10-Q
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 September 30, 2015
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 October 26, 2015 was 262,015,237.

Table of Contents

UDR, INC.
UNITED DOMINION REALTY, L.P.
INDEX
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 4. Mine Safety Disclosures
 
 
 
 
 
 
 
 
Exhibit 2.1
 
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 September 30, 2015 of UDR, Inc., a Maryland corporation, and United Dominion Realty, L.P., a Delaware limited partnership, of which UDR, Inc. 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” or the “OP” 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 the “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 subsidiaries (“TRS”), 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 September 30, 2015, UDR owned 110,883 units (100%) of the general partnership interests of the Operating Partnership and 174,114,516 units (approximately 95.1%) of the limited partnership interests of the Operating Partnership. 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)

 
September 30,
2015
 
December 31,
2014
 
(unaudited)
 
(audited)
ASSETS
 
 
 
Real estate owned:
 
 
 
Real estate held for investment
$
8,162,463

 
$
8,205,627

Less: accumulated depreciation
(2,557,490
)
 
(2,434,772
)
Real estate held for investment, net
5,604,973

 
5,770,855

Real estate under development (net of accumulated depreciation of $0)
104,080

 
177,632

Real estate held for disposition (net of accumulated depreciation of $90,014 and $0)
116,420

 
—

Total real estate owned, net of accumulated depreciation
5,825,473

 
5,948,487

Cash and cash equivalents
1,321

 
15,224

Restricted cash
23,722

 
22,340

Deferred financing costs, net
20,206

 
22,686

Notes receivable, net
15,494

 
14,369

Investment in and advances to unconsolidated joint ventures, net
921,925

 
718,226

Other assets
114,589

 
105,202

Total assets
$
6,922,730

 
$
6,846,534

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Secured debt
$
1,346,992

 
$
1,361,529

Unsecured debt
2,166,242

 
2,221,576

Real estate taxes payable
32,326

 
15,978

Accrued interest payable
23,577

 
34,215

Security deposits and prepaid rent
33,879

 
34,064

Distributions payable
75,937

 
69,460

Accounts payable, accrued expenses, and other liabilities
56,401

 
91,282

Total liabilities
3,735,354

 
3,828,104

 
 
 
 
Commitments and contingencies (Note 12)
 
 
 
 
 
 
 
Redeemable noncontrolling interests in the Operating Partnership
312,158

 
282,480

 
 
 
 
Equity:
 
 
 
Preferred stock, no par value; 50,000,000 shares authorized:
 
 
 
8.00% Series E Cumulative Convertible; 2,796,903 and 2,803,812 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively
46,457

 
46,571

Common stock, $0.01 par value; 350,000,000 shares authorized:
 
 
 
262,015,237 and 255,114,603 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively
2,620

 
2,551

Additional paid-in capital
4,449,555

 
4,223,747

Distributions in excess of net income
(1,610,086
)
 
(1,528,917
)
Accumulated other comprehensive income/(loss), net
(14,187
)
 
(8,855
)
Total stockholders’ equity
2,874,359

 
2,735,097

Noncontrolling interests
859

 
853

Total equity
2,875,218

 
2,735,950

Total liabilities and equity
$
6,922,730

 
$
6,846,534

See accompanying notes to consolidated financial statements.

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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
REVENUES:
 
 
 
 
 
 
 
Rental income
$
217,765

 
$
203,587

 
$
637,576

 
$
598,898

Joint venture management and other fees
3,653

 
3,165

 
19,457

 
9,599

Total revenues
221,418

 
206,752

 
657,033

 
608,497

OPERATING EXPENSES:
 
 
 
 
 
 
 
Property operating and maintenance
39,478

 
39,086

 
113,922

 
112,646

Real estate taxes and insurance
24,722

 
24,697

 
76,082

 
73,844

Property management
5,988

 
5,598

 
17,533

 
16,470

Other operating expenses
2,639

 
2,009

 
6,174

 
6,097

Real estate depreciation and amortization
90,568

 
89,339

 
269,689

 
266,748

General and administrative
15,824

 
11,554

 
41,697

 
36,078

Casualty-related charges/(recoveries), net
541

 
—

 
2,380

 
500

Other depreciation and amortization
1,457

 
1,385

 
4,780

 
3,658

Total operating expenses
181,217

 
173,668

 
532,257

 
516,041

Operating income
40,201

 
33,084

 
124,776

 
92,456

Income/(loss) from unconsolidated entities
2,691

 
(939
)
 
61,277

 
(4,932
)
Interest expense
(30,232
)
 
(33,087
)
 
(88,705
)
 
(97,662
)
Interest income and other income/(expense), net
402

 
9,061

 
1,144

 
11,902

Income/(loss) before income taxes, discontinued operations, and gain/(loss) on sale of real estate owned
13,062

 
8,119

 
98,492

 
1,764

Tax benefit/(expense), net
633

 
2,492

 
2,462

 
8,011

Income/(loss) from continuing operations
13,695

 
10,611

 
100,954

 
9,775

Income/(loss) from discontinued operations, net of tax
—

 
79

 
—

 
10

Income/(loss) before gain/(loss) on sale of real estate owned
13,695

 
10,690

 
100,954

 
9,785

Gain/(loss) on sale of real estate owned, net of tax
—

 
31,302

 
79,042

 
82,305

Net income/(loss)
13,695

 
41,992

 
179,996

 
92,090

Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership
(405
)
 
(1,447
)
 
(6,022
)
 
(3,171
)
Net (income)/loss attributable to noncontrolling interests
1

 
4

 
(6
)
 
(2
)
Net income/(loss) attributable to UDR, Inc.
13,291

 
40,549

 
173,968

 
88,917

Distributions to preferred stockholders — Series E (Convertible)
(930
)
 
(931
)
 
(2,792
)
 
(2,793
)
Net income/(loss) attributable to common stockholders
$
12,361

 
$
39,618

 
$
171,176

 
$
86,124

Income/(loss) per weighted average common share — basic:
 
 
 
 
 
 
 
Income/(loss) from continuing operations attributable to common stockholders
$
0.05

 
$
0.16

 
$
0.66

 
$
0.34

Income/(loss) from discontinued operations attributable to common stockholders
—

 
—

 
—

 
—

Net income/(loss) attributable to common stockholders
$
0.05

 
$
0.16

 
$
0.66

 
$
0.34

 
 
 
 
 
 
 
 
Income/(loss) per weighted average common share — diluted:
 
 
 
 
 
 
 
Income/(loss) from continuing operations attributable to common stockholders
$
0.05

 
$
0.16

 
$
0.66

 
$
0.34

Income/(loss) from discontinued operations attributable to common stockholders
—

 
—

 
—

 
—

Net income/(loss) attributable to common stockholders
$
0.05

 
$
0.16

 
$
0.66

 
$
0.34

 
 
 
 
 
 
 
 
Common distributions declared per share
0.2775

 
0.2600

 
$
0.8325

 
0.7800

Weighted average number of common shares outstanding — basic
259,114

 
251,655

 
257,940

 
250,701

Weighted average number of common shares outstanding — diluted
261,207

 
253,732

 
260,020

 
252,675

See accompanying notes to consolidated financial statements.

5
UDR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(In thousands)
(Unaudited)


 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Net income/(loss)
$
13,695

 
$
41,992

 
$
179,996

 
$
92,090

Other comprehensive income/(loss), including portion attributable to noncontrolling interests:
 
 
 
 
 
 
 
Other comprehensive income/(loss) - derivative instruments:
 
 
 
 
 
 
 
Unrealized holding gain/(loss)
(5,707
)
 
362

 
(7,072
)
 
611

(Gain)/loss reclassified into earnings from other comprehensive income/(loss)
536

 
1,130

 
1,565

 
3,809

Other comprehensive income/(loss), including portion attributable to noncontrolling interests
(5,171
)
 
1,492

 
(5,507
)
 
4,420

Comprehensive income/(loss)
8,524

 
43,484

 
174,489

 
96,510

Comprehensive (income)/loss attributable to noncontrolling interests
(230
)
 
(1,500
)
 
(5,853
)
 
(3,336
)
Comprehensive income/(loss) attributable to UDR, Inc.
$
8,294

 
$
41,984

 
$
168,636

 
$
93,174


See accompanying notes to consolidated financial statements.
 

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


 
Preferred Stock
 
Common Stock
 
Paid-in Capital
 
Distributions in Excess of Net Income
 
Accumulated Other Comprehensive Income/(Loss), net
 
Noncontrolling Interests
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
Balance at December 31, 2014
2,803,812

 
$
46,571

 
255,114,603

 
$
2,551

 
$
4,223,747

 
$
(1,528,917
)
 
$
(8,855
)
 
$
853

 
$
2,735,950

Net income/(loss) attributable to UDR, Inc.
—

 
—

 
—

 
—

 
—

 
173,968

 
—

 
—

 
173,968

Net income/(loss) attributable to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
6

 
6

Other comprehensive income/(loss)
—

 
—

 
—

 
—

 
—

 
—

 
(5,332
)
 
—

 
(5,332
)
Issuance/(forfeiture) of common and restricted shares, net
—

 
—

 
441,344

 
4

 
11,810

 
—

 
—

 
—

 
11,814

Issuance of common shares through public offering
—

 
—

 
6,339,636

 
63

 
210,068

 
—

 
—

 
—

 
210,131

Conversion of Series E Cumulative Convertible shares
(6,909
)
 
(114
)
 
7,480

 
—

 
114

 
—

 
—

 
—

 
—

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

 
—

 
112,174

 
2

 
3,816

 
—

 
—

 
—

 
3,818

Common stock distributions declared ($0.8325 per share)
—

 
—

 
—

 
—

 
—

 
(216,837
)
 
—

 
—

 
(216,837
)
Preferred stock distributions declared-Series E ($0.9966 per share)
—

 
—

 
—

 
—

 
—

 
(2,792
)
 
—

 
—

 
(2,792
)
Adjustment to reflect redemption value of redeemable noncontrolling interests
—

 
—

 
—

 
—

 
—

 
(35,508
)
 
—

 
—

 
(35,508
)
Balance at September 30, 2015
2,796,903

 
$
46,457

 
262,015,237

 
$
2,620

 
$
4,449,555

 
$
(1,610,086
)
 
$
(14,187
)
 
$
859

 
$
2,875,218

See accompanying notes to consolidated financial statements.

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

 
Nine Months Ended
 
September 30,
 
2015
 
2014
Operating Activities
 
 
 
Net income/(loss)
$
179,996

 
$
92,090

Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
 
 
Depreciation and amortization
274,469

 
270,405

(Gain)/loss on sale of real estate owned, net of tax
(79,042
)
 
(82,380
)
Tax (benefit)/provision, net
(2,462
)
 
(8,049
)
(Income)/loss from unconsolidated entities
(61,277
)
 
4,932

Casualty-related (recoveries)/charges, net
2,380

 
500

Other
17,839

 
19,952

Changes in operating assets and liabilities:
 
 
 
(Increase)/decrease in operating assets
(10,026
)
 
(5,870
)
Increase/(decrease) in operating liabilities
(16,075
)
 
(9,602
)
Net cash provided by/(used in) operating activities
305,802

 
281,978

 
 
 
 
Investing Activities
 
 
 
Acquisition of real estate assets
—

 
(199,012
)
Proceeds from sale of real estate investments, net
90,543

 
233,913

Development of real estate assets
(91,385
)
 
(160,643
)
Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement
(80,119
)
 
(82,332
)
Capital expenditures — non-real estate assets
(2,684
)
 
(4,277
)
Investment in unconsolidated joint ventures
(195,607
)
 
(167,160
)
Distributions received from unconsolidated joint ventures
53,185

 
17,884

Purchase deposits on pending acquisitions
(1,000
)
 
(4,000
)
(Issuance)/repayment of notes receivable
(1,125
)
 
64,715

Net cash provided by/(used in) investing activities
(228,192
)
 
(300,912
)
 
 
 
 
Financing Activities
 
 
 
Payments on secured debt
(6,861
)
 
(44,390
)
Proceeds from the issuance of secured debt
—

 
5,502

Payments on unsecured debt
(325,429
)
 
(312,500
)
Proceeds from the issuance of unsecured debt
299,310

 
298,956

Net proceeds/(repayment) of revolving bank debt
(42,500
)
 
160,000

Proceeds from the issuance of common shares through public offering
210,131

 
99,991

Distributions paid to redeemable noncontrolling interests
(7,761
)
 
(7,419
)
Distributions paid to preferred stockholders
(2,792
)
 
(2,793
)
Distributions paid to common stockholders
(210,458
)
 
(189,742
)
Other
(5,153
)
 
(4,315
)
Net cash provided by/(used in) financing activities
(91,513
)
 
3,290

Net increase/(decrease) in cash and cash equivalents
(13,903
)
 
(15,644
)
Cash and cash equivalents, beginning of period
15,224

 
30,249

Cash and cash equivalents, end of period
1,321

 
14,605

 
 
 
 
 
Nine Months Ended
 
September 30,
 
2015
 
2014
Supplemental Information:
 
 
 
Interest paid during the period, net of amounts capitalized
$
101,618

 
$
105,232

 
 
 
 
Non-cash transactions:
 
 
 
Acquisition of real estate
$
24,067

 
$
—

Fair value adjustment of debt acquired as part of acquisition of real estate
$
1,363

 
$
—

Conversion of Operating Partnership noncontrolling interest to common stock (112,174 shares in 2015 and 151,453 shares in 2014)
$
3,818

 
$
4,318

See accompanying notes to consolidated financial statements.

8
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015





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, operates, 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” or the “OP”). As of September 30, 2015, there were 183,278,698 units in the Operating Partnership outstanding, of which 174,225,399 units, or 95.1%, were owned by UDR and 9,053,299 units, or 4.9%, 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 September 30, 2015, and results of operations for the three and nine months ended September 30, 2015 and 2014 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, 2014 appearing in UDR’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 24, 2015.
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.
2. SIGNIFICANT ACCOUNTING POLICIES
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers. The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The standard specifically excludes lease contracts. The ASU allows for the use of either the full or modified retrospective transition method, and the standard will be effective for the Company on January 1, 2018; early adoption is permitted on January 1, 2017. The Company has not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, to revise the presentation of debt issuance costs. Under ASU 2015-03, entities will present debt issuance costs in their balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the deferred costs will continue to be included in interest expense. ASU 2015-03 does not directly address presentation or subsequent measurement of issuance costs related to line-of-credit arrangements. In August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which clarifies that such costs may be presented as an asset and subsequently amortized over the term of the line-of-credit arrangement. The cumulative guidance, which is to be applied retrospectively to all prior periods, is effective for fiscal years beginning after December 15, 2015, with early adoption permitted for financial statements that have not been previously issued. The Company does not expect ASU 2015-03 or ASU 2015-15 to have a significant effect on its consolidated financial statements.

9
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015




In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis, which makes changes to both the variable interest model and the voting model. Among other changes, the new standard specifically eliminates the presumption in the current voting model that a general partner controls a limited partnership or similar entity unless that presumption can be overcome. The new standard will be effective for the Company beginning on January 1, 2016 and early adoption is permitted, including adoption in an interim period. The new standard must be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity/capital as of the beginning of the period of adoption or retrospectively to each period presented. The Company is currently evaluating the impact of adopting the new standard on its consolidated financial statements.
Discontinued Operations
In accordance with GAAP, a discontinued operation represents (1) a component of an entity or group of components that has been disposed of or is classified as held for sale in a single transaction and represents a strategic shift that has or will have a major effect on an entity’s financial results, or (2) an acquired business that is classified as held for sale on the date of acquisition. A strategic shift could include a disposal of (1) a separate major line of business, (2) a separate major geographic area of operations, (3) a major equity method investment, or (4) other major parts of an entity.
We record sales of real estate that do not meet the definition of a discontinued operation in Gain/(loss) on sale of real estate owned, net of tax on the Consolidated Statements of Operations.
Revenue and Real Estate Sales Gain Recognition
Rental income related to leases is recognized on an accrual basis when due from residents and tenants 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.
For sale transactions meeting the requirements for full accrual profit recognition, 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, net as of September 30, 2015 and December 31, 2014 (dollars in thousands):
 
Interest rate at
 
Balance outstanding
 
September 30,
2015
 
September 30,
2015
 
December 31, 2014
Note due February 2017 (a)
10.00
%
 
$
12,994

 
$
11,869

Note due July 2017 (b)
8.00
%
 
2,500

 
2,500

Total notes receivable, net
 
 
$
15,494

 
$
14,369

(a) The Company has a secured note receivable with an unaffiliated third party with an aggregate commitment of $13.0 million. During the nine months ended September 30, 2015, the Company loaned an additional $1.1 million. 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

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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015



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).
(b) The Company has a secured note receivable with an unaffiliated third party with an aggregate commitment of $2.5 million. 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).
The Company recognized $0.4 million of interest income from notes receivable during the three months ended September 30, 2015 and 2014 and $1.1 million and $3.0 million during the nine months ended September 30, 2015 and 2014, respectively, none of which was related party interest income. Interest income is included in Interest income and other income/(expense), 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 nine months ended September 30, 2015 and 2014, the Company’s other comprehensive income/(loss) consisted of the gain/(loss) (effective portion) on derivative instruments that are designated as and qualify as cash flow hedges, (gain)/loss on derivative instruments reclassified from other comprehensive income/(loss) into earnings, and the allocation of other comprehensive income/(loss) to redeemable noncontrolling interests. The (gain)/loss on derivative instruments reclassified from other comprehensive income/(loss) is included in Interest expense on the Consolidated Statements of Operations. See Note 10, Derivatives and Hedging Activity, for further discussion. The allocation of other comprehensive income/(loss) to redeemable noncontrolling interests was $(0.2) million and $0.1 million during the three months ended September 30, 2015 and 2014, respectively, and $(0.2) million and $0.2 million during the nine months ended September 30, 2015 and 2014, 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”).
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 timing of expense recognition for certain accrued liabilities. As of September 30, 2015, UDR’s net deferred tax asset was $10.5 million (net of a valuation allowance of less than $0.1 million), which is included in Other assets on the Consolidated Balance Sheets.
GAAP defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. GAAP also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition.
The Company recognizes its tax positions and evaluates them using a two-step process. First, UDR determines whether a tax position is more likely than not (greater than 50 percent probability) to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, the Company will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement.
UDR had no material unrecognized tax benefit, accrued interest or penalties at September 30, 2015. UDR and its subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions. The tax years 2011

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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015



through 2014 remain open to examination by tax jurisdictions to which we are subject. When applicable, UDR recognizes interest and/or penalties related to uncertain tax positions in Tax benefit/(expense), net on the Consolidated Statements of Operations.
3. REAL ESTATE OWNED
Real estate assets owned by the Company consist of income producing operating properties, properties under development, land held for future development, and sold or held for disposition properties. The Company had eight communities with a total of 1,755 apartment homes that met the criteria to be classified as held for disposition at September 30, 2015. The communities are located in Virginia Beach, Hampton and Yorktown, VA, Columbia, MD, Pinellas Park, FL, Orange County, CA, and Oxnard, CA. As of September 30, 2015, the Company owned and consolidated 136 communities in 10 states plus the District of Columbia totaling 39,405 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of September 30, 2015 and December 31, 2014 (dollars in thousands):
 
September 30,
2015
 
December 31, 2014
Land and land improvements
$
1,840,823

 
$
1,980,221

Depreciable property — held and used:
 
 
 
Building, improvements, and furniture, fixtures and equipment
6,321,640

 
6,225,406

Under development:
 
 
 
Land and land improvements
78,085

 
24,584

Building, improvements, and furniture, fixtures and equipment
25,995

 
153,048

Real estate held for disposition:
 
 
 
Land and land improvements
81,080

 
—

Building, improvements, and furniture, fixtures and equipment
125,354

 
—

Real estate owned
8,472,977

 
8,383,259

Accumulated depreciation
(2,647,504
)
 
(2,434,772
)
Real estate owned, net
$
5,825,473

 
$
5,948,487


In February 2015, the Company acquired an office building in Highlands Ranch, Colorado, for total consideration of approximately $24.0 million, which was comprised of assumed debt. The Company's corporate offices, as well as other leased office space, are located in the acquired building. The building consists of approximately 120,000 square feet. All existing leases were assumed by the Company at the time of acquisition.

During the nine months ended September 30, 2015, the Company sold three communities with a total of 812 apartment homes for gross proceeds of $109.9 million, resulting in net proceeds of $90.5 million and a total gain, net of tax, of $79.0 million. A portion of the sale proceeds were designated as a tax-deferred exchange related to a 2014 acquisition under Section 1031 of the Internal Revenue Code.

Predevelopment, development, and redevelopment projects and related costs are capitalized and reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation. The Company capitalizes costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. These costs, excluding the direct costs of development and redevelopment and capitalized interest, were $1.7 million and $1.7 million for the three months ended September 30, 2015 and 2014, respectively, and $5.5 million and $7.2 million for the nine months ended September 30, 2015 and 2014, respectively. Total interest capitalized was $3.6 million and $5.2 million for the three months ended September 30, 2015 and 2014, respectively, and $12.2 million and $15.4 million for the nine months ended September 30, 2015 and 2014, respectively. As each home in a

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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015



capital project is completed and becomes available for lease-up, the Company ceases capitalization on the related portion and depreciation commences over the estimated useful life.
4. DISCONTINUED OPERATIONS
Effective January 1, 2014, UDR prospectively adopted ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, for all communities not previously sold or classified as held for sale. The standard had a material impact on the Company’s consolidated financial statements. As a result of adopting the ASU, during the three and nine months ended September 30, 2014, gains (net of tax) of $31.3 million and $81.2 million, respectively, from disposition of real estate, excluding a $1.1 million gain related to the sale of land, are included in Gain/(loss) on sale of real estate owned, net of tax on the Consolidated Statements of Operations rather than in Income/(loss) from discontinued operations, net of tax on the Consolidated Statements of Operations.
In July 2014, the Company sold one operating property that was classified as held for sale prior to the adoption of ASU 2014-08 and, therefore, met the requirements to be reported as a discontinued operation. The sale of this property resulted in an immaterial gain (net of tax) of less than $0.1 million. The gain (net of tax) and operating results of the property for the three and nine months ended September 30, 2014 are included in Income/(loss) from discontinued operations, net of tax on the Consolidated Statements of Operations.
The following is a summary of income/(loss) from discontinued operations, net of tax for the three and nine months ended September 30, 2015 and 2014 (dollars in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Rental income
$
—

 
$
21

 
$
—

 
$
147

Rental expenses
—

 
11

 
—

 
225

Property management
—

 
1

 
—

 
4

Interest income and other (income)/expense, net
—

 
3

 
—

 
21

Income/(loss) attributable to disposed properties and assets held for sale
—

 
6

 
—

 
(103
)
Net gain/(loss) on the sale of depreciable properties
—

 
75

 
—

 
75

Income tax benefit/(expense)
—

 
(2
)
 
—

 
38

Income/(loss) from discontinued operations, net of tax
$
—

 
$
79

 
$
—

 
$
10

 
 
 
 
 
 
 
 
Income/(loss) from discontinued operations attributable to UDR, Inc.
$
—

 
$
73

 
$
—

 
$
6

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 the Consolidated Balance Sheets or are accounted for under the equity method of accounting, and are included in Investment in and advances to unconsolidated joint ventures, net on the Consolidated Balance Sheets. The Company consolidates the entities that we control as well as any variable interest entity where we are the primary beneficiary. 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.

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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015



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 unconsolidated joint ventures and partnerships.
The following table summarizes the Company’s investment in and advances to unconsolidated joint ventures and partnerships, net, which are accounted for under the equity method of accounting as of September 30, 2015 and December 31, 2014 (dollars in thousands):
Joint Venture
 
Location of Properties
 
Number of Properties
 
Number of Apartment Homes
 
Investment at
 
UDR’s Ownership Interest
 
 
September 30,
2015
 
September 30,
2015
 
September 30,
2015
 
December 31,
2014
 
September 30,
2015
 
December 31,
2014
Operating and development:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UDR/MetLife I
 
Various
 
4 land parcels
 
—
 
$
14,804

 
$
13,306

 
16.4
%
 
15.7
%
UDR/MetLife II
 
Various
 
21 operating communities
 
4,642
 
425,963

 
431,277

 
50.0
%
 
50.0
%
Other UDR/MetLife Development Joint Ventures
 
 
 
1 operating community;
 
 
 
 
 
 
 
 
 
 
 
 
 
4 development communities (a);
 
 
 
 
 
 
 
 
 
 
 
Various
 
1 land parcel
 
1,437
 
163,961

 
134,939

 
50.6
%
 
50.6
%
UDR/MetLife Vitruvian Park®
 
Addison, TX
 
3 operating communities
 
 
 
 
 
 
 
 
 
 
 
 
6 land parcels
 
1,130
 
73,618

 
80,302

 
50.0
%
 
50.0
%
UDR/KFH
 
Washington, D.C.
 
3 operating communities
 
660
 
18,308

 
21,596

 
30.0
%
 
30.0
%
Texas (b)
 
Texas
 
—
 
—
 
—

 
(25,901
)
 
—
%
 
20.0
%
Investment in and advances to unconsolidated joint ventures, net, before participating loan investment and preferred equity investment
 
695,980,000

 
696,654

 
655,519

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from Investment
 
 
 
 
 
 
 
 
Investment at
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
Location
 
Rate
 
Years To Maturity
 
September 30,
2015
 
December 31,
2014
 
2015
2014
 
2015
2014
Participating loan investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Steele Creek
 
Denver, CO
 
6.5%
 
1.8
 
89,498

 
62,707

 
$1,458
$
642

 
$3,964
$
1,419

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred equity investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
West Coast Development Joint Venture (c)
 
Various
 
6.5%
 
—

 
135,773

 
—

 
$2,086
$
—

 
$1,578
$
—

Total investment in and advances to unconsolidated joint ventures, net
 
$
921,925

 
$
718,226

 
 
 
 
 
 
(a)
The number of apartment homes for the communities under development presented in the table above is based on the projected number of total homes. As of September 30, 2015, no apartment homes had been completed in Other UDR/MetLife Development Joint Ventures.

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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015



(b) In January 2015, the eight communities held by the Texas Joint Venture were sold, generating net proceeds to UDR of $43.5 million. The Company recorded promote and disposition fee income of $9.6 million and a gain of $59.1 million (including $24.2 million of previously deferred gains) in connection with the sale.
(c) In May 2015, the Company entered into a joint venture agreement with real estate private equity firm, The Wolff Company (“Wolff”), and agreed to pay $136.3 million for a 48 percent interest in a portfolio of five communities that are currently under construction (the "West Coast Development Joint Venture"). As of September 30, 2015, the Company had funded $129.6 million of its investment and had a remaining commitment of $6.7 million. The communities are located in three of the Company’s core, coastal markets: Metro Seattle, Los Angeles and Orange County, CA. UDR earns a 6.5 percent preferred return on its investment through each individual community’s date of stabilization, defined as when a community reaches 80 percent occupancy for ninety consecutive days, while Wolff is allocated all operating income and expense during the pre-stabilization period. Upon stabilization, income and expense will be shared based on each partner’s ownership percentage. The Company will serve as property manager and be paid a management fee during the lease-up phase and subsequent operation of each of the communities. Wolff is the general partner of the joint venture and the developer of the communities.
The Company has a fixed price option to acquire Wolff’s remaining interest in each community beginning one year after completion. If the options are exercised for all five communities, the Company’s total price will be $597.4 million. In the event the Company does not exercise its options to purchase at least two communities, Wolff will be entitled to earn a contingent disposition fee equal to 6.5 percent return on its implied equity in the communities not acquired. Wolff is providing certain guaranties and there are construction loans on all five communities. Once completed, the five communities will contain 1,533 homes.
The Company has concluded it does not control the joint venture and accounts for it under the equity method of accounting. The Company's recorded equity investment in the West Coast Development Joint Venture at September 30, 2015 of $135.8 million is inclusive of outside basis costs and our accrued but unpaid preferred return. During the three months ended September 30, 2015, the Company earned a preferred return of $2.1 million. During the nine months ended September 30, 2015, the Company earned a preferred return of $3.1 million, offset by its share of the West Coast Development Joint Venture transaction expenses of $1.5 million.
As of September 30, 2015 and December 31, 2014, the Company had deferred fees and deferred profit from the sale of properties to joint ventures or partnerships of $9.3 million and $28.5 million, respectively, which will be recognized through income over the weighted average life of the related properties, upon the disposition of the properties to a third party, or upon completion of certain development obligations.
The Company recognized management fees for our management of the joint ventures and partnerships of $3.3 million and $2.7 million for the three months ended September 30, 2015 and 2014, respectively, and $8.5 million and $8.3 million for the nine months ended September 30, 2015 and 2014, respectively. The management fees are included in Joint venture management and other fees on the Consolidated Statements of Operations.
The Company may, in the future, make additional capital contributions to certain of our joint ventures and partnerships should additional capital contributions be necessary to fund acquisitions or operations.
We 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 decreases in the value of its investments in unconsolidated joint ventures or partnerships during the three and nine months ended September 30, 2015 and 2014.


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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015



Combined summary balance sheets relating to all of the unconsolidated joint ventures and partnerships (not just our proportionate share) are presented below as of September 30, 2015 and December 31, 2014 (dollars in thousands):
 
September 30,
2015
 
December 31, 2014
Total real estate, net
$
3,074,723

 
$
2,941,803

Assets held for sale
—

 
216,196

Cash and cash equivalents
37,768

 
32,544

Other assets
44,259

 
28,707

Total assets
$
3,156,750

 
$
3,219,250

 
 
 
 
Amount due to UDR
$
7,465

 
$
2,997

Third party debt
1,586,380

 
1,504,477

Liabilities held for sale
—

 
229,706

Accounts payable and accrued liabilities
87,730

 
44,335

Total liabilities
1,681,575

 
1,781,515

Total equity
1,475,175

 
1,437,735

Total liabilities and equity
$
3,156,750

 
$
3,219,250

 
 
 
 
UDR’s investment in unconsolidated joint ventures
$
921,925

 
$
718,226

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 and nine months ended September 30, 2015 and 2014 (dollars in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Total revenues
$
55,948

 
$
52,804

 
$
165,944

 
$
140,138

Property operating expenses
(21,981
)
 
(19,837
)
 
(63,692
)
 
(52,197
)
Real estate depreciation and amortization
(18,272
)
 
(19,158
)
 
(57,026
)
 
(50,654
)
Operating income/(loss)
15,695

 
13,809

 
45,226

 
37,287

Interest expense
(16,310
)
 
(15,755
)
 
(48,540
)
 
(42,833
)
Other income/(expense)
(182
)
 
—

 
(190
)
 
—

Income/(loss) from discontinued operations
(37
)
 
(2,891
)
 
182,452

 
(37,579
)
Net income/(loss)
$
(834
)
 
$
(4,837
)
 
$
178,948

 
$
(43,125
)
UDR income/(loss) from unconsolidated entities
$
2,691

 
$
(939
)
 
$
61,277

 
$
(4,932
)

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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015



6. SECURED AND UNSECURED DEBT
The following is a summary of our secured and unsecured debt at September 30, 2015 and December 31, 2014 (dollars in thousands):
 
 
 
 
 
Nine Months Ended
 
Principal Outstanding
 
September 30, 2015
 
September 30,
2015
 
December 31, 2014
 
Weighted Average
Interest Rate
 
Weighted Average
Years to Maturity
 
Number of Communities
Encumbered
Secured Debt:
 
 
 
 
 
 
 
 
 
Fixed Rate Debt
 
 
 
 
 
 
 
 
 
Mortgage notes payable (a)
$
406,183

 
$
401,210

 
5.51
%
 
0.9

 
7

Fannie Mae credit facilities (b)
565,394

 
568,086

 
5.12
%
 
3.3

 
21

Total fixed rate secured debt
971,577

 
969,296

 
5.28
%
 
2.3

 
28

Variable Rate Debt
 
 
 
 
 
 
 

 
 
Mortgage notes payable
31,337

 
31,337

 
2.00
%
 
1.3

 
1

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

 
94,700

 
0.75
%
 
7.4

 
2

Fannie Mae credit facilities (b)
249,378

 
266,196

 
1.65
%
 
4.5

 
7

Total variable rate secured debt
375,415

 
392,233

 
1.45
%
 
5.0

 
10

Total Secured Debt
1,346,992

 
1,361,529

 
4.21
%
 
3.0

 
38

 
 
 
 
 
 
 
 
 
 
Unsecured Debt:
 
 
 
 
 
 
 
 
 
Commercial Banks
 
 
 
 
 
 
 
 
 
Borrowings outstanding under an unsecured credit facility due December 2017 (d) (g)
110,000

 
152,500

 
1.19
%
 
2.2

 
 
Senior Unsecured Notes
 
 
 
 
 
 
 
 
 
5.25% Medium-Term Notes due January 2015 (net of discounts of $0 and $6, respectively) (e)
—

 
325,169

 
—
%
 
—

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

 
83,260

 
5.25
%
 
0.3

 
 
6.21% Term Notes due July 2016
12,351

 
—

 
6.21
%
 
0.8

 
 
4.25% Medium-Term Notes due June 2018 (net of discounts of $1,144 and $1,465, respectively) (g)
298,856

 
298,535

 
4.25
%
 
2.7

 
 
1.70% Term Notes due June 2018 (g)
215,000

 
215,000

 
1.70
%
 
2.7

 
 
1.53% Term Notes due June 2018 (g)
100,000

 
100,000

 
1.53
%
 
2.7

 
 
1.35% Term Notes due June 2018 (g)
35,000

 
35,000

 
1.35
%
 
2.7

 
 
3.70% Medium-Term Notes due October 2020 (net of discounts of $40 and $46, respectively) (g)
299,960

 
299,954

 
3.70
%
 
5.0

 
 
4.63% Medium-Term Notes due January 2022 (net of discounts of $2,254 and $2,523, respectively) (g)
397,746

 
397,477

 
4.63
%
 
6.3

 
 
3.75% Medium-Term Notes due July 2024 (net of discount of $912 and $990, respectively) (g)
299,088

 
299,010

 
3.75
%
 
8.8

 
 
8.50% Debentures due September 2024
15,644

 
15,644

 
8.50
%
 
9.0

 
 
4.00% Medium-Term Notes due October 2025 (net of discount of $688 and $0, respectively) (f) (g)
299,312

 
—

 
4.00
%
 
10.0

 
 
Other
25

 
27

 
N/A

 
N/A

 
 
Total Unsecured Debt
2,166,242

 
2,221,576

 
3.72
%
 
5.5

 
 
Total Debt
$
3,513,234

 
$
3,583,105

 
3.91
%
 
4.5

 
 


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015



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. As of September 30, 2015, secured debt encumbered $2.3 billion or 26.6% of UDR’s total real estate owned based upon gross book value ($6.2 billion or 73.4% of UDR’s real estate owned based on gross book value is unencumbered).
(a) At September 30, 2015, fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from December 2015 through May 2019 and carry interest rates ranging from 3.43% to 6.16%.
The Company will from time to time acquire properties subject to fixed rate debt instruments. In those situations, the Company records the debt at its estimated fair value and amortizes any difference between the fair value and par to interest expense over the life of the underlying debt instrument. The Company had a reduction to interest expense based on the amortization of the fair market adjustment of debt assumed in the acquisition of properties of $1.3 million and $1.3 million during the three months ended September 30, 2015 and 2014, respectively, and $3.7 million and $3.8 million during the nine months ended September 30, 2015 and 2014, respectively. The unamortized fair market adjustment was a net premium of $4.4 million and $6.7 million at September 30, 2015 and December 31, 2014, respectively.
(b) UDR has three secured credit facilities with Fannie Mae with an aggregate commitment of $814.8 million at September 30, 2015. The Fannie Mae credit facilities mature at various dates from May 2017 through July 2023 and bear interest at floating and fixed rates. At September 30, 2015, $565.4 million of the outstanding balance was fixed and had a weighted average interest rate of 5.12% and the remaining balance of $249.4 million had a weighted average variable interest rate of 1.65%.
Further information related to these credit facilities is as follows (dollars in thousands):
 
September 30,
2015
 
December 31, 2014
Borrowings outstanding
$
814,772

 
$
834,282

Weighted average borrowings during the period ended
825,311

 
835,873

Maximum daily borrowings during the period ended
834,003

 
837,564

Weighted average interest rate during the period ended
4.0
%
 
4.1
%
Weighted average interest rate at the end of the period
4.1
%
 
4.0
%
(c) The variable rate mortgage notes payable that secure tax-exempt housing bond issues mature in August 2019 and March 2032. Interest on these notes is payable in monthly installments. The variable rate mortgage notes have interest rates of 0.75% and 0.76% as of September 30, 2015.

(d) As of September 30, 2015, the Company has a $900 million unsecured revolving credit facility that matures in December 2017. The credit facility has a six month extension option and contains an accordion feature that allows us 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 100 basis points and a facility fee of 15 basis points.


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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015



The following is a summary of short-term bank borrowings under UDR’s revolving credit facility at September 30, 2015 and December 31, 2014 (dollars in thousands):
 
September 30,
2015
 
December 31, 2014
Total revolving credit facility
$
900,000

 
$
900,000

Borrowings outstanding at end of period (1)
110,000

 
152,500

Weighted average daily borrowings during the period ended
409,215

 
291,761

Maximum daily borrowings during the period ended
541,500

 
625,000

Weighted average interest rate during the period ended
1.2
%
 
1.2
%
Interest rate at end of the period
1.2
%
 
1.1
%
(1) Excludes $2.3 million and $1.9 million of letters of credit at September 30, 2015 and December 31, 2014, respectively.

(e) Paid off at maturity with borrowings under the Company's $900 million unsecured revolving credit facility.

(f) On September 22, 2015, the Company issued $300 million of 4.00% senior unsecured medium-term notes due October 1, 2025. Interest is payable semi-annually beginning on April 1, 2016. The notes were priced at 99.770% of the principal amount at issuance and had a discount of $0.7 million at September 30, 2015. The Company used the net proceeds to pay down a portion of the borrowings outstanding on its $900 million unsecured credit facility and for general corporate purposes. The Company previously entered into forward starting interest rate swaps to hedge against interest rate risk on $200 million of this debt issuance. The all-in weighted average interest rate, inclusive of the impact of these interest rate swaps, was 4.55%.

(g) The Operating Partnership is a guarantor of this debt.

The aggregate maturities, including amortizing principal payments of unsecured and secured debt, of total debt for the next five calendar years subsequent to September 30, 2015 are as follows (dollars in thousands):
Year
 
Total Fixed Secured Debt
 
Total Variable Secured Debt
 
Total Secured Debt
 
Total Unsecured Debt (a)
 
Total Debt
2015
 
$
187,916

 
$
—

 
$
187,916

 
$
25

 
$
187,941

2016
 
148,223

 
—

 
148,223

 
94,402

 
242,625

2017
 
177,882

 
96,337

 
274,219

 
110,000

 
384,219

2018
 
121,685

 
87,969

 
209,654

 
648,311

 
857,965

2019
 
245,871

 
67,700

 
313,571

 
—

 
313,571

Thereafter
 
90,000

 
123,409

 
213,409

 
1,313,504

 
1,526,913

Total
 
$
971,577

 
$
375,415

 
$
1,346,992

 
$
2,166,242

 
$
3,513,234

(a) With the exception of the 1.35% Term Notes due June 2018 and the 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 September 30, 2015.


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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015



7. INCOME/(LOSS) PER SHARE
The following table sets forth the computation of basic and diluted income/(loss) per share for the periods presented (dollars and shares in thousands, except per share data):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Numerator for income/(loss) per share:
 
 
 
 
 
 
 
Income/(loss) from continuing operations
$
13,695

 
$
10,611

 
$
100,954

 
$
9,775

Gain/(loss) on sale of real estate owned, net of tax
—

 
31,302

 
79,042

 
82,305

(Income)/loss from continuing operations attributable to redeemable noncontrolling interests in the Operating Partnership
(405
)
 
(1,441
)
 
(6,022
)
 
(3,167
)
(Income)/loss from continuing operations attributable to noncontrolling interests
1

 
4

 
(6
)
 
(2
)
Income/(loss) from continuing operations attributable to UDR, Inc.
13,291

 
40,476

 
173,968

 
88,911

Distributions to preferred stockholders - Series E (Convertible)
(930
)
 
(931
)
 
(2,792
)
 
(2,793
)
Income/(loss) from continuing operations attributable to common stockholders
$
12,361

 
$
39,545

 
$
171,176

 
$
86,118

 
 
 
 
 
 
 
 
Income/(loss) from discontinued operations, net of tax
$
—

 
$
79

 
$
—

 
$
10

(Income)/loss from discontinued operations attributable to redeemable noncontrolling interests in the Operating Partnership
—

 
(6
)
 
—

 
(4
)
Income/(loss) from discontinued operations attributable to common stockholders
$
—

 
$
73

 
$
—

 
$
6

 
 
 
 
 
 
 
 
Net income/(loss) attributable to common stockholders
$
12,361

 
$
39,618

 
$
171,176

 
$
86,124

 
 
 
 
 
 
 
 
Denominator for income/(loss) per share:
 
 
 
 
 
 
 
Weighted average common shares outstanding
260,302

 
252,891

 
259,151

 
251,860

Non-vested restricted stock awards
(1,188
)
 
(1,236
)
 
(1,211
)
 
(1,159
)
Denominator for basic income/(loss) per share
259,114

 
251,655

 
257,940

 
250,701

Incremental shares issuable from assumed conversion of preferred stock, stock options, and unvested restricted stock
2,093

 
2,077

 
2,080

 
1,974

Denominator for diluted income/(loss) per share
261,207

 
253,732

 
260,020

 
252,675

 
 
 
 
 
 
 
 
Income/(loss) per weighted average common share-basic:
 
 
 
 
 
 
 
Income/(loss) from continuing operations attributable to common stockholders
$
0.05

 
$
0.16

 
$
0.66

 
$
0.34

Income/(loss) from discontinued operations attributable to common stockholders
—

 
—

 
—

 
—

Net income/(loss) attributable to common stockholders
$
0.05

 
$
0.16

 
$
0.66

 
$
0.34

 
 
 
 
 
 
 
 
Income/(loss) per weighted average common share-diluted:
 
 
 
 
 
 
 
Income/(loss) from continuing operations attributable to common stockholders
$
0.05

 
$
0.16

 
$
0.66

 
$
0.34

Income/(loss) from discontinued operations attributable to common stockholders
—

 
—

 
—

 
—

Net income/(loss) attributable to common stockholders
$
0.05

 
$
0.16

 
$
0.66

 
$
0.34

Basic income/(loss) per common share is computed based upon the weighted average number of common shares outstanding. Diluted income/(loss) per share is computed based upon the weighted average number of common shares outstanding plus the common shares issuable from the assumed conversion of the OP Units, convertible preferred stock, stock options, and restricted stock. Only those instruments having a dilutive impact on our basic income/(loss) per share are included in diluted income/(loss) per share during the periods.

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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015




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 nine months ended September 30, 2015 and 2014 (shares in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
OP Units
9,061

 
9,189

 
9,117

 
9,274

Preferred stock
3,029

 
3,036

 
3,033

 
3,036

Stock options and unvested restricted stock
2,093

 
2,077

 
2,080

 
1,974

8. NONCONTROLLING INTERESTS
Redeemable Noncontrolling Interests in the Operating Partnership
Interests in the Operating Partnership held by limited partners are represented by 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 partners 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, 2014
$
282,480

Mark-to-market adjustment to redeemable noncontrolling interests in the Operating Partnership
35,508

Conversion of OP Units to Common Stock
(3,818
)
Net income/(loss) attributable to redeemable noncontrolling interests in the Operating Partnership
6,022

Distributions to redeemable noncontrolling interests in the Operating Partnership
(7,859
)
Allocation of other comprehensive income/(loss)
(175
)
Redeemable noncontrolling interests in the Operating Partnership, September 30, 2015
$
312,158


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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Net income/(loss) attributable to common stockholders
$
12,361

 
$
39,618

 
$
171,176

 
$
86,124

Conversion of OP Units to UDR Common stock
320

 
4,127

 
3,818

 
4,318

Change in equity from net income/(loss) attributable to common stockholders and conversion of OP Units to UDR Common Stock
$
12,681

 
$
43,745

 
$
174,994

 
$
90,442


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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015



Noncontrolling Interests
Noncontrolling interests represent interests of unrelated partners in certain consolidated affiliates, and are presented as part of equity in the Consolidated Balance Sheets since these interests are not redeemable. Net (income)/loss attributable to noncontrolling interests was $1,000 and $4,000 during the three months ended September 30, 2015 and 2014, respectively, and $(6,000) and $(2,000) during the nine months ended September 30, 2015 and 2014, 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.

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Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015



The estimated fair values of the Company’s financial instruments either recorded or disclosed on a recurring basis as of September 3