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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, 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 October 24, 2016 was 267,248,398.

Table of Contents

UDR, INC.
UNITED DOMINION REALTY, L.P.
INDEX
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 4. Mine Safety Disclosures
 
 
 
 
 
 
 
 
Exhibit 4.1
 
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, 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 September 30, 2016, UDR owned 110,883 units (100%) of the general partnership interests of the Operating Partnership and 174,116,596 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,
2016
 
December 31,
2015
 
(unaudited)
 
(audited)
ASSETS
 
 
 
Real estate owned:
 
 
 
Real estate held for investment
$
8,984,369

 
$
9,053,599

Less: accumulated depreciation
(2,849,902
)
 
(2,646,044
)
Real estate held for investment, net
6,134,467

 
6,407,555

Real estate under development (net of accumulated depreciation of $0 and $0, respectively)
294,844

 
124,072

Real estate held for disposition (net of accumulated depreciation of $91,435 and $830, respectively)
51,052

 
11,775

Total real estate owned, net of accumulated depreciation
6,480,363

 
6,543,402

Cash and cash equivalents
3,301

 
6,742

Restricted cash
21,233

 
20,798

Funds held in escrow from Internal Revenue Code Section 1031 exchanges
87,162

 
—

Notes receivable, net
19,694

 
16,694

Investment in and advances to unconsolidated joint ventures, net
917,941

 
938,906

Other assets
121,475

 
137,302

Total assets
$
7,651,169

 
$
7,663,844

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Liabilities:
 
 
 
Secured debt, net
$
1,048,993

 
$
1,376,945

Unsecured debt, net
2,495,397

 
2,193,850

Real estate taxes payable
36,030

 
18,786

Accrued interest payable
28,135

 
29,162

Security deposits and prepaid rent
37,300

 
36,330

Distributions payable
86,959

 
80,368

Accounts payable, accrued expenses, and other liabilities
91,601

 
81,356

Total liabilities
3,824,415

 
3,816,797

 
 
 
 
Commitments and contingencies (Note 12)
 
 
 
 
 
 
 
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership
900,756

 
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 September 30, 2016 and December 31, 2015
46,457

 
46,457

Series F; 16,291,246 and 16,452,496 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively
1

 
1

Common stock, $0.01 par value; 350,000,000 shares authorized:
 
 
 
267,222,186 and 261,844,521 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively
2,672

 
2,618

Additional paid-in capital
4,631,539

 
4,447,816

Distributions in excess of net income
(1,746,617
)
 
(1,584,459
)
Accumulated other comprehensive income/(loss), net
(11,146
)
 
(12,678
)
Total stockholders’ equity
2,922,906

 
2,899,755

Noncontrolling interests
3,092

 
856

Total equity
2,925,998

 
2,900,611

Total liabilities and equity
$
7,651,169

 
$
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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
REVENUES:
 
 
 
 
 
 
 
Rental income
$
240,255

 
$
217,765

 
$
708,380

 
$
637,576

Joint venture management and other fees
2,997

 
3,653

 
8,473

 
19,457

Total revenues
243,252

 
221,418

 
716,853

 
657,033

OPERATING EXPENSES:
 
 
 
 
 
 
 
Property operating and maintenance
41,852

 
39,478

 
119,872

 
113,922

Real estate taxes and insurance
28,047

 
24,722

 
86,703

 
76,082

Property management
6,607

 
5,988

 
19,480

 
17,533

Other operating expenses
1,636

 
2,639

 
5,280

 
6,174

Real estate depreciation and amortization
105,802

 
90,568

 
317,078

 
269,689

General and administrative
11,826

 
15,824

 
36,505

 
41,697

Casualty-related charges/(recoveries), net
205

 
541

 
1,834

 
2,380

Other depreciation and amortization
1,526

 
1,457

 
4,565

 
4,780

Total operating expenses
197,501

 
181,217

 
591,317

 
532,257

Operating income
45,751

 
40,201

 
125,536

 
124,776

Income/(loss) from unconsolidated entities
15,285

 
2,691

 
16,289

 
61,277

Interest expense
(31,954
)
 
(30,232
)
 
(93,736
)
 
(88,705
)
Interest income and other income/(expense), net
478

 
402

 
1,449

 
1,144

Income/(loss) before income taxes and gain/(loss) on sale of real estate owned
29,560

 
13,062

 
49,538

 
98,492

Tax benefit/(provision), net
(94
)
 
633

 
711

 
2,462

Income/(loss) from continuing operations
29,466

 
13,695

 
50,249

 
100,954

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

 
—

 
10,385

 
79,042

Net income/(loss)
29,466

 
13,695

 
60,634

 
179,996

Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership
(2,459
)
 
(405
)
 
(4,974
)
 
(6,022
)
Net (income)/loss attributable to noncontrolling interests
(51
)
 
1

 
(365
)
 
(6
)
Net income/(loss) attributable to UDR, Inc.
26,956

 
13,291

 
55,295

 
173,968

Distributions to preferred stockholders — Series E (Convertible)
(929
)
 
(930
)
 
(2,787
)
 
(2,792
)
Net income/(loss) attributable to common stockholders
$
26,027

 
$
12,361

 
$
52,508

 
$
171,176

 
 
 
 
 
 
 
 
Common distributions declared per share
$
0.2950

 
$
0.2775

 
$
0.8850

 
$
0.8325

 
 
 
 
 
 
 
 
Income/(loss) per weighted average common share:
 
 
 
 
 
 
 
Basic
$
0.10

 
$
0.05

 
$
0.20

 
$
0.66

Diluted
$
0.10

 
$
0.05

 
$
0.20

 
$
0.66

 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
266,301

 
259,114

 
265,013

 
257,940

Diluted
268,305

 
261,207

 
266,925

 
260,020

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,
 
2016
 
2015
 
2016
 
2015
Net income/(loss)
$
29,466

 
$
13,695

 
$
60,634

 
$
179,996

Other comprehensive income/(loss), including portion attributable to noncontrolling interests:
 
 
 
 
 
 
 
Other comprehensive income/(loss) - derivative instruments:
 
 
 
 
 
 
 
Unrealized holding gain/(loss)
1,090

 
(5,707
)
 
(1,684
)
 
(7,072
)
(Gain)/loss reclassified into earnings from other comprehensive income/(loss)
914

 
536

 
2,792

 
1,565

Other comprehensive income/(loss), including portion attributable to noncontrolling interests
2,004

 
(5,171
)
 
1,108

 
(5,507
)
Comprehensive income/(loss)
31,470

 
8,524

 
61,742

 
174,489

Comprehensive (income)/loss attributable to noncontrolling interests
(2,686
)
 
(230
)
 
(4,915
)
 
(5,853
)
Comprehensive income/(loss) attributable to UDR, Inc.
$
28,784

 
$
8,294

 
$
56,827

 
$
168,636


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.
—

 
—

 
—

 
55,295

 
—

 
—

 
55,295

Net income/(loss) attributable to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
310

 
310

Disposition of noncontrolling interests in consolidated real estate
—

 
—

 
—

 
—

 
—

 
(1,155
)
 
(1,155
)
Contribution of noncontrolling interests in consolidated real estate
—

 
—

 
—

 
—

 
—

 
102

 
102

Long-Term Incentive Plan Unit grants
—

 
—

 
—

 
—

 
—

 
2,979

 
2,979

Other comprehensive income/(loss)
—

 
—

 
—

 
—

 
1,532

 
—

 
1,532

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

 
2

 
4,563

 
—

 
—

 
—

 
4,565

Issuance of common shares through public offering
—

 
50

 
173,188

 
—

 
—

 
—

 
173,238

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

 
2

 
5,972

 
—

 
—

 
—

 
5,974

Common stock distributions declared ($0.8850 per share)
—

 
—

 
—

 
(236,262
)
 
—

 
—

 
(236,262
)
Preferred stock distributions declared-Series E ($0.9966 per share)
—

 
—

 
—

 
(2,787
)
 
—

 
—

 
(2,787
)
Adjustment to reflect redemption value of redeemable noncontrolling interests
—

 
—

 
—

 
21,596

 
—

 
—

 
21,596

Balance at September 30, 2016
$
46,458

 
$
2,672

 
$
4,631,539

 
$
(1,746,617
)
 
$
(11,146
)
 
$
3,092

 
$
2,925,998

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,
 
2016
 
2015
Operating Activities
 
 
 
Net income/(loss)
$
60,634

 
$
179,996

Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
 
 
Depreciation and amortization
321,643

 
274,469

(Gain)/loss on sale of real estate owned, net of tax
(10,385
)
 
(79,042
)
Tax (benefit)/provision, net
(711
)
 
(2,462
)
(Income)/loss from unconsolidated entities
(16,289
)
 
(61,277
)
Amortization of share-based compensation
10,536

 
14,439

Other
26,914

 
5,780

Changes in operating assets and liabilities:
 
 
 
(Increase)/decrease in operating assets
(10,594
)
 
(10,026
)
Increase/(decrease) in operating liabilities
1,374

 
(16,075
)
Net cash provided by/(used in) operating activities
383,122

 
305,802

 
 
 
 
Investing Activities
 
 
 
Acquisition of real estate assets
(23,003
)
 
—

Proceeds from sale of real estate investments, net
21,901

 
90,543

Development of real estate assets
(136,555
)
 
(91,385
)
Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement
(59,729
)
 
(80,119
)
Capital expenditures — non-real estate assets
(4,447
)
 
(2,684
)
Investment in unconsolidated joint ventures
(29,832
)
 
(195,607
)
Distributions received from unconsolidated joint ventures
32,472

 
53,185

Transfers to escrow for Internal Revenue Code Section 1031 exchanges
(69,409
)
 
—

Purchase deposits on pending acquisitions
—

 
(1,000
)
(Issuance)/repayment of notes receivable
(3,000
)
 
(1,125
)
Net cash provided by/(used in) investing activities
(271,602
)
 
(228,192
)
 
 
 
 
Financing Activities
 
 
 
Payments on secured debt
(352,814
)
 
(6,861
)
Proceeds from the issuance of secured debt
25,000

 
—

Payments on unsecured debt
(95,053
)
 
(325,429
)
Proceeds from the issuance of unsecured debt
300,000

 
299,310

Net proceeds/(repayment) of revolving bank debt
96,925

 
(42,500
)
Proceeds from the issuance of common shares through public offering, net
173,238

 
210,131

Distributions paid to redeemable noncontrolling interests
(22,179
)
 
(7,761
)
Distributions paid to preferred stockholders
(2,783
)
 
(2,792
)
Distributions paid to common stockholders
(230,094
)
 
(210,458
)
Other
(7,201
)
 
(5,153
)
Net cash provided by/(used in) financing activities
(114,961
)
 
(91,513
)
Net increase/(decrease) in cash and cash equivalents
(3,441
)
 
(13,903
)
Cash and cash equivalents, beginning of period
6,742

 
15,224

Cash and cash equivalents, end of period
$
3,301

 
$
1,321

 
 
 
 
 
Nine Months Ended
 
September 30,
 
2016
 
2015
Supplemental Information:
 
 
 
Interest paid during the period, net of amounts capitalized
$
95,808

 
$
101,618

 
 
 
 
Non-cash transactions:
 
 
 
Transfer of investment in and advances to unconsolidated joint ventures to real estate owned
$
14,849

 
$
—

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
44,564

 
13,922

Conversion of Operating Partnership and DownREIT Partnership noncontrolling interest to common stock (163,330 shares in 2016 and 112,174 shares in 2015)
5,974

 
3,818

See accompanying notes to consolidated financial statements.

8
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 September 30, 2016, there were 183,278,698 units in the Operating Partnership outstanding, of which 174,227,479 units, or 95.1%, were owned by UDR and 9,051,219 units, or 4.9%, were owned by limited partners. As of September 30, 2016, there were 32,367,380 units in the DownREIT Partnership (“DownREIT Units”) outstanding, of which 16,390,657, or 50.6%, were owned by UDR (of which, 13,470,651, or 41.6%, were held by the Operating Partnership) and 15,976,723, or 49.4%, 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 September 30, 2016, and results of operations for the three and nine months ended September 30, 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 other than those in Note 3, Real Estate Owned, and Note 5, Joint Ventures and Partnerships.
2. SIGNIFICANT ACCOUNTING POLICIES
Recent Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. The ASU addresses specific cash flow items with the objective of reducing existing diversity in practice, including the treatment of distributions received from equity method investees. The updated standard will be effective for the Company on January 1, 2018 and must be applied retrospectively to all periods presented; early adoption is permitted. The Company does not expect the updated standard to have a material impact on the consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The standard requires entities to estimate a lifetime expected credit loss for most financial assets, including trade and other receivables, held-to-maturity debt securities, loans and other financial instruments, and to present the net amount of the financial instrument expected to be collected. The updated standard will be effective for the

9
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2016



Company on January 1, 2020; early adoption is permitted on January 1, 2019. The Company is currently evaluating the effect that the updated standard will have on the consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. The ASU aims to simplify the accounting for share-based payments by amending the accounting for forfeitures, statutory tax withholding requirements, classification in the statements of cash flow and income taxes. The updated standard will be effective for the Company on January 1, 2017, with early adoption permitted. The update requires a prospective, retrospective or modified retrospective approach, depending on the type of amendment. The Company does not expect the updated standard to have a material impact on the consolidated financial statements and related disclosures.

In February 2016, the FASB issued 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.

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.

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.
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.

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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2016



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.
Notes Receivable

The following table summarizes our notes receivable, net as of September 30, 2016 and December 31, 2015 (dollars in thousands):
 
Interest rate at
 
Balance outstanding
 
September 30,
2016
 
September 30,
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

Note due April 2021 (d)
10.00
%
 
3,000

 
—

Total notes receivable, net
 
 
$
19,694

 
$
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).

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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2016



(d) In April 2016, the Company entered into a secured note receivable with an unaffiliated third party with an aggregate commitment of $15.0 million. During the nine months ended September 30, 2016, the Company loaned $3.0 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 $25.0 million or greater; (b) an acquisition; (c) acceleration in the event of default; or (d) the fifth anniversary of the date of the note (April 2021).
The Company recognized $0.5 million and $0.4 million of interest income from notes receivable during the three months ended September 30, 2016 and 2015, respectively, and $1.3 million and $1.1 million during the nine months ended September 30, 2016 and 2015, 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, 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 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, 2016, UDR’s net deferred tax asset was $8.5 million (net of a valuation allowance of $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, 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 2013 through 2015 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.

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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2016



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 September 30, 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 September 30, 2016 and December 31, 2015 (dollars in thousands):
 
September 30,
2016
 
December 31, 2015
Land
$
1,787,256

 
$
1,833,156

Depreciable property — held and used:
 
 
 
Land Improvements
175,081

 
173,821

Building, improvements, and furniture, fixtures and equipment
7,022,032

 
7,046,622

Under development:
 
 
 
Land and land improvements
111,028

 
78,085

Building, improvements, and furniture, fixtures and equipment
183,816

 
45,987

Real estate held for disposition:
 
 
 
Land and land improvements
21,526

 
9,963

Building, improvements, and furniture, fixtures and equipment
120,961

 
2,642

Real estate owned
9,421,700

 
9,190,276

Accumulated depreciation
(2,941,337
)
 
(2,646,874
)
Real estate owned, net
$
6,480,363

 
$
6,543,402


In June 2016, the Company increased its ownership interest from 50% to 100% in a parcel of land in Los Angeles, California for a purchase price of approximately $20.1 million, including closing costs. As a result, the Company consolidated the parcel of land. UDR had previously accounted for its 50% interest in the parcel of land as an unconsolidated joint venture (see Note 5, Joint Ventures and Partnerships). We accounted for the consolidation as an asset acquisition resulting in no gain or loss upon consolidation and increased our real estate owned by $31.1 million. Subsequent to the acquisition, the Company entered into a triple-net operating ground lease for the parcel of land at market terms with a third-party developer. The lessee plans to construct a multi-family community on the parcel of land. The ground lease provides the ground lessee with options to buy the fee interest in the parcel of land. The lease term is 49 years plus two 25-year extension options, does not transfer ownership to the lessee, and does not include a bargain purchase option.

In August 2016, the Company increased its ownership interest from 5% to 100% in a parcel of land in Dublin, California for a purchase price of approximately $8.5 million, including closing costs. As a result, the Company consolidated the parcel of land. UDR had previously accounted for its 5% interest in the parcel of land as an unconsolidated joint venture (see Note 5, Joint Ventures and Partnerships). We accounted for the consolidation as an asset acquisition resulting in no gain or loss upon consolidation and increased our real estate owned by $8.9 million.

In September 2016, the Company entered into agreements to sell seven operating communities with a total of 1,402 apartment homes for a sales price of approximately $236.0 million. The operating communities were classified as held for disposition as of September 30, 2016 and the sales are expected to close in the fourth quarter of 2016.     

On October 3, 2016, the Company increased its ownership from 50% to 100% in two operating communities located in Bellevue, Washington with a total of 331 apartment homes for a cash purchase price of approximately $70.3 million, including closing costs, and assumed secured debt of $75.8 million with a weighted average interest rate of 3.67%. As a result, as of October 3, 2016, the Company consolidated the operating communities. As of September 30, 2016, UDR accounted for its 50% interest as an unconsolidated joint venture (see Note 5, Joint Ventures and Partnerships). We accounted for the consolidation as a business combination resulting in a projected gain on consolidation of approximately $34.0 million. Prior to September 30, 2016, as part of this acquisition, the Company funded $69.4 million, which is included in Funds held in escrow from Internal Revenue Code Section 1031 exchanges on the Consolidated Balance Sheets.


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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2016



During the nine months ended September 30, 2016, the Company sold a retail center in Bellevue, Washington and its 95% ownership interest in two parcels of land in Santa Monica, California for total gross proceeds of $69.4 million, resulting in total net proceeds of $66.1 million and a total gain, net of tax, of $10.4 million. A portion of the proceeds related to the sale of the retail center in Bellevue, Washington was designated for Internal Revenue Code ("IRC") Section 1031 exchanges. As of September 30, 2016, $17.8 million of these proceeds was included in Funds held in escrow from Internal Revenue Code Section 1031 exchanges on the Consolidated Balance Sheet.

On October 11, 2016, the Company entered into an agreement to sell an operating community with 380 apartment homes for a sales price of approximately $48.6 million. The sale is expected to close in the fourth quarter of 2016.

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 $1.0 million and $1.7 million for the three months ended September 30, 2016 and 2015, respectively, and $5.7 million and $5.5 million for the nine months ended September 30, 2016 and 2015, respectively. Total interest capitalized was $4.1 million and $3.6 million for the three months ended September 30, 2016 and 2015, respectively, and $12.1 million and $12.2 million for the nine months ended September 30, 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.

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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2016



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.
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, 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
 
 
September 30,
2016
 
September 30,
2016
 
September 30,
2016
 
December 31,
2015
 
September 30,
2016
 
December 31,
2015
Operating and development:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UDR/MetLife I (a)
 
Los Angeles, CA
 
1 development community (b);
 
150
 
$
20,017

 
$
15,894

 
50.0
%
 
17.2
%
UDR/MetLife II (c)
 
Various
 
20 operating communities
 
4,390
 
404,354

 
425,230

 
50.0
%
 
50.0
%
Other UDR/MetLife Development Joint Ventures (d)
 
 
 
1 operating community;
 
 
 
 
 
 
 
 
 
 
 
Various
 
4 development communities (b)
 
1,437
 
163,444

 
171,659

 
50.6
%
 
50.6
%
UDR/MetLife Vitruvian Park®
 
Addison, TX
 
3 operating communities;
 
 
 
 
 
 
 
 
 
 
 
 
6 land parcels
 
1,130
 
71,759

 
73,469

 
50.0
%
 
50.0
%
UDR/KFH
 
Washington, D.C.
 
3 operating communities
 
660
 
13,984

 
17,211

 
30.0
%
 
30.0
%
Investment in and advances to unconsolidated joint ventures, net, before participating loan investment and preferred equity investment
 
 
 
673,558

 
703,463

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from Investment
 
 
 
 
 
 
 
 
Investment at
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
Location
 
Rate
 
Years To Maturity
 
September 30,
2016
 
December 31,
2015
 
2016
2015
 
2016
2015
Participating loan investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Steele Creek
 
Denver, CO
 
6.5%
 
0.8
 
93,964

 
90,747

 
$1,567
$1,458
 
$4,646
$3,964
Preferred equity investment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
West Coast Development Joint Venture (e)
 
Various
 
6.5% (e)
 
N/A
 
150,419

 
144,696

 
$1,476
$2,086
 
$4,674
$1,578
Total investment in and advances to unconsolidated joint ventures, net
 
$
917,941

 
$
938,906

 
 
 
 
 
 
(a)
In August 2016, the Company increased its ownership interest from 5% to 100% in a parcel of land in Dublin, California for a purchase price of approximately $8.5 million, including closing costs. As a result, the Company consolidated the parcel of land and it is no longer accounted for as an unconsolidated joint venture (see Note 3, Real Estate Owned). The parcel of land was previously held in the UDR/MetLife I joint venture.

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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2016



In August 2016, the Company sold its 3% and 6% interests in two parcels of land located in Los Angeles, California and Bellevue, Washington, respectively, to MetLife for a total sales price of approximately $3.0 million, including closing costs, resulting in a loss on sale to the Company of approximately $0.9 million. The parcels of land were previously held in the UDR/MetLife I joint venture and are no longer accounted for as unconsolidated joint ventures.
(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 September 30, 2016, 447 apartment homes had been completed in Other UDR/MetLife Development Joint Ventures, and no apartment homes had been completed in UDR/MetLife I.
(c)
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 and nine months ended September 30, 2016, the Company recorded a casualty gain of $4.6 million and $3.5 million, respectively, its proportionate share of the total gain recognized, as a result of insurance proceeds received.
In September 2016, the UDR/MetLife II joint venture sold an operating community located in Dallas, Texas with a total of 252 apartment homes for a sales price of approximately $74.7 million resulting in a net gain of approximately $11.5 million for the Company.
On October 3, 2016, the Company increased its ownership from 50% to 100% in two operating communities located in Bellevue, Washington with a total of 331 apartment homes for a cash purchase price of approximately $70.3 million, including closing costs, and assumed secured debt of $75.8 million with a weighted average interest rate of 3.67%. As a result, as of October 3, 2016, the Company consolidated the operating communities and they are no longer accounted for as unconsolidated joint ventures (see Note 3, Real Estate Owned). The operating communities were held in the UDR/MetLife II joint venture as of September 30, 2016.
(d)
In June 2016, the Company increased its ownership interest from 50% to 100% in a parcel of land in Los Angeles, California for a purchase price of approximately $20.1 million, including closing costs. As a result, the Company consolidated the parcel of land and it is no longer accounted for as an unconsolidated joint venture (see Note 3, Real Estate Owned). The parcel of land was previously held in Other/UDR MetLife Development Joint Ventures.
(e)
In September 2016, one of the five communities held by the West Coast Joint Venture achieved stabilization, which is defined as when a community reaches 80% occupancy for 90 consecutive days. Upon stabilization, income and expense are shared based on each partner's ownership percentage and the Company no longer receives a 6.5% preferred return on its investment in the stabilized community. The remaining four communities have not achieved stabilization and the Company continues to receive a 6.5% preferred return on its investment in those communities.
As of September 30, 2016 and December 31, 2015, the Company had deferred fees and deferred profit from the sale of properties to joint ventures or partnerships of $8.7 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.
The Company recognized management fees for our management of the joint ventures and partnerships of $3.0 million and $3.3 million for the three months ended September 30, 2016 and 2015, respectively, and $8.4 million and $8.5 million for the nine months ended September 30, 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

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UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2016



decreases in the value of its investments in unconsolidated joint ventures or partnerships during the three and nine months ended September 30, 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 September 30, 2016 and December 31, 2015 (dollars in thousands):
 
September 30,
2016
 
December 31, 2015
Total real estate, net
$
2,883,143

 
$
3,135,757

Assets held for sale
186,471

 
—

Cash and cash equivalents
30,980

 
36,480

Other assets
20,679

 
29,891

Total assets
$
3,121,273

 
$
3,202,128

 
 
 
 
Amount due to UDR
$
362

 
$
7,266

Third party debt
1,652,296

 
1,614,463

Liabilities held for sale
76,722

 
—

Accounts payable and accrued liabilities
68,534

 
95,523

Total liabilities
1,797,914

 
1,717,252

Total equity
1,323,359

 
1,484,876

Total liabilities and equity
$
3,121,273

 
$
3,202,128

Investment in and advances to unconsolidated joint ventures, net
$
917,941

 
$
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 and nine months ended September 30, 2016 and 2015 (dollars in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Total revenues
$
60,366

 
$
55,948

 
$
173,556

 
$
165,944

Property operating expenses
(16,309
)
 
(21,981
)
 
(62,703
)
 
(63,692
)
Real estate depreciation and amortization
(21,260
)
 
(18,272
)
 
(61,973
)
 
(57,026
)
Operating income/(loss)
22,797

 
15,695

 
48,880

 
45,226

Interest expense
(17,176
)
 
(16,310
)
 
(50,360
)
 
(48,540
)
Other income/(expense)
(10
)
 
(182
)
 
(14
)
 
(190
)
Gain/(loss) on sale of real estate
10,262

 
—

 
10,262

 
—

Income/(loss) from discontinued operations
—

 
(37
)
 
—

 
182,452

Net income/(loss)
$
15,873

 
$
(834
)
 
$
8,768

 
$
178,948

UDR income/(loss) from unconsolidated entities
$
15,285

 
$
2,691

 
$
16,289

 
$
61,277


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Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2016



6. SECURED AND UNSECURED DEBT, NET
The following is a summary of our secured and unsecured debt at September 30, 2016 and December 31, 2015 (dollars in thousands):
 
 
 
 
 
Nine Months Ended
 
Principal Outstanding
 
September 30, 2016
 
September 30,
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)
$
321,287

 
$
442,617

 
4.30
%
 
6.1

 
5

Fannie Mae credit facilities (b)
355,836

 
514,462

 
5.06
%
 
3.1

 
10

Deferred financing costs
(2,759
)
 
(4,278
)
 
 
 
 
 
 
Total fixed rate secured debt, net
674,364

 
952,801

 
4.70
%
 
4.5

 
15

Variable Rate Debt
 
 
 
 
 
 
 

 
 
Mortgage notes payable (c)
—

 
31,337

 
—
%
 
—

 
—

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

 
94,700

 
1.45
%
 
6.4

 
2

Fannie Mae credit facilities (b)
280,946

 
299,378

 
2.00
%
 
3.5

 
7

Deferred financing costs
(1,017
)
 
(1,271
)
 
 
 
 
 
 
Total variable rate secured debt, net
374,629

 
424,144

 
1.86
%
 
4.2

 
9

Total Secured Debt, net
1,048,993

 
1,376,945

 
3.68
%
 
4.4

 
24

 
 
 
 
 
 
 
 
 
 
Unsecured Debt:
 
 
 
 
 
 
 
 
 
Variable Rate Debt
 
 
 
 
 
 
 
 
 
Borrowings outstanding under an unsecured credit facility due January 2020 (e) (j)
180,000

 
150,000

 
1.43
%
 
3.3

 
 
Borrowings outstanding under an unsecured working capital credit facility due January 2019 (f)
66,925

 
—

 
1.43
%
 
2.3

 
 
Term Loan Facility due January 2021 (e) (j)
35,000

 
35,000

 
1.47
%
 
4.3

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

 
83,260

 
—
%
 
—

 
 
6.21% Term Notes due July 2016 (g)
—

 
12,091

 
—
%
 
—

 
 
4.25% Medium-Term Notes due June 2018 (net of discounts of $715 and $1,037, respectively) (j)
299,285

 
298,963

 
4.25
%
 
1.7

 
 
3.70% Medium-Term Notes due October 2020 (net of discounts of $32 and $38, respectively) (j)
299,968

 
299,962

 
3.70
%
 
4.0

 
 
2.23% Term Loan Facility due January 2021 (e) (j)
315,000

 
315,000

 
2.23
%
 
4.3

 
 
4.63% Medium-Term Notes due January 2022 (net of discounts of $1,895 and $2,164, respectively) (j)
398,105

 
397,836

 
4.63
%
 
5.3

 
 
3.75% Medium-Term Notes due July 2024 (net of discounts of $808 and $886, respectively) (j)
299,192

 
299,114

 
3.75
%
 
7.8

 
 
8.50% Debentures due September 2024
15,644

 
15,644

 
8.50
%
 
8.0

 
 
4.00% Medium-Term Notes due October 2025 (net of discounts of $619 and $671, respectively) (h) (j)
299,381

 
299,329

 
4.00
%
 
9.0

 
 
2.95% Medium-Term Notes due September 2026 (i) (j)
300,000

 
—

 
2.95
%
 
9.9

 
 
Other
22

 
24

 
 
 
 
 
 
Deferred financing costs
(13,125
)
 
(12,373
)
 
 
 
 
 
 
Total Unsecured Debt, net
2,495,397

 
2,193,850

 
3.52
%
 
5.7

 
 
Total Debt, net
$
3,544,390

 
$
3,570,795

 
3.66
%
 
5.3

 
 

18
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2016



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 September 30, 2016, secured debt encumbered $1.8 billion or 19.5% of UDR’s total real estate owned based upon gross book value ($7.6 billion or 80.5% of UDR’s real estate owned based on gross book value is unencumbered).
(a) At September 30, 2016, fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from February 2017 through June 2026 and carry interest rates ranging from 3.35% to 5.86%.
On June 1, 2016, the Company entered into a $25.0 million fixed rate mortgage note due June 5, 2026 with an interest rate of 3.35%. Interest is payable monthly beginning on July 5, 2016.
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 value 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 $0.6 million and $1.3 million during the three months ended September 30, 2016 and 2015, respectively, and $2.1 million and $3.7 million during the nine months ended September 30, 2016 and 2015, respectively. The unamortized fair market adjustment was a net premium of $7.8 million and $10.0 million at September 30, 2016 and December 31, 2015, respectively.
(b) UDR has three secured credit facilities with Fannie Mae with an aggregate commitment of $636.8 million at September 30, 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 September 30, 2016, $355.8 million of the outstanding balance was fixed and had a weighted average interest rate of 5.06% and the remaining balance of $280.9 million had a weighted average variable interest rate of 2.00%. The Company prepaid a portion of the secured credit facility due in May 2017 with a portion of the proceeds from the notes offering in August 2016, as described in (i) below.
Further information related to these credit facilities is as follows (dollars in thousands):
 
September 30,
2016
 
December 31, 2015
Borrowings outstanding
$
636,782

 
$
813,840

Weighted average borrowings during the period ended
771,475

 
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
3.7
%
 
3.9
%
(c) In July 2016, the Company paid off the $31.3 million variable rate mortgage note payable with borrowings under its $1.1 billion unsecured revolving credit facility.
(d) 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 ranging from 1.37% to 1.48% as of September 30, 2016.

(e) As of September 30, 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.     


19
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2016



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 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 September 30, 2016 and December 31, 2015 (dollars in thousands):
 
September 30,
2016
 
December 31, 2015
Total revolving credit facility
$
1,100,000

 
$
1,100,000

Borrowings outstanding at end of period (1)
180,000

 
150,000

Weighted average daily borrowings during the period ended
214,674

 
353,647

Maximum daily borrowings during the period ended
340,000

 
541,500

Weighted average interest rate during the period ended
1.4
%
 
1.1
%
Interest rate at end of the period
1.4
%
 
1.2
%
(1) Excludes $2.9 million and $2.3 million of letters of credit at September 30, 2016 and December 31, 2015, respectively.

(f) As of September 30, 2016, the Company has a working capital credit facility, which provides for a $75 million unsecured revolving credit facility (the “Working Capital Credit Facility”) with a scheduled maturity date of January 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.

In July 2016, the Company amended the working capital credit facility to increase the maximum borrowing capacity from $30 million to $75 million. The scheduled maturity date and interest rate were unchanged by the amendment.

The following is a summary of short-term bank borrowings under UDR’s working capital credit facility at September 30, 2016 and December 31, 2015 (dollars in thousands):
 
September 30,
2016
 
December 31, 2015
Total revolving working capital credit facility
$
75,000

 
$
30,000

Borrowings outstanding at end of period
66,925

 
—

Weighted average daily borrowings during the period ended
40,370

 
—

Maximum daily borrowings during the period ended
69,633

 
—

Weighted average interest rate during the period ended
1.4
%
 
—
%
Interest rate at end of the period
1.4
%
 
—
%

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

(h) 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%.


20
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2016



(i) On August 23, 2016, the Company issued $300 million of 2.95% senior unsecured medium-term notes due September 1, 2026. Interest is payable semi-annually beginning on March 1, 2017. The notes were priced at 100% of the principal amount at issuance. The Company used the net proceeds to prepay secured debt due in May 2017, pay down a portion of the borrowings outstanding on its $1.1 billion unsecured credit facility and for general corporate purposes.
    
(j) 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 ten calendar years subsequent to September 30, 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
 
$
829

 
$
—

 
$
829

 
$
—

 
$
829

2017
 
24,373

 
46,568

 
70,941

 
—

 
70,941

2018
 
73,096

 
137,969

 
211,065

 
300,000

 
511,065

2019
 
247,796

 
67,700

 
315,496

 
66,925

 
382,421

2020
 
170,664

 
—

 
170,664

 
480,000

 
650,664

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
 
25,000

 
27,000

 
52,000

 
300,000

 
352,000

Subtotal
 
669,358

 
375,646

 
1,045,004

 
2,512,569

 
3,557,573

Non-cash (a)
 
5,006

 
(1,017
)
 
3,989

 
(17,172
)
 
(13,183
)
Total
 
$
674,364

 
$
374,629

 
$
1,048,993

 
$
2,495,397

 
$
3,544,390

(a) Includes the unamortized balance of fair market value adjustments, premiums/discounts, deferred hedge gains, and deferred financing costs. For the three months ended September 30, 2016 and 2015, the Company amortized $1.0 million and $1.5 million, respectively, of deferred financing costs into Interest expense. For the nine months ended September 30, 2016 and 2015, the Company amortized $3.5 million and $4.6 million, respectively, of deferred financing costs into Interest expense.
We were in compliance with the covenants of our debt instruments at September 30, 2016.


21
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Numerator for income/(loss) per share:
 
 
 
 
 
 
 
Income/(loss) from continuing operations
$
29,466

 
$
13,695

 
$
50,249

 
$
100,954

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

 
—

 
10,385

 
79,042

Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership
(2,459
)
 
(405
)
 
(4,974
)
 
(6,022
)
Net (income)/loss attributable to noncontrolling interests
(51
)
 
1

 
(365
)
 
(6
)
Net income/(loss) attributable to UDR, Inc.
26,956

 
13,291

 
55,295

 
173,968

Distributions to preferred stockholders — Series E (Convertible)
(929
)
 
(930
)
 
(2,787
)
 
(2,792
)
Income/(loss) attributable to common stockholders - basic and diluted
$
26,027

 
$
12,361

 
$
52,508

 
$
171,176

 
 
 
 
 
 
 
 
Denominator for income/(loss) per share:
 
 
 
 
 
 
 
Weighted average common shares outstanding
267,081

 
260,302

 
265,854

 
259,151

Non-vested restricted stock awards
(780
)
 
(1,188
)
 
(841
)
 
(1,211
)
Denominator for basic income/(loss) per share
266,301

 
259,114

 
265,013

 
257,940

Incremental shares issuable from assumed conversion of stock options, unvested LTIP Units, and unvested restricted stock
2,004

 
2,093

 
1,912

 
2,080

Denominator for diluted income/(loss) per share
268,305

 
261,207

 
266,925

 
260,020

 
 
 
 
 
 
 
 
Income/(loss) per weighted average common share:
 
 
 
 
 
 
 
Basic
$
0.10

 
$
0.05

 
$
0.20

 
$
0.66

Diluted
$
0.10

 
$
0.05

 
$
0.20

 
$
0.66

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 and nine months ended September 30, 2016 and 2015, the Company's Series E preferred stock was anti-dilutive.


22
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2016



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, 2016 and 2015 (shares in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
OP/DownREIT Units
25,168

 
9,061

 
25,183

 
9,117

Preferred stock
3,028

 
3,029

 
3,028

 
3,033

Stock options, unvested LTIP Units and unvested restricted stock
2,004

 
2,093

 
1,912

 
2,080

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, subject to certain exceptions. 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
 
(21,596
)
Conversion of OP Units/DownREIT Units to Common Stock
 
(6,036
)
Net income/(loss) attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership
 
4,974

Distributions to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership
 
(22,598
)
Allocation of other comprehensive income/(loss)
 
(424
)
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership, September 30, 2016
 
$
900,756


23
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2016




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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Net income/(loss) attributable to common stockholders
$
26,027

 
$
12,361

 
$
52,508

 
$
171,176

Conversion of OP Units and DownREIT Units to UDR Common stock
5,955

 
320

 
6,036

 
3,818

Change in equity from net income/(loss) attributable to common stockholders and conversion of OP Units and DownREIT Units to UDR Common Stock
$
31,982

 
$
12,681

 
$
58,544

 
$
174,994

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 $(0.1) million and less than $0.1 million during the three months ended September 30, 2016 and 2015, respectively, and $(0.4) million and less than $(0.1) million during the nine months ended September 30, 2016 and 2015, respectively.
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.

24
Table of Contents
UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2016



The estimated fair values of the Company’s financial instruments either recorded or disclosed on a recurring basis as of September 30, 2016 and December 31, 2015 are summarized as follows (dollars in thousands):
 
 
 
 
 
Fair Value at September 30, 2016, Using
 
Total Carrying Amount in Statement of Financial Position at September 30, 2016
 
Fair Value Estimate at September 30, 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)
$
19,694

 
$
19,512

 
$
—

 
$
—

 
$
19,512

Derivatives - Interest rate contracts (b)
1

 
1

 
—

 
1

 
—

Total assets
$
19,695

 
$
19,513

 
$
—

 
$
1

 
$
19,512