UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

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

Commission file number 1-10524

UDR, Inc.

(Exact name of registrant as specified in its charter)

Maryland (State or other jurisdiction of incorporation of organization)		54-0857512 (I.R.S. Employer Identification No.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares of the issuer’s common stock, $0.01 par value, outstanding as of October 30, 2009, was 152,821,378.

 

 

UDR, Inc.

INDEX

		PAGE
PART I — FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 2009 (unaudited) and December 31, 2008 (audited)			3
Consolidated Statements of Operations for the three and nine months ended September 30, 2009 and 2008 (unaudited)			4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008 (unaudited)			5
Consolidated Statement of Stockholders’ Equity and Comprehensive Income/Loss for the nine months ended September 30, 2009 (unaudited)			6
Notes to Consolidated Financial Statements (unaudited)			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			31
Item 3. Quantitative and Qualitative Disclosures About Market Risk			44
Item 4. Controls and Procedures			45
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			46
Item 1A. Risk Factors			46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			56
Item 3. Defaults Upon Senior Securities			56
Item 4. Submission of Matters to a Vote of Security Holders			56
Item 5. Other Information			56
Item 6. Exhibits			56
Signatures			57
Exhibit 12
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 99.1

PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

UDR, Inc.

		September 30,				December 31,
		2009				2008
		(unaudited)				(audited)
ASSETS
Real estate owned:
Real estate held for investment		$	5,835,852			$	5,644,930
Less: accumulated depreciation			(1,284,227	)			(1,078,637	)
			4,551,625				4,566,293
Real estate under development (net of accumulated depreciation of $482 and $52)			232,957				186,771
Total real estate owned, net of accumulated depreciation			4,784,582				4,753,064
Cash and cash equivalents			24,954				12,740
Marketable securities			37,020				—
Restricted cash			8,280				7,726
Deferred financing costs, net			26,002				29,168
Notes receivable			7,300				207,450
Investment in unconsolidated joint ventures			53,598				47,048
Other assets			68,521				85,842
Other assets — real estate held for disposition			—				767
Total assets		$	5,010,257			$	5,143,805
LIABILITIES AND STOCKHOLDERS’ EQUITY
Secured debt		$	1,863,127			$	1,462,471
Unsecured debt			1,411,919				1,798,662
Real estate taxes payable			32,500				14,035
Accrued interest payable			19,108				20,744
Security deposits and prepaid rent			30,771				28,829
Distributions payable			30,810				57,144
Deferred gains on the sale of depreciable property			28,831				28,845
Accounts payable, accrued expenses, and other liabilities			56,560				71,395
Other liabilities — real estate held for disposition			—				1,204
Total liabilities			3,473,626				3,483,329
Redeemable non-controlling interests in operating partnership			99,137				108,092
Stockholders’ equity
Preferred stock, no par value; 50,000,000 shares authorized
2,803,812 shares of 8.00% Series E Cumulative Convertible issued and outstanding (2,803,812 shares at December 31, 2008)			46,571				46,571
4,430,700 shares of 6.75% Series G Cumulative Redeemable issued and outstanding (4,430,700 shares at December 31, 2008)			110,768				110,768
Common stock, $0.01 par value; 250,000,000 shares authorized
152,846,734 shares issued and outstanding (148,781,115 shares at December 31, 2008)			1,528				1,488
Additional paid-in capital			1,906,300				1,850,871
Distributions in excess of net income			(628,445	)			(448,737	)
Accumulated other comprehensive loss, net			(2,714	)			(11,927	)
Total UDR, Inc. stockholders’ equity			1,434,008				1,549,034
Non-controlling interest			3,486				3,350
Total equity			1,437,494				1,552,384
Total liabilities and stockholders’ equity		$	5,010,257			$	5,143,805

See accompanying notes to consolidated financial statements.

UDR, Inc.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
REVENUES
Rental income		$	150,311			$	147,414			$	452,769			$	413,955
Non-property income:
Other income			1,627				9,969				10,609				21,286
Total Revenues			151,938				157,383				463,378				435,241
EXPENSES
Rental expenses:
Real estate taxes and insurance			18,908				19,101				57,771				47,775
Personnel			13,049				12,675				38,464				36,523
Utilities			8,207				8,113				23,924				22,017
Repair and maintenance			8,315				8,318				23,423				22,544
Administrative and marketing			3,636				3,635				10,553				10,784
Property management			4,134				4,054				12,452				11,384
Other operating expenses			1,172				1,153				4,437				3,183
Real estate depreciation and amortization			69,695				65,551				207,747				180,493
Interest
Expense incurred			33,909				39,860				105,794				118,381
Net gain on debt extinguishment			—				(2,523	)			(9,849	)			(8,595	)
Amortization of convertible debt premium			967				1,670				3,316				5,010
Expenses related to tender offer			3,764				—				3,764				—
General and administrative			8,924				9,835				27,797				29,535
Hurricane related expenses			—				833				127				833
Other depreciation and amortization			858				1,140				3,730				3,013
Total Expenses			175,538				173,415				513,450				482,880
Loss from operations			(23,600	)			(16,032	)			(50,072	)			(47,639	)
Loss from unconsolidated entities			(16,742	)			(1,897	)			(18,187	)			(3,286	)
Tax (expense)/benefit for taxable REIT subsidiary			(14	)			829				(65	)			5,743
Loss from continuing operations			(40,356	)			(17,100	)			(68,324	)			(45,182	)
Income from discontinued operations			601				6,736				2,486				806,908
Consolidated net (loss)/income			(39,755	)			(10,364	)			(65,838	)			761,726
Net loss/(income) attributable to non-controlling interests			1,779				450				3,175				(48,598	)
Net (loss)/income attributable to UDR, Inc.			(37,976	)			(9,914	)			(62,663	)			713,128
Distributions to preferred stockholders — Series E (Convertible)			(931	)			(931	)			(2,793	)			(2,793	)
Distributions to preferred stockholders — Series G			(1,869	)			(1,989	)			(5,607	)			(6,545	)
Discount on preferred stock repurchases, net			—				3,056				—				3,056
Net (loss)/income attributable to common stockholders		$	(40,776	)		$	(9,778	)		$	(71,063	)		$	706,846
Earnings per weighted average common share — basic and diluted:
Loss from continuing operations available to common stockholders		$	(0.27	)		$	(0.12	)		$	(0.50	)		$	(0.71	)
Income from discontinued operations		$	—			$	0.05			$	0.02			$	5.79
Net (loss)/income attributable to common stockholders		$	(0.27	)		$	(0.07	)		$	(0.48	)		$	5.08
Common distributions declared per share		$	0.180			$	0.305			$	0.665			$	0.915
Weighted average number of common shares outstanding — basic			150,000				137,329				149,048				139,266
Weighted average number of common shares outstanding — diluted			150,000				137,329				149,048				139,266

See accompanying notes to consolidated financial statements.

UDR, Inc.

Nine Months Ended September 30,		2009				2008
Operating Activities
Consolidated net (loss)/income		$	(65,838	)		$	761,726
Adjustments to reconcile net (loss)/income to net cash provided by operating activities:
Depreciation and amortization			211,477				183,506
Net gains on the sale of depreciable property			(2,486	)			(786,917	)
Net gains on the sale of land			—				(183	)
Gains on debt extinguishment			(9,849	)			(8,595	)
Write off of bad debt			2,635				954
Write off of note receivable and other assets			1,089				—
Loss from unconsolidated entities			18,187				3,286
Amortization of deferred financing costs and other			5,499				6,774
Amortization of deferred compensation			5,862				5,346
Amortization of convertible debt premium			3,316				5,010
Prepayments/(refunds) on income taxes			1,846				(4,047	)
Changes in operating assets and liabilities:
Decrease in operating assets			7,489				(8,249	)
Decrease in operating liabilities			10,423				(19,921	)
Net cash provided by operating activities			189,650				138,690
Investing Activities
Proceeds from sales of real estate investments, net			—				1,485,100
Proceeds from note receivable			200,000				44,774
Disbursements related to notes receivable			—				(39,569	)
Acquisition of real estate assets (net of liabilities assumed) and initial capital expenditures			(28,528	)			(909,764	)
Development of real estate assets			(142,195	)			(101,952	)
Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement			(63,881	)			(101,128	)
Capital expenditures — non-real estate assets			(6,290	)			(21,347	)
Investment in unconsolidated joint venture			(23,871	)			(1,881	)
Purchase deposits on pending real estate acquisitions			—				(928	)
Purchase of marketable securities			(30,942	)			—
Change in funds held in escrow from IRC Section 1031 exchanges			—				56,217
Net cash (used in)/provided by investing activities			(95,707	)			409,522
Financing Activities
Payments on secured debt			(34,205	)			(75,473	)
Proceeds from the issuance of secured debt			434,860				156,885
Proceeds from the issuance of unsecured debt			—				240,000
Payments on unsecured debt			(401,958	)			(367,031	)
Net proceeds/(repayment) of revolving bank debt			25,000				(193,400	)
Payment of financing costs			(5,267	)			(2,957	)
Proceeds from the issuance of common stock through public offering, net			32,953				—
Issuance of common and restricted stock, net			(969	)			2,491
Proceeds from the redemption of Series G preferred stock, net			—				(20,347	)
Repayment of the investment of performance based programs			—				(766	)
Distributions paid to non-controlling interests			(5,925	)			(8,923	)
Distributions paid to preferred stockholders			(8,400	)			(9,629	)
Distributions paid to common stockholders			(117,020	)			(128,887	)
Repurchase of common stock			(798	)			(140,533	)
Net cash used in financing activities			(81,729	)			(548,570	)
Net increase/(decrease) in cash and cash equivalents			12,214				(358	)
Cash and cash equivalents, beginning of period			12,740				3,219
Cash and cash equivalents, end of period		$	24,954			$	2,861
Supplemental Information:
Interest paid during the period		$	122,577			$	93,627
Non-cash transactions:
Conversion of operating partnership non-controlling interests to common stock (1,839,216 shares in 2009 and 150,061 shares in 2008)			17,423				1,380
Issuance of restricted stock awards			1				4
Issuance of note receivable upon the disposition of real estate			—				200,000
Secured debt assumed with the acquisition of properties, net of fair value adjustment			—				95,728

See accompanying notes to consolidated financial statements.

UDR, Inc.

																										Accumulated
																						Distributions in				Other
		Preferred Stock								Common Stock								Paid-in				Excess of				Comprehensive				Non-controlling
		Shares				Amount				Shares				Amount				Capital				Net Income				Income/(Loss)				interest				Total
Balance at December 31, 2008			7,234,512			$	157,339				148,781,115			$	1,488			$	1,850,871			$	(448,737	)		$	(11,927	)		$	3,350			$	1,552,384
Comprehensive Income
Net loss			—				—				—				—				—				(62,663	)			—				136				(62,527	)
Other comprehensive income
Change in fair value of marketable securities			—				—				—				—				—				—				4,520				—				4,520
Unrealized gain on derivative financial instruments			—				—				—				—				—				—				5,355				—				5,355
Allocation to redeemable non-controllable interests			—				—				—				—				—				—				(662	)			—				(662	)
Comprehensive income/loss																							(62,663	)			9,213				136				(53,314	)
Issuance of common and restricted shares			—				—				57,003				—				4,953				—				—				—				4,953
Issuance of common shares through public offering, net of issuance costs			—				—				2,269,400				23				32,930																32,953
Purchase of common shares			—				—				(100,000	)			(1	)			(797	)			—				—				—				(798	)
Adjustment for conversion of non-controlling Series C and D LLC			—				—				—				—				938				—				—				—				938
Adjustment for conversion of non-controlling interests of unitholders in operating partnerships			—				—				1,839,216				18				17,405				—				—				—				17,423
Common stock distributions declared ($0.665 per share)			—				—				—				—				—				(99,075	)			—				—				(99,075	)
Preferred stock distributions declared-Series E ($0.9966 per share)			—				—				—				—				—				(2,793	)			—				—				(2,793	)
Preferred stock distributions declared-Series G ($1.2656 per share)			—				—				—				—				—				(5,607	)			—				—				(5,607	)
Adjustment to reflect redeemable non-controlling redemption value			—				—				—				—				—				(9,570	)			—								(9,570	)
Balance at September 30, 2009			7,234,512			$	157,339				152,846,734			$	1,528			$	1,906,300			$	(628,445	)		$	(2,714	)		$	3,486			$	1,437,494

See accompanying notes to consolidated financial statements.

UDR, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
(UNAUDITED)

1. CONSOLIDATION, BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Consolidation and Basis of Presentation

UDR, Inc., collectively with our consolidated subsidiaries (“we”, “our”, “us”, “the Company” or “UDR”) is a self-administered real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages apartment communities nationwide. The accompanying consolidated financial statements include the accounts of UDR and its subsidiaries, including United Dominion Realty, L.P. (the “Operating Partnership”), and Heritage Communities L.P. (the “Heritage OP”). As of September 30, 2009, there were 179,863,065 units in the Operating Partnership outstanding, of which 173,740,481 units or 97% were owned by UDR and 6,122,584 units or 3% were owned by limited partners. As of September 30, 2009, there were 6,264,461 units in the Heritage OP outstanding, of which 6,088,659 units or 97% were owned by UDR and 175,802 units or 3% were owned by limited partners. The consolidated financial statements of UDR include the non-controlling interests of the unitholders in the Operating Partnership and the Heritage OP.

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

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

Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162” (“SFAS 168”). Effective for our financial statements issued for interim and annual periods commencing with the quarterly period ended September 30, 2009, the FASB Accounting Standards Codification (“Codification” or “ASC”) is the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification supersedes all then-existing, non-SEC accounting and reporting standards. In the FASB’s view, the Codification does not change GAAP, and therefore the adoption of SFAS 168, now referred to as FASB ASC 105, Generally Accepted Accounting Principles, did not have an effect on our consolidated financial position, results of operations or cash flows. However, where we have referred to specific authoritative accounting literature, both the Codification and pre-Codification GAAP literature are disclosed.

FASB ASC 810, Consolidation (formerly SFAS 160, “Non-controlling Interests in Consolidated Financial Statements- an amendment of Accounting Research Bulletin 51 (“Consolidated Financial Statements”)” establishes accounting and reporting standards for the non-controlling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary should be reported as equity in the consolidated financial statements. Consolidated net income should include the net income for both the parent and the non-controlling interest with disclosure of both amounts on the consolidated statement of operations. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. The Company adopted this standard, effective January 1, 2009. As a result, loss from continuing operations attributable to common stockholders per diluted share decreased by $0.00 and $0.37 for the three and nine months ended September 30, 2008, respectively and income from discontinued operations per diluted share increased by the same amounts. There was no impact to net (loss)/income attributable to common stockholders per diluted share due to the adoption of this standard. As part of our adoption of this standard, we have retroactively adopted the measurement provisions of FASB ASC 480, Distinguishing Liabilities from Equity (formerly EITF Topic D-98, “Classification and Measurement of Redeemable Securities”). Upon adoption, we adjusted the carrying amount of the operating partnership units by recognizing an $86.8 million increase to “Redeemable non-controlling interest in operating partnership” on the balance sheet and a corresponding decrease in “Distributions in Excess of Net Income,” which was accounted for as a cumulative effect adjustment as of January 1, 2006.

FASB ASC 470-20, Debt with Conversion and Other Options (formerly FASB Staff Position APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion”) (“Subtopic 470-20”) requires entities that issued certain convertible debt instruments that may be settled or partially settled in cash on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the entity’s nonconvertible debt borrowing rate. This standard requires that an entity determine the estimated fair value of a similar debt instrument as of the date of the issuance without the conversion feature but inclusive of any other embedded features such as puts and calls and assign that value to the debt component of the instrument, which would result in a discount being recorded. The debt is subsequently accreted to its par value over its expected life using the market rate at the date of issuance. The residual value between the initial proceeds and the value allocated to the debt would be reflected in equity as additional paid in capital. The Company adopted this standard, effective for fiscal years beginning after December 15, 2008 and retrospectively applied it to both new and existing convertible instruments. Accordingly, the Company recognized a decrease in “Distributions in Excess of Net Income” of $117,000 on January 1, 2006 for the cumulative change in interest expense. We also recorded a $32.6 million increase to “Additional Paid in Capital” for the allocation of the equity component. The Company recognized an additional $967,000 ($0.01 per diluted share) and $6.7 million ($0.04 per diluted share) and $1.7 million ($0.01 per diluted share) and $5.0 million ($0.03 per diluted share) of interest expense in the three and nine months ended September 30, 2009 and 2008, respectively. This impact includes both regular amortization of convertible debt premium and the effect of write offs due to convertible debt repurchases.

FASB ASC 260, Earnings per Share (formerly FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities”) was effective January 1, 2009 and has been applied retrospectively. This standard clarifies that unvested share-based payment awards that participate in dividends similar to shares of common stock or operating partnership units should be treated as participating securities. It also affects the computation of basic and diluted earnings per share for unvested restricted stock awards which entitle the holders to dividends. The standard did not affect earnings per share amounts for the three and nine months ended September 30, 2009 because we reported a net loss for the period and accordingly had no undistributed earnings. This standard had an immaterial affect on the earnings per share amount for the three and nine months ended September 30, 2008. We do not expect it to have a material effect on future earnings per share amounts.

FASB ASC 820, Fair Value Measurements and Disclosures (formerly SFAS 157, “Fair Value Instruments” and FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157”) (“Topic 820”) defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurement. Topic 820 applies to other accounting pronouncements that require or permit fair value measurements but does not require any new fair value measurements. The adoption of Topic 820 for financial assets and liabilities, as of January 1, 2008, did not have a material impact on our financial position or operations. Topic 820 delayed the effective date of Topic 820’s fair value measurement requirements for nonfinancial assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis. Fair value measurements identified in Topic 820 is effective for our fiscal year beginning January 1, 2009 and did not have any impact on our consolidated financial position, results of operations or cash flows.

FASB ASC 825, Financial Instruments (formerly SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities”) became effective for our fiscal year beginning January 1, 2008. This standard allows an entity to elect to measure certain financial instruments at fair value. If this irrevocable election is made, an entity may apply this guidance on an instrument by instrument basis with a few exceptions and report any change in the fair value of the instrument in earnings. The Company has not adopted the fair value measurement option for any of its financial instruments.

FASB ASC 805, Business Combinations (formerly SFAS 141R, “Business Combinations”) became effective for fiscal years beginning after December 15, 2008. This standard establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. This standard also provides guidance for recognizing and measuring the goodwill acquired in the business combination, recognizing assets acquired and liabilities assumed arising from contingencies, and determining what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The adoption of this guidance could materially impact our future consolidated financial position and results of operations depending on the Company’s acquisition activity as certain acquisition costs that have historically been capitalized as part of the basis of the real estate and amortized over the real estate’s useful life will now be expensed as incurred. This guidance did not have a material impact on our financial statements during the nine months ended September 30, 2009.

FASB ASC 815, Derivatives (formerly SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133”) (“Topic 815”), effective for our fiscal year beginning January 1, 2009, presents disclosure requirements to enhance the financial statement user’s understanding of: (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Topic 815 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The standard did not have any impact on our consolidated financial position, results of operations or cash flows. However, it requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments. See Note 9, Derivative and Hedging Activity, for these additional disclosures.

In June 2009, the FASB issued SFAS 167, “Amendments to FASB Interpretation No. 46(R) (“SFAS 167”), which (1) addresses the effects of eliminating the qualifying special-purpose entity concept from ASC 860, Transfers and Servicing (formerly SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”), and (2) responds to concerns about the application of certain key provisions of ASC 810, Consolidation (formerly FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities”), including concerns over the transparency of enterprises’ involvement with variable interest entities (“VIEs”). SFAS 167 is effective beginning on January 1, 2010. The Company is currently assessing the impact of SFAS 167.

In August 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-05, “Measuring Liabilities at Fair Value” (“ASU 2009-05”), which provides amendments to Topic 820. ASU 2009-05 provides additional guidance clarifying the measurement of liabilities at fair value. ASU 2009-05 is effective in the fourth quarter 2009 for a calendar year entity. The Company is currently evaluating the impact of ASU 2009-05 on its financial position, results of operations, cash flows and disclosures.

Accounting Policies

Income Taxes

Due to the structure of the Company as a REIT and the nature of the operations for the operating properties, no provision for federal income taxes has been provided for at UDR. Historically, the Company has generally incurred only state and local income, excise and franchise taxes. UDR elected for certain consolidated subsidiaries to be treated as Taxable REIT Subsidiaries (“TRS”) relating to the Company’s developer, RE3 and condominium conversion activities.

Income taxes for our TRS are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rate is recognized in earnings in the period of the enactment date. The Company’s deferred tax assets are generally the result of differing depreciable lives on capitalized assets and timing of expense recognition for certain accrued liabilities. As of September 30, 2009, UDR has recorded a current tax liability of $16.1 million and a deferred tax asset of approximately $21.4 million and recorded income tax expense of $14,000 and $65,000 for the three and nine months ended September 30, 2009, respectively.

UDR adopted FASB ASC 740, Income Taxes (formerly FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109”) (“Topic 740”) on January 1, 2007. This guidance 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 our tax positions and evaluates them using a two-step process. First, we determine whether a tax position is more likely than not (greater than 50 percent probability) to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Then the Company will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement.

As a result of the implementation of Topic 740, UDR recognized no material adjustments to liabilities related to unrecognized income tax benefits. At the adoption date, UDR’s TRS had $538,000 of net unrecognized tax benefits, which would favorably impact our effective tax rate if recognized. During the nine months ended September 30, 2008, the liability was reversed due to the Company no longer meeting the measurement criteria. As such, subsequent to September 30, 2008, UDR had no unrecognized tax benefits, accrued interest or penalties. UDR and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The tax years 2004 — 2008 remain open to examination by the major taxing jurisdictions to which we are subject. When applicable, UDR recognizes interest and/or penalties related to uncertain tax positions in income tax expense.

Real Estate Sales

The Company accounts for sales of real estate in accordance with FASB ASC 360-20, Real Estate Sales (formerly SFAS 66, “Accounting for Sales of Real Estate”). For sales transactions meeting the requirements for full accrual profit recognition, such as the Company no longer having continuing involvement in the property, we remove the related assets and liabilities from our consolidated balance sheet and record the gain or loss in the period the transaction closes. For sale transactions that do not meet the full accrual sale criteria due to our continuing involvement, we evaluate the nature of the continuing involvement and account for the transaction under an alternate method of accounting.

Sales of real estate to entities in which we retain or otherwise own an interest are accounted for as partial sales. If all other requirements for recognizing profit under the full accrual method have been satisfied and no other forms of continuing involvement are present, we recognize profit proportionate to the outside interest in the buyer and will defer the gain on the interest we retain. The Company will recognize any deferred gain when the property is then sold to a third party. In transactions accounted by us as partial sales, we determine if the buyer of the majority equity interest in the venture was provided a preference as to cash flows in either an operating or a capital waterfall. If a cash flow preference has been provided, we recognize profit only to the extent that proceeds from the sale of the majority equity interest exceed costs related to the entire property.

Investment in Unconsolidated Joint Ventures

In accordance with FASB ASC 323-10, Investments- Equity Method and Joint Ventures (formerly APB Opinion 18), “The Equity Method of Accounting for Investments in Common Stock”) (“Subtopic 323-10”), 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 property. 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.

Marketable Securities

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

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

2. REAL ESTATE

Real estate assets owned by the Company consist of income producing operating properties, properties under development, land held for future development and properties deemed as held for sale. As of September 30, 2009 the Company owned and consolidated 164 communities in 10 states plus the District of Columbia totaling 45,249 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of September 30, 2009 and December 31, 2008 (dollar amounts in thousands):

		September 30, 2009				December 31, 2008
Land		$	1,581,294			$	1,567,737
Depreciable property — held for investment:
Building and improvements			4,011,906				3,859,245
Furniture, fixtures and equipment			242,652				217,948
Under development:
Land			53,458				52,294
Construction in progress			179,981				134,529
Real estate owned		$	6,069,291			$	5,831,753
Accumulated depreciation			(1,284,709	)			(1,078,689	)
Real estate owned, net		$	4,784,582			$	4,753,064

3. DISCONTINUED OPERATIONS

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

UDR did not dispose of any communities during the nine months ended September 30, 2009, nor did we have any classified as held for disposition at September 30, 2009. For the nine months ended September 30, 2008, UDR sold 86 communities with a total of 25,684 apartment homes, one commercial property, one parcel of land and 53 condominiums from two communities with a total of 640 condominiums. UDR recognized after-tax gains for financial reporting purposes of $787.1 million on these sales. The results of operations for these properties and the gain/loss from disposition are classified on the Consolidated Statements of Operations in the line item titled “Income from discontinued operations”, for the three and nine months ended September 30, 2009 and 2008.

In conjunction with the sale of the 86 communities during the nine months ended September 30, 2008, the Company received a note in the amount of $200 million. On May 4, 2009, the Company received from the buyer payment in full of the $200 million note, plus accrued and unpaid interest thereon in the amount of $123,287.

UDR has elected TRS status for certain of its corporate subsidiaries, primarily those engaged in development activities and, to a lesser extent, condominium conversion. For the three months ended September 30, 2009 and 2008, UDR recognized an income tax expense of $14,000 and an income tax benefit of $829,000, respectively, and an income tax expense of $65,000 and an income tax benefit of $5.9 million for the nine months ended September 30, 2009 and 2008, respectively. Of the balance, UDR allocated no income tax provision to discontinued operations for the three and nine months ended September 30, 2009, and an income tax benefit of $0 and $161,000 for the three and nine months ended September 30, 2008, respectively.

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

		Three Months Ended								Nine Months Ended
		September 30,								June 30,
		2009				2008				2009				2008
Rental income		$	—			$	26			$	—			$	39,597
Non-property income			—				—				—				183
Rental expenses			—				(2	)			—				16,082
Property management fee			—				1				—				1,089
Real estate depreciation			—				—				—				—
Interest expense/(income)			—				(4	)			—				2,612
Other expenses			—				—				—				6
			—				(5	)			—				19,789
Income before net gain on the sale of depreciable property			—				31				—				19,991
Net gain on the sale of depreciable property, excluding RE3			555				6,566				2,440				787,555
RE3 gain/(loss) on the sale of depreciable property, net of tax			46				139				46				(638	)
Income from discontinued operations		$	601			$	6,736			$	2,486			$	806,908

4. JOINT VENTURES

UDR has entered into joint ventures with unrelated third parties for real estate assets that are either consolidated and included in real estate owned on our Consolidated Balance Sheets or are accounted for under the equity method of accounting, which are not consolidated and are included in investment in unconsolidated joint ventures on our Consolidated Balance Sheets. The Company consolidates an entity in which we own less than 100% but control the joint venture as well as any variable interest entity where we are the primary beneficiary. In addition, the Company consolidates any joint venture in which we are the general partner or managing member and the third party does not have the ability to substantively participate in the decision-making process nor do they have the ability to remove us as general partner or managing member, without cause.

Unconsolidated Joint Ventures

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

During the quarter ended September 30, 2009, the Company established a joint venture with Kuwait Finance House to invest 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 contribution will be 30% or $54.0 million when fully invested. At closing and at September 30, 2009, we owned 30% of the joint venture. Our investment at September 30, 2009 was $226,000. At September 30, 2009, the joint venture did not hold any property.

UDR is a partner with an unaffiliated third party in a joint venture which owns and operates a 23-story, 166 home high-rise apartment community in the central business district of Bellevue, Washington. At closing, UDR owned 49% of the joint venture. Our initial investment was $11.8 million. Our investment at September 30, 2009 and December 31, 2008 was $10.0 million and $10.4 million, respectively.

UDR is a partner with an unaffiliated third party in a joint venture which is developing a 274 home apartment community in the central business district of Bellevue, Washington. Construction began in the fourth quarter of 2006 and is scheduled for completion in the fourth quarter of 2009. At closing and at September 30, 2009, we owned 49% of the joint venture. Our initial investment was $10.0 million. During the three and nine months ended September 30, 2009, the Company made additional capital contributions of $6.0 million and $22.1 million to the joint venture to fund development costs. Our investment at September 30, 2009 and December 31, 2008 was $24.4 million and $9.9 million, respectively. The September 30, 2009 investment is net of an $11.0 million equity loss discussed below.

UDR is a partner with an unaffiliated third party in a joint venture which owns an operating retail site in Bellevue, Washington. At closing and at September 30, 2009, we owned 49% of the joint venture. Our initial investment was $5.7 million. Our investment at September 30, 2009 and December 31, 2008 was $5.0 million and $10.2 million, respectively. The September 30, 2009 investment is net of a $5.0 million equity loss discussed below. 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 nine months ended September 30, 2009, the joint venture decided to continue to operate the retail property as opposed to developing the site.

In accordance with Subtopic 323-10, 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 quarter ended September 30, 2009, we recognized a non-cash charge of $16.0 million representing the other-than-temporary decline in the fair values below the carrying values of two of the Company’s equity investments in our Bellevue, Washington unconsolidated joint ventures.

In November 2007, UDR and an unaffiliated third party formed a joint venture which owns and operates various properties located in Texas. In November 2007, UDR sold nine operating properties, consisting of 3,690 units, and contributed one property under development to the joint venture. The property under development has 302 units and was completed in 2008 and commenced lease up at that time. UDR contributed cash and property equal to 20% of the fair value of the properties. The unaffiliated member contributed cash equal to 80% of the fair value of the properties comprising the joint venture, which was then used to purchase the nine operating properties from UDR. Our initial investment was $20.4 million. Our investment at September 30, 2009 and December 31, 2008 was $14.1 million and $16.5 million, respectively.

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

		2009				2008
For the three months ended September 30:
Revenues		$	11,417			$	10,888
Real estate depreciation and amortization			5,474				5,953
Net loss			(4,761	)			(9,057	)
For the nine months ended September 30:
Revenues		$	34,454			$	31,793
Real estate depreciation and amortization			15,861				17,369
Net loss			(11,188	)			(17,144	)
As of September 30, 2009 and December 31, 2008:
Real estate, net		$	534,164			$	517,549
Total assets			545,650				534,751
Amount due to UDR			1,081				3,898
Third party debt			380,252				373,353
Total liabilities			396,869				397,135
Equity			148,781				137,616

As of September 30, 2009, the Company had deferred profit from the sale of properties of $28.8 million, which the Company will not recognize until the underlying property is sold to a third party. The Company recognized $466,000, $1.5 million, $3.5 million and $4.7 million of management fees for our involvement in the joint ventures for the three and nine months ended September 30, 2009 and 2008, respectively.

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

5. SECURED DEBT

Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon payments due at maturity. For purposes of classification of the following table, variable rate debt with a derivative financial instrument designated as a cash flow hedge is deemed as fixed rate debt due to the Company having effectively established the interest rate for the underlying debt instrument. Secured debt, which encumbers $2.9 billion or 47% of UDR’s real estate owned based upon historical gross book value ($3.2 billion, based on historical gross book value, or 53% of UDR’s real estate owned is unencumbered) consists of the following as of September 30, 2009 (dollars in thousands):

										2009
		Principal Outstanding								Weighted				Weighted				Number of
		September 30,				December 31,				Average				Average				Communities
		2009				2008				Interest Rate				Years to Maturity				Encumbered
Fixed Rate Debt
Mortgage notes payable		$	491,922			$	476,810				4.76	%			2.5				15
Tax-exempt secured notes payable			13,325				13,325				5.30	%			21.4				1
Fannie Mae credit facilities			861,715				666,642				5.43	%			7.0				35
Total fixed rate secured debt			1,366,962				1,156,777				5.19	%			4.7				51
Variable Rate Debt
Mortgage notes payable			208,244				114,181				2.72	%			4.0				13
Tax-exempt secured note payable			27,000				27,000				1.14	%			20.5				1
Fannie Mae credit facilities			260,921				164,513				1.70	%			6.3				10
Total variable rate secured debt			496,165				305,694				2.09	%			8.3				24
Total secured debt		$	1,863,127			$	1,462,471				4.36	%			5.7				75

UDR has four revolving secured credit facilities with Fannie Mae with an aggregate commitment of $1.4 billion at September 30, 2009. The Fannie Mae credit facilities are for an initial term of 10 years, through October 1, 2019, 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 $861.7 million of the funded balance fixed at a weighted average interest rate of 5.43% and the remaining funded balance on these facilities is currently at a weighted average variable rate of 1.70%.

		September 30, 2009				December 31, 2008
		(dollar amounts in thousands)
Borrowings outstanding		$	1,122,636			$	831,155
Weighted average borrowings during the period ended			987,007				702,620
Maximum daily borrowings during the period ended			1,122,636				831,370
Weighted average interest rate during the period ended			4.58	%			5.47	%
Weighted average interest rate at the end of the period			4.56	%			5.04	%

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 $941,000 and $763,000 at September 30, 2009 and December 31, 2008, respectively.

Fixed Rate Debt

Mortgage notes payable. Fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from February 2010 through June 2016 and carry interest rates ranging from 2.66% to 6.84%. 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, 2009, UDR’s borrowings under its fixed rate secured credit facilities consisted of $861.7 million on a $1.4 billion aggregate commitment under four revolving secured credit facilities with Fannie Mae (the Company also owes $260.9 million under the variable rate component of these credit facilities). As of September 30, 2009, the fixed rate Fannie Mae credit facilities had a weighted average fixed rate of interest of 5.43%.

Variable Rate Debt

Mortgage notes payable. Variable rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from August 2010 through April 2016. The mortgage notes payable are based on LIBOR plus some basis points, which translate into interest rates ranging from 0.96% to 5.25% at September 30, 2009.

Tax-exempt secured note payable. The variable rate mortgage note payable that secures tax-exempt housing bond issues matures in March 2030. Interest on this note is payable in monthly installments. The variable mortgage note has an interest rate of 1.14% as of September 30, 2009.

Secured credit facilities. The variable rate secured credit facilities consisted of $260.9 million outstanding on the Fannie Mae credit facilities. As of September 30, 2009, the variable rate Fannie Mae credit facilities had a weighted average variable rate of 1.70%.

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

		Fixed												Variable
		Mortgage				Tax-Exempt				Credit				Mortgage				Tax Exempt				Credit
		Notes				Notes Payable				Facilities				Notes				Notes Payable				Facilities				Total
2009		$	908			$	—			$	648			$	—			$	—				—			$	1,556
2010			214,153				—				2,654				6,453				—				—				223,260
2011			88,387				—				52,808				52,286				—				39,513				232,994
2012			56,786				—				177,944				33,365				—				60,000				328,095
2013			61,375				—				38,631				38,509				—				—				138,515
Thereafter			70,313				13,325				589,030				77,631				27,000				161,408				938,707
Total		$	491,922			$	13,325			$	861,715			$	208,244			$	27,000				260,921			$	1,863,127

6. UNSECURED DEBT

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

		September 30,				December 31,
		2009				2008
Commercial Banks
Borrowings outstanding under an unsecured term loan due February 2010 (a)		$	240,000			$	240,000
Borrowings outstanding under an unsecured credit facility due July 2012 (b)			25,000				—
			265,000				240,000
Senior Unsecured Notes
4.25% Medium-Term Notes due January 2009			—				50,000
6.50% Notes due June 2009			—				200,000
3.90% Medium-Term Notes due March 2010 (includes premium of $73 and $190)			50,073				50,190
3.625% Convertible Senior Notes due September 2011 (net of Subtopic 470-20 discount of $3,818 and $7,080) (c), (d)			122,517				164,255
5.00% Medium-Term Notes due January 2012			100,000				100,000
6.05% Medium-Term Notes due June 2013 (d)			122,500				125,000
5.13% Medium-Term Notes due January 2014			184,000				184,000
5.50% Medium-Term Notes due April 2014 (net of discount of $312 and $363)			128,188				128,137
5.25% Medium-Term Notes due January 2015 (includes premium of $185 and $212)			175,360				175,387
5.25% Medium-Term Notes due January 2016			83,260				83,260
8.50% Debentures due September 2024 (d), (f)			15,644				54,118
4.00% Convertible Senior Notes due December 2035 (net of Subtopic 470-20 discount of $2,415 and $5,834) (d), (e)			165,335				244,166
Other			42				149
			1,146,919				1,558,662
		$	1,411,919			$	1,798,662

Subtopic 470-20 applies to all convertible debt instruments that have a “net settlement feature”, which means that such convertible debt instruments, by their terms, may be settled either wholly or partially in cash upon conversion. This guidance requires issuers of convertible debt instruments that may be settled wholly or partially in cash upon conversion to separately account for the liability and equity components in a manner reflective of the issuers’ nonconvertible debt borrowing rate. The Company adopted provisions under Subtopic 470-20 as of January 1, 2009, and the adoption impacted the historical accounting for the 3.625% convertible senior notes due September 2011 and the 4.00% convertible senior notes due December 2035, and resulted in increased interest expense of $967,000 and $3.3 million and $1.7 million and $5.0 million for the three and nine months ended September 30, 2009 and 2008, respectively.

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

		September 30,				December 31,
		2009				2008
Total revolving credit facility		$	600,000			$	600,000
Borrowings outstanding at end of period			25,000				—
Weighted average daily borrowings during the period ended			97,634				84,566
Maximum daily borrowings during the period ended			279,400				587,400
Weighted average interest rate during the period ended			0.9	%			4.1	%
Weighted average interest rate at the end of the period			0.9	%			N/A

The convertible notes are convertible at the option of the holder at certain times and under certain circumstances, 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, 2009 are as follows (dollars in thousands):

		Bank				Unsecured
		Lines				Debt				Total
2009		$	—			$	—			$	—
2010			—				290,000				290,000
2011 (a)			—				287,851				287,851
2012			25,000				100,000				125,000
2013			—				122,500				122,500
Thereafter			—				586,568				586,568
		$	25,000			$	1,386,919			$	1,411,919

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

7. EARNINGS/(LOSS) PER SHARE

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

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

		Three months ended								Nine months ended
		September 30,								September 30,
		2009				2008				2009				2008
Numerator for (loss)/earnings per share — basic and diluted:
Net (loss)/earnings available to common stockholders		$	(40,776	)		$	(9,778	)		$	(71,063	)		$	706,846
Denominator for (loss)/earnings per share — basic and diluted:
Weighted average common shares outstanding			150,801				139,210				150,097				140,501
Non-vested restricted stock awards			(801	)			(1,281	)			(1,049	)			(1,235	)
Denominator for basic and diluted (loss)/earnings per share			150,000				137,929				149,048				139,266
(Loss)/earnings per share — basic and diluted		$	(0.27	)		$	(0.07	)		$	(0.48	)		$	5.08

The effect of the conversion of the operating partnership units, Out-Performance Partnership Shares, convertible preferred stock, convertible debt, stock options and unvested 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 operating partnership units were converted to common stock, the additional weighted average common shares outstanding for the three and nine months ended September 30, 2009 and 2008, would be 6,317,556 and 6,953,353 and 9,571,048 and 9,632,185, respectively.

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

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

If the stock options and unvested restricted stock were converted to common stock, the additional weighted average common shares outstanding would be 844,219 and 320,905 for the three and nine months ended September 30, 2009 and 1,248,676 and 1,226,607 for the three and nine months ended September 30, 2008.

8. FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS

Effective January 1, 2008, UDR adopted FASB ASC 820, Fair Value of Measurements and Disclosures (formerly SFAS 157, “Fair Value Measurements”) (“Topic 820”), which defines fair value based on the price that would be received to sell an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:

•

Level 1 — Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

•

Level 2 — Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.

•

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The Company has derivative contracts that are measured and recognized at fair value using the Topic 820 hierarchy. The derivative contracts use the Level 2 hierarchy and are recorded in “Other assets” and in “Accounts payable, accrued expenses and other liabilities” in the Consolidated Balance Sheets for $2.2 million and $7.1 million, respectively as of September 30, 2009.

At September 30, 2009 and December 31, 2008, the fair values of cash and cash equivalents, restricted cash, notes receivable, escrow 1031 exchange funds, accounts receivable, prepaids, real estate taxes payable, accrued interest payable, security deposits and prepaid rent, distributions payable and accounts payable approximated their carrying values because of the short term nature of these instruments. The estimated fair values of other financial instruments were determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company would realize on the disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts.

The Company adopted the provisions of FASB ASC 825, Financial Instruments (formerly FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”) on June 30, 2009, which require disclosures about the fair value of financial instruments in interim as well as annual financial statements. The carrying amounts and estimated fair value of the Company’s financial instruments, where different, as of September 30, 2009 and December 31, 2008, are summarized as follows (dollars in thousands):

		September 30,								December 31,
		2009								2008
		Carrying				Estimated				Carrying				Estimated
		Amounts				Fair Value				Amounts				Fair Value
Debt instruments
Secured debt (a)		$	1,863,127			$	1,892,337			$	1,462,471			$	1,419,411
Unsecured debt (b)			1,411,919				1,313,316				1,798,662				1,183,098
Derivative contracts (c)
Interest rate swaps		$	(7,123	)		$	(7,123	)		$	(11,011	)		$	(11,011	)
Interest rate caps			2,189				2,189				62				62

FASB ASC 320, Investments- Debt and Equity Securities (formerly FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”), which provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. The amortized cost, gross unrealized gains and losses and fair value of the Company’s investments at September 30, 2009 are as follows (dollars in thousands):

						Gross				Gross				Estimated Fair
		Amortized				Unrealized				Unrealized				Value (Net Carrying
		Cost				Gains				Losses				Amount)
Corporate debt securities — U.S.		$	32,500			$	4,520			$	—			$	37,020

We estimate the fair value of the corporate debt securities determined by Level 1 inputs which utilize quoted prices in active markets we have the ability to access for identical assets.

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

During the three months ended September 30, 2009, the Company recognized a non-cash charge of $16.0 million representing the other-than-temporary decline in the fair values below the carrying values of two of the Company’s equity investments in our Bellevue, Washington unconsolidated joint ventures. 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.

9. DERIVATIVES AND HEDGING ACTIVITY

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up front premium.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in “Accumulated Other Comprehensive Income/(Loss)” and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three and nine months ended September 30, 2009, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three months and nine months ended September 30, 2009, the Company 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 Company’s variable-rate debt. During the next twelve months, the Company estimates that an additional $7.1 million will be reclassified as an increase to interest expense.

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

		Number of
Interest Rate Derivative		Instruments				Notional
Interest rate swaps			11			$	597,261
Interest rate caps			2			$	113,909