UDR-2013.6.30-10Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number
1-10524 (UDR, Inc.)
333-156002-01 (United Dominion Realty, L.P.)
UDR, Inc.
United Dominion Realty, L.P.
(Exact name of registrant as specified in its charter)
Maryland (UDR, Inc.)
 
54-0857512
Delaware (United Dominion Realty, L.P.)
 
54-1776887
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation of organization)
 
Identification No.)
1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado 80129
(Address of principal executive offices) (zip code)
(720) 283-6120
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
UDR, Inc.
 
Yes x No o
United Dominion Realty, L.P.
 
Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
UDR, Inc.
 
Yes x No o
United Dominion Realty, L.P.
 
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
UDR, Inc.:
 
 
 
 
 
 
Large accelerated filer x
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
United Dominion Realty, L.P.:
 
 
 
 
 
 
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer x
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
UDR, Inc.
 
Yes o No x
United Dominion Realty, L.P.
 
Yes o No x
The number of shares of UDR, Inc.’s common stock, $0.01 par value, outstanding as of July 26, 2013 was 250,741,872.

Table of Contents

UDR, INC.
UNITED DOMINION REALTY, L.P.
INDEX
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 4. Mine Safety Disclosures
 
 
 
 
 
 
 
 
Exhibit 12.1
 
Exhibit 12.2
 
Exhibit 31.1
 
Exhibit 31.2
 
Exhibit 31.3
 
Exhibit 31.4
 
Exhibit 32.1
 
Exhibit 32.2
 
Exhibit 32.3
 
Exhibit 32.4
 

Table of Contents

EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the quarter ended June 30, 2013 of UDR, Inc. a Maryland corporation, and United Dominion Realty, L.P., a Delaware limited partnership, of which UDR is the parent company and sole general partner. Unless the context otherwise requires, all references in this Report to “we,” “us,” “our,” the “Company”, “UDR” or "UDR, Inc." refer collectively to UDR, Inc., together with its consolidated subsidiaries and joint ventures, including the Operating Partnership. Unless the context otherwise requires, the references in this Report to the “Operating Partnership” refer to United Dominion Realty, L.P. together with its consolidated subsidiaries. “Common stock” refers to the common stock of UDR and “stockholders” means the holders of shares of UDR’s common stock and preferred stock. The limited partnership interests of the Operating Partnership are referred to as “OP Units” and the holders of the OP Units are referred to as “unitholders”. This combined Form 10-Q is being filed separately by UDR and the Operating Partnership.
There are a number of differences between our Company and our Operating Partnership, which are reflected in our disclosure in this report. UDR is a real estate investment trust (a “REIT”), whose most significant asset is its ownership interest in the Operating Partnership. UDR also conducts business through other subsidiaries, including its taxable REIT subsidiary ("TRS"), RE3, whose activities include development of land and land entitlement. UDR acts as the sole general partner of the Operating Partnership, holds interests in subsidiaries and joint ventures, owns and operates properties, issues securities from time to time and guarantees debt of certain of our subsidiaries. The Operating Partnership conducts the operations of a substantial portion of the business and is structured as a partnership with no publicly traded equity securities. The Operating Partnership has guaranteed certain outstanding debt of UDR.
As of June 30, 2013, UDR owned 110,883 units (100%) of the general partnership interests of the Operating Partnership and 174,846,993 units (or approximately 94.9%) of the limited partnership interests of the Operating Partnership (the “OP Units”). UDR conducts a substantial amount of its business and holds a substantial amount of its assets through the Operating Partnership, and, by virtue of its ownership of the OP Units and being the Operating Partnership’s sole general partner, UDR has the ability to control all of the day-to-day operations of the Operating Partnership. Separate financial statements and accompanying notes, as well as separate discussions under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are provided for each of UDR and the Operating Partnership.





UDR, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

 
June 30,
2013
 
December 31,
2012
 
(unaudited)
 
(audited)
ASSETS
 
 
 
Real estate owned:
 
 
 
Real estate held for investment
$
7,582,981

 
$
7,564,780

Less: accumulated depreciation
(2,070,403
)
 
(1,923,429
)
Real estate held for investment, net
5,512,578

 
5,641,351

Real estate under development (net of accumulated depreciation of $1,246 and $1,253)
432,461

 
489,795

Total real estate owned, net of accumulated depreciation
5,945,039

 
6,131,146

Cash and cash equivalents
9,035

 
12,115

Restricted cash
24,843

 
23,561

Deferred financing costs, net
27,043

 
24,990

Notes receivable, net
66,700

 
64,006

Investment in and advances to unconsolidated joint ventures, net
533,335

 
477,631

Other assets
137,548

 
125,654

Total assets
$
6,743,543

 
$
6,859,103

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
Liabilities:
 
 
 
Secured debt
$
1,385,034

 
$
1,430,135

Unsecured debt
2,009,689

 
1,979,198

Real estate taxes payable
14,586

 
14,076

Accrued interest payable
29,598

 
30,937

Security deposits and prepaid rent
26,726

 
25,025

Distributions payable
61,906

 
57,915

Accounts payable, accrued expenses, and other liabilities
111,056

 
104,567

Total liabilities
3,638,595

 
3,641,853

 
 
 
 
Commitments and contingencies (Note 12)


 


 
 
 
 
Redeemable noncontrolling interests in operating partnership
237,653

 
223,418

 
 
 
 
Equity:
 
 
 
Preferred stock, no par value; 50,000,000 shares authorized
 
 
 
2,803,812 shares of 8.00% Series E Cumulative Convertible issued and outstanding (2,803,812 shares at December 31, 2012)
46,571

 
46,571

Common stock, $0.01 par value; 350,000,000 shares authorized 250,742,325 shares issued and outstanding (250,139,408 shares at December 31, 2012)
2,507

 
2,501

Additional paid-in capital
4,104,200

 
4,098,882

Distributions in excess of net income
(1,279,095
)
 
(1,143,781
)
Accumulated other comprehensive loss, net
(7,811
)
 
(11,257
)
Total stockholders’ equity
2,866,372

 
2,992,916

Noncontrolling interest
923

 
916

Total equity
2,867,295

 
2,993,832

Total liabilities and equity
$
6,743,543

 
$
6,859,103

See accompanying notes to consolidated financial statements.

4
UDR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
 
REVENUES:
 
 
 
 
 
 
 
 
Rental income
 
$
188,613

 
$
177,475

 
$
372,914

 
$
349,717

 
 
 
 
 
 
 
 
 
Joint venture management and other fees
 
3,217

 
2,717

 
6,140

 
5,706

Total revenues
 
191,830

 
180,192

 
379,054

 
355,423

 
 
 
 
 
 
 
 
 
OPERATING EXPENSES:
 
 
 
 
 
 
 
 
Property operating and maintenance
 
36,758

 
35,607

 
72,219

 
69,996

Real estate taxes and insurance
 
23,202

 
21,535

 
46,726

 
42,446

Property management
 
5,187

 
4,880

 
10,255

 
9,617

Other operating expenses
 
1,807

 
1,434

 
3,450

 
2,817

Real estate depreciation and amortization
 
85,131

 
84,474

 
168,573

 
172,381

General and administrative
 
9,866

 
13,738

 
19,342

 
23,117

Hurricane-related (recoveries)/charges, net
 
(2,772
)
 
—

 
(5,793
)
 
—

Other depreciation and amortization
 
1,138

 
1,017

 
2,284

 
1,935

Total operating expenses
 
160,317

 
162,685

 
317,056

 
322,309

 
 
 
 
 
 
 
 
 
Operating income
 
31,513

 
17,507

 
61,998

 
33,114

 
 
 
 
 
 
 
 
 
Income/(loss) from unconsolidated entities
 
515

 
(2,412
)
 
(2,287
)
 
(5,103
)
Interest expense
 
(30,803
)
 
(41,542
)
 
(61,784
)
 
(76,287
)
Interest and other income, net
 
1,446

 
506

 
2,462

 
1,200

Income/(loss) before income taxes and discontinued operations
 
2,671

 
(25,941
)
 
389

 
(47,076
)
Tax benefit, net
 
2,683

 
2,818

 
4,656

 
25,694

Income/(loss) from continuing operations
 
5,354

 
(23,123
)
 
5,045

 
(21,382
)
Income from discontinued operations, net of tax
 
—

 
179,429

 
—

 
264,316

Net income
 
5,354

 
156,306

 
5,045

 
242,934

Net income attributable to redeemable noncontrolling interests in OP
 
(159
)
 
(5,911
)
 
(114
)
 
(9,331
)
Net income attributable to noncontrolling interests
 
(3
)
 
(43
)
 
(7
)
 
(95
)
Net income attributable to UDR, Inc.
 
5,192

 
150,352

 
4,924

 
233,508

Distributions to preferred stockholders — Series E (Convertible)
 
(931
)
 
(931
)
 
(1,862
)
 
(1,862
)
Distributions to preferred stockholders — Series G
 
—

 
(909
)
 
—

 
(2,286
)
Premium on preferred stock redemptions, net
 
—

 
(2,791
)
 
—

 
(2,791
)
Net income attributable to common stockholders
 
$
4,261

 
$
145,721

 
$
3,062

 
$
226,569

 
 
 
 
 
 
 
 
 
Income/(loss) per weighted average common share — basic:
 
 
 
 
 
 
 
 
Income/(loss) from continuing operations attributable to common stockholders
 
$
0.02

 
$
(0.12
)
 
$
0.01

 
$
(0.12
)
Income from discontinued operations attributable to common stockholders
 
$
—

 
$
0.74

 
$
—

 
$
1.12

Net income attributable to common stockholders
 
$
0.02

 
$
0.62

 
$
0.01

 
$
0.99

Income/(loss) per weighted average common share — diluted:
 
 
 
 
 
 
 
 
Income/(loss) from continuing operations attributable to common stockholders
 
$
0.02

 
$
(0.12
)
 
$
0.01

 
$
(0.12
)
Income from discontinued operations attributable to common stockholders
 
$
—

 
$
0.74

 
$
—

 
$
1.12

Net income attributable to common stockholders
 
$
0.02

 
$
0.62

 
$
0.01

 
$
0.99

 
 
 
 
 
 
 
 
 
Common distributions declared per share
 
$
0.235

 
$
0.220

 
$
0.470

 
$
0.440

 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding — basic
 
249,985

 
234,031

 
249,951

 
227,766

Weighted average number of common shares outstanding — diluted
 
251,406

 
234,031

 
251,353

 
227,766

See accompanying notes to consolidated financial statements.

UDR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(In thousands)
(Unaudited)


 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
5,354

 
$
156,306

 
$
5,045

 
$
242,934

Other comprehensive income/(loss), including portion attributable to noncontrolling interests:
 
 
 
 
 
 
 
Other comprehensive income/(loss) - derivative instruments:
 
 
 
 
 
 
 
Unrealized holding gain/(loss)
144

 
(1,533
)
 
52

 
(3,492
)
Loss reclassified into earnings from other comprehensive income
1,608

 
1,897

 
3,545

 
3,752

Other comprehensive income/(loss), including portion attributable to noncontrolling interests
1,752

 
364

 
3,597

 
260

Comprehensive income
7,106

 
156,670

 
8,642

 
243,194

Comprehensive income attributable to noncontrolling interests
(226
)
 
(5,983
)
 
(272
)
 
(9,388
)
Comprehensive income attributable to UDR, Inc.
$
6,880

 
$
150,687

 
$
8,370

 
$
233,806


See accompanying notes to consolidated financial statements.


6
UDR, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share and per share data)
(Unaudited)


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Paid-in Capital
 
Distributions in Excess of Net Income
 
Accumulated Other Comprehensive Income/(Loss), net
 
Noncontrolling Interest
 
Total
 
Preferred Stock
 
Common Stock
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
Balance at December 31, 2012
2,803,812

 
$
46,571

 
250,139,408

 
$
2,501

 
$
4,098,882

 
$
(1,143,781
)
 
$
(11,257
)
 
$
916

 
$
2,993,832

Net income attributable to UDR, Inc.
—

 
—

 
—

 
—

 
—

 
4,924

 
—

 
—

 
4,924

Net income attributable to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
7

 
7

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
3,446

 
 
 
3,446

Issuance of common and restricted shares, net
—

 
—

 
531,076

 
5

 
3,608

 
—

 
—

 
—

 
3,613

Adjustment for conversion of noncontrolling interest of unitholders in Operating Partnership
—

 
—

 
71,841

 
1

 
1,710

 
—

 
—

 
—

 
1,711

Common stock distributions declared ($0.47 per share)
—

 
—

 
—

 
—

 
—

 
(117,974
)
 
—

 
—

 
(117,974
)
Preferred stock distributions declared-Series E ($0.6644 per share)
—

 
—

 
—

 
—

 
—

 
(1,862
)
 
—

 
—

 
(1,862
)
Adjustment to reflect redemption value of redeemable noncontrolling interests
—

 
—

 
—

 
—

 
—

 
(20,402
)
 
—

 
—

 
(20,402
)
Balance at June 30, 2013
2,803,812

 
$
46,571

 
250,742,325

 
$
2,507

 
$
4,104,200

 
$
(1,279,095
)
 
$
(7,811
)
 
$
923

 
$
2,867,295

See accompanying notes to consolidated financial statements.

7
UDR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except for share data)
(Unaudited)

 
Six Months Ended June 30,
 
2013
 
2012
 
 
 
 
Operating Activities
 
 
 
Net income
$
5,045

 
$
242,934

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
170,857

 
180,656

Net gain on the sale of depreciable property, net of tax
—

 
(252,531
)
Tax benefit, net
(4,656
)
 
(25,694
)
Loss from unconsolidated entities
2,287

 
5,103

Hurricane-related (recoveries)/charges, net
(2,275
)
 
—

Other
13,056

 
14,174

Changes in operating assets and liabilities:
 
 
 
(Increase)/decrease in operating assets
(2,642
)
 
18,242

Decrease in operating liabilities
(9,283
)
 
(31,151
)
Net cash provided by operating activities
172,389

 
151,733

 
 
 
 
Investing Activities
 
 
 
Acquisition of real estate assets (net of liabilities assumed) and initial capital expenditures
—

 
(12,788
)
Development of real estate assets
(172,034
)
 
(105,861
)
Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement
(82,338
)
 
(66,983
)
Capital expenditures — non-real estate assets
(4,439
)
 
(1,721
)
Investment in unconsolidated joint ventures
(18,165
)
 
(297,782
)
Distributions received from unconsolidated joint ventures
102,909

 
5,363

Issuance of notes receivable
(2,680
)
 
(39,409
)
Proceeds from sales of real estate investments, net
140,834

 
594,680

Net cash (used in)/provided by investing activities
(35,913
)
 
75,499

 
 
 
 
Financing Activities
 
 
 
Payments on secured debt
(42,556
)
 
(484,534
)
Proceeds from the issuance of secured debt
—

 
2,570

Payments on unsecured debt
(122,500
)
 
(100,000
)
Proceeds from the issuance of unsecured debt
—

 
396,400

Net proceeds/(repayment) of revolving bank debt
152,500

 
(421,000
)
Proceeds from the issuance of common shares through public offering, net
—

 
756,441

Payments for the repurchase of Series G preferred stock, net
—

 
(81,609
)
Distributions paid to redeemable noncontrolling interests
(4,625
)
 
(4,500
)
Distributions paid to preferred stockholders
(1,862
)
 
(5,713
)
Distributions paid to common stockholders
(114,078
)
 
(97,399
)
Other
(6,435
)
 
(16,279
)
Net cash used in financing activities
(139,556
)
 
(55,623
)
 
 
 
 
Net (decrease)/increase in cash and cash equivalents
(3,080
)
 
171,609

Cash and cash equivalents, beginning of period
12,115

 
12,503

Cash and cash equivalents, end of period
$
9,035

 
$
184,112

 
 
 
 
 
Six Months Ended June 30,
 
2013
 
2012
 


 
 
Supplemental Information:
 
 
 
 
 
 
 
Interest paid during the period, net of amounts capitalized
$
64,570

 
$
68,936

 
 
 
 
Non-cash transactions:
 
 
 
Secured debt assumed in the acquisitions of properties, including asset exchange
$
—

 
$
34,412

Fair market value adjustment of secured debt assumed in acquisitions of properties, including asset exchange
$
—

 
$
2,617

Conversion of operating partnership redeemable noncontrolling interests to common stock (71,841 shares in 2013 and 5,480 shares in 2012)
$
1,711

 
$
146

Transfer of real estate owned to investment in and advances to unconsolidated joint ventures
$
139,950

 
—

See accompanying notes to consolidated financial statements.

8
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013





1. CONSOLIDATION AND BASIS OF PRESENTATION
Consolidation and Basis of Presentation
UDR, Inc., collectively with our consolidated subsidiaries (“UDR”, the “Company”, “we”, “our”, or “us”) is a self-administered real estate investment trust, or REIT, that owns, acquires, renovates, develops, redevelops, and manages apartment communities. The accompanying consolidated financial statements include the accounts of UDR and its subsidiaries, including United Dominion Realty, L.P. (the “Operating Partnership”). As of June 30, 2013, there were 184,281,253 units in the Operating Partnership outstanding, of which 174,957,876 units or 94.9% were owned by UDR and 9,323,377 units or 5.1% were owned by limited partners. The consolidated financial statements of UDR include the noncontrolling interests of the unitholders in the Operating Partnership.
The accompanying interim unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted according to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments and eliminations necessary for the fair presentation of our financial position as of June 30, 2013, and results of operations for the three and six months ended June 30, 2013 and 2012 have been included. Such adjustments are normal and recurring in nature. The interim results presented are not necessarily indicative of results that can be expected for a full year. The accompanying interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2012 appearing in UDR’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 27, 2013.
The accompanying interim unaudited consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”). GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the interim unaudited consolidated financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain previously reported amounts have been reclassified to conform to the current financial statement presentation.
The Company evaluated subsequent events through the date its financial statements were issued. No recognized or non-recognized subsequent events were noted.

2. SIGNIFICANT ACCOUNTING POLICIES
Recent Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-10, Disclosures about Offsetting Assets and Liabilities. The objective of this update is to provide enhanced disclosures that will enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. This includes the effect or potential effect of rights of setoff associated with an entity’s recognized assets and recognized liabilities within the scope of this update. The amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either 1) offset on the balance sheet in accordance with the “Offsetting Guidance” in ASC 210-20-45 or ASC 815-10-45 (collectively, the offsetting guidance) or 2) subject to an enforceable master netting arrangement or similar agreement, regardless of whether they are offset in accordance with the “Offsetting Guidance”. The amendments, which were adopted by the Company on January 1, 2013, impact the Company's disclosures related to its derivative activities. (See Note 10, Derivatives and Hedging Activity.) The new guidance did not have any impact on the Company's consolidated financial position, results of operations, or cash flows.
In February 2012, the FASB issued ASU No. 2013-02, Other Comprehensive Income (Topic 220) to require preparers to report, in one place, information about reclassifications out of accumulated other comprehensive income. For significant items reclassified out of AOCI to net income in their entirety in the same reporting period, reporting (either on the face of the statement where net income is presented or in the notes thereto) is required about the effect of the reclassifications on the

9
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
JUNE 30, 2013



respective line items in the statement where net income is presented. For items that are not reclassified to net income in their entirety in the same reporting period, a cross reference to other existing disclosures is required in the notes. The amendments, which were adopted by the Company on January 1, 2013, did not have any impact on the Company's consolidated financial position, results of operations, or cash flows. The accompanying consolidated financial statements include the required disclosures in the Consolidated Statements of Comprehensive Income/(Loss) or in the notes thereto for each of the three and six month periods ended June 30, 2013 and 2012.
Revenue and real estate sales gain recognition
Rental income related to leases is recognized on an accrual basis when due from residents in accordance with GAAP. Rental payments are generally due on a monthly basis and recognized when earned. The Company recognizes interest income, management and other fees and incentives when earned, and the amounts are fixed and determinable.
The Company accounts for sales of real estate in accordance with GAAP. For sale transactions meeting the requirements for full accrual profit recognition, such as the Company no longer having continuing involvement in the property, we remove the related assets and liabilities from our Consolidated Balance Sheets and record the gain or loss in the period the transaction closes. For sale transactions that do not meet the full accrual sale criteria due to our continuing involvement, we evaluate the nature of the continuing involvement and account for the transaction under an alternate method of accounting. Unless certain limited criteria are met, non-monetary transactions, including property exchanges, are accounted for at fair value.
Sales to entities in which we retain or otherwise own an interest are accounted for as partial sales. If all other requirements for recognizing profit under the full accrual method have been satisfied and no other forms of continuing involvement are present, we recognize profit proportionate to the outside interest in the buyer and defer the gain on the interest we retain. The Company recognizes any deferred gain when the property is sold to a third party. In transactions accounted for by us as partial sales, we determine if the buyer of the majority equity interest in the venture was provided a preference as to cash flows in either an operating or a capital waterfall. If a cash flow preference has been provided, we recognize profit only to the extent that proceeds from the sale of the majority equity interest exceed costs related to the entire property.
Notes Receivable
The following table summarizes our notes receivable as of June 30, 2013 and December 31, 2012 (in thousands):
 
Balance outstanding
 

 
June 30, 2013
 
December 31, 2012
 
Interest rate
Note due October 2014 - related party
$
24,481

 
$
24,481

 
2.94
%
Note due February 2017
14,580

 
13,200

 
10.00
%
Note due June 2022 (net of discount of $261 and $275)
26,239

 
26,225

 
7.00
%
Note due July 2017
1,400

 
100

 
8.00
%
Total notes receivable, net
$
66,700

 
$
64,006

 
 
The Company has a $24.5 million unsecured note receivable with one of its unconsolidated joint ventures, which bears an interest rate of one month LIBOR plus 2.75% per annum. Interest payments are due monthly. The note is due October 2014, and may be extended for one year.
The Company has a secured note receivable with an unaffiliated third party with an aggregate commitment of $14.6 million, which bears an interest rate of 10.00% per annum. During the six months ended June 30, 2013, the Company loaned an additional $1.4 million under the note. Interest payments are due monthly. The note matures at the earliest of the following: (a) the closing of any private or public capital raising in the amount of $5.0 million or greater; (b) an acquisition; (c) acceleration in the event of default; or (d) the fifth anniversary of the date of the note (February 2017).
In 2012, the Company purchased mezzanine debt securing a mortgage on a class A community in West Los Angeles. The $26.5 million loan was purchased at a yield of 7.25% and bears a coupon rate of 7.00%. Interest payments are due monthly and the note is due June 2022. The discount is amortized using the effective interest method.

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Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
JUNE 30, 2013



The Company has a secured note receivable with an unaffiliated third party with an aggregate commitment of $2.5 million, which bears an interest rate of 8.00% per annum. During the three and six months ended June 30, 2013, the Company loaned an additional $500,000 and $1.3 million under the note, respectively. Interest payments are due monthly. The note matures at the earliest of the following: (a) the closing of any private or public capital raising in the amount of $5.0 million or greater; (b) an acquisition; (c) acceleration in the event of default; or (d) the fifth anniversary of the date of the note (July 2017).
During the three and six months ended June 30, 2013 and 2012, the Company recognized $1.1 million and $2.1 million and $506,000 and $744,000 of interest income, net of accretion, from these notes receivable, of which $182,000 and $363,000 and $0 and $0 was related party interest income, respectively. Interest income is included in "Interest and other income, net" on the Consolidated Statements of Operations.
Comprehensive Income/(Loss)
Comprehensive income/(loss), which is defined as the change in equity during each period from transactions and other events and circumstances from nonowner sources, including all changes in equity during a period except for those resulting from investments by or distributions to stockholders, is displayed in the accompanying Consolidated Statements of Comprehensive Income/(Loss). For the three and six months ended June 30, 2013 and 2012, the Company's other comprehensive income/(loss) consisted of the gain/(loss) (effective portion) on derivative instruments that are designated as and qualify as cash flow hedges, loss reclassified from accumulated other comprehensive income/(loss) into earnings, and the allocation of other comprehensive income/(loss) to redeemable noncontrolling interests. The loss reclassified from accumulated other comprehensive income/(loss) is included in interest expense in the accompanying Consolidated Statements of Operations. See Note 10, Derivatives and Hedging Activity for further discussion. The allocation of other comprehensive income/(loss) to redeemable noncontrolling interests during the three and six months ended June 30, 2013 and 2012 was $64,000 and $151,000 and $29,000 and $(38,000), respectively.
Income Taxes
Due to the structure of the Company as a REIT and the nature of the operations for the operating properties, no provision for federal income taxes has been provided for at UDR. Historically, the Company has generally incurred only state and local excise and franchise taxes. UDR has elected for certain consolidated subsidiaries to be treated as Taxable REIT Subsidiaries (“TRS”), primarily those engaged in development activities.
Income taxes for our TRS are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rate is recognized in earnings in the period of the enactment date. The Company’s deferred tax assets are generally the result of differing depreciable lives on capitalized assets and the timing of expense recognition for certain accrued liabilities. As of June 30, 2013, UDR recorded a net income tax receivable of $3.9 million and a deferred tax asset of $25.3 million (net of a valuation allowance of $1.4 million), which are classified in "Other assets" on the Consolidated Balance Sheets.

Prior to 2012, RE3 had a history of losses and, as a result, historically recognized a valuation allowance for net deferred tax assets.  Each quarter, the Company evaluates the need to retain all or a portion of the valuation allowance on its net deferred tax assets.  During the three months ended March 31, 2012, the Company determined that it was more likely than not that the deferred tax assets, including any remaining net operating loss carry forward, would be realized. In making this determination, the Company analyzed, among other things, its recent history of earnings from sales of depreciable property, forecasts of future earnings and its cumulative earnings for the last twelve quarters. The reversal of the valuation allowance in the first quarter of 2012 of $22.9 million and the income tax benefit of $2.8 million in the second quarter of 2012 resulted in an income tax benefit of $25.7 million during the six months ended June 30, 2012, which is reflected in continuing operations, and classified as "Tax benefit, net" in the Consolidated Statements of Operations. 
GAAP defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. GAAP also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition.

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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
JUNE 30, 2013



The Company recognizes its tax positions and evaluates them using a two-step process. First, UDR determines whether a tax position is more likely than not (greater than 50 percent probability) to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company will then determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement.
UDR had no material unrecognized tax benefit, accrued interest or penalties at June 30, 2013. UDR and its subsidiaries are subject to federal income tax as well as income tax of various state jurisdictions. The tax years 2008 through 2011 remain open to examination by tax jurisdictions to which we are subject. When applicable, UDR recognizes interest and/or penalties related to uncertain tax positions in income tax expense.

3. REAL ESTATE OWNED
Real estate assets owned by the Company consist of income producing operating properties, properties under development and land held for future development. As of June 30, 2013, the Company owned and consolidated 141 communities in 10 states plus the District of Columbia totaling 41,153 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of June 30, 2013 and December 31, 2012 (dollar amounts in thousands):
 
June 30,
2013
 
December 31, 2012
Land
$
1,265,049

 
$
1,907,169

Depreciable property — held and used:
 
 
 
Building and improvements
6,054,933

 
5,384,971

Furniture, fixtures and equipment
262,999

 
272,640

Under development:
 
 
 
Land
112,091

 
151,154

Construction in progress
321,616

 
339,894

Real estate owned
8,016,688

 
8,055,828

Accumulated depreciation
(2,071,649
)
 
(1,924,682
)
Real estate owned, net
$
5,945,039

 
$
6,131,146


In June 2013, the Company sold a 50% interest in five partnerships (the "UDR/MetLife Vitruvian Park® Partnerships") to MetLife for approximately $141.3 million, before transaction costs of $936,000. The properties held by the UDR/MetLife Vitruvian Park® Partnerships are located in Addison, Texas and consist of two operating communities with 739 apartment homes, one community under development with 391 apartment homes upon completion, and 28.4 acres of developable land parcels. The transaction resulted in a gain of approximately $436,000 which the Company has deferred until completion of the development community (projected for the end of 2013). The UDR/MetLife Vitruvian Park® Partnerships will be accounted for under the equity method of accounting and are included in “Investment in and advances to unconsolidated joint ventures, net” on our Consolidated Balance Sheets. See further discussion of this transaction in Note 5, Joint Ventures and Partnerships.

In accordance with GAAP, the operations of the UDR/MetLife Vitruvian Park® Partnerships' assets, prior to the sale of a 50% interest, have been classified as a component of continuing operations on the Consolidated Statements of Operations, as UDR will recognize significant direct cash flows from the partially disposed properties over the duration of the partnership.

All development projects and related carrying costs are capitalized and reported on the Consolidated Balance Sheets as “Real estate under development.” The costs of development projects which include interest, real estate taxes, insurance and allocated development overhead related to support costs for personnel working directly on the development are capitalized during the construction period. These costs, excluding the direct costs of development and capitalized interest for the three and six months ended June 30, 2013 and 2012 were $3.1 million and $6.1 million and $2.0 million and $4.7 million, respectively. During the three and six months ended June 30, 2013 and 2012, total capitalized interest was $8.2 million and $16.6 million and $5.1 million and $10.0 million, respectively.


12
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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
JUNE 30, 2013



In October 2012, Hurricane Sandy hit the East Coast, affecting three of the Company’s operating communities (1,706 apartment homes) located in New York City. The properties suffered some physical damage, and were closed to residents for a period following the hurricane. The Company has insurance policies that provide coverage for property damage and business interruption, subject to applicable retention.
Based on the claims filed and management’s estimates, the Company recognized a $9.0 million impairment charge for the damaged assets’ net book value and incurred $10.4 million of repair and cleanup costs during the year ended December 31, 2012. The impairment charge and the repair and cleanup costs incurred were reduced as of December 31, 2012 by $14.5 million of estimated insurance recovery, and were classified in “Hurricane related (recoveries)/charges, net” on the Consolidated Statements of Operations. During the three and six months ended June 30, 2013, no further impairment charge related to the damaged assets' net book value has been recognized. With the exception of one of the properties that is under redevelopment at June 30, 2013, the rehabilitation of the remaining two properties is expected to be completed in the third quarter of 2013. See Note 14, Hurricane Related (Recoveries)/Charges for additional information.

4. DISCONTINUED OPERATIONS
Discontinued operations represent properties that UDR has either sold or which management believes meet the criteria to be classified as held for sale. In order to be classified as held for sale and reported as discontinued operations, a property’s operations and cash flows have been or will be divested to a third party by the Company whereby UDR will not have any continuing involvement in the ownership or operation of the property after the sale or disposition. The results of operations of the property are presented as discontinued operations for all periods presented and do not impact the net earnings reported by the Company. Once a property is deemed as held for sale, depreciation is no longer recorded. However, if the Company determines that the property no longer meets the criteria of held for sale, the Company will recapture any unrecorded depreciation for the property. The assets and liabilities of properties classified as held for sale are presented separately on the Consolidated Balance Sheets at the lower of their carrying amount or their estimated fair value less the costs to sell the assets.
There were no sales during the three and six months ended June 30, 2013 that met the criteria to be reported as discontinued operations. In addition, the Company had no communities at June 30, 2013 that met the criteria to be classified as held for sale. During the three and six months ended June 30, 2012, the Company sold 15 communities with 4,931 apartment homes and 21 communities with 6,507 apartment homes, respectively. During the three and six months ended June 30, 2012, UDR recognized gains (before tax) on the sale of communities for financial reporting purposes of $180.9 million and $261.4 million, respectively, which are included in discontinued operations. The results of operations for sold properties are classified on the Consolidated Statements of Operations in the line item entitled “Income from discontinued operations, net of tax.”

13
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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
JUNE 30, 2013



The following is a summary of income from discontinued operations, net of tax for the three and six months ended June 30, 2013 and 2012 (dollars in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Rental income
$
—

 
$
13,215

 
$
—

 
$
30,316

 
 
 
 
 
 
 
 
Rental expenses
—

 
4,637

 
—

 
10,566

Property management
—

 
364

 
—

 
834

Real estate depreciation
—

 
—

 
—

 
6,340

Interest and other (income)/expense, net
—

 
791

 
—

 
791

 
—

 
5,792

 
—

 
18,531

Income before net gain on the sale of depreciable property
—

 
7,423

 
—

 
11,785

Net gain on the sale of depreciable property, net of tax
—

 
172,006

 
—

 
252,531

Income from discontinued operations, net of tax
$
—

 
$
179,429

 
$
—

 
$
264,316

 
 
 
 
 
 
 
 
Income from discontinued operations attributable to UDR, Inc., net of tax
$
—

 
$
172,643

 
$
—

 
$
254,179


5. JOINT VENTURES AND PARTNERSHIPS
UDR has entered into joint ventures and partnerships with unrelated third parties to acquire real estate assets that are either consolidated and included in real estate owned on our Consolidated Balance Sheets or are accounted for under the equity method of accounting, and are included in "Investment in and advances to unconsolidated joint ventures, net" on our Consolidated Balance Sheets. The Company consolidates an entity in which we own less than 100% but control the joint venture or partnership as well as any variable interest entity where we are the primary beneficiary. In addition, the Company consolidates any joint venture or partnership in which we are the general partner or managing member and the third party does not have the ability to substantively participate in the decision-making process nor the ability to remove us as general partner or managing member without cause.

UDR’s joint ventures and partnerships are funded with a combination of debt and equity. Our losses are limited to our investment and except as noted below, the Company does not guarantee any debt, capital payout or other obligations associated with our joint ventures and partnerships.
Unconsolidated Joint Ventures and Partnerships
The Company recognizes earnings or losses from our investments in unconsolidated joint ventures and partnerships consisting of our proportionate share of the net earnings or losses of the joint ventures and partnerships. In addition, we may earn fees for providing management services to the unconsolidated joint ventures and partnerships.

14
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
JUNE 30, 2013



The following table summarizes the Company’s investment in and advances to unconsolidated joint ventures and partnerships, net which are accounted for under the equity method of accounting as of June 30, 2013 and December 31, 2012 (dollar amounts in thousands):
Joint Venture
 
Location of Properties
 
Number of Properties
 
Number of Apartment Homes
 
Investment at
 
UDR’s Ownership Interest
 
 
 
 
June 30, 2013
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UDR/MetLife I (a)
 
Various
 
8 operating communities
 
1,641

 
$
52,455

 
$
75,129

 
13.2
%
 
 
 
 
8 land parcels
 
N/A

 
 
 
 
 
4.3
%
UDR/MetLife II (a)
 
Various
 
15 operating communities
 
3,119

 
323,401

 
327,001

 
50.0
%
UDR/MetLife Vitruvian Park® (b)
 
Addison, TX
 
2 operating communities
 
739

 
80,162

 
—

 
50.0
%
 
 
 
 
1 development community
 
391

 
 
 
 
 
 
 
 
 
 
6 land parcels
 
N/A

 
 
 
 
 
 
Lodge at Stoughton
 
Stoughton, MA
 
1 operating community
 
240

 
16,020

 
16,311

 
95.0
%
KFH
 
Washington D.C.
 
3 operating communities
 
660

 
27,739

 
29,663

 
30.0
%
Texas JV
 
Texas
 
8 operating communities
 
3,359

 
1,999

 
3,457

 
20.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
13th & Market
 
San Diego, CA
 
1 development community
 
264

 
30,920

 
29,930

 
95.0
%
Domain College Park
 
College Park, MD
 
1 development community
 
256

 
26,108

 
25,546

 
95.0
%
 
 
 
 
 
 
 
 
558,804

 
507,037

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred fees and gains on the sale of depreciable property
 
 
 
(25,469
)
 
(29,406
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total investment in and advances to unconsolidated joint ventures, net
 
 
 
$
533,335

 
$
477,631

 
 
(a) In June 2013 and within UDR/MetLife I, the Company exchanged with MetLife its approximately 10% ownership interest in four operating communities and paid MetLife an additional $15.6 million in cash for an increased ownership interest of approximately 35% in two high-rise operating communities, bringing UDR's ownership interest in the two high-rise operating communities to 50% each. The two high-rise operating communities are located in Denver, Colorado and San Diego, California and were subsequently contributed to UDR/MetLife II. The four operating communities in which UDR exchanged its ownership interest are located in Washington, D.C.; San Francisco, California; Dallas, Texas; and Charlotte, North Carolina. At 50% ownership, the Company's pro-rata share of the undepreciated book value of the UDR/MetLife II joint venture assets and outstanding debt is $796.4 million and $444.6 million, respectively, at June 30, 2013. UDR will continue to fee manage the four operating communities in which UDR exchanged its ownership interests.


15
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
JUNE 30, 2013



(b) In June 2013, the Company sold a 50% interest in five partnerships (the "UDR/MetLife Vitruvian Park® Partnerships") to MetLife for approximately $141.3 million. The transaction resulted in a gain of approximately $436,000 which the Company has deferred until completion of the development community (projected for the end of 2013). Under the terms of the UDR/MetLife Vitruvian Park® Partnerships, the Company serves as the general partner with significant participating rights held by our partner, and earns fees for property management, asset management, and financing transactions. The UDR/MetLife Vitruvian Park® Partnerships will be accounted for under the equity method of accounting. Our initial investment was approximately $80.2 million, which consisted of approximately $140.0 million (50% of our net book value of the real estate at the time of the transaction) reduced by our share of the net proceeds received upon encumbering the assets of approximately $58.7 million and other operating adjustments.

At closing, a total of $118.3 million of secured debt was placed on the two operating communities and the community under development. The debt on the two operating communities carries an interest rate of 4.0% with a term of ten years and the non-recourse construction loan on the community under development carries an interest rate of LIBOR plus 175 basis points with a term of two years and two one-year extension options. The Company has guaranteed the completion of the construction of the development. Proceeds from the construction loan will be used for completion of construction of the development. Upon completion, at its 50% ownership, the Company's pro-rata share of the undepreciated book value of the UDR/MetLife Vitruvian Park® Partnerships' real estate assets and outstanding debt will be approximately $145.0 million and $62.8 million, respectively.
As of June 30, 2013 and December 31, 2012, the Company had deferred fees and deferred profit from the sale of properties to joint ventures or partnerships of $25.5 million and $29.4 million, respectively, which will be recognized through earnings over the weighted average life of the related properties, upon the disposition of the properties to a third party, or upon completion of certain development obligations.
The Company recognized $3.0 million and $5.7 million and $2.7 million and $5.7 million of management fees during the three and six months ended June 30, 2013 and 2012, respectively, for our management of the joint ventures and partnerships. The management fees are classified in “Joint venture management and other fees” in the Consolidated Statements of Operations.
The Company may, in the future, make additional capital contributions to certain of our joint ventures and partnerships should additional capital contributions be necessary to fund acquisitions or operations.
We evaluate our investments in unconsolidated joint ventures and partnerships when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. The Company did not recognize any other-than-temporary decrease in the value of its investments in unconsolidated joint ventures or partnerships during the three months and six months ended June 30, 2013 and 2012.

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Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
JUNE 30, 2013



Combined summary financial information relating to all of the unconsolidated joint ventures and partnerships operations (not just our proportionate share), is presented below for the three months and six months ended June 30, 2013 and 2012 (dollars in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
 
 
 
 
 
 
 
 
Revenues
$
62,607

 
$
74,725

 
$
123,687

 
$
137,750

Real estate depreciation and amortization
21,336

 
26,489

 
43,114

 
52,374

Net (income)/loss
23,642

 
3,544

 
27,479

 
(5,077
)
UDR income/(loss) from unconsolidated entities
515

 
(2,412
)
 
(2,287
)
 
(5,103
)
Combined summary balance sheets relating to all of the unconsolidated joint ventures and partnerships (not just our proportionate share) are presented below as of June 30, 2013 and December 31, 2012 (dollars in thousands):
 
June 30, 2013
 
December 31, 2012
Real estate, net
$
3,235,228

 
$
3,189,814

Total assets
3,303,195

 
3,266,518

Amount due to UDR
32,731

 
34,843

Third party debt
1,773,283

 
1,663,427

Total liabilities
1,846,961

 
1,747,855

Total equity
1,456,234

 
1,518,663

Equity held by noncontrolling interest
—

 
12,755

UDR’s investment in unconsolidated joint ventures, net
533,335

 
477,631

Consolidated Joint Ventures
In January 2012, the Company formed a joint venture with an unaffiliated third party to acquire 399 Fremont (land for future development) in San Francisco, California. At closing, UDR owned a noncontrolling interest of 92.5% in the joint venture. The Company’s total investment was $55.5 million, which consists of its initial investment of $37.3 million and an option to acquire its partner’s 7.5% ownership interest in the joint venture. In October 2012, the Company exercised the option and paid $13.5 million, resulting in the consolidation of the joint venture at fair value. In January 2013, the Company subsequently acquired its partner's 7.5% ownership interest for $4.7 million.


17
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
JUNE 30, 2013



6. SECURED AND UNSECURED DEBT
The following is a summary of our secured and unsecured debt at June 30, 2013 and December 31, 2012 (amounts in thousands):
 
Principal Outstanding
 
For the Six Months Ended June 30, 2013
 
 
 
Weighted Average
Interest Rate
 
Weighted Average
Years to Maturity
 
Number of Communities
Encumbered
 
June 30, 2013
 
December 31, 2012
 
 
 
 
 
 
 
 
Secured Debt:
 
 
 
 
 
 
 
 
 
 Fixed Rate Debt
 
 
 
 
 
 
 
 
 
  Mortgage notes payable (a)
$
450,641

 
$
455,533

 
5.42
%
 
3.0

 
8

  Fannie Mae credit facilities (b)
628,284

 
631,078

 
4.99
%
 
5.5

 
22

 Total fixed rate secured debt
1,078,925

 
1,086,611

 
5.17
%
 
4.5

 
30

 Variable Rate Debt
 
 
 
 
 
 
 
 
 
  Mortgage notes payable
—

 
37,415

 
—

 
—

 
—

  Tax-exempt secured notes payable (c)
94,700

 
94,700

 
0.89
%
 
9.7

 
2

  Fannie Mae credit facilities (b)
211,409

 
211,409

 
1.63
%
 
7.0

 
7

 Total variable rate secured debt
306,109

 
343,524

 
1.40
%
 
7.9

 
9

 Total Secured Debt
1,385,034

 
1,430,135

 
4.34
%
 
5.2

 
39

 
 
 
 
 
 
 
 
 
 
Unsecured Debt:
 
 
 
 
 
 
 
 
 
 Commercial Banks
 
 
 
 
 
 
 
 
 
Borrowings outstanding under an unsecured credit facility due December 2017 (d), (g)
228,500

 
76,000

 
1.30
%
 
4.4

 
 
 Senior Unsecured Notes
 
 
 
 
 
 
 
 
 
4.63% Medium-Term Notes due January 2022 (net of discount of $3,061 and $3,241) (g)
396,939

 
396,759

 
4.63
%
 
8.5

 
 
1.45% Term Notes due June 2018 (e), (g)
35,000

 
35,000

 
1.45
%
 
4.9

 
 
2.50% Term Notes due June 2018 (e), (g)
65,000

 
65,000

 
2.50
%
 
4.9

 
 
6.05% Medium-Term Notes due June 2013
—

 
122,500

 


 

 
 
5.13% Medium-Term Notes due January 2014
184,000

 
184,000

 
5.13
%
 
0.5

 
 
5.50% Medium-Term Notes due April 2014 (net of discount of $54 and $89)
128,446

 
128,411

 
5.50
%
 
0.8

 
 
5.25% Medium-Term Notes due January 2015 (net of discount of $198 and $262)
324,977

 
324,913

 
5.25
%
 
1.5

 
 
5.25% Medium-Term Notes due January 2016
83,260

 
83,260

 
5.25
%
 
2.5

 
 
2.73% Term Notes due June 2018 (f), (g)
250,000

 
250,000

 
2.73
%
 
4.9

 
 
8.50% Debentures due September 2024
15,644

 
15,644

 
8.50
%
 
11.2

 
 
4.25% Medium-Term Notes due June 2018 (net of discount of $2,108 and $2,322) (g)
297,892

 
297,678

 
4.25
%
 
4.9

 
 
Other
31

 
33

 
N/A

 
N/A

 
 
  Total Unsecured Debt
2,009,689

 
1,979,198

 
4.10
%
 
4.3

 
 
Total Debt
$
3,394,723

 
$
3,409,333

 
4.20
%
 
4.7

 
 

Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon payments due at maturity. For purposes of classification of the above table, variable rate debt with a derivative financial instrument designated as a cash flow hedge is deemed as fixed rate debt due to the Company having effectively established a fixed interest rate for the underlying debt instrument. Secured debt encumbers $2.2 billion or 27.1% of UDR’s total real estate owned based upon gross book value ($5.8 billion or 72.9% of UDR’s real estate owned based on gross book value is unencumbered) as of June 30, 2013.

18
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
JUNE 30, 2013



(a) At June 30, 2013, fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from December 2014 through May 2019 and carry interest rates ranging from 3.43% to 5.94%.
The Company will from time to time acquire properties subject to fixed rate debt instruments. In those situations, management will record the secured debt at its estimated fair value and amortize any difference between the fair value and par to interest expense over the life of the underlying debt instrument. During the three and six months ended June 30, 2013 and 2012, the Company had $1.2 million and $2.5 million and $1.2 million and $2.3 million of a reduction to interest expense based on amortization on the fair market adjustment of debt assumed in acquisition of properties, respectively. The unamortized fair market adjustment was a net premium of $14.4 million and $16.9 million at June 30, 2013 and December 31, 2012, respectively.
(b) UDR has three secured credit facilities with Fannie Mae with an aggregate commitment of $928.5 million at June 30, 2013. The Fannie Mae credit facilities are for terms of seven to ten years (maturing at various dates from May 2017 through July 2023) and bear interest at floating and fixed rates. At June 30, 2013, we have $628.3 million of the outstanding balance fixed at a weighted average interest rate of 4.99% and the remaining balance of $211.4 million on these facilities is currently at a weighted average variable interest rate of 1.63%.

On June 28, 2013, the Company refinanced $186 million of a Fannie Mae credit facility that carried an interest rate equal to LIBOR plus a spread of 284 basis points and was scheduled to mature in 2019. The new loans include a $90 million, 7-year fixed-rate loan that carries an interest rate of 3.95% and a $96 million, 10-year variable-rate loan that carries an interest rate equal to LIBOR plus a spread of 190 basis points. Three of the Company's communities were released from the facility and added to the Company's unencumbered asset pool.
Further information related to these credit facilities is as follows (dollars in thousands):
 
June 30, 2013
 
December 31, 2012
Borrowings outstanding
$
839,693

 
$
842,487

Weighted average borrowings during the period ended
840,437

 
903,817

Maximum daily borrowings during the period ended
841,494

 
1,054,735

Weighted average interest rate during the period ended
4.3
%
 
4.3
%
Weighted average interest rate at the end of the period
4.2
%
 
4.4
%
(c) The variable rate mortgage notes payable that secure tax-exempt housing bond issues mature on August 2019 and March 2032, respectively. Interest on these notes is payable in monthly installments. The variable rate mortgage notes have interest rates of 0.82% and 1.05%, respectively, as of June 30, 2013.

(d) The Company has a $900 million unsecured revolving credit facility. In June 2013, the Company amended its unsecured revolving credit facility. The amendment extends the maturity date to December 2017, includes a six month extension option, and contains an accordion feature that allows the Company to increase the facility to $1.45 billion. Based on the Company's current credit rating, the credit facility carries an interest rate equal to LIBOR plus a spread of 110 basis points and a facility fee of 20 basis points.


19
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
JUNE 30, 2013



The following is a summary of short-term bank borrowings under UDR’s bank credit facility at June 30, 2013 and December 31, 2012 (dollars in thousands):
 
June 30, 2013
 
December 31, 2012
Total revolving credit facility
$
900,000

 
$
900,000

Borrowings outstanding at end of period (1)
228,500

 
76,000

Weighted average daily borrowings during the period ended
179,495

 
167,038

Maximum daily borrowings during the period ended
372,000

 
788,000

Weighted average interest rate during the period ended
1.2
%
 
1.5
%
Interest rate at end of the period
1.3
%
 
1.4
%
(1) Excludes $2.1 million and $3.9 million of letters of credit at June 30, 2013 and December 31, 2012, respectively.

(e) In June 2013, the Company amended and re-priced its $100 million unsecured term notes due in January 2016. The loan was re-priced from LIBOR plus 142.5 basis points to LIBOR plus 125 basis points, and the maturity date was extended to June 2018.

(f) In June 2013, the Company amended and re-priced its $250 million unsecured term notes due in January 2016. The loan was re-priced from LIBOR plus 142.5 basis points to LIBOR plus 125 basis points, and the maturity date was extended to June 2018.

(g) The Operating Partnership is a guarantor at June 30, 2013 and December 31, 2012.

The aggregate maturities, including amortizing principal payments of secured debt, of total debt for the next five calendar years subsequent to June 30, 2013 are as follows (dollars in thousands):
Year
 
Total Fixed Secured Debt
 
Total Variable Secured Debt
 
Total Secured Debt
 
Total Unsecured Debt (a)
 
Total Debt
2013
 
$
6,639

 
$
—

 
$
6,639

 
$
—

 
$
6,639

2014
 
47,984

 
—

 
47,984

 
311,578

 
359,562

2015
 
197,191

 
—

 
197,191

 
552,889

 
750,080

2016
 
136,440

 
—

 
136,440

 
432,485

 
568,925

2017
 
178,374

 
65,000

 
243,374

 
—

 
243,374

Thereafter
 
512,297

 
241,109

 
753,406

 
712,737

 
1,466,143

Total
 
$
1,078,925

 
$
306,109

 
$
1,385,034

 
$
2,009,689

 
$
3,394,723

 
 
 
 
 
 
 
 
 
 
 
(a) With the exception of the 1.45% Term Notes due June 2018 and revolving credit facility which carry a variable interest rate, all unsecured debt carries fixed interest rates.
We were in compliance with the covenants of our debt instruments at June 30, 2013.


20
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
JUNE 30, 2013



7. EARNINGS/(LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings/(loss) per share for the periods presented (amounts in thousands, except per share data):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Numerator for earnings per share:
 
 
 
 
 
 
 
Income/(loss) from continuing operations
$
5,354

 
$
(23,123
)
 
$
5,045

 
$
(21,382
)
Income from continuing operations attributable to noncontrolling interests
(3
)
 
(43
)
 
(7
)
 
(95
)
(Income)/loss from continuing operations attributable to redeemable noncontrolling interests in OP
(159
)
 
875

 
(114
)
 
806

Income/(loss) from continuing operations attributable to UDR, Inc.
5,192

 
(22,291
)
 
4,924

 
(20,671
)
Distributions to preferred stockholders - Series E (Convertible)
(931
)
 
(931
)
 
(1,862
)
 
(1,862
)
Distributions to preferred stockholders - Series G
—

 
(909
)
 
—

 
(2,286
)
Premium on preferred stock redemptions, net
—

 
(2,791
)
 
—

 
(2,791
)
Income/(loss) from continuing operations attributable to common stockholders
$
4,261

 
$
(26,922
)
 
$
3,062

 
$
(27,610
)
 
 
 
 
 
 
 
 
Income from discontinued operations, net of tax
$
—

 
$
179,429

 
$
—

 
$
264,316

Income from discontinued operations attributable to redeemable noncontrolling interests
—

 
(6,786
)
 
—

 
(10,137
)
Income from discontinued operations attributable to common stockholders
$
—

 
$
172,643

 
$
—

 
$
254,179

 
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
4,261

 
$
145,721

 
$
3,062

 
$
226,569

 
 
 
 
 
 
 
 
Denominator for earnings per share:
 
 
 
 
 
 
 
Weighted average common shares outstanding
250,745

 
234,657

 
250,623

 
228,697

Non-vested restricted stock awards
(760
)
 
(626
)
 
(672
)
 
(931
)
Denominator for basic earnings per share
249,985

 
234,031

 
249,951

 
227,766

Incremental shares issuable from assumed conversion of:
     Stock options and unvested restricted stock
1,421

 
—

 
1,402

 
—

Denominator for diluted earnings per share
251,406

 
234,031

 
251,353

 
227,766

Income/(loss) per weighted average common share-basic:
 
 
 
 
 
 
 
Income/(loss) from continuing operations attributable to common stockholders
$
0.02

 
$
(0.12
)
 
$
0.01

 
$
(0.12
)
Income from discontinued operations attributable to common stockholders
$
—

 
$
0.74

 
$
—

 
$
1.12

Net income attributable to common stockholders
$
0.02

 
$
0.62

 
$
0.01

 
$
0.99

Income/(loss) per weighted average common share-diluted:
 
 
 
 
 
 
 
Income/(loss) from continuing operations attributable to common stockholders
$
0.02

 
$
(0.12
)
 
$
0.01

 
$
(0.12
)
Income from discontinued operations attributable to common stockholders
$
—

 
$
0.74

 
$
—

 
$
1.12

Net income attributable to common stockholders
$
0.02

 
$
0.62

 
$
0.01

 
$
0.99


21
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
JUNE 30, 2013



Basic earnings per common share is computed based upon the weighted average number of common shares outstanding. Diluted earnings per share is computed based upon the common shares issuable from the assumed conversion of the OP units, convertible preferred stock, stock options, and restricted stock. Only those instruments having a dilutive impact on our basic earnings per share are included in diluted earnings per share during the periods.
During the three and six months ended June 30, 2012, the effect of the conversion of the OP Units, convertible preferred stock, stock options and restricted stock is not dilutive, and is therefore not included in the above calculations as the Company reported a loss from continuing operations attributable to common stockholders.

The following table sets forth the additional shares of Common Stock outstanding by equity instrument if converted to Common Stock for each of the three and six months ended June 30, 2013 and 2012:

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2013
 
2012
 
2013
 
2012
OP Units
 
9,323,802

 
9,416,843

 
9,352,255

 
9,419,070

Preferred Stock
 
3,035,548

 
3,035,548

 
3,035,548

 
3,035,548

Stock options and unvested restricted stock
 
1,420,846

 
1,348,466

 
1,402,451

 
1,328,336


8. NONCONTROLLING INTERESTS
Redeemable noncontrolling interests in operating partnership
Interests in the Operating Partnership held by limited partners are represented by operating partnership units (“OP Units”). The income is allocated to holders of OP Units based upon net income attributable to common stockholders and the weighted average number of OP Units outstanding to total common shares plus OP Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to noncontrolling interests in accordance with the terms of the individual partnership agreements.
Limited partners have the right to require the Operating Partnership to redeem all or a portion of the OP Units held by the limited partner at a redemption price equal to and in the form of the Cash Amount as defined in the Amended and Restated Agreement of Limited Partnership of the Operating Partnership (the “Operating Partnership Agreement”), provided that such OP Units have been outstanding for at least one year. UDR, as the general partner of the Operating Partnership may, in its sole discretion, purchase the OP Units by paying to the limited partner either the Cash Amount or the REIT Share Amount (generally one share of common stock of the Company for each OP Unit), as defined in the Operating Partnership Agreement. Accordingly, the Company records the OP Units outside of permanent equity and reports the OP Units at their redemption value using the Company’s stock price at each balance sheet date.
The following table sets forth redeemable noncontrolling interests in the Operating Partnership for the following period (dollars in thousands):
Redeemable noncontrolling interests in the Operating Partnership, December 31, 2012
$
223,418

Mark to market adjustment to redeemable noncontrolling interests in the Operating Partnership
20,402

Conversion of OP Units to Common Stock
(1,711
)
Net income attributable to redeemable noncontrolling interests in the Operating Partnership
114

Distributions to redeemable noncontrolling interests in the Operating Partnership
(4,721
)
Allocation of other comprehensive income
151

Redeemable noncontrolling interests in the Operating Partnership, June 30, 2013
$
237,653


22
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
JUNE 30, 2013




The following sets forth net income/(loss) attributable to common stockholders and transfers from redeemable noncontrolling interests in the Operating Partnership for the following periods (dollars in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2013
 
2012
 
2013
 
2012
Net income attributable to common stockholders
 
$
4,261

 
$
145,721

 
$
3,062

 
$
226,569

Conversion of OP units to UDR Common Stock
 
62

 
146

 
1,711

 
146

Change in equity from net income attributable to common stockholders and conversion of OP units to UDR Common Stock
 
$
4,323

 
$
145,867

 
$
4,773

 
$
226,715

Noncontrolling interests
Noncontrolling interests represent interests of unrelated partners in certain consolidated affiliates, and is presented as part of equity in the Consolidated Balance Sheets since these interests are not redeemable. During the three and six months ended June 30, 2013 and 2012, net income attributable to noncontrolling interests was $3,000 and $7,000 and $43,000 and $95,000, respectively.

9. FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS
Fair value is based on the price that would be received to sell an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level valuation hierarchy prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:
•
Level 1 — Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
•
Level 2 — Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.
•
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

23
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)
JUNE 30, 2013



The estimated fair values of the Company’s financial instruments either recorded or disclosed on a recurring basis as of June 30, 2013 and December 31, 2012 are summarized as follows (dollars in thousands):
 
 
 
 
 
Fair Value at June 30, 2013, Using
 
Total Carrying Amount in Statement of Financial Position at June 30, 2013
 
Fair Value Estimate at June 30, 2013
 
Quoted Prices in
Active Markets
for Identical
Assets or
Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Description:
 
 
 
 
 
 
 
 
 
Notes receivable (a)
$
66,700