0.9	%		111,656		97.7	%		2,038	​		11,796
Portland, OR		2		476		0.4	%		52,126		97.1	%		1,637	​		6,623
Mid-Atlantic Region						​	​					​			​
Metropolitan D.C.		20		7,496		14.9	%		1,944,746		96.8	%		2,077	​		125,654
Baltimore, MD		3		720		1.2	%		156,797		97.9	%		1,720	​		9,603
Richmond, VA		4		1,358		1.2	%		153,906		97.8	%		1,422	​		16,874
Northeast Region						​	​					​			​
Boston, MA		4		1,388		3.6	%		470,541		95.1	%		2,783	​		32,372
New York, NY		3		1,452		7.9	%		1,037,337		92.6	%		4,135	​		33,181
Southeast Region						​	​					​			​
Tampa, FL		7		2,287		2.1	%		274,126		97.1	%		1,484	​		25,949
Orlando, FL		9		2,500		1.8	%		240,100		96.8	%		1,413	​		28,541
Nashville, TN		8		2,260		1.7	%		223,827		97.8	%		1,378	​		25,943
Other Florida		1		636		0.7	%		89,630		97.2	%		1,656	​		8,085
Southwest Region						​	​					​			​
Dallas, TX		7		2,345		2.3	%		298,205		97.3	%		1,382	​		24,124
Austin, TX		4		1,272		1.3	%		171,483		97.6	%		1,548	​		13,607
Denver, CO	​	1	​	218	​	1.1	%	​	144,959	​	93.1	%	​	3,012	​	​	5,200
Total/Average Same-Store Communities		120		37,607		68.4	%		8,937,986		96.3	%	$	2,126	​		644,198
Non-Mature, Commercial Properties & Other		28		10,088		28.8	%		3,768,954			​			​		196,868
Total Real Estate Held for Investment		148		47,695		97.2	%		12,706,940			​			​		841,066
Real Estate Under Development (b)		—		202		1.9	%		247,877			​			​		215
Real Estate Held for Disposition (c)		1		386		0.9	%		116,655			​			​		12,421
Total Real Estate Owned		149		48,283		100.0	%		13,071,472			​			​	$	853,702
Total Accumulated Depreciation							​		(4,605,366)			​			​
Total Real Estate Owned, Net of Accumulated Depreciation							​	$	8,466,106			​			​

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

(b)	As of December 31, 2020, the Company was developing five wholly owned communities with a total of 1,378 apartment homes, 202 of which have been completed.

(c)	The Company had one community located in Orange County, California that met the criteria to be classified as held for disposition at December 31, 2020.

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

Our Same-Store Communities segment represents those communities acquired, developed, and stabilized prior to January 1, 2019 and held as of December 31, 2020. These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the communities are not classified as held for disposition at year end. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

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

Liquidity and Capital Resources

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

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

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

In July 2017, the Company entered into an ATM sales agreement under which the Company may offer and sell up to 20.0 million shares of its common stock, from time to time, to or through its sales agents and may enter into separate forward sales agreements to or through its forward purchasers. Upon entering into the ATM sales agreement, the Company simultaneously terminated the sales agreement for its prior at-the-market equity offering program, which was entered into in April 2017, which replaced the prior at-the-market equity offering program entered into in April 2012. During the year ended December 31, 2020, the Company did not sell any shares of common stock through its ATM program, other than the forward sales described below. As of December 31, 2020, we had 9.6 million shares of common stock available for future issuance under the ATM program.

In February 2020, the Company issued $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 offering, the aggregate principal amount of outstanding 2030 notes was $600.0 million.

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.

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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.

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 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.

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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.

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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.

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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

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.

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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.

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Future Capital Needs

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

During 2021, we have approximately $1.1 million of secured debt maturing, comprised solely of principal amortization, and $190.0 million of unsecured debt maturing, comprised solely of the unsecured commercial paper. Additionally, the Company has no secured or unsecured debt maturing in 2022, other than the unsecured working capital credit facility. We anticipate repaying the debt due in 2021 and 2022 with cash flow from our operations, proceeds from debt or equity offerings, proceeds from dispositions of properties, or from borrowings under our credit agreements and our unsecured commercial paper program.

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. As of February 16, 2021, we had no borrowings outstanding under the Revolving Credit Facility, leaving $1.1 billion of unused capacity (excluding $1.9 million of letters of credit), and we had $0.2 million outstanding under the Working Capital Credit Facility, leaving $74.8 million of unused capacity.

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.

Statements of Cash Flows

The following discussion explains the changes in Net cash provided by/(used in) operating activities, Net cash provided by/(used in) investing activities, and Net cash provided by/(used in) financing activities that are presented in our Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019.

Operating Activities

For the year ended December 31, 2020, our Net cash provided by/(used in) operating activities was $604.3 million compared to $630.7 million for 2019. The decrease in cash flow from operating activities was primarily due to changes in operating assets and liabilities, partially offset by an increase in return on investments in unconsolidated joint ventures and improved net operating income, primarily driven by net operating income from communities acquired in 2020 and 2019.

Investing Activities

For the year ended December 31, 2020, Net cash provided by/(used in) investing activities was $(460.8) million compared to $(1.7) billion for 2019. The decrease in cash used in investing activities was primarily due to the decrease in acquisitions made during the current year and an increase in proceeds from sales of real estate investments, partially offset by an increase in spend for development of real estate assets and a decrease in distributions received from unconsolidated joint ventures.

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.

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

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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.

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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.

​

In January 2019, the Company increased its ownership interest from 49% to 100% in a 386 apartment home operating community located in Anaheim, California, for a cash purchase price of approximately $33.5 million. In connection with the acquisition, the Company repaid approximately $59.8 million of joint venture construction financing. As a result, the Company consolidated the operating community. The Company had previously accounted for its 49% ownership interest as a preferred equity investment in an unconsolidated joint venture. The Company accounted

for the consolidation as an asset acquisition resulting in no gain upon consolidation and increased its real estate assets owned by approximately $115.7 million and recorded approximately $2.4 million of in-place lease intangibles.

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

In January 2019, the Company acquired a to-be-developed parcel of land located in Washington, D.C. for approximately $27.1 million.

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

In February 2019, the Company acquired a 188 apartment home operating community located in Brooklyn, New York for approximately $132.1 million. The Company increased its real estate assets owned by approximately $97.5 million and recorded approximately $33.6 million of real estate intangibles and approximately $1.0 million of in-place lease intangibles.

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

​

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

​

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

​

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

​

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

​

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

​

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

​

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

​

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

​

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

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

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

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 the above mentioned 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 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 the sale by the Company and the ground lease being terminated.

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

Capital Expenditures

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

For the year ended December 31, 2020, total capital expenditures of $165.8 million or $3,494 per stabilized home, which in aggregate include recurring capital expenditures and major renovations, were spent across our portfolio, excluding development, as compared to $158.0 million or $3,710 per stabilized home for the prior year.

The increase in total capital expenditures was primarily due to:

	●	an increase of 35.8%, or $12.7 million, in major renovations, which include major structural changes and/or architectural revisions to existing buildings; and

	●	an increase of 11.1%, or $5.7 million, in recurring capital expenditures, which include asset preservation and turnover related expenditures; and

	●	an increase of 11.6%, or $5.1 million, in NOI enhancing improvements, such as kitchen and bath remodels and upgrades to common areas.

This was partially offset by:

​

	●	a decrease of 56.8%, or $15.6 million, in spend as compared to 2019 for our operations platform, which includes smart home installations at certain of our properties.

The following table outlines capital expenditures and repair and maintenance costs for all of our communities, excluding real estate under development, for the years ended December 31, 2020 and 2019 (dollars in thousands except Per Home amounts):

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	Per Home
​	​	Year Ended December 31,							​	Year Ended December 31,
​		2020			2019			% Change		2020			2019			% Change
Turnover capital expenditures	​	$	12,978	​	$	11,192		16.0	%	$	273	​	$	263		3.8	%
Asset preservation expenditures	​		43,946	​		40,054		9.7	%		926	​		941		(1.6)	%
Total recurring capital expenditures	​		56,924	​		51,246		11.1	%		1,199	​		1,204		(0.4)	%
NOI enhancing improvements (a)	​		48,752	​		43,689		11.6	%		1,027	​		1,026		0.1	%
Major renovations (b)	​		48,317	​		35,569		35.8	%		1,018	​		835		21.9	%
Operations platform	​	​	11,853	​	​	27,445	​	(56.8)	%	​	250	​	​	645	​	(61.3)	%
Total capital expenditures (c)	​	$	165,846	​	$	157,949		5.0	%	$	3,494	​	$	3,710		(5.8)	%
Repair and maintenance expense	​	$	56,794	​	$	43,525		30.5	%	$	1,196	​	$	1,022		17.0	%
Average home count (d)	​		47,475	​		42,579		11.5	%	​	​	​	​	​	​	​	​

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

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

	(c)	Total capital expenditures includes amounts capitalized during the year. Cash paid for capital expenditures is impacted by the net change in related accruals.

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

​

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

Consolidated Real Estate Under Development and Redevelopment

At December 31, 2020, our development pipeline consisted of five wholly-owned communities located in Denver, Colorado, Dublin, California, Addison, Texas, King of Prussia, Pennsylvania and Washington D.C., totaling 1,378 homes, 202 of which have been completed, with a budget of $491.5 million, 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. During 2020, we incurred $121.2 million for development costs, an increase of $95.8 million as compared to costs incurred in 2019 of $25.4 million.

At December 31, 2020, the Company was not redeveloping any communities.

Unconsolidated Joint Ventures and Partnerships

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

The Company’s Investment in and advances to unconsolidated joint ventures and partnerships, net, are accounted for under the equity method of accounting. For the year ended December 31, 2020:

	●	we made investments totaling $76.1 million in our unconsolidated joint ventures, including contributions of $66.3 million to four unconsolidated investments under our Developer Capital Program, which earn preferred returns ranging from 8.5% to 13.0%;

	●	our proportionate share of the net income/(loss) of the joint ventures and partnerships was $18.8 million; and

	●	we received distributions of $70.0 million, of which $20.7 million were operating cash flows and $49.3 million were investing cash flows.

We evaluate our investments in unconsolidated joint ventures and partnerships when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. The Company did not recognize any other-than-temporary impairments in the value of its investments in unconsolidated joint ventures or partnerships during the years ended December 31, 2020 and 2019.

Notes Receivable, net

Notes receivable relate to financing arrangements that are typically secured by real estate, real estate related projects or other assets.

​

The following significant activities occurred during the year ended December 31, 2020:

​

	●	in August 2020, the Company exercised the purchase option associated with the $115.0 million secured note receivable. The purchase is expected to close in 2021. 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. 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.

Financing Activities

For the years ended December 31, 2020 and 2019, Net cash provided by/(used in) financing activities was $(152.6) million and $880.4 million, respectively.

The following significant financing activities occurred during the year ended December 31, 2020:

	●	repayments of secured debt of $425.8 million, which was partially offset by proceeds from the issuance of secured debt of $160.9 million;

	●	issuance of $200.0 million of 3.20% senior unsecured medium-term notes due January 15, 2030, for net proceeds of approximately $211.3 million;

	●	issuance of $400.0 million of 2.10% senior unsecured medium-term notes due August 1, 2032, for net proceeds of approximately $399.6 million;

	●	issuance of $350.0 million of 1.90% senior unsecured medium-term notes due March 15, 2023, for net proceeds of approximately $348.5 million;

	●	repayment of $300.0 million senior unsecured medium-term notes due July 2024, $116.9 million of which was pursuant to our tender offer;

	●	net repayment of $110.0 million on our unsecured commercial paper program;

	●	sale of 2.1 million shares of common stock under our forward sales agreement for aggregate net proceeds of $102.2 million at a price per share of $48.23;

	●	repurchase of 0.6 million common shares for approximately $19.8 million;

	●	distributions of $419.4 million to our common stockholders; and

	●	payment of debt extinguishment costs of $62.6 million from the early prepayment of debt.

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

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

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

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

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

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

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

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

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

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

	●	distributions of $383.1 million to our common stockholders.

Credit Facilities and Commercial Paper Program

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.

​

The Company has a $1.1 billion unsecured revolving credit facility and a $350.0 million unsecured term loan. The Credit Agreement for these facilities allows the total commitments under the Revolving Credit Facility and the total

borrowings under the Term Loan to be increased to an aggregate maximum amount of up to $2.0 billion, subject to certain conditions, including obtaining commitments from one or more lenders. The Revolving Credit Facility has a scheduled maturity date of January 31, 2023, with two six-month extension options, subject to certain conditions. The Term Loan has a scheduled maturity date of September 30, 2023.

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

As of December 31, 2020, we had no outstanding borrowings under the Revolving Credit Facility, leaving $1.1 billion of unused capacity (excluding $2.8 million of letters of credit at December 31, 2020), and $350.0 million of outstanding borrowings under the Term Loan.

We have a working capital credit facility, which provides for a $75 million unsecured revolving credit facility (the “Working Capital Credit Facility”) with a scheduled maturity date of January 14, 2022. Based on the Company’s current credit rating, the Working Capital Credit Facility has an interest rate equal to LIBOR plus a margin of 82.5 basis points. Depending on the Company’s credit rating, the margin ranges from 75 to 145 basis points.

As of December 31, 2020, we had $28.0 million of outstanding borrowings under the Working Capital Credit Facility, leaving $47.0 million of unused capacity.

The bank revolving credit facilities and the term loan are subject to customary financial covenants and limitations, all of which we were in compliance with at December 31, 2020.

We have an unsecured commercial paper program. Under the terms of the program, we may issue unsecured commercial paper up to a maximum aggregate amount outstanding of $500 million. The notes are sold under customary terms in the United States commercial paper market and rank pari passu with all of our other unsecured indebtedness. The notes are fully and unconditionally guaranteed by the Operating Partnership. As of December 31, 2020, we had issued $190.0 million of commercial paper, for one month terms, at a weighted average annualized rate of 0.27%, leaving $310.0 million of unused capacity. 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.

Interest Rate Risk

We are exposed to interest rate risk associated with variable rate notes payable and maturing debt that has to be refinanced. We do not hold financial instruments for trading or other speculative purposes, but rather issue these financial instruments to finance our portfolio of real estate assets and operations. Interest rate sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. Our earnings are affected as changes in short-term interest rates impact our cost of variable rate debt and maturing fixed rate debt. We had $280.0 million in variable rate debt that is not subject to interest rate swap contracts as of December 31, 2020. If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by $3.8 million based on the average balance outstanding during the year.

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

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

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

​	​	​	​	​	​	​
​	​	Year Ended December 31,
​	​	2020			2019
Net cash provided by/(used in) operating activities		$	604,316		$	630,704
Net cash provided by/(used in) investing activities	​		(460,842)			(1,686,687)
Net cash provided by/(used in) financing activities	​		(152,594)			880,383

​

​

Results of Operations

The following discussion explains the changes in results of operations that are presented in our Consolidated Statements of Operations for the years ended December 31, 2020 and 2019.

Net Income/(Loss) Attributable to Common Stockholders

Net income/(loss) attributable to common stockholders was $60.0 million ($0.20 per diluted share) for the year ended December 31, 2020, as compared to $180.9 million ($0.63 per diluted share) for the comparable period in the prior year. The decrease resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

	●	an increase in real estate depreciation expense of $107.4 million primarily due to communities acquired in 2020 and 2019, partially offset by a decrease from sold communities and fully depreciated assets;

	●	an increase in interest expense of $31.8 million primarily due to higher average debt balances and the early pay off of debt during 2020 and 2019, resulting in prepayment costs of $49.2 million and $29.6 million, respectively;

	●	a decrease in income/(loss) from unconsolidated entities of $119.0 million, primarily attributable to a $114.9 million gain from the disposition of five operating communities from our UDR/MetLife II joint venture, a $10.6 million gain recognized on the sale of two operating properties from our UDR/KFH joint venture, a $4.6 million unrealized gain recorded on an unconsolidated technology investment, and an increase in preferred interest earned due to increased Developer Capital Program investments in 2019; and

	●	a decrease in interest income and other income/(expense), net of $9.1 million, primarily attributable to an $8.5 million promoted interest on the prepayment of a note to a multifamily technology company in 2019.

This was partially offset by:

​

	●	gains of $119.3 million from the sale of three operating communities located in Kirkland, Washington, Bellevue, Washington and Alexandria, Virginia, during the year ended December 31, 2020, as compared to a gain of $5.3 million on the sale of a parcel of land in Los Angeles, California during the year ended December 31, 2019; and

	●	an increase in total property NOI of $45.4 million primarily due to NOI from additional operating communities, including those acquired in 2020 and 2019, partially offset by an increase of $11.2 million in property operating expenses.

Apartment Community Operations

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

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

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

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

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Year Ended					​	​	​	Year Ended					​	​	​
​	​	December 31, (a)					​	​	​	December 31, (b)					​	​	​
​		2020			2019			% Change		2019			2018			% Change	​
Same-Store Communities:	​	​	​		​	​		​		​	​		​	​	​	​	​
Same-Store rental income	​	$	924,138		$	953,121		(3.0)	%	$	962,269		$	928,849	​	3.6	%
Same-Store operating expense (c)	​		(279,940)			(268,718)		4.2	%		(271,826)			(265,087)	​	2.5	%
Same-Store NOI	​		644,198			684,403		(5.9)	%		690,443			663,762	​	4.0	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Non-Mature Communities/Other NOI:	​	​	​		​	​		​		​	​		​	​	​	​	​
Stabilized, non-mature communities NOI (d)	​	​	161,258			98,193	​	64.2	%	​	79,007	​	​	11,968	​	560.2	%
Acquired communities NOI	​		7,919			762		939.2	%		5,830			—	​	—	%
Redevelopment communities NOI	​	​	—	​	​	—	​	—	%	​	18,571	​	​	21,875	​	(15.1)	%
Development communities NOI	​		214			(8)		NM	*		(8)			4,374	​	NM	*
Non-residential/other NOI (e)	​	​	27,694			12,954	​	113.8	%	​	13,174	​	​	18,609	​	(29.2)	%
Sold and held for disposition communities NOI	​	​	12,419			11,999	​	3.5	%	​	1,286	​	​	11,527	​	(88.8)	%
Total Non-Mature Communities/Other NOI	​		209,504			123,900		69.1	%		117,860			68,353	​	72.4	%
Total property NOI	​	$	853,702		$	808,303		5.6	%	$	808,303		$	732,115	​	10.4	%

*	Not meaningful

(a)	Same-Store consists of 37,607 apartment homes.

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

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

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

(e)	Primarily non-residential revenue and expense and straight-line adjustment for concessions.

​

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

​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31,
​		2020			2019			2018
Net income/(loss) attributable to UDR, Inc.	​	$	64,266	​	$	184,965	​	$	203,106
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
Total property NOI	​	$	853,702	​	$	808,303	​	$	732,115

​

Same-Store Communities

Our Same-Store Community properties (those acquired, developed, and stabilized prior to January 1, 2019 and held on December 31, 2020) consisted of 37,607 apartment homes and provided 75.5% of our total NOI for the year ended December 31, 2020.

NOI for our Same-Store Community properties decreased 5.9%, or $40.2 million, for the year ended December 31, 2020 compared to the same period in 2019. The decrease in property NOI was attributable to a 3.0%, or $29.0 million, decrease in property rental income and a 4.2%, or $11.2 million, increase in operating expenses. The decrease in property rental income was primarily driven by an $11.7 million increase in our reserve on multifamily tenant lease receivables, an increase of $15.1 million in rent concessions and an increase of $10.0 million in economic occupancy loss, partially offset by a 0.7%, or $6.0 million, increase in rental rates and a 1.7%, or $1.8 million, increase in reimbursement and ancillary and fee income. Physical occupancy decreased by 0.5% to 96.3% and total monthly income per occupied home decreased 2.6% to $2,126.

The increase in operating expenses was primarily driven by a 12.5%, or $4.8 million, increase in repair and maintenance expense due to the increased use of third party vendors, partially offset by a 2.7%, or $1.7 million, decrease in personnel expense as a result of fewer employees, and a 6.9%, or $7.7 million, increase in real estate taxes, which was primarily due to higher assessed valuations.

The operating margin (property net operating income divided by property rental income) was 69.7% and 71.8% for the years ended December 31, 2020 and 2019, respectively.

Non-Mature Communities/Other

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

The remaining 24.5%, or $209.5 million, of our total NOI during the year ended December 31, 2020 was generated from our Non-Mature Communities/Other. NOI from Non-Mature Communities/Other increased by 69.1%, or $85.6 million, for the year ended December 31, 2020 as compared to the same period in 2019. The increase was primarily attributable to a $63.1 million increase in NOI from stabilized, non-mature communities, primarily due to communities acquired in 2020 and 2019, a $14.7 million increase in non-residential/other primarily due to changes in straight-line rent as a result of increased tenant rent concessions during the period, and a $7.2 million increase in acquired communities.

Real estate depreciation and amortization

For the years ended December 31, 2020 and 2019, the Company recognized real estate depreciation and amortization of $608.6 million and $501.3 million, respectively. The increase in 2020 as compared to 2019 was primarily attributable to communities acquired in 2020 and 2019, partially offset by a decrease from sold communities and fully depreciated assets.

Gain/(Loss) on Sale of Real Estate Owned

During the year ended December 31, 2020, the Company recognized gains of $119.3 million from the sale of three operating communities located in Kirkland, Washington, Bellevue, Washington and Alexandria, Virginia.

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

Income/(Loss) from Unconsolidated Entities

For the years ended December 31, 2020 and 2019, we recognized income/(loss) from unconsolidated entities of $18.8 million and $137.9 million, respectively. The decrease of $119.1 million was primarily due to:

	●	no dispositions from the Company’s unconsolidated entities during the year ended December 31, 2020.

As compared to:

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

Interest expense

For the years ended December 31, 2020 and 2019, the Company recognized interest expense of $202.7 million and $170.9 million, respectively. The increase in 2020 as compared to 2019 was primarily attributable to higher average debt balances, and the early pay off of debt during 2020 and 2019, resulting in prepayment costs of $49.2 million and $29.6 million, respectively.

Interest income and other income/(expense), net

For the years ended December 31, 2020 and 2019, the Company recognized interest income and other income/(expense), net of $6.3 million and $15.4 million, respectively. The decrease in 2020 as compared to 2019 was primarily attributable to an $8.5 million promoted interest on the prepayment of a note to a multifamily technology company in 2019.

Inflation

We believe that the direct effects of inflation on our operations have been immaterial. While the impact of inflation primarily impacts our results of operations as a result of wage pressures and increases in utilities and material costs, the majority of our apartment leases have initial terms of 12 months or less, which generally enables us to compensate for any inflationary effects by increasing rental rates on our apartment homes. Although an extreme escalation in costs could have a negative impact on our residents and their ability to absorb rent increases, we do not believe this has had a material impact on our results for the year ended December 31, 2020.

Off-Balance Sheet Arrangements

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

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2020 (dollars in thousands):

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Payments Due by Period
Contractual Obligations		2021			2022-2023			2024-2025			Thereafter			Total
Long-term debt obligations	​	$	191,097	​	$	380,347	​	$	584,113	​	$	3,829,660	​	$	4,985,217
Interest on debt obligations (a)	​		149,982	​		297,275	​		271,162	​		479,084	​		1,197,503
Letters of credit	​		2,839	​		—	​		—	​		—	​		2,839
Operating lease obligations:	​			​			​			​			​
Ground leases (b)	​		12,442	​		24,884	​		24,884	​		442,778	​		504,988
​	​	$	356,360	​	$	702,506	​	$	880,159	​	$	4,751,522	​	$	6,690,547

(a)	Interest payments on variable rate debt instruments are based on each debt instrument’s respective year-end interest rate at December 31, 2020.

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

During 2020, we incurred gross interest costs of $209.7 million, of which $7.0 million was capitalized.

​

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

Funds from Operations

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

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

Funds from Operations as Adjusted

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

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

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

Adjusted Funds from Operations

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

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

The following table outlines our reconciliation of Net income/(loss) attributable to common stockholders to FFO, FFOA, and AFFO for the years ended December 31, 2020, 2019, and 2018 (dollars in thousands):

​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31,
​		2020			2019			2018
Net income/(loss) attributable to common stockholders	​	$	60,036	​	$	180,861	​	$	199,238
Real estate depreciation and amortization	​		608,616	​		501,257	​		429,006
Noncontrolling interests	​		4,704	​		14,614	​		18,436
Real estate depreciation and amortization on unconsolidated joint ventures	​		35,023	​		57,954	​		61,871
Net gain on the sale of unconsolidated depreciable property	​		—	​		(125,407)	​		—
Net gain on the sale of depreciable real estate owned, net of tax	​		(118,852)	​		—	​		(136,197)
FFO attributable to common stockholders and unitholders, basic	​	$	589,527	​	$	629,279	​	$	570,254
Distributions to preferred stockholders — Series E (Convertible)	​		4,230	​		4,104	​		3,868
FFO attributable to common stockholders and unitholders, diluted	​	$	593,757	​	$	633,383	​	$	574,122
Income/(loss) per weighted average common share, diluted	​	$	0.20	​	$	0.63	​	$	0.74
FFO per weighted average common share and unit, basic	​	$	1.86	​	$	2.04	​	$	1.95
FFO per weighted average common share and unit, diluted	​	$	1.85	​	$	2.03	​	$	1.93
Weighted average number of common shares and OP/DownREIT Units outstanding — basic	​		316,855	​		308,020	​		292,727
Weighted average number of common shares, OP/DownREIT Units, and common stock equivalents outstanding — diluted	​		320,187	​		311,799	​		297,042
​	​	​	​	​	​	​	​	​	​
Impact of adjustments to FFO:	​		—	​			​
Costs associated with debt extinguishment and other	​	$	49,190	​	$	29,594	​	$	3,476
Promoted interest on settlement of note receivable, net of tax	​	​	—	​	​	(6,482)	​	​	—
Legal and other costs	​		8,973	​		3,660	​		1,622
Net gain on the sale of non-depreciable real estate owned	​		—	​		(5,282)	​		—
Realized/unrealized (gain)/loss on unconsolidated technology investments, net of tax	​	​	(3,582)	​	​	(3,300)	​	​	—
Joint venture development success fee	​		—	​		(3,750)	​		—
Severance costs and other restructuring expense	​		1,948	​		390	​		114
Casualty-related charges/(recoveries), net	​		2,545	​		636	​		2,364
Casualty-related charges/(recoveries) on unconsolidated joint ventures, net	​		31	​		(374)	​		—
​	​	$	59,105	​	$	15,092	​	$	7,576
FFOA attributable to common stockholders and unitholders, diluted	​	$	652,862	​	$	648,475	​	$	581,698
​	​	​	​	​	​	​	​	​	​
FFOA per weighted average common share and unit, diluted	​	$	2.04	​	$	2.08	​	$	1.96
​	​	​	​	​	​	​	​	​	​
Recurring capital expenditures	​		(56,924)	​		(51,246)	​		(46,915)
AFFO attributable to common stockholders and unitholders, diluted	​	$	595,938	​	$	597,229	​	$	534,783
​	​	​	​	​	​	​	​	​	​
AFFO per weighted average common share and unit, diluted	​	$	1.86	​	$	1.92	​	$	1.80

​

The following table is our reconciliation of FFO share information to weighted average common shares outstanding, basic and diluted, reflected on the UDR Consolidated Statements of Operations for the years ended December 31, 2020, 2019, and 2018 (shares in thousands):

​	​	​	​	​	​	​
​	​	​
​	​	Year Ended December 31,
​		2020		2019		2018
Weighted average number of common shares and OP/DownREIT Units outstanding — basic		316,855		308,020		292,727
Weighted average number of OP/DownREIT Units outstanding		(22,310)		(22,773)		(24,548)
Weighted average number of common shares outstanding — basic per the Consolidated Statements of Operations		294,545		285,247		268,179
​	​	​	​	​	​	​
Weighted average number of common shares, OP/DownREIT Units, and common stock equivalents outstanding — diluted		320,187		311,799		297,042
Weighted average number of OP/DownREIT Units outstanding		(22,310)		(22,773)		(24,548)
Weighted average number of Series E Cumulative Convertible Preferred shares outstanding		(2,950)		(3,011)		(3,011)
Weighted average number of common shares outstanding — diluted per the Consolidated Statements of Operations		294,927		286,015		269,483

​

​

United Dominion Realty, L.P.:

Business Overview

United Dominion Realty, L.P. (the “Operating Partnership” or “UDR, L.P.”) is a Delaware limited partnership formed in February 2004 and organized pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act. The Operating Partnership is the successor-in-interest to United Dominion Realty, L.P., a limited partnership formed under the laws of Virginia, which commenced operations on November 4, 1995. Our sole general partner is UDR, Inc., a Maryland corporation (“UDR” or the “General Partner”), which conducts a substantial amount of its business and holds a substantial amount of its assets through the Operating Partnership. At December 31, 2020, the Operating Partnership’s real estate portfolio included 53 communities located in nine states and the District of Columbia with a total of 17,174 apartment homes.

As of December 31, 2020, UDR owned 0.1 million units of our general partnership interests and 176.1 million units of our limited partnership interests (the “OP Units”), or approximately 95.3% of our outstanding OP Units. By virtue of its ownership of our OP Units and being our sole general partner, UDR has the ability to control all of the day-to-day operations of the Operating Partnership. Unless otherwise indicated or unless the context requires otherwise, all references in this section of this Report to the Operating Partnership or “we,” “us” or “our” refer to UDR, L.P. together with its consolidated subsidiaries, and all references in this section to “UDR” or the “General Partner” refer solely to UDR, Inc.

UDR is a self-administered real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages apartment communities. The General Partner was formed in 1972 as a Virginia corporation and changed its state of incorporation from Virginia to Maryland in June 2003. At December 31, 2020, the General Partner’s consolidated real estate portfolio included 149 communities located in 13 states and the District of Columbia with a total of 48,283 apartment homes. In addition, the General Partner had 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.

Critical Accounting Policies and Estimates

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

our significant accounting policies, including further discussion of the accounting policies described below, can be found in Note 2, Significant Accounting Policies, to the Notes to the Operating Partnership’s Consolidated Financial Statements included in this Report.

Cost Capitalization

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

In addition to construction costs, we capitalize costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. As each home in a capital project is completed and becomes available for lease-up, the Operating Partnership ceases capitalization on the related portion. The costs capitalized are reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation. Amounts capitalized during the years ended December 31, 2020, 2019, and 2018 were $1.0 million, $1.0 million, and less than $0.1 million, respectively.

Investment in Unconsolidated Entities

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

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

Impairment of Long-Lived Assets

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 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.

Real Estate Investment Properties

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

Summary of Real Estate Portfolio by Geographic Market

The following table summarizes our market information by major geographic markets as of and for the year ended December 31, 2020:

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	December 31, 2020						​	Year Ended December 31, 2020
​		​		​		Percentage		Total			​		Monthly			Net
​	​	Number of	​	Number of	​	of Total	​	Carrying		​	Average	​	Income per		​	Operating
​	​	Apartment	​	Apartment	​	Carrying	​	Value (in		​	Physical	​	Occupied		​	Income
Same-Store Communities	​	Communities	​	Homes	​	Value	​	thousands)		​	Occupancy	​	Home (a)		​	(in thousands)
West Region	​	​		​		​		​	​	​	​		​	​	​
Orange County, CA	​	5		3,119		18.6	%	$	753,801	​	96.6	%	$	2,277	​	$	62,791
San Francisco, CA		9		2,185		15.3	%	​	617,293	​	92.6	%	​	3,198	​		57,812
Seattle, WA		5		932		5.8	%	​	233,525	​	97.0	%	​	2,086	​		15,840
Monterey Peninsula, CA		7		1,565		4.6	%	​	185,224	​	96.6	%	​	1,940	​		27,587
Los Angeles, CA		2		344		2.9	%	​	118,281	​	96.4	%	​	2,728	​		7,740
Other Southern California		1		414		1.9	%	​	76,883	​	97.6	%	​	2,155	​		7,897
Portland, OR		2		476		1.3	%	​	52,126	​	97.1	%	​	1,637	​		6,623
Mid-Atlantic Region	​		​	​		​	​	​	​	​		​	​	​	​		​
Metropolitan D.C.		5		1,736		10.9	%	​	442,224	​	96.3	%	​	2,106	​		29,262
Baltimore, MD		2		540		2.7	%	​	108,779	​	97.8	%	​	1,563	​		6,781
Northeast Region	​		​	​		​	​	​	​	​		​	​	​	​		​
Boston, MA		1		387		1.9	%	​	76,059	​	95.5	%	​	2,086	​		6,656
New York, NY		1		503		8.3	%	​	334,347	​	90.9	%	​	3,449	​		10,684
Southeast Region	​		​	​		​	​	​	​	​		​	​	​	​		​
Tampa, FL		2		942		2.8	%	​	114,452	​	97.7	%	​	1,556	​		11,333
Nashville, TN	​	6		1,612	​	3.9	%	​	157,415	​	97.6	%	​	1,352	​	​	18,159
Other Florida		1		636		2.2	%	​	89,630	​	97.2	%	​	1,656	​		8,085
Southwest Region	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Denver, CO	​	1	​	218	​	3.6	%	​	144,959	​	93.1	%	​	3,012	​	​	5,199
Total/Average Same-Store Communities		50		15,609	​	86.7	%	​	3,504,998	​	96.0	%	$	2,173	​	$	282,449
Non-Mature, Commercial Properties & Other		3		1,565		13.3	%	​	538,727	​			​	​	​		20,838
Total Real Estate Owned		53		17,174		100.0	%	​	4,043,725	​			​	​	​	$	303,287
Total Accumulated Depreciation	​	​		​				​	(1,892,011)	​			​	​	​		​
Total Real Estate Owned, Net of Accumulated Depreciation	​	​		​				$	2,151,714	​			​	​	​		​

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

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

Our Same-Store Communities segment represents those communities acquired, developed, and stabilized prior to January 1, 2019 and held as of December 31, 2020. These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior year, there is no plan to conduct substantial redevelopment activities, and the communities are not classified as held for disposition at year end. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

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

Liquidity and Capital Resources

Liquidity is the ability to meet present and future financial obligations either through operating cash flows, the sale of properties, and the issuance of debt. Both the coordination of asset and liability maturities and effective capital management are important to the maintenance of liquidity. The Operating Partnership’s primary source of liquidity is cash flow from operations, as determined by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment homes, and borrowings owed by us under the General Partner’s credit agreements. The General

Partner will routinely use its working capital credit facility, its unsecured revolving credit facility and issuances of commercial paper to temporarily fund certain investing and financing activities prior to arranging for longer-term financing or the issuance of equity or debt securities. During the past several years, proceeds from the sale of real estate have been used for both investing and financing activities as we continue to execute on maintaining a diversified portfolio.

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

Future Capital Needs

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

As of December 31, 2020, the Operating Partnership does not have any debt maturing in 2021.

Statements of Cash Flows

The following discussion explains the changes in Net cash provided by/(used in) operating activities, Net cash provided by/(used in) investing activities, and Net cash provided by/(used in) financing activities that are presented in our Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019.

Operating Activities

For the year ended December 31, 2020, Net cash provided by/(used in) operating activities was $217.7 million compared to $255.1 million for 2019. The decrease in cash flow from operating activities was primarily due to a decrease in net operating income and changes in operating assets and liabilities.

Investing Activities

For the year ended December 31, 2020, Net cash provided by/(used in) investing activities was $(140.0) million compared to $(43.9) million for 2019. The increase in cash used in investing activities was primarily due to the acquisition of two operating communities in 2020, partially offset by proceeds from the sale of an operating community 2020 and a decrease in capital expenditures and other major improvements in 2020, as compared to 2019.

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.

​

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

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.

​

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

Financing Activities

For the year ended December 31, 2020, Net cash provided by/(used in) financing activities was $(76.6) million compared to $(210.9) million for 2019. The decrease in cash used in financing activities was primarily due to a decrease in repayments of notes payable to the General Partner, partially offset by proceeds from the issuance of secured debt in 2019.

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.

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

Interest Rate Risk

We are exposed to interest rate risk associated with variable rate notes payable and maturing debt that has to be refinanced. We do not hold financial instruments for trading or other speculative purposes, but rather issue these financial instruments to finance our portfolio of real estate assets. Interest rate sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. Our earnings are affected as changes in short-term interest rates impact our cost of variable rate debt and maturing fixed rate debt. We had $27.0 million in variable rate debt that is not subject to interest rate swap contracts as of December 31, 2020. If market interest rates for variable rate debt increased by 100 basis points, our interest expense would increase by $0.3 million based on the average balance at December 31, 2020.

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

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

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

​	​	​	​	​	​	​
​	​	Year Ended December 31,
​		2020			2019
Net cash provided by/(used in) operating activities	​	$	217,683	​	$	255,093
Net cash provided by/(used in) investing activities	​		(140,039)	​		(43,906)
Net cash provided by/(used in) financing activities	​		(76,578)	​		(210,853)

​

​

Results of Operations

The following discussion explains the changes in results of operations that are presented in our Consolidated Statements of Operations for the years ended December 31, 2020 and 2019.

Net Income/(Loss) Attributable to OP Unitholders

Net income/(loss) attributable to OP unitholders was $134.2 million ($0.73 per diluted OP Unit) for the year ended December 31, 2020 as compared to net income of $102.2 million ($0.56 per diluted OP Unit) for the prior year. The increase in net income attributable to OP unitholders resulted primarily from the following items, which are discussed in further detail elsewhere within this Report:

	●	gain of $58.0 million on the sale of an operating community in Alexandria, Virginia during the year ended December 31, 2020, as compared to no gains on the sale of real estate in 2019.

This was partially offset by:

	●	a decrease in total property NOI of $19.7 million primarily due to an approximately $5.5 million reserve recorded on our multifamily tenant lease receivables, an increase in real estate taxes due to higher assessed valuations, and an increase in repair and maintenance expenses due to increased use of third party vendors, partially offset by a decrease in personnel expense as result of fewer employees; and

	●	an increase in other operating expenses of $6.7 million primarily due to higher ground lease expense.

Apartment Community Operations

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

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

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

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

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Year Ended					​	​	​	Year Ended					​	​	​
​	​	December 31, (a)					​	%	​	December 31, (b)					​	%	​
​		2020			2019			Change		2019			2018		​	Change
Same-Store Communities:	​		​	​		​	​	​	​		​	​		​	​	​	​
Same-Store rental income	​	$	390,848	​	$	403,551		(3.1)	%	$	404,442	​	$	390,647	​	3.5	%
Same-Store operating expense (b)	​		(108,399)	​		(103,355)		4.9	%		(104,284)	​		(100,815)	​	3.4	%
Same-Store NOI	​		282,449	​		300,196		(5.9)	%		300,158	​		289,832	​	3.6	%
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Non-Mature Communities/Other NOI:	​			​				​	​			​			​	​	​
Stabilized, non-mature communities NOI (d)	​	​	8,498	​	​	12,773	​	(33.5)	%	​	5,621	​	​	5,125	​	9.7	%
Acquired communities NOI	​		1,176	​		—		—	%		—	​		—	​	—	​
Redevelopment communities NOI	​		—	​		—		—	%		12,773	​		14,878	​	(14.1)	%
Non-residential/other NOI (c)	​	​	6,959	​	​	4,504	​	54.5	%	​	4,454	​	​	6,634	​	(32.9)	%
Sold and held for disposition communities NOI	​	​	4,205	​	​	5,533	​	(24.0)	%	​	—	​	​	911	​	(100.0)	%
Total Non-Mature Communities/Other NOI	​		20,838	​		22,810		(8.6)	%		22,848	​		27,548	​	(17.1)	%
Total property NOI	​	$	303,287	​	$	323,006		(6.1)	%	$	323,006	​	$	317,380	​	1.8	%

(a)	Same-Store consists of 15,609 apartment homes.

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

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

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

​

The following table is our reconciliation of Net income/(loss) attributable to OP unitholders to total property NOI for the years ended December 31, 2020, 2019 and 2018 (dollars in thousands):

​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31,
​		2020			2019			2018
Net income/(loss) attributable to OP unitholders	​	$	134,229	​	$	102,163	​	$	229,763
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
Total property NOI	​	$	303,287	​	$	323,006	​	$	317,380

​

Same-Store Communities

Our Same-Store Community properties (those acquired, developed, and stabilized prior to January 1, 2019 and held as of December 31, 2020) consisted of 15,609 apartment homes and provided 93.1% of our total NOI for the year ended December 31, 2020.

NOI for our Same-Store Community properties decreased 5.9%, or $17.7 million, for the year ended December 31, 2020 compared to 2019. The decrease in property NOI was primarily attributable to a 3.1%, or $12.7 million, decrease in property rental income and a 4.9%, or $5.0 million, increase in operating expenses. The decrease in property rental income was primarily driven by a $6.1 million increase in our reserve on multifamily tenant lease receivables, a $5.9 million increase in rent concessions and a $4.7 million increase in economic occupancy loss, partially offset by a 0.8%, or $3.1 million, increase in rental rates and a 2.0%, or $0.9 million, increase in reimbursement and ancillary and fee income. Physical occupancy decreased 0.8% to 96.0% and total monthly income per occupied home decreased 2.4% to $2,173.

The increase in operating expenses was primarily driven by a 15.9%, or $2.6 million, increase in repair and maintenance expense due to the increased use of third party vendors, partially offset by a 9.0%, or $2.0 million, decrease in personnel expense as a result of fewer employees, and a 7.8%, or $3.0 million, increase in real estate taxes, which was primarily due to higher assessed valuations.

The operating margin (property net operating income divided by property rental income) was 72.3% and 74.4% for the years ended December 31, 2020 and 2019, respectively.

Non-Mature Communities/Other

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

The remaining 6.9%, or $20.8 million, of our total NOI during the year ended December 31, 2020 was generated from our Non-Mature Communities/Other. NOI from Non-Mature Communities/Other decreased 8.6%, or $2.0 million, for the year ended December 31, 2020 as compared to 2019. The decrease was primarily driven by a decrease in NOI of $4.3 million from stabilized, non-mature communities, and a decrease of $1.3 million from sold and held for disposition communities, partially offset by an increase of $2.5 million from non-residential/other primarily due to changes in straight-line rent as a result of increased tenant rent concessions during 2020, and an increase of $1.2 million from acquired communities.

Other Operating Expense

For the year ended December 31, 2020, other operating expense increased by 70.1%, or $6.7 million, as compared to 2019, which was primarily due to higher ground lease expense in 2020 as a result of a rent reset provision on one of our ground leases.

Gain/(Loss) on Sale of Real Estate Owned

During the year ended December 31, 2020, the Operating Partnership recognized a gain of $58.0 million on the sale of an operating community in Alexandria, Virginia with a total of 332 apartment homes. During the year ended December 31, 2019, the Operating Partnership did not recognize any gains on the sale of real estate.

Inflation

We believe that the direct effects of inflation on our operations have been immaterial. While the impact of inflation primarily impacts our results of operations as a result of wage pressures and increases in utilities and material costs, the majority of our apartment leases have initial terms of 12 months or less, which generally enables us to compensate for any inflationary effects by increasing rental rates on our apartment homes. Although an extreme escalation in costs could have a negative impact on our residents and their ability to absorb rent increases, we do not believe this has had a material impact on our results for the year ended December 31, 2020.

Off-Balance Sheet Arrangements

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

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2020 (dollars in thousands):

​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Payments Due by Period
Contractual Obligations		2021			2022-2023			2024-2025			Thereafter			Total
Long-term debt obligations	​	$	—		$	—		$	—		$	99,500	​	$	99,500
Interest on debt obligations (a)	​		2,475		​	4,950		​	4,950		​	10,593	​		22,968
Operating lease obligations — ground leases (b)	​		12,442		​	24,884		​	24,884		​	442,778	​		504,988
Operating lease obligations — equipment leases	​	​	179	​	​	370	​	​	386	​	​	813	​	​	1,748
​	​	$	15,096	​	$	30,204	​	$	30,220	​	$	553,684	​	$	629,204

(a)	Interest payments on variable rate debt instruments are based on each debt instrument’s respective year-end interest rate at December 31, 2020.

(b)

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