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.)
333-156002-01 (United Dominion Realty, L.P.)

UDR, Inc.
United Dominion Realty, L.P.

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.)

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 þ		No o
		United Dominion Realty, L.P.		Yes o		No þ

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 þ		No o
		United Dominion Realty, L.P.		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 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 þ		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 þ		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 þ
		United Dominion Realty, L.P.		Yes o		No þ

The number of shares of UDR, Inc.’s common stock, $0.01 par value, outstanding as of November 8, 2010, was 182,137,034.

 

 

UDR, INC.
UNITED DOMINION REALTY, L.P.

INDEX

		PAGE
PART I — FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
UDR, INC.:
Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009 (audited)			3
Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009 (unaudited)			4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 (unaudited)			5
Consolidated Statements of Stockholders’ Equity and Comprehensive Income/(Loss) for the nine months ended September 30, 2010 (unaudited)			6
Notes to Consolidated Financial Statements (unaudited)			7
UNITED DOMINION REALTY, L.P.:
Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009 (audited)			30
Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009 (unaudited)			31
Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 (unaudited)			32
Consolidated Statements of Partners’ Capital and Comprehensive Income/(Loss) for the nine months ended September 30, 2010 (unaudited)			33
Notes to Consolidated Financial Statements (unaudited)			34
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			49
Item 3. Quantitative and Qualitative Disclosures About Market Risk			71
Item 4. Controls and Procedures			71
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			72
Item 1A. Risk Factors			72
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			83
Item 3. Defaults Upon Senior Securities			84
Item 4. (Removed and Reserved)			84
Item 5. Other Information			84
Item 6. Exhibits			84
Signatures			85
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
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

EXPLANATORY NOTE

This combined Form 10-Q includes information with respect to both UDR, Inc. (“UDR” or the “Company”), a Maryland corporation, and United Dominion Realty, L.P., (the “Operating Partnership”), a Delaware limited partnership, of which UDR is the sole general partner. As of September 30, 2010, UDR owned 110,883 units of the general partnership interests of the Operating Partnership and 174,369,059 units (or approximately 96.9%) of the limited partnership interests of the Operating Partnership (the “OP Units”). UDR conducts a substantial amount of its business and holds a substantial amount of its assets through the Operating Partnership, and, by virtue of its ownership of the OP Units and being the Operating Partnership’s sole general partner, UDR has the ability to control all of the day-to-day operations of the Operating Partnership. Separate financial statements and accompanying notes, as well as separate discussions under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are provided for each of UDR and the Operating Partnership. This combined Form 10-Q is being filed separately by UDR and the Operating Partnership.

PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

UDR, Inc.

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

		September 30,				December 31,
		2010				2009
		(unaudited)				(audited)
ASSETS
Real estate owned:
Real estate held for investment		$	6,758,458			$	5,975,239
Less: accumulated depreciation			(1,560,239	)			(1,346,689	)
Real estate held for investment, net			5,198,219				4,628,550
Real estate under development (net of accumulated depreciation of $628 and $1,226)			94,249				318,531
Real estate held for disposition (net of accumulated depreciation of $0 and $3,378)			—				16,673
Total real estate owned, net of accumulated depreciation			5,292,468				4,963,754
Cash and cash equivalents			10,107				5,985
Marketable securities			41,873				37,650
Restricted cash			14,879				8,879
Deferred financing costs, net			26,225				26,601
Notes receivable			7,800				7,800
Investment in unconsolidated joint ventures			16,391				14,126
Other assets			67,615				67,822
Total assets		$	5,477,358			$	5,132,617
LIABILITIES AND STOCKHOLDERS’ EQUITY
Secured debt		$	2,045,810			$	1,989,434
Unsecured debt			1,433,860				1,437,155
Real estate taxes payable			28,871				16,976
Accrued interest payable			19,939				19,146
Security deposits and prepaid rent			27,037				31,798
Distributions payable			36,582				30,857
Deferred gains on the sale of depreciable property			28,824				28,826
Accounts payable, accrued expenses, and other liabilities			63,766				80,685
Total liabilities			3,684,689				3,634,877
Redeemable non-controlling interests in operating partnership			117,012				98,758
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, 2009)			46,571				46,571
3,405,562 shares of 6.75% Series G Cumulative Redeemable issued and outstanding (3,432,962 shares at December 31, 2009)			85,139				85,824
Common stock, $0.01 par value; 250,000,000 shares authorized
182,128,994 shares issued and outstanding (155,465,482 shares at December 31, 2009)			1,821				1,555
Additional paid-in capital			2,437,284				1,948,669
Distributions in excess of net income			(895,069	)			(687,180	)
Accumulated other comprehensive (loss)/income, net			(3,741	)			2
Total UDR, Inc. stockholders’ equity			1,672,005				1,395,441
Non-controlling interest			3,652				3,541
Total equity			1,675,657				1,398,982
Total liabilities and stockholders’ equity		$	5,477,358			$	5,132,617

See accompanying notes to consolidated financial statements

UDR, Inc.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
REVENUES
Rental income		$	159,795			$	149,756			$	464,256			$	451,102
Non-property income:
Other income			2,195				1,627				7,571				10,609
Total Revenues			161,990				151,383				471,827				461,711
EXPENSES
Rental expenses:
Real estate taxes and insurance			19,280				18,838				57,861				57,559
Personnel			14,787				12,975				42,267				38,264
Utilities			9,097				8,183				25,723				23,868
Repair and maintenance			9,737				8,295				26,109				23,346
Administrative and marketing			4,165				3,617				11,973				10,491
Property management			4,394				4,119				12,767				12,406
Other operating expenses			1,396				1,437				4,338				5,110
Real estate depreciation and amortization			75,569				69,561				221,229				207,341
Interest
Expense incurred			37,307				33,909				109,193				105,794
Net loss/(gain) on debt extinguishment			91				—				1,121				(9,849	)
Amortization of convertible debt discount			859				967				2,754				3,316
Expenses related to tender offer			—				3,764				—				3,764
Storm related (income)/expenses			(52	)			—				669				127
General and administrative			12,046				8,673				31,258				27,189
Other depreciation and amortization			1,224				858				3,755				3,730
Total Expenses			189,900				175,196				551,017				512,456
Loss from operations			(27,910	)			(23,813	)			(79,190	)			(50,745	)
Loss from unconsolidated entities			(835	)			(16,742	)			(2,757	)			(18,187	)
Loss from continuing operations			(28,745	)			(40,555	)			(81,947	)			(68,932	)
Income from discontinued operations			4,140				800				4,676				3,094
Consolidated net loss			(24,605	)			(39,755	)			(77,271	)			(65,838	)
Net loss attributable to non-controlling interests			839				1,779				2,828				3,175
Net loss attributable to UDR, Inc.			(23,766	)			(37,976	)			(74,443	)			(62,663	)
Distributions to preferred stockholders — Series E (Convertible)			(932	)			(931	)			(2,794	)			(2,793	)
Distributions to preferred stockholders — Series G			(1,436	)			(1,869	)			(4,325	)			(5,607	)
Discount on preferred stock repurchases, net			—				—				25				—
Net loss attributable to common stockholders		$	(26,134	)		$	(40,776	)		$	(81,537	)		$	(71,063	)
Earnings per weighted average common share — basic:
Loss from continuing operations attributable to common stockholders		$	(0.18	)		$	(0.28	)		$	(0.54	)		$	(0.50	)
Income from discontinued operations		$	0.02			$	0.01			$	0.03			$	0.02
Net loss attributable to common stockholders		$	(0.16	)		$	(0.27	)		$	(0.51	)		$	(0.48	)
Earnings per weighted average common share — diluted:
Loss from continuing operations attributable to common stockholders		$	(0.18	)		$	(0.28	)		$	(0.54	)		$	(0.50	)
Income from discontinued operations		$	0.02			$	0.01			$	0.03			$	0.02
Net loss attributable to common stockholders		$	(0.16	)		$	(0.27	)		$	(0.51	)		$	(0.48	)
Common distributions declared per share		$	0.185			$	0.180			$	0.545			$	0.665
Weighted average number of common shares outstanding — basic			165,403				150,000				160,841				147,883
Weighted average number of common shares outstanding — diluted			165,403				150,000				160,841				147,883

See accompanying notes to consolidated financial statements

UDR, Inc.

		Nine Months Ended September 30,
		2010				2009
		(unaudited)				(unaudited)
Operating Activities
Consolidated net loss		$	(77,271	)		$	(65,838	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			225,246				211,477
Net gain on the sale of depreciable property			(4,034	)			(2,486	)
Loss/(gain) on debt extinguishment			1,121				(9,849	)
Write off of bad debt			2,036				2,635
Write off of note receivable and other assets			—				1,089
Loss from unconsolidated entities			2,757				18,187
Amortization of deferred financing costs and other			5,861				5,499
Amortization of deferred compensation			9,079				5,862
Amortization of convertible debt discount			2,754				3,316
Changes in income tax accrual			(2,702	)			1,846
Changes in operating assets and liabilities:
(Increase)/decrease in operating assets			(10,364	)			7,489
Increase in operating liabilities			3,006				10,423
Net cash provided by operating activities			157,489				189,650
Investing Activities
Proceeds from sales of real estate investments, net			20,688				—
Proceeds from note receivable			—				200,000
Payments related to the buyout of joint venture partner			(16,141	)			—
Acquisition of real estate assets (net of liabilities assumed) and initial capital expenditures			(342,697	)			(28,528	)
Development of real estate assets			(79,718	)			(142,195	)
Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement			(52,681	)			(63,881	)
Capital expenditures — non-real estate assets			(3,332	)			(6,290	)
Investment in unconsolidated joint ventures			(5,697	)			(23,871	)
Distributions received from unconsolidated joint venture			730				—
Purchase of marketable securities			—				(30,942	)
Net cash used in investing activities			(478,848	)			(95,707	)
Financing Activities
Payments on secured debt			(99,745	)			(34,205	)
Proceeds from the issuance of secured debt			62,833				434,860
Proceeds from the issuance of unsecured debt			149,190				—
Payments on unsecured debt			(79,488	)			(401,958	)
Net (repayment)/proceeds of revolving bank debt			(76,700	)			25,000
Payment of financing costs			(5,040	)			(5,267	)
Issuance of common and restricted stock, net			4,680				(969	)
Proceeds from the issuance of common shares through public offering, net			467,783				32,953
Payments on the repurchase of Series G preferred stock, net			(637	)			—
Distributions paid to non-controlling interests			(3,069	)			(5,925	)
Distributions paid to preferred stockholders			(7,119	)			(8,400	)
Distributions paid to common stockholders			(87,207	)			(117,020	)
Repurchase of common stock			—				(798	)
Net cash provided by/(used in) financing activities			325,481				(81,729	)
Net increase in cash and cash equivalents			4,122				12,214
Cash and cash equivalents, beginning of period			5,985				12,740
Cash and cash equivalents, end of period		$	10,107			$	24,954
Supplemental Information:
Interest paid during the year, net of amounts capitalized		$	120,424			$	122,577
Non-cash transactions:
Conversion of operating partnership non-controlling interests to common stock (445,560 in 2010 and 1,839,216 shares in 2009)			8,320				17,423
Secured debt assumed with the acquisition of properties, net of fair value adjustment			93,262				—
Retirement of fully depreciated assets			8,680				—
Issuance of restricted stock awards			16				1
Payment of Special Dividend through the issuance of 11,358,042 shares of common stock			—				132,787

See accompanying notes to consolidated financial statements

UDR, Inc.

																						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, 2009			6,236,774			$	132,395				155,465,482			$	1,555			$	1,948,669			$	(687,180	)		$	2			$	3,541			$	1,398,982
Comprehensive income (loss)
Net loss			—				—				—				—				—				(74,443	)			—				—				(74,443	)
Change in equity attributable to non-controlling interest			—				—				—				—				—				—				—				111				111
Other comprehensive income (loss)
Change in fair value of marketable securities			—				—				—				—				—				—				2,151				—				2,151
Unrealized loss on derivative financial instruments			—				—				—				—				—				—				(6,030	)			—				(6,030	)
Allocation to redeemable non-controlling interests			—				—				—				—				—				—				136				—				136
Comprehensive income (loss)																							(74,443	)			(3,743	)			111				(78,075	)
Issuance of common and restricted shares			—				—				1,673,585				17				12,738				—				—				—				12,755
Issuance of common shares through public offering			—				—				24,544,367				245				467,538				—				—				—				467,783
Repurchase of 27,400 shares of 6.75% Series G Cumulative Redeemable Shares			(27,400	)			(685	)			—				—				23				25				—				—				(637	)
Adjustment for conversion of non-controlling interests of unitholders in operating partnerships			—				—				445,560				4				8,316				—				—				—				8,320
Common stock distributions declared ($0.545 per share)			—				—				—				—				—				(92,331	)			—				—				(92,331	)
Preferred stock distributions declared-Series E ($0.9966 per share)			—				—				—				—				—				(2,794	)			—				—				(2,794	)
Preferred stock distributions declared-Series G ($1.265625 per share)			—				—				—				—				—				(4,325	)			—				—				(4,325	)
Adjustment to reflect redeemable non-controlling redemption value			—				—				—				—				—				(34,021	)			—								(34,021	)
Balance, September 30, 2010			6,209,374			$	131,710				182,128,994			$	1,821			$	2,437,284			$	(895,069	)		$	(3,741	)		$	3,652			$	1,675,657

See accompanying notes to consolidated financial statements

UDR, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. CONSOLIDATION AND BASIS OF PRESENTATION

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. 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 September 30, 2010, there were 179,909,408 units in the Operating Partnership outstanding, of which 174,369,059 units or 96.9% were owned by UDR and 5,540,349 units or 3.1% were owned by limited partners. The consolidated financial statements of UDR include the non-controlling interests of the unitholders in the Operating Partnership. The consolidated financial statements of UDR include the non-controlling interests of the unitholders in the Heritage OP prior to UDR’s ownership of 100% of the units outstanding in Heritage OP as of December 31, 2009.

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 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 September 30, 2010, and results of operations for the three and nine months ended September 30, 2010 and 2009 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 Annual Report on Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission on February 25, 2010.

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

The Company evaluated subsequent events through the date its financial statements were issued. No recognized or non-recognized subsequent events were noted except as noted in Note 15.

2. SIGNIFICANT ACCOUNTING POLICIES

Accounting Policies

Real Estate Sales

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 interest of the buyer in the real estate and defer the gain on the interest we retain in the real estate. 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.

Redeemable non-controlling interests in operating partnerships

Interests in operating partnerships held by limited partners are represented by operating partnership units (“OP Units”). The income is allocated to holders of OP Units based upon net income available to common stockholders and the weighted average number of OP Units outstanding to total common shares plus OP Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to non-controlling interests in accordance with the terms of the individual partnership agreements.

Limited partners have the right to require the Operating Partnership to redeem all or a portion of the OP Units held by the limited partner at a redemption price equal to and in the form of the Cash Amount (as defined in the limited partnership agreement of the Operating Partnership (the “Partnership Agreement”)), provided that such OP Units have been outstanding for at least one year. UDR, as the general partner of the Operating Partnership may, in its sole discretion, purchase the OP Units by paying to the limited partner either the Cash Amount or the REIT Share Amount (generally one share of common stock of the Company for each OP Unit), as defined in the Partnership Agreement. Accordingly, the Company records the OP Units outside of permanent equity and reports the OP Units at their redemption value at each balance sheet date.

Marketable Securities

Marketable securities represent common stock restricted for trading and debt securities in publicly held companies. These securities 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 Statements of Operations.

Investment in Unconsolidated Joint Ventures

We continually evaluate our investments in unconsolidated joint ventures 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. These factors include, but are not limited to, age of the venture, our intent and ability to retain our investment in the entity, the financial condition and long-term prospects of the entity, and the relationships with the other joint venture partners and its lenders. The amount of loss recognized is the excess of the investment’s carrying amount over its estimated fair value. If we believe that the decline in fair value is temporary, no impairment is recorded. The aforementioned factors are taken as a whole by management in determining the valuation of our investment in unconsolidated entities. Should the actual results differ from management’s judgment, the valuation could be negatively affected and may result in a negative impact to our Consolidated Financial Statements.

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 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. UDR recorded income tax benefit of $2.7 million and $2.6 million from the write-off of income tax payable for the three and nine months ended September 30, 2010, respectively, which are classified on the Consolidated Statements of Operations in the line item entitled “General and Administrative.”

Effective January 1, 2007, the Company adopted guidance which 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. It 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, 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.

UDR had no unrecognized tax benefit, accrued interest or penalties at September 30, 2010. UDR and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The tax years 2005 — 2009 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.

3. REAL ESTATE OWNED

Real estate assets owned by the Company consist of income producing operating properties, properties under development and land held for future development. As of September 30, 2010 the Company owned and consolidated 172 communities in 10 states plus the District of Columbia totaling 48,409 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of September 30, 2010 and December 31, 2009 (dollar amounts in thousands):

		September 30, 2010				December 31, 2009
Land		$	1,885,656			$	1,622,838
Depreciable property — held and used:
Building and improvements			4,582,697				4,104,165
Furniture, fixtures and equipment			290,105				248,236
Under development:
Land			27,052				65,525
Construction in progress			67,825				254,232
Held for disposition:
Land			—				12,563
Building and improvements			—				7,089
Furniture, fixtures and equipment			—				399
Real estate owned		$	6,853,335			$	6,315,047
Accumulated depreciation			(1,560,867	)			(1,351,293	)
Real estate owned, net		$	5,292,468			$	4,963,754

The following table summarizes UDR’s real estate community acquisitions for the three and nine months ended September 30, 2010 (dollar amounts in thousands):

										Purchase
Property Name		Market		Acquisition Date		Units				Price (a)
1818 Platinum Triangle		Orange County, CA		August 2010			265			$	70,500
Domain Brewers Hill		Baltimore, MD		August 2010			180				46,000
Garrison Square		Boston, MA		September 2010			160				98,000
Marina Pointe		Los Angeles, CA		September 2010			583				157,500
Ridge at Blue Hills		Boston, MA		September 2010			186				40,000
							1,374			$	412,000

The $412 million purchase price was allocated $153.6 million to land; $253.5 million to building and improvements; $2.5 million to furniture, fixtures, and equipment; and $2.4 million to intangible assets based on preliminary estimates and are subject to change as we obtain more complete information during the measurement period.

During the three and nine months ended September 30, 2010, the Company also acquired land located in San Francisco, CA with a purchase price of $23.6 million.

The Company incurred $2.7 million of acquisition related costs during the three and nine months ended September 30, 2010, and $13,000 and $274,000 during the three and nine months ended September 30, 2009, respectively. These expenses are classified on the Consolidated Statements of Operations in the line item entitled “General and administrative.”

The Company did not have any acquisitions for the three and nine months ended September 30, 2009.

4. DISCONTINUED OPERATIONS

Discontinued operations represent properties that UDR has either sold or which management believes meet the criteria to be classified as held for sale. In order to be classified as held for sale and reported as discontinued operations, a property’s operations and cash flows have been or will be divested to a third party by the Company whereby UDR will not have any 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 sold one 149 unit community during the three and nine months ended September 30, 2010. UDR recognized gains for financial reporting purposes of $3.9 million on this sale, which is included in discontinued operations. UDR did not dispose of any communities in the three and nine months ended September 30, 2009. The results of operations for the following properties are classified on the Consolidated Statements of Operations in the line item entitled “Income from discontinued operations.”

The following is a summary of income from discontinued operations for the three and nine months ended September 30, 2010 and 2009 (dollars in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Rental income		$	530			$	555			$	1,619			$	1,667
Rental expenses			231				207				637				607
Property management fee			15				15				45				46
Real estate depreciation			22				134				295				406
			268				356				977				1,059
Income before net gain on the sale of depreciable property			262				199				642				608
Net gain on the sale of depreciable property, excluding RE3			3,878				555				3,999				2,440
RE3 gain on the sale of depreciable property, net of tax			—				46				35				46
Income from discontinued operations		$	4,140			$	800			$	4,676			$	3,094

5. JOINT VENTURES

UDR has entered into joint ventures with unrelated third parties 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% when we have the power to direct the activities of the entity that most significantly affect the entity’s economic performance. In addition, the Company consolidates any joint venture in which we are the general partner or managing member and the third party partner or member 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 are funded with a combination of debt and equity. Our losses are limited to our investment and the Company does not guarantee any debt issued by our unconsolidated joint ventures, capital payout or other obligations associated with our joint ventures. The Company guarantees 100% of the debt owed by one of our consolidated joint ventures for which our equity ownership percentage is 98%.

Consolidated Joint Ventures

UDR is a partner with an unaffiliated third party in a joint venture (“989 Elements”) which owns and operates a 23-story, 166 home high-rise apartment community in the central business district of Bellevue, Washington. On December 30, 2009, UDR entered into an agreement with our partner to purchase its 49% interest in 989 Elements for $7.7 million. Concurrently, our partner resigned as managing member and appointed UDR as managing member. In addition, our partner relinquished its voting rights and approval rights and its ability to substantively participate in the decision-making process of the joint venture resulting in the consolidation of the joint venture. The joint venture assets and liabilities were recorded at fair value. The fair value of the assets was $55.0 million ($54.8 million of real estate owned and $200,000 of current assets) and the fair value of liabilities was $34.1 million ($33.4 million of a construction loan, net of fair market value adjustment of $1.6 million and $700,000 of current liabilities) at the consolidation date. On December 31, 2009, the Company repaid the outstanding balance of $35.0 million on the construction loan held by 989 Elements. In March 2010, the Company paid $7.7 million and acquired our partner’s 49% interest in the joint venture. At closing of the agreement and at September 30, 2010, the Company’s interest in 989 Elements was 98%.

UDR is a partner with an unaffiliated third party in a joint venture (“Elements Too”) which owns and operates a 274 home apartment community in the central business district of Bellevue, Washington. Construction began in the fourth quarter of 2006 and was completed in the first quarter of 2010. On October 16, 2009, our partner resigned as managing member and appointed UDR as managing member. In addition, our partner relinquished its voting rights and approval rights and its ability to substantively participate in the decision-making process of the joint venture resulting in the consolidation of the joint venture. The joint venture assets and liabilities were recorded at fair value. Prior to consolidation, our equity investment in Elements Too was $24.4 million (net of an $11.0 million equity loss recorded as of December 31, 2009) at October 16, 2009. The fair value of the assets was $100.3 million ($99.5 million of real estate owned and $814,000 of current assets) and the fair value of liabilities was $75.6 million ($70.5 million of a construction loan, $917,000 of a derivative instrument, and $4.2 million of current liabilities). On December 30, 2009, UDR entered into an agreement with our partner to purchase its 49% interest in Elements Too for $3.2 million. In March 2010, the Company paid the outstanding balance of $3.2 million and acquired our partner’s 49% interest in the joint venture. At closing of the agreement and at September 30, 2010, the Company’s interest in Elements Too was 98%. During the nine months ended September 30, 2010, the Company repaid the outstanding balance of $70.5 million on the construction loan held by Elements Too.

UDR is a partner with an unaffiliated third party in a joint venture (“Bellevue”) which owns an operating retail site in Bellevue, Washington. 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 year ended December 31, 2009, the joint venture decided to continue to operate the retail property as opposed to developing a high rise apartment building on the site. On December 30, 2009, UDR entered into an agreement with our partner to purchase its 49% interest in Bellevue for $5.2 million. In addition, our partner resigned as managing member and appointed UDR as managing member. Concurrent with its resignation, our partner relinquished its voting rights and approval rights and its ability to substantively participate in the decision-making process of the joint venture resulting in the consolidation of the joint venture at fair value. Prior to consolidation, our equity investment in Bellevue was $5.0 million (net of a $5.0 million equity loss recorded as of December 31, 2009). The fair value of the assets was $33.0 million ($32.8 million of real estate owned and $211,000 of current assets) and the fair value of liabilities was $23.0 million ($22.3 million of a mortgage payable, $506,000 of a derivative instrument, and $213,000 of current liabilities). In March 2010, the Company paid $5.2 million and acquired our partner’s 49% interest in the joint venture. At closing of the agreement and at September 30, 2010, the Company’s interest in Bellevue was 98%. At September 30, 2010, the carrying value of the mortgage payable guaranteed by the Company was $22.3 million.

Prior to their consolidation in 2009, we evaluated our investments in these joint ventures when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We considered various factors to determine if a decrease in value of each of these investments is other-than-temporary. In 2009, we recognized a non-cash charge of $16.0 million representing the other-than-temporary decline in fair values below the carrying values of two of the Company’s Bellevue, Washington joint ventures. The Company did not recognize any other-than-temporary decrease in the value of its other investments in unconsolidated joint ventures during the three and nine months ended September 30, 2010.

The activities and accounts of these joint ventures are included in the Company’s consolidated financial position as of September 30, 2010 and December 31, 2009, consolidated results of operations for the three and nine months ended September 30, 2010, and consolidated cash flows for the nine months ended September 30, 2010.

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 services to the unconsolidated joint ventures. As of September 30, 2010, UDR had investments in the following unconsolidated joint ventures which are accounted for under the equity method of accounting.

In August 2009, UDR and an unaffiliated third party formed a jointed venture for the investment of up to $450.0 million in multifamily properties located in key, high barrier to entry markets. The partners will contribute equity of $180.0 million of which the Company’s maximum equity will be 30% or $54.0 million when fully invested. During the quarter ended June 30, 2010, the joint venture acquired its first property (151 homes) located in Metropolitan Washington D.C. for $43.1 million. At closing and at September 30, 2010, the Company owned 30%. Our investment at September 30, 2010 and December 31, 2009 was $5.3 million and $242,000, respectively.

In November 2007, UDR and an unaffiliated third party formed a joint venture which owns and operates 10 operating properties located in Texas (3,992 homes). 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 September 30, 2010 and December 31, 2009 was $11.1 million and $13.9 million, respectively.

We evaluate our investments in unconsolidated joint ventures 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. During the three and nine months ended September 30, 2010, the Company did not recognize any other-than-temporary decreases in the value of its investments in unconsolidated joint ventures.

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

		2010				2009 (a)
For the three months ended September 30,:
Revenues		$	11,015			$	11,417
Real estate depreciation and amortization			5,753				5,474
Net loss			(3,945	)			(4,761	)
For the nine months ended September 30,:
Revenues		$	31,647			$	34,454
Real estate depreciation and amortization			16,322				15,861
Net loss			(12,610	)			(11,188	)

The combined summary balance sheets relating to 100% of all the unconsolidated joint ventures (not just our proportionate share) are presented below as of September 30, 2010 and December 31, 2009 (dollars in thousands):

		September 30,				December 31,
		2010				2009
Real estate, net		$	350,073			$	320,786
Total assets			360,758				332,694
Amount due to UDR			839				779
Third party debt			280,000				254,000
Total liabilities			289,935				265,091
Equity			70,823				67,603

As of September 30, 2010, 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 $453,000 and $1.5 million and $466,000 and $1.5 million of management fees for our involvement in the joint ventures for the three and nine months ended September 30, 2010 and 2009, respectively.

The Company may, in the future, make additional capital contributions to certain of our joint ventures should additional capital contributions be necessary to fund acquisitions and operating shortfalls.

6. 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 a fixed interest rate for the underlying debt instrument. Secured debt on continuing operations, which encumbers $3.2 billion or 47% of UDR’s real estate owned based upon book value ($3.6 billion or 53% of UDR’s real estate owned is unencumbered) consists of the following as of September 30, 2010 (dollars in thousands):

										Nine Months Ended September 30, 2010
		Principal Outstanding								Weighted				Weighted				Number of
		September 30,				December 31,				Average				Average				Communities
		2010				2009				Interest Rate				Years to Maturity				Encumbered
Fixed Rate Debt
Mortgage notes payable		$	344,048			$	506,203				5.18	%			2.7				10
Tax-exempt secured notes payable			13,325				13,325				5.30	%			20.4				1
Fannie Mae credit facilities			948,002				949,971				5.40	%			6.3				14
Total fixed rate secured debt			1,305,375				1,469,499				5.34	%			5.5				25
Variable Rate Debt
Mortgage notes payable			385,284				243,810				2.34	%			3.0				14
Tax-exempt secured note payable			94,700				27,000				1.09	%			19.5				2
Fannie Mae credit facilities			260,451				249,125				1.68	%			5.4				35
Total variable rate secured debt			740,435				519,935				1.95	%			5.9				51
Total secured debt		$	2,045,810			$	1,989,434				4.11	%			5.7				76

UDR has five secured credit facilities with Fannie Mae with an aggregate commitment of $1.4 billion at September 30, 2010. 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 $948.0 million of the funded balance fixed at a weighted average interest rate of 5.4% and the remaining balance on these facilities is currently at a weighted average variable rate of 1.7%.

		September 30, 2010				December 31, 2009
		(dollar amounts in thousands)
Borrowings outstanding		$	1,208,453			$	1,199,096
Weighted average borrowings during the period ended			1,206,806				1,033,658
Maximum daily borrowings during the period ended			1,209,739				1,199,322
Weighted average interest rate during the period ended			4.6	%			4.6	%
Weighted average interest rate at the end of the period			4.6	%			4.6	%

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 a net discount of $779,000 and $987,000 at September 30, 2010 and December 31, 2009, 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 January 2011 through February 2017 and carry interest rates ranging from 2.66% to 6.60%. Mortgage notes payable includes debt associated with development activities.

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 September 30, 2010, the Company had $948.0 million outstanding of fixed rate secured credit facilities with Fannie Mae with a weighted average fixed interest rate of 5.40%.

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 January 2011 through April 2016. The mortgage notes payable are based on LIBOR plus basis points, which translate into interest rates ranging from 0.98% to 5.25% at September 30, 2010.

Tax-exempt secured notes payable. The variable rate mortgage notes payable that secure tax-exempt housing bond issues mature at various dates from August 2019 and March 2030. Interest on these notes is payable in monthly installments. The variable mortgage notes have interest rates ranging from 1.07% to 1.10% as of September 30, 2010.

Secured credit facilities. At September 30, 2010, the Company had $260.5 million outstanding of variable rate secured credit facilities with Fannie Mae with a weighted average floating interest rate of 1.68%.

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
2010		$	909			$	—			$	684			$	—			$	—			$	—			$	1,593
2011			129,868				—				52,808				110,524				—				39,513				332,713
2012			57,390				—				177,944				58,621				—				59,529				353,484
2013			62,010				—				38,631				38,509				—				—				139,150
2014			381				—				3,328				101,102				—				—				104,811
Thereafter			93,490				13,325				674,607				76,528				94,700				161,409				1,114,059
Total		$	344,048			$	13,325			$	948,002			$	385,284			$	94,700			$	260,451			$	2,045,810

7. UNSECURED DEBT

A summary of unsecured debt as of September 30, 2010 and December 31, 2009 is as follows (dollars in thousands):

		September 30,				December 31,
		2010				2009
Commercial Banks
Borrowings outstanding under an unsecured credit facility due July 2012 (a)		$	112,600			$	189,300
Senior Unsecured Notes
3.90% Medium-Term Notes due March 2010 (includes premium of $34)			—				50,034
3.63% Convertible Senior Notes due September 2011 (net of discount of $1,497 and $3,351) (b), (d), (h)			95,602				122,984
5.00% Medium-Term Notes due January 2012			100,000				100,000
3.02% Term Notes due December 2013 (c)			100,000				100,000
6.05% Medium-Term Notes due June 2013			122,500				122,500
5.13% Medium-Term Notes due January 2014 (e)			184,000				184,000
5.50% Medium-Term Notes due April 2014 (net of discount of $243 and $295) (e)			128,257				128,205
5.25% Medium-Term Notes due January 2015 (includes net discount of $551 and premium $177) (e),(f)			324,624				175,352
5.25% Medium-Term Notes due January 2016 (e)			83,260				83,260
8.50% Debentures due September 2024			15,644				15,644
4.00% Convertible Senior Notes due December 2035 (net of discount of $416 and $1,916) (g), (h)			167,334				165,834
Other			39				42
			1,321,260				1,247,855
		$	1,433,860			$	1,437,155

The following is a summary of short-term bank borrowings under UDR’s bank credit facility at September 30, 2010 and December 31, 2009 (dollars in thousands):

		September 30,				December 31,
		2010				2009
Total revolving credit facility		$	600,000			$	600,000
Borrowings outstanding at end of period (1)			112,600				189,300
Weighted average daily borrowings during the period ended			150,342				83,875
Maximum daily borrowings during the period ended			337,600				279,400
Weighted average interest rate during the period ended			0.8	%			0.9	%
Weighted average interest rate at the end of the period			0.8	%			0.7	%

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 September 30, 2010 are as follows (dollars in thousands):

		Bank				Unsecured
		Lines				Debt				Total
2010		$	—			$	—			$	—
2011 (a)			—				262,743				262,743
2012			112,600				199,808				312,408
2013			—				122,308				122,308
2014			—				312,353				312,353
Thereafter			—				424,048				424,048
		$	112,600			$	1,321,260			$	1,433,860

Our debt instruments contain covenants that we were in compliance with at September 30, 2010.

On September 30, 2010, the Operating Partnership guaranteed certain outstanding debt securities of UDR, Inc. These guarantees provide that the Operating Partnership, as primary obligor and not merely as surety, irrevocably and unconditionally guarantees to each holder of the applicable securities and to the trustee and their successors and assigns under the respective indenture (a) the full and punctual payment when due, whether as stated maturity, by acceleration or otherwise, of all obligations of the Company under the respective indenture whether for principal or interest on the securities (and premium, if any), and all other monetary obligations of the Company under the respective indenture and the terms of the applicable securities and (b) the full and punctual performance within the applicable grace periods of all other obligations of the Company under the respective indenture and the terms of applicable securities.

8. LOSS PER SHARE

Basic loss per common share is computed based upon the weighted average number of common shares outstanding during the period. Diluted loss 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 loss per share for the periods presented (amounts in thousands, except per share data):

		Three months ended								Nine months ended
		September 30,								September 30,
		2010				2009				2010				2009
Numerator for loss per share — basic and diluted:
Net loss attributable to common stockholders		$	(26,134	)		$	(40,776	)		$	(81,537	)		$	(71,063	)
Denominator for loss per share — basic and diluted:
Weighted average common shares outstanding			167,056				150,801				162,294				148,932
Non-vested restricted stock awards			(1,653	)			(801	)			(1,453	)			(1,049	)
Denominator for basic and diluted loss per share			165,403				150,000				160,841				147,883
Loss per share — basic and diluted		$	(0.16	)		$	(0.27	)		$	(0.51	)		$	(0.48	)

The effect of the conversion of the OP Units, convertible preferred stock, convertible debt, stock options and restricted stock is not dilutive and is therefore not included in the above calculations as the Company reported a loss from continuing operations.

If the OP Units were converted to common stock, the additional weighted average common shares outstanding for the three and nine months ended September 30, 2010 and 2009, would be 5,615,619 and 5,850,432 and 6,317,556 and 6,889,816 respectively.

The effect of the conversion of the Series E Out-Performance Partnership Shares (the Series E Out-Performance Program terminated on December 31, 2009) is not dilutive for the three and nine months ended September 30, 2009 and is not included in the above calculations as the Company reported a loss from continuing operations.

If the convertible preferred stock were converted to common stock, the additional shares of common stock outstanding for the three and nine months ended September 30, 2010 and 2009 would be 3,035,548 weighted average common shares.

The dilution from unvested restricted stock and stock options would be an additional 2,425,654 and 2,209,025, and 844,219 and 320,905 weighted average common shares for the three and nine months ended September 30, 2010 and 2009, respectively.

9. FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS