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UDR, Inc. 10-Q 2010 Documents found in this filing:Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
FORM 10-Q
For the quarterly period ended September 30, 2010
OR
For the transition period from to
Commission file number
1-10524 (UDR, Inc.) 333-156002-01 (United Dominion Realty, L.P.) UDR, Inc.
United Dominion Realty, L.P. (Exact name of registrant as specified in its charter)
1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado 80129
(Address of principal executive offices) (zip code) (720) 283-6120
(Registrant’s telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
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).
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.:
United Dominion Realty, L.P.:
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
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
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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.
Table of Contents
PART I — FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
UDR, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
See accompanying notes to consolidated financial statements
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UDR, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
See accompanying notes to consolidated financial statements
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UDR, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except for share data)
See accompanying notes to consolidated financial statements
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UDR, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME/(LOSS)
(In thousands, except per share data)
(Unaudited)
See accompanying notes to consolidated financial statements
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UDR, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
(UNAUDITED)
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.
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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.
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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.
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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):
The following table summarizes UDR’s real estate community acquisitions for the three and nine
months ended September 30, 2010 (dollar amounts in thousands):
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.
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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):
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%.
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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.
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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):
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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):
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):
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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%.
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%.
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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):
7. UNSECURED DEBT
A summary of unsecured debt as of September 30, 2010 and December 31, 2009 is as follows
(dollars in thousands):
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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):
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):
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.
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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):
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.
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9. FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS
Fair value is based on the price that would be received to sell an asset or the exit price
that would be paid to transfer a liability in an orderly transaction between market participants at
the measurement date. A three-level valuation hierarchy prioritizes observable and unobservable
inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which
are described below:
The estimated fair values of the Company’s financial instruments either recorded or disclosed
on a recurring basis as of September 30, 2010 and December 31, 2009 are summarized as follows
(dollars in thousands):
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Financial Instruments Carried at Fair Value
The fair values of the corporate debt securities and equity securities are determined by Level
1 inputs which utilize quoted prices in active markets where we have the ability to access values
for identical assets.
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The cost, gross unrealized gains and fair values of the Company’s investments at September 30,
2010 and December 31, 2009 are as follows (dollars in thousands):
The fair values of interest rate swaps are determined using the market standard
methodology of netting the discounted future fixed cash receipts (or payments) and the discounted
expected variable cash payments (or receipts). The variable cash payments (or receipts) are based
on an expectation of future interest rates (forward curves) derived from observable market interest
rate curves. The fair values of interest rate options are determined using the market standard
methodology of discounting the future expected cash receipts that would occur if variable interest
rates rise above the strike rate of the caps. The variable interest rates used in the calculation
of projected receipts on the cap are based on an expectation of future interest rates derived from
observable market interest rate curves and volatilities.
The Company incorporates credit valuation adjustments to appropriately reflect both its own
nonperformance risk and the respective counterparty’s nonperformance risk in the fair value
measurements. In adjusting the fair value of its derivative contracts for the effect of
nonperformance risk, the Company has considered the impact of netting and any applicable credit
enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Although the Company has determined that the majority of the inputs used to value its
derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments
associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads
to evaluate the likelihood of default by itself and its counterparties. However, as of September
30, 2010 and 2009, the Company has assessed the significance of the impact of the credit valuation
adjustments on the overall valuation of its derivative positions and has determined that the credit
valuation adjustments are not significant to the overall valuation of its derivatives. As a
result, the Company has determined that its derivative valuations in their entirety are classified
in Level 2 of the fair value hierarchy.
Financial Instruments Not Carried at Fair Value
At September 30, 2010, the fair values of cash and cash equivalents, restricted cash, notes
receivable, accounts receivable, prepaids, real estate taxes payable, accrued interest payable,
security deposits and prepaid rent, distributions payable and accounts payable approximated their
carrying values because of the short term nature of these instruments. The estimated fair values
of other financial instruments were determined by the Company using available market information
and appropriate valuation methodologies. Considerable judgment is necessary to interpret market
data and develop estimated fair values. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company would realize on the disposition of the financial
instruments. The use of different market assumptions or estimation methodologies may have a
material effect on the estimated fair value amounts.
We estimate the fair value of our debt instruments by discounting the remaining cash
flows of the debt instrument at a discount rate equal to the replacement market credit spread plus
the corresponding treasury yields. Factors considered in determining a replacement market credit
spread include general market conditions, borrower specific credit spreads, time remaining to
maturity, loan-to-value ratios and collateral quality (Level 3).
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We record impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated
to be generated by the future operation and disposition of those assets are less than the net book
value of those assets. Our cash flow estimates are based upon historical results adjusted to
reflect our best estimate of future market and operating conditions and our estimated holding
periods. The net book value of impaired assets is reduced to fair value. Our estimates of fair
value represent our best estimate based upon Level 3 inputs such as industry trends and reference
to market rates and transactions.
We consider various factors to determine if a decrease in the value of 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. Based
on the significance of the unobservable inputs, we classify these fair value measurements within
Level 3 of the valuation hierarchy. 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
our unconsolidated 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.
After determining an other-than-temporary decrease in the value of an equity method investment
has occurred, we estimate the fair value of our investment by estimating the proceeds we would
receive upon a hypothetical liquidation of the investment at the date of measurement. Inputs
reflect management’s best estimate of what market participants would use in pricing the investment
giving consideration to the terms of the joint venture agreement and the estimated discounted
future cash flows to be generated from the underlying joint venture asset. The inputs and
assumptions utilized to estimate the future cash flows of the underlying asset are based upon the
Company’s evaluation of the economy, market trends, operating results, and other factors, including
judgments regarding costs to complete any construction activities, lease up and occupancy rates,
rental rates, inflation rates, capitalization rates utilized to estimate the projected cash flows
at the disposition, and discount rates.
10. 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 may enter into derivative financial instruments to manage exposures that
arise from business activities that result in the receipt or payment of future known and uncertain
cash amounts, the value of which are determined by interest rates. The Company’s derivative
financial instruments are used to manage differences in the amount, timing, and duration of the
Company’s known or expected cash receipts and its known or expected cash payments principally
related to the Company’s investments and borrowings.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest
expense and to manage its exposure to interest rate movements. To accomplish this objective, the
Company primarily uses interest rate swaps and caps as part of its interest rate risk management
strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate
amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of
the agreements without exchange of the underlying notional amount. Interest rate caps designated as
cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates
rise above the strike rate on the contract in exchange for an up front premium.
The effective portion of changes in the fair value of derivatives designated and that qualify
as cash flow hedges is recorded in “Accumulated Other Comprehensive Income/(Loss)” and is
subsequently reclassified into earnings in the period that the hedged forecasted transaction
affects earnings. During the three and nine months ended September 30, 2010 and 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 and nine months ended September 30, 2010 and 2009, the Company recorded
less than a $1,000 loss of ineffectiveness in earnings attributable to reset date and index mismatches
between the derivative and the hedged item, and the fair value of interest rate swaps that were not
zero at inception of the hedging relationship.
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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. Through September 30, 2011, the Company estimates that an additional $5.7
million will be reclassified as an increase to interest expense.
As of September 30, 2010, the Company had the following outstanding interest rate derivatives
that were designated as cash flow hedges of interest rate risk (dollar amounts in thousands):
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 FASB ASC 815, Derivatives and Hedging (formerly SFAS 133, “Accounting
for Derivative Instruments and Hedging Activities”). Changes in the fair value of derivatives not
designated in hedging relationships are recorded directly in earnings and resulted in losses of
$468,000 and $1.1 million for the three and nine months ended September 30, 2010, and gains of
$20,000 and $685,000 for the three and nine months ended September 30, 2009, respectively. As of
September 30, 2010, the Company had the following outstanding derivatives that were not designated
as hedges in qualifying hedging relationships (dollar amounts in thousands):
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 Consolidated Balance Sheets as of September 30, 2010 and
December 31, 2009 (amounts in thousands):
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Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statements of
Operations
The tables below present the effect of the Company’s derivative financial instruments on the
Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and
2009 (dollar amounts in thousands):
Credit-risk-related Contingent Features
The Company has agreements with some of its derivative counterparties that contain a provision
where (1) if the Company defaults on any of its indebtedness, including default where repayment of
the indebtedness has not been accelerated by the lender, then the Company could also be declared in
default on its derivative obligations; or (2) the Company could be declared in default on its
derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due
to the Company’s default on the indebtedness.
Certain of the Company’s agreements with its derivative counterparties contain provisions
where if there is a change in the Company’s financial condition that materially changes the
Company’s creditworthiness in an adverse manner, the Company may be required to fully collateralize
its obligations under the derivative instrument.
The Company also has an agreement with a derivative counterparty that incorporates the loan
and financial covenant provisions of the Company’s indebtedness with a lender affiliate of the
derivative counterparty. Failure to comply with these covenant provisions would result in the
Company being in default on any derivative instrument obligations covered by the agreement.
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As of September 30, 2010, the fair value of derivatives in a net liability position, which
includes accrued interest but excludes any adjustment for nonperformance risk, related to these
agreements was $10.7 million. As of September 30, 2010, the Company has not posted any collateral
related to these agreements. If the Company had breached any of these provisions at September 30,
2010, it would have been required to settle its obligations under the agreements at their
termination value of $10.7 million.
11. OTHER COMPREHENSIVE INCOME/(LOSS)
During the three and nine months ended September 30, 2010 and 2009, components of
comprehensive income/(loss) consisted of an unrealized gain of $3.1 million and $2.2 million and
$2.5 million and $4.5 million, respectively, from the mark-to-market of marketable securities
classified as available-for-sale and an unrealized (loss)/gain of ($3.2 million) and ($6.0 million)
and $46,000 and $5.4 million, respectively, from derivative financial instruments. The Company
allocated a pro-rata share of gain/(loss) of $1,000 and $136,000 and ($123,000) and ($662,000) to
redeemable non-controlling interests for the three and nine months ended September 30, 2010 and
2009, respectively. Total comprehensive loss for the three and nine months ended September 30, 2010
and 2009 was $23.9 million and $78.1 million and $35.5 million and $53.3 million, respectively.
12. STOCK BASED COMPENSATION
Effective January 1, 2006, the Company adopted the modified prospective method for stock based
compensation. During the three and nine months ended September 30, 2010 and 2009, we recognized
$3.1 million and $9.1 million, and $1.7 million and $5.9 million, respectively, as stock based
compensation expense, which is inclusive of awards granted to our outside directors.
13. COMMITMENTS AND CONTINGENCIES
Commitments
Real Estate Under Development
The following summarizes the Company’s real estate commitments at September 30, 2010 (dollars
in thousands):
Contingencies
Litigation and Legal Matters
The Company is subject to various legal proceedings and claims arising in the ordinary course
of business. The Company cannot determine the ultimate liability with respect to such legal
proceedings and claims at this time. The Company believes that such liability, to the extent not
provided for through insurance or otherwise, will not have a material adverse effect on our
financial condition, results of operations or cash flow.
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14. REPORTABLE SEGMENTS
GAAP guidance requires that segment disclosures present the measure(s) used by the chief
operating decision maker to decide how to allocate resources and for purposes of assessing such
segments’ performance. UDR’s chief operating decision maker is comprised of several members of its
executive management team who use several generally accepted industry financial measures to assess
the performance of the business for our reportable operating segments.
UDR owns and operates multifamily apartment communities that generate rental and other
property related income through the leasing of apartment homes to a diverse base of tenants. The
primary financial measures for UDR’s apartment communities are rental income and net operating
income (“NOI”). Rental income represents gross market rent less adjustments for concessions,
vacancy loss and bad debt. NOI is defined as total revenues less direct property operating
expenses. UDR’s chief operating decision maker utilizes NOI as the key measure of segment profit or
loss.
UDR’s two reportable segments are same communities and non-mature/other communities:
Management evaluates the performance of each of our apartment communities on a same community
and non-mature/other basis, as well as individually and geographically. This is consistent with the
aggregation criteria under GAAP as each of our apartment communities generally has similar economic
characteristics, facilities, services, and tenants. Therefore, the Company’s reportable segments
have been aggregated by geography in a manner identical to that which is provided to the chief
operating decision maker.
All revenues are from external customers and no single tenant or related group of tenants
contributed 10% or more of UDR’s total revenues during the three and nine months ended September
30, 2010 and 2009.
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The accounting policies applicable to the operating segments described above are the same as
those described in Note 2, “Significant Accounting Policies.” The following table details rental
income and NOI for UDR’s reportable segments for the three and nine months ended September 30, 2010
and 2009, and reconciles NOI to loss from continuing operations per the Consolidated Statements of
Operations (dollars in thousands):
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The following table details the assets of UDR’s reportable segments as of September 30, 2010
and December 31, 2009 (dollars in thousands):
Capital expenditures related to our same communities totaled $11.7 million and $34.2 million
and $13.0 million and $40.4 million for the three and nine months ended September 30, 2010 and
2009, respectively. Capital expenditures related to our non-mature/other communities totaled $1.0
million and $2.8 million and $800,000 and $3.5 million for the three and nine months ended
September 30, 2010 and 2009, respectively.
Markets included in the above geographic segments are as follows:
15. SUBSEQUENT EVENT
On
November 5, 2010, the Company acquired The Hanover Company’s (“Hanover”) partnership interests in the Hanover/MetLife Master Limited
Partnership (the “Partnership”). The Partnership owns a portfolio of 26 operating communities containing 5,748 homes
and 11 land parcels with the potential to develop approximately 2,300 additional homes. Under the
terms of the Partnership, UDR will act as the general partner and earn fees for property and asset
management and financing transactions.
In consideration for its Partnership interest, UDR will pay
$63 million at closing, and has agreed to pay the balance to Hanover with two interest free installments in the
amounts of $20 million and $10 million on the first and second anniversaries of the closing,
respectively.
UDR
has agreed to indemnify Hanover for losses that may arise from $506 million recourse loans
which are secured by a security interest in the operating community
subject to the loan. The loans are to the sub-tier partnerships which
own the 26 operating communities. The Company
anticipates that these loans will be refinanced by the Partnership over the next twelve months.
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UNITED DOMINION REALTY, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for unit data)
See accompanying notes to the consolidated financial statements.
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UNITED DOMINION REALTY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
(unaudited)
See accompanying notes to the consolidated financial statements.
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UNITED DOMINION REALTY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except for unit data)
(unaudited)
See accompanying notes to the consolidated financial statements.
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UNITED DOMINION REALTY, L.P.
CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL AND COMPREHENSIVE INCOME/(LOSS)
(In thousands)
(unaudited)
See accompanying notes to the consolidated financial statements.
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UNITED DOMINION REALTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(UNAUDITED)
1. CONSOLIDATION AND BASIS OF PRESENTATION
Consolidation and Basis of Presentation
United Dominion Realty, L.P. (“UDR, L.P.”, the “Operating Partnership”, “we” or “our”) is a
Delaware limited partnership, that owns, acquires, renovates, develops, redevelops, manages, and
disposes of multifamily apartment communities generally located in high barrier-to-entry markets
located in the United States. The high barrier-to-entry markets are characterized by limited land
for new construction, difficult and lengthy entitlement process, expensive single-family home
prices and significant employment growth potential. UDR, L.P. is a subsidiary of UDR, Inc. (“UDR”
or the “General Partner”), a real estate investment trust under the Internal Revenue Code of 1986,
and through which UDR conducts a significant portion of its business. During the nine months ended
September 30, 2010 and 2009, revenues of the Operating Partnership represented of 56% and 59% of
the General Partner’s consolidated revenues. At September 30, 2010, the Operating Partnership’s
apartment portfolio consisted of 81 communities located in 19 markets consisting of 23,351
apartment homes.
Interests in UDR, L.P. are represented by Operating Partnership Units (“OP Units”). The
Operating Partnership’s net income is allocated to the partners, which is initially based on their
respective distributions made during the year and secondly, their percentage interests.
Distributions are made in accordance with the terms of the Amended and Restated Agreement of
Limited Partnership of United Dominion Realty, L.P. (the “Operating Partnership Agreement”), on a
per unit basis that is generally equal to the dividend per share on UDR’s common stock, which is
publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “UDR”.
As of September 30, 2010, there were 179,909,408 OP units in the Operating Partnership
outstanding, of which, 174,369,059 or 96.9% were owned by UDR and affiliated entities and 5,540,349
or 3.1%, which were owned by non-affiliated limited partners. There were 179,909,408 OP units in
the Operating Partnership outstanding as of December 31, 2009 of which, 173,922,816 or 96.7% were
owned by UDR and affiliated entities and 5,986,592 or 3.3%, which were owned by non-affiliated
limited partners. See Note 9, Capital Structure.
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 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
included in the Form 8-K filed by UDR with the SEC on September 30, 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 intercompany accounts and transactions have
been eliminated in consolidation.
The Operating Partnership evaluated subsequent events through the date its financial
statements were issued. No recognized or non-recognized subsequent events were noted.
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2. SIGNIFICANT ACCOUNTING POLICIES
Accounting Policies
Real Estate Sales
For sales transactions meeting the requirements for full accrual profit recognition, such as
the Operating Partnership 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 Operating Partnership 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.
Income taxes
The taxable income or loss of the Operating Partnership is reported on the tax returns of the
partners. Accordingly, no provision has been made in the accompanying financial statements for
federal or state income taxes on income that is passed through to the partners. However, any state
or local revenue, excise or franchise taxes that result from the operating activities of the
Operating Partnership are recorded at the entity level. The Operating Partnership’s tax returns are
subject to examination by federal and state taxing authorities. Net income for financial reporting
purposes differs from the net income for income tax reporting purposes primarily due to temporary
differences, principally real estate depreciation and the tax deferral of certain gains on property
sales. The differences in depreciation result from differences in the book and tax basis of
certain real estate assets and the differences in the methods of depreciation and lives of the real
estate assets.
The Operating Partnership adopted certain accounting guidance within ASC Topic 740, Income
Taxes, with respect to how uncertain tax positions should be recognized, measured, presented, and
disclosed in the financial statements. The guidance requires the accounting and disclosure of tax
positions taken or expected to be taken in the course of preparing the Operating Partnership’s tax
returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the
applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would
be recorded as a tax benefit or expense in the current year. Management of the Operating
Partnership is required to analyze all open tax years, as defined by the statute of limitations,
for all major jurisdictions, which include federal and certain states. The Operating Partnership
has no examinations in progress and none are expected at this time.
Management of the Operating Partnership has reviewed all open tax years (2005- 2009) and major
jurisdictions and concluded the adoption of the new accounting guidance resulted in no impact to
the Operating Partnership’s financial position or results of operations. There is no tax liability
resulting from unrecognized tax benefits relating to uncertain income tax positions taken or
expected to be taken in future tax returns.
Earnings per OP unit
Basic earnings per OP Unit is computed by dividing net income/(loss) attributable to general
and limited partner units by the weighted average number of general and limited partner units
(including redeemable OP Units) outstanding during the year. Diluted earnings per OP Unit reflects
the potential dilution that could occur if securities or other contracts to issue OP Units were
exercised or converted into OP Units or resulted in the issuance of OP Units that shared in the
earnings of the Operating Partnership. For the three and nine months ended September 30,
2010 and 2009, there were no dilutive instruments outstanding, and therefore, diluted earnings
per OP Unit and basic earnings per OP Unit are the same.
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3. REAL ESTATE OWNED
Real estate assets owned by the Operating Partnership consists of income producing operating
properties and land held for future development. At September 30, 2010, the Operating Partnership
owned and consolidated 81 communities in 8 states plus the District of Columbia totaling 23,351
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):
The Operating Partnership did not have any acquisitions during the nine months ended September
30, 2010.
4. DISCONTINUED OPERATIONS
Discontinued operations represent properties that the Operating Partnership 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 Operating Partnership whereby UDR, L.P.
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 Operating Partnership. Once a property is deemed as held for sale, depreciation is no longer
recorded. However, if the Operating Partnership determines that the property no longer meets the
criteria of held for sale, the Operating Partnership 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.
The Operating Partnership did not dispose of any communities during the three and nine months
ended September 30, 2010 and 2009, nor did we have any communities classified as held for
disposition at September 30, 2010 or December 31, 2009. During the three and nine months ended
September 30, 2010 and 2009, the Operating Partnership recognized $27,000 and $124,000 and $146,000
and $1.6 million, respectively, of “Income from Discontinued Operations” which relates to residual
activities from sold communities.
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5. 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 in 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 Operating Partnership
having effectively established the fixed interest rate for the underlying debt instrument. Secured
debt consists of the following as of September 30, 2010 (dollars in thousands):
As of September 30, 2010, the General Partner had secured credit facilities with Fannie Mae
(“FNMA”) with an aggregate commitment of $1.4 billion with $1.2 billion outstanding. 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 the General
Partner’s option. At September 30, 2010, $948.0 million of the funded balance was fixed at a
weighted average interest rate of 5.4% and the remaining balance of $260.5 million on these
facilities had a weighted average variable rate of 1.7%. $761.8 million of these credit facilities
were allocated to the Operating Partnership at September 30, 2010 based on the ownership of the
assets securing the debt.
The Operating Partnership may 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 value adjustment of the fixed rate debt
instruments on the Operating Partnership’s properties was a net discount of $1.2 million at
September 30, 2010 and December 31, 2009.
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 February 2011 through June
2016 and carry interest rates ranging from 5.03% to 5.94%.
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.
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Secured credit facilities. At September 30, 2010, the General Partner had borrowings against
its fixed rate facilities of $948.0 million of which $587.4 million was allocated to the Operating
Partnership based on the ownership of the assets securing the debt. As of September 30, 2010, the
fixed rate Fannie Mae credit facilities allocated to the Operating Partnership had a weighted
average fixed rate of interest of 5.30%.
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 July 2013 through April
2016. Interest on the variable rate mortgage notes is based on LIBOR plus some basis points, which
translated into interest rates ranging from 1.18% to 3.89% at September 30, 2010.
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 mortgage note payable has an interest rate of 1.07% as of September 30, 2010.
Secured credit facilities. At September 30, 2010, the General Partner had borrowings against
its variable rate facilities of $260.5 million of which $174.4 million was allocated to the
Operating Partnership based on the ownership of the assets securing the debt. As of September 30,
2010, the variable rate borrowings under the Fannie Mae credit facilities allocated to the
Operating Partnership had a weighted average floating rate of interest of 1.96%.
The aggregate maturities of the Operating Partnership’s secured debt due during each of the
next five calendar years and thereafter are as follows (dollars in thousands):
Guarantor on Unsecured Debt
The Operating Partnership is a guarantor on the General Partner’s unsecured credit facility,
with an aggregate borrowing capacity of $600 million, and a $100 million term loan. At September
30, 2010 and December 31, 2009, the outstanding balance under the unsecured credit facility was
$112.6 million and $189.3 million, respectively.
On September 30, 2010, the Operating Partnership guaranteed certain outstanding debt
securities of the General Partner. 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 General Partner under the respective indenture
whether for principal or interest on the securities (and premium, if any), and all other monetary
obligations of the General Partner 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 General Partner under the respective indenture and the terms of applicable
securities.
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6. RELATED PARTY TRANSACTIONS
Receivable due from the General Partner
The Operating Partnership participates in the General Partner’s central cash management
program, wherein all the Operating Partnership’s cash receipts are remitted to the General Partner
and all cash disbursements are funded by the General Partner. In addition, other miscellaneous
costs such as administrative expenses are incurred by the General Partner on behalf of the
Operating Partnership. As a result of these various transactions between the Operating Partnership
and the General Partner, the Operating Partnership had a net receivable balance of $565.4 million
and $588.2 million at September 30, 2010 and December 31, 2009, respectively, which is reflected as
a reduction in capital on the Consolidated Balance Sheets.
Allocation of General and Administrative Expenses
The General Partner performs various general and administrative and other overhead services
for the Operating Partnership including legal assistance, acquisitions analysis, marketing and
advertising, and allocates these expenses to the Operating Partnership first on the basis of direct
usage when identifiable, with the remainder allocated based on its pro-rata portion of UDR’s total
apartment homes. During the three and nine months ended September 30, 2010 and 2009, the general
and administrative expenses allocated to the Operating Partnership by UDR were $10.7 million and
$25.8 million and $5.9 million and $18.3 million, respectively, and are included in “General and
Administrative” expenses on the consolidated statements of operations. In the opinion of
management, this method of allocation reflects the level of services received by the Operating
Partnership from the General Partner.
Guaranty by the General Partner
The General Partner provided a “bottom dollar” guaranty to certain limited partners as part of
their original contribution to the Operating Partnership. The guaranty protects the tax basis of
the underlying contribution and is reflected on the OP unitholder’s Schedule K-1 tax form. The
guaranty was made in the form of a loan from the General Partner to the Operating Partnership at an
annual interest rate of 0.593% and 5.83% at September 30, 2010 and December 31, 2009. Interest
payments are made monthly and the note is due December 31, 2010. At September 30, 2010 and December
31, 2009, the note payable due to the General Partner was $71.5 million.
7. FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS
Fair value is based on the price that would be received to sell an asset or the exit price
that would be paid to transfer a liability in an orderly transaction between market participants at
the measurement date. A three-level valuation hierarchy prioritizes observable and unobservable
inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which
are described below:
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The estimated fair values of the Operating Partnership’s financial instruments either recorded
or disclosed on a recurring basis as of September 30, 2010 and December 31, 2009 are summarized as
follows (dollars in thousands):
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Financial Instruments Carried at Fair Value
The fair values of interest rate swaps are determined using the market standard methodology of
netting the discounted future fixed cash receipts (or payments) and the discounted expected
variable cash payments (or receipts). The variable cash payments (or receipts) are based on an
expectation of future interest rates (forward curves) derived from observable market interest rate
curves. The fair values of interest rate options are determined using the market standard
methodology of discounting the future expected cash receipts that would occur if variable interest
rates rise above the strike rate of the caps. The variable interest rates used in the calculation
of projected receipts on the cap are based on an expectation of future interest rates derived from
observable market interest rate curves and volatilities.
The Operating Partnership incorporates credit valuation adjustments to appropriately reflect
both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair
value measurements. In adjusting the fair value of its derivative contracts for the effect of
nonperformance risk, the Operating Partnership has considered the impact of netting and any
applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and
guarantees.
Although the Operating Partnership has determined that the majority of the inputs used to
value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation
adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current
credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as
of September 30, 2010 and December 31, 2009, the Operating Partnership has assessed the
significance of the impact of the credit valuation adjustments on the overall valuation of its
derivative positions and has determined that the credit valuation adjustments are not significant
to the overall valuation of its derivatives. As a result, the Operating Partnership has determined
that its derivative valuations in their entirety are classified in Level 2 of the fair value
hierarchy.
Financial Instruments Not Carried at Fair Value
At September 30, 2010, the fair values of cash and cash equivalents, restricted cash, accounts
receivable, prepaids, real estate taxes payable, accrued interest payable, security deposits and
prepaid rent, distributions payable and accounts payable approximated their carrying values because
of the short term nature of these instruments. The estimated fair values of other financial
instruments were determined by the Operating Partnership 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 Operating Partnership 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 General Partner estimates the fair value of our debt instruments by discounting the
remaining cash flows of the debt instrument at a discount rate equal to the replacement market
credit spread plus the corresponding treasury yields. Factors considered in determining a
replacement market credit spread include general market conditions, borrower specific credit
spreads, time remaining to maturity, loan-to-value ratios and collateral quality (Level 3).
The Operating Partnership records impairment losses on long-lived assets used in operations
when events and circumstances indicate that the assets might be impaired and the undiscounted cash
flows estimated to be generated by the future operation and disposition of those assets are less
than the net book value of those assets. Cash flow estimates are based upon historical results
adjusted to reflect management’s best estimate of future market and operating conditions and our
estimated holding periods. The net book value of impaired assets is reduced to fair value. The
General Partner’s estimates of fair value represent management’s estimates based upon Level 3
inputs such as industry trends and reference to market rates and transactions.
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8. DERIVATIVES AND HEDGING ACTIVITY
Risk Management Objective of Using Derivatives
The Operating Partnership is exposed to certain risk arising from both its business operations
and economic conditions. The General Partner principally manages its exposures to a wide variety of
business and operational risks through management of its core business activities. The General
Partner manages economic risks, including interest rate, liquidity, and credit risk primarily by
managing the amount, sources, and duration of its debt funding and through the use of derivative
financial instruments. Specifically, the General Partner 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 General Partner’s and the Operating Partnership’s derivative financial instruments are
used to manage differences in the amount, timing, and duration of the General Partner’s known or
expected cash receipts and its known or expected cash payments principally related to the General
Partner’s investments and borrowings.
Cash Flow Hedges of Interest Rate Risk
The General Partner’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 General Partner 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 General Partner 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.
A portion of the General Partner’s interest rate derivatives have been allocated to the
Operating Partnership based on the General Partner’s underlying debt instruments allocated to the
Operating Partnership. (See Note 5, Debt.)
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 nine months ended September 30, 2010 and 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 and nine months ended September 30, 2010 and 2009, the Operating
Partnership recorded less than $1,000 of 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 General Partner’s
variable-rate debt that is allocated to the Operating Partnership. Through September 30, 2011, we
estimate that an additional $4.7 million will be reclassified as an increase to interest expense.
As of September 30, 2010, the Operating Partnership had the following outstanding interest
rate derivatives designated as cash flow hedges of interest rate risk (dollar amounts in
thousands):
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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 FASB ASC 815, Derivatives and Hedging (formerly SFAS 133, “Accounting
for Derivative Instruments and Hedging Activities”). Changes in the fair value of derivatives not
designated in hedging relationships are recorded directly in earnings and resulted in losses of
$87,000 and $762,000 and gains of $18,000 and $619,000 for the three and nine months ended
September 30, 2010 and 2009, respectively. As of September 30, 2010, we had the following
outstanding derivatives that were not designated as hedges in qualifying hedging relationships
(dollar amounts in thousands):
Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet
The table below presents the fair value of the Operating Partnership’s derivative financial
instruments as well as their classification on the Consolidated Balance Sheets as of September 30,
2010 and December 31, 2009.
Tabular Disclosure of the Effect of Derivative Instruments on the Consolidated Statements of Operations
The tables below present the effect of the derivative financial instruments on the
Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and
2009 (dollar amounts in thousands):
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Credit-risk-related Contingent Features
The General Partner has agreements with some of its derivative counterparties that contain a
provision where (1) if the General Partner defaults on any of its indebtedness, including default
where repayment of the indebtedness has not been accelerated by the lender, then the General
Partner could also be declared in default on its derivative obligations; or (2) the General Partner
could be declared in default on its derivative obligations if repayment of the underlying
indebtedness is accelerated by the lender due to the General Partner’s default on the indebtedness.
Certain of the General Partner ‘s agreements with its derivative counterparties contain
provisions where if there is a change in the General Partner’s financial condition that materially
changes the General Partner ‘s creditworthiness in an adverse manner, the General Partner may be
required to fully collateralize its obligations under the derivative instrument.
The General Partner also has an agreement with a derivative counterparty that incorporates the
loan and financial covenant provisions of the General Partner’s indebtedness with a lender
affiliate of the derivative counterparty. Failure to comply with these covenant provisions would
result in the General Partner being in default on any derivative instrument obligations covered by
the agreement.
As of September 30, 2010, the fair value of derivatives in a net liability position that were
allocated to the Operating Partnership, which includes accrued interest but excludes any adjustment
for nonperformance risk, related to these agreements was $7.8 million. As of September 30, 2010,
the General Partner has not posted any collateral related to these agreements. If the General
Partner had breached any of these provisions at September 30, 2010, it would have been required to
settle its obligations under the agreements at their termination value of $7.8 million.
9. CAPITAL STRUCTURE
General Partnership Units
The General Partner has complete discretion to manage and control the operations and business
of the Operating Partnership, which includes but is not limited to the acquisition and disposition
of real property, construction of buildings and making capital improvements, and the borrowing of
funds from outside lenders or UDR and its subsidiaries to finance such activities. The General
Partner can authorize, issue, sell, redeem or purchase any OP unit or securities of the Operating
Partnership without the approval of the limited partners. The General Partner can also approve,
with regard to the issuances of OP units, the class or one or more series of classes, with
designations, preferences, participating, optional or other special rights, powers and duties
including rights, powers and duties senior to limited partnership interests without approval of any
limited partners. There were 110,883 OP units of general partnership interest at September 30, 2010
and December 31, 2009, all of which were held by UDR.
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Limited Partnership Units
At September 30, 2010 and December 31, 2009, there were 179,798,525 OP units outstanding, of
which 1,751,671 were Class A Limited Partnership units. UDR owned 174,258,176 or 96.9% and
173,811,933 or 96.7% at September 30, 2010 and December 31, 2009, respectively. The remaining
5,540,349 or 3.1% and 5,986,592 or 3.3% OP units outstanding were held by non- affiliated partners
at September 30, 2010 and December 31, 2009 of which 1,751,671, respectively, were Class A Limited
Partnership units.
The 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 Operating Partnership Agreement), provided that such OP Units
have been outstanding for at least one year. UDR, as 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 UDR for each OP Unit), as
defined in the Operating Partnership Agreement.
The non-affiliated limited partners’ capital is adjusted to redemption value at the end of
each reporting period with the corresponding offset against the UDR limited partner capital account
based on the redemption rights noted above. The aggregate value upon redemption of the
then-outstanding OP units held by limited partners was $117.0 million and $98.4 million as of
September 30, 2010 and December 31, 2009, respectively, based on the value of UDR’s common stock at
each period end. Once an OP unit has been redeemed, the redeeming partner has no right to receive
any distributions from the Operating Partnership on or after the date of redemption.
Class A Limited Partnership Units
Class A Partnership units have a cumulative, annual, non-compounded preferred return, which is
equal to 8% based on a value of $16.61 per Class A Limited Partnership unit.
Holders of the Class A Limited Partnership units exclusively possess certain voting rights.
The Operating Partnership may not perform the following without approval of the holders of the
Class A Partnership units: (i) increase the authorized or issued amount of Class A Partnership
units, (ii) reclassify any other partnership interest into Class A Partnership units, (iii) create,
authorize or issue any obligations or security convertible into or the right to purchase any Class
Partnership units, without the approval of the holders of the Class A Partnership units, (iv) enter
into a merger or acquisition, or (v) amend or modify the Operating Partnership Agreement that
affects the rights, preferences or privileges of the Class A Partnership units.
Allocation of profits and losses
Profit of the Operating Partnership is allocated in the following order: (i) to the General
Partner and the Limited Partners in proportion to and up to the amount of cash distributions made
during the year, and (ii) to the General Partner and Limited Partners in accordance with their
percentage interests. Losses and depreciation and amortization expenses, non-recourse liabilities
are allocated to the General Partner and Limited Partners in accordance with their percentage
interests. Losses allocated to the Limited Partners are capped to the extent that such an
allocation would not cause a deficit in the Limited Partners capital account. Such losses are,
therefore, allocated to the General Partner. If any Partner’s capital balance were to fall into a
deficit any income and gains are allocated to each Partner sufficient to eliminate its negative
capital balance.
10. OTHER COMPREHENSIVE INCOME/(LOSS)
During the three and nine months ended September 30, 2010 and 2009, other comprehensive
income/(loss) consisted of unrealized gain/(loss) from derivative financial instruments of ($2.9)
million and ($5.8) million and ($1.4) million and $1.1 million, respectively. Total comprehensive
income/(loss) for the three and nine months ended September 30, 2010 and 2009 was ($11.5) million
and ($23.0) million and ($4.8) million and $4.4 million, respectively.
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11. COMMITMENTS AND CONTINGENCIES
Contingencies
Litigation and Legal Matters
The Operating Partnership is subject to various legal proceedings and claims arising in the
ordinary course of business. The Operating Partnership cannot determine the ultimate liability with
respect to such legal proceedings and claims at this time. The General Partner believes that such
liability, to the extent not provided for through insurance or otherwise, will not have a material
adverse effect on the Operating Partnership’s financial condition, results of operations or cash
flow.
12. REPORTABLE SEGMENTS
FASB ASC Topic 280, Segment Reporting (formerly SFAS 131, “Disclosures about Segments of an
Enterprise and Related Information”) (“Topic 280”), requires that segment disclosures present the
measure(s) used by the chief operating decision maker to decide how to allocate resources and for
purposes of assessing such segments’ performance. The Operating Partnership has the same chief
operating decision maker as that of its parent, the General Partner. The chief operating decision
maker consists of several members of UDR’s executive management team who use several generally
accepted industry financial measures to assess the performance of the business for our reportable
operating segments.
The Operating Partnership owns and operates multifamily apartment communities throughout the
United States that generate rental and other property related income through the leasing of
apartment homes to a diverse base of tenants. The primary financial measures of the Operating
Partnership’s apartment communities are rental income and net operating income (“NOI”), and are
included in the chief operating decision maker’s assessment of UDR’s performance on a consolidated
basis. Rental income represents gross market rent less adjustments for concessions, vacancy loss
and bad debt. NOI is defined as total revenues less direct property operating expenses. The chief
operating decision maker utilizes NOI as the key measure of segment profit or loss.
The Operating Partnership’s two reportable segments are same communities and non-mature/other
communities:
Management evaluates the performance of each of our apartment communities on a same community
and non-mature/other basis, as well as individually and geographically. This is consistent with the
aggregation criteria of Topic 280 as each of our apartment communities generally has similar
economic characteristics, facilities, services, and tenants. Therefore, the Operating Partnership’s
reportable segments have been aggregated by geography in a manner identical to that which is
provided to the chief operating decision maker.
All revenues are from external customers and no single tenant or related group of tenants
contributed 10% or more of the Operating Partnership’s total revenues during the three and nine
months ended September 30, 2010 and 2009.
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The accounting policies applicable to the operating segments described above are the same as
those described in Note 1, “Summary of Significant Accounting Policies.” The following table
details rental income and NOI for the Operating Partnership’s reportable segments for the three and
nine months ended September 30, 2010 and 2009, and reconciles NOI to income from continuing and
discontinued operations per the consolidated statement of operations (dollars in thousands):
The following table details the assets of the Operating Partnership’s reportable segments as
of September 30, 2010 and December 31, 2009 (dollars in thousands):
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Capital expenditures related to the Operating Partnership’s same communities totaled $5.8
million and $18.9 million and $7.4 million and $24.1 million for the three and nine months ended
September 30, 2010 and 2009, respectively. Capital expenditures related to the Operating
Partnership’s non-mature/other communities totaled $2,000 and $214,000 and $299,000 and $1.1
million for the three and nine months ended September 30, 2010 and 2009, respectively.
Markets included in the above geographic segments are as follows:
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Report contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking
statements include, without limitation, statements concerning property acquisitions and
dispositions, development activity and capital expenditures, capital raising activities, rent
growth, occupancy, and rental expense growth. Words such as “expects,” “anticipates,” “intends,”
“plans,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are
intended to identify such forward-looking statements. Such statements involve known and unknown
risks, uncertainties and other factors which may cause our actual results, performance or
achievements to be materially different from the results of operations or plans expressed or
implied by such forward-looking statements. Such factors include, among other things, unanticipated
adverse business developments affecting us, or our properties, adverse changes in the real estate
markets and general and local economies and business conditions. Although we believe that the
assumptions underlying the forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore such statements included in this Report may not
prove to be accurate. In light of the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not be regarded as a
representation by us or any other person that the results or conditions described in such
statements or our objectives and plans will be achieved.
The following factors, among others, could cause our future results to differ materially from
those expressed in the forward-looking statements:
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A discussion of these and other factors affecting our business and prospects is set forth
below in Part II, Item 1A. Risk Factors. We encourage investors to review these risk factors.
UDR, INC.:
Business Overview
UDR, Inc. is a real estate investment trust, or REIT, that owns, acquires, renovates,
develops, and manages apartment communities. We were formed in 1972 as a Virginia corporation. In
September 2003, we changed our state of incorporation from Virginia to Maryland. Our subsidiaries
include an operating partnership United Dominion Realty, L.P., a Delaware limited partnership.
Unless the context otherwise requires, all references in this Report to “we,” “us,” “our,” “the
Company,” or “UDR” refer collectively to UDR, Inc., its subsidiaries and its consolidated joint
ventures.
At September 30, 2010, our consolidated real estate portfolio included 172 communities with
48,409 apartment homes and our total real estate portfolio, inclusive of our unconsolidated
communities, included an additional 11 communities with 4,143 apartment homes.
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The following table summarizes our market information by major geographic markets as of
September 30, 2010.
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