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 March 31, 2016
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 April 25, 2016 was 267,137,288.

Table of Contents

UDR, INC.
UNITED DOMINION REALTY, L.P.
INDEX
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 4. Mine Safety Disclosures
 
 
 
 
 
 
 
 
Exhibit 10.1
 
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 March 31, 2016 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 United Dominion Realty, L.P. and UDR Lighthouse DownREIT L.P. (the “DownREIT Partnership”), a Delaware limited partnership of which UDR is the sole general partner. The DownREIT Partnership was formed in conjunction with certain acquisitions from Home Properties, L.P., a New York limited partnership, by UDR in October 2015. 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 and the DownREIT Partnership are referred to as the “OP Units” and “DownREIT Units,” and the holders of the OP Units and DownREIT 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”). 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 March 31, 2016, 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)

 
March 31,
2016
 
December 31,
2015
 
(unaudited)
 
(audited)
ASSETS
 
 
 
Real estate owned:
 
 
 
Real estate held for investment
$
9,000,652

 
$
9,053,599

Less: accumulated depreciation
(2,743,461
)
 
(2,646,044
)
Real estate held for investment, net
6,257,191

 
6,407,555

Real estate under development (net of accumulated depreciation of $0 and $0, respectively)
196,402

 
124,072

Real estate held for disposition (net of accumulated depreciation of $802 and $830, respectively)
31,744

 
11,775

Total real estate owned, net of accumulated depreciation
6,485,337

 
6,543,402

Cash and cash equivalents
3,668

 
6,742

Restricted cash
21,030

 
20,798

Notes receivable, net
16,694

 
16,694

Investment in and advances to unconsolidated joint ventures, net
944,864

 
938,906

Other assets
129,975

 
137,302

Total assets
$
7,601,568

 
$
7,663,844

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Secured debt, net
$
1,374,670

 
$
1,376,945

Unsecured debt, net
2,037,155

 
2,193,850

Real estate taxes payable
16,147

 
18,786

Accrued interest payable
28,589

 
29,162

Security deposits and prepaid rent
35,995

 
36,330

Distributions payable
86,963

 
80,368

Accounts payable, accrued expenses, and other liabilities
77,676

 
81,356

Total liabilities
3,657,195

 
3,816,797

 
 
 
 
Commitments and contingencies (Note 12)
 
 
 
 
 
 
 
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership
970,620

 
946,436

 
 
 
 
Equity:
 
 
 
Preferred stock, no par value; 50,000,000 shares authorized:
 
 
 
8.00% Series E Cumulative Convertible; 2,796,903 shares issued and outstanding at March 31, 2016 and December 31, 2015
46,457

 
46,457

Series F; 16,452,496 shares issued and outstanding at March 31, 2016 and December 31, 2015
1

 
1

Common stock, $0.01 par value; 350,000,000 shares authorized:
 
 
 
267,137,288 and 261,844,521 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively
2,671

 
2,618

Additional paid-in capital
4,620,946

 
4,447,816

Distributions in excess of net income
(1,685,173
)
 
(1,584,459
)
Accumulated other comprehensive income/(loss), net
(12,035
)
 
(12,678
)
Total stockholders’ equity
2,972,867

 
2,899,755

Noncontrolling interests
886

 
856

Total equity
2,973,753

 
2,900,611

Total liabilities and equity
$
7,601,568

 
$
7,663,844

See accompanying notes to consolidated financial statements.

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

 
Three Months Ended
 
March 31,
 
2016
 
2015
REVENUES:
 
 
 
Rental income
$
231,957

 
$
207,047

Joint venture management and other fees
2,858

 
12,706

Total revenues
234,815

 
219,753

OPERATING EXPENSES:
 
 
 
Property operating and maintenance
39,446

 
37,250

Real estate taxes and insurance
28,377

 
26,222

Property management
6,379

 
5,694

Other operating expenses
1,752

 
1,766

Real estate depreciation and amortization
105,339

 
88,777

General and administrative
13,844

 
12,152

Casualty-related charges/(recoveries), net
—

 
996

Other depreciation and amortization
1,553

 
1,623

Total operating expenses
196,690

 
174,480

Operating income
38,125

 
45,273

Income/(loss) from unconsolidated entities
679

 
59,159

Interest expense
(31,104
)
 
(28,800
)
Interest income and other income/(expense), net
431

 
360

Income/(loss) before income taxes and gain/(loss) on sale of real estate owned
8,131

 
75,992

Tax benefit/(provision), net
403

 
425

Income/(loss) from continuing operations
8,534

 
76,417

Gain/(loss) on sale of real estate owned, net of tax
3,070

 
—

Net income/(loss)
11,604

 
76,417

Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership
(905
)
 
(2,588
)
Net (income)/loss attributable to noncontrolling interests
(306
)
 
(7
)
Net income/(loss) attributable to UDR, Inc.
10,393

 
73,822

Distributions to preferred stockholders — Series E (Convertible)
(929
)
 
(931
)
Net income/(loss) attributable to common stockholders
$
9,464

 
$
72,891

 
 
 
 
Income/(loss) per weighted average common share — basic:
$
0.04

 
$
0.28

Income/(loss) per weighted average common share — diluted:
$
0.04

 
$
0.28

 
 
 
 
Common distributions declared per share
$
0.2950

 
$
0.2775

Weighted average number of common shares outstanding — basic
262,456

 
256,834

Weighted average number of common shares outstanding — diluted
264,285

 
258,662

See accompanying notes to consolidated financial statements.

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


 
Three Months Ended
 
March 31,
 
2016
 
2015
Net income/(loss)
$
11,604

 
$
76,417

Other comprehensive income/(loss), including portion attributable to noncontrolling interests:
 
 
 
Other comprehensive income/(loss) - derivative instruments:
 
 
 
Unrealized holding gain/(loss)
(811
)
 
(7,552
)
(Gain)/loss reclassified into earnings from other comprehensive income/(loss)
935

 
737

Other comprehensive income/(loss), including portion attributable to noncontrolling interests
124

 
(6,815
)
Comprehensive income/(loss)
11,728

 
69,602

Comprehensive (income)/loss attributable to noncontrolling interests
(692
)
 
(2,371
)
Comprehensive income/(loss) attributable to UDR, Inc.
$
11,036

 
$
67,231


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
Balance at December 31, 2015
$
46,458

 
$
2,618

 
$
4,447,816

 
$
(1,584,459
)
 
$
(12,678
)
 
$
856

 
$
2,900,611

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

 
—

 
—

 
10,393

 
—

 
—

 
10,393

Net income/(loss) attributable to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
306

 
306

Disposition of noncontrolling interests in consolidated real estate
—

 
—

 
—

 
—

 
—

 
(1,159
)
 
(1,159
)
Contribution of noncontrolling interests in consolidated real estate
—

 
—

 
—

 
—

 
—

 
220

 
220

Long-Term Incentive Plan Unit grants
—

 
—

 
—

 
—

 
—

 
663

 
663

Other comprehensive income/(loss)
—

 
—

 
—

 
—

 
643

 
—

 
643

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

 
3

 
(120
)
 
—

 
—

 
—

 
(117
)
Issuance of common shares through public offering
—

 
50

 
173,250

 
—

 
—

 
—

 
173,300

Common stock distributions declared ($0.2950 per share)
—

 
—

 
—

 
(78,848
)
 
—

 
—

 
(78,848
)
Preferred stock distributions declared-Series E ($0.3322 per share)
—

 
—

 
—

 
(929
)
 
—

 
—

 
(929
)
Adjustment to reflect redemption value of redeemable noncontrolling interests
—

 
—

 
—

 
(31,330
)
 
—

 
—

 
(31,330
)
Balance at March 31, 2016
$
46,458

 
$
2,671

 
$
4,620,946

 
$
(1,685,173
)
 
$
(12,035
)
 
$
886

 
$
2,973,753

See accompanying notes to consolidated financial statements.

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

 
Three Months Ended
 
March 31,
 
2016
 
2015
Operating Activities
 
 
 
Net income/(loss)
$
11,604

 
$
76,417

Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
 
 
Depreciation and amortization
106,892

 
90,400

(Gain)/loss on sale of real estate owned, net of tax
(3,070
)
 
—

Tax (benefit)/provision, net
(403
)
 
(425
)
(Income)/loss from unconsolidated entities
(679
)
 
(59,159
)
Amortization of share-based compensation
3,879

 
4,260

Other
2,497

 
3,060

Changes in operating assets and liabilities:
 
 
 
(Increase)/decrease in operating assets
(1,853
)
 
4,794

Increase/(decrease) in operating liabilities
(6,378
)
 
(23,329
)
Net cash provided by/(used in) operating activities
112,489

 
96,018

 
 
 
 
Investing Activities
 
 
 
Proceeds from sale of real estate investments, net
21,951

 
—

Development of real estate assets
(36,045
)
 
(43,563
)
Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement
(24,917
)
 
(20,431
)
Capital expenditures — non-real estate assets
(664
)
 
(437
)
Investment in unconsolidated joint ventures
(13,262
)
 
(25,463
)
Distributions received from unconsolidated joint ventures
7,983

 
41,481

(Issuance)/repayment of notes receivable
—

 
(1,125
)
Net cash provided by/(used in) investing activities
(44,954
)
 
(49,538
)
 
 
 
 
Financing Activities
 
 
 
Payments on secured debt
(2,205
)
 
(2,266
)
Payments on unsecured debt
(83,373
)
 
(325,211
)
Net proceeds/(repayment) of revolving bank debt
(73,652
)
 
236,500

Proceeds from the issuance of common shares through public offering, net
173,300

 
108,790

Distributions paid to redeemable noncontrolling interests
(7,085
)
 
(2,509
)
Distributions paid to preferred stockholders
(924
)
 
(931
)
Distributions paid to common stockholders
(72,704
)
 
(66,692
)
Other
(3,966
)
 
(3,111
)
Net cash provided by/(used in) financing activities
(70,609
)
 
(55,430
)
Net increase/(decrease) in cash and cash equivalents
(3,074
)
 
(8,950
)
Cash and cash equivalents, beginning of period
6,742

 
15,224

Cash and cash equivalents, end of period
3,668

 
6,274

 
 
 
 
 
Three Months Ended
 
March 31,
 
2016
 
2015
Supplemental Information:
 
 
 
Interest paid during the period, net of amounts capitalized
$
31,918

 
$
40,282

 
 
 
 
Non-cash transactions:
 
 
 
Acquisition of real estate
$
—

 
$
24,067

Fair value adjustment of debt acquired as part of acquisition of real estate
—

 
1,363

Development costs and capital expenditures incurred but not yet paid
21,220

 
19,372

Conversion of Operating Partnership noncontrolling interest to common stock (0 shares in 2016 and 534 shares in 2015)
—

 
17

See accompanying notes to consolidated financial statements.

8
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016





1. BASIS OF PRESENTATION
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”) and UDR Lighthouse DownREIT L.P. (the “DownREIT Partnership”). As of March 31, 2016, 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. As of March 31, 2016, there were 32,367,380 units in the DownREIT Partnership (“DownREIT Units”) outstanding, of which 16,229,407, or 50.1%, were owned by UDR (of which, 13,470,651, or 41.6%, were held by the Operating Partnership) and 16,137,973, or 49.9%, were owned by outside limited partners. The consolidated financial statements of UDR include the noncontrolling interests of the unitholders in the Operating Partnership and DownREIT Partnership.
The 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 March 31, 2016, and results of operations for the three months ended March 31, 2016 and 2015 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, 2015 appearing in UDR’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 23, 2016.
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.

The Company evaluated subsequent events through the date its financial statements were issued. No significant recognized or non-recognized subsequent events were noted.
2. SIGNIFICANT ACCOUNTING POLICIES
Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases. The standard amends the existing lease accounting guidance and requires lessees to recognize a lease liability and a right-of-use asset for all leases (except for short-term leases that have a duration of one year or less) on their balance sheets. Lessees will continue to recognize lease expense in a manner similar to current accounting. For lessors, accounting for leases under the new guidance is substantially the same as in prior periods, but eliminates current real estate-specific provisions and changes the treatment of initial direct costs. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparable period presented, with an option to elect certain transition relief. Full retrospective application is prohibited. The standard will be effective for the Company on January 1, 2019, with early adoption permitted. The Company is currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

9
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2016



In May 2014, the FASB issued 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 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 of consolidation. Under ASU 2015-02, companies will need to re-evaluate whether an entity meets the criteria to be considered a variable interest entity (“VIE”) or whether the consolidation of an entity should be assessed under the voting model. 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 was effective for the Company beginning on January 1, 2016. The adoption of the new standard did not result in the consolidation of entities not previously consolidated or the deconsolidation of any entities previously consolidated. Upon adopting the new standard, the Operating Partnership and DownREIT Partnership became VIEs as the limited partners of these entities lack substantive kick-out rights and substantive participating rights. The Company is the primary beneficiary of, and continues to consolidate, the entities determined to be VIEs.
Principles of Consolidation
The Company accounts for subsidiary partnerships, joint ventures and other similar entities in which it holds an ownership interest in accordance with the amended consolidation guidance. The Company first evaluates whether each entity is a VIE. Under the VIE model, the Company consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the voting model, the Company consolidates an entity when it controls the entity through ownership of a majority voting interest.
Discontinued Operations
In accordance with GAAP, a discontinued operation represents (1) a component of an entity or group of components that has been disposed of or is classified as held for sale in a single transaction and represents a strategic shift that has or will have a major effect on an entity’s financial results, or (2) an acquired business that is classified as held for sale on the date of acquisition. A strategic shift could include a disposal of (1) a separate major line of business, (2) a separate major geographic area of operations, (3) a major equity method investment, or (4) other major parts of an entity.
We record sales of real estate that do not meet the definition of a discontinued operation in Gain/(loss) on sale of real estate owned, 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 of 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.

10
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2016



Notes Receivable

The following table summarizes our notes receivable, net as of March 31, 2016 and December 31, 2015 (dollars in thousands):
 
Interest rate at
 
Balance outstanding
 
March 31,
2016
 
March 31,
2016
 
December 31, 2015
Note due February 2020 (a)
10.00
%
 
$
12,994

 
$
12,994

Note due July 2017 (b)
8.00
%
 
2,500

 
2,500

Note due October 2020 (c)
8.00
%
 
1,200

 
1,200

Total notes receivable, net
 
 
$
16,694

 
$
16,694

(a) The Company has a secured note receivable with an unaffiliated third party with an aggregate commitment of $13.0 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 eighth anniversary of the date of the note (February 2020).
In March 2016, the terms of this secured note receivable were amended to extend the maturity from the fifth anniversary of the date of the note (February 2017) to the eighth anniversary of the date of the note (February 2020).
(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).
(c)
The Company has a secured note receivable with an unaffiliated third party with an aggregate commitment of $2.0 million. Interest payments are due when the loan matures. The note matures at the earliest of the following: (a) the closing of any private or public capital raising in the amount of $10.0 million or greater; (b) an acquisition; (c) acceleration in the event of default; or (d) the fifth anniversary of the date of the note (October 2020).
The Company recognized $0.4 million and $0.4 million during the three months ended March 31, 2016 and 2015, respectively, of interest income from notes receivable, 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 months ended March 31, 2016 and 2015, the Company’s other comprehensive income/(loss) consisted of the gain/(loss) (effective portion) on derivative instruments that are designated as and qualify as cash flow hedges, (gain)/loss on derivative instruments reclassified from other comprehensive income/(loss) into earnings, and the allocation of other comprehensive income/(loss) to noncontrolling interests. The (gain)/loss on derivative instruments reclassified from other comprehensive income/(loss) is included in Interest expense on the Consolidated Statements of Operations. See Note 10, Derivatives and Hedging Activity, for further discussion.
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

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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2016



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 March 31, 2016, UDR’s net deferred tax asset was $12.3 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 March 31, 2016. 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 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/(provision), 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. As of March 31, 2016, the Company owned and consolidated 132 communities in 10 states plus the District of Columbia totaling 40,728 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of March 31, 2016 and December 31, 2015 (dollars in thousands):
 
March 31,
2016
 
December 31, 2015
Land
$
1,763,519

 
$
1,833,156

Depreciable property — held and used:
 
 
 
Land Improvements
175,222

 
173,821

Building, improvements, and furniture, fixtures and equipment
7,061,911

 
7,046,622

Under development:
 
 
 
Land and land improvements
111,028

 
78,085

Building, improvements, and furniture, fixtures and equipment
85,374

 
45,987

Real estate held for disposition:
 
 
 
Land
29,920

 
9,963

Building, improvements, and furniture, fixtures and equipment
2,626

 
2,642

Real estate owned
9,229,600

 
9,190,276

Accumulated depreciation
(2,744,263
)
 
(2,646,874
)
Real estate owned, net
$
6,485,337

 
$
6,543,402


During the three months ended March 31, 2016, the Company sold its 95% ownership interest in two parcels of land in Santa Monica, California for total gross proceeds of $24.0 million, resulting in total net proceeds of $22.0 million and a total gain, net of tax, of $3.1 million.

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

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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2016



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 $2.0 million and $2.2 million for the three months ended March 31, 2016 and 2015, respectively. Total interest capitalized was $4.2 million and $4.8 million for the three months ended March 31, 2016 and 2015, respectively. As each home in a capital project is completed and becomes available for lease-up, the Company ceases capitalization on the related portion and depreciation commences over the estimated useful life.
4. VARIABLE INTEREST ENTITIES

As of January 1, 2016, the Company adopted ASU 2015-02. See discussion in Note 2, Significant Accounting Policies for further details. As a result of the adoption, the Operating Partnership and DownREIT Partnership were determined to be VIEs. As the Company was determined to be the primary beneficiary, we will continue to consolidate these entities.

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

See the consolidated financial statements of the Operating Partnership presented within this Report and Note 4, Unconsolidated Entities, to the Operating Partnership's consolidated financial statements for the results of operations of the Operating Partnership and DownREIT Partnership, respectively.
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.
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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2016



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 March 31, 2016 and December 31, 2015 (dollars in thousands):
Joint Venture
 
Location of Properties
 
Number of Properties
 
Number of Apartment Homes
 
Investment at
 
UDR’s Ownership Interest
 
 
March 31,
2016
 
March 31,
2016
 
March 31,
2016
 
December 31,
2015
 
March 31,
2016
 
December 31,
2015
Operating and development:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UDR/MetLife I
 
Various
 
4 land parcels
 
—
 
$
18,014

 
$
15,894

 
18.5
%
 
17.2
%
UDR/MetLife II (a)
 
Various
 
21 operating communities
 
4,642
 
421,139

 
425,230

 
50.0
%
 
50.0
%
Other UDR/MetLife Development Joint Ventures
 
 
 
1 operating community;
 
 
 
 
 
 
 
 
 
 
 
 
 
4 development communities (b);
 
 
 
 
 
 
 
 
 
 
 
Various
 
1 land parcel
 
1,437
 
177,323

 
171,659

 
50.6
%
 
50.6
%
UDR/MetLife Vitruvian Park®
 
Addison, TX
 
3 operating communities;
 
 
 
 
 
 
 
 
 
 
 
 
6 land parcels
 
1,130
 
72,569

 
73,469

 
50.0
%
 
50.0
%
UDR/KFH
 
Washington, D.C.
 
3 operating communities
 
660
 
16,147

 
17,211

 
30.0
%
 
30.0
%
Investment in and advances to unconsolidated joint ventures, net, before participating loan investment and preferred equity investment
 
695,980,000

 
705,192

 
703,463

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from Investment
 
 
 
 
 
 
 
 
Investment at
 
Three Months Ended March 31,
 
 
Location
 
Rate
 
Years To Maturity
 
March 31,
2016
 
December 31,
2015
 
2016
 
2015
Participating loan investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Steele Creek
 
Denver, CO
 
6.5%
 
1.3
 
93,463

 
90,747

 
$
1,519
 
 
$
1,154
 
Preferred equity investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
West Coast Development Joint Venture
 
Various
 
6.5%
 
N/A
 
146,209

 
144,696

 
$
1,427
 
 
$
—
 
Total investment in and advances to unconsolidated joint ventures, net
 
$
944,864

 
$
938,906

 
 
 
 
 
 
(a)
In September 2015, the 717 Olympic community, which is owned by the UDR/MetLife II joint venture, experienced extensive water damage due to a ruptured water pipe. For the three months ended March 31, 2016, the Company recorded losses of $1.1 million, its proportionate share of the total losses incurred.
(b)
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 March 31, 2016, 251 apartment homes had been completed in Other UDR/MetLife Development Joint Ventures.
As of March 31, 2016 and December 31, 2015, the Company had deferred fees and deferred profit from the sale of properties to joint ventures or partnerships of $7.7 million and $6.8 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.

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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2016



The Company recognized management fees for our management of the joint ventures and partnerships of $2.8 million and $2.6 million for the three months ended March 31, 2016 and 2015, 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 months ended March 31, 2016 and 2015.

Combined summary balance sheets relating to the unconsolidated joint ventures and partnerships (not just our proportionate share) are presented below as of March 31, 2016 and December 31, 2015 (dollars in thousands):
 
March 31,
2016
 
December 31, 2015
Total real estate, net
$
3,175,927

 
$
3,135,757

Cash and cash equivalents
20,173

 
36,480

Amount due from UDR
693

 
—

Other assets
25,391

 
29,891

Total assets
$
3,222,184

 
$
3,202,128

 
 
 
 
Amount due to UDR
$
—

 
$
7,266

Third party debt
1,678,146

 
1,614,463

Accounts payable and accrued liabilities
65,600

 
95,523

Total liabilities
1,743,746

 
1,717,252

Total equity
1,478,438

 
1,484,876

Total liabilities and equity
$
3,222,184

 
$
3,202,128

 
 
 
 
Investment in and advances to unconsolidated joint ventures, net
$
944,864

 
$
938,906

Combined summary financial information relating to the unconsolidated joint ventures’ and partnerships’ operations (not just our proportionate share), is presented below for the three months ended March 31, 2016 and 2015 (dollars in thousands):
 
Three Months Ended
 
March 31,
 
2016
 
2015
Total revenues
$
55,037

 
$
54,546

Property operating expenses
(23,413
)
 
(20,168
)
Real estate depreciation and amortization
(18,943
)
 
(19,351
)
Operating income/(loss)
12,681

 
15,027

Interest expense
(16,179
)
 
(16,061
)
Income/(loss) from discontinued operations
(2
)
 
182,488

Net income/(loss)
$
(3,500
)
 
$
181,454

UDR income/(loss) from unconsolidated entities
$
679

 
$
59,159


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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2016



6. SECURED AND UNSECURED DEBT, NET
The following is a summary of our secured and unsecured debt at March 31, 2016 and December 31, 2015 (dollars in thousands):
 
 
 
 
 
Three Months Ended
 
Principal Outstanding
 
March 31, 2016
 
March 31,
2016
 
December 31, 2015
 
Weighted Average
Interest Rate
 
Weighted Average
Years to Maturity
 
Number of Communities
Encumbered
Secured Debt:
 
 
 
 
 
 
 
 
 
Fixed Rate Debt
 
 
 
 
 
 
 
 
 
Mortgage notes payable (a)
$
440,714

 
$
442,617

 
4.57
%
 
4.3

 
8

Fannie Mae credit facilities (b)
513,518

 
514,462

 
5.23
%
 
2.8

 
18

Deferred financing costs
(3,798
)
 
(4,278
)
 
 
 
 
 
 
Total fixed rate secured debt, net
950,434

 
952,801

 
4.93
%
 
3.5

 
26

Variable Rate Debt
 
 
 
 
 
 
 

 
 
Mortgage notes payable
31,337

 
31,337

 
2.25
%
 
0.8

 
1

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

 
94,700

 
0.88
%
 
6.9

 
2

Fannie Mae credit facilities (b)
299,378

 
299,378

 
1.90
%
 
3.8

 
8

Deferred financing costs
(1,179
)
 
(1,271
)
 
 
 
 
 
 
Total variable rate secured debt, net
424,236

 
424,144

 
1.70
%
 
4.3

 
11

Total Secured Debt, net
1,374,670

 
1,376,945

 
3.92
%
 
3.7

 
37

 
 
 
 
 
 
 
 
 
 
Unsecured Debt:
 
 
 
 
 
 
 
 
 
Variable Rate Debt
 
 
 
 
 
 
 
 
 
Borrowings outstanding under an unsecured credit facility due January 2020 (d) (h)
70,000

 
150,000

 
1.31
%
 
3.8

 
 
Borrowings outstanding under an unsecured working capital credit facility due January 2019 (e)
6,348

 
—

 
1.34
%
 
2.8

 
 
1.38% Term Loan Facility due January 2021 (d) (h)
35,000

 
35,000

 
1.38
%
 
4.8

 
 
Fixed Rate Debt
 
 
 
 
 
 
 
 
 
5.25% Medium-Term Notes due January 2016 (f)
—

 
83,260

 
—
%
 
—

 
 
6.21% Term Notes due July 2016
11,828

 
12,091

 
6.21
%
 
0.3

 
 
4.25% Medium-Term Notes due June 2018 (net of discounts of $929 and $1,037, respectively) (h)
299,071

 
298,963

 
4.25
%
 
2.2

 
 
3.70% Medium-Term Notes due October 2020 (net of discounts of $36 and $38, respectively) (h)
299,964

 
299,962

 
3.70
%
 
4.5

 
 
2.23% Term Loan Facility due January 2021 (d) (h)
315,000

 
315,000

 
2.23
%
 
4.8

 
 
4.63% Medium-Term Notes due January 2022 (net of discounts of $2,074 and $2,164, respectively) (h)
397,926

 
397,836

 
4.63
%
 
5.8

 
 
3.75% Medium-Term Notes due July 2024 (net of discounts of $860 and $886, respectively) (h)
299,140

 
299,114

 
3.75
%
 
8.3

 
 
8.50% Debentures due September 2024
15,644

 
15,644

 
8.50
%
 
8.5

 
 
4.00% Medium-Term Notes due October 2025 (net of discounts of $654 and $671, respectively) (g) (h)
299,346

 
299,329

 
4.00
%
 
9.5

 
 

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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2016



Other
24

 
24

 
N/A

 
N/A

 
 
Deferred financing costs
(12,136
)
 
(12,373
)
 
N/A

 
N/A

 
 
Total Unsecured Debt, net
2,037,155

 
2,193,850

 
3.79
%
 
5.7

 
 
Total Debt, net
$
3,411,825

 
$
3,570,795

 
3.95
%
 
4.9

 
 
For purposes of classification of the above table, variable rate debt with a derivative financial instrument designated as a cash flow hedge is deemed as fixed rate debt due to the Company having effectively established a fixed interest rate for the underlying debt instrument.
Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon payments due at maturity. As of March 31, 2016, secured debt encumbered $2.3 billion or 25.2% of UDR’s total real estate owned based upon gross book value ($6.9 billion or 74.8% of UDR’s real estate owned based on gross book value is unencumbered).
(a) At March 31, 2016, fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from June 2016 through November 2025 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 $0.8 million and $1.1 million during the three months ended March 31, 2016 and 2015, respectively. The unamortized fair market adjustment was a net premium of $9.2 million and $10.0 million at March 31, 2016 and December 31, 2015, respectively.
(b) UDR has three secured credit facilities with Fannie Mae with an aggregate commitment of $812.9 million at March 31, 2016. The Fannie Mae credit facilities mature at various dates from May 2017 through July 2023 and bear interest at floating and fixed rates. At March 31, 2016, $513.5 million of the outstanding balance was fixed and had a weighted average interest rate of 5.23% and the remaining balance of $299.4 million had a weighted average variable interest rate of 1.90%.
Further information related to these credit facilities is as follows (dollars in thousands):
 
March 31,
2016
 
December 31, 2015
Borrowings outstanding
$
812,896

 
$
813,840

Weighted average borrowings during the period ended
813,228

 
822,521

Maximum daily borrowings during the period ended
813,544

 
834,003

Weighted average interest rate during the period ended
4.0
%
 
4.0
%
Weighted average interest rate at the end of the period
4.0
%
 
3.9
%
(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 0.78% and 0.91% as of March 31, 2016.

(d) As of March 31, 2016, the Company has a $1.1 billion senior unsecured revolving credit facility (the “Revolving Credit Facility”) and a $350.0 million senior unsecured term loan facility (the “Term Loan Facility”). The credit agreement for these facilities (the "Credit Agreement") allows the total commitments under the Revolving Credit Facility and the total borrowings under the Term Loan Facility to be increased to an aggregate maximum amount of up to $2.0 billion, subject to certain conditions, including obtaining commitments from any one or more lenders. The Revolving Credit Facility has a scheduled maturity date of January 31, 2020, with two six-month extension options, subject to certain conditions. The Term Loan Facility has a scheduled maturity date of January 29, 2021.     

Based on the Company’s current credit rating, the Revolving Credit Facility has an interest rate equal to LIBOR plus a margin of 90 basis points and a facility fee of 15 basis points, and the Term Loan Facility has an interest rate equal to LIBOR plus a margin of 95 basis points. Depending on the Company’s credit rating, the margin under the Revolving Credit Facility

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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2016



ranges from 85 to 155 basis points, the facility fee ranges from 12.5 to 30 basis points, and the margin under the Term Loan Facility ranges from 90 to 175 basis points.

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

The following is a summary of short-term bank borrowings under the Revolving Credit Facility at March 31, 2016 and December 31, 2015 (dollars in thousands):
 
March 31,
2016
 
December 31, 2015
Total revolving credit facility
$
1,100,000

 
$
1,100,000

Borrowings outstanding at end of period (1)
70,000

 
150,000

Weighted average daily borrowings during the period ended
193,846

 
353,647

Maximum daily borrowings during the period ended
305,000

 
541,500

Weighted average interest rate during the period ended
1.3
%
 
1.1
%
Interest rate at end of the period
1.3
%
 
1.2
%
(1) Excludes $2.3 million and $2.3 million of letters of credit at March 31, 2016 and December 31, 2015, respectively.

(e) As of March 31, 2016, the Company has a working capital credit facility, which provides for a $30 million unsecured revolving credit facility (the “Working Capital Credit Facility”) with a scheduled maturity date of January 1, 2019. Based on the Company’s current credit rating, the Working Capital Credit Facility has an interest rate equal to LIBOR plus a margin of 90 basis points. Depending on the Company’s credit rating, the margin ranges from 85 to 155 basis points.

The following is a summary of short-term bank borrowings under UDR’s working capital credit facility at March 31, 2016 and December 31, 2015 (dollars in thousands):
 
March 31,
2016
 
December 31, 2015
Total revolving working capital credit facility
$
30,000

 
$
30,000

Borrowings outstanding at end of period
6,348

 
—

Weighted average daily borrowings during the period ended
7,392

 
—

Maximum daily borrowings during the period ended
28,514

 
—

Weighted average interest rate during the period ended
1.3
%
 
—
%
Interest rate at end of the period
1.3
%
 
—
%

(f) Paid off at maturity with borrowings under the Company's $1.1 billion unsecured revolving credit facility.

(g) The Company previously entered into forward starting interest rate swaps to hedge against interest rate risk on $200 million of this debt. The all-in weighted average interest rate, inclusive of the impact of these interest rate swaps, was 4.55%.
    
(h) The Operating Partnership is a guarantor of this debt.


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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2016



The aggregate maturities, including amortizing principal payments of unsecured and secured debt, of total debt for the next ten calendar years subsequent to March 31, 2016 are as follows (dollars in thousands):
Year
 
Total Fixed Secured Debt
 
Total Variable Secured Debt
 
Total Secured Debt
 
Total Unsecured Debt
 
Total Debt
2016
 
$
146,853

 
$
—

 
$
146,853

 
$
11,680

 
$
158,533

2017
 
179,189

 
96,337

 
275,526

 
—

 
275,526

2018
 
73,096

 
137,969

 
211,065

 
300,000

 
511,065

2019
 
247,796

 
67,700

 
315,496

 
6,349

 
321,845

2020
 
170,664

 
—

 
170,664

 
370,000

 
540,664

2021
 
—

 
—

 
—

 
350,000

 
350,000

2022
 
—

 
—

 
—

 
400,000

 
400,000

2023
 
—

 
96,409

 
96,409

 
—

 
96,409

2024
 
—

 
—

 
—

 
315,644

 
315,644

2025
 
127,600

 
—

 
127,600

 
300,000

 
427,600

Thereafter
 
—

 
27,000

 
27,000

 
—

 
27,000

Subtotal
 
945,198

 
425,415

 
1,370,613

 
2,053,673

 
3,424,286

Non-cash (a)
 
5,236

 
(1,179
)
 
4,057

 
(16,518
)
 
(12,461
)
Total
 
$
950,434

 
$
424,236

 
$
1,374,670

 
$
2,037,155

 
$
3,411,825

(a) Includes the unamortized balance of fair market value adjustments, premiums/discounts, deferred hedge gains, and deferred financing costs. For the three months ended March 31, 2016 and 2015, the Company amortized $1.3 million and $1.5 million, respectively, of deferred financing costs into Interest expense.
We were in compliance with the covenants of our debt instruments at March 31, 2016.


19
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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2016



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
 
March 31,
 
2016
 
2015
Numerator for income/(loss) per share:
 
 
 
Income/(loss) from continuing operations
$
8,534

 
$
76,417

Gain/(loss) on sale of real estate owned, net of tax
3,070

 
—

Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership
(905
)
 
(2,588
)
Net (income)/loss attributable to noncontrolling interests
(306
)
 
(7
)
Net income/(loss) attributable to UDR, Inc.
10,393

 
73,822

Distributions to preferred stockholders — Series E (Convertible)
(929
)
 
(931
)
Income/(loss) attributable to common stockholders - basic and diluted
$
9,464

 
$
72,891

 
 
 
 
Denominator for income/(loss) per share:
 
 
 
Weighted average common shares outstanding
263,355

 
258,100

Non-vested restricted stock awards
(899
)
 
(1,266
)
Denominator for basic income/(loss) per share
262,456

 
256,834

Incremental shares issuable from assumed conversion of stock options, unvested LTIP Units, and unvested restricted stock
1,829

 
1,828

Denominator for diluted income/(loss) per share
264,285

 
258,662

 
 
 
 
Income/(loss) per weighted average common share - basic:
$
0.04

 
$
0.28

Income/(loss) per weighted average common share - diluted:
$
0.04

 
$
0.28

Basic income/(loss) per common share is computed based upon the weighted average number of common shares outstanding. Diluted income/(loss) per common share is computed based upon the weighted average number of common shares outstanding plus the common shares issuable from the assumed conversion of the OP Units and DownREIT Units, convertible preferred stock, stock options, unvested long-term incentive plan units ("LTIP Units") and unvested 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. For the three months ended March 31, 2016 and 2015, the Company's Series E preferred stock was anti-dilutive.

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 months ended March 31, 2016 and 2015 (shares in thousands):
 
Three Months Ended
 
March 31,
 
2016
 
2015
OP/DownREIT Units
25,191

 
9,165

Preferred stock
3,028

 
3,036

Stock options, unvested LTIP Units and unvested restricted stock
1,829

 
1,828


20
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2016



8. NONCONTROLLING INTERESTS
Redeemable Noncontrolling Interests in the Operating Partnership and DownREIT Partnership
Interests in the Operating Partnership and the DownREIT Partnership held by limited partners are represented by OP Units and DownREIT Units, respectively. The income is allocated to holders of OP Units/DownREIT Units based upon net income attributable to common stockholders and the weighted average number of OP Units/DownREIT Units outstanding to total common shares plus OP Units/DownREIT Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to noncontrolling interests in accordance with the terms of the partnership agreements of the Operating Partnership and the DownREIT Partnership.
Limited partners of the Operating Partnership and the DownREIT Partnership have the right to require such partnership to redeem all or a portion of the OP Units/DownREIT Units held by the limited partner at a redemption price equal to and in the form of the Cash Amount (as defined in the partnership agreement of the Operating Partnership or the DownREIT Partnership, as applicable), provided that such OP Units/DownREIT Units have been outstanding for at least one year. UDR, as the general partner of the Operating Partnership and the DownREIT Partnership may, in its sole discretion, purchase the OP Units/DownREIT Units by paying to the limited partner either the Cash Amount or the REIT Share Amount (generally one share of common stock of the Company for each OP Unit/DownREIT Unit), as defined in the partnership agreement of the Operating Partnership or the DownREIT Partnership, as applicable. Accordingly, the Company records the OP Units and DownREIT Units outside of permanent equity and reports the OP Units and DownREIT Units at their redemption value using the Company’s stock price at each balance sheet date.
The following table sets forth redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership for the following period (dollars in thousands):
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership, December 31, 2015
$
946,436

Mark-to-market adjustment to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership
31,330

Net income/(loss) attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership
905

Distributions to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership
(7,532
)
Allocation of other comprehensive income/(loss)
(519
)
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership, March 31, 2016
$
970,620


The following sets forth net income/(loss) attributable to common stockholders and transfers from redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership for the following periods (dollars in thousands):
 
Three Months Ended
 
March 31,
 
2016
 
2015
Net income/(loss) attributable to common stockholders
$
9,464

 
$
72,891

Conversion of OP Units and DownREIT Units to UDR Common stock
—

 
17

Change in equity from net income/(loss) attributable to common stockholders and conversion of OP Units and DownREIT Units to UDR Common Stock
$
9,464

 
$
72,908

Noncontrolling Interests
Noncontrolling interests represent interests of unrelated partners and unvested LTIP Units in certain consolidated affiliates. Net (income)/loss attributable to noncontrolling interests was $(0.3) million and less than $(0.1) million during the three months ended March 31, 2016 and 2015, respectively.

21
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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2016



The Company grants LTIP Units to certain employees and non-employee directors. The LTIP Units represent an ownership interest in the Operating Partnership and have vesting terms of between one and three years, specific to the individual grants.
Noncontrolling interests related to long-term incentive plan units represent the unvested LTIP Units of these employees and non-employee directors in the Operating Partnership. The net income/(loss) allocated to the LTIP Units is included in Net (income)/loss attributable to noncontrolling interests on the Consolidated Statements of Operations.
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.

22
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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2016



The estimated fair values of the Company’s financial instruments either recorded or disclosed on a recurring basis as of March 31, 2016 and December 31, 2015 are summarized as follows (dollars in thousands):
 
 
 
 
 
Fair Value at March 31, 2016, Using
 
Total Carrying Amount in Statement of Financial Position at March 31, 2016
 
Fair Value Estimate at March 31, 2016
 
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)
$
16,694

 
$
16,878

 
$
—

 
$
—

 
$
16,878

Derivatives - Interest rate contracts (b)
11

 
11

 
—

 
11

 
—

Total assets
$
16,705

 
$
16,889

 
$
—

 
$
11

 
$
16,878

 
 
 
 
 
 
 
 
 
 
Derivatives - Interest rate contracts (b)
$
2,261

 
$
2,261

 
$
—

 
$
2,261

 
$
—

Secured debt instruments - fixed rate: (c)
 
 
 
 
 
 
 
 
 
Mortgage notes payable
440,714

 
450,597

 
—

 
—

 
450,597

Fannie Mae credit facilities
513,518

 
540,251

 
—

 
—

 
540,251

Secured debt instruments - variable rate: (c)
 
 
 
 
 
 
 
 
 
Mortgage notes payable
31,337

 
31,337

 
—

 
—

 
31,337

Tax-exempt secured notes payable
94,700

 
94,700

 
—

 
—

 
94,700

Fannie Mae credit facilities
299,378

 
299,378

 
—

 
—

 
299,378

Unsecured debt instruments: (c)
 
 
 
 
 
 
 
 
 
Commercial bank
76,348

 
76,348

 
—

 
—

 
76,348

Senior unsecured notes
1,972,943

 
2,077,097

 
—

 
—

 
2,077,097

Total liabilities
$
3,431,199

 
$
3,571,969

 
$
—

 
$
2,261

 
$
3,569,708

 
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Parthership (d)
$
970,620

 
$
970,620

 
$
—

 
$
970,620

 
$
—


23
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2016



 
 
 
 
 
Fair Value at December 31, 2015, Using
 
Total Carrying Amount in Statement of Financial Position at December 31, 2015
 
Fair Value Estimate at December 31, 2015
 
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)
$
16,694

 
$
16,938

 
$
—

 
$
—

 
$
16,938

Derivatives - Interest rate contracts (b)
13

 
13

 
—

 
13

 
—

Total assets
$
16,707

 
$
16,951

 
$
—

 
$
13

 
$
16,938

 
 
 
 
 
 
 
 
 
 
Derivatives- Interest rate contracts (b)
$
2,112

 
$
2,112

 
$
—

 
$
2,112

 
$
—

Secured debt instruments - fixed rate: (c)
 
 
 
 
 
 
 
 
 
Mortgage notes payable
442,617

 
448,019

 
—

 
—

 
448,019

Fannie Mae credit facilities
514,462

 
539,050

 
—

 
—

 
539,050

Secured debt instruments - variable rate: (c)
 
 
 

 
 
 
 
 
 
Mortgage notes payable
31,337

 
31,337

 
—

 
—

 
31,337

Tax-exempt secured notes payable
94,700

 
94,700

 
—

 
—

 
94,700

Fannie Mae credit facilities
299,378

 
299,378

 
—

 
—

 
299,378

Unsecured debt instruments: (c)
 
 
 
 
 
 
 
 
 
Commercial bank
150,000

 
150,000

 
—

 
—

 
150,000

Senior unsecured notes
2,056,223

 
2,108,687

 
—

 
—

 
2,108,687

Total liabilities
$
3,590,829

 
$
3,673,283

 
$
—

 
$
2,112

 
$
3,671,171

 
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership (d)
$
946,436

 
$
946,436

 
$
—

 
$
946,436

 
$
—


(a)See Note 2, Significant Accounting Policies.
(b)See Note 10, Derivatives and Hedging Activity.
(c)See Note 6, Secured and Unsecured Debt.
(d)See Note 8, Noncontrolling Interests.

There were no transfers into or out of each of the levels of the fair value hierarchy.
Financial Instruments Carried at Fair Value
The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The fair values of interest rate options are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.
The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

24
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2016



Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2016 and December 31, 2015, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. In conjunction with the FASB’s fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership have a redemption feature and are marked to their redemption value. The redemption value is based on the fair value of the Company’s common stock at the redemption date, and therefore, is calculated based on the fair value of the Company’s common stock at the balance sheet date. Since the valuation is based on observable inputs such as quoted prices for similar instruments in active markets, redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership are classified as Level 2.
Financial Instruments Not Carried at Fair Value
At March 31, 2016 and December 31, 2015, the fair values of cash and cash equivalents, restricted cash, accounts receivable, prepaids, real estate taxes payable, accrued interest payable, security deposits and prepaid rent, distributions payable and accounts payable approximated their carrying values because of the short term nature of these instruments. The estimated fair values of other financial instruments were determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company would realize on the disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts.
We estimate the fair value of our notes receivable and debt instruments by discounting the remaining cash flows of the debt instrument at a discount rate equal to the replacement market credit spread plus the corresponding treasury yields. Factors considered in determining a replacement market credit spread include general market conditions, borrower specific credit spreads, time remaining to maturity, loan-to-value ratios and collateral quality, where applicable (Level 3).
We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by the future operation and disposition of those assets are less than the net book value of those assets. Our cash flow estimates are based upon historical results adjusted to reflect our best estimate of future market and operating conditions and our estimated holding periods. The net book value of impaired assets is reduced to fair value. Our estimates of fair value represent our best estimate based upon Level 3 inputs such as industry trends and reference to market rates and transactions.
We consider various factors to determine if a decrease in the value of our investment in and advances to unconsolidated joint ventures, net is other-than-temporary. These factors include, but are not limited to, age of the venture, our intent and ability to retain our investment in the entity, the financial condition and long-term prospects of the entity, and the relationships with the other joint venture partners and its lenders. Based on the significance of the unobservable inputs, we classify these fair value measurements within Level 3 of the valuation hierarchy. The Company did not incur any other-than-temporary decrease in the value of its investments in unconsolidated joint ventures during the three months ended March 31, 2016 and 2015.
After determining an other-than-temporary decrease in the value of an equity method investment has occurred, we estimate the fair value of our investment by estimating the proceeds we would receive upon a hypothetical liquidation of the investment at the date of measurement. Inputs reflect management’s best estimate of what market participants would use in pricing the investment giving consideration to the terms of the joint venture agreement and the estimated discounted future cash flows to be generated from the underlying joint venture assets. The inputs and assumptions utilized to estimate the future cash flows of the underlying assets are based upon the Company’s evaluation of the economy, market trends, operating results, and other factors, including judgments regarding costs to complete any construction activities, lease up and occupancy rates, rental rates, inflation rates, capitalization rates utilized to estimate the projected cash flows at the disposition, and discount rates.

25
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2016



10. DERIVATIVES AND HEDGING ACTIVITY
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and through the use of derivative financial instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated other comprehensive income/(loss), net in the Consolidated Balance Sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three months ended March 31, 2016 and 2015, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three months ended March 31, 2016 and 2015, the Company recorded no ineffectiveness to earnings.
Amounts reported in Accumulated other comprehensive income/(loss), net in the Consolidated Balance Sheets related to derivatives that will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. Through March 31, 2017, the Company estimates that an additional $3.4 million will be reclassified as an increase to interest expense.
As of March 31, 2016, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollars in thousands):
Interest Rate Derivative
 
Number of Instruments
 
Notional
Interest rate swaps
 
3
 
$
315,000

Interest rate caps
 
2
 
$
203,166

Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of GAAP. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted in an adjustment to earnings of less than $0.1 million for the three months ended March 31, 2016 and 2015.
As of March 31, 2016, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollars in thousands):
Product
 
Number of Instruments
 
Notional
Interest rate caps
 
3
 
$
133,107



26
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
MARCH 31, 2016



Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet
The tables below present the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015 (dollars in thousands):
 
Asset Derivatives
(included in Other assets)
 
Liability Derivatives
(included in Other liabilities)
 
Fair Value at:
 
Fair Value at:
 
March 31,
2016
 
December 31,
2015
 
March 31,
2016
 
December 31,
2015
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Interest rate products
$
7

 
9

 
$
2,261

 
$
2,112

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
Interest rate products
$
4

 
$
4

 
$
—

 
$
—

Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statements of Operations
The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015 (dollars in thousands):
Derivatives in Cash Flow Hedging Relationships
 
Unrealized holding gain/(loss) Recognized in OCI
(Effective Portion)
 
Gain/(Loss) Reclassified from Accumulated OCI into Interest expense 
(Effective Portion)
 
Gain/(Loss) Recognized in Interest expense (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Three Months Ended March 31,
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate products
 
$
(811
)
 
$
(7,552
)
 
$
(935
)
 
$
(737
)