Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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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 three and nine months ended September 30, 2021 and 2020, of UDR, Inc.

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, as amended (the “Exchange Act”). 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 effects, 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 II, 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

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. The pandemic led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place or similar orders. While many of such measures have been lifted, they may be reinstated or other measures imposed. Further, while vaccines have been developed and are being administered, it is unclear when or if vaccines may allow a return to full pre-pandemic activity levels.

While operations have been allowed to fully or partially re-open, no assurance can be given that closures or restrictions will not be reinstated or new measures imposed in the future. Our headquarters, all of our properties and our corporate offices are located in areas that have been subject to shelter-in-place orders and restrictions on the types of businesses that may continue to operate or the manner in which they may operate, for example restrictions on capacity. These orders and restrictions and other impacts of the COVID-19 pandemic have adversely affected, and could continue to adversely affect, the ability of our residents and retail and commercial tenants to pay their rent. It is still uncertain how various legislation or orders adopted by the federal government and state and local governments, or those that may be modified or enacted in the future, may continue to impact, the ability of our residents and retail and commercial tenants to pay their rent. The governmental actions intended to prevent the spread of COVID-19 also caused us to reduce staffing at certain of our locations, and have impacted, and may continue to impact, our ability to conduct our business in the ordinary course. Further, the federal government and a number of the states, counties and municipalities in which we operate have adopted, and may extend or reinstate, eviction moratoriums, either directly or indirectly (such as through direction to law enforcement or courts not to serve notices or take actions related to eviction), which have negatively impacted, and may continue to negatively impact, our ability to enforce our legal and contractual rights and our ability to remove residents or retail and commercial tenants who are not paying their rent and our ability to rent their units or other space to new residents or retail and commercial tenants, respectively. In addition, certain jurisdictions have restricted our ability to charge certain fees, including fees for late payment of rent, and certain jurisdictions have adopted limits on our ability to increase rents. Earlier in the pandemic, we received more requests from our residents and retail and commercial tenants for assistance with respect to paying rent than we have historically received. In response, we instituted a number of initiatives to assist residents and other tenants, including rent

deferrals, payment plans, and waiving late payment fees when appropriate. Recently, the federal government has allocated funds to rent relief programs run by state and local authorities. Certain of such programs were slow to begin operating and in certain locations funds are taking longer than expected to be distributed. Further, certain of our residents with past due rent may not qualify to receive assistance under such programs. In addition, some of such programs have required, and programs in the future may require, the forgiveness of a portion of the past due rent or other limitations or restrictions in order to participate, or may only provide funds to pay a portion of the past due rent. It is uncertain how such programs will impact our business. Also vaccine mandates that have been adopted or may be adopted by the federal government or in states and localities in which we operate may impact our ability to operate our business in the ordinary course.

During the three and nine months ended September 30, 2021, the Company performed an analysis in accordance with the ASC 842, Leases, guidance to assess the collectibility of its operating lease receivables in light of the COVID-19 pandemic. This analysis included an assessment of collectibility of current and future rents and whether those lease payments were no longer probable of collection. In accordance with the leases guidance, if lease payments are no longer deemed to be probable over the life of the lease contract, we recognize revenue only when cash is received, and all existing contractual operating lease receivables and straight-line lease receivables are reserved.

As a result of its analysis, the Company reduced its reserve by approximately $3.0 million for multifamily tenant lease receivables and approximately $1.2 million for retail tenant lease receivables for its wholly-owned communities and communities held by joint ventures for the three months ended September 30, 2021. In aggregate, the reduction in reserve is reflected as a $4.1 million increase to Rental income and a $0.1 million increase to Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations for the three months ended September 30, 2021. For the nine months ended September 30, 2021, the Company reserved approximately $1.8 million of incremental multifamily tenant lease receivables and approximately $0.3 million of incremental retail tenant lease receivables for its wholly-owned communities and communities held by joint ventures. In aggregate, the reserve is reflected as a $1.7 million reduction to Rental income and a $0.4 million reduction to Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations for the nine months ended September 30, 2021.The impact to deferred leasing commissions was not material for the three and nine months ended September 30, 2021.

The Company did not recognize any other adjustments to the carrying amounts of assets or asset impairment charges due to the COVID-19 pandemic for the nine months ended September 30, 2021.

As of October 25, 2021 we had collected 97.3%, 96.9% and 96.0% of billed monthly rents for our multifamily residents for July, August and September, respectively. October cash rents received are similar when compared to those for July, August and September at corresponding times of prior months.

Over the last several years, we have worked to consistently strengthen our balance sheet and improve our liquidity profile, which we believe positions us well to weather the current economic and market challenges. The extent of the COVID-19 pandemic’s effect on our operational and financial performance, however, will depend on future developments, including the duration and intensity of the pandemic, the timing and effectiveness of COVID-19 vaccines and the duration of government measures to mitigate the pandemic, all of which are uncertain and difficult to predict. Given this uncertainty, we cannot predict the effect on future periods, but the adverse impact on our future financial condition, results of operations, and cash flows could be material.

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 September 30, 2021, our consolidated real estate portfolio included 158 communities in 13 states plus the District of Columbia totaling 52,071 apartment homes. In addition, we have an ownership interest in 6,211 completed or to-be-completed apartment homes through unconsolidated joint ventures or partnerships, including 3,374 apartment homes owned by entities in which we hold preferred equity investments. The Same-Store Community apartment home population for the three and nine months ended September 30, 2021, was 45,713 and 45,143.

The following table summarizes our market information by major geographic markets as of and for the three and nine months ended September 30, 2021:


		September 30, 2021					Three Months Ended September 30, 2021				Nine Months Ended September 30, 2021
			Percentage		Total				Monthly				Monthly
	Number of	Number of	of Total		Carrying		Average		Income per		Average		Income per
	Apartment	Apartment	Carrying		Value (in		Physical		Occupied		Physical		Occupied
Same-Store Communities	Communities	Homes	Value		thousands)		Occupancy		Home (a)		Occupancy		Home (b)
West Region
Orange County, CA	10	4,685	10.0	%	$	1,436,706	97.9	%	$	2,694	97.6	%	$	2,566
San Francisco, CA	11	2,751	6.2	%		891,012	96.4	%		3,054	94.9	%		3,038
Seattle, WA	14	2,725	6.7	%		955,551	97.6	%		2,459	97.1	%		2,360
Los Angeles, CA	4	1,225	3.3	%		466,651	97.1	%		2,876	96.0	%		2,651
Monterey Peninsula, CA	7	1,565	1.3	%		187,698	97.4	%		2,028	97.0	%		1,972
Other Southern California	3	817	1.5	%		214,881	97.7	%		2,504	98.1	%		2,380
Portland, OR	3	752	0.8	%		121,195	97.6	%		1,904	98.4	%		1,691
Mid-Atlantic Region
Metropolitan D.C.	22	8,003	15.5	%		2,220,426	97.0	%		2,154	96.5	%		2,128
Baltimore, MD	5	1,597	2.4	%		341,754	97.4	%		1,701	98.0	%		1,653
Richmond, VA	4	1,359	1.1	%		155,924	98.1	%		1,554	98.3	%		1,509
Northeast Region
Boston, MA	10	4,139	10.9	%		1,553,686	97.2	%		2,734	96.6	%		2,662
New York, NY	5	1,825	8.8	%		1,252,895	97.5	%		3,457	96.3	%		3,642
Philadelphia, PA	1	313	0.8	%		107,990	97.6	%		2,304	96.4	%		2,271
Southeast Region
Tampa, FL	10	3,205	3.6	%		512,928	97.8	%		1,732	97.6	%		1,627
Orlando, FL	9	2,500	1.7	%		244,355	97.8	%		1,474	97.4	%		1,455
Nashville, TN	8	2,260	1.6	%		227,990	98.2	%		1,443	97.9	%		1,416
Other Florida	1	636	0.6	%		90,896	98.4	%		1,785	98.1	%		1,749
Southwest Region
Dallas, TX	11	3,866	4.1	%		580,698	98.0	%		1,547	97.1	%		1,512
Austin, TX	4	1,272	1.2	%		172,867	98.6	%		1,625	98.1	%		1,586
Denver, CO	1	218	1.0	%		145,215	96.9	%		3,291	95.5	%		3,085
Total/Average Same-Store Communities	143	45,713	83.1	%		11,881,318	97.5	%	$	2,201	97.0	%	$	2,150
Non-Mature, Commercial Properties & Other	14	6,093	14.1	%		2,021,554
Total Real Estate Held for Investment	157	51,806	97.2	%		13,902,872
Real Estate Under Development (b)	—	—	2.3	%		331,645
Real Estate Held for Disposition (c)	1	265	0.5	%		73,452
Total Real Estate Owned	158	52,071	100.0	%		14,307,969
Total Accumulated Depreciation						(5,017,941)
Total Real Estate Owned, Net of Accumulated Depreciation					$	9,290,028

(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 September 30, 2021, the Company was developing five wholly-owned communities with a total of 1,417 apartment homes, none of which have been completed.

(c)	The Company had one community located in Anaheim, California that met the criteria to be classified as held for disposition at September 30, 2021.

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 July 1, 2020 (for quarter-to-date comparison) and January 1, 2020 (for year-to-date comparison) and held as of September 30, 2021. These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior period, there is no plan to conduct substantial redevelopment activities, and the communities are not classified as held for disposition within the current year. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

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 2021, 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 July 2017. During the nine months ended September 30, 2021, the Company did not sell any shares of common stock through its ATM program, other than the forward sales described below. As of September 30, 2021, we had 20.0 million shares of common stock available for future issuance under the ATM program, including an aggregate of 5.0 million shares subject to the forward sales agreements described below.

During the three months ended September 30, 2021, the Company entered into forward sales agreements under its ATM program for a total of 5.0 million shares of common stock at a weighted average initial forward price per share of $53.86. As of September 30, 2021, the Company had entered into forward sales agreements under its current or prior ATM programs for a total of 9.9 million shares of common stock at a weighted average initial forward price per share of $50.31, of which 5.5 million shares had not been settled. The actual forward price per share to be received by the Company upon settlement will be 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. As of September 30, 2021, 4.4 million shares under the forward sales agreements under the ATM programs had been settled at a weighted average forward price per share of $45.68, 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 $2.1 million, for net proceeds of $201.5 million. The final dates by which the remaining shares sold under the forward sales agreements under the ATM programs must be settled range between June 9, 2022 and September 14, 2022.

In March 2021, the Company entered into forward sale agreements to sell 7.0 million shares of its common stock at an initial forward price per share of $43.51. The actual forward price per share to be received by the Company upon settlement was determined on the applicable settlement date based on adjustments made to the initial forward price to reflect the then-current federal funds rate and the amount of dividends paid to holders of UDR common stock over the term of the forward

sales agreement. In September 2021, the Company settled all 7.0 million shares at a forward price per share of $42.65, 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 $6.0 million, for net proceeds of $298.5 million.

During the three and nine months ended September 30, 2021, the Company settled 11.4 million shares in aggregate under forward sales agreements under the ATM programs and previously announced forward sales agreements for net proceeds of $500.0 million. Aggregate net proceeds from such forward sales, after deducting related expenses, were $499.3 million.

In June 2021, the Company entered into forward sale agreements to sell 6.1 million shares of its common stock at an initial forward price per share of $49.22. The actual forward price per share to be received by the Company upon settlement will be 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. As of September 30, 2021, no shares under the forward sale agreements have been settled. The final date by which shares sold under the forward sale agreements must be settled is June 20, 2022.

In February 2021, the Company issued $300.0 million of 2.10% senior unsecured medium-term notes due June 15, 2033. The notes were priced at 99.592% of the principal amount of the notes. The Company used the net proceeds to redeem its $300.0 million 4.00% senior unsecured medium-term notes due October 2025 (the “2025 Notes”) (plus the make-whole amount and accrued and unpaid interest). The combined prepayment and make-whole amounts for the purchase of the 2025 Notes totaled approximately $40.8 million.

In July 2021, the Company increased its maximum aggregate amount from $500.0 million to $700.0 million on its unsecured commercial paper program.

In September 2021, the Company entered into an amended and restated credit agreement (the “Credit Agreement”) that provides for a $1.3 billion unsecured revolving credit facility (the “Revolving Credit Facility”) and a $350.0 million unsecured term loan (the “Term Loan”). The Credit Agreement allows the total commitments under the Revolving Credit Facility and the total borrowings under the Term Loan to be increased to an aggregate maximum amount of up to $2.5 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, 2026, with two six-month extension options, subject to certain conditions. The Term Loan has a scheduled maturity date of January 31, 2027. The Credit Agreement also lowered the margin range for borrowings under the Revolving Credit Facility and the Term Loan.

The Credit Agreement amended and restated the Company’s prior credit agreement, which provided for: (i) a $1.1 billion revolving credit facility scheduled to mature in January 2023 and (ii) a $350.0 million term loan scheduled to mature in September 2023. The prior credit agreement allowed the total commitments under the revolving credit facility and total borrowings under the term loan to be increased to an aggregate maximum amount of up to $2.0 billion, subject to certain conditions.

In September 2021, the Company amended the Working Capital Credit Facility to extend the maturity date from January 14, 2022 to January 12, 2024 and lower the margin range for the interest rate. Based on the Company’s current credit rating, the Working Capital Credit Facility now has an interest rate equal to LIBOR plus a margin of 77.5 basis points. Depending on the Company’s credit rating, the margin ranges from 70 to 140 basis points.

In September 2021, the Company issued an additional $200.0 million of 3.00% medium-term notes due 2031 (the “2031 Notes”). The notes were priced at 106.388% of the principal amount of the notes to yield 2.259%. This was a further issuance of and forms a single series with the $400.0 million aggregate principal amount of the Company’s 2031 Notes that were issued in August 2019.

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 the remainder of 2021, we have approximately $0.3 million of secured debt maturing, inclusive of principal amortization, and $315.0 million of unsecured debt maturing, comprised solely of unsecured commercial paper. We anticipate repaying the remaining debt 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 October 2021, the entire $315.0 million of outstanding unsecured commercial paper as of September 30, 2021 was repaid at maturity with additional proceeds of unsecured commercial paper with maturity dates in October and November 2021. As of October 25, 2021, we had no borrowings outstanding under the Revolving Credit Facility, leaving $1.3 billion of unused capacity (excluding $2.6 million of letters of credit), and we had $6.9 million outstanding under the Working Capital Credit Facility, leaving $68.1 million of unused capacity.

Guarantor Subsidiary Summarized Financial Information

UDR has certain outstanding debt securities that are guaranteed by United Dominion Realty, L.P. (the “Operating Partnership”). With respect to this debt, as further outlined below, the Operating Partnership fully and unconditionally guarantees payment of any principal, premium and interest in full to the holders thereof. The Operating Partnership is a subsidiary of UDR, through which UDR conducts a significant portion of its business and holds a substantial amount of its assets. UDR also conducts business through other subsidiaries, including its taxable REIT subsidiaries. In addition to its ownership interest in the Operating Partnership, UDR holds interests in subsidiaries and joint ventures, owns and operates properties, issues securities from time to time and guarantees debt of certain of its subsidiaries. UDR, as the sole general partner of the Operating Partnership, owns 100 percent of the Operating Partnership’s general partnership interests and approximately 95 percent of its limited partnership interests and, by virtue thereof, has the ability to control all of the day-to-day operations of the Operating Partnership. UDR has concluded that it is the primary beneficiary of, and therefore consolidates, the Operating Partnership.

The Operating Partnership is the subsidiary guarantor of certain of our registered debt securities, including the $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, $600 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, $300 million of medium-term notes due in June 2033 and $300 million of medium-term notes due November 2034.

The Operating Partnership fully and unconditionally guarantees payment of any principal, premium and interest in full to the holders of the notes described above. The guarantee forms part of the indenture under which the notes were issued. If, for any reason, we do not make any required payment in respect of the notes when due, the Operating Partnership will cause the payment to be made to, or to the order of, the applicable paying agent on behalf of the trustee. Holders of the notes may enforce their rights under the guarantee directly against the Operating Partnership without first making a demand or taking action against UDR or any other person or entity. The Operating Partnership may, without the consent of the holders of the notes, assume all of our rights and obligations under the notes and, upon such assumption, we will be released from our liabilities under the indenture and the notes.

The notes are UDR’s unsecured general obligations and rank equally with all of UDR’s other unsecured and unsubordinated indebtedness outstanding from time to time. As a result, our payment of amounts due on the notes is subordinated to all of our existing and future secured obligations to the extent of the value of the collateral pledged toward any such secured obligation. Our payment of amounts due on the notes also is effectively subordinated to all liabilities, whether secured or unsecured, of any of our non-guarantor subsidiaries because, in the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding with respect to such subsidiaries, we, as an equity holder of such subsidiaries, would not receive distributions from such subsidiaries until claims of any creditors of such subsidiaries are satisfied.

In March 2020, the SEC adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 to simplify disclosure requirements related to certain registered securities. The rule was effective for the Company on January 4, 2021. As a result of the amendments to Rule 3-10 of Regulation S-X, subsidiary guarantors of obligations issued by the parent are no longer required to provide separate financial statements subject to certain criteria. Such criteria include, among other things, that the parent company is an issuer or co-issuer of the debt, the consolidated financial statements of the parent company have been filed and the subsidiary guarantor is consolidated into those financial statements, and the guaranteed security is debt or debt-like. If the applicable criteria are met, the parent company is able to utilize alternative disclosures described in Rule 13-01 of Regulation S-X, which include summarized financial information of the subsidiary guarantor. We evaluated the criteria and

determined that we are eligible for the exceptions, which allow us to provide alternative disclosures for the Operating Partnership.

As a result of the amendments, the Operating Partnership, as subsidiary guarantor, is no longer subject to the filing requirements under Section 15(d) of the Exchange Act, and will no longer file separate periodic and current reports in reliance on Rule 12h-5 under the Exchange Act. As such, we have presented summarized financial information for the Operating Partnership below.

The following tables present the summarized financial information for the Operating Partnership as of September 30, 2021 and December 31, 2020, and for the three and nine months ended September 30, 2021 and 2020. The information presented below excludes eliminations necessary to arrive at the information on a consolidated basis (dollars in thousands):


	September 30,		December 31,
	2021		2020
Total real estate, net	$	2,079,191	$	2,151,714
Cash and cash equivalents		23		26
Operating lease right-of-use assets		199,749		202,438
Other assets		89,581		103,389
Total assets	$	2,368,544	$	2,457,567

Secured debt, net	$	99,136	$	99,104
Notes payable to UDR (a)		845,377		810,700
Operating lease liabilities		194,717		197,135
Other liabilities		115,025		102,196
Total liabilities		1,254,255		1,209,135
Total capital	$	1,114,289	$	1,248,432


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Total revenue	$	111,256	$	107,694	$	324,210	$	325,060
Property operating expenses		(48,534)		(44,473)		(139,300)		(128,552)
Real estate depreciation and amortization		(37,147)		(35,335)		(115,495)		(106,065)
Operating income/(loss)		25,575		27,886		69,415		90,443
Interest expense (a)		(8,138)		(7,267)		(24,334)		(21,901)
Other income/(loss)		2,517		(1,562)		6,787		(4,984)
Net income/(loss)	$	19,954	$	19,057	$	51,868	$	63,558

	(a)	All $845.4 million and $810.7 million notes payable to UDR as of September 30, 2021 and December 31, 2020, respectively, and $7.4 million and $6.6 million of interest expense on notes payable to UDR for the three months ended September 30, 2021 and 2020, respectively, and $22.3 million and $19.8 million of interest expense on notes payable to UDR for the nine months ended September 30, 2021 and 2020, respectively, eliminate upon consolidation of UDR’s consolidated financial statements.

Critical Accounting Policies and Estimates and New Accounting Pronouncements

Our critical accounting policies are those having the most impact on the reporting of our financial condition and results and those requiring significant judgments and estimates. These policies include those related to (1) capital expenditures, (2) impairment of long-lived assets, (3) real estate investment properties, and (4) revenue recognition.

Our critical accounting policies are described in more detail in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in UDR’s Annual Report on Form 10-K, filed with the SEC on February 18, 2021. There have been no significant changes in our critical accounting policies from those reported in our Form 10-K filed with the SEC on February 18, 2021. With respect to these critical accounting policies, we believe that the application of judgments and assessments is consistently applied and produces financial information that fairly depicts the results of operations for all periods presented.

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 nine months ended September 30, 2021 and 2020.

Operating Activities

For the nine months ended September 30, 2021, our Net cash provided by/(used in) operating activities was $483.2 million, compared to $456.6 million for the comparable period in 2020. The increase in cash flow from operating activities was primarily due to operating distributions from our unconsolidated joint ventures and changes in operating assets and liabilities, partially offset by a decrease in net operating income, primarily driven by lower rental rates and an increase in rent concessions.

Investing Activities

For the nine months ended September 30, 2021, Net cash provided by/(used in) investing activities was ($921.3) million, compared to ($292.7) million for the comparable period in 2020. The increase in cash used in investing activities was primarily due to the increase in acquisitions made during the current period and an increase in spend for development of real estate assets, partially offset by the repayment of notes receivable and an increase in distributions received from unconsolidated joint ventures.

Acquisitions

In January 2021, the Company acquired a 300 apartment home operating community located in Franklin, Massachusetts for approximately $77.4 million. In connection with the acquisition, the Company assumed an above-market mortgage note payable secured by the community with an outstanding balance of approximately $51.8 million. The Company increased its real estate assets owned by approximately $82.0 million, recorded $2.0 million of in-place lease intangibles, and recorded a $6.6 million debt premium in connection with the above-market debt assumed.

In April 2021, the Company acquired a 636 apartment home operating community located in Farmers Branch, Texas for approximately $110.2 million. In connection with the acquisition, the Company assumed an above-market mortgage note payable secured by the community with an outstanding balance of approximately $42.0 million. The Company increased its real estate assets owned by approximately $111.5 million, recorded $3.0 million of in-place lease intangibles, and recorded a $4.3 million debt premium in connection with the above-market debt assumed.

The Company previously had a secured note with an unaffiliated third party with an aggregate commitment of $20.0 million. The note was secured by a parcel of land and related land improvements located in Alameda, California. In September 2020, the developer defaulted on the loan. As a result of the default, in April 2021, the Company took title to the property pursuant to a deed in lieu of foreclosure. The Company increased its real estate assets owned by approximately $25.0 million, the fair market value of the property on the date of the title transfer, and recorded a $0.1 million gain on extinguishment of the secured note to Interest income and other income/(expense), net on the Consolidated Statements of Operations.

In May 2021, the Company acquired a to-be-developed parcel of land located in Tampa, Florida for approximately $6.6 million.

In May 2021, the Company acquired a 945 apartment home operating community located in Frisco, Texas for approximately $166.9 million. In connection with the acquisition, the Company assumed an above-market mortgage note payable secured by the community with an outstanding balance of approximately $89.5 million. The Company increased its real estate assets owned by approximately $169.9 million, recorded $4.1 million of in-place lease intangibles, and recorded a $7.1 million debt premium in connection with the above-market debt assumed.

In June 2021, the Company acquired a 468 apartment home operating community located in Germantown, Maryland for approximately $121.9 million. The Company increased its real estate assets owned by approximately $119.3 million and recorded $2.6 million of in-place lease intangibles.

In July 2021, the Company acquired a 259 apartment home operating community located in Bellevue, Washington for approximately $171.9 million. The Company previously had a $115.0 million secured note receivable associated with this

operating community. The Company increased its real estate assets owned by approximately $169.1 million and recorded $2.8 million of in-place lease intangibles. In connection with the acquisition of this community, the note and the unpaid accrued interest were paid in full. (See Note 2, Significant Accounting Policies for further discussion.)

In August 2021, the Company acquired a 544 apartment home operating community located in Germantown, Maryland for approximately $127.2 million. The Company increased its real estate assets owned by approximately $124.4 million and recorded $2.8 million of in-place lease intangibles.

In September 2021, the Company acquired a 320 apartment home operating community located in King of Prussia, Pennsylvania for approximately $116.2 million. The Company increased its real estate assets owned by approximately $113.8 million and recorded $2.4 million of in-place lease intangibles.

In September 2021, the Company acquired a 192 apartment home operating community located in Towson, Maryland for approximately $57.6 million. The Company increased its real estate assets owned by approximately $54.0 million and recorded $2.4 million of real estate tax intangibles and $1.2 million of in-place lease intangibles.

In September 2021, the Company acquired a 339 apartment home operating community located in Philadelphia, Pennsylvania for approximately $147.0 million. The Company increased its real estate assets owned by approximately $137.1 million and recorded $7.1 million of real estate tax intangibles and $2.8 million of in-place lease intangibles.

Dispositions

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

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 nine months ended September 30, 2021, total capital expenditures of $109.7 million, or $2,211 per stabilized home, which in aggregate include recurring capital expenditures and major renovations, were spent across our portfolio, excluding development, as compared to $106.1 million, or $2,236 per stabilized home, for the comparable period in 2020.

The increase in total capital expenditures was primarily due to:

	●	an increase of 25.5%, or $6.4 million, in NOI enhancing improvements, such as kitchen and bath remodels and upgrades to common areas; and

	●	an increase of 8.5%, or $3.3 million, in recurring capital expenditures, which include asset preservation and turnover related expenditures.

This was partially offset by:

	●	a decrease of 77.9%, or $6.1 million, in spend as compared to the comparable period in 2020 for our operations platform, which includes smart home installations in 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 nine months ended September 30, 2021 and 2020 (dollars in thousands except Per Home amounts):


							Per Home
	Nine Months Ended September 30,						Nine Months Ended September 30,
	2021		2020		% Change		2021		2020		% Change
Turnover capital expenditures	$	11,045	$	9,632	14.7	%	$	223	$	203	9.9	%
Asset preservation expenditures		31,382		29,478	6.5	%		632		621	1.8	%
Total recurring capital expenditures		42,427		39,110	8.5	%		855		824	3.8	%
NOI enhancing improvements (a)		31,509		25,105	25.5	%		635		529	20.0	%
Major renovations (b)		34,060		34,111	(0.1)	%		686		719	(4.6)	%
Operations platform		1,719		7,782	(77.9)	%		35		164	(78.9)	%
Total capital expenditures (c)	$	109,715	$	106,108	3.4	%	$	2,211	$	2,236	(1.1)	%
Repair and maintenance expense	$	51,766	$	42,475	21.9	%	$	1,043	$	895	16.5	%
Average home count (d)		49,622		47,437	4.6	%

(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 September 30, 2021, our development pipeline consisted of five wholly-owned communities totaling 1,417 apartment homes, none of which have been completed, with a budget of $501.5 million, in which we have a gross carrying value of $331.6 million. The remaining homes are estimated to be completed between the first quarter of 2022 and the second quarter of 2023.

At September 30, 2021, 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 nine months ended September 30, 2021:

	●	we made investments totaling $67.7 million in our unconsolidated joint ventures, including contributions of $25.6 million to certain unconsolidated investments under our Developer Capital Program, each of which earns a preferred return;

	●	our proportionate share of the net income/(loss) of the joint ventures and partnerships was $29.1 million; and

	●	we received distributions of $53.9 million, of which $19.4 million were operating cash flows and $34.5 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 nine months ended September 30, 2021 and 2020.

Financing Activities

For the nine months ended September 30, 2021, our Net cash provided by/(used in) financing activities was $443.2 million, compared to ($173.0) million for the comparable period of 2020.

The following significant financing activities occurred during the nine months ended September 30, 2021:

	●	issuance of $300.0 million of 2.10% senior unsecured medium-term notes due June 2033, for net proceeds of approximately $298.8 million;

	●	issuance of a principal amount of $200.0 million of 3.00% senior unsecured medium-term notes due August 2031, priced at 106.388% of the principal amount to yield 2.259%, resulting in net proceeds of approximately $212.8 million;

	●	repayment of $300.0 million senior unsecured medium-term notes due October 2025;

	●	net proceeds of $125.0 million on our unsecured commercial paper program;

	●	sold 11.4 million shares of common stock under forward sales agreements for aggregate net proceeds, after deducting related expenses, of approximately $499.3 million;

	●	payment of $322.0 million of distributions to our common stockholders; and

	●	payment of prepayment and extinguishment costs of $40.8 million from the early prepayment of debt.

Credit Facilities and Commercial Paper Program

In September 2021, the Company entered into the Credit Agreement that provides for a $1.3 billion unsecured revolving credit facility and a $350.0 million unsecured term loan. The Credit Agreement allows the total commitments under the Revolving Credit Facility and the total borrowings under the Term Loan to be increased to an aggregate maximum amount of up to $2.5 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, 2026, with two six-month extension options, subject to certain conditions. The Term Loan has a scheduled maturity date of January 31, 2027. The Credit Agreement also lowered the margin range for the Revolving Credit Facility and the Term Loan.

Based on the Company’s current credit rating, the Revolving Credit Facility has an interest rate equal to LIBOR plus a margin of 77.5 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 85 basis points. Depending on the Company’s credit rating, the margin under the Revolving Credit Facility ranges from 70 to 140 basis points, the facility fee ranges from 10 to 30 basis points, and the margin under the Term Loan ranges from 75 to 160 basis points.

As of September 30, 2021, we had no outstanding borrowings under the Revolving Credit Facility, leaving $1.3 billion of unused capacity (excluding $2.6 million of letters of credit at September 30, 2021), 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 previously scheduled maturity date of January 14, 2022. In September 2021, the Company amended the Working Capital Credit Facility to extend the maturity date from January 14, 2022 to January 12, 2024 and lower the margin range for the interest rate. Based on the Company’s current credit rating, the Working Capital Credit Facility now has an interest rate equal to LIBOR plus a margin of 77.5 basis points. Depending on the Company’s credit rating, the margin ranges from 70 to 140 basis points.

As of September 30, 2021, we had $43.1 million of outstanding borrowings under the Working Capital Credit Facility, leaving $31.9 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 September 30, 2021.

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 $700 million. In July 2021, the maximum aggregate amount was increased from $500.0 million to $700.0 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 September 30, 2021, we had issued $315.0 million of commercial paper, for one month terms, at a weighted average annualized rate of 0.22%, leaving $385.0 million of unused capacity. In October 2021, the entire $315.0 million of outstanding unsecured commercial paper as of September 30, 2021 was repaid at maturity with additional proceeds of unsecured commercial paper with maturity dates in October and November 2021.

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 $420.1 million in variable rate debt that is not subject to interest rate swap contracts as of September 30, 2021. If market interest rates for variable rate debt increased by 100 basis points, our interest expense for the nine months ended September 30, 2021 would increase by $3.7 million based on the average balance outstanding during the period.

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 11, 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):


	Nine Months Ended September 30,
	2021		2020
Net cash provided by/(used in) operating activities	$	483,169	$	456,592
Net cash provided by/(used in) investing activities		(921,275)		(292,731)
Net cash provided by/(used in) financing activities		443,168		(172,952)

Results of Operations

The following discussion explains the changes in results of operations that are presented in our Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020.

Net Income/(Loss) Attributable to Common Stockholders

Net income/(loss) attributable to common stockholders was $16.7 million ($0.06 per diluted share) for the three months ended September 30, 2021, as compared to $(26.3) million ($(0.09) per diluted share) for the comparable period in the prior year. The increase resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

	●	a decrease in interest expense of $26.0 million primarily due to $24.5 million in debt extinguishment and other associated costs for the three months ended September 30, 2020, as compared to $0.4 million in debt extinguishment and other associated costs during the three months ended September 30, 2021;

	●	an increase in income/(loss) from unconsolidated entities of $11.5 million, primarily attributable to $10.0 million of investment income from real estate technology investments during the three months ended September 30, 2021 as compared to $(0.2) million investment loss during the three months ended September 30, 2020;

	●	an increase in total property NOI of $8.3 million primarily due to a decrease in rent concessions, an increase in occupancy and a reduction in our reserve of $4.1 million for multifamily and retail tenant lease receivables, partially offset by an increase in property operating expenses; and

	●	an increase in interest income and other income/(expense), net of $6.1 million primarily attributable to $4.6 million of investment income from real estate technology investments during the three months ended September 30, 2021 as compared to zero during the three months ended September 30, 2020.

Net income/(loss) attributable to common stockholders was $29.4 million ($0.10 per diluted share) for the nine months ended September 30, 2021, as compared to $34.6 million ($0.12 per diluted share) for the comparable period in the prior year. The decrease resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

	●	a decrease in total property NOI of $19.7 million primarily due to lower rental rates, an increase in rent concessions, and an increase in property operating expenses;

	●	an increase in interest expense of $9.7 million primarily due to $42.3 million of extinguishment cost from the prepayment of debt during the nine months ended September 30, 2021 as compared to $24.5 million for the nine months ended September 30, 2020, and lower interest rates partially offset by higher debt balances; and

	●	a gain of $50.8 million from the sale of an operating community located in Anaheim, California during the nine months ended September 30, 2021, as compared to gains of $61.3 million from the sale of two operating communities located in Kirkland, Washington and Bellevue, Washington during the nine months ended September 30, 2020.

This was partially offset by:

	●	a decrease in depreciation expense of $19.6 million primarily due to fully depreciated assets in 2021 and 2020, partially offset by communities acquired in 2021;

	●	an increase in income/(loss) from unconsolidated entities of $14.8 million, primarily attributable to $18.2 million of investment income from real estate technology investments during the nine months ended September 30, 2021 as compared to $4.3 million during the nine months ended September 30, 2020; and

	●	an increase in interest income and other income/(expense), net of $5.5 million primarily attributable to $5.0 million of investment income from real estate technology investments during the nine months ended September 30, 2021 as compared to zero during the nine months ended September 30, 2020.

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 3.0% 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):


	Three Months Ended						Nine Months Ended
	September 30, (a)						September 30, (b)
	2021		2020		% Change		2021		2020		% Change
Same-Store Communities:
Same-Store rental income	$	294,422	$	279,579	5.3	%	$	847,552	$	855,581	(0.9)	%
Same-Store operating expense (c)		(93,469)		(90,452)	3.3	%		(267,080)		(257,962)	3.5	%
Same-Store NOI		200,953		189,127	6.3	%		580,472		597,619	(2.9)	%

Non-Mature Communities/Other NOI:
Stabilized, non-mature communities NOI (d)		12,882		2,163	495.6	%		35,911		19,115	87.9	%
Acquired communities NOI		2,640		—	—	%		2,640		—	—	%
Development communities NOI		(99)		(13)	NM	*		(170)		(118)	44.1	%
Non-residential/other NOI (e)		1,712		15,850	(89.2)	%		5,727		19,638	(70.8)	%
Sold and held for disposition communities NOI		1,392		4,005	(65.2)	%		4,594		12,596	(63.5)	%
Total Non-Mature Communities/Other NOI		18,527		22,005	(15.8)	%		48,702		51,231	(4.9)	%
Total property NOI	$	219,480	$	211,132	4.0	%	$	629,174	$	648,850	(3.0)	%

Not meaningful

(a)	Same-Store consists of 45,713 apartment homes.

(b)	Same-Store consists of 45,143 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):


	September 30,				September 30,
	2021		2020		2021		2020
Net income/(loss) attributable to UDR, Inc.	$	17,731	$	(25,258)	$	32,555	$	37,734
Joint venture management and other fees		(1,071)		(1,199)		(4,918)		(3,861)
Property management		9,861		8,879		28,129		26,879
Other operating expenses		4,237		5,543		13,045		16,609
Real estate depreciation and amortization		152,636		151,949		442,893		462,481
General and administrative		15,810		11,958		43,673		37,907
Casualty-related charges/(recoveries), net		1,568		—		4,682		1,353
Other depreciation and amortization		3,269		3,887		8,472		7,939
(Gain)/loss on sale of real estate owned		—		—		(50,829)		(61,303)
(Income)/loss from unconsolidated entities		(14,450)		(2,940)		(29,123)		(14,328)
Interest expense		36,289		62,268		149,849		140,182
Interest income and other (income)/expense, net		(8,238)		(2,183)		(12,831)		(7,304)
Tax provision/(benefit), net		529		187		1,283		1,877
Net income/(loss) attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		1,260		(1,990)		2,221		2,614
Net income/(loss) attributable to noncontrolling interests		49		31		73		71
Total property NOI	$	219,480	$	211,132	$	629,174	$	648,850

Same-Store Communities

Our Same-Store Community properties, those acquired, developed, and stabilized prior to July 1, 2020 (for the quarter-to-date comparison) and January 1, 2020 (for the year-to-date comparison) and held on September 30, 2021 consisted of 45,713 and 45,143 apartment homes and provided 91.6% and 92.3% of our total NOI for the three and nine months ended September 30, 2021, respectively.

Three Months Ended September 30, 2021 vs. Three Months Ended September 30, 2020

NOI for our Same-Store Community properties increased 6.3%, or $11.8 million, for the three months ended September 30, 2021 compared to the same period in 2020. The increase in property NOI was attributable to a 5.3%, or $14.8 million, increase in property rental income and a 3.3%, or $3.0 million, increase in operating expenses. The increase in property rental income was primarily driven by a decrease of $6.9 million in occupancy loss, a $4.7 million decrease in rent concessions, a $3.1 million reduction in our reserve on multifamily tenant lease receivable and a 5.1% or $1.6 million increase in reimbursement and ancillary and fee income, partially offset by a 0.9%, or $2.6 million, decrease in rental rates. Physical occupancy increased by 2.0% to 97.5% and total monthly income per occupied home increased 3.2% to $2,201.

The increase in operating expenses was primarily driven by a 14.4%, or $2.2 million, increase in repair and maintenance expense due to the increased use of third party vendors, a 31.5%, or $1.3 million, increase in insurance expense due to increased claims, and a 2.4%, or $0.9 million, increase in real estate taxes, which was primarily due to higher assessed valuations, partially offset by a 14.7%, or $2.3 million, decrease in personnel expense as a result of fewer employees.

The operating margin (property net operating income divided by property rental income) was 68.3% and 67.6% for the three months ended September 30, 2021 and 2020, respectively.

Nine Months Ended September 30, 2021 vs. Nine Months Ended September 30, 2020

NOI for our Same-Store Community properties decreased 2.9%, or $17.1 million, for the nine months ended September 30, 2021 compared to the same period in 2020. The decrease in property NOI was attributable to a 0.9%, or $8.0 million, decrease in property rental income and a 3.5%, or $9.1 million, increase in operating expenses. The decrease in property rental income was primarily driven by a 2.3%, or $18.9 million, decrease in rental rates, a $1.4 million increase in our reserve on multifamily tenant lease receivables and an increase of $3.0 million in rent concessions, partially offset by a decrease of $8.9 million in occupancy loss and a 3.6%, or $3.3 million, increase in reimbursement and ancillary and fee income. Physical occupancy increased by 0.8% to 97.0% and total monthly income per occupied home decreased 1.8% to $2,150.

The increase in operating expenses was primarily driven by a 16.7%, or $6.7 million, increase in repair and maintenance expense due to the increased use of third party vendors, a 3.0%, or $3.3 million, increase in real estate taxes, which was primarily due to higher assessed valuations, and a 28.5%, or $3.1 million, increase in insurance expense due to increased claims, partially offset by a 13.2%, or $6.1 million, decrease in personnel expense as a result of fewer employees.

The operating margin (property net operating income divided by property rental income) was 68.5% and 69.8% for the nine months ended September 30, 2021 and 2020, 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.

Three Months Ended September 30, 2021 vs. Three Months Ended September 30, 2020

The remaining 8.4%, or $18.5 million, of our total NOI during the three months ended September 30, 2021 was generated from our Non-Mature Communities/Other. NOI from Non-Mature Communities/Other decreased by 15.8%, or $3.5 million, for the three months ended September 30, 2021 as compared to the same period in 2020. The decrease was primarily attributable to a $14.1 million decrease in non-residential/other primarily due to changes in straight-line rent as a result of increased tenant rent concessions during 2020, a $2.6 million decrease in sold and held for disposition communities, partially offset by a $10.7 million increase in stabilized, non-mature communities NOI and a $2.6 million increase in acquired communities NOI both due to operating communities acquired in 2021 and 2020.

Nine Months Ended September 30, 2021 vs. Nine Months Ended September 30, 2020

The remaining 7.7%, or $48.7 million, of our total NOI during the nine months ended September 30, 2021 was generated from our Non-Mature Communities/Other. NOI from Non-Mature Communities/Other decreased by 4.9%, or $2.5 million, for the nine months ended September 30, 2021 as compared to the same period in 2020. The decrease was primarily attributable to a $13.9 million decrease in non-residential/other primarily due to changes in straight-line rent as a result of increased tenant rent concessions during 2020, an $8.0 million decrease in sold and held for disposition communities, partially offset by a $16.8 million increase in stabilized, non-mature communities NOI due to operating communities acquired in 2021 and 2020 and a $2.6 million increase in acquired communities.

Real estate depreciation and amortization

For the nine months ended September 30, 2021 and 2020, the Company recognized real estate depreciation and amortization of $442.9 million and $462.5 million, respectively. The decrease in 2021 as compared to 2020 was primarily attributable to fully depreciated assets in 2021 and 2020, partially offset by communities acquired in 2021.

Gain/(Loss) on sale of real estate owned

During the nine months ended September 30, 2021, the Company recognized a gain of $50.8 million from the sale of an operating community located in Anaheim, California. During the nine months ended September 30, 2020, the Company recognized gains of $61.3 million from the sale of two operating communities located in Kirkland, Washington and Bellevue, Washington.

Interest expense

For the three months ended September 30, 2021 and 2020, the Company recognized interest expense of $36.3 million and $62.3 million, respectively. The decrease in 2021 as compared to 2020 was primarily due to $24.5 million of extinguishment cost from the prepayment of debt during the three months ended September 30, 2020 as compared to $0.4 million for the three months ended September 30, 2021, and lower interest rates partially offset by higher debt balances.

For the nine months ended September 30, 2021 and 2020, the Company recognized interest expense of $149.8 million and $140.2 million, respectively. The increase in 2021 as compared to 2020 was primarily due to $42.3 million of extinguishment cost from the prepayment of debt during the nine months ended September 30, 2021 as compared to $24.5 million for the nine months ended September 30, 2020, and higher debt balances, partially offset by lower interest rates.

Income/(loss) from unconsolidated entities

For the three months ended September 30, 2021 and 2020, the Company recognized income/(loss) from unconsolidated entities of $14.5 million and $2.9 million, respectively. The increase in 2021 as compared to 2020 was primarily due to $10.0 million of investment income from real estate technology investments during the three months ended September 30, 2021 as compared to $(0.2) million investment loss for the three months ended September 30, 2020.

For the nine months ended September 30, 2021 and 2020, the Company recognized income/(loss) from unconsolidated entities of $29.1 million and $14.3 million, respectively. The increase in 2021 as compared to 2020 was primarily due to $18.2 million of investment income from real estate technology investments during the nine months ended September 30, 2021 as compared to $4.3 million for the three months ended September 30, 2020.

Interest income and other income/(expense), net

For the three months ended September 30, 2021 and 2020, the Company recognized interest income and other income/(expense), net of $8.2 million and $2.2 million, respectively. The increase in 2021 as compared to 2020 was primarily due to $4.6 million of investment income from real estate technology investments during the three months ended September 30, 2021 as compared to zero for the three months ended September 30, 2020.

For the nine months ended September 30, 2021 and 2020, the Company recognized interest income and other income/(expense), net of $12.8 million and $7.3 million, respectively. The increase in 2021 as compared to 2020 was primarily due to $5.0 million of investment income from real estate technology investments during the nine months ended September 30, 2021 as compared to zero for the three months ended September 30, 2020.

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 three and nine months ended September 30, 2021.

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.

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 enables 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 three and nine months ended September 30, 2021 and 2020 (dollars in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Net income/(loss) attributable to common stockholders	$	16,673	$	(26,309)	$	29,384	$	34,555
Real estate depreciation and amortization		152,636		151,949		442,893		462,481
Noncontrolling interests		1,309		(1,959)		2,294		2,685
Real estate depreciation and amortization on unconsolidated joint ventures		7,929		8,738		24,064		26,299
Net gain on the sale of unconsolidated depreciable property		—		—		(2,460)		—
Net gain on the sale of depreciable real estate owned, net of tax		—		—		(50,778)		(61,303)
FFO attributable to common stockholders and unitholders, basic	$	178,547	$	132,419	$	445,397	$	464,717
Distributions to preferred stockholders — Series E (Convertible)		1,058		1,051		3,171		3,179
FFO attributable to common stockholders and unitholders, diluted	$	179,605	$	133,470	$	448,568	$	467,896
Income/(loss) per weighted average common share, diluted	$	0.06	$	(0.09)	$	0.10	$	0.12
FFO per weighted average common share and unit, basic	$	0.56	$	0.42	$	1.39	$	1.47
FFO per weighted average common share and unit, diluted	$	0.55	$	0.42	$	1.39	$	1.46
Weighted average number of common shares and OP/DownREIT Units outstanding — basic		320,357		317,034		319,491		316,939
Weighted average number of common shares, OP/DownREIT Units, and common stock equivalents outstanding — diluted		326,611		320,242		323,456		320,210

Impact of adjustments to FFO:
Debt extinguishment and other associated costs	$	386	$	24,540	$	42,336	$	24,540
Debt extinguishment and other associated costs on unconsolidated joint ventures		—		—		1,682		—
Legal and other		80		1,570		1,299		3,914
Realized/unrealized (gain)/loss on real estate technology investments, net of tax		(14,599)		155		(22,708)		(3,147)
Severance costs and other restructuring expense		233		254		841		1,896
Casualty-related charges/(recoveries), net		1,609		74		4,894		1,722
Casualty-related charges/(recoveries) on unconsolidated joint ventures, net		50		—		50		31
	$	(12,241)	$	26,593	$	28,394	$	28,956
FFOA attributable to common stockholders and unitholders, diluted	$	167,364	$	160,063	$	476,962	$	496,852

FFOA per weighted average common share and unit, diluted	$	0.51	$	0.50	$	1.47	$	1.55

Recurring capital expenditures		(16,844)		(17,397)		(42,427)		(39,110)
AFFO attributable to common stockholders and unitholders, diluted	$	150,520	$	142,666	$	434,535	$	457,742

AFFO per weighted average common share and unit, diluted	$	0.46	$	0.45	$	1.34	$	1.43

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 three and nine months ended September 30, 2021 and 2020 (shares in thousands):


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2021	2020	2021	2020
Weighted average number of common shares and OP/DownREIT Units outstanding — basic	320,357	317,034	319,491	316,939
Weighted average number of OP/DownREIT Units outstanding	(22,529)	(22,321)	(22,493)	(22,312)
Weighted average number of common shares outstanding — basic per the Consolidated Statements of Operations	297,828	294,713	296,998	294,627

Weighted average number of common shares, OP/DownREIT Units, and common stock equivalents outstanding — diluted	326,611	320,242	323,456	320,210
Weighted average number of OP/DownREIT Units outstanding	(22,529)	(22,321)	(22,493)	(22,312)
Weighted average number of Series E Cumulative Convertible Preferred shares outstanding	(2,918)	(2,918)	(2,918)	(2,960)
Weighted average number of common shares outstanding — diluted per the Consolidated Statements of Operations	301,164	295,003	298,045	294,938

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