UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-10524

UDR, Inc.

Maryland		54-0857512
(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)

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. Yes þ 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). Yes o 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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		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). Yes o No þ

The number of shares of the issuer’s common stock, $0.01 par value, outstanding as of August 4, 2009, was 150,557,442.

 

 

UDR, Inc.

INDEX

		PAGE
PART I — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 2009 (unaudited) and December 31, 2008 (audited)			3
Consolidated Statements of Operations for the three and six months ended June 30, 2009 and 2008 (unaudited)			4
Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008 (unaudited)			5
Consolidated Statement of Stockholders’ Equity and Comprehensive Income for the six months ended June 30, 2009 (unaudited)			6
Notes to Consolidated Financial Statements (unaudited)			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
Item 3. Quantitative and Qualitative Disclosures About Market Risk			43
Item 4. Controls and Procedures			44
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			45
Item 1A. Risk Factors			45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			54
Item 3. Defaults Upon Senior Securities			54
Item 4. Submission of Matters to a Vote of Security Holders			54
Item 5. Other Information			55
Item 6. Exhibits			55
Signatures			56
Exhibit 12
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I — FINANCIAL INFORMATION

Item 1.		FINANCIAL STATEMENTS

UDR, Inc.

		June 30,				December 31,
		2009				2008
		(Unaudited)				(Audited)
ASSETS
Real estate owned:
Real estate held for investment		$	5,720,069			$	5,644,930
Less: accumulated depreciation			(1,214,447	)			(1,078,637	)
			4,505,622				4,566,293
Real estate under development (net of accumulated depreciation of $1,123 and $52)			248,335				186,771
Total real estate owned, net of accumulated depreciation			4,753,957				4,753,064
Cash and cash equivalents			4,983				12,740
Marketable securities			33,979				—
Restricted cash			8,795				7,726
Deferred financing costs, net			26,561				29,168
Notes receivable			7,300				207,450
Investment in unconsolidated joint ventures			63,475				47,048
Other assets			71,848				85,842
Other assets — real estate held for disposition			—				767
Total assets		$	4,970,898			$	5,143,805
LIABILITIES AND STOCKHOLDERS’ EQUITY
Secured debt		$	1,729,290			$	1,462,471
Unsecured debt			1,484,659				1,798,662
Real estate taxes payable			18,665				14,035
Accrued interest payable			18,717				20,744
Security deposits and prepaid rent			30,843				28,829
Distributions payable			30,386				57,144
Deferred gains on the sale of depreciable property			28,835				28,845
Accounts payable, accrued expenses, and other liabilities			58,453				71,395
Other liabilities — real estate held for disposition			—				1,204
Total liabilities			3,399,848				3,483,329
Redeemable non-controlling interests in operating partnership			65,295				108,092
Stockholders’ equity
Preferred stock, no par value; 50,000,000 shares authorized
2,803,812 shares of 8.00% Series E Cumulative Convertible issued and outstanding (2,803,812 shares at December 31, 2008)			46,571				46,571
4,430,700 shares of 6.75% Series G Cumulative Redeemable issued and outstanding (4,430,700 shares at December 31, 2008)			110,768				110,768
Common stock, $0.01 par value; 250,000,000 shares authorized
150,557,442 shares issued and outstanding (148,781,115 shares at December 31, 2008)			1,506				1,488
Additional paid-in capital			1,871,525				1,850,871
Distributions in excess of net income			(522,945	)			(448,737	)
Accumulated other comprehensive loss, net			(5,112	)			(11,927	)
Total UDR, Inc. stockholders’ equity			1,502,313				1,549,034
Non-controlling interest			3,442				3,350
Total equity			1,505,755				1,552,384
Total liabilities and stockholders’ equity		$	4,970,898			$	5,143,805

See accompanying notes to consolidated financial statements.

UDR, Inc.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
REVENUES
Rental income		$	151,843			$	139,955			$	302,458			$	266,541
Non-property income:
Other income			3,958				6,690				8,982				11,317
Total Revenues		$	155,801			$	146,645			$	311,440			$	277,858
EXPENSES
Rental expenses:
Real estate taxes and insurance			18,843				16,180				38,863				28,674
Personnel			12,782				12,051				25,415				23,848
Utilities			7,350				6,821				15,717				13,904
Repair and maintenance			7,899				7,436				15,108				14,226
Administrative and marketing			3,584				3,863				6,917				7,149
Property management			4,176				3,849				8,318				7,330
Other operating expenses			1,769				1,026				3,265				2,030
Real estate depreciation and amortization			69,067				62,507				138,052				114,942
Interest
Expense incurred			35,376				38,015				71,885				78,521
Gain on debt extinguishment			(2,736	)			(1,333	)			(9,849	)			(6,072	)
Amortization of convertible debt premium			1,053				1,670				2,349				3,340
General and administrative			9,145				9,931				19,000				19,700
Other depreciation and amortization			1,478				944				2,872				1,873
Total Expenses			169,786				162,960				337,912				309,465
Loss from operations			(13,985	)			(16,315	)			(26,472	)			(31,607	)
Loss from unconsolidated entities			(728	)			(1,015	)			(1,445	)			(1,389	)
Tax benefit/(expense) for TRS			—				3,649				(51	)			4,914
Loss from continuing operations			(14,713	)			(13,681	)			(27,968	)			(28,082	)
Income from discontinued operations			2,053				13,316				1,885				800,172
Consolidated net (loss)/income			(12,660	)			(365	)			(26,083	)			772,090
Net loss/(income) attributable to non-controlling interests			602				(312	)			1,396				(49,048	)
Net (loss)/income attributable to UDR, Inc.			(12,058	)			(677	)			(24,687	)			723,042
Distributions to preferred stockholders — Series E (Convertible)			(931	)			(931	)			(1,862	)			(1,862	)
Distributions to preferred stockholders — Series G			(1,869	)			(2,278	)			(3,738	)			(4,556	)
Net (loss)/income available to common stockholders		$	(14,858	)		$	(3,886	)		$	(30,287	)		$	716,624
(Loss)/earnings per weighted average common share — basic and diluted:
Loss from continuing operations available to common stockholders		$	(0.11	)		$	(0.13	)		$	(0.21	)		$	( 0.60	)
Income from discontinued operations		$	0.01			$	0.10			$	0.01			$	5.71
Net (loss)/income available to common stockholders		$	(0.10	)		$	(0.03	)		$	(0.20	)		$	5.11
Common distributions declared per share		$	0.180			$	0.305			$	0.485			$	0.305
Weighted average number of common shares outstanding — basic			149,444				137,969				148,564				140,257
Weighted average number of common shares outstanding — diluted			149,444				137,969				148,564				140,257

See accompanying notes to consolidated financial statements.

UDR, Inc.

Six Months Ended June 30,		2009				2008
Operating Activities
Consolidated net (loss)/income		$	(26,083	)		$	772,090
Adjustments to reconcile net (loss)/income to net cash provided by operating activities:
Depreciation and amortization			140,924				116,815
Net gains on the sale of depreciable property			(1,885	)			(780,212	)
Net gains on the sale of land			—				(183	)
Gains on debt extinguishment			(9,849	)			(6,072	)
Write off of bad debt			1,826				954
Write off of note receivable and other assets			952				—
Loss from unconsolidated entities			1,445				1,389
Amortization of deferred financing costs and other			3,407				10,785
Amortization of deferred compensation			4,196				3,534
Amortization of convertible debt premium			2,349				3,340
Prepayments/(refunds) on income taxes			1,127				(4,170	)
Changes in operating assets and liabilities:
Decrease in operating assets			8,849				1,706
Decrease in operating liabilities			(3,264	)			(37,226	)
Net cash provided by operating activities			123,994				82,750
Investing Activities
Proceeds from sales of real estate investments, net			—				1,474,484
Proceeds from note receivable			200,000				—
Disbursements related to notes receivable			—				(12,121	)
Acquisition of real estate assets (net of liabilities assumed) and initial capital expenditures			—				(642,046	)
Development of real estate assets			(97,761	)			(58,640	)
Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement			(36,724	)			(69,608	)
Capital expenditures — non-real estate assets			(6,645	)			(8,938	)
Investment in unconsolidated joint venture			(17,341	)			(1,302	)
Purchase deposits on pending real estate acquisitions			(500	)			(5,978	)
Purchase of marketable securities			(30,939	)			—
Change in funds held in escrow from IRC Section 1031 exchanges			—				(175,578	)
Net cash provided by investing activities			10,090				500,273
Financing Activities
Payments on secured debt			(22,806	)			(74,050	)
Proceeds from the issuance of secured debt			289,625				74,204
Proceeds from the issuance of unsecured debt			—				240,000
Payments on unsecured debt			(364,233	)			(302,413	)
Net (repayment)/proceeds of revolving bank debt			61,100				(289,600	)
Payment of financing costs			(3,792	)			(2,338	)
(Payments on)/ proceeds from the issuance of common stock			(1,253	)			717
Repayment of the investment of performance based programs			—				(745	)
Distributions paid to non-controlling interests			(4,159	)			(5,993	)
Distributions paid to preferred stockholders			(5,600	)			(6,418	)
Distributions paid to common stockholders			(89,925	)			(86,680	)
Repurchase of common stock			(798	)			(131,514	)
Net cash used in financing activities			(141,841	)			(584,830	)
Net decrease in cash and cash equivalents			(7,757	)			(1,807	)
Cash and cash equivalents, beginning of period			12,740				3,219
Cash and cash equivalents, end of period		$	4,983			$	1,412
Supplemental Information:
Interest paid during the period		$	81,550			$	84,772
Non-cash transactions:
Conversion of operating partnership non-controlling interests to common stock (1,816,698 shares in 2009 and 99,241 shares in 2008)			17,259				1,327
Issuance of restricted stock awards			1				4,736
Issuance of note receivable upon the disposition of real estate			—				200,000
Secured debt assumed with the acquisition of properties, net of fair value adjustment			—				68,728

See accompanying notes to consolidated financial statements.

UDR, Inc.

(In thousands, except share data)

(Unaudited)

																										Accumulated
																						Distributions in				Other
		Preferred Stock								Common Stock								Paid-in				Excess of				Comprehensive				Non-controlling
		Shares				Amount				Shares				Amount				Capital				Net Income				Income/(Loss)				interest				Total
Balance, December 31, 2008			7,234,512			$	157,339				148,781,115			$	1,488			$	1,850,871			$	(448,737	)		$	(11,927	)		$	3,350			$	1,552,384
Comprehensive Income
Net loss			—				—				—				—				—				(24,687	)			—				92				(24,595	)
Other comprehensive income
Change in fair value of marketable securities			—				—				—				—				—				—				2,045				—				2,045
Unrealized gain on derivative financial instruments			—				—				—				—				—				—				5,309				—				5,309
Allocation to redeemable non-controlling interests			—				—				—				—				—				—				(539	)			—				(539	)
Comprehensive income																							(24,687	)			6,815				92				(17,780	)
Issuance of common and restricted shares			—				—				59,629				1				3,272				—				—				—				3,273
Purchase of common shares			—				—				(100,000	)			(1	)			(797	)			—				—				—				(798	)
Adjustment for conversion of non-controlling Series B and C LLC			—				—				—				—				938				—				—				—				938
Adjustment for conversion of non-controlling interests of unitholders in operating partnerships			—				—				1,816,698				18				17,241				—				—				—				17,259
Common stock distributions declared ($0.485 per share)			—				—				—				—				—				(71,554	)			—				—				(71,554	)
Preferred stock distributions declared-Series E ($0.6644 per share)			—				—				—				—				—				(1,862	)			—				—				(1,862	)
Preferred stock distributions declared-Series G ($0.84375 per share)			—				—				—				—				—				(3,738	)			—				—				(3,738	)
Adjustment to reflect redeemable non-controlling redemption value			—				—				—				—				—				27,633				—								27,633
Balance, June 30, 2009			7,234,512			$	157,339				150,557,442			$	1,506			$	1,871,525			$	(522,945	)		$	(5,112	)		$	3,442			$	1,505,755

See accompanying notes to consolidated financial statements.

UDR, Inc.

1. CONSOLIDATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Consolidation and Basis of Presentation

UDR, Inc., collectively with our consolidated subsidiaries (“we”, “our”, “us”, “the Company” or “UDR”) is a self-administered real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages apartment communities nationwide. The accompanying consolidated financial statements include the accounts of UDR and its subsidiaries, including United Dominion Realty, L.P. (the “Operating Partnership”), and Heritage Communities L.P. (the “Heritage OP”). As of June 30, 2009, there were 179,863,065 units in the Operating Partnership outstanding, of which 173,736,146 units or 97% were owned by UDR and 6,126,919 units or 3% were owned by limited partners. As of June 30, 2009, there were 6,264,460 units in the Heritage OP outstanding, of which 6,070,476 units or 97% were owned by UDR and 193,984 units or 3% were owned by limited partners. The consolidated financial statements of UDR include the non-controlling interests of the unitholders in the Operating Partnership and the Heritage OP.

The accompanying interim unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted according to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments and eliminations necessary for the fair presentation of our financial position as of June 30, 2009, and results of operations for the three and six months ended June 30, 2009 and 2008 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 appearing in UDR’s Form 8-K filed with the SEC on May 22, 2009.

The accompanying interim unaudited consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”). GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the interim unaudited consolidated financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain previously reported amounts have been reclassified to conform to the current financial statement presentation.

Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements” (“SFAS 160”). SFAS 160 amends Accounting Research Bulletin 51, “Consolidated Financial Statements” to establish accounting and reporting standards for the non-controlling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary should be reported as equity in the consolidated financial statements. Consolidated net income should include the net income for both the parent and the non-controlling interest with disclosure of both amounts on the consolidated statement of operations. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS 160 was effective for us on January 1, 2009. Due to the adoption of SFAS 160, loss from continuing operations available to common stockholders per diluted share decreased by $0.01 and $0.36 for the three and six months ended June 30, 2008, respectively and income from discontinued operations per diluted share increased by the same amounts. There was no impact to net (loss)/income available to common stockholders per diluted share due to the adoption of SFAS 160. As part of our adoption of SFAS 160, we have retroactively adopted the measurement provisions of EITF Topic D-98, “Classification and Measurement of Redeemable Securities.” Upon adoption, we adjusted the carrying amount of the operating partnership units by recognizing an $86.8 million increase to “Redeemable non-controlling interest in operating partnership” on the balance sheet and a corresponding decrease in “Distributions in Excess of Net Income,” which was accounted for as a cumulative effect adjustment on January 1, 2006.

In May 2008, the FASB issued FASB Staff Position APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion” (“APB 14-1”). APB 14-1 requires entities that issued certain convertible debt instruments that may be settled or partially settled in cash on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the entity’s nonconvertible debt borrowing rate. APB 14-1 requires that an entity determine the estimated fair value of a similar debt instrument as of the date of the issuance without the conversion feature but inclusive of any other embedded features such as puts and calls and assign that value to the debt component of the instrument, which would result in a discount being recorded. The debt is subsequently accreted to its par value over its expected life using the market rate at the date of issuance. The residual value between the initial proceeds and the value allocated to the debt would be reflected in equity as additional paid in capital. APB 14-1 was effective for fiscal years beginning after December 15, 2008 and was applied retrospectively to both new and existing convertible instruments. Due to the adoption of APB 14-1, the Company recognized a decrease in “Distributions in Excess of Net Income” of $117,000 on January 1, 2006 for the cumulative change in interest expense. We also recorded a $32.6 million increase to “Additional Paid in Capital” for the allocation of the equity component. The Company recognized an additional $2.7 million ($0.02 per diluted share) and $5.7 million ($0.04 per diluted share) and $1.7 million ($0.01 per diluted share) and $3.3 million ($0.02 per diluted share) of interest expense in the three and six months ended June 30, 2009 and 2008, respectively due to the adoption of APB 14-1. This impact includes both regular amortization of convertible debt premium and the effect of write offs due to convertible debt repurchases.

In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities”, or the FSP, which for us was effective January 1, 2009 and has been applied retrospectively. The FSP clarifies that unvested share-based payment awards that participate in dividends similar to shares of common stock or operating partnership units should be treated as participating securities. The FSP affects the computation of basic and diluted earnings per share for unvested restricted stock awards which entitle the holders to dividends. The FSP did not affect earnings per share amounts for the three and six months ended June 30, 2009 because we reported a net loss for the period and accordingly had no undistributed earnings. The FSP had an immaterial affect on the earnings per share amount for the three and six months ended June 30, 2008. We do not expect the FSP to have a material effect on future earnings per share amounts.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162” (“SFAS 168”). The FASB Accounting Standards Codification (“Codification”) will become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification will supersede all then-existing, non-SEC accounting and reporting standards. SFAS 168 is effective for our financial statements issued for interim and annual periods commencing with the quarterly period ended September 30, 2009. In the FASB’s view, the issuance of SFAS 168 and the Codification will not change GAAP, and therefore we do not expect the adoption of SFAS 168 to have an effect on our consolidated financial position, results of operations or cash flows.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” which amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments in interim as well as annual financial statements. This standard is effective for periods ending after June 15, 2009. Accordingly, the Company adopted the provisions of FSP FAS 107-1 and APB 28-1 for the quarter ended June 30, 2009. The adoption of this guidance did not have any impact on our consolidated financial position, results of operations or cash flows. However, the provisions of FSP FAS 107-1 and APB 28-1 result in additional disclosures with respect to the fair value of the Company’s financial instruments. See Note 8, Fair Value of Derivatives and Financial Instruments, for these additional disclosures.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”), which provides guidance to establish general standards of accounting for, and disclosures of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 is effective for interim or fiscal periods ending after June 15, 2009. Accordingly, the Company adopted the provisions of SFAS 165 on June 30, 2009. The adoption of this guidance did not have any impact on our consolidated financial position, results of operations or cash flows. The Company evaluated subsequent events through August 6, 2009, the date of issuance of the Company’s financial statements. No recognized or non-recognized subsequent events were noted other than the matter disclosed in Note 14, Subsequent Event.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), that became effective for our fiscal year beginning January 1, 2008. SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurement. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements but does not require any new fair value measurements. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”), that delayed the effective date of SFAS 157’s fair value measurement requirements for nonfinancial assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis. The adoption of SFAS 157 for financial assets and liabilities, as of January 1, 2008, did not have a material impact on our financial position or operations. Fair value measurements identified in FSP 157-2 is effective for our fiscal year beginning January 1, 2009 and did not have any impact on our consolidated financial position, results of operations or cash flows.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”), that became effective for our fiscal year beginning January 1, 2008. SFAS 159 allows an entity to elect to measure certain financial instruments at fair value. If this irrevocable election is made, an entity may apply SFAS 159 on an instrument by instrument basis with a few exceptions and report any change in the fair value of the instrument in earnings. The Company has not adopted the fair value measurement option of SFAS 159.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination, recognizing assets acquired and liabilities assumed arising from contingencies, and determining what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R was effective for fiscal years beginning after December 15, 2008. We believe that the adoption of SFAS 141R could materially impact our future consolidated financial position and results of operations depending on the Company’s acquisition activity as certain acquisition costs that have historically been capitalized as part of the basis of the real estate and amortized over the real estate’s useful life will now be expensed as incurred. SFAS 141R did not have a material impact on our financial statements during the six months ended June 30, 2009.

Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS 161”), amends and expands the disclosure requirements of FASB Statement No. 133 (“SFAS 133”) with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is effective for our fiscal year beginning January 1, 2009, and did not have a material impact on our consolidated financial position, results of operations or cash flows. However, SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments. See Note 9, Derivative and Hedging Activity, for these additional disclosures.

On June 12, 2009, the FASB issued Statement No. 167, “Amendments to FASB Interpretation No. 46(R) (“SFAS 167”), which (1) addresses the effects of eliminating the qualifying special-purpose entity concept from FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, and (2) responds to concerns about the application of certain key provisions of FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities”, including concerns over the transparency of enterprises’ involvement with variable interest entities (VIEs). SFAS 167 is effective beginning on January 1, 2010. The Company is currently assessing the impact of SFAS 167.

Accounting Policies

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 income, excise and franchise taxes. UDR elected for certain consolidated subsidiaries to be treated as Taxable REIT Subsidiaries (“TRS”) relating to the Company’s developer, RE3 and condominium conversion 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 June 30, 2009, UDR has recorded a current tax liability of $3.1 million and a deferred tax asset of approximately $12.2 million and recorded income tax expense of $0 and $51,000 for the three and six months ended June 30, 2009, respectively.

UDR adopted the Financial Accounting Standards Board (“FASB”) Interpretation 48, “Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109” (“FIN 48”), on January 1, 2007. FIN 48 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. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition.

The Company recognizes our tax positions and evaluates them using a two-step process. First, we determine 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. Then 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.

As a result of the implementation of FIN 48, UDR recognized no material adjustments to liabilities related to unrecognized income tax benefits. At the adoption date, UDR’s TRS had $538,000 of net unrecognized tax benefits, which would favorably impact our effective tax rate if recognized. During the three months ended June 30, 2008, the liability was reversed due to the Company no longer meeting the measurement criteria. As such, subsequent to June 30, 2008, UDR had no unrecognized tax benefits, accrued interest or penalties. UDR and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The tax years 2004 — 2008 remain open to examination by the major taxing jurisdictions to which we are subject. When applicable, UDR recognizes interest and/or penalties related to uncertain tax positions in income tax expense.

Real Estate Sales

The Company accounts for sales of real estate in accordance with FASB Statement of Financial Accounting Standards (SFAS) No. 66, “Accounting for Sales of Real Estate” (“SFAS 66”). For sales transactions meeting the requirements for full accrual profit recognition, such as the Company no longer having continuing involvement in the property, we remove the related assets and liabilities from our consolidated balance sheet 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.

Sales of real estate to entities in which we retain or otherwise own an interest are accounted for as partial sales. If all other requirements for recognizing profit under the full accrual method have been satisfied and no other forms of continuing involvement are present, we recognize profit proportionate to the outside interest in the buyer and will defer the gain on the interest we retain. The Company will recognize any deferred gain when the property is then sold to a third party. In transactions accounted 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.

Marketable Securities

Marketable securities represent publicly traded debt securities and are classified as “available for sale” and carried at fair value, with unrealized gains and losses reported as a separate component of stockholders’ equity. Declines in the value of public and private investments that management determines are other than temporary are recorded as a provision for loss on investments. The amortization of any discount and interest income are recorded in “Other Income” on the Consolidated Statement of Operations. See Note 8, Fair Value of Derivative and Financial Instruments.

The Company has the ability to make public and private investments in equity and debt securities. The publicly traded equity securities are classified as “available-for-sale securities” and carried at fair value, with unrealized gains and losses reported as a separate component of stockholders equity. For publicly traded debt securities, the Company initially assesses our intent and ability to hold the debt instrument before determining the classification as either “held-to-maturity securities” which would be reported at their amortized cost or as an available-for-sale security. Private investments for which we lack the ability to exercise significant influence are accounted for at cost.

2. REAL ESTATE

Real estate assets owned by the Company consist of income producing operating properties, properties under development, land held for future development and properties deemed as held for sale. As of June 30, 2009 the Company owned and consolidated 162 communities in 10 states plus the District of Columbia totaling 44,701 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of June 30, 2009 and December 31, 2008 (dollar amounts in thousands):

		June 30, 2009				December 31, 2008
Land		$	1,566,502			$	1,567,737
Depreciable property — held for investment:
Building and improvements			3,922,191				3,859,245
Furniture, fixtures and equipment			231,376				217,948
Under development:
Land			55,144				52,294
Construction in progress			194,314				134,529
Real estate owned		$	5,969,527			$	5,831,753
Accumulated depreciation			(1,215,570	)			(1,078,689	)
Real estate owned, net		$	4,753,957			$	4,753,064

3. DISCONTINUED OPERATIONS

Discontinued operations represent properties that UDR has either sold or which management believes meet the criteria to be classified as held for sale. In order to be classified as held for sale and reported as discontinued operations, a property’s operations and cash flows have or will be divested to a third party by the Company whereby UDR will not have any significant continuing involvement in the ownership or operation of the property after the sale or disposition. The results of operations of the property are presented as discontinued operations for all periods presented and do not impact the net earnings reported by the Company. Once a property is deemed as held for sale, depreciation is no longer recorded. However, if the Company determines that the property no longer meets the criteria of held for sale the Company will recapture any unrecorded depreciation for the property. The assets and liabilities of properties deemed as held for sale are presented separately on the Consolidated Balance Sheets. Properties deemed as held for sale are reported at the lower of their carrying amount or their estimated fair value less the costs to sell the assets.

UDR did not dispose of any communities during the six months ended June 30, 2009, nor did we have any classified as held for disposition at June 30, 2009. For the six months ended June 30, 2008, UDR sold 85 communities with a total of 25,540 apartment homes, 42 condominiums from two communities with a total of 640 condominiums, and one parcel of land. At June 30, 2008, UDR had one community with a total of 144 apartment homes and a net book value of $4.7 million, a commercial property with a net book value of $1.7 million, and two communities with a total of 537 condominiums and a net book value of $38.6 million included in real estate held for disposition. The results of operations for these properties and the gain/loss from disposition are classified on the Consolidated Statements of Operations in the line item titled “Income from discontinued operations”, for the three and six months ended June 30, 2009 and 2008.

In conjunction with the sale of the 85 communities during the six months ended June 20, 2008, the Company received a note in the amount of $200.0 million. On May 4, 2009, the Company received from the buyer payment in full of the $200.0 million note, plus accrued and unpaid interest thereon in the amount of $123,287.

UDR has elected TRS status for certain of its corporate subsidiaries, primarily those engaged in condominium conversion and development activities. For the three months ended June 30, 2009 and 2008, UDR recognized an income tax expense of $0 and an income tax benefit of $3.7 million, respectively, and an income tax expense of $51,000 and an income tax benefit of $5.1 million for the six months ended June 30, 2009 and 2008, respectively. Of the balance, UDR allocated no income tax provision to discontinued operations for the three and six months ended June 30, 2009, and an income tax benefit of $35,000 and $161,000 for the three and six months ended June 30, 2008, respectively.

The income attributable to discontinued operations is summarized as follows (dollars in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Rental income		$	—			$	586			$	—			$	39,571
Non-property income			—				—				—				183
Rental expenses			—				277				—				16,084
Property management fee			—				16				—				1,088
Real estate depreciation			—				—				—				—
Interest expense			—				37				—				2,616
Other expenses			—				6				—				6
			—				336				—				19,794
Income before net gain on the sale of depreciable property			—				250				—				19,960
Net gain on the sale of depreciable property, excluding RE3			2,053				13,027				1,885				780,989
RE3 gain/(loss) on the sale of depreciable property, net of tax			—				39				—				(777	)
Income from discontinued operations		$	2,053			$	13 ,316			$	1,885			$	800,172

4. JOINT VENTURES

UDR has entered into joint ventures with unrelated third parties for real estate assets that are either consolidated and included in real estate owned on our Consolidated Balance Sheets or are accounted for under the equity method of accounting, which are not consolidated and are included in investment in unconsolidated joint ventures on our Consolidated Balance Sheets. The Company consolidates an entity in which we own less than 100% but control the joint venture as well as any variable interest entity where we are the primary beneficiary. In addition, the Company consolidates any joint venture 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 do they have the ability to remove us as general partner or managing member, without cause.

UDR’s joint ventures, some of which are variable interest entities, are funded with a combination of debt and capital. The allocation between debt and capital will vary by joint venture with our investments having a weighted average of 11% of the initial total assets as contributed capital.

Unconsolidated Joint Ventures

The Company recognizes earnings or losses from our investments in unconsolidated joint ventures consisting of our proportionate share of the net earnings or loss of the joint venture. In addition, we may earn fees for providing management and development services to the unconsolidated joint ventures. As of June 30, 2009, UDR had investments in the following unconsolidated development joint ventures which are accounted for under the equity method of accounting.

UDR is a partner with an unaffiliated third party in a joint venture which is developing a 274 home apartment community in the central business district of Bellevue, Washington. Construction began in the fourth quarter of 2006 and is scheduled for completion in the third quarter of 2009. At closing and at June 30, 2009, we owned 49% of the joint venture. Our initial investment was $10.0 million. During the three months ended June 30, 2009, the Company made additional capital contributions of $16.1 million to the joint venture to fund development costs. Our investment at June 30, 2009 and December 31, 2008 was $28.4 million and $9.9 million, respectively.

UDR is a partner with an unaffiliated third party in a joint venture which owns and operates a 23-story, 166 home high-rise apartment community in the central business district of Bellevue, Washington. At closing, UDR owned 49% of the joint venture. Our initial investment was $11.8 million. Our investment at June 30, 2009 and December 31, 2008 was $10.2 million and $10.4 million, respectively.

UDR is a partner with an unaffiliated third party in a joint venture which owns a site in Bellevue, Washington. At closing and at June 30, 2009, we owned 49% of the joint venture. Our initial investment was $5.7 million. Our investment at June 30, 2009 and December 31, 2008 was $10.0 million and $10.2 million, respectively. The Company initially planned to develop a 430 home high rise apartment building with ground floor retail on an existing operating retail center. However, during the six months ended June 30, 2009, the Company decided to operate the retail property as opposed to developing the site.

UDR and an unaffiliated third party in November 2007 formed a joint venture which owns and operates various properties located in Texas. In November 2007, UDR sold nine operating properties, consisting of 3,690 units, and contributed one property under development to the joint venture. The property under development has 302 units and was completed in 2008 and commenced lease up at that time. UDR contributed cash and property equal to 20% of the fair value of the properties. The unaffiliated member contributed cash equal to 80% of the fair value of the properties comprising the joint venture, which was then used to purchase the nine operating properties from UDR. Our initial investment was $20.4 million. Our investment at June 30, 2009 and December 31, 2008 was $14.9 million and $16.5 million, respectively.

Summarized financial information relating to 100% of all the unconsolidated joint ventures operations (not just our proportionate share) is presented below as of and for the three and six months ended June 30, (dollars in thousands):

		2009				2008
For the three months ended June 30,:
Revenues		$	11,517			$	10,588
Real estate depreciation and amortization			5,232				6,019
Net loss			(3,541	)			(4,521	)
For the six months ended June 30,:
Revenues		$	23,037			$	20,905
Real estate depreciation and amortization			10,387				11,416
Net loss			(6,427	)			(8,087	)
As of June 30, 2009 and December 31, 2008:
Real estate, net		$	532,121			$	517,549
Total assets			544,259				534,751
Amount due to UDR			1,097				3,898
Third party debt			380,353				373,353
Total liabilities			396,267				397,135
Equity			147,992				137,616

As of June 30, 2009, the Company had deferred profit from the sale of properties of $28.8 million, which the Company will not recognize until the underlying property is sold to a third party. The Company recognized $513,000 and $987,000 and $648,000 and $1.2 million of management fees for our involvement in the joint ventures for the three and six months ended June 30, 2009 and 2008, respectively.

The Company may be required to make additional capital contributions to certain of our joint ventures should additional capital contributions be necessary to fund development costs or operating shortfalls.

5. SECURED DEBT

Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon payments due at maturity. For purposes of classification of the following 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 the interest rate for the underlying debt instrument. Secured debt on continuing and discontinued operations, which encumbers $2.7 billion or 45% of UDR’s real estate owned based upon book value ($3.3 billion or 55% of UDR’s real estate owned is unencumbered) consists of the following as of June 30, 2009 (dollars in thousands):

		Principal Outstanding								2009
										Weighted				Weighted				Number of
		June 30,				December 31,				Average				Average				Communities
		2009				2008				Interest Rate				Years to Maturity				Encumbered
Fixed Rate Debt
Mortgage notes payable		$	497,980			$	476,810				4.84	%			2.4				18
Tax-exempt secured notes payable			13,325				13,325				5.30	%			21.7				1
Fannie Mae credit facilities			755,393				666,642				5.43	%			6.9				30
Total fixed rate secured debt			1,266,698				1,156,777				5.20	%			5.3				49
Variable Rate Debt
Mortgage notes payable			174,671				114,181				2.68	%			4.6				11
Tax-exempt secured note payable			27,000				27,000				1.43	%			20.7				1
Fannie Mae credit facilities			260,921				164,513				1.76	%			6.6				10
Total variable rate secured debt			462,592				305,694				2.08	%			6.7				22
Total secured debt		$	1,729,290			$	1,462,471				4.37	%			5.6				71

UDR has secured revolving credit facilities with Fannie Mae with an aggregate commitment of $1.1 billion at June 30, 2009. The Fannie Mae credit facilities are for an initial term of 10 years, bear interest at floating and fixed rates, and certain variable rate facilities can be extended for an additional five years at our option. We have $755.4 million of the funded balance fixed at a weighted average interest rate of 5.4% and the remaining funded balance on these facilities is currently at a weighted average variable rate of 1.8%.

		June 30, 2009				December 31, 2008
		(dollar amounts in thousands)
Borrowings outstanding		$	1,016,314			$	831,155
Weighted average borrowings during the period ended			954,738				702,620
Maximum daily borrowings during the period ended			1,016,916				831,370
Weighted average interest rate during the period ended			4.63	%			5.5	%
Weighted average interest rate at the end of the period			4.49	%			5.0	%

The Company will from time to time acquire properties subject to fixed rate debt instruments. In those situations, management will record the secured debt at its estimated fair value and amortize any difference between the fair value and par to interest expense over the life of the underlying debt instrument. The unamortized fair market adjustment was an asset of $913,000 and $763,000 at June 30, 2009 and December 31, 2008, respectively.

Fixed Rate Debt

Mortgage notes payable. Fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from August 2009 through June 2016 and carry interest rates ranging from 2.50% to 8.18%. Mortgage notes payable includes debt associated with development activities. The Company has the ability under the debt instrument maturing in October 2009 to exercise contractually provided extensions (two one-year extensions) on the outstanding balance of $110.3 million ($105.0 million is at a fixed rate and the remaining $5.3 million is at a variable rate).

Tax-exempt secured notes payable. Fixed rate mortgage notes payable that secure tax-exempt housing bond issues mature in March 2031 and carry an interest rate of 5.30%. Interest on these notes is payable in semi-annual installments.

Secured credit facilities. At June 30, 2009, UDR’s fixed rate secured credit facilities consisted of $755.4 million on a $1.1 billion aggregate commitment under four revolving secured credit facilities with Fannie Mae (the Company also owes $260.9 million under the variable rate component of these credit facilities). As of June 30, 2009, the fixed rate Fannie Mae credit facilities had a weighted average fixed rate of interest of 5.43%.

Variable Rate Debt

Mortgage notes payable. Variable rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from October 2009 through April 2016. The mortgage notes payable are based on LIBOR plus some basis points, which translate into interest rates ranging from 1.03% to 4.00% at June 30, 2009.

Tax-exempt secured note payable. The variable rate mortgage note payable that secures tax-exempt housing bond issues matures in March 2030. Interest on this note is payable in monthly installments. The variable mortgage note has an interest rate of 1.43% as of June 30, 2009.

Secured credit facilities. The variable rate secured credit facilities consisted of $260.9 million outstanding on the Fannie Mae credit facilities. As of June 30, 2009, the variable rate Fannie Mae credit facilities had a weighted average floating rate of interest of 1.76%.

The aggregate maturities, including amortizing principal payments, of our secured debt due during each of the next five calendar years and thereafter are as follows (dollars in thousands):

		Fixed												Variable
		Mortgage				Tax-Exempt				Credit				Mortgage				Tax Exempt				Credit
		Notes				Notes Payable				Facilities				Notes				Notes Payable				Facilities				Total
2009		$	116,690			$	—			$	1,257			$	5,335			$	—			$	—			$	123,282
2010			109,129				—				2,654				861				—				—				112,644
2011			83,631				—				52,808				36,199				—				39,513				212,151
2012			56,779				—				177,944				16,085				—				60,000				310,808
2013			61,392				—				38,631				38,483				—				—				138,506
Thereafter			70,359				13,325				482,099				77,708				27,000				161,408				831,899
Total		$	497,980			$	13,325			$	755,393			$	174,671			$	27,000			$	260,921			$	1,729,290

6. UNSECURED DEBT

A summary of unsecured debt as of June 30, 2009 and December 31, 2008 is as follows (dollars in thousands):

		June 30,				December 31,
		2009				2008
Commercial Banks
Borrowings outstanding under an unsecured term loan due February 2010 (a)		$	240,000			$	240,000
Borrowings outstanding under an unsecured credit facility due July 2012 (b)			61,100				—
			301,100				240,000
Senior Unsecured Notes
4.25% Medium-Term Notes due January 2009			—				50,000
6.50% Notes due June 2009			—				200,000
3.90% Medium-Term Notes due March 2010 (includes premium of $112 and $190)			50,112				50,190
3.625% Convertible Senior Notes due September 2011 (net of APB 14-1 discount of $4,286 and $7,080) (c), (d)			122,049				164,255
5.00% Medium-Term Notes due January 2012			100,000				100,000
6.05% Medium-Term Notes due June 2013 (d)			122,500				125,000
5.13% Medium-Term Notes due January 2014			184,000				184,000
5.50% Medium-Term Notes due April 2014 (net of discount of $329 and $363)			128,171				128,137
5.25% Medium-Term Notes due January 2015 (includes premium of $194 and $212)			175,369				175,387
5.25% Medium-Term Notes due January 2016			83,260				83,260
8.50% Debentures due September 2024 (d)			53,118				54,118
4.00% Convertible Senior Notes due December 2035 (net of APB 14-1 discount of $2,915 and $5,834) (d), (e)			164,835				244,166
Other			145				149
			1,183,559				1,558,662
		$	1,484,659			$	1,798,662

In May 2008, the Financial Accounting Standards Board (FASB) affirmed the consensus of FASB Staff Position APB 14-1 (“FSP APB 14-1”), “Accounting for Convertible Debt instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement),” which applies to all convertible debt instruments that have a “net settlement feature”, which means that such convertible debt instruments, by their terms, may be settled either wholly or partially in cash upon conversion. FSP APB 14-1 requires issuers of convertible debt instruments that may be settled wholly or partially in cash upon conversion to separately account for the liability and equity components in a manner reflective of the issuers’ nonconvertible debt borrowing rate. The Company adopted FSP APB 14-1 as of January 1, 2009, and the adoption impacted the historical accounting for the 3.625% convertible senior notes due September 2011 and the 4.00% convertible senior notes due December 2035, and resulted in increased interest expense of $1.1 million and $2.3 million and $1.7 million and $3.3 million for the three and six months ended June 30, 2009 and 2008, respectively.

The following is a summary of short-term bank borrowings under UDR’s unsecured credit facility at June 30, 2009 and December 31, 2008 (dollars in thousands):

		June 30,				December 31,
		2009				2008
Total revolving credit facility		$	600,000			$	600,000
Borrowings outstanding at end of period			61,100				—
Weighted average daily borrowings during the period ended			102,092				84,566
Maximum daily borrowings during the period ended			279,400				587,400
Weighted average interest rate during the period ended			1.0	%			4.1	%
Weighted average interest rate at the end of the period			0.9	%			N/A

The convertible notes are convertible at the option of the holder, and as such are presented as if the holder will convert the debt instrument at the earliest available date. The aggregate maturities of unsecured debt for the five years subsequent to June 30, 2009 are as follows (dollars in thousands):

		Credit				Unsecured
		Facility				Debt				Total
2009		$	—			$	—			$	—
2010			—				290,014				290,014
2011 (a)			—				286,860				286,860
2012			61,100				99,976				161,076
2013			—				122,476				122,476
Thereafter			—				624,233				624,233
		$	61,100			$	1,423,559			$	1,484,659

Our debt instruments contain covenants that we were in compliance with at June 30, 2009.

7. (LOSS)/EARNINGS PER SHARE

Basic earnings per common share is computed based upon the weighted average number of common shares outstanding during the period. Diluted earnings per common share is computed based upon common shares outstanding plus the effect of dilutive stock options and other potentially dilutive common stock equivalents such as the non-vested restricted stock awards.

The following table sets forth the computation of basic and diluted earnings per share for the periods presented (dollars and shares in thousands, except per share data):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Numerator for (loss)/earnings per share — basic and diluted:
Net (loss)/earnings available to common stockholders		$	(14,858	)		$	(3,886	)		$	(30,287	)		$	716,624
Denominator for (loss)/earnings per share — basic and diluted:
Weighted average common shares outstanding			150,393				139,309				149,738				141,470
Non-vested restricted stock awards			(949	)			(1,340	)			(1,174	)			(1,213	)
Denominator for basic and diluted (loss)/earnings per share			149,444				137,969				148,564				140,257
(Loss)/earnings per share — basic and diluted		$	(0.10	)		$	(0.03	)		$	(0.20	)		$	5.11

The effect of the conversion of the operating partnership units, Out-Performance Partnership Shares, convertible preferred stock, and convertible debt is not dilutive and is therefore not included in the above calculations as the Company reported a loss from continuing operations.

If the operating partnership units were converted to common stock, the additional weighted average common shares outstanding for the three and six months ended June 30, 2009 and 2008, would be 6,513,951 and 7,276,521 and 9,622,236 and 9,663,090, respectively.

At June 30, 2009 and 2008, if the measurement periods had ended on that date, no Series E Out-Performance Partnership Shares would have been issued had the Program terminated on that date. Accordingly, no additional operating partnership units would have been issued at that date (see Note 12, “Commitments and Contingencies”, for a discussion of UDR’s Out-Performance Programs).

If the convertible preferred stock were converted to common stock, the additional shares of common stock outstanding would be 3,035,547 weighted average common shares for the three and six months ended June 30, 2009 and 2008.

8. FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS

Effective January 1, 2008, UDR adopted SFAS 157, which defines fair value 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. SFAS 157 establishes a fair value hierarchy that 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.

The Company’s derivative contracts are the only assets or liabilities that are measured and recognized at fair value using the SFAS 157 hierarchy. The derivative contracts use the Level 2 hierarchy and are recorded in “Other assets” and in “Accounts payable, accrued expenses and other liabilities” in the Consolidated Balance Sheet for $3.4 million and $8.0 million, respectively as of June 30, 2009.

At June 30, 2009 and December 31, 2008, the fair values of cash and cash equivalents, restricted cash, notes receivable, escrow 1031exchange funds, 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.

The Company adopted the provisions of FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” on June 30, 2009, which require disclosures about the fair value of financial instruments in interim as well as annual financial statements. The carrying amounts and estimated fair value of the Company’s financial instruments, where different, as of June 30, 2009 and December 31, 2008, are summarized as follows (dollars in thousands):

		June 30,								December 31,
		2009								2008
		Carrying				Estimated				Carrying				Estimated
		Amounts				Fair Value				Amounts				Fair Value
Debt instruments
Secured debt (a)		$	1,729,290			$	1,732,771			$	1,462,471			$	1,419,411
Unsecured debt (b)			1,484,659				1,314,650				1,798,662				1,183,098
Derivative contracts (c)
Interest rate swaps		$	(8,027	)		$	(8,027	)		$	(11,011	)		$	(11,011	)
Interest rate caps			3,361				3,361				62				62

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” which provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. The amortized cost, gross unrealized gains and losses and fair value of the Company’s investments at June 30, 2009 are as follows (dollars in thousands):

						Gross				Gross				Estimated Fair
		Amortized				Unrealized				Unrealized				Value (Net Carrying
		Cost				Gains				Losses				Amount)
Corporate debt securities- U.S.		$	31,934			$	2,045			$	—			$	33,979

Since the Company recognized an unrealized gain during the three and six months ended June 30, 2009, and it does not intend to sell the investments at a loss nor will it be required to sell the investments before recovery of its amortized cost basis by the time the Company’s rights to redeem the debt securities become effective in March 2012, the Company does not consider the investment in these securities to be other-than-temporarily impaired at June 30, 2009. As such, the Company did not recognize an other-than-temporary impairment on any of its debt securities during the three and six months ended June 30, 2009.

9. DERIVATIVES AND HEDGING ACTIVITY

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk 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 the use of derivative financial instruments. Specifically, the Company enters 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)” and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three and six months ended June 30, 2009, 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 and six months ended June 30, 2009, the Company recorded a $1,000 (loss) on hedge ineffectiveness in earnings attributable to reset date and index mismatches between the derivative and the hedged item.

Amounts reported in “Accumulated Other Comprehensive Income/(Loss)” related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve months, the Company estimates that an additional $8.1 million will be reclassified as an increase to interest expense.

As of June 30, 2009, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (dollar amounts in thousands):

		Number of
Interest Rate Derivative			Instruments				Notional
Interest rate swaps			11			$	593,531
Interest rate caps			2			$	113,909

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 SFAS 133. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted in gains of $720,000 and $665,000 for the three and six months ended June 30, 2009. As of June 30, 2009, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollar amounts in thousands):

		Number of
Product			Instruments			Notional
Interest rate caps			5			$	270,166

Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet as of June 30, 2009.

Tabular Disclosure of Fair Values of Derivative Instruments (amounts in thousands)

		Asset Derivatives								Liability Derivatives
		Balance Sheet								Balance Sheet
		Location				Fair Value				Location				Fair Value
Derivatives designated as hedging instruments under SFAS 133
Interest Rate Products		Other Assets				$	2,344			Other Liabilities				$	8,027
Total derivatives designated as hedging instruments under SFAS 133						$	2,344							$	8,027
Derivatives not designated as hedging instruments under SFAS 133
Interest Rate Products		Other Assets				$	1,017			Other Liabilities				$	—
Total derivatives not designated as hedging instruments under SFAS 133						$	1,017							$	—