UDR, Inc. (Form: 10-Q, Received: 10/30/2018 14:34:11)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10‑Q


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

For the quarterly period ended September 30, 2018


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

For the transition period from to

Commission file number

1‑10524 (UDR, Inc.)

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

UDR, Inc.

United Dominion Realty, L.P.

(Exact name of registrant as specified in its charter)


Maryland (UDR, Inc.)	54‑0857512
Delaware (United Dominion Realty, L.P.)	54‑1776887
(State or other jurisdiction of	(I.R.S. Employer
incorporation of organization)	Identification No.)

1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado 80129

(Address of principal executive offices) (zip code)

(720) 283‑6120

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


UDR, Inc.	Yes ☒ No ☐
United Dominion Realty, L.P.	Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).


UDR, Inc.	Yes ☒ No ☐
United Dominion Realty, L.P.	Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

☒
UDR, Inc.:
Large accelerated filer ☒	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☐
			Emerging growth company ☐

☒
United Dominion Realty, L.P.:
Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☐
			Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.


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).


UDR, Inc.	Yes ☐ No ☒
United Dominion Realty, L.P.	Yes ☐ No ☒

The number of shares of UDR, Inc.’s common stock, $0.01 par value, outstanding as of October 26, 2018 was 268 ,390,557 .

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UDR, INC.

UNITED DOMINION REALTY, L.P.

INDEX

	PAGE
PART I — FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

UDR, INC. :

Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017 (audited)	5

Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017 (unaudited)	6

Consolidated Statements of Comprehensive Income/(Loss) for the three and nine months ended September 30, 2018 and 2017 (unaudited)	7

Consolidated Statement of Changes in Equity for the nine months ended September 30, 2018 (unaudited)	8

Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (unaudited)	9

Notes to Consolidated Financial Statements (unaudited)	10

UNITED DOMINION REALTY, L.P. :

Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017 (audited)	40

Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017 (unaudited)	41

Consolidated Statements of Comprehensive Income/(Loss) for the three and nine months ended September 30, 2018 and 2017 (unaudited)	42

Consolidated Statement of Changes in Capital for the nine months ended September 30, 2018 (unaudited)	43

Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (unaudited)	44

Notes to Consolidated Financial Statements (unaudited)	45

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	64

Item 3. Quantitative and Qualitative Disclosures About Market Risk	87

Item 4. Controls and Procedures	87

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	88

Item 1A. Risk Factors	88

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	101

Item 3. Defaults Upon Senior Securities	102

Item 4. Mine Safety Disclosures	102

Item 5. Other Information	102

Item 6. Exhibits	103

Signatures	106

Exhibit 3.6 Exhibit 3.18
Exhibit 12.1
Exhibit 12.2
Exhibit 31.1
Exhibit 31.2
Exhibit 31.3
Exhibit 31.4
Exhibit 32.1
Exhibit 32.2
Exhibit 32.3
Exhibit 32.4

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EXPLANATORY NOTE

This Report combines the quarterly reports on Form 10‑Q for the quarter ended September 30, 2018 of UDR, Inc., a Maryland corporation, and United Dominion Realty, L.P., a Delaware limited partnership, of which UDR, Inc. is the parent company and sole general partner. Unless the context otherwise requires, all references in this Report to “we,” “us,” “our,” the “Company,” “UDR” or “UDR, Inc.” refer collectively to UDR, Inc., together with its consolidated subsidiaries and joint ventures, including United Dominion Realty, L.P. and UDR Lighthouse DownREIT L.P. (the “DownREIT Partnership”), also a Delaware limited partnership of which UDR is the sole general partner. Unless the context otherwise requires, the references in this Report to the “Operating Partnership” or the “OP” refer to United Dominion Realty, L.P., together with its consolidated subsidiaries. “Common stock” refers to the common stock of UDR and “stockholders” means the holders of shares of UDR’s common stock and preferred stock. The limited partnership interests of the Operating Partnership and the DownREIT Partnership are referred to as “OP Units” and “DownREIT Units,” respectively, and the holders of the OP Units and DownREIT Units are referred to as “unitholders.” This combined Form 10‑Q is being filed separately by UDR and the Operating Partnership.

There are a number of differences between the Company and the Operating Partnership, which are reflected in our disclosures in this Report. UDR is a real estate investment trust (“REIT”), whose most significant asset is its ownership interest in the Operating Partnership. UDR also conducts business through other subsidiaries, including its taxable REIT subsidiary (“TRS”). UDR acts as the sole general partner of the Operating Partnership, holds interests in subsidiaries and joint ventures, owns and operates properties, issues securities from time to time and guarantees debt of certain of our subsidiaries. The Operating Partnership conducts the operations of a substantial portion of the business and is structured as a partnership with no publicly traded equity securities. The Operating Partnership has guaranteed certain outstanding debt of UDR.

As of September 30, 2018, UDR owned 110,883 units (100%) of the general partnership interests of the Operating Partnership and 174,137,816 OP Units, representing approximately 94.8% of the total outstanding OP Units in the Operating Partnership. UDR conducts a substantial amount of its business and holds a substantial amount of its assets through the Operating Partnership, and, by virtue of its ownership of the OP Units and UDR’s role as 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 presented in this report for each of UDR and the Operating Partnership.

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UDR, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


	September 30,		December 31,
	2018		2017
	(unaudited)		(audited)
ASSETS
Real estate owned:
Real estate held for investment	$	9,809,142	$	9,584,716
Less: accumulated depreciation		(3,544,781)		(3,326,312)
Real estate held for investment, net		6,264,361		6,258,404
Real estate under development (net of accumulated depreciation of $3,674 and $3,854, respectively)		347,012		588,636
Real estate held for disposition (net of accumulated depreciation of $77,872 and $0, respectively)		89,964		—
Total real estate owned, net of accumulated depreciation		6,701,337		6,847,040
Cash and cash equivalents		1,084		2,038
Restricted cash		26,996		19,792
Notes receivable, net		41,009		19,469
Investment in and advances to unconsolidated joint ventures, net		767,376		720,830
Other assets		140,982		124,104
Total assets	$	7,678,784	$	7,733,273

LIABILITIES AND EQUITY
Liabilities:
Secured debt, net	$	798,241	$	803,269
Unsecured debt, net		3,012,939		2,868,394
Real estate taxes payable		38,581		18,349
Accrued interest payable		27,750		33,432
Security deposits and prepaid rent		31,821		31,916
Distributions payable		95,372		91,455
Accounts payable, accrued expenses, and other liabilities		73,812		102,956
Total liabilities		4,078,516		3,949,771

Commitments and contingencies (Note 12)

Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		992,805		948,138

Equity:
Preferred stock, no par value; 50,000,000 shares authorized:
8.00% Series E Cumulative Convertible; 2,780,994 shares issued and outstanding at September 30, 2018 and December 31, 2017		46,200		46,200
Series F; 15,804,393 and 15,852,721 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively		1		1
Common stock, $0.01 par value; 350,000,000 shares authorized:
268,390,557 and 267,822,069 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively		2,684		2,678
Additional paid-in capital		4,619,570		4,651,205
Distributions in excess of net income		(2,075,402)		(1,871,603)
Accumulated other comprehensive income/(loss), net		202		(2,681)
Total stockholders’ equity		2,593,255		2,825,800
Noncontrolling interests		14,208		9,564
Total equity		2,607,463		2,835,364
Total liabilities and equity	$	7,678,784	$	7,733,273

See accompanying notes to consolidated financial statements.

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UDR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
REVENUES:
Rental income	$	263,256	$	248,264	$	770,373	$	734,193
Joint venture management and other fees		2,888		2,827		8,819		8,718
Total revenues		266,144		251,091		779,192		742,911
OPERATING EXPENSES:
Property operating and maintenance		44,090		42,362		126,129		122,574
Real estate taxes and insurance		34,352		31,181		99,541		90,792
Property management		7,240		6,827		21,185		20,190
Other operating expenses		3,314		1,950		8,148		6,010
Real estate depreciation and amortization		107,881		107,171		322,537		320,653
General and administrative		11,896		12,467		36,028		36,976
Casualty-related charges/(recoveries), net		678		2,056		2,364		3,749
Other depreciation and amortization		1,682		1,585		5,057		4,760
Total operating expenses		211,133		205,599		620,989		605,704
Operating income		55,011		45,492		158,203		137,207
Income/(loss) from unconsolidated entities		(1,382)		1,819		(5,091)		11,591
Interest expense		(34,401)		(30,095)		(95,942)		(94,500)
Interest income and other income/(expense), net		1,188		481		5,075		1,423
Income/(loss) before income taxes and gain/(loss) on sale of real estate owned		20,416		17,697		62,245		55,721
Tax (provision)/benefit, net		(158)		(127)		(618)		(825)
Income/(loss) from continuing operations		20,258		17,570		61,627		54,896
Gain/(loss) on sale of real estate owned, net of tax		—		—		70,300		2,132
Net income/(loss)		20,258		17,570		131,927		57,028
Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		(1,616)		(1,415)		(10,819)		(4,607)
Net (income)/loss attributable to noncontrolling interests		(32)		35		(141)		(107)
Net income/(loss) attributable to UDR, Inc.		18,610		16,190		120,967		52,314
Distributions to preferred stockholders — Series E (Convertible)		(971)		(926)		(2,897)		(2,784)
Net income/(loss) attributable to common stockholders	$	17,639	$	15,264	$	118,070	$	49,530

Common distributions declared per share	$	0.3225	$	0.3100	$	0.9675	$	0.9300

Income/(loss) per weighted average common share:
Basic	$	0.07	$	0.06	$	0.44	$	0.19
Diluted	$	0.07	$	0.06	$	0.44	$	0.18

Weighted average number of common shares outstanding:
Basic		267,727		267,056		267,529		266,940
Diluted		268,861		269,062		269,020		268,851

See accompanying notes to consolidated financial statements.

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UDR, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(In thousands)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Net income/(loss)	$	20,258	$	17,570	$	131,927	$	57,028
Other comprehensive income/(loss), including portion attributable to noncontrolling interests:
Other comprehensive income/(loss) - derivative instruments:
Unrealized holding gain/(loss)		2,320		131		4,312		256
(Gain)/loss reclassified into earnings from other comprehensive income/(loss)		(564)		119		(1,162)		1,328
Other comprehensive income/(loss), including portion attributable to noncontrolling interests		1,756		250		3,150		1,584
Comprehensive income/(loss)		22,014		17,820		135,077		58,612
Comprehensive (income)/loss attributable to noncontrolling interests		(1,798)		(1,401)		(11,230)		(4,856)
Comprehensive income/(loss) attributable to UDR, Inc.	$	20,216	$	16,419	$	123,847	$	53,756

See accompanying notes to consolidated financial statements.

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UDR, INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(In thousands, except per share data)

(Unaudited)




							Distributions		Accumulated Other Comprehensive
	Preferred		Common		Paid-in		in Excess of		Income/(Loss),		Noncontrolling
	Stock		Stock		Capital		Net Income		net		Interests		Total
Balance at December 31, 2017	$	46,201	$	2,678	$	4,651,205	$	(1,871,603)	$	(2,681)	$	9,564	$	2,835,364
Net income/(loss) attributable to UDR, Inc.		—		—		—		120,967		—		—		120,967
Net income/(loss) attributable to noncontrolling interests		—		—		—		—		—		107		107
Contribution of noncontrolling interests in consolidated real estate		—		—		—		—		—		108		108
Repurchase of common shares		—		(6)		(19,982)		—		—		—		(19,988)
Long Term Incentive Plan Unit grants/(vestings), net		—		—		—		—		—		4,429		4,429
Other comprehensive income/(loss)		—		—		—		—		2,883		—		2,883
Exercise of stock options, net		—		8		(23,061)		—		—		—		(23,053)
Issuance/(forfeiture) of common and restricted shares, net		—		(1)		(1,738)		—		—		—		(1,739)
Adjustment for conversion of noncontrolling interest of unitholders in the Operating Partnership and DownREIT Partnership		—		5		13,146		—		—		—		13,151
Common stock distributions declared ($0.9675 per share)		—		—		—		(259,214)		—		—		(259,214)
Preferred stock distributions declared-Series E ($1.0476 per share)		—		—		—		(2,897)		—		—		(2,897)
Adjustment to reflect redemption value of redeemable noncontrolling interests		—		—		—		(62,655)		—		—		(62,655)
Balance at September 30, 2018	$	46,201	$	2,684	$	4,619,570	$	(2,075,402)	$	202	$	14,208	$	2,607,463

See accompanying notes to consolidated financial statements.

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UDR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2018		2017
Operating Activities
Net income/(loss)	$	131,927	$	57,028
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization		327,594		325,413
(Gain)/loss on sale of real estate owned, net of tax		(70,300)		(2,132)
(Income)/loss from unconsolidated entities		5,091		(11,591)
Return on investment in unconsolidated joint ventures		2,848		3,609
Amortization of share-based compensation		10,694		10,072
Other		2,108		13,069
Changes in operating assets and liabilities:
(Increase)/decrease in operating assets		(13,199)		(7,782)
Increase/(decrease) in operating liabilities		9,961		1,590
Net cash provided by/(used in) operating activities		406,724		389,276

Investing Activities
Acquisition of real estate assets		—		(65,381)
Proceeds from sales of real estate investments, net		89,433		3,250
Development of real estate assets		(136,170)		(190,456)
Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement		(76,381)		(91,633)
Capital expenditures — non-real estate assets		(2,963)		(3,230)
Investment in unconsolidated joint ventures		(85,059)		(102,170)
Distributions received from unconsolidated joint ventures		30,574		65,053
Purchase deposits on pending acquisitions		(1,000)		—
Repayment/(issuance) of notes receivable, net		(21,540)		1,196
Net cash provided by/(used in) investing activities		(203,106)		(383,371)

Financing Activities
Payments on secured debt		(82,472)		(325,212)
Proceeds from the issuance of secured debt		80,000		—
Net proceeds from the issuance of unsecured debt		115,000		584,292
Net proceeds/(repayment) of revolving bank debt		29,243		19,367
Repurchase of common shares		(19,988)		—
Distributions paid to redeemable noncontrolling interests		(24,297)		(23,269)
Distributions paid to preferred stockholders		(2,854)		(2,776)
Distributions paid to common stockholders		(255,683)		(244,788)
Other		(36,317)		(13,424)
Net cash provided by/(used in) financing activities		(197,368)		(5,810)
Net increase/(decrease) in cash, cash equivalents, and restricted cash		6,250		95
Cash, cash equivalents, and restricted cash, beginning of year		21,830		22,106
Cash, cash equivalents, and restricted cash, end of period	$	28,080	$	22,201

Supplemental Information:
Interest paid during the period, net of amounts capitalized	$	104,136	$	95,008
Cash paid/(refunds received) for income taxes		579		1,803
Non-cash transactions:
Transfer of investment in and advances to unconsolidated joint ventures to real estate owned	$	—	$	32,260
Vesting of LTIP Units		4,397		2,317
Development costs and capital expenditures incurred but not yet paid		23,437		48,995
Conversion of Operating Partnership and DownREIT Partnership noncontrolling interests to common stock (343,653 shares in 2018 and 202,218 shares in 2017)		13,151		7,437
Dividends declared but not yet paid		95,372		91,454

The following reconciles cash, cash equivalents, and restricted cash to the total of the same amounts as shown above:
Cash, cash equivalents, and restricted cash, beginning of year:
Cash and cash equivalents	$	2,038	$	2,112
Restricted cash		19,792		19,994
Total cash, cash equivalents, and restricted cash as shown above	$	21,830	$	22,106
Cash, cash equivalents, and restricted cash, end of period:
Cash and cash equivalents	$	1,084	$	1,788
Restricted cash		26,996		20,413
Total cash, cash equivalents, and restricted cash as shown above	$	28,080	$	22,201

See accompanying notes to consolidated financial statements.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2018

1. BASIS OF PRESENTATION

Basis of Presentation

UDR, Inc., collectively with our consolidated subsidiaries (“UDR,” the “Company,” “we,” “our,” or “us”), is a self-administered real estate investment trust, or REIT, that owns, operates, acquires, renovates, develops, redevelops, and manages apartment communities. The accompanying consolidated financial statements include the accounts of UDR and its subsidiaries, including United Dominion Realty, L.P. (the “Operating Partnership” or the “OP”) and UDR Lighthouse DownREIT L.P. (the “DownREIT Partnership”). As of September 30, 2018, there were 183,636,543 units in the Operating Partnership (“OP Units”) outstanding, of which 174,248,699 OP Units, or 94.9%, were owned by UDR and 9,387,844 OP Units, or 5.1%, were owned by outside limited partners. As of September 30, 2018, there were 32,367,380 units in the DownREIT Partnership (“DownREIT Units”) outstanding, of which 17,199,085, or 53.1%, were owned by UDR (including 13,470,651 DownREIT Units, or 41.6%, that were held by the Operating Partnership) and 15,168,295, or 46.9%, were owned by outside limited partners. The consolidated financial statements of UDR include the noncontrolling interests of the unitholders in the Operating Partnership and DownREIT Partnership.

The accompanying interim unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted according to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments and eliminations necessary for the fair presentation of our financial position as of September 30, 2018, and results of operations for the three and nine months ended September 30, 2018 and 2017, have been included. Such adjustments are normal and recurring in nature. The interim results presented are not necessarily indicative of results that can be expected for a full year. The accompanying interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2017 appearing in UDR’s Annual Report on Form 10‑K, filed with the Securities and Exchange Commission on February 20, 2018.

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

The Company evaluated subsequent events through the date its financial statements were issued. No significant recognized or non-recognized subsequent events were noted other than those noted in Note 6, Secured and Unsecured Debt, Net and Note 10, Derivatives and Hedging Activity .

2. SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements

In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging, Targeted Improvements to Accounting for Hedging Activities . The ASU aims to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. The updated standard would have been effective for the Company on January 1, 2019 and must be applied using a modified retrospective approach; however, early adoption of the ASU is permitted. The Company early adopted the guidance on January 1, 2018; however, the updated standard did not have a material impact on the consolidated financial statements. Related disclosures were updated pursuant to the requirements of the ASU.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

September 30, 2018

after adoption. The Company expects that the updated standard will result in fewer acquisitions of real estate meeting the definition of a business and fewer acquisition-related costs being expensed in the period incurred.

In November 2016, the FASB issued ASU 2016‑18, Statement of Cash Flows (Topic 230), Restricted Cash . The ASU addresses the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The updated standard was effective for the Company on January 1, 2018, and was applied retrospectively to all periods presented. The updated standard did not have a material impact on the consolidated financial statements. Related disclosures were updated pursuant to the requirements of the ASU.

As a result of the adoption of ASU 2016-18, for the nine months ended September 30, 2017, the following line items in the following amounts were reclassified on the Consolidated Statements of Cash Flows ( in thousands ):


	Nine months ended
	September 30, 2017
(Increase)/decrease in operating assets	$	407
Net cash provided by /(used in) operating activities	$	407

Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement	$	12
Net cash provided by /(used in) investing activities	$	12

Net increase/(decrease) in cash, cash equivalents, and restricted cash	$	419

In June 2016, the FASB issued ASU 2016‑13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments . The standard requires entities to estimate a lifetime expected credit loss for most financial assets, including trade and other receivables, held-to-maturity debt securities, loans and other financial instruments, and to present the net amount of the financial instrument expected to be collected. The updated standard will be effective for the Company on January 1, 2020; however, early adoption of the ASU is permitted on January 1, 2019. The Company is currently evaluating the effect that the updated standard will have on the consolidated financial statements and related disclosures.

I n February 2016, the FASB issued ASU No. 2016-02, Leases . The standard amends the existing lease accounting guidance and requires lessees to recognize a lease liability and a right-of-use asset for all leases (except for short-term leases that have a duration of one year or less) on their balance sheets. Lessees will continue to recognize lease expense in a manner similar to current accounting. For lessors, accounting for leases under the new guidance is substantially the same as in prior periods, but eliminates current real estate-specific provisions and changes the treatment of initial direct costs. The standard will be effective for the Company on January 1, 2019; however, early adoption of the standard is permitted.

While the Company is currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures, we expect to adopt the guidance on its effective date. The Company intends to elect the following package of practical expedients provided by the standard which includes: (i) an entity need not reassess whether any expired or existing contract is a lease or contains a lease, (ii) an entity need not reassess the lease classification of any expired or existing leases, and (iii) an entity need not reassess initial direct costs for any existing leases. The Company anticipates recognizing right-of-use assets and related lease liabilities on our consolidated balance sheets upon adoption equal to the present value of the remaining minimum lease payments related to ground leases for communities where we are the lessee. The Company plans to continue recognizing lease expense for these leases in a manner similar to current accounting upon adoption of the standard based on our election of the package of practical expedients. However, in the event we modify existing ground leases and/or enter into new ground leases subsequent to the adoption of the standard, such leases would likely be classified as finance leases under the standard and require expense recognition based on the effective interest method. Under the standard, initial direct costs for both lessees and lessors would include only those costs that are incremental to the arrangement and would not have been incurred if the lease had not been obtained. As a result, we will be required to expense internal leasing costs as incurred.

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September 30, 2018

consideration in the contract to the separate components if both (i) the timing and pattern of revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. The Company intends to elect the practical expedient to account for lease and non-lease components as a single component in lease contracts where we are the lessor. The ASU also provides a transition option that permits entities to not recast the comparative periods presented when transitioning to the standard. The Company also intends to elect the transition option.

In January 2016, the FASB issued ASU No. 2016‑01, Financial Instruments – Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities . The updated standard requires certain equity securities to be measured at fair value on the balance sheet, with changes in fair value recognized in net income. The standard was effective for the Company on January 1, 2018. The Company holds one investment in equity securities subject to the updated guidance. As the investment does not have a readily determinable fair value, the Company elected the measurement alternative under which the investment is measured at cost, less any impairment, plus or minus changes resulting from observable price changes for an identical or similar investment of the same issuer. During the three and nine months ended September 30, 2018, the Company recorded gains of zero and $2.1 million, respectively, in Interest income and other income/(expense), net on the Consolidated Statements of Operations as a result of measuring the investment using this measurement alternative. The Company does not view the impact, as a result of the adoption of the updated standard, to be material to the consolidated financial statements. Disclosures wer e updated pursuant to the requirements of the ASU.

In May 2014, the FASB issued ASU No. 2014‑09, Revenue from Contracts with Customers . ASU No. 2014-09 amended the FASB Accounting Standards Codification (“ASC”) by creating ASC Topic 606, Revenue from Contracts with Customers . The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective, including industry-specific revenue guidance. The standard specifically excludes lease contracts. The ASU allows for the use of either the full or modified retrospective transition method. ASC Topic 606 was effective for the Company on January 1, 2018, at which time the Company adopted it using the modified retrospective approach. However, as the majority of the Company’s revenue is from rental income related to leases, the ASU did not have a material impact on the consolidated financial statements. Related disclosures are provided and/or updated pursuant to the requirements of the ASU.

Principles of Consolidation

The Company accounts for subsidiary partnerships, joint ventures and other similar entities in which it holds an ownership interest in accordance with the consolidation guidance. The Company first evaluates whether each entity is a variable interest entity (“VIE”). Under the VIE model, the Company consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the voting model, the Company consolidates an entity when it controls the entity through ownership of a majority voting interest.

Discontinued Operations

In accordance with GAAP, a discontinued operation represents (1) a component of an entity or group of components that has been disposed of or is classified as held for sale in a single transaction and represents a strategic shift that has or will have a major effect on an entity’s financial results, or (2) an acquired business that is classified as held for sale on the date of acquisition. A strategic shift could include a disposal of (1) a separate major line of business, (2) a separate major geographic area of operations, (3) a major equity method investment, or (4) other major parts of an entity.

We record sales of real estate that do not meet the definition of a discontinued operation in Gain/(loss) on sale of real estate owned, net of tax on the Consolidated Statements of Operations.

Revenue

On January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers , utilizing the modified retrospective method, under which only contracts entered into after the effective date or not complete as of

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September 30, 2018

the effective date are subject to the new standard and an adjustment to the opening balance of retained earnings is made to recognize any required adjustments. As a result of the adoption, the Company did not make an adjustment to retained earnings because no open contracts required different treatment under the new standard.

Revenue is measured based on consideration specified in contracts with customers. The Company recognizes revenue when it satisfies a performance obligation by providing the services specified in a contract to the customer.

The following is a description of the principal streams from which the Company generates its revenue:

Lease Revenue

Lease revenue related to leases is recognized on an accrual basis when due from residents or tenants in accordance with ASC 840, Leases . Rental payments are generally due on a monthly basis and recognized on a straight-line basis over the reasonably assured lease term. In addition, in circumstances where a lease incentive is provided to tenants, the incentive is recognized as a reduction of lease revenue on a straight-line basis over the reasonably assured lease term.

Reimbursements Revenue

Reimbursements revenue includes all pass-through revenue from retail and residential leases and common area maintenance reimbursements from retail leases. Reimbursements revenue is recognized on a gross basis as earned as the Company has determined it is the principal provider of the services.

Other Revenue

Other revenue is generated by services provided by the Company to its retail and residential tenants and other unrelated third parties. These fees are generally recognized as earned.

Joint venture management and other fees

The Joint venture management and other fees revenue consists of management fees charged to our equity method joint ventures per the terms of contractual agreements and other fees. Joint venture fee revenue is recognized monthly as the management services are provided and the fees are earned or upon a transaction whereby the Company earns a fee.

Real Estate Sales Gain Recognition

For sale transactions resulting in a transfer of a controlling financial interest of a property, the Company generally derecognizes the related assets and liabilities from its Consolidated Balance Sheets and records the gain or loss in the period in which the transfer of control occurs. If control of the property has not transferred to the counterparty, the criteria for derecognition are not met and the Company will continue to recognize the related assets and liabilities on its Consolidated Balance Sheets.

Sale transactions to entities in which the Company sells a controlling financial interest in a property but retains a noncontrolling interest are accounted for as partial sales. Partial sales resulting in a change in control are accounted for at fair value and a full gain or loss is recognized. Therefore, the Company will record a gain or loss on the partial interest sold, and the initial measurement of our retained interest will be accounted for at fair value.

Sales of real estate to joint ventures or other noncontrolled investees are also accounted for at fair value and the Company will record a full gain or loss in the period the property is contributed.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

September 30, 2018

Disaggregation of Revenue

Rental income , as disclosed on the Consolidated Statements of Operations, is disaggregated by principal revenue stream and by reportable segment in the following tables (dollars in thousands) . Joint venture management and other fees are not included in the tables as they are not allocable to a specific reportable segment or segments.


	Three Months Ended				Nine Months Ended
	September 30, (a)				September 30, (b)
	2018		2017		2018		2017
Lease Revenue (c)
Same-Store Communities
West Region	$	95,447	$	91,399	$	277,317	$	265,595
Mid-Atlantic Region		51,291		49,772		152,866		148,916
Northeast Region		37,201		36,726		110,541		109,495
Southeast Region		27,773		26,221		81,555		77,697
Southwest Region		11,647		11,446		29,561		29,126
Non-Mature Communities/Other		19,940		13,836		58,570		46,879
Total segment and consolidated lease revenue	$	243,299	$	229,400	$	710,410	$	677,708

Reimbursements Revenue
Same-Store Communities
West Region	$	4,415	$	4,111	$	12,908	$	12,295
Mid-Atlantic Region		2,247		2,121		6,850		6,629
Northeast Region		672		691		1,952		2,131
Southeast Region		1,730		1,634		5,124		4,872
Southwest Region		651		624		1,649		1,572
Non-Mature Communities/Other		1,981		1,737		6,521		5,776
Total segment and consolidated reimbursements revenue	$	11,696	$	10,918	$	35,004	$	33,275

Other Revenue
Same-Store Communities
West Region	$	2,753	$	2,754	$	8,231	$	8,150
Mid-Atlantic Region		1,785		1,646		5,095		4,854
Northeast Region		949		745		2,481		2,188
Southeast Region		1,481		1,442		4,793		4,534
Southwest Region		604		550		1,486		1,483
Non-Mature Communities/Other		689		809		2,873		2,001
Total segment and consolidated other revenue	$	8,261	$	7,946	$	24,959	$	23,210

Total Revenue
Same-Store Communities
West Region	$	102,615	$	98,264	$	298,456	$	286,040
Mid-Atlantic Region		55,323		53,539		164,811		160,399
Northeast Region		38,822		38,162		114,974		113,814
Southeast Region		30,984		29,297		91,472		87,103
Southwest Region		12,902		12,620		32,696		32,181
Non-Mature Communities/Other		22,610		16,382		67,964		54,656
Total segment and consolidated total revenue	$	263,256	$	248,264	$	770,373	$	734,193

(a)

Same-Store Community population consisted of 38,307 apartment homes.

(b)

Same-Store Community population consisted of 37,673 apartment homes.

(c)

Lease Revenue is subject to recognition under ASC 840, Leases.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

September 30, 2018

Notes Receivable

The following table summarizes our Notes receivable, net as of September 30, 2018 and December 31, 2017 ( dollars in thousands):


	Interest rate at		Balance Outstanding
	September 30,		September 30,		December 31,
	2018		2018		2017
Note due March 2019 (a)	12.00	%	$	20,000	$	—
Note due February 2020 (b)	10.00	%		14,209		13,669
Note due October 2020 (c)	8.00	%		2,000		2,000
Note due August 2022 (d)	10.00	%		4,800		3,800
Total notes receivable, net			$	41,009	$	19,469

(a)

In March 2018, the Company entered into a secured note receivable with an unaffiliated third party with an aggregate commitment of $20.0 million, of which $20.0 million has been funded. Interest payments are due when the loan matures. The note matures in March 2019 and is secured by a parcel of land.

(b)

The Company has a secured note receivable with an unaffiliated third party with an aggregate commitment of $16.4 million, of which $14.2 million has been funded, including $0.5 million during the nine months ended September 30, 2018. Interest payments are due monthly. The note matures at the earliest of the following: (a) the closing of any private or public capital raising in the amount of $5.0 million or greater; (b) an acquisition; (c) acceleration in the event of default; or (d) the eighth anniversary of the date of the note (February 2020).

(c)

The Company has a secured note receivable with an unaffiliated third party with an aggregate commitment of $2.0 million, of which $2.0 million has been funded. Interest payments are due when the loan matures. The note matures at the earliest of the following: (a) the closing of any private or public capital raising in the amount of $10.0 million or greater; (b) an acquisition; (c) acceleration in the event of default; or (d) the fifth anniversary of the date of the note (October 2020).

(d)

The Company has a secured note receivable with an unaffiliated third party with an aggregate commitment of $10.0 million, of which $4.8 million has been funded, including $ 1.0 million during the nine months ended September 30, 2018. Interest payments are due monthly. The note matures at the earliest of the following: (a) the closing of any private or public capital raising in the amount of $25.0 million or greater; (b) an acquisition; (c) acceleration in the event of default; or (d) August 2022.

The Company recognized $1.2 million and $0.4 million of interest income from notes receivable during the three months ended September 30, 2018 and 2017, respectively, and $2.9 million and $1.4 million during the nine months ended September 30, 2018 and 2017, respectively, none of which was related party interest income and all of which is included in Interest income and other income/(expense), net on the Consolidated Statements of Operations.

Comprehensive Income/(Loss)

Comprehensive income/(loss), which is defined as the change in equity during each period from transactions and other events and circumstances from nonowner sources, including all changes in equity during a period except for those resulting from investments by or distributions to stockholders, is displayed in the accompanying Consolidated Statements of Comprehensive Income/(Loss). For the three and nine months ended September 30, 2018 and 2017, the Company’s other comprehensive income/(loss) consisted of the gain/(loss) on derivative instruments that are designated as and qualify as cash flow hedges, (gain)/loss on derivative instruments reclassified from other comprehensive income/(loss) into earnings, and the allocation of other comprehensive income/(loss) to noncontrolling interests. The (gain)/loss on derivative instruments reclassified from other comprehensive income/(loss) is included in Interest expense on the Consolidated Statements of Operations. See Note 10, Derivatives and Hedging Activity, for further discussion. The allocation of other comprehensive income/(loss) to redeemable noncontrolling interests during the three months ended September 30, 2018 and 2017 was $0.2 million and less than $0.1 million, respectively, and during the nine months ended September 30, 2018 and 2017, was $0.3 million and $0.1 million, respectively.

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September 30, 2018

Income Taxes

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

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, 2018 and December 31, 2017, UDR’s net deferred tax asset was $0.1 million and $0.1 million, respectively.

GAAP defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. GAAP also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition.

The Company recognizes its tax positions and evaluates them using a two-step process. First, UDR determines whether a tax position is more likely than not (greater than 50 percent probability) to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, the Company will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement.

UDR had no material unrecognized tax benefit, accrued interest or penalties at September 30, 2018. UDR and its subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions. The tax years 2014 through 2017 remain open to examination by tax jurisdictions to which we are subject. When applicable, UDR recognizes interest and/or penalties related to uncertain tax positions in Tax (provision)/benefit, net on the Consolidated Statements of Operations.

As of December 31, 2017 , management of the Company had completed its review of the effects of the Tax Cuts and Jobs Act, under which it recognized a one-time tax benefit of $1.1 million related to the recording of previously reserved receivables for REIT AMT credits that became refundable.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

September 30, 2018

3. REAL ESTATE OWNED

Real estate assets owned by the Company consist of income producing operating properties, properties under development, land held for future development, and held for disposition properties. As of September 30, 2018, the Company owned and consolidated 127 communities in 11 states plus the District of Columbia totaling 40,420 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of September 30, 2018 and December 31, 2017 (dollars in thousands):


	September 30,		December 31,
	2018		2017
Land	$	1,824,847	$	1,780,229
Depreciable property — held and used:
Land improvements		195,051		189,919
Building, improvements, and furniture, fixtures and equipment		7,789,244		7,614,568
Under development:
Land and land improvements		42,138		109,468
Building, improvements, and furniture, fixtures and equipment		308,548		483,022
Real estate held for disposition:
Land and land improvements		28,889		—
Building, improvements, and furniture, fixtures and equipment		138,947		—
Real estate owned		10,327,664		10,177,206
Accumulated depreciation		(3,626,327)		(3,330,166)
Real estate owned, net	$	6,701,337	$	6,847,040

Acquisitions

The Company did not have any acquisitions during the nine months ended September 30, 2018.

Dispositions

During the nine months ended September 30, 2018, the Company sold an operating community in Orange County, California with a total of 264 apartment homes for gross proceeds of $90.5 million, resulting in a gain of $70.3 million. The proceeds were designated for a tax-deferred Section 1031 exchange that were used to pay a portion of the purchase price for an acquisition in October 2017.

In September 2018, the Company entered into an agreement to sell an operating community in Fairfax, Virginia with a total of 604 apartment homes for a sales price of approximately $160.0 million. The operating community was classified as held for disposition as of September 30, 2018 and the sale is expected to close in the fourth quarter of 2018.

Developments

During the nine months ended September 30, 2018, the Company completed the development of a 516 apartment home community in Huntington Beach, California.

Other Activity

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

September 30, 2018

direct costs of development and redevelopment and capitalized interest, for the three months ended September 30, 2018 and 2017, were $1.6 million and $2.2 million, respectively, and $6.6 million and $6.6 million for the nine months ended September 30, 2018 and 2017, respectively. Total interest capitalized was $1.6 million and $4.6 million for the three months ended September 30, 2018 and 2017, respectively, and $9.8 million and $14.0 million for the nine months ended September 30, 2018 and 2017, respectively. As each home in a capital project is completed and becomes available for lease-up, the Company ceases capitalization on the related portion of the costs and depreciation commences over the estimated useful life.

In connection with the acquisition of certain properties, the Company agreed to pay certain of the tax liabilities of certain contributors if the Company sells one or more of the properties contributed in a taxable transaction prior to the expiration of specified periods of time following the acquisition. The Company may, however, sell, without being required to pay any tax liabilities, any of such properties in a non-taxable transaction, including, but not limited to, a tax-deferred Section 1031 exchange.

Further, the Company has agreed to maintain certain debt that may be guaranteed by certain contributors for specified periods of time following the acquisition. The Company, however, has the ability to refinance or repay guaranteed debt or to substitute new debt if the debt and the guaranty continue to satisfy certain conditions.

4. VARIABLE INTEREST ENTITIES

The Company has determined that the Operating Partnership and DownREIT Partnership are VIEs as the limited partners lack substantive kick-out rights and substantive participating rights. The Company has concluded that it is the primary beneficiary of, and therefore consolidates, the Operating Partnership and DownREIT Partnership based on its role as the sole general partner of the Operating Partnership and DownREIT Partnership. The Company’s role as community manager and its equity interests give us the power to direct the activities that most significantly impact the economic performance and the obligation to absorb potentially significant losses or the right to receive potentially significant benefits of the Operating Partnership and DownREIT Partnership.

See the consolidated financial statements of the Operating Partnership presented within this Report and Note 4, Unconsolidated Entities , to the Operating Partnership’s consolidated financial statements for the results of operations of the DownREIT Partnership.

5. JOINT VENTURES AND PARTNERSHIPS

UDR has entered into joint ventures and partnerships with unrelated third parties to acquire real estate assets that are either consolidated and included in Real estate owned on the Consolidated Balance Sheets or are accounted for under the equity method of accounting, and are included in Investment in and advances to unconsolidated joint ventures, net , on the Consolidated Balance Sheets. The Company consolidates the entities that we control as well as any variable interest entity where we are the primary beneficiary. Under the VIE model, the Company consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the voting model, the Company consolidates an entity when it controls the entity through ownership of a majority voting interest.

UDR’s joint ventures and partnerships are funded with a combination of debt and equity. Our losses are limited to our investment and except as noted below, the Company does not guarantee any debt, capital payout or other obligations associated with our joint ventures and partnerships.

The Company recognizes earnings or losses from our investments in unconsolidated joint ventures and partnerships consisting of our proportionate share of the net earnings or losses of the joint ventures and partnerships. In addition, we may earn fees for providing management services to the unconsolidated joint ventures and partnerships.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

September 30, 2018

The following table summarizes the Company’s investment in and advances to unconsolidated joint ventures and partnerships, net, which are accounted for under the equity method of accounting as of September 30, 2018 and December 31, 2017 (dollars in thousands) :


				Number of
		Number of		Apartment
		Properties		Homes	Investment at				UDR’s Ownership Interest
	Location of	September 30,		September 30,	September 30,		December 31,		September 30,		December 31,
Joint Venture	Properties	2018		2018	2018		2017		2018		2017
Operating and development:
UDR/MetLife I	Los Angeles, CA	1	development community (a)	150	$	34,869	$	34,653	50.0	%	50.0	%
UDR/MetLife II	Various	18	operating communities	4,059		299,953		303,702	50.0	%	50.0	%
Other UDR/MetLife	Various	5	operating communities	1,437		119,893		135,563	50.6	%	50.6	%
Joint Ventures
UDR/MetLife Vitruvian Park ®	Addison, TX	3	operating communities;	1,513		71,225		78,404	50.0	%	50.0	%
		1	development community (a);
		5	land parcels
UDR/KFH	Washington, D.C.	3	operating communities	660		6,453		8,958	30.0	%	30.0	%
West Coast Development Joint Ventures (c)	Los Angeles, CA	1	operating community	293		36,645		37,916	47.0	%	47.0	%
Investment in and advances to unconsolidated joint ventures, net, before participating loan investment, preferred equity investments and other investments					$	569,038	$	599,196


											Income/(loss) from investments
							Investment at				Three Months Ended				Nine Months Ended
				Years To	UDR		September 30,		December 31,		September 30,				September 30,
Developer Capital Program (b)	Location	Rate		Maturity	Commitment		2018		2017		2018		2017		2018		2017
Preferred equity investments:
West Coast Development Joint Ventures (c)	Various	6.5	%	N/A	$	—	$	65,476	$	64,226	$	25	$	3,266	$	974	$	16,626
1532 Harrison (d)	San Francisco, CA	11.0	%	3.8		24,645		21,373		11,346		721		226		1,492		228
1200 Broadway (e)	Nashville, TN	8.0	%	4.0		55,558		48,805		18,011		859		65		1,870		65
Junction (f)	Santa Monica, CA	12.0	%	4.0		8,800		8,938		—		141		—		141		—
1300 Fairmount (g)	Philadelphia, PA	9.0	%	5.0		51,393		2,670		—		27		—		27		—
Essex (h)	Orlando, FL	12.5	%	5.0		12,886		6,326		—		46		—		46		—
Other investments:
The Portals (i)	Washington, D.C.	11.0	%	2.7		38,559		41,996		26,535		1,015		330		2,523		346
Other investment ventures	N/A	N/A		N/A	$	15,000		2,754		1,516	$	(77)	$	—	$	(262)	$	—
Total Developer Capital Program								198,338		121,634
Total investment in and advances to unconsolidated joint ventures, net							$	767,376	$	720,830

(a)

The number of apartment homes for the communities under development presented in the table above is based on the projected number of total homes upon completion of development. As of September 30, 2018, 383 apartment homes had been completed in UDR/MetLife Vitruvian Park ® and 150 apartment homes had been completed at Vision on Wilshire, which is owned by UDR/MetLife I.

(b)

The Developer Capital Program is the program through which the Company makes investments, including preferred equity investments, mezzanine loans or other structured investments that may receive a fixed yield on the investment and may include provisions pursuant to which the Company participates in the increase in value of the property upon monetization of the applicable property and/or holds fixed price purchase options.

(c)

In May 2015, the Company entered into a joint venture agreement with an unaffiliated joint venture partner and agreed to pay $136.3 million for a 48% ownership interest in a portfolio of five communities that were under construction. The communities are located in three of the Company’s core, coastal markets: Seattle, Washington, Los Angeles, California and Orange County, California. UDR earns a 6.5% preferred return on its investment through each individual community’s date of stabilization, defined as when a community reaches 80% occupancy for 90 consecutive days, while the joint venture partner is allocated all operating income and expense during the pre-stabilization period. Upon stabilization, income and expense are shared based on each partner’s ownership percentage and the Company no longer receives a 6.5% preferred return on its investment in the stabilized community. The Company serves as property manager and earns a management fee during the lease-up phase and subsequent operation of each of the communities. The unaffiliated joint venture partner is the general partner of the joint venture and the developer of the communities.

At inception of the agreement, the Company had a fixed-price option to acquire the remaining interest in each community commencing one year after completion. In the event the Company does not exercise its options to purchase at least two communities, the unaffiliated joint venture partner will be entitled to earn a contingent disposition fee equal to a 6.5% return on its implied equity in the communities not acquired. The unaffiliated joint venture partner is providing certain guaranties.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

September 30, 2018

In January 2017, the Company exercised its fixed-price option to purchase the joint venture partner’s ownership interest in one of the five communities, a 244 home operating community in Seattle, Washington, thereby increasing its ownership interest from 49% to 100%, for a cash purchase price of approximately $66.0 million. As a result, the Company consolidated the operating community and it is no longer accounted for as a preferred equity investment in an unconsolidated joint venture.

During 2017, the joint venture sold two of the four remaining communities, a 211 home operating community in Seattle, Washington for a sales price of approximately $101.3 million and a 399 home operating community in Anaheim, California for a sales price of approximately $148.0 million.

During the nine months ended September 30, 2018, the fixed-price option to acquire one of the two remaining communities held by the West Coast Development Joint Ventures (as defined below) expired. The community achieved stabilization during 2017, at which time the Company and its joint venture partner began receiving income and expenses based on their ownership percentages. The Company and its joint venture partner plan to continue operating the community.

As of September 30, 2018, construction was complete on the remaining community subject to the fixed-price acquisition option. The Company continues to receive a 6.5% preferred return on its investment in that community until it reaches stabilization. The Company anticipates acquiring this remaining community from the joint venture for a contractual purchase price at 100% of approximately $130.1 million. As the Company currently holds a 49% ownership interest in the community, it expects to pay approximately $66.4 million for the remaining 51% ownership. As such, the Company has disclosed a contractual purchase price commitment (see Note 12, Commitments and Contingencies ). The acquisition is expected to occur in the next twelve months.

In March 2017 and May 2017, the Company entered into two additional joint venture agreements with the unaffiliated joint venture partner and agreed to pay $15.5 million for a 49% ownership interest in a 155 home community in Seattle, Washington, for which construction was complete as of September 30, 2018, and $16.1 million for a 49% ownership interest in a 276 home community that is currently under construction in Hillsboro, Oregon (together with the May 2015 joint venture described above, the “West Coast Development Joint Ventures”). UDR earns a 6.5% preferred return on its investments through the communities’ date of stabilization, as defined above, while our joint venture partner is allocated all operating income and expense during the pre-stabilization period. Upon stabilization of the communities, income and expense will be shared based on each partner’s ownership percentage and the Company will no longer receive a 6.5% preferred return on its investment. The Company will serve as property manager and will earn a management fee during the lease-up phase and subsequent operation of the stabilized communities. The unaffiliated joint venture partner is the general partner and the developer of the communities. The Company has concluded it does not control the joint ventures and accounts for them under the equity method of accounting.

The Company has a fixed-price option to acquire the remaining interest in the communities beginning one year after completion for a total price of $61.3 million and $72.3 million, respectively. The unaffiliated joint venture partner is providing certain guaranties and there are construction loans on the communities.

The Company’s recorded equity investment in the West Coast Development Joint Ventures at September 30, 2018 and December 31, 2017, of $102.1 million and $1 02.1 million, respectively, is inclusive of outside basis costs and our accrued but unpaid preferred return.

(d)

In June 2017, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 136 apartment home community in San Francisco, California. The Company’s preferred equity investment of up to $24.6 million earns a preferred return of 11.0% per annum. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. As of September 30, 2018, the Company had contributed approximately $21.4 million to the joint venture , and recorded the remaining contractual commitment (for a total equity investment of $24.6 million) in Restricted cash on the Consolidated Balance Sheets in accordance with the terms of the joint venture agreement. These amounts will be contributed to the joint venture when the developer submits qualifying draw requests to fund the construction. The Company has concluded that it does not control the joint venture and accounts for it under the equity method of accounting.

(e)

In September 2017, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 313 apartment home community in Nashville, Tennessee. The Company’s preferred equity investment of up to $55.6 million earns a preferred return of 8.0% per annum and receives a variable percentage of

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

September 30, 2018

the value created from the project upon a capital or liquidating event. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and accounts for it under the equity method of accounting.

(f)

In August 2018, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 66 apartment home community in Santa Monica, CA. The Company’s preferred equity investment of $8.8 million earns a preferred return of 12.0% per annum. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and accounts for it under the equity method of accounting.

(g)

In August 2018, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 471 apartment home community in Philadelphia, PA. The Company’s preferred equity investment of up to $51.4 million earns a preferred return of 9.0% per annum and receives a variable percentage of the value created from the project upon a capital or liquidating event. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and accounts for it under the equity method of accounting.

(h)

In September 2018, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 330 apartment home community in Orlando, FL. The Company’s preferred equity investment of up to $12.9 million earns a preferred return of 12.5% per annum. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and accounts for it under the equity method of accounting.

(i)

In May 2017, the Company entered into a joint venture agreement with an unaffiliated joint venture partner. The joint venture has made a mezzanine loan to a third party developer of a 373 apartment home community in Washington, D.C. The unaffiliated joint venture partner is the managing member of the joint venture. The mezzanine loan is for up to $71.0 million at an interest rate of 13.5% per annum and carries a term of four years with one 12-month extension option. The Company’s commitment to the joint venture is approximately $38.6 million and earns a weighted average return of approximately 11.0% per annum. The Company has concluded that it does not control the joint venture and accounts for it under the equity method of accounting.

As of September 30, 2018 and December 31, 2017, the Company had deferred fees of $11.1 million and $10.9 million, respectively, which will be recognized through earnings over the weighted average life of the related properties, upon the disposition of the properties to a third party, or upon completion of certain development obligations.

The Company recognized management fees of $2.9 million and $2.8 million during the three months ended September 30, 2018 and 2017, respectively, and $8.7 million and $8.7 million for the nine months ended September 30, 2018 and 2017, respectively, for management of the communities held by the joint ventures and partnerships. The management fees are included in Joint venture management and other fees on the Consolidated Statements of Operations.

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

We evaluate our investments in unconsolidated joint ventures and partnerships when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. The Company did not recognize any other-than-temporary impairments in the value of its investments in unconsolidated joint ventures or partnerships during the three and nine months ended September 30, 2018 and 2017.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

September 30, 2018

Combined summary balance sheets relating to the unconsolidated joint ventures and partnerships (not just our proportionate share) are presented below as of September 30, 2018 and December 31, 2017 ( dollars in thousands ):


	September 30,		December 31,
	2018		2017
Total real estate, net	$	3,267,944	$	3,236,180
Cash and cash equivalents		53,141		36,411
Other assets		91,246		50,158
Total assets	$	3,412,331	$	3,322,749

Third party debt, net	$	2,108,790	$	2,005,566
Accounts payable and accrued liabilities		63,220		85,643
Total liabilities	$	2,172,010	$	2,091,209
Total equity	$	1,240,321	$	1,231,540

Combined summary financial information relating to the unconsolidated joint ventures’ and partnerships’ operations (not just our proportionate share) is presented below for the three and nine months ended September 30, 2018 and 2017 ( dollars in thousands ) :


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Total revenues	$	76,203	$	71,200	$	215,140	$	205,475
Property operating expenses		30,096		28,157		85,435		79,622
Real estate depreciation and amortization		29,545		28,264		85,063		82,344
Operating income/(loss)		16,562		14,779		44,642		43,509
Interest expense		(22,919)		(21,849)		(63,990)		(64,083)
Gain/(loss) on sale of property		—		30,153		—		30,153
Other income/(loss)		40		(515)		141		(435)
Net income/(loss)	$	(6,317)	$	22,568	$	(19,207)	$	9,144

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

September 30, 2018

6. SECURED AND UNSECURED DEBT, NET

The following is a summary of our secured and unsecured debt at September 30, 2018 and December 31, 2017 ( dollars in thousands ):


	Principal Outstanding				As of September 30, 2018
					Weighted		Weighted
					Average		Average	Number of
	September 30,		December 31,		Interest		Years to	Communities
	2018		2017		Rate		Maturity	Encumbered
Secured Debt:
Fixed Rate Debt
Mortgage notes payable (a)	$	419,482	$	395,611	3.82	%	6.1	7
Fannie Mae credit facilities (b)		285,836		285,836	4.86	%	1.3	8
Deferred financing costs		(1,636)		(1,670)
Total fixed rate secured debt, net		703,682		679,777	4.25	%	4.1	15
Variable Rate Debt
Tax-exempt secured notes payable (c)		94,700		94,700	2.16	%	4.4	2
Fannie Mae credit facilities (b)		—		29,034	—	%	—	—
Deferred financing costs		(141)		(242)
Total variable rate secured debt, net		94,559		123,492	2.16	%	4.4	2
Total Secured Debt, net		798,241		803,269	4.00	%	4.2	17
Unsecured Debt:
Variable Rate Debt
Borrowings outstanding under unsecured credit facility due January 2023 (d) (h)		—		—	—	%	4.3
Borrowings outstanding under unsecured commercial paper program due October 2018 (e) (h)		415,000		300,000	2.43	%	0.1
Borrowings outstanding under unsecured working capital credit facility due January 2021 (f)		51,010		21,767	3.09	%	2.3
Term Loan due September 2023 (d) (h)		35,000		35,000	3.04	%	5.0
Fixed Rate Debt
3.70% Medium-Term Notes due October 2020 (net of discounts of $16 and $22, respectively) (h)		299,984		299,978	3.70	%	2.0
1.93% Term Loan due September 2023 (d) (h)		315,000		315,000	1.93	%	5.0
4.63% Medium-Term Notes due January 2022 (net of discounts of $1,177 and $1,446, respectively) (h)		398,823		398,554	4.63	%	3.3
3.75% Medium-Term Notes due July 2024 (net of discounts of $599 and $678, respectively) (h)		299,401		299,322	3.75	%	5.8
8.50% Debentures due September 2024		15,644		15,644	8.50	%	6.0
4.00% Medium-Term Notes due October 2025 (net of discounts of $482 and $534, respectively) (g) (h)		299,518		299,466	4.00	%	7.0
2.95% Medium-Term Notes due September 2026 (h)		300,000		300,000	2.95	%	7.9
3.50% Medium-Term Notes due July 2027 (net of discounts of $617 and $670, respectively) (h)		299,383		299,330	3.50	%	8.8
3.50% Medium-Term Notes due January 2028 (net of discounts of $1,102 and $1,191, respectively) (h)		298,898		298,809	3.50	%	9.3
Other		17		19
Deferred financing costs		(14,739)		(14,495)
Total Unsecured Debt, net		3,012,939		2,868,394	3.44	%	5.1
Total Debt, net	$	3,811,180	$	3,671,663	3.63	%	4.9

For purposes of classification of the above table, variable rate debt with a derivative financial instrument designated as a cash flow hedge is deemed as fixed rate debt due to the Company having effectively established a fixed interest rate for the underlying debt instrument.

Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon payments due at maturity. As of September 30, 2018, secured debt encumbered $1.6 billion or 16.0% of UDR’s total real estate owned based upon gross book value ($8.7 billion or 84.0% of UDR’s real estate owned based on gross book value is unencumbered).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

September 30, 2018

(a) Fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from August 2020 through September 2028 and carry interest rates ranging from 3.15% to 4.35%.

The Company will from time to time acquire properties subject to fixed rate debt instruments. In those situations, the Company records the debt at its estimated fair value and amortizes any difference between the fair value and par value to interest expense over the life of the underlying debt instrument.

During the three months ended September 30, 2018 and 2017, the Company had $0.9 million and $0.7 million, respectively, and during the nine months ended September 30, 2018 and 2017, the Company had $2.4 million and $2.2 million, respectively, of amortization of the fair market adjustment of debt assumed in the acquisition of properties, which was included in Interest expense on the Consolidated Statements of Operations. The unamortized fair market adjustment was a net premium of $5.5 million and $8.2 million at September 30, 2018 and December 31, 2017, respectively.

(b) UDR had two secured credit facilities with Fannie Mae with an aggregate commitment of $285.8 million at September 30, 2018. The Fannie Mae credit facilities mature at various dates from October 2019 through July 2020 and bear interest at fixed rates. At September 30, 2018, the weighted average interest rate was 4.86%.

During the nine months ended September 30, 2018, the Company prepaid $29.0 million of its variable rate secured credit facilities with proceeds from the refinance of a mortgage note payable.

Further information related to these credit facilities is as follows (dollars in thousands) :


	September 30,			December 31,
	2018			2017
Borrowings outstanding	$	285,836		$	314,870
Weighted average borrowings during the period ended		308,417			416,653
Maximum daily borrowings during the period ended		314,869			636,782
Weighted average interest rate during the period ended		4.8	%		4.3	%
Weighted average interest rate at the end of the period		4.9	%		4.7	%

(c) The variable rate mortgage notes payable that secure tax-exempt housing bond issues mature in August 2019 and March 2032. Interest on these notes is payable in monthly installments. The variable rate mortgage notes have interest rates ranging from 2.15% to 2.20% as of September 30, 2018.

(d) In September 2018, the Company entered into a $1.1 billion unsecured revolving credit facility (the “Revolving Credit Facility”) and a $350.0 million unsecured term loan (the “Term Loan”). The credit agreement for these facilities (the “Credit Agreement”) allows the total commitments under the Revolving Credit Facility and the total borrowings under the Term Loan to be increased to an aggregate maximum amount of up to $2.0 billion, subject to certain conditions, including obtaining commitments from one or more lenders. The Revolving Credit Facility has a scheduled maturity date of January 31, 2023, with two six-month extension options, subject to certain conditions. The Term Loan has a scheduled maturity date of September 30, 2023.

The Credit Agreement amended and restated the Company’s prior credit agreement, which provided for: (i) a $1.1 billion revolving credit facility scheduled to mature in January 2020 and (ii) a $350.0 million term loan scheduled to mature in January 2020. The prior credit agreement allowed the total commitments under the revolving credit facility and total borrowings under the term loan to be increased to an aggregate maximum amount of up to $2.0 billion, subject to certain conditions.

Based on the Company’s current credit rating, the Revolving Credit Facility has an interest rate equal to LIBOR plus a margin of 82.5 basis points and a facility fee of 15 basis points, and the Term Loan has an interest rate equal to LIBOR plus a margin of 90 basis points. Depending on the Company’s credit rating, the margin under the Revolving Credit Facility ranges from 75 to 145 basis points, the facility fee ranges from 10 to 30 basis points, and the margin under the Term Loan ranges from 80 to 165 basis points.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

September 30, 2018

The Credit Agreement contains customary representations and warranties and financial and other affirmative and negative covenants. The Credit Agreement also includes customary events of default, in certain cases subject to customary periods to cure. The occurrence of an event of default, following the applicable cure period, would permit the lenders to, among other things, declare the unpaid principal, accrued and unpaid interest and all other amounts payable under the Credit Agreement to be immediately due and payable.

The following is a summary of short-term bank borrowings under the Revolving Credit Facility at September 30, 2018 and December 31, 2017 (dollars in thousands):


	September 30,			December 31,
	2018			2017
Total revolving credit facility	$	1,100,000		$	1,100,000
Borrowings outstanding at end of period (1)		—			—
Weighted average daily borrowings during the period ended		—			2,274
Maximum daily borrowings during the period ended		—			120,000
Weighted average interest rate during the period ended		—	%		1.6	%
Interest rate at end of the period		—	%		—	%

(1)

Excludes $3.3 million and $3.3 million of letters of credit at September 30, 2018 and December 31, 2017, respectively.

(e) The Company has an unsecured commercial paper program. Under the terms of the program, the Company may issue unsecured commercial paper up to a maximum aggregate amount outstanding of $500.0 million. The notes are sold under customary terms in the United States commercial paper market and rank pari passu with all of the Company’s other unsecured indebtedness. The notes are fully and unconditionally guaranteed by the Operating Partnership.

The following is a summary of short-term bank borrowings under the unsecured commercial paper program at September 30, 2018 and December 31, 2017 (dollars in thousands):


	September 30,			December 31,
	2018			2017
Total unsecured commercial paper program	$	500,000		$	500,000
Borrowings outstanding at end of period		415,000			300,000
Weighted average daily borrowings during the period ended		350,907			238,810
Maximum daily borrowings during the period ended		440,000			390,000
Weighted average interest rate during the period ended		2.3	%		1.4	%
Interest rate at end of the period		2.4	%		2.0	%

(f) The Company has a working capital credit facility, which provides for a $75.0 million unsecured revolving credit facility (the “Working Capital Credit Facility”) with a scheduled maturity date of January 15, 2021. Based on the Company’s current credit rating, the Working Capital Credit Facility has an interest rate equal to LIBOR plus a margin of 90 basis points. Depending on the Company’s credit rating, the margin ranges from 85 to 155 basis points. In February 2018, the Company amended the Working Capital Credit Facility to extend the scheduled maturity date from January 1, 2019 to January 15, 2021. The maximum borrowing capacity and interest rate were unchanged by the amendment.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

September 30, 2018

The following is a summary of short-term bank borrowings under the Working Capital Credit Facility at September 30, 2018 and December 31, 2017 (dollars in thousands):


	September 30,			December 31,
	2018			2017
Total working capital credit facility	$	75,000		$	75,000
Borrowings outstanding at end of period		51,010			21,767
Weighted average daily borrowings during the period ended		29,398			26,993
Maximum daily borrowings during the period ended		64,633			68,207
Weighted average interest rate during the period ended		2.8	%		2.0	%
Interest rate at end of the period		3.1	%		2.5	%

(g) The Company previously entered into forward starting interest rate swaps to hedge against interest rate risk on $200.0 million of this debt. The all-in weighted average interest rate, inclusive of the impact of these interest rate swaps, was 4.55%.

(h) The Operating Partnership is a guarantor of this debt.

The aggregate maturities, including amortizing principal payments on secured and unsecured debt, of total debt for the next ten calendar years subsequent to September 30, 2018 are as follows (dollars in thousands):


	Total Fixed		Total Variable		Total		Total		Total
Year	Secured Debt		Secured Debt		Secured Debt		Unsecured Debt		Debt
2018	$	935	$	—	$	935	$	415,000	$	415,935
2019		199,659		67,700		267,359		—		267,359
2020		198,076		—		198,076		300,000		498,076
2021		1,117		—		1,117		51,010		52,127
2022		1,157		—		1,157		400,000		401,157
2023		41,245		—		41,245		350,000		391,245
2024		—		—		—		315,644		315,644
2025		127,600		—		127,600		300,000		427,600
2026		50,000		—		50,000		300,000		350,000
2027		—		—		—		300,000		300,000
Thereafter		80,000		27,000		107,000		300,000		407,000
Subtotal		699,789		94,700		794,489		3,031,654		3,826,143
Non-cash (a)		3,893		(141)		3,752		(18,715)		(14,963)
Total	$	703,682	$	94,559	$	798,241	$	3,012,939	$	3,811,180

(a)

Includes the unamortized balance of fair market value adjustments, premiums/discounts and deferred financing costs . The Company amortized $1.1 million and $ 1.1 million, respectively, during the three months ended September 30, 2018 and 2017 and $3.2 million and $ 3.2 million, respectively, during the nine months ended September 30, 2018 and 2017 of deferred financing costs into Interest expense.

We were in compliance with the covenants of our debt instruments at September 30, 2018.

On October 26, 2018, the Company issued $300.0 million of 4.40% senior unsecured medium-term notes due January 26, 2029. Interest is payable semi-annually in arrears on January 26 and July 26 of each year, beginning on January 26, 2019. The notes were priced at 99.998% of the principal amount at issuance. The Company will use the net proceeds for the repayment of debt, including $195.8 million of the outstanding balance under the Fannie Mae credit facilities, and for general corporate purposes. The Operating Partnership is a guarantor of this debt.

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

September 30, 2018

7. INCOME/(LOSS) PER SHARE

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Numerator for income/(loss) per share:
Income/(loss) from continuing operations	$	20,258	$	17,570	$	61,627	$	54,896
Gain/(loss) on sale of real estate owned, net of tax		—		—		70,300		2,132
Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		(1,616)		(1,415)		(10,819)		(4,607)
Net (income)/loss attributable to noncontrolling interests		(32)		35		(141)		(107)
Net income/(loss) attributable to UDR, Inc.		18,610		16,190		120,967		52,314
Distributions to preferred stockholders — Series E (Convertible)		(971)		(926)		(2,897)		(2,784)
Income/(loss) attributable to common stockholders - basic and diluted	$	17,639	$	15,264	$	118,070	$	49,530

Denominator for income/(loss) per share:
Weighted average common shares outstanding		268,034		267,577		267,873		267,492
Non-vested restricted stock awards		(307)		(521)		(344)		(552)
Denominator for basic income/(loss) per share		267,727		267,056		267,529		266,940
Incremental shares issuable from assumed conversion of stock options, unvested LTIP Units and unvested restricted stock		1,134		2,006		1,491		1,911
Denominator for diluted income/(loss) per share		268,861		269,062		269,020		268,851

Income/(loss) per weighted average common share:
Basic	$	0.07	$	0.06	$	0.44	$	0.19
Diluted	$	0.07	$	0.06	$	0.44	$	0.18

Basic income/(loss) per common share is computed based upon the weighted average number of common shares outstanding. Diluted income/(loss) per common share is computed based upon the weighted average number of common shares outstanding plus the common shares issuable from the assumed conversion of the OP Units and DownREIT Units, convertible preferred stock, stock options, unvested long-term incentive plan units (“LTIP Units”), unvested restricted stock and continuous equity program forward sales agreements. Only those instruments having a dilutive impact on our basic income/(loss) per share are included in diluted income/(loss) per share during the periods. For the three and nine months ended September 30, 2018 and 2017, the effect of the conversion of the OP Units, DownREIT Units, LTIP Units and the Company’s Series E preferred stock was not dilutive and therefore not included in the above calculation.

For the three and nine months ended September 30, 2018 and 2017, the Company did not enter into any forward purchase agreements under its continuous equity program.

The following table sets forth the additional shares of common stock outstanding by equity instrument if converted to common stock for each of the three and nine months ended September 30, 2018 and 2017 (shares in thousands) :


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2018	2017	2018	2017
OP/DownREIT Units	24,558	24,822	24,546	24,882
Convertible preferred stock	3,011	3,016	3,011	3,024
Stock options, unvested LTIP Units and unvested restricted stock	1,134	2,006	1,491	1,911

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UDR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

September 30, 2018

8. NONCONTROLLING INTERESTS

Redeemable Noncontrolling Interests in the Operating Partnership and DownREIT Partnership

Interests in the Operating Partnership and the DownREIT Partnership held by limited partners are represented by OP Units and DownREIT Units, respectively. The income is allocated to holders of OP Units/DownREIT Units based upon net income attributable to common stockholders and the weighted average number of OP Units/DownREIT Units outstanding to total common shares plus OP Units/DownREIT Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to noncontrolling interests in accordance with the terms of the partnership agreements of the Operating Partnership and the DownREIT Partnership.

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

The following table sets forth redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership for the following period ( dollars in thousands ):


Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership, December 31, 2017	$	948,138
Mark-to-market adjustment to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		62,655
Conversion of OP Units/DownREIT Units to Common Stock		(13,151)
Net income/(loss) attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		10,819
Distributions to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		(24,643)
OP Units Issued		4,320
Vesting of Long-Term Incentive Plan Units		4,397
Allocation of other comprehensive income/(loss)		270
Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership, September 30, 2018	$	992,805

Noncontrolling Interests

Noncontrolling interests represent interests of unrelated partners and unvested LTIP Units in certain consolidated affiliates, and are presented as part of equity on the Consolidated Balance Sheets since these interests are not redeemable. Net (income)/loss attributable to noncontrolling interests was less than $(0.1) million and less than $0.1 million during the three months ended September 30, 2018 and 2017, respectively, and $(0.1) million during each of the nine months ended September 30, 2018 and 2017.

The Company grants LTIP Units to certain employees and non-employee directors. The LTIP Units represent an ownership interest in the Operating Partnership and have vesting terms of between one and three years, specific to the individual grants.

Noncontrolling interests related to long-term incentive plan units represent the unvested LTIP Units of these employees and non-employee directors in the Operating Partnership. The net income/(loss) allocated to the unvested

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LTIP Units is included in Net (income)/loss attributable to noncontrolling interests on the Consolidated Statements of Operations.

9. FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS

Fair value is based on the price that would be received to sell an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level valuation hierarchy prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:

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

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

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

The estimated fair values of the Company’s financial instruments either recorded or disclosed on a recurring basis as of September 30, 2018 and December 31, 2017, are summarized as follows (dollars in thousands) :


					Fair Value at September 30, 2018, Using
	Total				Quoted
	Carrying				Prices in
	Amount in				Active
	Statement of				Markets		Significant
	Financial		Fair Value		for Identical		Other		Significant
	Position at		Estimate at		Assets or		Observable		Unobservable
	September 30,		September 30,		Liabilities		Inputs		Inputs
	2018		2018		(Level 1)		(Level 2)		(Level 3)
Description:
Notes receivable (a)	$	41,009	$	43,072	$	—	$	—	$	43,072
Derivatives - Interest rate contracts (b)		8,047		8,047		—		8,047		—
Total assets	$	49,056	$	51,119	$	—	$	8,047	$	43,072

Secured debt instruments - fixed rate: (c)
Mortgage notes payable	$	419,482	$	415,100	$	—	$	—	$	415,100
Fannie Mae credit facilities		285,836		288,323		—		—		288,323
Secured debt instruments - variable rate: (c)
Tax-exempt secured notes payable		94,700		94,700		—		—		94,700
Unsecured debt instruments: (c)
Working capital credit facility		51,010		51,010		—		—		51,010
Commercial paper program		415,000		415,000		—		—		415,000
Unsecured notes		2,561,668		2,509,842		—		—		2,509,842
Total liabilities	$	3,827,696	$	3,773,975	$	—	$	—	$	3,773,975

Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership (d)	$	992,805	$	992,805	$	—	$	992,805	$	—

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					Fair Value at December 31, 2017, Using
	Total				Quoted
	Carrying				Prices in
	Amount in				Active
	Statement of				Markets		Significant
	Financial		Fair Value		for Identical		Other		Significant
	Position at		Estimate at		Assets or		Observable		Unobservable
	December 31,		December 31,		Liabilities		Inputs		Inputs
	2017		2017		(Level 1)		(Level 2)		(Level 3)
Description:
Notes receivable (a)	$	19,469	$	19,567	$	—	$	—	$	19,567
Derivatives - Interest rate contracts (b)		5,743		5,743		—		5,743		—
Total assets	$	25,212	$	25,310	$	—	$	5,743	$	19,567

Secured debt instruments - fixed rate: (c)
Mortgage notes payable	$	395,611	$	397,386	$	—	$	—	$	397,386
Fannie Mae credit facilities		285,836		292,227		—		—		292,227
Secured debt instruments - variable rate: (c)
Tax-exempt secured notes payable		94,700		94,700		—		—		94,700
Fannie Mae credit facilities		29,034		29,034		—		—		29,034
Unsecured debt instruments: (c)
Working capital credit facility		21,767		21,767		—		—		21,767
Commercial paper program		300,000		300,000		—		—		300,000
Unsecured notes		2,561,122		2,611,458		—		—		2,611,458
Total liabilities	$	3,688,070	$	3,746,572	$	—	$	—	$	3,746,572

Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership (d)	$	948,138	$	948,138	$	—	$	948,138	$	—

(a)

See Note 2, Significant Accounting Policies .

(b)

See Note 10, Derivatives and Hedging Activity .

(c)

See Note 6, Secured and Unsecured Debt, Net .

(d)

See Note 8, Noncontrolling Interests.

There were no transfers into or out of any of the levels of the fair value hierarchy during the nine months ended September 30, 2018.

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 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,

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as of September 30, 2018 and December 31, 2017, 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. In conjunction with the FASB’s fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership have a redemption feature and are marked to their redemption value. The redemption value is based on the fair value of the Company’s common stock at the redemption date, and therefore, is calculated based on the fair value of the Company’s common stock at the balance sheet date. Since the valuation is based on observable inputs such as quoted prices for similar instruments in active markets, redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership are classified as Level 2.

Financial Instruments Not Carried at Fair Value

At September 30, 2018 and December 31, 2017, 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, which includes notes receivable and debt instruments, are classified in Level 3 of the fair value hieracrchy due to the significant unobservable inputs that are utilized in their respective valuations.

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 our Investment in and advances to unconsolidated joint ventures, net 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. The Company did not incur any other-than-temporary impairments in the value of its investments in unconsolidated joint ventures during the three and nine months ended September 30, 2018 and 2017.

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 assets. The inputs and assumptions utilized to estimate the future cash flows of the underlying assets 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 risks 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 through the use of derivative financial

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September 30, 2018

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 changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated other comprehensive income/(loss), net on the Consolidated Balance Sheets 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, 2018 and 2017, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.

During the three and nine months ended September 30, 2017, the Company recognized zero and a loss of $0.1 million, respectively, reclassified from Accumulated other comprehensive income/(loss), net to Interest expense due to the de-designation of a cash flow hedge. No amounts were de-designated during the three and nine months ended September 30, 2018.

Amounts reported in Accumulated other comprehensive income/(loss), net on the Consolidated Balance Sheets related to derivatives that will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. Through September 30, 2019, the Company estimates that an additional $4.0 million will be reclassified as a decrease to Interest expense .

As of September 30, 2018, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk ( dollars in thousands ):


	Number of
Product	Instruments	Notional
Interest rate swaps (a)	4	$	315,000
Interest rate caps	1	$	65,197

(a) In addition to the interest rate swaps summarized above, the Company entered into two additional interest rate swaps during the nine months ended September 30, 2018 with a notional value totaling $150.0 million that were subsequently terminated and settled in conjunction with the October 2018 issuance of $300.0 million of senior unsecured medium-term notes as disclosed in Note 6, Secured and Unsecured Debt, Net .

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 GAAP. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted in no gain or loss for both the three and nine months ended September 30, 2018 and a loss of less than $0.1 million for both the three and nine months ended September 30, 2017.

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As of September 30, 2018, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships ( dollars in thousands ):


	Number of
Product	Instruments	Notional
Interest rate caps	2	$	174,667

Tabular Disclosure of Fair Values of Derivative Instruments on the Consolidated 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, 2018 and December 31, 2017 ( dollars in thousands ):


	Asset Derivatives				Liability Derivatives
	(included in Other assets )				(included in Other liabilities )
	Fair Value at:				Fair Value at:
	September 30,		December 31,		September 30,		December 31,
	2018		2017		2018		2017
Derivatives designated as hedging instruments:
Interest rate products	$	8,047	$	5,743	$	—	$	—

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, 2018 and 2017 ( dollars in thousands ):


									Gain/(Loss) Recognized in
					Gain/(Loss) Reclassified				Interest expense
	Unrealized holding gain/(loss)				from Accumulated OCI into				(Amount Excluded from
	Recognized in OCI				Interest expense				Effectiveness Testing)
Derivatives in Cash Flow Hedging Relationships	2018		2017		2018		2017		2018		2017
Three Months Ended September 30,
Interest rate products	$	2,320	$	131	$	564	$	(119)	$	—	$	—

Nine Months Ended September 30,
Interest rate products	$	4,312	$	256	$	1,162	$	(1,192)	$	—	$	(136)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Total amount of Interest expense presented on the Consolidated Statements of Operations	$	34,401	$	30,095	$	95,942	$	94,500


	Gain/(Loss) Recognized in
	Interest income and other income/(expense), net
Derivatives Not Designated as Hedging Instruments	2018		2017
Three Months Ended September 30,
Interest rate products	$	—	$	—

Nine Months Ended September 30,
Interest rate products	$	—	$	(1)

Credit-risk-related Contingent Features

The Company has agreements with its derivative counterparties that contain a provision where 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.

The Company has certain agreements with some of its derivative counterparties that contain a provision where, in the event of default by the Company or the counterparty, the right of setoff may be exercised. Any amount payable to

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one party by the other party may be reduced by its setoff against any amounts payable by the other party. Events that give rise to default by either party may include, but are not limited to, the failure to pay or deliver payment under the derivative agreement, the failure to comply with or perform under the derivative agreement, bankruptcy, a merger without assumption of the derivative agreement, or in a merger, a surviving entity’s creditworthiness is materially weaker than the original party to the derivative agreement.

As of September 30, 2018, the fair value of derivatives was in a net asset position, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements, of $8.3 million.

Tabular Disclosure of Offsetting Derivatives

The Company has elected not to offset derivative positions on the consolidated financial statements. The tables below present the effect on its financial position had the Company made the election to offset its derivative positions as of September 30, 2018 and December 31, 2017 (dollars in thousands):


			Gross		Net Amounts of		Gross Amounts Not Offset
			Amounts		Assets		in the Consolidated
	Gross		Offset in the		Presented in the		Balance Sheet
	Amounts of		Consolidated		Consolidated				Cash
	Recognized		Balance		Balance Sheets		Financial		Collateral
Offsetting of Derivative Assets	Assets		Sheets		(a)		Instruments		Received		Net Amount
September 30, 2018	$	8,047	$	—	$	8,047	$	—	$	—	$	8,047

December 31, 2017	$	5,743	$	—	$	5,743	$	—	$	—	$	5,743

(a)

Amounts reconcile to the aggregate fair value of derivative assets in the “Tabular Disclosure of Fair Values of Derivative Instruments on the Consolidated Balance Sheets” located in this footnote.

11. STOCK BASED COMPENSATION

The Company recognized stock based compensation expense, inclusive of awards granted to our non-employee directors, net of capitalization, of $3.6 million and $3.3 million during the three months ended September 30, 2018 and 2017, respectively, and $10.7 million and $10.1 million during the nine months ended September 30, 2018 and 2017, respectively.

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12. COMMITMENTS AND CONTINGENCIES

Commitments

Real Estate Under Development

The following summarizes the Company’s real estate commitments at September 30, 2018 ( dollars in thousands ):


		Costs						Average
	Number	Incurred			Expected Costs			Ownership
	Properties	to Date (a)			to Complete			Stake
Wholly-owned — under development	2	$	701,113	(b)	$	14,387		100	%
Joint ventures:
Unconsolidated joint ventures	2		184,209			2,668	(c)	50	%
Preferred equity investments	8		146,246	(d)		65,170	(e)	49	%	(f)
Other investments	1		44,750			8,809	(g)	—	%
Total		$	1,076,318		$	91,034

(a)

Represents 100% of project costs incurred as of September 30, 2018 other than for preferred equity investments.

(b)

Costs incurred as of September 30, 2018 include $12.9 million of accrued fixed assets for development.

(c)

Represents UDR’s proportionate share of expected remaining costs to complete the developments.

(d)

Represents UDR’s investment in the West Coast Development Joint Ventures, 1532 Harrison, 1200 Broadway, Junction, 1300 Fairmount and Essex for the properties under development as of September 30, 2018.

(e)

Represents UDR’s remaining commitment for 1532 Harrison, 1200 Broadway, Junction, 1300 Fairmount and Essex.

(f)

Represents UDR’s average ownership stake in the West Coast Development Joint Ventures only and does not include UDR’s preferred equity interest in 1532 Harrison, 1200 Broadway, Junction, 1300 Fairmount and Essex.

(g)

Represents UDR’s remaining commitment for The Portals and other investment ventures.

Purchase Commitments

As described in Note 5, Joint Ventures and Partnerships , the Company anticipates acquiring one of the communities held by the West Coast Development Joint Ventures in 2019 for a contractual purchase price at 100% of approximately $130.1 million. As the Company currently holds a 49% ownership interest in the community, it expects to pay approximately $66.4 million for the remaining 51% ownership. The community will be consolidated upon closing of the acquisition.

During the nine months ended September 30, 2018, the Company entered into a contract to purchase a $13.2 million development land parcel located in Denver, Colorado. The Company made a $1.0 million deposit on the purchase which, as of September 30, 2018, is generally non-refundable other than due to a failure of closing conditions pursuant to the terms of the agreement. The acquisition is expected to close in the fourth quarter of 2018, subject to customary closing conditions.

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 flows.

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13. 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 rental income less direct property rental expenses. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI is property management expense, which is calculated as 2.75% of property revenue to cover the regional supervision and accounting costs related to consolidated property operations, and land rent. UDR’s Chief Operating Decision Maker utilizes NOI as the key measure of segment profit or loss.

UDR’s two reportable segments are Same-Store Communities and Non-Mature Communities/Other :

Same-Store Communities represent those communities acquired, developed, and stabilized prior to July 1, 2017 (for quarter-to-date comparison) or January 1, 2017 (for year-to-date comparison) and held as of September 30, 2018. A comparison of operating results from the prior year is meaningful as these communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior period, there is no plan to conduct substantial redevelopment activities, and the community is not held for disposition within the current year. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

Non-Mature Communities/Other represent those communities that do not meet the criteria to be included in Same-Store Communities , including, but not limited to, recently acquired, developed and redeveloped communities, and the non-apartment components of mixed use properties.

Management evaluates the performance of each of our apartment communities on a Same-Store Community and Non-Mature Community/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, 2018 and 2017.

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The following table details rental income and NOI for UDR’s reportable segments for the three and nine months ended September 30, 2018 and 2017, and reconciles NOI to Net income/(loss) attributable to UDR, Inc. on the Consolidated Statements of Operations (dollars in thousands) :


	Three Months Ended				Nine Months Ended
	September 30, (a)				September 30, (b)
	2018		2017		2018		2017
Reportable apartment home segment rental income
Same-Store Communities
West Region	$	102,615	$	98,264	$	298,456	$	286,040
Mid-Atlantic Region		55,323		53,539		164,811		160,399
Northeast Region		38,822		38,162		114,974		113,814
Southeast Region		30,984		29,297		91,472		87,103
Southwest Region		12,902		12,620		32,696		32,181
Non-Mature Communities/Other		22,610		16,382		67,964		54,656
Total segment and consolidated rental income	$	263,256	$	248,264	$	770,373	$	734,193

Reportable apartment home segment NOI
Same-Store Communities
West Region	$	77,321	$	72,962	$	225,240	$	213,375
Mid-Atlantic Region		38,220		37,107		114,465		112,232
Northeast Region		25,941		26,100		79,123		80,151
Southeast Region		21,597		20,712		63,806		60,432
Southwest Region		7,640		7,416		19,636		19,722
Non-Mature Communities/Other		14,095		10,424		42,433		34,915
Total segment and consolidated NOI		184,814		174,721		544,703		520,827
Reconciling items:
Joint venture management and other fees		2,888		2,827		8,819		8,718
Property management		(7,240)		(6,827)		(21,185)		(20,190)
Other operating expenses		(3,314)		(1,950)		(8,148)		(6,010)
Real estate depreciation and amortization		(107,881)		(107,171)		(322,537)		(320,653)
General and administrative		(11,896)		(12,467)		(36,028)		(36,976)
Casualty-related (charges)/recoveries, net		(678)		(2,056)		(2,364)		(3,749)
Other depreciation and amortization		(1,682)		(1,585)		(5,057)		(4,760)
Income/(loss) from unconsolidated entities		(1,382)		1,819		(5,091)		11,591
Interest expense		(34,401)		(30,095)		(95,942)		(94,500)
Interest income and other income/(expense), net		1,188		481		5,075		1,423
Tax (provision)/benefit, net		(158)		(127)		(618)		(825)
Gain/(loss) on sale of real estate owned, net of tax		—		—		70,300		2,132
Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		(1,616)		(1,415)		(10,819)		(4,607)
Net (income)/loss attributable to noncontrolling interests		(32)		35		(141)		(107)
Net income/(loss) attributable to UDR, Inc.	$	18,610	$	16,190	$	120,967	$	52,314

(a)

Same-Store Community population consisted of 38,307 apartment homes.

(b)

Same-Store Community population consisted of 37,673 apartment homes.

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The following table details the assets of UDR’s reportable segments as of September 30, 2018 and December 31, 2017 (dollars in thousands) :


	September 30,		December 31,
	2018		2017
Reportable apartment home segment assets:
Same-Store Communities:
West Region	$	3,752,322	$	3,727,230
Mid-Atlantic Region		2,308,495		2,290,241
Northeast Region		1,871,387		1,865,762
Southeast Region		774,090		762,102
Southwest Region		368,729		364,607
Non-Mature Communities/Other		1,252,641		1,167,264
Total segment assets		10,327,664		10,177,206
Accumulated depreciation		(3,626,327)		(3,330,166)
Total segment assets — net book value		6,701,337		6,847,040
Reconciling items:
Cash and cash equivalents		1,084		2,038
Restricted cash		26,996		19,792
Notes receivable, net		41,009		19,469
Investment in and advances to unconsolidated joint ventures, net		767,376		720,830
Other assets		140,982		124,104
Total consolidated assets	$	7,678,784	$	7,733,273

Capital expenditures related to our Same-Store Communities totaled $24.2 million and $24.6 million for the three months ended September 30, 2018 and 2017, respectively, and $59.2 million and $63.2 million for the nine months ended September 30, 2018 and 2017, respectively. Capital expenditures related to our Non-Mature Communities/Other totaled $1.8 million and $1.2 million for the three months ended September 30, 2018 and 2017, respectively, and $3.8 million and $3.7 million for the nine months ended September 30, 2018 and 2017, respectively.

Markets included in the above geographic segments are as follows:

West Region — Orange County, San Francisco, Seattle, Los Angeles, Monterey Peninsula, Other Southern California and Portland

ii.

Mid-Atlantic Region — Metropolitan D.C., Richmond and Baltimore

iii.

Northeast Region — New York and Boston

iv.

Southeast Region — Orlando, Nashville, Tampa and Other Florida

Southwest Region — Dallas, Austin and Denver

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UNITED DOMINION REALTY, L.P.

CONSOLIDATED BALANCE SHEETS

(In thousands, except for unit data)


	September 30,		December 31,
	2018		2017
	(unaudited)		(audited)
ASSETS
Real estate owned:
Real estate held for investment	$	3,800,526	$	3,816,956
Less: accumulated depreciation		(1,623,707)		(1,543,652)
Real estate held for investment, net		2,176,819		2,273,304
Real estate held for disposition (net of accumulated depreciation of $3,804 and $0, respectively)		3,788		—
Total real estate owned, net of accumulated depreciation		2,180,607		2,273,304
Cash and cash equivalents		83		293
Restricted cash		13,515		12,579
Investment in unconsolidated entities		53,772		76,907
Other assets		34,005		32,490
Total assets	$	2,281,982	$	2,395,573
LIABILITIES AND CAPITAL
Liabilities:
Secured debt, net	$	159,966	$	159,845
Notes payable due to the General Partner		273,334		273,334
Real estate taxes payable		11,422		2,683
Accrued interest payable		614		629
Security deposits and prepaid rent		13,639		13,949
Distributions payable		59,461		57,025
Accounts payable, accrued expenses, and other liabilities		12,101		12,978
Total liabilities		530,537		520,443

Commitments and contingencies (Note 10)

Capital:
Partners’ capital:
General partner:
110,883 OP Units outstanding at September 30, 2018 and December 31, 2017		934		955
Limited partners:
183,525,660 and 183,240,041 OP Units outstanding at September 30, 2018 and December 31, 2017, respectively		1,441,843		1,463,340
Total partners’ capital		1,442,777		1,464,295
Advances (to)/from the General Partner		294,454		397,899
Noncontrolling interests		14,214		12,936
Total capital		1,751,445		1,875,130
Total liabilities and capital	$	2,281,982	$	2,395,573

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)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
REVENUES:
Rental income	$	109,539	$	105,253	$	323,397	$	311,946

OPERATING EXPENSES:
Property operating and maintenance		17,412		17,196		50,535		50,039
Real estate taxes and insurance		11,979		11,496		34,890		33,269
Property management		3,012		2,894		8,893		8,578
Other operating expenses		2,347		1,572		6,098		5,248
Real estate depreciation and amortization		35,043		37,057		108,906		113,167
General and administrative		4,143		4,134		12,997		13,760
Casualty-related charges/(recoveries), net		(10)		(43)		906		1,701
Total operating expenses		73,926		74,306		223,225		225,762

Operating income		35,613		30,947		100,172		86,184

Income/(loss) from unconsolidated entities		(2,378)		(4,782)		(10,102)		(14,556)
Interest expense		(2,047)		(2,002)		(6,050)		(16,159)
Interest expense on note payable due to the General Partner		(3,053)		(3,053)		(9,159)		(9,159)
Income/(loss) from continuing operations		28,135		21,110		74,861		46,310
Gain/(loss) on sale of real estate owned		—		—		70,300		—
Net income/(loss)		28,135		21,110		145,161		46,310
Net (income)/loss attributable to noncontrolling interests		(440)		(374)		(1,278)		(1,067)
Net income/(loss) attributable to OP unitholders	$	27,695	$	20,736	$	143,883	$	45,243

Net income/(loss) per weighted average OP Unit - basic and diluted	$	0.15	$	0.11	$	0.78	$	0.25

Weighted average OP Units outstanding - basic and diluted		183,637		183,351		183,599		183,342

See accompanying notes to the consolidated financial statements.

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UNITED DOMINION REALTY, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(In thousands)

(Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Net income/(loss)	$	28,135	$	21,110	$	145,161	$	46,310
Other comprehensive income/(loss), including portion attributable to noncontrolling interests:
Other comprehensive income/(loss) - derivative instruments:
(Gain)/loss reclassified into earnings from other comprehensive income/(loss)		—		—		—		106
Other comprehensive income/(loss), including portion attributable to noncontrolling interests		—		—		—		106
Comprehensive income/(loss)		28,135		21,110		145,161		46,416
Comprehensive (income)/loss attributable to noncontrolling interests		(440)		(374)		(1,278)		(1,067)
Comprehensive income/(loss) attributable to OP unitholders	$	27,695	$	20,736	$	143,883	$	45,349

See accompanying notes to consolidated financial statements.

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UNITED DOMINION REALTY, L.P.

CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL

(In thousands)

(Unaudited)


			Limited								Advances
	Class A		Partners		UDR, Inc				Total		(to)/from
	Limited		and LTIP		Limited		General		Partners’		General		Noncontrolling
	Partner		Units		Partner		Partner		Capital		Partner		Interests		Total
Balance at December 31, 2017	$	67,474	$	283,568	$	1,112,298	$	955	$	1,464,295	$	397,899	$	12,936	$	1,875,130
Net income/(loss)		1,387		6,195		136,214		87		143,883		—		1,278		145,161
Distributions		(1,746)		(8,035)		(168,476)		(108)		(178,365)		—		—		(178,365)
OP Unit redemptions for common shares of UDR		—		(416)		416		—		—		—		—		—
Adjustment to reflect limited partners’ capital at redemption value		3,705		14,455		(18,160)		—		—		—		—		—
Long-Term Incentive Plan Unit grants		—		12,964		—		—		12,964		—		—		12,964
Net change in advances (to)/from the General Partner		—		—		—		—		—		(103,445)		—		(103,445)
Balance at September 30, 2018	$	70,820	$	308,731	$	1,062,292	$	934	$	1,442,777	$	294,454	$	14,214	$	1,751,445

See accompanying notes to the consolidated financial statements.

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UNITED DOMINION REALTY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2018		2017
Operating Activities
Net income/(loss)	$	145,161	$	46,310
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization		108,906		113,167
(Gain)/loss on sale of real estate owned		(70,300)		—
(Income)/loss from unconsolidated entities		10,102		14,556
Other		850		7,120
Changes in operating assets and liabilities:
(Increase)/decrease in operating assets		(2,968)		(1,084)
Increase/(decrease) in operating liabilities		4,747		3,363
Net cash provided by/(used in) operating activities		196,498		183,432

Investing Activities
Proceeds from sales of real estate investments, net		89,433		—
Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement		(31,828)		(42,750)
Distributions received from unconsolidated entities		13,033		12,528
Net cash provided by/(used in) investing activities		70,638		(30,222)

Financing Activities
Advances (to)/from the General Partner, net		(256,972)		135,155
Payments on secured debt		—		(275,345)
Distributions paid to partnership unitholders		(9,438)		(8,627)
Other		—		(4,013)
Net cash provided by/(used in) financing activities		(266,410)		(152,830)
Net increase/(decrease) in cash, cash equivalents, and restricted cash		726		380
Cash, cash equivalents, and restricted cash, beginning of year		12,872		12,450
Cash, cash equivalents, and restricted cash, end of period	$	13,598	$	12,830

Supplemental Information:
Interest paid during the period, net of amounts capitalized	$	10,980	$	20,983
Non-cash transactions:
Development costs and capital expenditures incurred but not yet paid		3,472		4,027
LTIP Unit grants		12,964		6,127
Distributions declared but not yet paid		59,461		57,028

The following reconciles cash, cash equivalents, and restricted cash to the total of the same amounts as shown above:
Cash, cash equivalents, and restricted cash, beginning of year
Cash and cash equivalents	$	293	$	756
Restricted cash		12,579		11,694
Total cash, cash equivalents, and restricted cash as shown above	$	12,872	$	12,450
Cash, cash equivalents, and restricted cash, end of period
Cash and cash equivalents	$	83	$	222
Restricted cash		13,515		12,608
Total cash, cash equivalents, and restricted cash as shown above	$	13,598	$	12,830

See accompanying notes to the consolidated financial statements.

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UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2018

1. CONSOLIDATION AND BASIS OF PRESENTATION

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, 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 self-administered real estate investment trust, or REIT, through which UDR conducts a significant portion of its business. During each of the three and nine months ended September 30, 2018 and 2017, rental revenues of the Operating Partnership represented 42% of the General Partner’s consolidated rental revenues. As of September 30, 2018, the Operating Partnership’s apartment portfolio consisted of 52 communities located in 15 markets consisting of 16,434 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, 2018, there were 183,636,543 OP Units outstanding, of which 174,248,699, or 94.9%, were owned by UDR and affiliated entities and 9,387,844, or 5.1%, were owned by non-affiliated limited partners. There were 183,350,924 OP Units outstanding as of December 31, 2017, of which 174,237,688, or 95.0%, were owned by UDR and affiliated entities and 9,113,236, or 5.0%, 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 note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted according to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments and eliminations necessary for the fair presentation of our financial position as of September 30, 2018, and results of operations for the three and nine months ended September 30, 2018 and 2017, have been included. Such adjustments are normal and recurring in nature. The interim results presented are not necessarily indicative of results that can be expected for a full year. The accompanying interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2017 included in the Annual Report on Form 10‑K filed by UDR and the Operating Partnership with the SEC on February 20, 2018.

The accompanying interim unaudited consolidated 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 significant recognized or non-recognized subsequent events were noted other than those noted in Note 5, Debt, Net.

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UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

September 30, 2018

2. SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements

In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging, Targeted Improvements to Accounting for Hedging Activities . The ASU aims to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. The updated standard would have been effective for the Operating Partnership on January 1, 2019 and must be applied using a modified retrospective approach; however, early adoption of the ASU is permitted. The Operating Partnership early adopted the guidance on January 1, 2018; however, the updated standard did not have a material impact on the consolidated financial statements. Related disclosures were updated pursuant to the requirements of the ASU.

In January 2017, the FASB issued ASU 2017‑01, Business Combinations (Topic 805), Clarifying the Definition of a Business. The ASU changes the definition of a business to assist entities with evaluating whether a set of transferred assets is a business. As a result, the accounting for acquisitions of real estate could be impacted. The updated standard was effective for the Operating Partnership on January 1, 2018. The ASU will be applied prospectively to any transactions occurring after adoption. The Operating Partnership expects that the updated standard will result in fewer acquisitions of real estate meeting the definition of a business and fewer acquisition-related costs being expensed in the period incurred.

In November 2016, the FASB issued ASU 2016‑18, Statement of Cash Flows (Topic 230), Restricted Cash . The ASU addresses the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The updated standard was effective for the Operating Partnership on January 1, 2018, and was applied retrospectively to all periods presented. The updated standard did not have a material impact on the consolidated financial statements. Related disclosures were updated pursuant to the requirements of the ASU.


	Nine months ended
	September 30, 2017
(Increase)/decrease in operating assets	$	846
Net cash provided by /(used in) operating activities	$	846

Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement	$	68
Net cash provided by /(used in) investing activities	$	68

Net increase/(decrease) in cash, cash equivalents, and restricted cash	$	914

In June 2016, the FASB issued ASU 2016‑13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments . The standard requires entities to estimate a lifetime expected credit loss for most financial assets, including trade and other receivables, held-to-maturity debt securities, loans and other financial instruments, and to present the net amount of the financial instrument expected to be collected. The updated standard will be effective for the Operating Partnership on January 1, 2020; however, early adoption of the ASU is permitted on January 1, 2019. The Operating Partnership is currently evaluating the effect that the updated standard will have on the consolidated financial statements and related disclosures.

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UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

September 30, 2018

of initial direct costs. The standard will be effective for the Operating Partnership on January 1, 2019; however, early adoption of the standard is permitted.

While the Operating Partnership is currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures, we expect to adopt the guidance on its effective date. The Operating Partnership intends to elect the following package of practical expedients provided by the standard which includes: (i) an entity need not reassess whether any expired or existing contract is a lease or contains a lease, (ii) an entity need not reassess the lease classification of any expired or existing leases, and (iii) an entity need not reassess initial direct costs for any existing leases. The Operating Partnership anticipates recognizing right-of-use assets and related lease liabilities on our consolidated balance sheets upon adoption equal to the present value of the remaining minimum lease payments related to ground leases for communities where we are the lessee. The Operating Partnership plans to continue recognizing lease expense for these leases in a manner similar to current accounting upon adoption of the standard based on our election of the package of practical expedients. However, in the event we modify existing ground leases and/or enter into new ground leases subsequent to the adoption of the standard, such leases would likely be classified as finance leases under the standard and require expense recognition based on the effective interest method. Under the standard, initial direct costs for both lessees and lessors would include only those costs that are incremental to the arrangement and would not have been incurred if the lease had not been obtained. As a result, we will be required to expense internal leasing costs as incurred.

In July 2018, the FASB issued ASU No. 2018-11, Leases – Targeted Improvements , which provides entities with relief from the costs of implementing certain aspects of ASU No. 2016-02, Leases . The ASU provides a practical expedient which allows lessors to not separate lease and non-lease components in a contract and allocate the consideration in the contract to the separate components if both (i) the timing and pattern of revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. The Operating Partnership intends to elect the practical expedient to account for lease and non-lease components as a single component in lease contracts where we are the lessor. The ASU also provides a transition option that permits entities to not recast the comparative periods presented when transitioning to the standard. The Operating Partnership also intends to elect the transition option.

In May 2014, the FASB issued ASU No. 2014‑09, Revenue from Contracts with Customers . ASU No. 2014-09 amended the FASB Accounting Standards Codification (“ASC”) by creating ASC Topic 606, Revenue from Contracts with Customers . The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective, including industry-specific revenue guidance. The standard specifically excludes lease contracts. The ASU allows for the use of either the full or modified retrospective transition method. ASC Topic 606 was effective for the Operating Partnership on January 1, 2018, at which time the Operating Partnership adopted it using the modified retrospective approach. However, as the majority of the Operating Partnership’s revenue is from rental income related to leases, the ASU did not have a material impact on the consolidated financial statements. Related disclosures are provided and/or updated pursuant to the requirements of the ASU.

Principles of Consolidation

The Operating Partnership accounts for subsidiary partnerships, joint ventures and other similar entities in which it holds an ownership interest in accordance with the amended consolidation guidance. The Operating Partnership first evaluates whether each entity is a variable interest entity (“VIE”). Under the VIE model, the Operating Partnership consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the voting model, the Operating Partnership consolidates an entity when it controls the entity through ownership of a majority voting interest.

Discontinued Operations

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UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

September 30, 2018

(2) a separate major geographic area of operations, (3) a major equity method investment, or (4) other major parts of an entity.

We record sales of real estate that do not meet the definition of a discontinued operation in Gain/(loss) on sale of real estate owned on the Consolidated Statements of Operations.

Income/(Loss) Per Operating Partnership Unit

Basic income/(loss) per OP Unit is computed by dividing net income/(loss) attributable to the general and limited partner unitholders by the weighted average number of general and limited partner units outstanding during the year. Diluted income/(loss) 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 and then shared in the income/(loss) of the Operating Partnership.

Revenue

On January 1, 2018, the Operating Partnership adopted ASC Topic 606, Revenue from Contracts with Customers , utilizing the modified retrospective method, under which only contracts entered into after the effective date or not complete as of the effective date are subject to the new standard and an adjustment to the opening balance of partners’ capital is made to recognize any required adjustments. As a result of the adoption, the Operating Partnership did not make an adjustment to partners’ capital because no open contracts required different treatment under the new standard.

Revenue is measured based on consideration specified in contracts with customers. The Operating Partnership recognizes revenue when it satisfies a performance obligation by providing the services specified in a contract to the customer.

The following is a description of the principal streams from which the Operating Partnership generates its revenue:

Lease Revenue

Reimbursements Revenue

Reimbursements revenue includes all pass-through revenue from retail and residential leases and common area maintenance reimbursements from retail leases. Reimbursements revenue is recognized on a gross basis as earned as the Operating Partership has determined it is the principal provider of the services.

Other Revenue

Other revenue is generated by services provided by the Operating Partnership to its retail and residential tenants and other unrelated third parties. These fees are generally recognized as earned.

Real Estate Sales Gain Recognition

For sale transactions resulting in a transfer of a controlling financial interest of a property, the Operating Partnership generally derecognizes the related assets and liabilities from its Consolidated Balance Sheets and records the gain or loss in the period in which the transfer of control occurs. If control of the property has not transferred to the counterparty, the criteria for derecognition are not met and the Operating Partnership will continue to recognize the related assets and liabilities on its Consolidated Balance Sheets.

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UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

September 30, 2018

Sale transactions to entities in which the Operating Partnership sells a controlling financial interest in a property but retains a noncontrolling interest are accounted for as partial sales. Partial sales resulting in a change in control are accounted for at fair value and a full gain or loss is recognized. Therefore, the Operating Partnership will record a gain or loss on the partial interest sold, and the initial measurement of our retained interest will be accounted for at fair value.

Sales of real estate to joint ventures or other noncontrolled investees are also accounted for at fair value and the Operating Partnership will record a full gain or loss in the period the property is contributed.

Disaggregation of Revenue

Rental income , as disclosed on the Consolidated Statements of Operations, is disaggregated by principal revenue stream and by reportable segment in the following tables (dollars in thousands) :


	Three Months Ended				Nine Months Ended
	September 30, (a)				September 30, (b)
	2018		2017		2018		2017
Lease Revenue (c)
Same-Store Communities
West Region	$	57,629	$	54,855	$	169,638	$	161,828
Mid-Atlantic Region		14,065		13,615		41,944		41,008
Northeast Region		13,048		13,020		38,774		38,671
Southeast Region		11,834		11,057		34,479		32,893
Non-Mature Communities/Other		4,487		4,467		12,772		12,752
Total segment and consolidated lease revenue	$	101,063	$	97,014	$	297,607	$	287,152

Reimbursements Revenue
Same-Store Communities
West Region	$	2,940	$	2,732	$	8,763	$	8,248
Mid-Atlantic Region		580		572		1,869		1,806
Northeast Region		422		483		1,200		1,451
Southeast Region		770		728		2,302		2,218
Non-Mature Communities/Other		539		480		1,626		1,431
Total segment and consolidated reimbursements revenue	$	5,251	$	4,995	$	15,760	$	15,154

Other Revenue
Same-Store Communities
West Region	$	1,751	$	1,796	$	5,484	$	5,302
Mid-Atlantic Region		440		470		1,359		1,389
Northeast Region		301		243		806		728
Southeast Region		658		663		2,100		2,060
Non-Mature Communities/Other		75		72		281		161
Total segment and consolidated other revenue	$	3,225	$	3,244	$	10,030	$	9,640

Total Revenue
Same-Store Communities
West Region	$	62,320	$	59,383	$	183,885	$	175,378
Mid-Atlantic Region		15,085		14,657		45,172		44,203
Northeast Region		13,771		13,746		40,780		40,850
Southeast Region		13,262		12,448		38,881		37,171
Non-Mature Communities/Other		5,101		5,019		14,679		14,344
Total segment and consolidated total revenue	$	109,539	$	105,253	$	323,397	$	311,946

(a)

Same-Store Community population consisted of 16,216 apartment homes.

(b)

Same-Store Community population consisted of 16,216 apartment homes.

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UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

September 30, 2018

(c)

Lease Revenue is subject to recognition under ASC 840, Leases .

Comprehensive Income/(Loss)

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 evaluates 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 (2014 through 2017) of tax jurisdictions and concluded 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.

As of December 31, 2017 , management of the Operating Partnership had completed its review of the effects of the Tax Cuts and Jobs Act and it determined there was no material impact.

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September 30, 2018

3. REAL ESTATE OWNED

Real estate assets owned by the Operating Partnership consist of income producing operating properties, properties under development, land held for future development, and sold or held for disposition properties. At September 30, 2018, the Operating Partnership owned and consolidated 52 communities in nine states plus the District of Columbia totaling 16,434 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of September 30, 2018 and December 31, 2017 (dollars in thousands) :


	September 30,		December 31,
	2018		2017
Land	$	711,256	$	719,410
Depreciable property — held and used:
Land improvements		90,506		89,331
Buildings, improvements, and furniture, fixtures and equipment		2,998,764		3,008,215
Real estate held for disposition:
Land and land improvements		1,380		—
Building, improvements, and furniture, fixtures and equipment		6,212		—
Real estate owned		3,808,118		3,816,956
Accumulated depreciation		(1,627,511)		(1,543,652)
Real estate owned, net	$	2,180,607	$	2,273,304

Acquisitions

The Operating Partnership did not have any acquisitions of real estate during the nine months ended September 30, 2018.

Dispositions

During the nine months ended September 30, 2018, the Operating Partnership sold an operating community in Orange County, California with a total of 264 apartment homes for gross proceeds of $90.5 million, resulting in a gain of $70.3 million. The proceeds were designated for a tax-deferred Section 1031 exchange that were used to pay a portion of the purchase price for an acquisition in October 2017.

In September 2018, the Operating Partnership entered into an agreement to sell a commercial office building located in Fairfax, Virginia for a sales price of approximately $9.3 million. The commercial office building was classified as held for disposition as of September 30, 2018 and the sale is expected to close in the fourth quarter of 2018.

Other Activity

Predevelopment, development, and redevelopment projects and related costs are capitalized and reported on the Consolidated Balance Sheets as Total real estate owned, net of accumulated depreciation . The Operating Partnership capitalizes costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. These costs, excluding the direct costs of development and redevelopment and capitalized interest, were zero and less than $0.1 million for the three months ended September 30, 2018 and 2017, respectively, and less than $0.1 million and $0.4 million for the nine months ended September 30, 2018 and 2017, respectively. During each of the three and nine months ended September 30, 2018 and 2017, total interest capitalized was less than $0.1 million. As each home in a capital project is completed and becomes available for lease-up, the Operating Partnership ceases capitalization on the related portion of the costs and depreciation commences over the estimated useful life.

In connection with the acquisition of certain properties, the Operating Partnership agreed to pay certain of the tax liabilities of certain contributors if the Operating Partnership sells one or more of the properties contributed in a

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taxable transaction prior to the expiration of specified periods of time following the acquisition. The Operating Partnership may, however, sell, without being required to pay any tax liabilities, any of such properties in a non-taxable transaction, including, but not limited to, in an exchange under Section 1031 of the Internal Revenue Code.

Further, the Operating Partnership has agreed to maintain certain debt that may be guaranteed by certain contributors for specified periods of time following the acquisition. The Operating Partnership, however, has the ability to refinance or repay guaranteed debt or to substitute new debt if the debt and the guaranty continue to satisfy certain conditions.

4. UNCONSOLIDATED ENTITIES

The DownREIT Partnership is accounted for by the Operating Partnership under the equity method of accounting and is included in Investment in unconsolidated entities on the Consolidated Balance Sheets. The Operating Partnership recognizes earnings or losses from its investments in unconsolidated entities consisting of our proportionate share of the net earnings or losses of the partnership in accordance with the Partnership Agreement.

The DownREIT Partnership is a VIE as the limited partners lack substantive kick-out rights and substantive participating rights. The Operating Partnership is not the primary beneficiary of the DownREIT Partnership as it lacks the power to direct the activities that most significantly impact its economic performance and will continue to account for its interest as an equity method investment. See Note 2, Significant Accounting Policies .

As of September 30, 2018, the DownREIT Partnership owned 13 communities with 6,261 apartment homes. The Operating Partnership’s investment in the DownREIT Partnership was $53.8 million and $76.9 million as of September 30, 2018 and December 31, 2017, respectively.

In September 2018, the DownREIT Partnership entered into an agreement to sell an operating community in Fairfax, Virginia with a total of 604 apartment homes for a sales price of approximately $150.7 million. The sale is expected to close in the fourth quarter of 2018.

Combined summary balance sheets relating to all of the DownREIT Partnership (not just our proportionate share) are presented below as of September 30, 2018 and December 31, 2017 ( dollars in thousands ):


	September 30,		December 31,
	2018		2017
Total real estate, net	$	1,306,468	$	1,359,170
Cash and cash equivalents		41		39
Note receivable from the General Partner		126,500		126,500
Other assets		5,428		4,937
Total assets	$	1,438,437	$	1,490,646

Secured debt, net	$	432,659	$	437,510
Other liabilities		26,300		27,574
Total liabilities		458,959		465,084
Total capital		979,478		1,025,562
Total liabilities and capital	$	1,438,437	$	1,490,646

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September 30, 2018

Combined summary financial information relating to all of the DownREIT Partnership (not just our proportionate share) is presented below for the three and nine months ended September 30, 2018 and 2017 ( dollars in thousands ) :


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Rental income	$	35,069	$	33,883	$	103,842	$	100,809
Property operating expenses		(14,303)		(13,974)		(43,180)		(41,589)
Real estate depreciation and amortization		(22,097)		(21,135)		(65,704)		(62,651)
Operating income/(loss)		(1,331)		(1,226)		(5,042)		(3,431)
Interest expense		(3,343)		(3,657)		(10,553)		(10,830)
Interest income on note receivable from the General Partner		1,196		1,192		3,587		3,525
Net income/(loss)	$	(3,478)	$	(3,691)	$	(12,008)	$	(10,736)

5. DEBT, NET

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, 2018 and December 31, 2017 ( dollars in thousands ):


	Principal Outstanding				As of September 30, 2018
							Weighted
					Weighted		Average
	September 30,		December 31,		Average		Years to	Communities
	2018		2017		Interest Rate		Maturity	Encumbered
Fixed Rate Debt
Fannie Mae credit facilities	$	133,205	$	133,205	5.28	%	1.1	4
Deferred financing costs		(166)		(282)
Total fixed rate secured debt, net		133,039		132,923	5.28	%	1.1	4
Variable Rate Debt
Tax-exempt secured note payable		27,000		27,000	2.20	%	13.5	1
Deferred financing costs		(73)		(78)
Total variable rate secured debt, net		26,927		26,922	2.20	%	13.5	1
Total Secured Debt, Net	$	159,966	$	159,845	4.87	%	3.2	5

As of September 30, 2018, an aggregate commitment of $133.2 million of the General Partner’s secured credit facilities with Fannie Mae was owed by the Operating Partnership based on the ownership of the assets securing the debt. The entire commitment was outstanding at September 30, 2018. The portions of the Fannie Mae credit facilities owed by the Operating Partnership mature at various dates from October 2019 through December 2019 and bear interest at fixed rates. At September 30, 2018, the weighted average interest rate was 5.28%.

The following information relates to the credit facilities owed by the Operating Partnership (dollars in thousands) :


	September 30,			December 31,
	2018			2017
Borrowings outstanding	$	133,205		$	133,205
Weighted average borrowings during the period ended		133,205			223,347
Maximum daily borrowings during the period ended		133,205			408,549
Weighted average interest rate during the period ended		5.3	%		4.6	%
Interest rate at the end of the period		5.3	%		5.3	%

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

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September 30, 2018

the fair value and par to interest expense over the life of the underlying debt instrument. The Operating Partnership did not have any unamortized fair value adjustments associated with the fixed rate debt instruments on the Operating Partnership’s properties.

Fixed Rate Debt

At September 30, 2018, the General Partner had borrowings against its fixed rate facilities of $285.8 million, of which $133.2 million was owed by the Operating Partnership based on the ownership of the assets securing the debt. As of September 30, 2018, the funds borrowed under the fixed rate Fannie Mae credit facilities owed by the Operating Partnership had a weighted average fixed interest rate of 5.28%.

Variable Rate Debt

Tax-exempt secured note payable. The variable rate mortgage note payable that secures tax-exempt housing bond issues matures March 2032. Interest on this note is payable in monthly installments. The mortgage note payable has an interest rate of 2.20% as of September 30, 2018.

The aggregate maturities of the Operating Partnership’s secured debt due during each of the next ten calendar years subsequent to September 30, 2018 are as follows (dollars in thousands):


	Fixed		Variable
			Tax-Exempt
	Secured Credit		Secured Notes
Year	Facilities		Payable		Total
2018	$	—	$	—	$	—
2019		133,205		—		133,205
2020		—		—		—
2021		—		—		—
2022		—		—		—
2023		—		—		—
2024		—		—		—
2025		—		—		—
2026		—		—		—
2027		—		—		—
Thereafter		—		27,000		27,000
Subtotal		133,205		27,000		160,205
Non-cash (a)		(166)		(73)		(239)
Total	$	133,039	$	26,927	$	159,966

(a)

Includes the unamortized balance of fair market value adjustments, premiums/discounts, and deferred financing costs. For the three months ended September 30, 2018 and 2017, the Operating Partnership amortized less than $0.1 million and less than $0.1 million, respectively, and $0.1 million and $0. 3 million for the nine months ended September 30, 2018 and 2017, respectively, of deferred financing costs into Interest expense .

Guarantor on Unsecured Debt

The Operating Partnership is a guarantor on the General Partner’s unsecured revolving credit facility with an aggregate borrowing capacity of $1.1 billion, an unsecured commercial paper program with an aggregate borrowing capacity of $500 million, $300 million of medium-term notes due October 2020, $400 million of medium-term notes due January 2022, a $350 million term loan due September 2023, $300 million of medium-term notes due July 2024, $300 million of medium-term notes due October 2025, $300 million of medium-term notes due September 2026, $300 million of medium-term notes due July 2027, and $300 million of medium-term notes due January 2028. As of September 30, 2018 and December 31, 2017, the General Partner did not have an outstanding balance under the unsecured revolving credit facility and had $415 million and $300 million, respectively, outstanding under its unsecured commercial paper program.

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September 30, 2018

On October 26, 2018, the General Partner issued $300.0 million of 4.40% senior unsecured medium-term notes due January 26, 2029. The General Partner will use the net proceeds for the repayment of debt, including all of the Fannie Mae credit facilities allocated to the Operating Partnership, and for general corporate purposes. The Operating Partnership is a guarantor of this debt.

6. RELATED PARTY TRANSACTIONS

Advances (To)/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 net Advances (to)/from the General Partner of $294.5 million and $397.9 million at September 30, 2018 and December 31, 2017, respectively, which are reflected as increases/(decreases) of capital on the Consolidated Balance Sheets.

Allocation of General and Administrative Expenses

The General Partner shares various general and administrative costs, employees and other overhead costs with the Operating Partnership including legal assistance, acquisitions analysis, marketing, human resources, IT, accounting, rent, supplies and advertising, and allocates these costs to the Operating Partnership first on the basis of direct usage when identifiable, with the remainder allocated based on the reasonably anticipated benefits to the parties. The general and administrative expenses allocated to the Operating Partnership by UDR were $3.3 million and $2.7 million during the three months ended September 30, 2018 and 2017, respectively, and $10.5 million and $10.8 million during the nine months ended September 30, 2018 and 2017, respectively, and are included in General and administrative 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.

During the three months ended September 30, 2018 and 2017, the Operating Partnership reimbursed the General Partner $3.8 million and $4.4 million, respectively, and during the nine months ended September 30, 2018 and 2017, the Operating Partnership reimbursed the General Partner $11.4 million and $11.5 million, respectively, for shared services related to corporate level property management costs incurred by the General Partner. These shared cost reimbursements and related party management fees are initially recorded within the line item General and administrative on the Consolidated Statements of Operations, and a portion related to management costs is reclassified to Property management on the Consolidated Statements of Operations. (See further discussion below.)

Shared Services/Management Fee

The Operating Partnership self-manages its own properties and is party to an Inter-Company Employee and Cost Sharing Agreement with the General Partner. This agreement provides for reimbursements to the General Partner for the Operating Partnership’s allocable share of costs incurred by the General Partner for (a) shared services of corporate level property management employees and related support functions and costs, and (b) general and administrative costs. As discussed above, the reimbursement for shared services is classified in Property management on the Consolidated Statements of Operations.

Notes Payable to the General Partner

As of both September 30, 2018 and December 31, 2017, the Operating Partnership had $273.3 million of unsecured notes payable to the General Partner at annual interest rates between 4.12% and 5.34%. Certain limited partners of the Operating Partnership have provided guarantees or reimbursement agreements related to these notes payable. The guarantees were provided by the limited partners in conjunction with their contribution of properties to the Operating Partnership. The notes mature on August 31, 2021, December 31, 2023 and April 1, 2026, and interest payments are made monthly. The Operating Partnership recognized interest expense on the notes payable of $3.1 million during both the three months ended September 30, 2018 and 2017 and $9.2 million during both the nine months ended September 30, 2018 and 2017.

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September 30, 2018

7. FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS

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

The estimated fair values of the Operating Partnership’s financial instruments either recorded or disclosed on a recurring basis as of September 30, 2018 and December 31, 2017 are summarized as follows (dollars in thousands) :


					Fair Value at September 30, 2018, Using
	Total				Quoted
	Carrying				Prices in
	Amount in				Active
	Statement of				Markets		Significant
	Financial		Fair Value		for Identical		Other		Significant
	Position at		Estimate at		Assets or		Observable		Unobservable
	September 30,		September 30,		Liabilities		Inputs		Inputs
	2018		2018		(Level 1)		(Level 2)		(Level 3)
Description:
Secured debt instruments - fixed rate: (a)
Fannie Mae credit facilities	$	133,205	$	135,030	$	—	$	—	$	135,030
Secured debt instruments - variable rate: (a)
Tax-exempt secured notes payable		27,000		27,000		—		—		27,000
Total liabilities	$	160,205	$	162,030	$	—	$	—	$	162,030


					Fair Value at December 31, 2017, Using
					Quoted
	Total				Prices in
	Carrying				Active
	Amount in				Markets
	Statement of				for Identical		Significant
	Financial		Fair Value		Assets		Other		Significant
	Position at		Estimate at		or		Observable		Unobservable
	December 31,		December 31,		Liabilities		Inputs		Inputs
	2017		2017		(Level 1)		(Level 2)		(Level 3)
Description:
Secured debt instruments - fixed rate: (a)
Fannie Mae credit facilities	$	133,205	$	137,150	$	—	$	—	$	137,150
Secured debt instruments - variable rate: (a)
Tax-exempt secured notes payable		27,000		27,000		—		—		27,000
Total liabilities	$	160,205	$	164,150	$	—	$	—	$	164,150

(a)

See Note 5, Debt, Net.

There were no transfers into or out of each of the levels of the fair value hierarchy during the nine months ended September 30, 2018.

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September 30, 2018

Financial Instruments Carried at Fair Value

The General Partner, on behalf of 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 General Partner, on behalf of 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, 2018 and December 31, 2017, 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. In conjunction with the FASB’s fair value measurement guidance, the Operating Partnership made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Financial Instruments Not Carried at Fair Value

As of September 30, 2018, 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, which includes debt instruments, are classified in Level 3 of the fair value hieracrchy due to the significant unobservable inputs that are utilized in their respective valuations.

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. The Operating Partnership did not incur any other-than-temporary impairments in the value of its investments in unconsolidated entities during the three and nine months ended September 30, 2018 and 2017.

8. DERIVATIVES AND HEDGING ACTIVITY

Risk Management Objective of Using Derivatives

The Operating Partnership is exposed to certain risks 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

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September 30, 2018

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 payments principally related to the General Partner’s 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 are owed by the Operating Partnership based on the General Partner’s underlying debt instruments owed by the Operating Partnership. (See Note 5, Debt, Net. )

The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated other comprehensive income/(loss), net on the Consolidated Balance Sheets 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, 2017, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. As of and during the three and nine months ended September 30, 2018, no derivatives designated as cash flow hedges were held by the Operating Partnership.

During both the three and nine months ended September 30, 2017, the Operating Partnership recognized zero and a loss of less than $0.1 million reclassified from Accumulated other comprehensive income/(loss), net to Interest expense due to the de-designation of a cash flow hedge. No amounts were de-designated during the three and nine months ended September 30, 2018.

Amounts reported in Accumulated other comprehensive income/(loss), net related to derivatives will be reclassified to interest expense as interest payments are made on the General Partner’s variable-rate debt that is owed by the Operating Partnership. As of September 30, 2018, no derivatives designated as cash flow hedges were held by the Operating Partnership and, as a result, no amounts will be reclassified as an increase to interest expense through September 30, 2019.

Derivatives not designated as hedges are not speculative and are used to manage the Operating Partnership’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of GAAP. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted in no gain or loss for both the three and nine months ended September 30, 2018 and a loss of less than $0.1 million for both the three and nine months ended September 30, 2017.

As of September 30, 2018, we had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships ( dollars in thousands ):


	Number of
Product	Instruments	Notional
Interest rate caps	1	$	19,880

Tabular Disclosure of Fair Values of Derivative Instruments on the Consolidated Balance Sheets

As of September 30, 2018 and December 31, 2017, the fair value of the Operating Partnership’s derivative financial instruments was zero.

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September 30, 2018

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, 2018 and 2017 ( dollars in thousands ):


									Gain/(Loss) Recognized in
					Gain/(Loss) Reclassified				Interest expense
	Unrealized holding gain/(loss)				from Accumulated OCI into				(Amount Excluded from
	Recognized in OCI				Interest expense				Effectiveness Testing)
Derivatives in Cash Flow Hedging Relationships	2018		2017		2018		2017		2018		2017
Three Months Ended September 30,
Interest rate products	$	—	$	—	$	—	$	—	$	—	$	—
Nine Months Ended September 30,
Interest rate products	$	—	$	—	$	—	$	—	$	—	$	(106)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Total amount of Interest expense presented on the Consolidated Statements of Operations	$	2,047	$	2,002	$	6,050	$	16,159


	Gain/(Loss) Recognized in
	Interest income and other
	income/(expense), net
Derivatives Not Designated as Hedging Instruments	2018		2017
Three Months Ended September 30,
Interest rate products	$	—	$	—
Nine Months Ended September 30,
Interest rate products	$	—	$	(1)

Credit-risk-related Contingent Features

The General Partner has agreements with its derivative counterparties that contain a provision where 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.

The General Partner has certain agreements with some of its derivative counterparties that contain a provision where, in the event of default by the General Partner or the counterparty, the right of setoff may be exercised. Any amount payable to one party by the other party may be reduced by its setoff against any amounts payable by the other party. Events that give rise to default by either party may include, but are not limited to, the failure to pay or deliver payment under the derivative agreement, the failure to comply with or perform under the derivative agreement, bankruptcy, a merger without assumption of the derivative agreement, or in a merger, a surviving entity’s creditworthiness is materially weaker than the original party to the derivative agreement.

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 generally 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 except holders of Class A Limited Partnership Units. There were 110,883 General Partnership units outstanding at September 30, 2018 and December 31, 2017, all of which were held by UDR.

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September 30, 2018

Limited Partnership Units

As of September 30, 2018 and December 31, 2017, there were 183,525,660 and 183,240,041, respectively, of limited partnership units outstanding, of which 1,873,332 were Class A Limited Partnership Units for both periods. UDR owned 174,137,816, or 94.9%, and 174,126,805, or 95.0%, of OP Units outstanding at September 30, 2018 and December 31, 2017, respectively, of which 121,661 were Class A Limited Partnership Units for both periods. The remaining 9,387,844, or 5.1%, and 9,113,236, or 5.0%, of OP Units outstanding were held by non-affiliated partners at September 30, 2018 and December 31, 2017, respectively, of which 1,751,671 were Class A Limited Partnership Units for both periods.

Subject to the terms of the Operating Partnership Agreement, 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 UDR’s 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 $379.6 million and $351.0 million as of September 30, 2018 and December 31, 2017, respectively, based on the value of UDR’s common stock at each period end. A limited partner has no right to receive any distributions from the Operating Partnership on or after the date of redemption of its OP Units.

Class A Limited Partnership Units

Class A Limited 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 do the following without approval of the holders of the Class A Limited Partnership Units: (i) increase the authorized or issued amount of Class A Limited Partnership Units, (ii) reclassify any other partnership interest into Class A Limited Partnership Units, (iii) create, authorize or issue any obligations or security convertible into or the right to purchase Class A Limited Partnership Units, (iv) enter into a merger or acquisition, or (v) amend or modify the Operating Partnership Agreement in a manner that adversely affects the relative rights, preferences or privileges of the Class A Limited Partnership Units.

The following table shows OP Units outstanding and OP Unit activity as of and for the nine months ended September 30, 2018:


			UDR, Inc.
	Class A			Class A
	Limited	Limited	Limited	Limited	General
	Partners	Partners	Partner	Partner	Partner	Total
Ending balance at December 31, 2017	1,751,671	7,361,565	174,005,144	121,661	110,883	183,350,924
Vesting of LTIP Units	—	285,619	—	—	—	285,619
OP redemptions for UDR stock	—	(11,011)	11,011	—	—	—
Ending balance at September 30, 2018	1,751,671	7,636,173	174,016,155	121,661	110,883	183,636,543

LTIP Units

UDR grants long-term incentive plan units (“LTIP Units”) to certain employees and non-employee directors. The LTIP Units represent an ownership interest in the Operating Partnership and have voting and distribution rights consistent with OP Units. The LTIP Units are subject to the terms of UDR’s long-term incentive plan.

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UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

September 30, 2018

Two classes of LTIP Units are granted, Class 1 LTIP Units and Class 2 LTIP Units. Class 1 LTIP Units are granted to certain employees and non-employee directors and vest over a period of up to four years. Class 2 LTIP Units are granted to certain employees and vest over a period from one to three years subject to certain performance and market conditions being achieved. Vested LTIP Units may be converted into OP Units provided that such LTIP Units have been outstanding for at least two years from the date of grant.

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. 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 flows.

11. 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. 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 the Operating Partnership’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. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI are property management costs, which are the Operating Partnership’s allocable share of costs incurred by the General Partner for shared services of corporate level property management employees and related support functions and costs. The Chief Operating Decision Maker of the General Partner utilizes NOI as the key measure of segment profit or loss.

The Operating Partnership’s two reportable segments are Same-Store Communities and Non-Mature Communities/Other:

Same-Store Communities represent those communities acquired, developed, and stabilized prior to July 1, 2017 (for the quarter-to-date comparison) or January 1, 2017 (for the year-to-date comparison) and held as of September 30, 2018. A comparison of operating results from the prior year is meaningful as these

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UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

September 30, 2018

communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior period, there is no plan to conduct substantial redevelopment activities, and the community is not held for disposition within the current year. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

Management of the General Partner evaluates the performance of each of the Operating Partnership’s apartment communities on a Same-Store Community and Non-Mature Community/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 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, 2018 and 2017.

The following table details rental income and NOI for the Operating Partnership’s reportable segments for the three and nine months ended September 30, 2018 and 2017, and reconciles NOI to Net income/(loss) attributable to OP unitholders on the Consolidated Statements of Operations (dollars in thousands) :


	Three Months Ended				Nine Months Ended
	September 30, (a)				September 30, (b)
	2018		2017		2018		2017
Reportable apartment home segment rental income
Same-Store Communities
West Region	$	62,320	$	59,383	$	183,885	$	175,378
Mid-Atlantic Region		15,085		14,657		45,172		44,203
Northeast Region		13,771		13,746		40,780		40,850
Southeast Region		13,262		12,448		38,881		37,171
Non-Mature Communities/Other		5,101		5,019		14,679		14,344
Total segment and consolidated rental income	$	109,539	$	105,253	$	323,397	$	311,946
Reportable apartment home segment NOI
Same-Store Communities
West Region	$	47,692	$	44,605	$	140,603	$	132,368
Mid-Atlantic Region		10,178		9,843		30,953		30,073
Northeast Region		9,471		9,884		29,373		30,488
Southeast Region		9,336		8,844		26,979		25,671
Non-Mature Communities/Other		3,471		3,385		10,064		10,038
Total segment and consolidated NOI		80,148		76,561		237,972		228,638
Reconciling items:
Property management		(3,012)		(2,894)		(8,893)		(8,578)
Other operating expenses		(2,347)		(1,572)		(6,098)		(5,248)
Real estate depreciation and amortization		(35,043)		(37,057)		(108,906)		(113,167)
General and administrative		(4,143)		(4,134)		(12,997)		(13,760)
Casualty-related (charges)/recoveries, net		10		43		(906)		(1,701)
Income/(loss) from unconsolidated entities		(2,378)		(4,782)		(10,102)		(14,556)
Interest expense		(5,100)		(5,055)		(15,209)		(25,318)
Gain/(loss) on sale of real estate owned		—		—		70,300		—
Net (income)/loss attributable to noncontrolling interests		(440)		(374)		(1,278)		(1,067)
Net income/(loss) attributable to OP unitholders	$	27,695	$	20,736	$	143,883	$	45,243

(a)

Same-Store Community population consisted of 16,216 apartment homes.

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UNITED DOMINION REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)

September 30, 2018

(b)

Same-Store Community population consisted of 16,216 apartment homes.

The following table details the assets of the Operating Partnership’s reportable segments as of September 30, 2018 and December 31, 2017 (dollars in thousands) :


	September 30,		December 31,
	2018		2017
Reportable apartment home segment assets
Same-Store Communities
West Region	$	1,973,796	$	1,955,962
Mid-Atlantic Region		660,775		655,850
Northeast Region		680,227		677,767
Southeast Region		338,964		334,811
Non-Mature Communities/Other		154,356		192,566
Total segment assets		3,808,118		3,816,956
Accumulated depreciation		(1,627,511)		(1,543,652)
Total segment assets - net book value		2,180,607		2,273,304
Reconciling items:
Cash and cash equivalents		83		293
Restricted cash		13,515		12,579
Investment in unconsolidated entities		53,772		76,907
Other assets		34,005		32,490
Total consolidated assets	$	2,281,982	$	2,395,573

Capital expenditures related to the Operating Partnership’s Same-Store Communities totaled $11.1 million and $10.9 million for the three months ended September 30, 2018 and 2017, respectively, and $28.4 million and $30.8 million for the nine months ended September 30, 2018 and 2017, respectively. Capital expenditures related to the Operating Partnership’s Non-Mature Communities/Other totaled $0.4 million and $0.5 million for the three months ended September 30, 2018 and 2017, respectively, and $0.6 million and $1.2 million for the nine months ended September 30, 2018 and 2017, respectively.

Markets included in the above geographic segments are as follows:

West Region — Orange County, San Francisco, Seattle, Los Angeles, Monterey Peninsula, Other Southern California and Portland

ii.

Mid-Atlantic Region — Metropolitan, D.C. and Baltimore

iii.

Northeast Region — New York and Boston

iv.

Southeast Region — Nashville, Tampa and Other Florida

Southwest Region — Denver

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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,” “likely,” “will,” “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, unfavorable changes in the apartment market, changing economic conditions, the impact of inflation/deflation on rental rates and property operating expenses, expectations concerning the availability of capital and the stability of the capital markets, the impact of competition and competitive pricing, acquisitions, developments and redevelopments not achieving anticipated results, delays in completing developments and redevelopments, delays in completing lease-ups on schedule or at expected rent and occupancy levels, expectations on job growth, home affordability and demand/supply ratio for multifamily housing, expectations concerning development and redevelopment activities, expectations on occupancy levels and rental rates, expectations concerning joint ventures and partnerships with third parties, expectations that automation will help grow net operating income, and expectations on annualized net operating income.

The following factors, among others, could cause our future results to differ materially from those expressed in the forward-looking statements:

general economic conditions;

unfavorable changes in apartment market and economic conditions that could adversely affect occupancy levels and rental rates;

the failure of acquisitions to achieve anticipated results;

possible difficulty in selling apartment communities;

competitive factors that may limit our ability to lease apartment homes or increase or maintain rents;

insufficient cash flow that could affect our debt financing and create refinancing risk;

failure to generate sufficient revenue, which could impair our debt service payments and distributions to stockholders;

development and construction risks that may impact our profitability;

potential damage from natural disasters, including hurricanes and other weather-related events, which could result in substantial costs to us;

risks from extraordinary losses for which we may not have insurance or adequate reserves;

risks from cybersecurity breaches of our information technology systems and the information technology systems of our third party vendors and other third parties;

uninsured losses due to insurance deductibles, self-insurance retention, uninsured claims or casualties, or losses in excess of applicable coverage;

delays in completing developments and lease-ups on schedule;

our failure to succeed in new markets;

risks that borrowers of mezzanine loans that we make and/or our partners in projects in which we have a preferred equity return interest and/or the related developments do not perform as expected;

changing interest rates, which could increase interest costs and affect the market price of our securities;

potential liability for environmental contamination, which could result in substantial costs to us;

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the imposition of federal taxes if we fail to qualify as a REIT under the Code in any taxable year;

our internal control over financial reporting may not be considered effective which could result in a loss of investor confidence in our financial reports, and in turn have an adverse effect on our stock price; and

changes in real estate laws, tax laws and other laws affecting our business.

A discussion of these and other factors affecting our business and prospects is set forth in Part II, Item 1A. Risk Factors. We encourage investors to review these risk factors.

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.

Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Report, and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law.

The following discussion should be read in conjunction with the consolidated financial statements appearing elsewhere herein and is based primarily on the consolidated financial statements for the three and nine months ended September 30, 2018 and 2017, of each of UDR, Inc. and United Domination Realty, L.P.

UDR, Inc.:

Business Overview

We are a self-administered real estate investment trust, or REIT, that owns, operates, acquires, renovates, develops, redevelops, disposes of, and manages multifamily apartment communities. We were formed in 1972 as a Virginia corporation. In June 2003, we changed our state of incorporation from Virginia to Maryland. Our subsidiaries include the Operating Partnership and the DownREIT 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, 2018, our consolidated real estate portfolio included 127 communities in 11 states plus the District of Columbia totaling 40,420 apartment homes, and our total real estate portfolio, inclusive of our unconsolidated communities, included an additional 32 communities with 8,112 apartment homes. The Same-Store Community apartment home population for the three and nine months ended September 30, 2018, was 38,307 and 37,673, respectively.

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The following table summarizes our market information by major geographic markets as of and for the three and nine months ended September 30, 2018:


							Three Months Ended				Nine Months Ended
		September 30, 2018					September 30, 2018				September 30, 2018
			Percentage		Total				Monthly				Monthly
	Number of	Number of	of Total		Carrying		Average		Income per		Average		Income per
	Apartment	Apartment	Carrying		Value (in		Physical		Occupied		Physical		Occupied
Same-Store Communities	Communities	Homes	Value		thousands)		Occupancy		Home (a)		Occupancy		Home (a)
West Region
Orange County, CA	10	4,434	10.8	%	$	1,120,098	96.3	%	$	2,325	96.2	%	$	2,296
San Francisco, CA	11	2,751	8.4	%		862,586	96.7	%		3,604	96.8	%		3,550
Seattle, WA	15	2,837	9.5	%		983,605	96.3	%		2,456	96.6	%		2,415
Los Angeles, CA	4	1,225	4.4	%		453,682	96.1	%		2,830	95.9	%		2,802
Monterey Peninsula, CA	7	1,565	1.7	%		176,622	97.2	%		1,786	97.2	%		1,749
Other Southern California	2	654	1.0	%		106,905	96.5	%		1,913	96.5	%		1,886
Portland, OR	2	476	0.5	%		48,824	96.2	%		1,588	96.5	%		1,572
Mid-Atlantic Region
Metropolitan D.C.	21	7,798	19.5	%		2,009,507	97.3	%		2,043	97.4	%		2,024
Richmond, VA	4	1,358	1.4	%		147,559	97.9	%		1,340	98.0	%		1,328
Baltimore, MD	3	720	1.5	%		151,429	95.3	%		1,689	96.1	%		1,694
Northeast Region
New York, NY	4	1,945	12.6	%		1,305,282	98.0	%		4,354	97.7	%		4,330
Boston, MA	5	1,548	5.5	%		566,105	96.4	%		3,110	96.6	%		3,040
Southeast Region
Orlando, FL	9	2,500	2.2	%		223,940	97.2	%		1,354	97.0	%		1,335
Nashville, TN	8	2,260	2.0	%		209,917	96.4	%		1,347	96.6	%		1,301
Tampa, FL	7	2,287	2.5	%		254,979	97.2	%		1,401	97.4	%		1,396
Other Florida	1	636	0.8	%		85,254	96.7	%		1,609	96.6	%		1,588
Southwest Region
Dallas, TX	6	2,040	2.0	%		205,115	96.8	%		1,251	96.7	%		1,249
Austin, TX	4	1,273	1.6	%		163,614	97.7	%		1,471	97.4	%		1,358
Total/Average Same-Store Communities	123	38,307	87.9	%		9,075,023	96.9	%	$	2,161	96.9	%	$	2,137
Non-Mature, Commercial Properties & Other	3	1,039	7.1	%		734,119
Total Real Estate Held for Investment	126	39,346	95.0	%		9,809,142
Real Estate Under Development (b)	—	470	3.4	%		350,686
Real Estate Held for Disposition (c)	1	604	1.6	%		167,836
Total Real Estate Owned	127	40,420	100.0	%		10,327,664
Total Accumulated Depreciation						(3,626,327)
Total Real Estate Owned, Net of Accumulated Depreciation					$	6,701,337

(a)

Monthly Income per Occupied Home represents total monthly revenues divided by the average physical number of occupied apartment homes in our Same-Store portfolio.

(b)

As of September 30, 2018, the Company was developing one wholly-owned community with a total of 585 apartment homes, 470 of which have been completed.

(c)

The Company had one community located in Fairfax, Virginia that met the criteria to be classified as held for disposition at September 30, 2018.

We report in two segments: Same-Store Communities and Non-Mature Communities/Other .

Our Same-Store Communities segment represents those communities acquired, developed, and stabilized prior to July 1, 2017 (for quarter-to-date comparison) or January 1, 2017 (for year-to-date comparison) and held as of September 30, 2018. These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior period, there is no plan to conduct substantial redevelopment activities, and the communities are not classified as held for disposition within the current year. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

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Our Non-Mature Communities/Other segment represents those communities that do not meet the criteria to be included in Same-Store Communities , including, but not limited to, recently acquired, developed and redeveloped communities, and the non-apartment components of mixed use properties.

Liquidity and Capital Resources

Liquidity is the ability to meet present and future financial obligations either through operating cash flows, sales of properties, borrowings under our credit agreements, and/or the issuance of debt and/or equity securities. Our primary source of liquidity is our cash flow from operations as determined by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment homes and borrowings under our credit agreements. We routinely use our unsecured revolving credit facility to temporarily fund certain investing and financing activities prior to arranging for longer-term financing or the issuance of equity or debt securities. During the past several years, proceeds from the sale of real estate have been used for both investing and financing activities as we continue to execute on maintaining a diversified portfolio.

We expect to meet our short-term liquidity requirements generally through net cash provided by property operations and borrowings under our credit agreements and our unsecured commercial paper program. We expect to meet certain long-term liquidity requirements such as scheduled debt maturities, the repayment of financing on development activities, and potential property acquisitions, through net cash provided by property operations, secured and unsecured borrowings, the issuance of debt or equity securities, and/or the disposition of properties. We believe that our net cash provided by property operations and borrowings under our credit agreements and our unsecured commercial paper program will continue to be adequate to meet both operating requirements and the payment of dividends by the Company in accordance with REIT requirements. Likewise, the budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations, borrowings under credit agreements, the issuance of debt or equity securities, and/or dispositions of properties.

We have a shelf registration statement filed with the Securities and Exchange Commission, or “SEC,” which provides for the issuance of common stock, preferred stock, depositary shares, debt securities, guarantees of debt securities, warrants, subscription rights, purchase contracts and units to facilitate future financing activities in the public capital markets. Access to capital markets is dependent on market conditions at the time of issuance.

In July 2017, the Company entered into an ATM sales agreement under which the Company may offer and sell up to 20 million shares of its common stock, from time to time, to or through its sales agents and may enter into separate forward sales agreements to or through its forward purchasers. Upon entering into the ATM sales agreement, the Company simultaneously terminated the sales agreement for its prior at-the-market equity offering program, which was entered into in April 2017, which had replaced the prior at-the-market equity offering program entered into in April 2012. During the three and nine months ended September 30, 2018, the Company did not sell any shares of common stock through its ATM program.

In February 2018, the Company amended the working capital credit facility to extend the scheduled maturity date from January 1, 2019 to January 15, 2021. The maximum borrowing capacity and interest rate were unchanged by the amendment.

During the nine months ended September 30, 2018, the Company repurchased 593,373 shares of its common stock at an average price of $33.69 for total consideration of approximately $20.0 million under its share repurchase program.

In September 2018, the Company entered into a $1.1 billion unsecured revolving credit facility (the “Revolving Credit Facility”) and a $350.0 million unsecured term loan (the “Term Loan”). The credit agreement for these facilities (the “Credit Agreement”) allows the total commitments under the Revolving Credit Facility and the total borrowings under the Term Loan to be increased to an aggregate maximum amount of up to $2.0 billion, subject to certain conditions, including obtaining commitments from one or more lenders. The Revolving Credit Facility has a scheduled maturity date of January 31, 2023, with two six-month extension options, subject to certain conditions. The Term Loan has a scheduled maturity date of September 30, 2023.

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Future Capital Needs

Future development and redevelopment expenditures may be funded through unsecured or secured credit facilities, unsecured commercial paper, proceeds from the issuance of equity or debt securities, sales of properties, joint ventures, and, to a lesser extent, from cash flows provided by property operations. Acquisition activity in strategic markets may be funded through joint ventures, by the reinvestment of proceeds from the sale of properties, through the issuance of equity or debt securities, the issuance of operating partnership units and the assumption or placement of secured and/or unsecured debt.

During the remainder of 2018, we have approximately $0.9 million of secured debt maturing, inclusive of principal amortization, and $415.0 million of unsecured debt maturing, comprised solely of unsecured commercial paper. During 2019, we have approximately $267.4 million of secured debt maturing, inclusive of principal amortization, and no unsecured debt maturing. We will prepay $195.8 million of the secured debt due in 2019 with proceeds from the senior unsecured medium-term notes issued on October 26, 2018 and anticipate repaying the remaining debt with cash flow from our operations, proceeds from debt or equity offerings, proceeds from dispositions of properties, or from borrowings under our credit agreements and our unsecured commercial paper program.

Critical Accounting Policies and Estimates and New Accounting Pronouncements

Our critical accounting policies are those having the most impact on the reporting of our financial condition and results and those requiring significant judgments and estimates. These policies include those related to (1) capital expenditures, (2) impairment of long-lived assets, (3) real estate investment properties, and (4) revenue recognition.

Our critical accounting policies are described in more detail in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in UDR’s Annual Report on Form 10‑K, filed with the SEC on February 20, 2018. There have been no significant changes in our critical accounting policies from those reported in our Form 10‑K filed with the SEC on February 20, 2018. With respect to these critical accounting policies, we believe that the application of judgments and assessments is consistently applied and produces financial information that fairly depicts the results of operations for all periods presented.

Statements of Cash Flows

The following discussion explains the changes in Net cash provided by/(used in) operating activities , Net cash provided by/(used in) investing activities , and Net cash provided by/(used in) financing activities that are presented in our Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017.

Operating Activities

For the nine months ended September 30, 2018, our Net cash provided by/(used in) operating activities was $406.7 million compared to $389.3 million for the comparable period in 2017. The increase in cash flow from operating activities was primarily due to improved net operating income, primarily driven by revenue growth at communities.

Investing Activities

For the nine months ended September 30, 2018, Net cash provided by/(used in) investing activities was $(203.1) million compared to $(383.4) million for the comparable period in 2017. The decrease in cash used in investing activities was primarily due to an increase in proceeds from the sale of real estate assets and decreases in the acquisition of real estate assets, investment in unconsolidated joint ventures, development of real estate assets and capital expenditures and other major improvements, partially offset by a decrease in distributions received from unconsolidated joint ventures and an increase in the issuance of notes receivable.

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Acquisitions

During the nine months ended September 30, 2018, the Company did not have any acquisitions of real estate.

Dispositions

Capital Expenditures

We capitalize those expenditures that materially enhance the value of an existing asset or substantially extend the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred.

For the nine months ended September 30, 2018, total capital expenditures of $80.4 million, or $2,037 per stabilized home, which in aggregate include recurring capital expenditures and major renovations, were spent across our portfolio, excluding development, as compared to $75.6 million, or $1,905 per stabilized home, for the comparable period in 2017.

The increase in total capital expenditures was primarily due to:

an increase of 93.6%, or $9.1 million, in major renovations, which include major structural changes and/or architectural revisions to existing buildings; and

an increase of 19.3%, or $4.2 million, in asset preservation expenditures, such as building interiors, building exteriors, and landscaping and grounds.

This was partially offset by:

a decrease of 24.0%, or $8.6 million, in revenue-enhancing improvements, such as kitchen and bath remodels and upgrades to common areas.

The following table outlines capital expenditures and repair and maintenance costs for all of our communities, excluding real estate under development, for the nine months ended September 30, 2018 and 2017 ( dollars in thousands ):


							Per Home
	Nine Months Ended September 30,						Nine Months Ended September 30,
	2018		2017		% Change		2018		2017		% Change
Turnover capital expenditures	$	8,340	$	8,284	0.7	%	$	211	$	209	1.0	%
Asset preservation expenditures		26,059		21,838	19.3	%		660		550	20.0	%
Total recurring capital expenditures		34,399		30,122	14.2	%		871		759	14.8	%
Revenue-enhancing improvements		27,145		35,724	(24.0)	%		688		900	(23.6)	%
Major renovations (a)		18,883		9,752	93.6	%		478		246	94.5	%
Total capital expenditures	$	80,427	$	75,598	6.4	%	$	2,037	$	1,905	7.0	%
Repair and maintenance expense	$	26,116	$	25,066	4.2	%	$	662	$	631	4.9	%
Average home count (b)		39,463		39,698	(0.6)	%

(a)

Major renovations include major structural changes and/or architectural revisions to existing buildings.

(b)

Average number of homes is calculated based on the number of homes outstanding at the end of each month.

The above table includes amounts capitalized during the year. Actual capital spending is impacted by the net change in capital expenditure accruals.

We intend to continue to selectively add revenue enhancing improvements which we believe will provide a return on investment in excess of our cost of capital. Our objective in redeveloping a community is twofold: we aim to meaningfully grow rental rates while also achieving cap rate compression through asset quality improvement.

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Consolidated Real Estate Under Development

At September 30, 2018, our development pipeline consisted of one wholly-owned community totaling 585 homes, 470 of which have been completed, with a budget of $362.5 million, in which we have a carrying value of $350.7 million. The community is estimated to be completed during the fourth quarter of 2018.

During the nine months ended September 30, 2018, the Company completed the development of a 516 apartment home community in Huntington Beach, California.

Unconsolidated Joint Ventures and Partnerships

The Company recognizes income or losses from our investments in unconsolidated joint ventures and partnerships consisting of our proportionate share of the net income or losses of the joint ventures and partnerships. In addition, we may earn fees for providing management services to the communities held by the unconsolidated joint ventures and partnerships.

The Company’s investment in and advances to unconsolidated joint ventures and partnerships, net, are accounted for under the equity method of accounting. For the nine months ended September 30, 2018:

we made investments totaling $85.1 million in our unconsolidated joint ventures;

our proportionate share of the net income/(loss) of the joint ventures and partnerships was $(5.1) million; and

we received distributions of $33.4 million, of which $2.8 million were operating cash flows and $30.6 million were investing cash flows.

Financing Activities

For the nine months ended September 30, 2018, our Net cash provided by/(used in) financing activities was $(197.4) million, compared to $(5.8) million for the comparable period of 2017.

The following significant financing activities occurred during the nine months ended September 30, 2018:

net proceeds of $115.0 million from our unsecured commercial paper program;

net proceeds of $29.2 million from the Company’s unsecured revolving credit facilities;

repayment of $82.5 million of secured debt;

issuance of $80.0 million of secured debt;

repurchase of common shares for approximately $20.0 million; and

payment of distributions of $255.7 million to our common stockholders.

Credit Facilities and Commercial Paper Program

We have two secured credit facilities with Fannie Mae with an aggregate commitment of $285.8 million, all of which was outstanding as of September 30, 2018. The Fannie Mae credit facilities mature at various dates from October 2019 through July 2020 and bear interest at fixed rates. At September 30, 2018, the entire outstanding balance was fixed and had a weighted average interest rate of 4.86%.

We will prepay $195.8 million of the outstanding balance under the Fannie Mae credit facilities with proceeds from the senior unsecured medium-term notes issued on October 26, 2018.

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In September 2018, the Company entered into a $1.1 billion unsecured revolving credit facility and a $350.0 million unsecured term loan. The Credit Agreement for these facilities allows the total commitments under the Revolving Credit Facility and the total borrowings under the Term Loan to be increased to an aggregate maximum amount of up to $2.0 billion, subject to certain conditions, including obtaining commitments from one or more lenders. The Revolving Credit Facility has a scheduled maturity date of January 31, 2023, with two six-month extension options, subject to certain conditions. The Term Loan has a scheduled maturity date of September 30, 2023.

As of September 30, 2018, we had no outstanding borrowings under the Revolving Credit Facility, leaving $1.1 billion of unused capacity (excluding $3.3 million of letters of credit at September 30, 2018), and $350.0 million of outstanding borrowings under the Term Loan.

We have a working capital credit facility, which provides for a $75 million unsecured revolving credit facility (the “Working Capital Credit Facility”) with a scheduled maturity date of January 15, 2021. Based on the Company’s current credit rating, the Working Capital Credit Facility has an interest rate equal to LIBOR plus a margin of 90 basis points. Depending on the Company’s credit rating, the margin ranges from 85 to 155 basis points. In February 2018, we amended the working capital credit facility to extend the scheduled maturity date from January 1, 2019 to January 15, 2021. The maximum borrowing capacity and interest rate were unchanged by the amendment.

As of September 30, 2018, we had $51.0 million of outstanding borrowings under the Working Capital Credit Facility, leaving $24.0 million of unused capacity.

The Fannie Mae credit facilities, the bank revolving credit facilities and the term loan are subject to customary financial covenants and limitations, all of which we were in compliance with at September 30, 2018.

We have an unsecured commercial paper program. Under the terms of the program, we may issue unsecured commercial paper up to a maximum aggregate amount outstanding of $500 million. The notes are sold under customary terms in the United States commercial paper market and rank pari passu with all of our other unsecured indebtedness. The notes are fully and unconditionally guaranteed by the Operating Partnership. As of September 30, 2018, we had issued $415.0 million of commercial paper, for one month terms, at a weighted average annualized rate of 2.43%, leaving $85.0 million of unused capacity.

Interest Rate Risk

We are exposed to interest rate risk associated with variable rate notes payable and maturing debt that has to be refinanced. We do not hold financial instruments for trading or other speculative purposes, but rather issue these financial instruments to finance our portfolio of real estate assets. Interest rate sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. Our earnings are affected as changes in short-term interest rates impact our cost of variable rate debt and maturing fixed rate debt. We had $595.7 million in variable rate debt that is not subject to interest rate swap contracts as of September 30, 2018. If market interest rates for variable rate debt increased by 100 basis points, our interest expense for the nine months ended September 30, 2018 would increase by $4.3 million based on the average balance outstanding during the period.

These amounts are determined by considering the impact of hypothetical interest rates on our borrowing cost. This analysis does not consider the effects of the adjusted level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate our exposure to

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the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no change in our financial structure.

The Company also utilizes derivative financial instruments to manage interest rate risk and generally designates these financial instruments as cash flow hedges. See Note 10, Derivatives and Hedging Activities , in the Notes to the UDR Consolidated Financial Statements included in this Report for additional discussion of derivate instruments.

A presentation of cash flow metrics based on GAAP is as follows ( dollars in thousands ):


	Nine Months Ended September 30,
	2018		2017
Net cash provided by/(used in) operating activities	$	406,724	$	389,276
Net cash provided by/(used in) investing activities		(203,106)		(383,371)
Net cash provided by/(used in) financing activities		(197,368)		(5,810)

Results of Operations

The following discussion explains the changes in results of operations that are presented in our Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017.

Net Income/(Loss) Attributable to Common Stockholders

Net income/(loss) attributable to common stockholders was $17.6 million ($0.07 per diluted share) for the three months ended September 30, 2018, as compared to $15.3 million ($0.06 per diluted share) for the comparable period in the prior year. The increase resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

an increase in total property NOI of $10.1 million primarily due to higher revenue per occupied home and NOI from communities acquired in 2017, redeveloped in 2017 or recently developed, partially offset by a decrease from sold communities.

This was partially offset by

an increase in interest expense of $4.3 million primarly due to increased debt balances, higher interest rates and lower capitalized interest from development and redevelopment activities; and

a decrease in income from unconsolidated entities of $3.2 million primarly due to a $2.4 million gain recorded on the sale of an operating community in Seattle, Washington from our West Coast Development Joint Ventures for the three months ended September 30, 2017.

Net income/(loss) attributable to common stockholders was $118.1 million ($0.44 per diluted share) for the nine months ended September 30, 2018, as compared to $49.5 million ($0.18 per diluted share) for the comparable period in the prior year. The increase resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

gains, net of tax, of $70.3 million on the sale of an operating community in Orange County, California during the nine months ended September 30, 2018, as compared to a gain, net of tax, of $2.1 million on the sale of a parcel of land in Richmond, Virginia during the nine months ended September 30, 2017; and

an increase in total property NOI of $23.9 million primarily due to higher revenue per occupied home and NOI from communities acquired in 2017, redeveloped in 2017 or recently developed, partially offset by a decrease from sold communities.

This was partially offset by:

a decrease in income from unconsolidated entities of $16.7 million primarily due to a gain on consolidation of $12.2 million from the purchase of a previously unconsolidated operating community in Seattle, Washington

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from our West Coast Development Joint Ventures and a $2.4 million gain recorded on the sale of an operating community in Seattle, Washington from our West Coast Development Joint Ventures during the nine months ended September 30, 2017;

an increase in interest expense of $1.4 million primarly due to increases in debt balances, higher interest rates and lower capitalized interest from development and redevelopment activities, which was partially offset by prepayment penalties incurred in 2017 related to the early repayment of debt; and

an increase in net income attributable to redeemable noncontrolling interests in the Operating Partnership of $6.2 million primarily attributable to the noncontrolling interest’s share of a gain on sale associated with a disposition made in 2018.

Apartment Community Operations

Our net income results are primarily from NOI generated from the operation of our apartment communities. The Company defines NOI, which is a non-GAAP financial measure, as rental income less direct property rental expenses. Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI is property management expense which is calculated as 2.75% of property revenue to cover the regional supervision and accounting costs related to consolidated property operations and land rent.

Management considers NOI a useful metric for investors as it is a more meaningful representation of a community’s continuing operating performance than net income as it is prior to corporate-level expense allocations, general and administrative costs, capital structure and depreciation and amortization.

Although the Company considers NOI a useful measure of operating performance, NOI should not be considered an alternative to net income or net cash flow from operating activities as determined in accordance with GAAP. NOI excludes several income and expense categories as detailed in the reconciliation of NOI to Net income/(loss) attributable to UDR, Inc. below.

The following table summarizes the operating performance of our total property NOI for each of the periods presented (dollars in thousands):


	Three Months Ended						Nine Months Ended
	September 30, (a)						September 30, (b)
	2018		2017		% Change		2018		2017		% Change
Same-Store Communities:
Same-Store rental income	$	240,646	$	231,882	3.8	%	$	702,409	$	679,537	3.4	%
Same-Store operating expense (c)		(69,927)		(67,585)	3.5	%		(200,139)		(193,625)	3.4	%
Same-Store NOI		170,719		164,297	3.9	%		502,270		485,912	3.4	%

Non-Mature Communities/Other NOI:
Stabilized, non-mature communities NOI (d)		2,259		945	139.0	%		13,975		9,227	51.5	%
Development communities NOI		3,049		(6)	NM	*		4,374		(441)	NM	*
Non-residential/other NOI		6,373		4,851	31.4	%		16,188		12,509	29.4	%
Sold and held for disposition communities NOI		2,414		4,634	(47.9)	%		7,896		13,620	(42.0)	%
Total Non-Mature Communities/Other NOI		14,095		10,424	35.2	%		42,433		34,915	21.5	%
Total property NOI	$	184,814	$	174,721	5.8	%	$	544,703	$	520,827	4.6	%

* Not meaningful

(a)

Same-Store consists of 38,307 apartment homes.

(b)

Same-Store consists of 37,673 apartment homes.

(c)

Excludes depreciation, amortization, and property management expenses.

(d)

Represents non-mature communities that have achieved 90% occupancy for three consecutive months but do not meet the criteria to be included in Same-Store Communities.

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The following table is our reconciliation of Net income/(loss) attributable to UDR, Inc. to total property NOI for the periods presented ( dollars in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Net income/(loss) attributable to UDR, Inc.	$	18,610	$	16,190	$	120,967	$	52,314
Joint venture management and other fees		(2,888)		(2,827)		(8,819)		(8,718)
Property management		7,240		6,827		21,185		20,190
Other operating expenses		3,314		1,950		8,148		6,010
Real estate depreciation and amortization		107,881		107,171		322,537		320,653
General and administrative		11,896		12,467		36,028		36,976
Casualty-related charges/(recoveries), net		678		2,056		2,364		3,749
Other depreciation and amortization		1,682		1,585		5,057		4,760
(Income)/loss from unconsolidated entities		1,382		(1,819)		5,091		(11,591)
Interest expense		34,401		30,095		95,942		94,500
Interest income and other (income)/expense, net		(1,188)		(481)		(5,075)		(1,423)
Tax provision/(benefit), net		158		127		618		825
(Gain)/loss on sale of real estate owned, net of tax		—		—		(70,300)		(2,132)
Net income/(loss) attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		1,616		1,415		10,819		4,607
Net income/(loss) attributable to noncontrolling interests		32		(35)		141		107
Total property NOI	$	184,814	$	174,721	$	544,703	$	520,827

Same-Store Communities

Our Same-Store Community properties, those acquired, developed, and stabilized prior to July 1, 2017 (for the quarter-to-date comparison) and January 1, 2017 (for year-to-date comparison) and held on September 30, 2018, consisted of 38,307 and 37,673 apartment homes, respectively, and provided 92.4% and 92.2%, respectively, of our total NOI for the three and nine months ended September 30, 2018, respectively.

Three Months Ended September 30, 2018 vs. Three Months Ended September 30, 2017

NOI for our Same-Store Community properties increased 3.9%, or $6.4 million, for the three months ended September 30, 2018 compared to the same period in 2017. The increase in property NOI was attributable to a 3.8%, or $8.8 million, increase in property rental income, which was partially offset by a 3.5%, or $2.3 million, increase in operating expenses. The increase in property income was primarily driven by a 2.1%, or $4.6 million, increase in rental rates and an 13.8%, or $3.0 million, increase in reimbursement, ancillary and fee income. Physical occupancy increased 0.3% to 96.9% and total monthly income per occupied home increased 3.5% to $2,161.

The increase in operating expenses was primarily driven by a 9.0%, or $2.3 million, increase in real estate taxes, which was primarily due to higher assessed valuations.

The operating margin (property net operating income divided by property rental income) was 70.9% for both the three months ended September 30, 2018 and 2017.

Nine Months Ended September 30, 2018 vs. Nine Months Ended September 30, 2017

NOI for our Same-Store Community properties increased 3.4%, or $16.4 million, for the nine months ended September 30, 2018 compared to the same period in 2017. The increase in property NOI was attributable to a 3.4%, or $22.9 million, increase in property rental income, which was partially offset by a 3.4%, or $6.5 million, increase in operating expenses. The increase in property income was primarily driven by a 1.9%, or $12.5 million, increase in rental rates and an 11.5%, or $7.2 million, increase in reimbursement, ancillary and fee income. Physical occupancy increased 0.3% to 96.9% and total monthly income per occupied home increased 3.1% to $2,137.

The increase in operating expenses was primarily driven by a 8.3%, or $6.3 million, increase in real estate taxes, which was primarily due to higher assessed valuations.

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The operating margin (property net operating income divided by property rental income) was 71.5% for both the nine months ended September 30, 2018 and 2017.

Non-Mature Communities/Other

UDR’s Non-Mature Communities/Other represent those communities that do not meet the criteria to be included in Same-Store Communities , which include communities recently developed or acquired, redevelopment properties, sold or held for disposition properties, and non-apartment components of mixed use properties.

Three Months Ended September 30, 2018 vs. Three Months Ended September 30, 2017

The remaining 7.6%, or $14.1 million, of our total NOI during the three months ended September 30, 2018 was generated from our Non-Mature Communities/Other . NOI from Non-Mature Communities/Other increased by 35.2%, or $3.7 million, for the three months ended September 30, 2018 as compared to the same period in 2017. The increase was primarily attributable to a $3.1 million increase in development communities, a $1.5 million increase in NOI from non-residential/other, and a $1.3 million increase in stabilized, non-mature communities, partially offset by a $2.2 million decrease in NOI from sold and held for disposition communities.

Nine Months Ended September 30, 2018 vs. Nine Months Ended September 30, 2017

The remaining 7.8%, or $42.4 million, of our total NOI during the nine months ended September 30, 2018 was generated from our Non-Mature Communities/Other . NOI from Non-Mature Communities/Other increased by 21.5%, or $7.5 million, for the nine months ended September 30, 2018 as compared to the same period in 2017. The increase was primarily attributable to a $4.8 million increase in development communities, a $4.7 million increase in NOI from stabilized, non-mature communities, and a $3.7 million increase in non-residential/other, partially offset by a $5.7 million decrease in NOI from sold and held for disposition communities.

Income/(Loss) from Unconsolidated Entities

For the three months ended September 30, 2018 and 2017, we recognized income/(loss) from unconsolidated entities of $(1.4) million and $1.8 million, respectively. The decrease of $3.2 million was primarily due to a $2.4 million gain recorded on the sale of an operating community located in Seattle, Washington from our West Coast Development Joint Ventures during the three months ended September 30, 2017.

For the nine months ended September 30, 2018 and 2017, we recognized income/(loss) from unconsolidated entities of $(5.1) million and $11.6 million, respectively. The decrease of $16.7 million was primarily due to a gain on consolidation of $12.2 million from the purchase of a previously unconsolidated operating community in Seattle, Washington from our West Coast Development Joint Ventures and a $2.4 million gain recorded on the sale of an operating community located in Seattle, Washington from our West Coast Development Joint Ventures during the nine months ended September 30, 2017.

Interest Expense

During the three months ended September 30, 2018, Interest expense increased by $4.3 million compared to the same period in 2017. The increase was primarily due to increased debt balances, higher interest rates and lower capitalized interest from development and redevelopment activities.

During the nine months ended September 30, 2018, Interest expense increased by $1.4 million compared to the same periods in 2017. The increases were primarly due to increases in debt balances, higher interest rates and lower capitalized interest from development and redevelopment activities, which was partially offset by prepayment penalties incurred in 2017 related to the early repayment of debt.

Gain/(Loss) on Sale of Real Estate Owned, Net of Tax

During the nine months ended September 30, 2018, the Company recognized a gain, net of tax, of $70.3 million on the sale of an operating community in Orange County, California. During the nine months ended September 30, 2017, the Company recognized a gain, net of tax, of $2.1 million on the sale of a parcel of land in Richmond, Virginia.

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Noncontrolling Interest

For the nine months ended September 30, 2018 and 2017, we recognized net income attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership of $10.8 million and $4.6 million, respectively. The increase in 2018 as compared to 2017 was primarily attributable to the noncontrolling interest’s share of a gain on sale associated with a disposition made in 2018.

Inflation

We believe that the direct effects of inflation on our operations have been immaterial. While the impact of inflation primarily impacts our results of operations as a result of wage pressures and increases in utilities and material costs, the majority of our apartment leases have initial terms of 12 months or less, which generally enables us to compensate for any inflationary effects by increasing rental rates on our apartment homes. Although an extreme escalation in costs could have a negative impact on our residents and their ability to absorb rent increases, we do not believe this has had a material impact on our results for the three and nine months ended September 30, 2018.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that are material.

Funds from Operations, Funds from Operations as Adjusted, and Adjusted Funds from Operations

Funds from Operations

Funds from operations (“FFO”) attributable to common stockholders and unitholders is defined as Net income/(loss) attributable to common stockholders (computed in accordance with GAAP), excluding impairment write-downs of depreciable real estate or of investments in non-consolidated investees that are driven by measurable decreases in the fair value of depreciable real estate held by the investee, gains or losses from sales of depreciable property, plus real estate depreciation and amortization, and after adjustments for noncontrolling interests, unconsolidated partnerships and joint ventures. This definition conforms with the National Association of Real Estate Investment Trust’s (“NAREIT”) definition issued in April 2002. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Thus, NAREIT created FFO as a supplemental measure of a REIT’s operating performance. In the computation of diluted FFO, if OP Units, DownREIT Units, unvested restricted stock, unvested LTIP Units, stock options, and the shares of Series E Cumulative Convertible Preferred Stock are dilutive, they are included in the diluted share count.

We consider FFO a useful metric for investors as we use FFO in evaluating property acquisitions and our operating performance, and believe that FFO should be considered along with, but not as an alternative to, net income and cash flow as a measure of our activities in accordance with GAAP. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of funds available to fund our cash needs.

Funds from Operations as Adjusted

FFO as Adjusted attributable to common stockholders and unitholders is defined as FFO excluding the impact of acquisition-related costs and other non-comparable items including, but not limited to, prepayment costs/benefits associated with early debt retirement, gains or losses on sales of non-depreciable property and marketable securities, deferred tax valuation allowance increases and decreases, casualty-related charges and recoveries, severance costs and legal costs.

Management believes that FFO as Adjusted is useful supplemental information regarding our operating performance as it provides a consistent comparison of our operating performance across time periods and allows investors to more easily compare our operating results with other REITs. FFO as Adjusted is not intended to represent cash flow or liquidity for the period, and is only intended to provide an additional measure of our operating performance. We believe that Net income/(loss) attributable to common stockholders is the most directly comparable GAAP financial measure to FFO as Adjusted. However,

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other REITs may use different methodologies for calculating FFO as Adjusted or similar FFO measures and, accordingly, our FFO as Adjusted may not always be comparable to FFO as Adjusted or similar FFO measures calculated by other REITs. FFO as Adjusted should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of financial performance, or as an alternative to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity.

Adjusted Funds from Operations

Adjusted FFO (“AFFO”) attributable to common stockholders and unitholders is defined as FFO as Adjusted less recurring capital expenditures on consolidated communities that are necessary to help preserve the value of and maintain functionality at our communities. Therefore, management considers AFFO a useful supplemental performance metric for investors as it is more indicative of the Company’s operational performance than FFO or FFO as Adjusted.

AFFO is not intended to represent cash flow or liquidity for the period, and is only intended to provide an additional measure of our operating performance. We believe that Net income/(loss) attributable to common stockholders is the most directly comparable GAAP financial measure to AFFO. Management believes that AFFO is a widely recognized measure of the operations of REITs, and presenting AFFO will enable investors to assess our performance in comparison to other REITs. However, other REITs may use different methodologies for calculating AFFO and, accordingly, our AFFO may not always be comparable to AFFO calculated by other REITs. AFFO should not be considered as an alternative to net income/(loss) (determined in accordance with GAAP) as an indication of financial performance, or as an alternative to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions.

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The following table outlines our reconciliation of Net income/(loss) attributable to common stockholders to FFO, FFO as Adjusted, and AFFO for the three and nine months ended September 30, 2018 and 2017 ( dollars in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Net income/(loss) attributable to common stockholders	$	17,639	$	15,264	$	118,070	$	49,530
Real estate depreciation and amortization		107,881		107,171		322,537		320,653
Noncontrolling interests		1,648		1,380		10,960		4,714
Real estate depreciation and amortization on unconsolidated joint ventures		15,979		14,710		45,831		42,974
Cumulative effect of change in accounting principle (a)		—		—		(2,100)		—
Net gain on the sale of unconsolidated depreciable property		—		(2,355)		—		(14,513)
Net gain on the sale of depreciable real estate owned		—		—		(70,300)		(552)
Funds from operations (“FFO”) attributable to common stockholders and unitholders, basic	$	143,147	$	136,170	$	424,998	$	402,806
Distribution to preferred stockholders — Series E (Convertible)		971		926		2,897		2,784
FFO attributable to common stockholders and unitholders, diluted	$	144,118	$	137,096	$	427,895	$	405,590
Income/(loss) per weighted average common share - diluted	$	0.07	$	0.06	$	0.44	$	0.18
FFO per weighted average common share and unit, basic	$	0.49	$	0.47	$	1.46	$	1.38
FFO per weighted average common share and unit, diluted	$	0.49	$	0.46	$	1.44	$	1.37
Weighted average number of common shares and OP/DownREIT Units outstanding — basic		292,285		291,878		292,075		291,822
Weighted average number of common shares, OP/DownREIT Units, and common stock equivalents outstanding — diluted		296,430		296,900		296,577		296,757

Impact of adjustments to FFO:
Costs/(benefit) associated with debt extinguishment and other	$	482	$	—	$	482	$	5,834
Acquisition-related costs/(fees)		—		344		—		344
Net gain on the sale of non-depreciable real estate owned		—		—		—		(1,580)
Legal and other costs		563		—		1,188		—
Casualty-related charges/(recoveries), net		740		2,164		2,555		3,857
Casualty-related charges/(recoveries) on unconsolidated joint ventures, net		—		—		—		(881)
	$	1,785	$	2,508	$	4,225	$	7,574
FFO as Adjusted attributable to common stockholders and unitholders, diluted	$	145,903	$	139,604	$	432,120	$	413,164

FFO as Adjusted per weighted average common share and unit, diluted	$	0.49	$	0.47	$	1.46	$	1.39

Recurring capital expenditures		(14,949)		(12,649)		(34,399)		(30,122)
AFFO attributable to common stockholders and unitholders, diluted	$	130,954	$	126,955	$	397,721	$	383,042

AFFO per weighted average common share and unit, diluted	$	0.44	$	0.43	$	1.34	$	1.29

(a) During the three and nine months ended September 30, 2018, the Company recorded a gain of zero and $2.1 million, respectively, as a result of measuring an investment in equity securities subject to updated accounting guidance effective for the Company on January 1, 2018. As the investment does not have a readily determinable fair value, the Company elected the measurement alternative under which the investment is measured at cost, less any impairment, plus or minus changes resulting from observable price changes for an identical or similar investment of the same issuer.

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The following table is our reconciliation of FFO share information to weighted average common shares outstanding, basic and diluted, reflected on the UDR Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017 (shares in thousands):


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2018	2017	2018	2017
Weighted average number of common shares and OP/DownREIT Units outstanding — basic	292,285	291,878	292,075	291,822
Weighted average number of OP/DownREIT Units outstanding	(24,558)	(24,822)	(24,546)	(24,882)
Weighted average number of common shares outstanding — basic per the Consolidated Statements of Operations	267,727	267,056	267,529	266,940

Weighted average number of common shares, OP/DownREIT Units, and common stock equivalents outstanding — diluted	296,430	296,900	296,577	296,757
Weighted average number of OP/DownREIT Units outstanding	(24,558)	(24,822)	(24,546)	(24,882)
Weighted average number of Series E preferred shares outstanding	(3,011)	(3,016)	(3,011)	(3,024)
Weighted average number of common shares outstanding — diluted per the Consolidated Statements of Operations	268,861	269,062	269,020	268,851

United Dominion Realty, L.P.:

Business Overview

United Dominion Realty, L.P. (the “Operating Partnership” or “UDR, L.P.”) is a Delaware limited partnership formed in February 2004 and organized pursuant to the provisions of the Delaware Revised Uniform Limited Partnership Act. The Operating Partnership is the successor-in-interest to United Dominion Realty, L.P., a limited partnership formed under the laws of Virginia, which commenced operations on November 4, 1995. Our sole general partner is UDR, Inc., a Maryland corporation (“UDR” or the “General Partner”), which conducts a substantial amount of its business and holds a substantial amount of its assets through the Operating Partnership. At September 30, 2018, the Operating Partnership’s real estate portfolio included 52 communities located in nine states and the District of Columbia with a total of 16,434 apartment homes.

As of September 30, 2018, UDR owned 110,883 units of our general partnership interests and 174,137,816 units of our limited partnership interests (the “OP Units”), or approximately 94.8% of our outstanding OP Units. By virtue of its ownership of our OP Units and being our sole general partner, UDR has the ability to control all of the day-to-day operations of the Operating Partnership. Unless otherwise indicated or unless the context requires otherwise, all references in this section of this Report to the Operating Partnership or “we,” “us” or “our” refer to UDR, L.P. together with its consolidated subsidiaries, and all references in this section to “UDR” or the “General Partner” refer solely to UDR, Inc.

UDR is a self-administered real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages apartment communities. The General Partner was formed in 1972 as a Virginia corporation and changed its state of incorporation from Virginia to Maryland in June 2003. At September 30, 2018, the General Partner’s consolidated real estate portfolio included 127 communities located in 11 states and the District of Columbia with a total of 40,420 apartment homes. In addition, the General Partner had an ownership interest in 32 communities with 8,112 completed apartment homes through unconsolidated operating communities.

The Operating Partnership’s same-store community apartment home population for the three and nine months ended September 30, 2018 was 16,216.

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The following table summarizes our market information by major geographic markets as of and for the three and nine months ended September 30, 2018:


							Three Months Ended				Nine Months Ended
		September 30, 2018					September 30, 2018				September 30, 2018
			Percentage		Total				Monthly				Monthly
	Number of	Number of	of Total		Carrying		Average		Income per		Average		Income per
	Apartment	Apartment	Carrying		Value (in		Physical		Occupied		Physical		Occupied
Same-Store Communities	Communities	Homes	Value		thousands)		Occupancy		Home (a)		Occupancy		Home (a)
West Region
Orange County, CA	5	3,119	19.2	%	$	734,273	96.6	%	$	2,260	96.4	%	$	2,233
San Francisco, CA	9	2,185	15.8	%		600,255	96.8	%		3,275	96.7	%		3,227
Seattle, WA	5	932	5.9	%		225,383	96.2	%		2,087	96.4	%		2,038
Los Angeles, CA	2	344	3.0	%		114,692	95.6	%		2,761	95.7	%		2,701
Monterey Peninsula, CA	7	1,565	4.6	%		176,622	97.2	%		1,785	97.2	%		1,750
Other Southern California	1	414	2.0	%		73,747	96.5	%		2,025	96.3	%		1,998
Portland, OR	2	476	1.3	%		48,824	96.2	%		1,587	96.5	%		1,572
Mid-Atlantic Region
Metropolitan D.C.	6	2,068	14.6	%		556,593	97.4	%		2,111	97.4	%		2,100
Baltimore, MD	2	540	2.7	%		104,182	95.3	%		1,507	96.2	%		1,518
Northeast Region
New York, NY	2	996	16.0	%		607,604	97.7	%		3,909	97.5	%		3,873
Boston, MA	1	387	1.9	%		72,623	96.8	%		2,102	97.1	%		2,049
Southeast Region
Nashville, TN	6	1,612	3.9	%		147,173	96.1	%		1,335	96.3	%		1,283
Tampa, FL	2	942	2.8	%		106,537	97.8	%		1,479	97.9	%		1,466
Other Florida	1	636	2.2	%		85,254	96.7	%		1,610	96.6	%		1,588
Total/Average Same-Store Communities	51	16,216	95.9	%		3,653,762	96.8	%	$	2,218	96.8	%	$	2,185
Non-Mature, Commercial Properties & Other	1	218	3.9	%		146,764
Total Real Estate Held for Investment	52	16,434	99.8	%		3,800,526
Real Estate Held for Disposition (b)	—	—	0.2	%		7,592
Total Real Estate Owned	52	16,434	100.0	%		3,808,118
Total Accumulated Depreciation						(1,627,511)
Total Real Estate Owned, Net of Accumulated Depreciation					$	2,180,607

(a)

Monthly Income per Occupied Home represents total monthly revenues divided by the average physical number of occupied apartment homes in our Same-Store portfolio.

(b)

The Operating Partnership had a commercial office building located in Fairfax, Virginia that met the criteria to be classified as held for disposition at September 30, 2018.

We report in two segments: Same-Store Communities and Non-Mature Communities/Other .

Our Same-Store Communities segment represents those communities acquired, developed, and stabilized prior to July 1, 2017 (for quarter-to-date comparison) or January 1, 2017 (for year-to-date comparison) and held as of September 30, 2018. These communities were owned and had stabilized occupancy and operating expenses as of the beginning of the prior period, there is no plan to conduct substantial redevelopment activities, and the communities are not held for disposition within the current year. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

Liquidity and Capital Resources

Liquidity is the ability to meet present and future financial obligations either through operating cash flows, the sale of properties, and the issuance of debt. Both the coordination of asset and liability maturities and effective capital management are important to the maintenance of liquidity. The Operating Partnership’s primary source of liquidity is cash flow from operations

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as determined by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment homes and borrowings owed by us under the General Partner’s credit agreements. The General Partner will routinely use its unsecured credit facility to temporarily fund certain investing and financing activities prior to arranging for longer-term financing or the issuance of equity or debt securities. During the past several years, proceeds from the sale of real estate have been used for both investing and financing activities as we continue to execute on maintaining a diversified portfolio.

We expect to meet our short-term liquidity requirements generally through net cash provided by operations and borrowings owed by us under the General Partner’s credit agreements. We expect to meet certain long-term liquidity requirements such as scheduled debt maturities and potential property acquisitions through net cash provided by operations, borrowings and the disposition of properties. We believe that our net cash provided by operations and borrowings will continue to be adequate to meet both operating requirements and the payment of distributions. Likewise, the budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations, and borrowings owed by us under the General Partner’s credit agreements.

Future Capital Needs

Future capital expenditures are expected to be funded with proceeds from the issuance of secured debt or unsecured debt, sales of properties, borrowings owed by us under our General Partner’s credit agreements, and to a lesser extent, from cash flows provided by operating activities.

As of September 30, 2018, the Operating Partnership does not have any secured debt maturing during the remainder of 2018 and approximately $133.2 million of secured debt maturing in 2019. We will prepay all of the secured debt due in 2019 with proceeds from the senior unsecured medium-term notes issued by the General Partner on October 26, 2018. The Operating Patnership is a guarantor of this debt.

Critical Accounting Policies and Estimates and New Accounting Pronouncements

Our critical accounting policies are described in more detail in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Operating Partnership’s Annual Report on Form 10‑K, filed with the SEC on February 20, 2018. There have been no significant changes in our critical accounting policies from those reported. With respect to these critical accounting policies, we believe that the application of judgments and assessments is consistently applied and produces financial information that fairly depicts the results of operations for all periods presented.

Statements of Cash Flows

Operating Activities

For the nine months ended September 30, 2018 and 2017, Net cash provided by/(used in) operating activities was $196.5 million compared to $183.4 million for the comparable period in 2017. The increase in cash flow from operating activities was primarily due to improved operating income, primarily driven by revenue growth at communities.

Investing Activities

For the nine months ended September 30, 2018 and 2017, Net cash provided by/(used in) investing activities was $70.6 million compared to $(30.2) million for the comparable period in 2017. The increase in cash provided by investing activities was primarily due to proceeds received from the sale of an operating community in Orange County, California in 2018 and a decrease in capital expenditures during the nine months ended September 30, 2018, as compared to the same period in 2017.

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Dispositions

Financing Activities

For the nine months ended September 30, 2018 and 2017, our Net cash provided by/(used in) financing activities was $(266.4) million compared to $(152.8) million for the comparable period of 2017. The increase in cash used in financing activities was primarily due to an increase in advances to the General Partner, partially offset by reduced payments on secured debt.

Credit Facilities

The credit facilities are subject to customary financial covenants and limitations.

Interest Rate Risk

We are exposed to interest rate risk associated with variable rate notes payable and maturing debt that has to be refinanced. We do not hold financial instruments for trading or other speculative purposes, but rather issue these financial instruments to finance our portfolio of real estate assets. Interest rate sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. Our earnings are affected as changes in short-term interest rates impact our cost of variable rate debt and maturing fixed rate debt. We had $27.0 million in variable rate debt that is not subject to interest rate swap contracts as of September 30, 2018. If market interest rates for variable rate debt increased by 100 basis points, our interest expense for the nine months ended September 30, 2018 would increase by $0.2 million based on the average balance outstanding during the period.

These amounts are determined by considering the impact of hypothetical interest rates on our borrowing cost. These analyses do not consider the effects of the adjusted level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no change in our financial structure.

The General Partner also utilizes derivative financial instruments owed by the Operating Partnership to manage interest rate risk and generally designates these financial instruments as cash flow hedges. See Note 8, Derivatives and

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Hedging Activities , in the Notes to the Operating Partnership’s Consolidated Financial Statements for additional discussion of derivative instruments.

A presentation of cash flow metrics based on GAAP is as follows ( dollars in thousands ):


	Nine Months Ended September 30,
	2018		2017
Net cash provided by/(used in) operating activities	$	196,498	$	183,432
Net cash provided by/(used in) investing activities		70,638		(30,222)
Net cash provided by/(used in) financing activities		(266,410)		(152,830)

Results of Operations

The following discussion explains the changes in results of operations that are presented in our Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017.

Net Income/(Loss) Attributable to OP Unitholders

Net income attributable to OP unitholders was $27.7 million ($0.15 per diluted OP Unit) for the three months ended September 30, 2018, as compared to net income of $20.7 million ($0.11 per diluted OP Unit) for the comparable period in the prior year. The increase in net income attributable to OP unitholders resulted primarily from the following items, which are discussed in further detail elsewhere within this Report:

an increase of $3.6 million in total property NOI primarily due to higher revenue per occupied home; and

a decrease in depreciation and amortization expense of $2.0 million primarily due to the sale of a community in 2018.

Net income attributable to OP unitholders was $143.9 million ($0.78 per diluted OP Unit) for the nine months ended September 30, 2018, as compared to net income of $45.2 million ($0.25 per diluted OP Unit) for the comparable period in the prior year. The increase in net income attributable to OP unitholders resulted primarily from the following items, which are discussed in further detail elsewhere within this Report:

gains of $70.3 million on the sale of an operating community in Orange County, California during the nine months ended September 30, 2018, as compared to no gains during the nine months ended September 30, 2017;

a decrease in interest expense of $10.1 million due to lower debt balances and prepayment penalties incurred during the nine months ended September 30, 2017;

an increase of $9.3 million in total property NOI primarily due to higher revenue per occupied home; and

a decrease in depreciation and amortization expense of $4.3 million primarily due to the sale of a community in 2018.

Apartment Community Operations

Our net income results primarily from NOI generated from the operation of our apartment communities. The Operating Partnership defines NOI, which is a non-GAAP financial measure, as rental income less direct property rental expenses. Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI are property management costs, which are the Operating Partnership’s allocable share of costs incurred by the General Partner for shared services of corporate level property management employees and related support functions and costs.

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Although we consider NOI a useful measure of operating performance, NOI should not be considered an alternative to net income or net cash flow from operating activities as determined in accordance with GAAP. NOI excludes several income and expense categories as detailed in the reconciliation of NOI to Net income/(loss) attributable to OP unitholders below.

The following table summarizes the operating performance of our total portfolio for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands) :


	Three Months Ended						Nine Months Ended
	September 30, (a)				%		September 30, (b)				%
	2018		2017		Change		2018		2017		Change
Same-Store Communities:
Same-Store rental income	$	104,438	$	100,234	4.2	%	$	308,718	$	297,602	3.7	%
Same-Store operating expense (c)		(27,761)		(27,058)	2.6	%		(80,810)		(79,002)	2.3	%
Same-Store NOI		76,677		73,176	4.8	%		227,908		218,600	4.3	%

Non-Mature Communities/Other NOI:
Stabilized, non-mature communities NOI (d)		3,355		2,023	65.8	%		9,166		6,006	52.6	%
Sold and held for disposition communities NOI		116		1,362	(91.5)	%		898		4,032	(77.7)	%
Total Non-Mature Communities/Other NOI		3,471		3,385	2.5	%		10,064		10,038	0.3	%
Total property NOI	$	80,148	$	76,561	4.7	%	$	237,972	$	228,638	4.1	%

(a)

Same-Store consists of 16,216 apartment homes.

(b)

Same-Store consists of 16,216 apartment homes.

(c)

Excludes depreciation, amortization, and property management expenses.

(d)

Represents non-mature communities that have achieved 90% occupancy for three consecutive months but do not meet the criteria to be included in Same-Store Communities.

The following table is our reconciliation of Net income/(loss) attributable to OP unitholders to total property NOI for the three and nine months ended September 30, 2018 and 2017 (dollars in thousands) :


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Net income/(loss) attributable to OP unitholders	$	27,695	$	20,736	$	143,883	$	45,243
Property management		3,012		2,894		8,893		8,578
Other operating expenses		2,347		1,572		6,098		5,248
Real estate depreciation and amortization		35,043		37,057		108,906		113,167
General and administrative		4,143		4,134		12,997		13,760
Casualty-related charges/(recoveries), net		(10)		(43)		906		1,701
(Income)/loss from unconsolidated entities		2,378		4,782		10,102		14,556
Interest expense		5,100		5,055		15,209		25,318
(Gain)/loss on sale of real estate owned		—		—		(70,300)		—
Net income/(loss) attributable to noncontrolling interests		440		374		1,278		1,067
Total property NOI	$	80,148	$	76,561	$	237,972	$	228,638

Same-Store Communities

Our Same-Store Community properties, those acquired, developed, and stabilized prior to July 1, 2017 (for quarter-to-date comparison) and January 1, 2017 (for year-to-date comparison) and held as of September 30, 2018, consisted of 16,216 apartment homes and provided 95.7% and 95.8% of our total NOI for the three and nine months ended September 30, 2018, respectively.

Three Months Ended September 30, 2018 vs. Three Months Ended September 30, 2017

NOI for our Same-Store Community properties increased 4.8%, or $3.5 million, for the three months ended September 30, 2018 compared to the same period in 2017. The increase in property NOI was primarily attributable to a 4.2%, or $4.2 million, increase in property rental income, which was partially offset by a 2.6%, or $0.7 million, increase in operating expenses. The increase in revenues was primarily driven by a 2.4%, or $2.2 million, increase in rental rates and a 11.5%, or

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$1.1 million, increase in reimbursement, ancillary and fee income. Physical occupancy increased 0.2% to 96.8% and total income per occupied home increased 3.9% to $2,218 for the three months ended September 30, 2018 compared to the same period in 2017.

The increase in property operating expenses was primarily driven by a 7.9%, or $0.8 million, increase in real estate taxes, which was primarily due to higher assessed valuations.

The operating margin (property net operating income divided by property rental income) was 73.4% and 73.0% for the three months ended September 30, 2018 and 2017, respectively.

Nine Months Ended September 30, 2018 vs. Nine Months Ended September 30, 2017

NOI for our Same-Store Community properties increased 4.3%, or $9.3 million, for the nine months ended September 30, 2018 compared to the same period in 2017. The increase in property NOI was primarily attributable to a 3.7%, or $11.1 million, increase in property rental income, which was partially offset by a 2.3%, or $1.8 million, increase in operating expenses. The increase in revenues was primarily driven by a 2.3%, or $6.3 million, increase in rental rates and a 11.0%, or $3.2 million, increase in reimbursement, ancillary and fee income. Physical occupancy increased 0.3% to 96.8% and total income per occupied home increased 3.5% to $2,185 for the nine months ended September 30, 2018 compared to the same period in 2017.

The increase in property operating expenses was primarily driven by a 6.9%, or $1.9 million, increase in real estate taxes, which was primarily due to higher assessed valuations.

The operating margin (property net operating income divided by property rental income) was 73.8% and 73.5% for the nine months ended September 30, 2018 and 2017, respectively.

Non-Mature Communities/Other

The Operating Partnership’s Non-Mature Communities/Other represent those communities that do not meet the criteria to be included in Same-Store Communities , which include communities recently developed or acquired, redevelopment properties, sold or held for disposition properties and the non-apartment components of mixed use properties.

Three Months Ended September 30, 2018 vs. Three Months Ended September 30, 2017

The remaining 4.3%, or $3.5 million, of our total NOI during the three months ended September 30, 2018 was generated from our Non-Mature Communities/Other . NOI from Non-Mature Communities/Other increased 2.5%, or $0.1 million, for the three months ended September 30, 2018, compared to the same period in 2017.

Nine Months Ended September 30, 2018 vs. Nine Months Ended September 30, 2017

The remaining 4.2%, or $10.1 million, of our total NOI during the nine months ended September 30, 2018 was generated from our Non-Mature Communities/Other . NOI from Non-Mature Communities/Other decreased 0.3%, or less than $0.1 million, for the nine months ended September 30, 2018, compared to the same period in 2017.

Real Estate Depreciation and Amortization

During the three and nine months ended September 30, 2018, Real estate depreciation and amortization decreased by $2.0 million and $4.3 million, respectively, as compared to the same periods in 2017. The decreases were primarily due to the sale of a community in 2018.

Interest Expense

During the nine months ended September 30, 2018, interest expense decreased by $10.1 million, primarily due to lower debt balances and prepayment penalties incurred during the nine months ended September 30, 2017.

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Gain/(Loss) on Sale of Real Estate Owned

During the nine months ended September 30, 2018, the Operating Partnership recognized a gain of $70.3 million on the sale of an operating community in Orange County, California. During the nine months ended September 30, 2017, the Operating Partnership did not have any dispositions.

Inflation

Off-Balance Sheet Arrangements

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company and the Operating Partnership are exposed to interest rate changes associated with our unsecured credit facility and other variable rate debt as well as refinancing risk on our fixed rate debt. The Company’s and the Operating Partnership’s involvement with derivative financial instruments is limited and we do not expect to use them for trading or other speculative purposes. The Company and the Operating Partnership use derivative instruments solely to manage their exposure to interest rates.

See our Annual Report on Form 10‑K for the year ended December 31, 2017 under the heading “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for a more complete discussion of our interest rate sensitive assets and liabilities. As of September 30, 2018, our market risk has not changed materially from the amounts reported in our Annual Report on Form 10‑K for the year ended December 31, 2017.

Item 4. CONTROLS AND PROCEDURES

The disclosure controls and procedures of the Company and the Operating Partnership are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. As a result, our disclosure controls and procedures are designed to provide reasonable assurance that such disclosure controls and procedures will meet their objectives.

As of September 30, 2018, we carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, of the effectiveness of the design and operation of the disclosure controls and procedures of the Company and the Operating Partnership. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer of the Company concluded that the disclosure controls and procedures of the Company and the Operating Partnership are effective at the reasonable assurance level described above.

There have not been any changes in either the Company’s or the Operating Partnership’s internal control over financial reporting (as such term is defined in Rules 13a‑15(f) and 15d‑15(f) under the Securities Exchange Act of 1934) during the fiscal quarter to which this report relates that materially affected, or are reasonably likely to materially affect, the internal control over financial reporting of either the Company or the Operating Partnership.

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PART II — OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

The Company is a party to various claims and routine litigation arising in the ordinary course of business. We do not believe that the results of any such claims and litigation, individually or in the aggregate, will have a material adverse effect on our business, financial position or results of operations.

Item 1A. RISK FACTORS

There are many factors that affect the business and the results of operations of the Company and the Operating Partnership, some of which are beyond the control of the Company and the Operating Partnership. The following is a description of important factors that may cause the actual results of operations of the Company and the Operating Partnership in future periods to differ materially from those currently expected or discussed in forward-looking statements set forth in this Report relating to our financial results, operations and business prospects. Forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Report, and we expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based, except to the extent otherwise required by law.

Risks Related to Our Real Estate Investments and Our Operations

Unfavorable Apartment Market and Economic Conditions Could Adversely Affect Occupancy Levels, Rental Revenues and the Value of Our Real Estate Assets. Unfavorable market conditions in the areas in which we operate and unfavorable economic conditions generally may significantly affect our occupancy levels, our rental rates and collections, the value of the properties and our ability to acquire or dispose of apartment communities on economically favorable terms. Our ability to lease our properties at favorable rates is adversely affected by the increase in supply in the multifamily and other rental markets and is dependent upon the overall level in the economy, which is adversely affected by, among other things, job losses and unemployment levels, recession, personal debt levels, a downturn in the housing market, stock market volatility and uncertainty about the future. Some of our major expenses generally do not decline when related rents decline. We would expect that declines in our occupancy levels, rental revenues and/or the values of our apartment communities would cause us to have less cash available to pay our indebtedness and to distribute to UDR’s stockholders, which could adversely affect our financial condition or the market value of our securities. Factors that may affect our occupancy levels, our rental revenues, and/or the value of our properties include the following, among others:

downturns in the global, national, regional and local economic conditions, particularly increases in unemployment;

declines in mortgage interest rates, making alternative housing more affordable;

government or builder incentives with respect to home ownership, making alternative housing options more attractive;

local real estate market conditions, including oversupply of, or reduced demand for, apartment homes;

declines in the financial condition of our tenants, which may make it more difficult for us to collect rents from some tenants;

changes in market rental rates;

our ability to renew leases or re-lease space on favorable terms;

the timing and costs associated with property improvements, repairs or renovations;

declines in household formation; and

rent control or stabilization laws, or other laws regulating rental housing, which could prevent us from raising rents to offset increases in operating costs.

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The Geographic Concentration of Our Communities in Certain Markets Could Have an Adverse Effect on Our Operations if a Particular Market is Adversely Impacted by Economic or Other Conditions. For the year ended December 31, 2017, approximately 53.8% of our total NOI was generated from communities located in the Washington, D.C. metropolitan area (18.6%), Orange County, CA (12.2%), the San Francisco Bay Area, CA (11.8%) and New York, NY (11.2%). For the nine months ended September 30, 2018, approximately 52.4% of our total NOI was generated from communities located in the Washington, D.C. metropolitan area (17.1%), Orange County, CA (12.6%), the San Francisco Bay Area, CA (12.3%) and New York, NY (10.4%). As a result, if any one or more of these markets is adversely impacted by regional or local economic conditions or local real estate market conditions or regulations, such conditions may have a greater adverse impact on our results of operations than if our portfolio was more geographically diverse.

We May Be Unable to Renew Leases or Relet Apartment Units as Leases Expire, or the Terms of Renewals or New Leases May Be Less Favorable Than Current Leases. When our residents decide to leave our apartments, whether because they decide not to renew their leases or they leave prior to their lease expiration date, we may not be able to relet their apartment units. Even if the residents do renew or we can relet the apartment units, the terms of renewal or reletting may be less favorable than current lease terms. Furthermore, because the majority of our apartment leases have initial terms of 12 months or less, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer terms. If we are unable to promptly renew the leases or relet the apartment units, or if the rental rates upon renewal or reletting are significantly lower than expected rates, then our results of operations and financial condition may be adversely affected. If residents do not experience increases in their income, we may be unable to increase rent and/or delinquencies may increase.

We Face Certain Risks Related to Our Retail and Commercial Space. Certain of our properties include retail or commercial space that we lease to third parties. The long term nature of our retail and commercial leases (generally five to ten years with market based renewal options) and the characteristics of many of our tenants (generally small and/or local businesses) may subject us to certain risks. The longer term leases could result in below market lease rates over time. We may not be able to lease new space for rents that are consistent with our projections or for market rates. Also, when leases for our retail or commercial space expire, the space may not be relet or the terms of reletting, including the cost of allowances and concessions to tenants, may be less favorable than the prior lease terms. Our properties compete with other properties with retail or commercial space. The presence of competitive alternatives may adversely affect our ability to lease space and the level of rents we can obtain. If our retail or commercial tenants experience financial distress or bankruptcy, they may fail to comply with their contractual obligations, seek concessions in order to continue operations or cease their operations, which could adversely impact our results of operations and financial condition.

Risk of Inflation/Deflation. Substantial inflationary or deflationary pressures could have a negative effect on rental rates and property operating expenses. The general risk of inflation is that interest on our debt and general and administrative expenses increase at a rate faster than increases in our rental rates, which could adversely affect our financial condition or results of operations.

We Are Subject to Certain Risks Associated with Selling Apartment Communities, Which Could Limit Our Operational and Financial Flexibility. We periodically dispose of apartment communities that no longer meet our strategic objectives, but adverse market conditions may make it difficult to sell apartment communities like the ones we own. We cannot predict whether we will be able to sell any property for the price or on the terms we set, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. Furthermore, we may be required to expend funds to correct defects or to make improvements before a property can be sold. These conditions may limit our ability to dispose of properties and to change our portfolio in order to meet our strategic objectives, which could in turn adversely affect our financial condition and results of operations. We are also subject to the following risks in connection with sales of our apartment communities, among others:

a significant portion of the proceeds from property sales may be held by intermediaries in order for some sales to qualify as like-kind exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended, or the “Code,” so that any related capital gain can be deferred for federal income tax purposes. As a result, we may not have immediate access to all of the cash proceeds generated from our property sales; and

federal tax laws limit our ability to profit on the sale of communities that we have owned for less than two years, and this limitation may prevent us from selling communities when market conditions are favorable.

Competition Could Limit Our Ability to Lease Apartment Homes or Increase or Maintain Rents. Our apartment communities compete with numerous housing alternatives in attracting residents, including other apartment communities,

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condominiums and single-family rental homes, as well as owner occupied single- and multi-family homes. Competitive housing in a particular area could adversely affect our ability to lease apartment homes and increase or maintain rents, which could materially adversely affect our results of operations and financial condition.

We May Not Realize the Anticipated Benefits of Past or Future Acquisitions, and the Failure to Integrate Acquired Communities and New Personnel Successfully Could Create Inefficiencies. We have selectively acquired in the past, and if presented with attractive opportunities we intend to selectively acquire in the future, apartment communities that meet our investment criteria. Our acquisition activities and their success are subject to the following risks, among others:

we may be unable to obtain financing for acquisitions on favorable terms, including but not limited to interest rates, term and/or loan-to-value ratios, or at all, all of which could cause us to delay or even abandon potential acquisitions;

even if we are able to finance the acquisition, cash flow from the acquisition may be insufficient to meet our required principal and interest payments on the debt used to finance the acquisition;

even if we enter into an acquisition agreement for an apartment community, we may not complete the acquisition for a variety of reasons after incurring certain acquisition-related costs;

we may incur significant costs and divert management attention in connection with the evaluation and negotiation of potential acquisitions, including potential acquisitions that we are subsequently unable to complete;

when we acquire an apartment community, we may invest additional amounts in it with the intention of increasing profitability, and these additional investments may not produce the anticipated improvements in profitability;

the expected occupancy rates and rental rates may differ from actual results; and

we may be unable to quickly and efficiently integrate acquired apartment communities and new personnel into our existing operations, and the failure to successfully integrate such apartment communities or personnel will result in inefficiencies that could materially adversely affect our expected return on our investments and our overall profitability.

Competition Could Adversely Affect Our Ability to Acquire Properties. In the past, other real estate investors, including insurance companies, pension and investment funds, developer partnerships, investment companies and other public and private apartment REITs, have competed with us to acquire existing properties and to develop new properties, and such competition in the future may make it more difficult for us to acquire attractive investment opportunities on favorable terms, which could adversely affect our ability to grow or acquire properties profitably or with attractive returns.

Development and Construction Risks Could Impact Our Profitability. In the past we have selectively pursued the development and construction of apartment communities, and we intend to do so in the future as appropriate opportunities arise. Development activities have been, and in the future may be, conducted through wholly-owned affiliated companies or through joint ventures with unaffiliated parties. Our development and construction activities are subject to the following risks, among others:

we may be unable to obtain construction financing for development activities on favorable terms, including but not limited to interest rates, term and/or loan to value ratios, or at all, which could cause us to delay or even abandon potential developments;

we may be unable to obtain, or face delays in obtaining, necessary zoning, land-use, building, occupancy and other required governmental or third-party permits and authorizations, which could result in increased development costs, could delay initial occupancy dates for all or a portion of a development community, and could require us to abandon our activities entirely with respect to a project for which we are unable to obtain permits or authorizations;

yields may be less than anticipated as a result of delays in completing projects, costs that exceed budget and/or higher than expected concessions for lease up and lower rents than expected;

we may abandon development opportunities that we have already begun to explore, and we may fail to recover expenses already incurred in connection with exploring such development opportunities;

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we may be unable to complete construction and lease-up of a community on schedule, or incur development or construction costs that exceed our original estimates, and we may be unable to charge rents that would compensate for any increase in such costs;

occupancy rates, rents and concessions at a newly developed community may fluctuate depending on a number of factors, including market and economic conditions, preventing us from meeting our expected return on our investment and our overall profitability goals; and

when we sell to third parties communities or properties that we developed or renovated, we may be subject to warranty or construction defect claims that are uninsured or exceed the limits of our insurance.

Bankruptcy or Defaults of Our Counterparties Could Adversely Affect Our Performance. We have relationships with and, from time to time, we execute transactions with or receive services from many counterparties, such as general contractors engaged in connection with our development activities. As a result, bankruptcies or defaults by these counterparties could result in services not being provided, projects not being completed on time, or on budget, or at all, or volatility in the financial markets and economic weakness could affect the counterparties’ ability to complete transactions with us as intended, both of which could result in disruptions to our operations that may adversely affect our financial condition and results of operations.

Property Ownership Through Partnerships and Joint Ventures May Limit Our Ability to Act Exclusively in Our Interest. We have in the past and may in the future develop and/or acquire properties in partnerships and joint ventures with other persons or entities when we believe circumstances warrant the use of such structures. As of September 30, 2018, we had active joint ventures and partnerships, including our preferred equity investments, with a total equity investment of $767.4 million. We could become engaged in a dispute with one or more of our partners which might affect our ability to operate a jointly-owned property. Moreover, our partners may have business, economic or other objectives that are inconsistent with our objectives, including objectives that relate to the appropriate timing and terms of any sale or refinancing of a property. In some instances, our partners may have competing interests in our markets that could create conflicts of interest. Also, our partners might refuse to make capital contributions when due and we may be responsible to our partners for indemnifiable losses. In general, we and our partners may each have the right to trigger a buy-sell arrangement, which could cause us to sell our interest, or acquire our partners’ interest, at a time when we otherwise would not have initiated such a transaction and may result in the valuation of our interest in the partnership or joint venture (if we are the seller) or of the other partner’s interest in the partnership or joint venture (if we are the buyer) at levels which may not be representative of the valuation that would result from an arm’s length marketing process.

We are also subject to other risks in connection with partnerships or joint ventures, including (i) a deadlock if we and our partner are unable to agree upon certain major and other decisions, (ii) the limitation of our ability to liquidate our position in the partnership or joint venture without the consent of the other partner, and (iii) the requirement to provide guarantees in favor of lenders with respect to the indebtedness of the joint venture.

We May Not be Permitted to Dispose of Certain Properties or Pay Down the Indebtedness Associated with Those Properties When We Might Otherwise Desire to do so Without Incurring Additional Costs. In connection with certain property acquisitions, we have agreed with the sellers that we will not dispose of the acquired properties or reduce the mortgage indebtedness on such properties for significant periods of time unless we pay certain of the resulting tax costs of the sellers or dispose of the property in a transaction in which gain is not recognized for federal income tax purposes by such sellers, and we may enter into similar agreements in connection with future property acquisitions. These agreements could result in us retaining properties that we would otherwise sell or not paying down or refinancing indebtedness that we would otherwise pay down or refinance. However, subject to certain conditions, we retain the right to substitute other property or debt to meet these obligations to the sellers.

We Could Incur Significant Insurance Costs and Some Potential Losses May Not Be Adequately Covered by Insurance. We have a comprehensive insurance program covering our property and operating activities with limits of liability customary within the multifamily industry. We believe the policy specifications and insured limits of these policies are adequate and appropriate. There are, however, certain types of extraordinary losses which may not be adequately covered under our insurance program. In addition, we will sustain losses due to insurance deductibles, self-insured retention, uninsured claims or casualties, or losses in excess of applicable coverage.

If an uninsured loss or a loss in excess of insured limits occurs, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property. In such an event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. Material losses in excess of insurance proceeds may occur in the future. If one or more of our significant properties were to experience a catastrophic loss,

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it could seriously disrupt our operations, delay revenue and result in large expenses to repair or rebuild the property. Such events could adversely affect our financial condition and results of operations.

As a result of our substantial real estate holdings, the cost of insuring our apartment communities is a component of expense. Insurance premiums are subject to significant increases and fluctuations, which are generally outside of our control. We insure our properties with insurance companies that we believe have a good rating at the time our policies are put into effect. The financial condition of one or more insurance companies that we hold policies with may be negatively impacted, which could result in their inability to pay on future insurance claims. Their inability to pay future claims may have a negative impact on our financial results. In addition, the failure of one or more insurance companies may increase the costs to renew or replace our insurance policies or increase the cost of insuring properties.

Failure to Succeed in New Markets May Limit Our Growth. We have acquired in the past, and we may acquire in the future if appropriate opportunities arise, apartment communities that are outside of our existing markets. Entering into new markets may expose us to a variety of risks, and we may not be able to operate successfully in new markets. These risks include, among others:

inability to accurately evaluate local apartment market conditions and local economies;

inability to hire and retain key personnel;

lack of familiarity with local governmental and permitting procedures; and

inability to achieve budgeted financial results.

Potential Liability for Environmental Contamination Could Result in Substantial Costs. Under various federal, state and local environmental laws, as a current or former owner or operator of real estate, we could be required to investigate and remediate the effects of contamination of currently or formerly owned real estate by hazardous or toxic substances, often regardless of our knowledge of or responsibility for the contamination and solely by virtue of our current or former ownership or operation of the real estate. In addition, we could be held liable to a governmental authority or to third parties for property damage and for investigation and clean-up costs incurred in connection with the contamination. These costs could be substantial, and in many cases environmental laws create liens in favor of governmental authorities to secure their payment. The presence of such substances or a failure to properly remediate any resulting contamination could materially and adversely affect our ability to borrow against, sell or rent an affected property.

In addition, our properties are subject to various federal, state and local environmental, health and safety laws, including laws governing the management of wastes and underground and aboveground storage tanks. Noncompliance with these environmental, health and safety laws could subject us to liability. Changes in laws could increase the potential costs of compliance with environmental laws, health and safety laws or increase liability for noncompliance. This may result in significant unanticipated expenditures or may otherwise adversely affect our financial condition and results of operations.

As the owner or operator of real property, we may also incur liability based on various building conditions. For example, buildings and other structures on properties that we currently own or operate or those we acquire or operate in the future contain, may contain, or may have contained, asbestos-containing material, or ACM. Environmental, health and safety laws require that ACM be properly managed and maintained and may impose fines or penalties on owners, operators or employers for non-compliance with those requirements.

These requirements include special precautions, such as removal, abatement or air monitoring, if ACM would be disturbed during maintenance, renovation or demolition of a building, potentially resulting in substantial costs. In addition, we may be subject to liability for personal injury or property damage sustained as a result of exposure to ACM or releases of ACM into the environment.

We cannot assure you that costs or liabilities incurred as a result of environmental issues will not adversely affect our financial condition and results of operations.

Our Properties May Contain or Develop Harmful Mold or Suffer from Other Indoor Air Quality Issues, Which Could Lead to Liability for Adverse Health Effects or Property Damage or Cost for Remediation. When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological

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contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants or to increase ventilation, which could adversely affect our results of operations and cash flow. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants or others if property damage or personal injury occurs.

Compliance or Failure to Comply with the Americans with Disabilities Act of 1990 or Other Safety Regulations and Requirements Could Result in Substantial Costs. The Americans with Disabilities Act generally requires that public buildings, including our properties, be made accessible to disabled persons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants. From time to time, claims may be asserted against us with respect to some of our properties under the Americans with Disabilities Act. If, under the Americans with Disabilities Act, we are required to make substantial alterations and capital expenditures in one or more of our properties, including the removal of access barriers, it could adversely affect our financial condition and results of operations.

Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these requirements, we could incur fines or private damage awards. We do not know whether existing requirements will change or whether compliance with future requirements will require significant unanticipated expenditures that could adversely affect our financial condition or results of operations.

Compliance with or Changes in Real Estate Tax and Other Laws and Regulations Could Adversely Affect Our Funds from Operations and Our Ability to Make Distributions to Stockholders. We are subject to federal, state and local laws, regulations, rules and ordinances at locations where we operate regarding a wide variety of matters that could affect, directly or indirectly, our operations. Generally, we do not directly pass through costs resulting from compliance with or changes in real estate tax laws to residential property tenants. We also do not generally pass through increases in income, service or other taxes to tenants under leases. These costs may adversely affect net operating income and the ability to make distributions to stockholders. Similarly, compliance with or changes in (i) laws increasing the potential liability for environmental conditions existing on properties or the restrictions on discharges or other conditions or (ii) rent control or rent stabilization laws or other laws and regulations regulating housing, such as the Americans with Disabilities Act and the Fair Housing Amendments Act of 1988, may result in significant unanticipated expenditures or unanticipated reductions in revenue, which could adversely affect our financial condition and results of operations.

Risk of Damage from Catastrophic Weather and Natural Events and Potential Climate Change. Our communities are located in areas that may experience catastrophic weather and other natural events from time to time, including mudslides, fires, hurricanes, tornadoes, snow or ice storms, or other severe inclement weather. These adverse weather and natural events could cause damage or losses that may be greater than insured levels. In the event of a loss in excess of insured limits, we could lose our capital invested in the affected community, as well as anticipated future revenue from that community. We would also continue to be obligated to repay any mortgage indebtedness or other obligations related to the community. Any such loss could adversely affect our financial condition and results of operations.

To the extent that we experience any significant changes in the climate in areas where our communities are located, we may experience extreme weather conditions and prolonged changes in precipitation and temperature, all of which could result in physical damage to, and/or a decrease in demand for, our communities located in these areas. Should the impact of such climate change be material in nature, or occur for lengthy periods of time, our financial condition and results of operations could be adversely affected.

Risk of Earthquake Damage. Some of our communities are located in the general vicinity of earthquake faults. We cannot assure you that an earthquake would not cause damage or losses greater than insured levels. In the event of a loss in excess of insured limits, we could lose our capital invested in the affected community, as well as anticipated future revenue from that community. We may also continue to be obligated to repay any mortgage indebtedness or other obligations related to the community. Any such loss could adversely affect our financial condition and results of operations. Insurance coverage for earthquakes can be costly due to limited industry capacity. As a result, we may experience shortages in desired coverage levels if market conditions are such that insurance is not available or the cost of insurance makes it, in management’s view, economically impractical.

Risk of Accidental Death or Injury Due to Fire, Natural Disasters or Other Hazards. The accidental death or injury of persons living in our communities due to fire, natural disasters or other hazards could have an adverse effect on our business and results of operations. Our insurance coverage may not cover all losses associated with such events, and we may experience

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difficulty marketing communities where any such events have occurred, which could have an adverse effect on our financial condition and results of operations.

Actual or Threatened Terrorist Attacks May Have an Adverse Effect on Our Business and Operating Results and Could Decrease the Value of Our Assets. Actual or threatened terrorist attacks and other acts of violence or war could have an adverse effect on our business and operating results. Attacks that directly impact one or more of our apartment communities could significantly affect our ability to operate those communities and thereby impair our ability to achieve our expected results. Further, our insurance coverage may not cover all losses caused by a terrorist attack. In addition, the adverse effects that such violent acts and threats of future attacks could have on the U.S. economy could similarly have an adverse effect on our financial condition and results of operations.

Mezzanine Loan Assets Involve Greater Risks of Loss than Senior Loans Secured by Income-producing Properties. We may originate mezzanine loans, which take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the property. Mezzanine loans may involve a higher degree of risk than a senior mortgage secured by real property, because the security for the loan may lose all or substantially all of its value as a result of foreclosure by the senior lender and because it is in second position and there may not be adequate equity in the property. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some of or all our investment. In addition, mezzanine loans typically have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal.

Risk Related to Preferred Equity Investments. We may make preferred equity investments in corporations, limited partnerships, limited liability companies or other entities that have been formed for the purpose of acquiring, developing or managing real property. Generally, we will not have the ability to control the daily operations of the entity, and we will not have the ability to select or remove a majority of the members of the board of directors, managers, general partner or partners or similar governing body of the entity or otherwise control its operations. Although we would seek to maintain sufficient influence over the entity to achieve our objectives, our partners may have interests that differ from ours and may be in a position to take actions without our consent or that are inconsistent with our interests. Further, if our partners were to fail to invest additional capital in the entity when required, we may have to invest additional capital to protect our investment. Our partners may fail to develop or operate the real property or refinance property indebtedness or sell the real property in the manner intended and as a result the entity may not be able to redeem our investment or pay the return expected to us in a timely manner if at all. In addition, we may not be able to dispose of our investment in the entity in a timely manner or at the price at which we would want to divest. In the event that such an entity fails to meet expectations or becomes insolvent, we may lose our entire investment in the entity.

We May Experience a Decline in the Fair Value of Our Assets and Be Forced to Recognize Impairment Charges, Which Could Adversely Impact Our Financial Condition, Liquidity and Results of Operations and the Market Price of UDR ’ s Common Stock. A decline in the fair value of our assets may require us to recognize an impairment against such assets under generally accepted accounting principles as in effect in the United States (“GAAP”), if we were to determine that, with respect to any assets in unrealized loss positions, we do not have the ability and intent to hold such assets to maturity or for a period of time sufficient to allow for recovery to the amortized cost of such assets. If such a determination were to be made, we would recognize unrealized losses through earnings and write down the amortized cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be impaired. Such impairment charges reflect non-cash losses at the time of recognition; subsequent disposition or sale of such assets could further affect our future losses or gains, as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale. If we are required to recognize asset impairment charges in the future, these charges could adversely affect our financial condition, liquidity, results of operations and the per share trading price of UDR’s common stock.

Any Material Weaknesses Identified in Our Internal Control Over Financial Reporting Could Have an Adverse Effect on UDR ’ s Stock Price. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal control over financial reporting. If we identify one or more material weaknesses in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which in turn could have an adverse effect on the per share trading price of UDR’s common stock.

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A Breach of Information Technology Systems On Which We Rely Could Materially and Adversely Impact Our Business, Financial Condition, Results of Operations and Reputation. We rely on information technology systems, including the Internet and networks and systems maintained and controlled by third party vendors and other third parties, to process, transmit and store information and to manage or support our business processes. Third party vendors collect and hold personally identifiable information and other confidential information of our tenants, prospective tenants and employees. We also maintain confidential financial and business information regarding us and persons and entities with which we do business on our information technology systems. While we take steps, and generally require third party vendors to take steps, to protect the security of the information maintained in our and third party vendors’ information technology systems, including associate training and the use of commercially available systems, software, tools and monitoring to provide security for processing, transmitting and storing of the information, it is possible that our or our third party vendors’ security measures will not be able to prevent the systems’ improper functioning, or the loss, misappropriation, disclosure or corruption of personally identifiable information or other confidential or sensitive information, including information about our tenants and employees. Cybersecurity breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized access to information maintained on our information technology systems or the information technology systems of our third party vendors or other third parties. While we maintain cyber risk insurance to provide some coverage for certain risks arising out of cybersecurity breaches, there is no assurance that such insurance would cover all or a significant portion of the costs or consequences associated with a cybersecurity breach. As the techniques used to obtain unauthorized access to information technology systems become more varied and sophisticated and the occurrence of such breaches becomes more frequent, we and our third party vendors and other third parties may be unable to adequately anticipate these techniques or breaches and implement appropriate preventative measures. Any failure to prevent cybersecurity breaches and maintain the proper function, security and availability of our or our third party vendors’ and other third parties’ information technology systems could interrupt our operations, damage our reputation and brand, damage our competitive position, make it difficult for us to attract and retain tenants, subject us to liability claims or regulatory penalties and could adversely affect our business, financial condition and results of operations.

Our Business and Operations Would Suffer in the Event of Information Technology System Failures. Despite system redundancy and the existence of a disaster recovery plan for our information technology systems, our information technology systems and the information technology systems maintained by our third party vendors are vulnerable to damage arising from any number of sources beyond our or our third party vendors’ control, including energy blackouts, natural disasters, terrorism, war, and telecommunication failures. Any failure to maintain proper function and availability of our or third party vendors’ information technology systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could adversely affect our business, financial condition and results of operations.

Social Media Presents Risks. The use of social media could cause us to suffer brand damage or unintended information disclosure. Negative posts or communications about us on a social networking website could damage our reputation. Further, employees or others may disclose non-public information regarding us or our business or otherwise make negative comments regarding us on social networking or other websites, which could adversely affect our business and results of operations. As social media evolves we will be presented with new risks and challenges.

Our Success Depends on Our Senior Management. Our success depends upon the retention of our senior management, whose continued service is not guaranteed. We may not be able to find qualified replacements for the individuals who make up our senior management if their services should no longer be available to us. The loss of services of one or more members of our senior management team could have a material adverse effect on our business, financial condition and results of operations.

Changes in U.S. Accounting Standards May Materially and Adversely Affect Our Reported Results of Operations. Accounting for public companies in the United States is in accordance with GAAP, which is established by the Financial Accounting Standards Board (the “FASB”), an independent body whose standards are recognized by the SEC as authoritative for publicly held companies. Uncertainties posed by various initiatives of accounting standard-setting by the FASB and the SEC, which create and interpret applicable accounting standards for U.S. companies, may change the financial accounting and reporting standards or their interpretation and application of these standards that govern the preparation of our financial statements. These changes could have a material impact on our reported financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in potentially material restatements of prior period financial statements.

Risks Related to Our Indebtedness and Financings

Insufficient Cash Flow Could Affect Our Debt Financing and Create Refinancing Risk. We are subject to the risks normally associated with debt financing, including the risk that our operating income and cash flow will be insufficient to make

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required payments of principal and interest, or could restrict our borrowing capacity under our line of credit due to debt covenant restraints. Sufficient cash flow may not be available to make all required principal payments and still satisfy UDR’s distribution requirements to maintain its status as a REIT for federal income tax purposes. In addition, the amounts under our line of credit may not be available to us and we may not be able to access the commercial paper market if our operating performance falls outside the constraints of our debt covenants. We are also likely to need to refinance substantially all of our outstanding debt as it matures. We may not be able to refinance existing debt, or the terms of any refinancing may not be as favorable as the terms of the existing debt, which could create pressures to sell assets or to issue additional equity when we would otherwise not choose to do so. In addition, our failure to comply with our debt covenants could result in a requirement to repay our indebtedness prior to its maturity, which could have a material adverse effect on our financial condition and cash flow, and increase our financing costs and impact our ability to make distributions to UDR’s stockholders.

Failure to Generate Sufficient Revenue Could Impair Debt Service Payments and Distributions to Stockholders. If our apartment communities do not generate sufficient revenue to meet rental expenses, our ability to make required payments of interest and principal on our debt securities and to pay distributions to UDR’s stockholders or the Operating Partnership’s or the DownREIT Partnership’s unitholders will be adversely affected. The following factors, among others, may affect the revenue generated by our apartment communities:

the national and local economies;

local real estate market conditions, such as an oversupply of apartment homes;

tenants’ perceptions of the safety, convenience, and attractiveness of our communities and the neighborhoods where they are located;

our ability to provide adequate management, maintenance and insurance;

rental expenses, including real estate taxes and utilities;

competition from other apartment communities;

changes in interest rates and the availability of financing;

changes in governmental regulations and the related costs of compliance; and

changes in tax and housing laws, including the enactment of rent control laws or other laws regulating multifamily housing.

Expenses associated with our investment in an apartment community, such as debt service, real estate taxes, insurance and maintenance costs, are generally not reduced when circumstances cause a reduction in revenue from that community. If a community is mortgaged to secure payment of debt and we are unable to make the mortgage payments, we could sustain a loss as a result of foreclosure on the community or the exercise of other remedies by the mortgage holder.

Changing Interest Rates Could Increase Interest Costs and Adversely Affect Our Cash Flow and the Market Price of Our Securities. We currently have, and expect to incur in the future, interest-bearing debt, including unsecured commercial paper, at rates that vary with market interest rates. As of September 30, 2018, UDR had approximately $595.7 million of variable rate indebtedness outstanding, which constitutes approximately 15.6% of total outstanding indebtedness as of such date. As of September 30, 2018, the Operating Partnership had approximately $27.0 million of variable rate indebtedness outstanding, which constitutes approximately 16.9% of total outstanding indebtedness to third parties as of such date. An increase in interest rates would increase our interest expenses and increase the costs of refinancing existing indebtedness and of issuing new debt, including unsecured commercial paper. Accordingly, higher interest rates could adversely affect cash flow and our ability to service our debt and to make distributions to security holders. The effect of prolonged interest rate increases could negatively impact our ability to make acquisitions and develop properties.

Our Debt Level May Be Increased. Our ability to incur debt is limited by covenants in our bank and other credit agreements. We manage our debt to be in compliance with these debt covenants, but subject to compliance with these covenants, we may increase the amount of our debt at any time without a concurrent improvement in our ability to service the additional debt.

Financing May Not Be Available and Could Be Dilutive. Our ability to execute our business strategy depends on our access to an appropriate blend of debt financing, including unsecured lines of credit, construction loans and other forms of secured debt, commercial paper and other forms of unsecured debt, and equity financing, including common and preferred

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equity. We and other companies in the real estate industry have experienced limited availability of financing from time to time, including due to regulatory changes directly or indirectly affecting financing markets, for example the changes in terms on construction loans brought about by the Basel III capital requirements and the associated “High Volatility Commercial Real Estate” designation, which has adversely impacted the availability of loans, including construction loans, and the proceeds of and the interest rate thereon. Restricted lending practices could impact our ability to obtain financing or refinancing for our properties. If we issue additional equity securities to finance developments and acquisitions instead of incurring debt, the interests of UDR’s existing stockholders could be diluted.

Failure To Maintain Our Current Credit Ratings Could Adversely Affect Our Cost of Funds, Related Margins, Liquidity, and Access to Capital Markets. Moody’s and Standard & Poor’s routinely evaluate our debt and have given us ratings on our senior unsecured debt, commercial paper program and preferred stock. These ratings are based on a number of factors, which included their assessment of our financial strength, liquidity, capital structure, asset quality, and sustainability of cash flow and earnings. Due to changes in these factors and market conditions, we may not be able to maintain our current credit ratings, which could adversely affect our cost of funds and related margins, liquidity, and access to capital markets, including our ability to access the commercial paper market.

Disruptions in Financial Markets May Adversely Impact Availability and Cost of Credit and Have Other Adverse Effects on Us and the Market Price of UDR ’ s Stock. Our ability to make scheduled payments on, or to refinance, our debt obligations will depend on our operating and financial performance, which in turn is subject to prevailing economic conditions and to financial, business and other factors beyond our control. During the global financial crisis and the economic recession that followed it, the United States stock and credit markets experienced significant price volatility, dislocations and liquidity disruptions, which caused market prices of many stocks to fluctuate substantially and the spreads on debt financings to widen considerably. Those circumstances materially impacted liquidity in the financial markets at times, making terms for certain financings less attractive, and in some cases resulted in the unavailability of financing, such as the commercial paper market. Any future disruptions or uncertainty in the stock and credit markets may negatively impact our ability to refinance existing indebtedness and access additional financing for acquisitions, development of our properties and other purposes at reasonable terms or at all, which may negatively affect our business and the market price of UDR’s common stock. If we are not successful in refinancing our existing indebtedness when it becomes due, we may be forced to dispose of properties on disadvantageous terms, which might adversely affect our ability to service other debt and to meet our other obligations. A prolonged downturn in the financial markets may cause us to seek alternative sources of potentially less attractive financing, and may require us to adjust our business plan accordingly. These events also may make it more difficult or costly for us to raise capital through the issuance of UDR’s common or preferred stock.

A Change in U.S. Government Policy or Support Regarding Fannie Mae or Freddie Mac Could Have a Material Adverse Impact on Our Business. While in recent years we have decreased our borrowing from Fannie Mae and Freddie Mac, Fannie Mae and Freddie Mac are a major source of financing to participants in the multifamily housing market including potential purchasers of our properties. Potential options for the future of agency mortgage financing in the U.S. have been suggested, including options that could involve a reduction in the amount of financing Fannie Mae and Freddie Mac are able to provide, limitations on the loans that the agencies may make, which may not include loans secured by properties like our properties, or the phase out of Fannie Mae and Freddie Mac. While we believe Fannie Mae and Freddie Mac will continue to provide liquidity to our sector, should they discontinue doing so, have their mandates changed or reduced or be disbanded or reorganized by the government, or if there is reduced government support for multifamily housing generally, it may adversely affect interest rates, capital availability, development of multifamily communities and the value of multifamily residential real estate and, as a result, may adversely affect our business and results of operations.

The Soundness of Financial Institutions Could Adversely Affect Us. We have relationships with many financial institutions, including lenders under our credit facilities, and, from time to time, we execute transactions with counterparties in the financial services industry. As a result, defaults by, or even rumors or questions about, financial institutions or the financial services industry generally, could result in losses or defaults by these institutions. In the event that the volatility of the financial markets adversely affects these financial institutions or counterparties, we or other parties to the transactions with us may be unable to complete transactions as intended, which could adversely affect our results of operations.

Interest Rate Hedging Contracts May Be Ineffective and May Result in Material Charges. From time to time when we anticipate issuing debt securities, we may seek to limit our exposure to fluctuations in interest rates during the period prior to the pricing of the securities by entering into interest rate hedging contracts. We may do this to increase the predictability of our financing costs. Also, from time to time we may rely on interest rate hedging contracts to limit our exposure under variable rate debt to unfavorable changes in market interest rates. If the terms of new debt securities are not within the parameters of, or market interest rates fall below that which we incur under a particular interest rate hedging contract, the contract is ineffective.

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Furthermore, the settlement of interest rate hedging contracts has involved and may in the future involve material charges. In addition, our use of interest rate hedging arrangements may expose us to additional risks, including a risk that a counterparty to a hedging arrangement may fail to honor its obligations. Developing an effective interest rate risk strategy is complex and no strategy can completely insulate us from risks associated with interest rate fluctuations. There can be no assurance that our hedging activities will have the desired beneficial impact on our results of operations or financial condition. Termination of these hedging agreements typically involves costs, such as transaction fees or breakage costs.

Risks Related to Tax Laws

We Would Incur Adverse Tax Consequences if UDR Failed to Qualify as a REIT. UDR has elected to be taxed as a REIT under the Code. Our qualification as a REIT requires us to satisfy numerous requirements, some on an annual and quarterly basis, established under highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations, and involves the determination of various factual matters and circumstances not entirely within our control. We intend that our current organization and method of operation enable us to continue to qualify as a REIT, but we may not so qualify or we may not be able to remain so qualified in the future. In addition, U.S. federal income tax laws governing REITs and other corporations and the administrative interpretations of those laws may be amended at any time, potentially with retroactive effect. Future legislation, new regulations, administrative interpretations or court decisions could adversely affect our ability to qualify as a REIT or adversely affect UDR’s stockholders.

If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax (including, for periods prior to 2018, any applicable alternative minimum tax) on our taxable income at regular corporate rates, and would not be allowed to deduct dividends paid to UDR’s stockholders in computing our taxable income. Also, unless the Internal Revenue Service granted us relief under certain statutory provisions, we could not re-elect REIT status until the fifth calendar year after the year in which we first failed to qualify as a REIT. The additional tax liability from the failure to qualify as a REIT would reduce or eliminate the amount of cash available for investment or distribution to UDR’s stockholders. This would likely have a significant adverse effect on the value of our securities and our ability to raise additional capital. In addition, we would no longer be required to make distributions to UDR’s stockholders. Even if we continue to qualify as a REIT, we will continue to be subject to certain federal, state and local taxes on our income and property.

Certain of our subsidiaries have also elected to be taxed as REITs under the Code, and are therefore subject to the same risks in the event that any such subsidiary fails to qualify as a REIT in any taxable year.

Dividends Paid By REITs Generally Do Not Qualify for Reduced Tax Rates. In general, the maximum U.S. federal income tax rate for dividends paid to individual U.S. stockholders is 20%. Unlike dividends received from a corporation that is not a REIT, our regular dividends (i.e., dividends other than capital gain dividends) to individual stockholders generally are not eligible for the reduced rates. However, under the Tax Cuts and Jobs Act of 2017, our individual U.S. stockholders generally may deduct 20% of such regular dividends under Section 199A of the Code, reducing the effective tax rate applicable to such dividends (although such provision will expire after 2025 absent future legislation).

UDR May Conduct a Portion of Our Business Through Taxable REIT Subsidiaries, Which are Subject to Certain Tax Risks. We have established taxable REIT subsidiaries. Despite UDR’s qualification as a REIT, its taxable REIT subsidiaries must pay income tax on their taxable income. In addition, we must comply with various tests to continue to qualify as a REIT for federal income tax purposes, and our income from and investments in our taxable REIT subsidiaries generally do not constitute permissible income and investments for certain of these tests. While we will attempt to ensure that our dealings with our taxable REIT subsidiaries will not adversely affect our REIT qualification, we cannot provide assurance that we will successfully achieve that result. Furthermore, we may be subject to a 100% penalty tax, we may jeopardize our ability to retain future gains on real property sales, or our taxable REIT subsidiaries may be denied deductions, to the extent our dealings with our taxable REIT subsidiaries are not deemed to be arm’s length in nature or are otherwise not respected.

REIT Distribution Requirements Limit Our Available Cash. As a REIT, UDR is subject to annual distribution requirements, which limit the amount of cash we retain for other business purposes, including amounts to fund our growth. We generally must distribute annually at least 90% of our net REIT taxable income, excluding any net capital gain, in order for our distributed earnings not to be subject to corporate income tax. We intend to make distributions to UDR’s stockholders to comply with the requirements of the Code. However, differences in timing between the recognition of taxable income and the actual receipt of cash could require us to sell assets or borrow funds on a short-term or long-term basis to meet the 90% distribution requirement of the Code.

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Certain Property Transfers May Generate Prohibited Transaction Income, Resulting in a Penalty Tax on Gain Attributable to the Transaction. From time to time, we may transfer or otherwise dispose of some of our properties. Under the Code, any gain resulting from transfers of properties that we hold as inventory or primarily for sale to customers in the ordinary course of business would be treated as income from a prohibited transaction and subject to a 100% penalty tax. Since we acquire properties for investment purposes, we do not believe that our occasional transfers or disposals of property are prohibited transactions. However, whether property is held for investment purposes is a question of fact that depends on all the facts and circumstances surrounding the particular transaction. The Internal Revenue Service may contend that certain transfers or disposals of properties by us are prohibited transactions. If the Internal Revenue Service were to argue successfully that a transfer or disposition of property constituted a prohibited transaction, then we would be required to pay a 100% penalty tax on any gain allocable to us from the prohibited transaction and we may jeopardize our ability to retain future gains on real property sales. In addition, income from a prohibited transaction might adversely affect UDR’s ability to satisfy the income tests for qualification as a REIT for federal income tax purposes.

Changes to the U.S. Federal Income Tax Laws, including the Enactment of Certain Tax Reform Measures, Could Have an Adverse Impact on Our Business and Financial Results. The recently passed Tax Cuts and Jobs Act of 2017 significantly changed the U.S. federal income taxation of U.S. businesses and their owners, including REITs and their stockholders. The impact of the Act on us and our stockholders is uncertain, and may not become evident for some period of time. For example, the Act contained provisions that may reduce the relative competitive advantage of operating as a REIT, including the lowering of income tax rates on individuals and corporations, which eases the burden of double taxation on corporate dividends and potentially causes the single level of taxation on REIT distributions to become relatively less attractive. The Act also contains provisions allowing the expensing of capital expenditures, which could result in the bunching of taxable income and required distributions for REITs, and provisions extending the depreciable lives of certain real estate assets and further limiting the deductibility of interest expense, which could negatively impact the real estate market. In addition, although the Tax Cuts and Jobs Act of 2017 was recently passed, there can be no assurance that future changes to the U.S. federal income tax laws or regulatory changes will not be proposed or enacted that could impact our business and financial results. The REIT rules are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Treasury Department, which may result in revisions to regulations and interpretations in addition to statutory changes. If enacted, certain of such changes could have an adverse impact on our business and financial results.

We cannot predict whether, when or to what extent the Tax Cuts and Jobs Act of 2017 and any new U.S. federal tax laws, regulations, interpretations or rulings will impact the real estate investment industry or REITs. Prospective investors are urged to consult their tax advisors regarding the effect of the Tax Cuts and Jobs Act of 2017 and potential future changes to the federal tax laws on an investment in our shares.

We May Be Adversely Affected by Changes in State and Local Tax Laws and May Become Subject to Tax Audits from Time to Time. Because UDR is organized and qualifies as a REIT, it is generally not subject to federal income taxes, but it is subject to certain state and local taxes. From time to time, changes in state and local tax laws or regulations are enacted, which may result in an increase in our tax liability. A shortfall in tax revenues for states and local jurisdictions in which we own apartment communities may lead to an increase in the frequency and size of such changes. If such changes occur, we may be required to pay additional state and local taxes. These increased tax costs could adversely affect our financial condition and the amount of cash available for the payment of distributions to UDR’s stockholders. In the normal course of business, we or our affiliates (including entities through which we own real estate) may also become subject to federal, state or local tax audits. If we (or such entities) become subject to federal, state or local tax audits, the ultimate result of such audits could have an adverse effect on our financial condition and results of operations.

The Operating Partnership and the DownREIT Partnership Intend to Qualify as Partnerships, But Cannot Guarantee That They Will Qualify. The Operating Partnership and the DownREIT Partnership intend to qualify as partnerships for federal income tax purposes, and intend to take that position for all income tax reporting purposes. If classified as partnerships, the Operating Partnership and the DownREIT Partnership generally will not be taxable entities and will not incur federal income tax liability. However, the Operating Partnership and the DownREIT Partnership would be treated as corporations for federal income tax purposes if they were “publicly traded partnerships,” unless at least 90% of their income was qualifying income as defined in the Code. A “publicly traded partnership” is a partnership whose partnership interests are traded on an established securities market or are readily tradable on a secondary market (or the substantial equivalent thereof). Although neither the Operating Partnership’s nor the DownREIT Partnership’s partnership units are traded on an established securities market, because of the redemption rights of their limited partners, the Operating Partnership’s and DownREIT Partnership’s units held by limited partners could be viewed as readily tradable on a secondary market (or the substantial equivalent thereof), and the Operating Partnership and the DownREIT Partnership may not qualify for one of the “safe harbors” under the applicable tax regulations. Qualifying income for the 90% test generally includes passive income, such as real property rents, dividends and

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interest. The income requirements applicable to REITs and the definition of qualifying income for purposes of this 90% test are similar in most respects. The Operating Partnership and the DownREIT Partnership may not meet this qualifying income test. If either the Operating Partnership or the DownREIT Partnership were to be taxed as a corporation, it would incur substantial tax liabilities, and UDR would then fail to qualify as a REIT for tax purposes, unless it qualified for relief under certain statutory savings provisions, and our ability to raise additional capital would be impaired.

Qualifying as a REIT Involves Highly Technical and Complex Provisions of the Code. Our qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification. Moreover, new legislation, court decisions or administrative guidance, in each case possibly with retroactive effect, may make it more difficult or impossible for us to qualify as a REIT. Our qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, shareholder ownership and other requirements on a continuing basis. Our ability to satisfy the REIT income and asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination and for which we will not obtain independent appraisals, and upon our ability to successfully manage the composition of our income and assets on an ongoing basis. In addition, our ability to satisfy the requirements to qualify as a REIT depends in part on the actions of third parties over which we have no control or only limited influence, including in cases where we own an equity interest in an entity that is classified as a partnership for U.S. federal income tax purposes.

Risks Related to Our Organization and Ownership of UDR’s Stock

Changes in Market Conditions and Volatility of Stock Prices Could Adversely Affect the Market Price of UDR ’ s Common Stock. The stock markets, including the New York Stock Exchange (“NYSE”), on which we list UDR’s common stock, have experienced significant price and volume fluctuations. As a result, the market price of UDR’s common stock could be similarly volatile, and investors in UDR’s common stock may experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects. In addition to the risks listed in this “Risk Factors” section, a number of factors could negatively affect the price per share of UDR’s common stock, including:

general market and economic conditions;

actual or anticipated variations in UDR’s quarterly operating results or dividends or UDR’s payment of dividends in shares of UDR’s stock;

changes in our funds from operations or earnings estimates;

difficulties or inability to access capital or extend or refinance existing debt;

decreasing (or uncertainty in) real estate valuations;

changes in market valuations of similar companies;

publication of research reports about us or the real estate industry;

the general reputation of real estate investment trusts and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate companies);

general stock and bond market conditions, including changes in interest rates on fixed income securities, that may lead prospective purchasers of UDR’s stock to demand a higher annual yield from future dividends;

a change in analyst ratings;

additions or departures of key management personnel;

adverse market reaction to any additional debt we incur in the future;

speculation in the press or investment community;

terrorist activity which may adversely affect the markets in which UDR’s securities trade, possibly increasing market volatility and causing the further erosion of business and consumer confidence and spending;

failure to qualify as a REIT;

strategic decisions by us or by our competitors, such as acquisitions, divestments, spin-offs, joint ventures, strategic investments or changes in business strategy;

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failure to satisfy listing requirements of the NYSE;

governmental regulatory action and changes in tax laws; and

the issuance of additional shares of UDR’s common stock, or the perception that such sales might occur, including under UDR’s at-the-market equity distribution program.

Many of the factors listed above are beyond our control. These factors may cause the market price of shares of UDR’s common stock to decline, regardless of our financial condition, results of operations, business or our prospects.

We May Change the Dividend Policy for UDR ’ s Common Stock in the Future. The decision to declare and pay dividends on UDR’s common stock, as well as the timing, amount and composition of any such future dividends, will be at the sole discretion of our board of directors and will depend on our earnings, funds from operations, liquidity, financial condition, capital requirements, contractual prohibitions or other limitations under our indebtedness, the annual distribution requirements under the REIT provisions of the Code, state law and such other factors as our board of directors considers relevant. Any change in our dividend policy could have an adverse effect on the market price of UDR’s common stock.

Maryland Law May Limit the Ability of a Third Party to Acquire Control of Us, Which May Not be in UDR ’ s Stockholders ’ Best Interests. Maryland business statutes may limit the ability of a third party to acquire control of us. As a Maryland corporation, we are subject to various Maryland laws which may have the effect of discouraging offers to acquire our Company and of increasing the difficulty of consummating any such offers, even if our acquisition would be in UDR’s stockholders’ best interests. The Maryland General Corporation Law restricts mergers and other business combination transactions between us and any person who acquires beneficial ownership of shares of UDR’s stock representing 10% or more of the voting power without our board of directors’ prior approval. Any such business combination transaction could not be completed until five years after the person acquired such voting power, and generally only with the approval of stockholders representing 80% of all votes entitled to be cast and 66 2/3 % of the votes entitled to be cast, excluding the interested stockholder, or upon payment of a fair price. Maryland law also provides generally that a person who acquires shares of our equity stock that represents 10% (and certain higher levels) of the voting power in electing directors will have no voting rights unless approved by a vote of two-thirds of the shares eligible to vote.

Limitations on Share Ownership and Limitations on the Ability of UDR ’ s Stockholders to Effect a Change in Control of Our Company Restricts the Transferability of UDR ’ s Stock and May Prevent Takeovers That are Beneficial to UDR ’ s Stockholders. One of the requirements for maintenance of our qualification as a REIT for U.S. federal income tax purposes is that no more than 50% in value of our outstanding capital stock may be owned by five or fewer individuals, including entities specified in the Code, during the last half of any taxable year. Our charter contains ownership and transfer restrictions relating to UDR’s stock primarily to assist us in complying with this and other REIT ownership requirements; however, the restrictions may have the effect of preventing a change of control, which does not threaten REIT status. These restrictions include a provision that generally limits ownership by any person of more than 9.9% of the value of our outstanding equity stock, unless our board of directors exempts the person from such ownership limitation, provided that any such exemption shall not allow the person to exceed 13% of the value of our outstanding equity stock. Absent such an exemption from our board of directors, the transfer of UDR’s stock to any person in excess of the applicable ownership limit, or any transfer of shares of such stock in violation of the ownership requirements of the Code for REITs, will be considered null and void, and the intended transferee of such stock will acquire no rights in such shares. These provisions of our charter may have the effect of delaying, deferring or preventing someone from taking control of us, even though a change of control might involve a premium price for UDR’s stockholders or might otherwise be in UDR’s stockholders’ best interests.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

From time to time the Company issues shares of the Company’s common stock in exchange for operating partnership units (“OP Units”) tendered to the Operating Partnership for redemption in accordance with the provisions of the Operating Partnership’s limited partnership agreement. The holders of OP Units have the right to require the Operating Partnership to redeem all or a portion of their OP Units in exchange for a cash payment based on the market value of our common stock at the time of redemption. However, the Operating Partnership’s obligation to pay the cash amount is subject to the prior right of the Company to acquire such OP Units in exchange for either the cash amount or the number of shares of the Company’s common stock equal to the number of OP Units being redeemed.

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During the three months ended September 30, 2018, we did not issue any shares of our common stock upon redemption of OP Units.

Repurchase of Equity Securities

In February 2006, UDR’s Board of Directors authorized a 10 million share repurchase program. In January 2008, our Board of Directors authorized a new 15 million share repurchase program. Under the two share repurchase programs, UDR may repurchase shares of our common stock in open market purchases, block purchases, privately negotiated transactions or otherwise. The following table summarizes all of UDR’s repurchases of shares of common stock under these programs during the three months ended September 30, 2018:


				Total Number	Maximum
				of Shares	Number of
				Purchased as	Shares that
	Total			Part of	May Yet Be
	Number of	Average		Publicly	Purchased
	Shares	Price Paid		Announced Plans	Under the Plans
Period	Purchased	per Share		or Programs	or Programs (a)
Beginning Balance	10,560,863	$	22.66	10,560,863	14,439,137
July 1, 2018 through July 31, 2018	—		—	—	14,439,137
August 1, 2018 through August 31, 2018	—		—	—	14,439,137
September 1, 2018 through September 30, 2018	—		—	—	14,439,137
Balance as of September 30, 2018	10,560,863	$	22.66	10,560,863	14,439,137

(a)

This number reflects the amount of shares that were available for purchase under our 10 million share repurchase program authorized in February 2006 and our 15 million share repurchase program authorized in January 2008.

During the three months ended September 30, 2018, certain of our employees surrendered shares of common stock owned by them to satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted shares of common stock and the exercise of stock options issued under our 1999 Long-Term Incentive Plan (the “LTIP”). The following table summarizes all of these repurchases during the three months ended September 30, 2018:


				Total Number	Maximum
				of Shares	Number of
				Purchased as	Shares that
	Total			Part of	May Yet Be
	Number of	Average		Publicly	Purchased
	Shares	Price Paid		Announced Plans	Under the Plans
Period	Purchased	per Share(a)		or Programs	or Programs
July 1, 2018 through July 31, 2018	268,009	$	38.48	N/A	N/A
August 1, 2018 through August 31, 2018	184,236		39.95	N/A	N/A
September 1, 2018 through September 30, 2018	88,098		40.80	N/A	N/A
Total	540,343	$	39.36

(a)

The price paid per share is based on the closing price of our common stock as of the date of the determination of the statutory minimum for federal and state tax obligations.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

Item 5. OTHER INFORMATION

On October 29, 2018, the Company, as general partner of the Operating Partnership, entered into the Tenth Amendment (the “Tenth Amendment”) to the Amended and Restated Agreement of Limited Partnership of the Operating Partnership (the “Partnership Agreement”). The Tenth Amendment modifies Exhibit H of the Partnership Agreement to generally exclude the effect of depreciation and amortization on the value of the Operating Partnership’s assets for purposes of

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allocating certain gains and losses to the holders of LTIP Units (as defined in the Partnership Agreement) and to provide for automatic conversion of LTIP Units to Common Units (as defined in the Partnership Agreement) at certain times provided that the holder of such LTIP Units has the option of requiring such conversion pursuant to the Partnership Agreement.

Item 6. EXHIBITS


Exhibit No.		Description
3.1		Articles of Restatement of UDR, Inc. (incorporated by reference to Exhibit 3.09 to UDR, Inc.’s Current Report on Form 8‑K dated July 27, 2005 and filed with the SEC on August 1, 2005).

3.2		Articles of Amendment to the Articles of Restatement of UDR, Inc. dated and filed with the State Department of Assessments and Taxation of the State of Maryland on March 14, 2007 (incorporated by reference to Exhibit 3.2 to UDR, Inc.’s Current Report on Form 8‑K dated March 14, 2007 and filed with the SEC on March 15, 2007).

3.3		Articles of Amendment to the Articles of Restatement of UDR, Inc. dated August 30, 2011 and filed with the State Department of Assessments and Taxation of the State of Maryland on August 31, 2011 (incorporated by reference to Exhibit 3.1 to UDR, Inc.’s Current Report on Form 8‑K dated August 29, 2011 and filed with the SEC on September 1, 2011).

3.4		Articles of Amendment to the Articles of Restatement of UDR, Inc. dated and filed with the State Department of Assessments and Taxation of the State of Maryland on May 24, 2018 (incorporated by reference to Exhibit 3.1 to UDR, Inc.’s Current Report on Form 8-K dated May 24, 2018 and filed with the SEC on May 29, 2018).

3.5		Articles Supplementary relating to UDR, Inc.’s 6.75% Series G Cumulative Redeemable Preferred Stock dated and filed with the State Department of Assessments and Taxation of the State of Maryland on May 30, 2007 (incorporated by reference to Exhibit 3.4 to UDR, Inc.’s Form 8‑A Registration Statement dated and filed with the SEC on May 30, 2007).

3.6		Amended and Restated Bylaws of UDR, Inc. (as amended through May 24, 2018).

3.7		Certificate of Limited Partnership of United Dominion Realty, L.P. dated as of February 19, 2004 (incorporated by reference to Exhibit 3.4 to United Dominion Realty, L.P.’s Post-Effective Amendment No. 1 to Registration Statement on Form S‑3 dated and filed with the SEC on October 15, 2010).

3.8		Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of February 23, 2004 (incorporated by reference to Exhibit 10.23 to UDR, Inc.’s Annual Report on Form 10‑K for the year ended December 31, 2003).

3.9		First Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of June 24, 2005 (incorporated by reference to Exhibit 10.06 to UDR, Inc.’s Quarterly Report on Form 10‑Q for the quarter ended June 30, 2005).

3.10		Second Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of February 23, 2006 (incorporated by reference to Exhibit 10.6 to UDR, Inc.’s Quarterly Report on Form 10‑Q for the quarter ended March 31, 2006).

3.11		Third Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of February 2, 2007 (incorporated by reference to Exhibit 99.1 to UDR, Inc.’s Quarterly Report on Form 10‑Q for the quarter ended September 30, 2009).

3.12		Fourth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of December 27, 2007 (incorporated by reference to Exhibit 10.25 to UDR, Inc.’s Annual Report on Form 10‑K for the year ended December 31, 2007).

3.13		Fifth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of March 7, 2008 (incorporated by reference to Exhibit 10.53 to UDR, Inc.’s Annual Report on Form 10‑K for the year ended December 31, 2008).

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Exhibit No.		Description
3.14		Sixth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of December 9, 2008 (incorporated by reference to Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8‑K dated December 9, 2008 and filed with the Commission on December 10, 2008).
3.15		Seventh Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of March 13, 2009 (incorporated by reference to Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8‑K dated March 18, 2009 and filed with the SEC on March 19, 2009).

3.16		Eighth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of November 17, 2010 (incorporated by reference to Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8‑K dated and filed with the SEC on November 18, 2010).

3.17		Ninth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of December 4, 2015 (incorporated by reference to Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8‑K dated December 4, 2015 and filed with the SEC on December 10, 2015).

3.18		Tenth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P. dated as of October 29, 2018.

10.1		First Amended and Restated Credit Agreement, dated as of September 27, 2018, by and among UDR, Inc., as borrower, and the lenders and agents party thereto (incorporated by reference to Exhibit 10.1 to UDR, Inc.’s Current Report on Form 8‑K dated September 27, 2018 and filed with the SEC on October 1, 2018).

10.2		Guaranty of United Dominion Realty, dated as of September 27, 2018, with respect to the Credit Agreement, dated as of September 27, 2018 (incorporated by reference to Exhibit 10.2 to UDR, Inc.’s Current Report on Form 8‑K dated September 27, 2018 and filed with the SEC on October 1, 2018).

12.1		Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends of UDR, Inc.

12.2		Computation of Ratio of Earnings to Fixed Charges of United Dominion Realty, L.P.

31.1		Rule 13a‑14(a) Certification of the Chief Executive Officer of UDR, Inc.

31.2		Rule 13a‑14(a) Certification of the Chief Financial Officer of UDR, Inc.

31.3		Rule 13a‑14(a) Certification of the Chief Executive Officer of UDR, Inc., general partner of United Dominion Realty, L.P.

31.4		Rule 13a‑14(a) Certification of the Chief Financial Officer of UDR, Inc., general partner of United Dominion Realty, L.P.

32.1		Section 1350 Certification of the Chief Executive Officer of UDR, Inc.

32.2		Section 1350 Certification of the Chief Financial Officer of UDR, Inc.

32.3		Section 1350 Certification of the Chief Executive Officer of UDR, Inc., general partner of United Dominion Realty, L.P.

32.4		Section 1350 Certification of the Chief Financial Officer of UDR, Inc., general partner of United Dominion Realty, L.P.

101		XBRL (Extensible Business Reporting Language). The following materials from this Quarterly Report on Form 10‑Q for the periods ended September 30, 2018, formatted in XBRL: (i) consolidated balance sheets of UDR, Inc., (ii) consolidated statements of operations of UDR, Inc., (iii) consolidated statements of comprehensive income/(loss) of UDR, Inc., (iv) consolidated statements of changes in equity of UDR, Inc., (v) consolidated statements of cash flows of UDR, Inc., (vi) notes to consolidated financial statements of UDR, Inc., (vii) consolidated balance sheets of United Dominion Realty, L.P., (viii) consolidated statements of operations of United Dominion Realty, L.P., (ix) consolidated statements of comprehensive income/(loss) of United Dominion Realty, L.P., (x) consolidated statements of changes in capital of United Dominion Realty, L.P., (xi) consolidated statements of cash flows of United Dominion Realty, L.P., and (xii) notes to consolidated financial statements of United Dominion Realty, L.P.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each of the registrants has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


		UDR, Inc.
Date:	October 30, 2018	/s/ Joseph D. Fisher
		Joseph D. Fisher
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)

		United Dominion Realty, L.P.
		By: UDR, Inc., its general partner
Date:	October 30, 2018	/s/ Joseph D. Fisher
		Joseph D. Fisher
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)

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Exhibit 3.18

TENTH AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF UNITED DOMINION REALTY, L.P.

This Tenth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of October 29, 2018 (this “Amendment”), is being executed by UDR, Inc., a Maryland corporation (the “General Partner”), as the general partner of United Dominion Realty, L.P., a Delaware limited partnership (the “Partnership”), pursuant to the authority conferred upon the General Partner by Section 11.01 of the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of February 23, 2004, as amended by the First Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of June 24, 2005, the Second Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of February 23, 2006, the Third Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of January 2, 2007, the Fourth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of December 27, 2007, the Fifth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of March 7, 2008, the Sixth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of December 9, 2008, the Seventh Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of March 13, 2009, the Eighth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of November 17, 2010 and the Ninth Amendment to the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., dated as of December 4, 2015 (as amended, the “Agreement”). Capitalized terms used, but not otherwise defined herein, shall have the respective meanings ascribed thereto in the Agreement.

WHEREAS, the General Partner desires to amend certain terms of the classes of Partnership Interests designated as LTIP Units, Class 1 LTIP Units and Class 2 LTIP Units, respectively, and the General Partner desires to amend the Agreement to accomplish the same.

NOW, THEREFORE, the General Partner hereby amends the Agreement as follows:

1. Amendment . The Agreement is hereby amended by deleting Exhibit H thereto in its entirety and replacing it with Exhibit H in the form attached hereto, which shall be attached to and made a part of the Agreement.

2. Miscellaneous . Except as specifically amended hereby, the terms, covenants, provisions and conditions of the Agreement shall remain unmodified and continue in full force and effect and, except as amended hereby, all of the terms, covenants, provisions and conditions of the Agreement are hereby ratified and confirmed in all respects.

[Signature Page Follows]

IN WITNESS WHEREOF, this Amendment has been executed as of the date first written above.


	GENERAL PARTNER

	UDR, INC.

	By:	/s/ Warren L. Troupe
	Name:	Warren L. Troupe
	Title:	Senior Executive Vice President

EXHIBIT H

PARTNERSHIP UNIT DESIGNATIONS

OF THE

LTIP UNITS, CLASS 1 LTIP UNITS AND CLASS 2 LTIP UNITS

OF UNITED DOMINION REALTY, L.P.

1. Defined Terms .

The following defined terms used in this Exhibit H shall have the meaning specified below. Capitalized terms used, but not otherwise defined herein, shall have the respective meanings ascribed thereto in the Amended and Restated Agreement of Limited Partnership of United Dominion Realty, L.P., as amended (the “Agreement”).

“ Adjustment Event ” has the meaning set forth in Section ‎6 hereof.

“ Auto Conversion ” has the meaning set forth in Section 11(d) hereof.

“ Auto Conversion Notice ” has the meaning set forth in Section 11(d) hereof.

“ Capital Account Limitation ” has the meaning set forth in Section ‎11(b) hereof.

“ Class 1 LTIP Units ” has the meaning set forth in Section ‎2 hereof.

“ Class 2 LTIP Unit Initial Sharing Percentage ” means, with respect to a Class 2 LTIP Unit, ten percent (10%) or such other percentage as set forth in the Vesting Agreement or other documentation pursuant to which such Class 2 LTIP Unit is granted.

“ Class 2 LTIP Unit Distribution Participation Date ” means, with respect to a Class 2 LTIP Unit, such date as is specified in the Vesting Agreement or other documentation pursuant to which such Class 2 LTIP Unit is granted.

“ Class 2 LTIP Units ” has the meaning set forth in Section ‎2 hereof.

“ Constituent Person ” has the meaning set forth in Section ‎11(g) hereof.

“ Conversion Date ” means, as applicable, the date set forth in a Conversion Notice or a Forced Conversion Notice or the date of an Auto Conversion.

“ Conversion Notice ” has the meaning set forth in Section ‎11(b) hereof.

“ Conversion Right ” has the meaning set forth in Section ‎11(a) hereof.

“ Economic Capital Account Balance ” means, with respect to a holder of LTIP Units, its Capital Account balance, plus the amount of its share of any Partner Nonrecourse Debt Minimum Gain or Partnership Minimum Gain, in either case to the extent attributable to its ownership of LTIP Units.

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“ Effective Date ” means December 4, 2015.

“ Eligible Unit ” means, as of the time any Liquidating Gain is available to be allocated to an LTIP Unit, an LTIP Unit to the extent, since the date of issuance of such LTIP Unit, such Liquidating Gain when aggregated with other Liquidating Gains realized since the date of issuance of such LTIP Unit exceeds Liquidating Losses realized since the date of issuance of such LTIP Unit.

“Equity Plan ” means any stock or other equity-based compensation plan now or hereafter adopted by the Partnership or the General Partner, including the Plan.

“ Forced Conversion ” has the meaning set forth in Section ‎11(c) hereof.

“ Forced Conversion Notice ” has the meaning set forth in Section ‎11(c) hereof.

“ Gross Asset Value ” has the meaning set forth in Section ‎5(b) hereof.

“ Liquidating Gains ” means any net gain realized in connection with the actual or hypothetical sale of all or substantially all of the assets of the Partnership (including upon liquidation of the Partnership), including but not limited to net gain realized in connection with a revaluation of the Partnership’s property pursuant to Section 4.04 of the Agreement, with such net gain calculated in all cases by excluding adjustments to the basis of the Partnership’s assets for depreciation and amortization (as determined for purposes of book allocations under Section 704(b) of the Code and the Regulations thereunder) unless and to the extent the General Partner determines, in its sole discretion, such exclusions would result in unintended consequences.

“ Liquidating Losses ” means any net loss realized in connection with the actual or hypothetical sale of all or substantially all of the assets of the Partnership (including upon liquidation of the Partnership), including but not limited to net loss realized in connection with a revaluation of the Partnership’s property pursuant to Section 4.04 of the Agreement, with such net loss calculated in all cases by excluding adjustments to the basis of the Partnership’s assets for depreciation and amortization (as determined for purposes of book allocations under Section 704(b) of the Code and the Regulations thereunder) unless and to the extent the General Partner determines, in its sole discretion, such exclusions would result in unintended consequences.

“ LTIP Agreement ” has the meaning set forth in Section ‎5(b) hereof.

“ LTIP Unit Distribution Payment Date ” has the meaning set forth in Section ‎7(c) hereof.

“ LTIP Unit Redemption Threshold ” means a threshold that will be met with respect to one or more LTIP Units if, when and to the extent, such LTIP Units have satisfied the Capital Account Limitation.

“ LTIP Units ” means the Partnership Units designated as such having the rights, powers, privileges, restrictions, qualifications and limitations set forth herein, in the Plan and in an applicable Vesting Agreement. LTIP Units may be issued in one or more classes, or one or more series of any such classes bearing such relationship to one another as to allocations, distributions,

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and other rights as the General Partner shall determine in its sole and absolute discretion subject to Maryland law and the Agreement.

“ Partnership Common Unit ” means a fractional, undivided share of the Partnership Interests of all Partners issued pursuant to the Agreement, but does not include any Partnership Unit owned by the General Partner, Class A Partnership Unit, Class I Out-Performance Partnership Share, Class II Out-Performance Partnership Share, Class III Out-Performance Partnership Share, Class IV Out-Performance Partnership Share, Class V Out-Performance Partnership Share, LTIP Unit or any other Partnership Unit, the terms of which provide that such other Partnership Unit is not a Partnership Common Unit.

“ Plan ” means the UDR, Inc. 1999 Long-Term Incentive Plan, as amended from time to time.

“ Proposed Section 83 Safe Harbor Regulation ” has the meaning set forth in Section ‎14 hereof.

“ Qualifying Party ” means a Limited Partner other than the Original Limited Partner.

“ REIT Share Economic Target ” means, as of any date, the REIT Share Value on such date multiplied by the Conversion Factor.

“ REIT Share Value ” means, as of the date of valuation, the fair market value of a REIT Share, determined as follows: (i) if the REIT Share is listed or admitted to trading on any securities exchange or The Nasdaq National Market, the closing price, regular way, of a REIT Share on such day or, if no sale takes place on such day, the average of the closing bid and asked prices of a REIT Share on such day, (ii) if the REIT Share is not listed or admitted to trading on any securities exchange or The Nasdaq National Market but is regularly quoted by a recognized quotation source, the last reported sale price of a REIT Share on such day or, if no sale takes place on such day, the average of the closing bid and asked prices of a REIT Share on such day, as reported by a recognized quotation source designated by the Company, or (iii) if the REIT Share is not listed or admitted to trading on any securities exchange or The Nasdaq National Market but is regularly quoted by a recognized quotation source and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices of a REIT Share on such day, as reported by a recognized quotation source designated by the General Partner, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, of a REIT Share on the most recent day (not more than twenty (20) days prior to the date in question) for which prices have been so reported; provided, that if there are no bid and asked prices reported during the twenty (20) days prior to the date in question, the value of a REIT Share shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. In the event that a REIT Share includes any additional rights the value of which is not included within such price, then the value of such rights shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate, and included in determining the “REIT Share Value” of such REIT Share.

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“ Section 83 Safe Harbor ” has the meaning set forth in Section ‎14 hereof.

“ Transaction ” has the meaning set forth in Section ‎11(g) hereof.

“ Unvested LTIP Units ” has the meaning set forth in Section ‎5(a) hereof.

“ Vested LTIP Units ” has the meaning set forth in Section ‎5(a) hereof.

“ Vesting Agreement ” has the meaning set forth in Section ‎5(a) hereof.

2. Designation . A class of Partnership Units in the Partnership designated as the “LTIP Units” is hereby established. The number of LTIP Units that may be issued is not limited by the Agreement. Two classes of LTIP Units in the Partnership are hereby designated as the Class 1 LTIP Units (the “Class 1 LTIP Units”) and the Class 2 LTIP Units (the “Class 2 LTIP Units”). The numbers of Class 1 LTIP Units and Class 2 LTIP Units shall be determined from time to time by the General Partner in accordance with the terms of the Plan.

3. Issuances of LTIP Units . From time to time, the General Partner is hereby authorized to issue LTIP Units, including Class 1 LTIP Units and Class 2 LTIP Units, to Persons providing services to or for the benefit of the Partnership for such consideration or for no consideration as the General Partner may determine to be appropriate and on such terms and conditions as shall be established by the General Partner, and admit such Persons as Limited Partners. Except to the extent that a capital contribution is made with respect to an LTIP Unit, each LTIP Unit is intended to qualify as a profits interests in the Partnership within the meaning of the Code, the Regulations, and any published guidance by the Internal Revenue Service with respect thereto. Except as may be provided from time to time by the General Partner with respect to one or more series of LTIP Units, LTIP Units shall have the terms set forth in this Exhibit H .

4. Admission to Partnership . A Person (other than an existing Partner) who is issued LTIP Units in exchange for no consideration in accordance with Section ‎3 hereof shall be admitted to the Partnership as an additional Limited Partner only upon the satisfactory completion of the requirements an assignee is required to complete pursuant to Section 9.03(a)(i) through (v) of the Agreement.

5. Vesting .

(a) Vesting, Generally . LTIP Units may, in the sole discretion of the General Partner, be issued subject to vesting, forfeiture and additional restrictions on Transfer pursuant to the terms of an award, vesting or other similar agreement (a “Vesting Agreement”). The terms of any Vesting Agreement may be modified by the General Partner from time to time in its sole discretion, subject to any restrictions on amendment imposed by the relevant Vesting Agreement or by the Plan or any other Equity Plan, if applicable. LTIP Units that were fully vested when issued or that have vested and are no longer subject to forfeiture under the terms of a Vesting Agreement are referred to as “Vested LTIP Units”; all other LTIP Units shall be treated as “Unvested LTIP Units.”

(b) Forfeiture . Unless otherwise specified in the Vesting Agreement, the Plan or in any applicable Equity Plan or other compensatory arrangement or incentive program pursuant to

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which LTIP Units are issued (collectively, the “LTIP Agreement”), upon the occurrence of any event specified in such LTIP Agreement as resulting in either the right of the Partnership or the General Partner to repurchase LTIP Units at a specified purchase price or some other forfeiture of any LTIP Units, then if the Partnership or the General Partner exercises such right to repurchase or upon the occurrence of the event causing forfeiture in accordance with the applicable LTIP Agreement, then the relevant LTIP Units shall immediately, and without any further action, be treated as cancelled and no longer outstanding for any purpose. Unless otherwise specified in the applicable LTIP Agreement, no consideration or other payment shall be due with respect to any LTIP Units that have been forfeited, other than any distributions declared with respect to a Partnership Record Date and with respect to such units prior to the effective date of the forfeiture. Except as otherwise provided in the Agreement (including without limitation Section ‎8(c) hereof) or any agreement relating to the grant of LTIP Units, including any LTIP Agreement, in connection with any repurchase or forfeiture of such units, the balance of the portion of the Capital Account of the holder of LTIP Units that is attributable to all of his or her LTIP Units shall be reduced by the amount, if any, by which it exceeds the target balance contemplated by Section ‎8(b) hereof, calculated with respect to such holder’s remaining LTIP Units, if any. If any Unvested LTIP Units are forfeited, as described in this Section ‎5‎(b), upon such forfeiture, the value of the Partnership’s assets as determined for purposes of book allocations under Section 704(b) of the Code and the Regulations thereunder (the “Gross Asset Value”) shall be reduced by the amount of any reduction of such Partner’s Capital Account attributable to the forfeiture of such LTIP Units. Any adjustment to the Gross Asset Value of any Partnership asset shall be binding on the Partnership and every Limited Partner.

6. Adjustments . The Partnership shall maintain at all times a one-to-one correspondence between LTIP Units and Partnership Common Units for conversion, distributions, allocations and other purposes, including without limitation complying with the following procedures; provided, that the foregoing is not intended to alter the special allocations pursuant to Section ‎8 hereof, differences between distributions to be made with respect to the Class 2 LTIP Units and the Partnership Common Units prior to the Class 2 LTIP Unit Distribution Participation Date for such Class 2 LTIP Units, or differences between distributions to be made with respect to LTIP Units and Partnership Common Units pursuant to Section 5.06 and Section ‎7(b) hereof in the event that the Capital Accounts attributable to the LTIP Units are less than those attributable to Partnership Common Units due to insufficient special allocation pursuant to Section ‎8(b) hereof or related provisions. If an Adjustment Event (as defined below) occurs, then the General Partner shall take any action reasonably necessary, including any amendment to the Agreement or update Exhibit A to the Agreement adjusting the number of outstanding LTIP Units or subdividing or combining outstanding LTIP Units, to maintain a one-for-one conversion and economic equivalence ratio between Partnership Common Units and LTIP Units. The following shall be “Adjustment Events”: (i) the Partnership makes a distribution on all outstanding Partnership Common Units in Partnership Units, (ii) the Partnership subdivides the outstanding Partnership Common Units into a greater number of units or combines the outstanding Partnership Common Units into a smaller number of units, or (iii) the Partnership issues any Partnership Units in exchange for its outstanding Partnership Common Units by way of a reclassification or recapitalization of its Partnership Common Units. If more than one Adjustment Event occurs, any adjustment to the LTIP Units need be made only once using a single formula that takes into account each and every Adjustment Event as if all Adjustment Events occurred simultaneously. For the avoidance of doubt, the following shall not be Adjustment Events: (x) the issuance of Partnership

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Units in a financing, reorganization, acquisition or other similar business transaction, (y) the issuance of Partnership Units pursuant to any employee benefit or compensation plan or distribution reinvestment plan, or (z) the issuance of any Partnership Units to the General Partner in respect of a capital contribution to the Partnership. If the Partnership takes an action affecting the Partnership Common Units other than actions specifically described above as “Adjustment Events” and in the opinion of the General Partner such action would require an action to maintain the one-to-one correspondence described above, the General Partner shall have the right to take such action, to the extent permitted by law, the Plan and by any applicable Equity Plan or Stock Option Plan or other compensatory arrangement or incentive program pursuant to which LTIP Units are issued, in such manner and at such time as the General Partner, in its sole discretion, may determine to be reasonably appropriate under the circumstances. If an amendment is made to the Agreement adjusting the number of outstanding LTIP Units as herein provided, the Partnership shall promptly file in the books and records of the Partnership an officer’s certificate setting forth a brief statement of the facts requiring such adjustment, which certificate shall be conclusive evidence of the correctness of such adjustment absent manifest error. Promptly after filing of such certificate, the Partnership shall mail a notice to each holder of LTIP Units setting forth the adjustment to his or her LTIP Units and the effective date of such adjustment. Any adjustment to the number of outstanding LTIP Units pursuant to this Section ‎6 shall be binding on the Partnership and every Limited Partner.

7. Distributions.

(a) Operating Distributions . Except as otherwise provided in the Agreement, the Plan, or any other applicable Equity Plan, any applicable Vesting Agreement or by the General Partner with respect to any particular class or series of LTIP Units, holders of LTIP Units shall be entitled to receive, if, when and as authorized by the General Partner out of funds or other property legally available for the payment of distributions, regular, special, extraordinary or other distributions (other than distributions upon or pursuant to the liquidation of the Partnership) which may be made from time to time, in an amount per unit equal to the amount of any such distributions that would have been payable to such holders if the LTIP Units had been Partnership Common Units (if applicable, assuming such LTIP Units were held for the entire period to which such distributions relate); provided that prior to the Class 2 LTIP Unit Distribution Participation Date with respect to each Class 2 LTIP Unit, such Class 2 LTIP Unit will only be entitled to receive such distributions in an amount equal to the product of the Class 2 LTIP Unit Initial Sharing Percentage for such Class 2 LTIP Unit and the amount otherwise distributable with respect to such Class 2 LTIP Unit pursuant to this Section ‎7‎(a).

(b) Liquidating Distributions . Holders of LTIP Units shall also be entitled to receive, if, when and as authorized by the General Partner out of funds or other property legally available for the payment of distributions, distributions upon liquidation of the Partnership in an amount equal to the positive balances of the Capital Accounts of the holders of such LTIP Units to the extent attributable to the ownership of such LTIP Units as set forth in Section 5.06(a) of the Agreement.

(c) Distributions Generally . Distributions on the LTIP Units, if authorized, shall be payable on such dates and in such manner as may be authorized by the General Partner (any such date, an “LTIP Unit Distribution Payment Date”). Absent a contrary determination by the

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General Partner, the LTIP Unit Distribution Payment Date shall be the same as the corresponding date relating to the corresponding distribution on the Partnership Common Units, the record date for determining which holders of LTIP Units are entitled to receive distributions shall be the Partnership Record Date. A holder of LTIP Units will only be entitled to distributions with respect to an LTIP Unit as set forth in this Exhibit H and, in making distributions pursuant to Section 5.02 of the Agreement, the General Partner of the Partnership shall take into account the provisions of this Section ‎7.

8. Allocations .

(a) General . Holders of LTIP Units shall be allocated Profit, Loss and depreciation and amortization expenses of the Partnership in amounts per LTIP Unit equal to the amounts allocated per Partnership Common Unit; provided, however, that prior to the Class 2 LTIP Unit Participation Date with respect to a Class 2 LTIP Unit, the amounts shall only be allocated with respect to such Class 2 LTIP Unit in an amount equal to the product of the Class 2 LTIP Unit Initial Sharing Percentage for such Class 2 LTIP Unit and the amount otherwise allocable with respect to such Class 2 LTIP Unit pursuant to this Section ‎8‎(a). The allocations provided by the preceding sentence shall be subject to Section 5.01(a) of the Agreement and in addition to any special allocations required by Section ‎8‎(b) hereof. The General Partner is authorized in its discretion to delay or accelerate the participation of the LTIP Units in allocations of Profit, Loss and depreciation and amortization expenses of the Partnership under this Section ‎8‎(a), or to adjust the allocations made under this Section ‎8‎(a), so that the ratio of (i) the total amount of Profit, Loss and depreciation and amortization expenses of the Partnership allocated with respect to each LTIP Unit in the taxable year in which that LTIP Unit’s LTIP Unit Distribution Payment Date falls (excluding special allocations under Section ‎8‎(b) hereof), to (ii) the total amount distributed to that LTIP Unit with respect to such period, is more nearly equal to the ratio of (i) the Profit, Loss and depreciation and amortization expenses of the Partnership allocated with respect to the Partnership Common Units in such taxable year to (ii) the amounts distributed with respect to such Partnership Common Units and such taxable year.

(b) Special Allocations with Respect to LTIP Units . In the event that Liquidating Gains are allocated under this Section ‎8‎(b), Profit, Loss and depreciation and amortization expenses of the Partnership allocable under Section 5.01(a) of the Agreement to Partners other than Class A Partners shall be recomputed without regard to the Liquidating Gains so allocated. This Section ‎8‎(b) shall not affect any allocations to Class A Partners. After giving effect to the special allocations set forth in Sections 5.01(b), 5.01(c) and 5.01(d) of the Agreement and Sections ‎8‎(c) and ‎8‎(d) hereof, and notwithstanding the provisions of Section 5.01(a) of the Agreement (except insofar as they allocate Profit, Loss and depreciation and amortization expenses of the Partnership to Class A Partners), any Liquidating Gains shall first be allocated to the holders of Eligible Units until the Economic Capital Account Balances of such holders, to the extent attributable to their ownership of Eligible Units, are equal to (i) the REIT Share Economic Target, multiplied by (ii) the number of their Eligible Units. Any such allocations shall be made among the holders of Eligible Units in proportion to the amounts required to be allocated to each under this Section ‎8‎(b). The parties agree that the intent of this Section ‎8‎(b) is to make the Capital Account balances of the holders of LTIP Units with respect to their LTIP Units economically equivalent (on a per-unit basis) to the REIT Share Value on the date as of which such special allocation to this Section ‎8‎(b) is being made multiplied by the Conversion Factor,

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but only to the extent the Partnership has recognized cumulative gains (calculated in the same manner as is applicable to calculating Liquidating Gains) with respect to its assets since the issuance of the relevant LTIP Unit. The allocations set forth in this Section ‎8‎(b) shall be taken into account for determining the Capital Account of each Partner, including for purposes of Section 5.06(a) of the Agreement.

(c) Forfeiture Allocations . Upon a forfeiture of any Unvested LTIP Units by any Partner, gross items of income, gain, loss or deduction shall be allocated to such Partner if and to the extent required by final Regulations promulgated after the Effective Date to ensure that allocations made with respect to all unvested Partnership Interests are recognized under Code Section 704(b), but in no event shall such allocations affect the allocations to the Class A Partners.

(d) LTIP Units . For purposes of the allocations set forth in Sections 5.01(b), 5.01(c) and 5.01(d) of the Agreement and Section ‎8‎(c) hereof, each issued and outstanding LTIP Unit will be treated as one outstanding Partnership Common Unit; provided, however, that solely for purposes of Section 5.01(b) of the Agreement, prior to the Class 2 LTIP Unit Participation Date with respect to a Class 2 LTIP Unit, the Percentage Interest for such a Class 2 LTIP Unit shall be the Percentage Interest of a Class 1 LTIP Unit multiplied by the Class 2 LTIP Unit Initial Sharing Percentage.

9. Transfers .

(a) Subject to the terms of any Vesting Agreement, a holder of LTIP Units shall be entitled to transfer his or her LTIP Units to the same extent, and subject to the same restrictions as holders of Partnership Common Units are entitled to transfer their Partnership Common Units pursuant to Article 9 of the Agreement.

(b) A conversion of LTIP Units into Partnership Common Units is not a “Transfer” for purposes of the Agreement.

10. Legend . Any certificate evidencing an LTIP Unit shall bear an appropriate legend indicating that additional terms, conditions and restrictions on transfer, including without limitation any Vesting Agreement, apply to the LTIP Unit.

11. Conversion to Partnership Common Units .

(a) A Qualifying Party holding LTIP Units shall have the right (the “Conversion Right”), at his or her option, at any time to convert all or a portion of his or her Vested LTIP Units into Partnership Common Units, taking into account all adjustments (if any) made pursuant to Section ‎6 hereof; provided, however, that a Qualifying Party may not exercise the Conversion Right for less than one thousand (1,000) Vested LTIP Units or, if such Qualifying Party holds less than one thousand (1,000) Vested LTIP Units, all of the Vested LTIP Units held by such Qualifying Party that are not subject to the limitation on conversion under Section ‎11‎(b) hereof. Qualifying Parties shall not have the right to convert Unvested LTIP Units into Partnership Common Units until they become Vested LTIP Units; provided, however, that when a Qualifying Party is notified of the expected occurrence of an event that will cause his or her Unvested LTIP Units to become Vested LTIP Units, such Qualifying Party may give the

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Partnership a Conversion Notice conditioned upon and effective as of the time of vesting and such Conversion Notice, unless subsequently revoked by the Qualifying Party, shall be accepted by the Partnership subject to such condition. In all cases, the conversion of any LTIP Units into Partnership Common Units shall be subject to the conditions and procedures set forth in this Section ‎11.

(b) A Qualifying Party may convert his or her Vested LTIP Units into an equal number of fully paid and non-assessable Partnership Common Units, giving effect to all adjustments (if any) made pursuant to Section ‎6 hereof. Notwithstanding the foregoing, in no event may a Qualifying Party convert a number of Vested LTIP Units that exceeds (x) the Economic Capital Account Balance of such Limited Partner, to the extent attributable to his or her ownership of LTIP Units, divided by (y) the REIT Share Economic Target, in each case as determined as of a date on which satisfaction of the LTIP Unit Redemption Threshold is being determined (in either case, the “Capital Account Limitation”). After one or more LTIP Units have satisfied the LTIP Unit Redemption Threshold, such units shall forever have satisfied such threshold, and the Capital Account Limitation shall thereafter apply only to any LTIP Units which have not previously satisfied such threshold. In order to exercise his or her Conversion Right, a Qualifying Party shall deliver a notice (a “Conversion Notice”) in the form attached hereto as Annex I to the Partnership (with a copy to the General Partner) not less than three (3) nor more than ten (10) days prior to the Conversion Date specified in such Conversion Notice; provided, however, that if the General Partner has not given to the Qualifying Party notice of a proposed or upcoming Transaction (as defined below) at least thirty (30) days prior to the effective date of such Transaction, then the Qualifying Party shall have the right to deliver a Conversion Notice until the earlier of (x) the tenth (10th) day after such notice from the General Partner of a Transaction or (y) the third Business Day immediately preceding the effective date of such Transaction. A Conversion Notice shall be provided in the manner provided in Section 12.01 of the Agreement. Each Qualifying Party seeking to convert Vested LTIP Units covenants and agrees with the Partnership that all Vested LTIP Units to be converted pursuant to this Section ‎11 shall be free and clear of all liens. Notwithstanding anything herein to the contrary, if the Vested LTIP Units or the Partnership Common Units into which the Vested LTIP Units are convertible have been held for at least one year, a Qualifying Party may deliver a Notice of Redemption pursuant to Section 8.05(a) of the Agreement relating to such Partnership Common Units in advance of the Conversion Date; provided, however, that the redemption of such Partnership Common Units by the Partnership shall in no event take place until on or after the Conversion Date. For clarity, it is noted that the objective of this paragraph is to put a Qualifying Party in a position where, if he or she so wishes, the Partnership Common Units into which his or her Vested LTIP Units will be converted can be redeemed by the Partnership pursuant to Section 8.05(a) of the Agreement simultaneously with such conversion, with the further consequence that, if the General Partner elects to assume the Partnership’s redemption obligation with respect to such Partnership Common Units under Section 8.05(b) of the Agreement by delivering to such Qualifying Party REIT Shares rather than cash, then such Qualifying Party can have such REIT Shares issued to him or her simultaneously with the conversion of his or her Vested LTIP Units into Partnership Common Units. The General Partner shall cooperate with a Qualifying Party to coordinate the timing of the different events described in the foregoing sentence.

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(c) The Partnership, at any time at the election of the General Partner, may cause any number of Vested LTIP Units to be converted (a “Forced Conversion”) into an equal number of Partnership Common Units, giving effect to all adjustments (if any) made pursuant to Section ‎6 hereof; provided, however, that the Partnership may not cause a Forced Conversion of any LTIP Units that would not at the time be eligible for conversion at the option of such Qualifying Party pursuant to Section ‎11‎(b) hereof. In order to exercise its right of Forced Conversion, the Partnership shall deliver a notice (a “Forced Conversion Notice”) in the form attached hereto as Annex II to the applicable holder of LTIP Units not less than ten (10) nor more than sixty (60) days prior to the Conversion Date specified in such Forced Conversion Notice. A Forced Conversion Notice shall be provided in the manner provided in Section 12.01 of the Agreement.

(d) Immediately after each such time that either (i) LTIP Units become Vested LTIP Units pursuant to Section 5(a) or (ii) the assets of the Partnership are revalued pursuant to Section 4.04 of the Agreement, all Vested LTIP Units not previously converted into Partnership Common Units shall automatically be converted (an “Auto Conversion”) into an equal number of Partnership Common Units, giving effect to all adjustments (if any) made pursuant to Section ‎6 hereof; provided, however, that no Auto Conversion shall occur with respect to any LTIP Units that would not at the time be eligible for conversion at the option of such Qualifying Party pursuant to Section ‎11‎(b) hereof. Following an Auto Conversion, the Partnership shall deliver a notice (an “Auto Conversion Notice”) in the form attached hereto as Annex III to the applicable holder of LTIP Units as soon as reasonably possible following the Conversion Date (provided that the failure to deliver an Auto Conversion Notice will not affect the Auto Conversion or subject the General Partner or the Partnership to any liability). An Auto Conversion Notice shall be provided in the manner provided in Section 12.01 of the Agreement.

(e) A conversion of Vested LTIP Units for which the holder thereof has given a Conversion Notice or the Partnership has given a Forced Conversion Notice or with respect to which an Auto Conversion has occurred shall occur automatically after the close of business on the applicable Conversion Date without any action on the part of such holder of LTIP Units, other than the surrender of any certificate or certificates evidencing such Vested LTIP Units, as of which time such holder of LTIP Units shall be credited on the books and records of the Partnership as of the opening of business on the next day with the number of Partnership Common Units into which such LTIP Units were converted. After the conversion of LTIP Units as aforesaid, the Partnership shall deliver to such holder of LTIP Units, upon his or her written request, a certificate of the General Partner certifying the number of Partnership Common Units and remaining LTIP Units, if any, held by such person immediately after such conversion. The assignee of any Limited Partner pursuant to Article 9 of the Agreement may exercise the rights of such Limited Partner pursuant to this Section ‎11 and such Limited Partner shall be bound by the exercise of such rights by the assignee.

(f) For purposes of making future allocations under Section ‎8(b) hereof and applying the Capital Account Limitation, the portion of the Economic Capital Account Balance of the applicable holder of LTIP Units that is treated as attributable to his or her LTIP Units shall be reduced, as of the date of conversion, by the product of the number of LTIP Units converted and the REIT Share Economic Target determined for each such LTIP Unit as of the date on which satisfaction of the LTIP Unit Redemption Threshold for such LTIP Unit was determined.

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(g) If the Partnership or the General Partner shall be a party to any transaction (including without limitation a merger, consolidation, unit exchange, self-tender offer for all or substantially all Partnership Common Units or other business combination or reorganization, or sale of all or substantially all of the Partnership’s assets, but excluding any transaction which constitutes an Adjustment Event) in each case as a result of which Partnership Common Units shall be exchanged for or converted into the right, or the holders shall otherwise be entitled, to receive cash, securities or other property or any combination thereof (each of the foregoing being referred to herein as a “Transaction”), then the General Partner shall, immediately prior to the Transaction, exercise its right to cause a Forced Conversion with respect to the maximum number of LTIP Units then eligible for conversion, taking into account any allocations that occur in connection with the Transaction or that would occur in connection with the Transaction if the assets of the Partnership were sold at the Transaction price or the portion thereof attributable to the Partnership as determined by the General Partner in good faith, or if applicable, at a value for the Partnership assets determined by the General Partner in good faith using the value attributed to the Partnership Common Units in the context of the Transaction (in which case the Conversion Date shall be the effective date of the Transaction and the conversion shall occur immediately prior to the effectiveness of the Transaction). In anticipation of such Forced Conversion and the consummation of the Transaction, the Partnership shall use commercially reasonable efforts to cause each holder of LTIP Units to be afforded the right to receive in connection with such Transaction in consideration for the Partnership Common Units into which his or her LTIP Units will be converted the same kind and amount of cash, securities and other property (or any combination thereof) receivable upon the consummation of such Transaction by a holder of the same number of Partnership Common Units, assuming such holder is not a Person with which the Partnership consolidated or into which the Partnership merged or which merged into the Partnership or to which such sale or transfer was made, as the case may be (a “Constituent Person”), or an affiliate of a Constituent Person. In the event that holders of Partnership Common Units have the opportunity to elect the form or type of consideration to be received upon consummation of the Transaction, prior to such Transaction the General Partner shall give prompt written notice to each holder of LTIP Units of such opportunity, and shall use commercially reasonable efforts to afford the holder of LTIP Units the right to elect, by written notice to the General Partner, the form or type of consideration to be received upon conversion of each LTIP Unit held by such holder into Partnership Common Units in connection with such Transaction. If a holder of LTIP Units fails to make such an election, such holder (and any of its transferees) shall receive upon conversion of each LTIP Unit held by him or her (or by any of his or her transferees) the same kind and amount of consideration that a holder of Partnership Common Units would receive if such holder of Partnership Common Units failed to make such an election. Subject to the rights of the Partnership and the General Partner under any Vesting Agreement and the relevant terms of the Plan or any other applicable Equity Plan, the Partnership shall use commercially reasonable effort to cause the terms of any Transaction to be consistent with the provisions of this Section ‎11‎(g) and to enter into an agreement with the successor or purchasing entity, as the case may be, for the benefit of any holder of LTIP Units whose LTIP Units will not be converted into Partnership Common Units in connection with the Transaction that will (i) contain provisions enabling the Qualifying Parties that remain outstanding after such Transaction to convert their LTIP Units into securities as comparable as reasonably possible under the circumstances to the Partnership Common Units and (ii) preserve as far as reasonably possible under the circumstances the distribution, special allocation,

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conversion, and other rights set forth in the Agreement, including this Exhibit H , for the benefit of the holder of LTIP Units.

(h) No conversion of LTIP Units into Partnership Common Units, or Partnership Units that are not LTIP Units, may be made by a Person if, based on the advice of the Partnership’s counsel or accounting firm, the Partnership believes there is a material risk that such conversion could (i) result in the Partnership’s being treated as an association taxable as a corporation (other than a qualified REIT subsidiary within the meaning of Section 856(i) of the Code), (ii) adversely affect the ability of the Company to continue to qualify as a REIT or subject the Company to any additional taxes under Section 857 or Section 4981 of the Code, or (iii) be effectuated through an “established securities market” or a “secondary market (or the substantial equivalent thereof)” within the meaning of Section 7704 of the Code or cause the Partnership to fail to qualify for a safe harbor from such treatment which the Partnership desires to preserve.

12. Redemption of Partnership Common Units Issued Upon Conversion of LTIP Units .

(a) Holders of LTIP Units shall not be entitled to the Redemption Right provided for in Section 8.05 of the Agreement, unless, until and to the extent such LTIP Units have either satisfied the LTIP Unit Redemption Threshold or have been converted into Partnership Common Units (or any other class or series of Partnership Units entitled to such Redemption Right) in accordance with their terms.

(b) If the General Partner acquires any LTIP Unit in connection with the exercise of a Redemption Right by the holder of such LTIP Unit, such LTIP Unit shall immediately convert into a Partnership Unit that is not an LTIP Unit.

13. Voting . LTIP Limited Partners shall have the same voting rights as Limited Partners holding Partnership Common Units, with the LTIP Units voting together as a single class with the Partnership Common Units and having one vote per LTIP Unit and holders of LTIP Units shall not be entitled to approve, vote on or consent to any other matter.

14. Section 83 Safe Harbor . Each Partner authorizes the General Partner to elect to apply the safe harbor (the “Section 83 Safe Harbor”) set forth in proposed Regulations Section 1.83-3(l) and proposed Internal Revenue Service Revenue Procedure published in Notice 2005-43 (together, the “Proposed Section 83 Safe Harbor Regulation”) (under which the fair market value of a Partnership Interest that is Transferred in connection with the performance of services is treated as being equal to the liquidation value of the interest), or in similar Regulations or guidance, if such Proposed Section 83 Safe Harbor Regulation or similar Regulations are promulgated as final or temporary Regulations. If the General Partner determines that the Partnership should make such election, the General Partner is hereby authorized to amend the Agreement without the consent of any other Partner to provide that (i) the Partnership is authorized and directed to elect the Section 83 Safe Harbor, (ii) the Partnership and each of its Partners (including any Person to whom a Partnership Interest, including an LTIP Unit, is Transferred in connection with the performance of services) will comply with all requirements of the Section 83 Safe Harbor with respect to all Partnership Interests Transferred in connection with the performance of services while such election remains in effect and (iii) the Partnership

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and each of its Partners will take all actions necessary, including providing the Partnership with any required information, to permit the Partnership to comply with the requirements set forth or referred to in the applicable Regulations for such election to be effective until such time (if any) as the General Partner determines, in its sole discretion, that the Partnership should terminate such election. The General Partner is further authorized to amend the Agreement to modify Section 5.01(a) of the Agreement to the extent the General Partner determines in its discretion that such modification is necessary or desirable as a result of the issuance of any applicable law, Regulations, notice or ruling relating to the tax treatment of the transfer of a Partnership Interests in connection with the performance of services. Notwithstanding anything to the contrary in the Agreement, each Partner expressly confirms that it will be legally bound by any such amendment.

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ANNEX I

NOTICE OF ELECTION BY PARTNER TO CONVERT

LTIP UNITS INTO PARTNERSHIP COMMON UNITS

The undersigned holder of LTIP Units hereby irrevocably (i) elects to convert as of the Conversion Date set forth below the number of LTIP Units in United Dominion Realty, L.P. (the “Partnership”) set forth below into Partnership Common Units in accordance with the terms of the Amended and Restated Agreement of Limited Partnership of the Partnership, as amended; and (ii) directs that any cash in lieu of Partnership Common Units that may be deliverable upon such conversion to be deliverable upon such conversion be delivered to the address specified below. The undersigned hereby represents, warrants, and certifies that the undersigned (a) has title to such LTIP Units, free and clear of the rights or interests of any other person or entity other than the Partnership; (b) has the full right, power, and authority to cause the conversion of such LTIP Units as provided herein; and (c) has obtained the consent or approval of all persons or entities, if any, having the right to consent or approve such conversion.


Name of LTIP Unit Holder:
		Please Print Name as Registered with Partnership

Number of LTIP Units Converted:

Conversion Date:


		(Signature of LTIP Unit Holder)


		(Street Address)


		(City) (State) (Zip Code)


Issue Check Payable to:

Please insert social security
or identifying number

Annex I

ANNEX II

NOTICE OF ELECTION BY PARTNERSHIP TO FORCE CONVERSION

OF LTIP UNITS INTO PARTNERSHIP COMMON UNITS

United Dominion Realty, L.P. (the “Partnership”) hereby irrevocably elects to cause as of the Conversion Date set forth below the number of LTIP Units held by the LTIP Unit holder set forth below to be converted into Partnership Common Units in accordance with the terms of Amended and Restated Agreement of Limited Partnership of the Partnership, as amended.


Name of LTIP Unit Holder:
		Please Print Name as Registered with Partnership

Number of LTIP Units Converted:

Conversion Date:

Annex II

ANNEX III

NOTICE OF AUTOMATIC CONVERSION

OF LTIP UNITS INTO PARTNERSHIP COMMON UNITS

United Dominion Realty, L.P. (the “Partnership”) hereby gives you notice that the number of LTIP Units held by the LTIP Unit holder set forth below have been converted into Partnership Common Units in accordance with the terms of the Amended and Restated Agreement of Limited Partnership of the Partnership, as amended, effective as of the Conversion Date set forth below.


Name of LTIP Unit Holder:
		Please Print Name as Registered with Partnership

Number of LTIP Units Converted:

Conversion Date:

Annex III

Exhibit 3.6

AMENDED AND RESTATED BYLAWS

OF UDR, INC.

May 24, 2018

TABLE OF CONTENTS


ARTICLE I	OFFICES	1

Section 1.1	Principal Office in Maryland and Resident Agent	1

Section 1.2	Other Offices	1

ARTICLE II	STOCKHOLDERS’ MEETINGS	1

Section 2.1	Place of Meetings	1

Section 2.2	Annual Meetings	2

Section 2.3	Special Meetings	2

Section 2.4	Notice of Meetings	2

Section 2.5	Record Date	3

Section 2.6	Quorum and Voting	4

Section 2.7	Right to Vote; Proxies	5

Section 2.8	Voting of Shares by Certain Holders	6

Section 2.9	Inspectors	7

Section 2.10	Stockholder Proposals	7

Section 2.11	Nominations of Persons for Election to the Board of Directors	10

Section 2.12	Action Without Meetings	14

Section 2.13	Voting by Ballot	15

Section 2.14	Organization and Conduct of Meetings	15

Section 2.15	Proxy Access	16

ARTICLE III	DIRECTORS	23

Section 3.1	Number; Term of Office; Qualification	23

Section 3.2	Powers	23

Section 3.3	Vacancies	24

Section 3.4	Resignations and Removals	24

Section 3.5	Meetings	24

Section 3.6	Quorum and Voting	25

Section 3.7	Action Without Meeting	25

Section 3.8	Fees and Compensation	25

Section 3.9	Presumption of Assent	26

Section 3.10	Committees	26

- 1 -


ARTICLE IV	OFFICERS	27

Section 4.1	Officers Designated	27

Section 4.2	Tenure and Duties of Officers	27

ARTICLE V	EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION	29

Section 5.1	Execution of Corporate Instruments	29

Section 5.2	Voting of Securities Owned by Corporation	29

ARTICLE VI	SHARES OF STOCK	30

Section 6.1	Certificates	30

Section 6.2	Transfers	30

Section 6.3	Replacement Certificate	30

Section 6.4	Stock Ledger	31

Section 6.5	Issuance of Units	31

Section 6.6	Fractional Share Interests or Scrip	31

Section 6.7	Dividends	32

ARTICLE VII	INDEMNIFICATION	32

Section 7.1	Right to Indemnification	32

Section 7.2	Provisions Nonexclusive	32

Section 7.3	Authority to Insure	32

Section 7.4	Survival of Rights	33

Section 7.5	Subrogation	33

Section 7.6	No Duplication of Payments	33

Section 7.7	Right of Claimant to Bring Suit	33

ARTICLE VIII	MISCELLANEOUS	33

Section 8.1	Fiscal Year	33

Section 8.2	Exemption From Control Share Acquisition Act	34

Section 8.3	Other Securities of the Corporation	34

Section 8.4	Corporate Seal	34

Section 8.5	Amendments	34

Section 8.6	Reliance	34

- 2 -

AMENDED AND RESTATED

BYLAWS

UDR, INC.

ARTICLE I OFFICES

Section 1.1 Principal Office in Maryland and Resident Agent.

The address of the principal office of the corporation in the State of Maryland is 300 E. Lombard Street, Baltimore, Maryland 21202. The name and address of the resident agent in the State of Maryland is The Corporation Trust Incorporated, a Maryland corporation, 300 E. Lombard Street, Baltimore, Maryland 21202.

Section 1.2 Other Offices.

The corporation may also have and maintain such other offices or places of business, both within and outside the State of Maryland as the Board of Directors may from time to time determine or the business of the corporation may require.

ARTICLE II STOCKHOLDERS’ MEETINGS

Section 2.1 Place of Meetings.

(a) Meetings of stockholders may be held at such place, either within or outside the State of Maryland, as may be designated by or in the manner provided in these Bylaws or, if not so designated, as determined by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting may not be held at any place, but may instead be held solely by means of remote communication as authorized by paragraph (b) of this Section 2.1.

(b) If authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication:

(i) Participate in a meeting of stockholders; and

(ii) Be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that the corporation (A) implements reasonable measures to verify that

each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (B) implements reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, and (C) maintains a record of any vote or action by any stockholder or proxyholder at the meeting by means of remote communication.

(c) “Remote communication” means a conference telephone or similar communications equipment provided that all persons participating in the meeting can hear each other at the same time.

Section 2.2 Annual Meetings.

The annual meetings of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time the Board of Directors designates from time to time. Failure to hold an annual meeting does not invalidate the corporation’s existence or affect any otherwise valid corporate act.

Section 2.3 Special Meetings.

Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or by a majority of the Board of Directors at any time. Upon written request of any stockholder or stockholders entitled to cast at least ten percent (10%) of all the votes entitled to be cast at the meeting, if such request states the purpose of the meeting, sets forth the matters proposed to be acted on at it, and includes all information relating to each requesting stockholder that would be required to be disclosed in connection with a shareholder proposal for business to be properly brought before an annual meeting pursuant to Section 2.10(a), delivered in person or sent by registered mail to the Chairman of the Board of Directors, the Chief Executive Officer, the President, or the Secretary of the corporation, the Secretary shall inform the stockholders who make the request of the reasonably estimated cost of preparing and mailing a notice of the meeting and on payment of these costs to the corporation, notify each stockholder entitled to notice of the meeting. The Board of Directors has the sole power to fix the record date for determining stockholders entitled to request a special meeting of the stockholders, the record date for determining stockholders entitled to notice of and to vote at the special meeting and the date, time and place of the special meeting.

Section 2.4 Notice of Meetings.

(a) Except as otherwise provided by law or in the Charter, written notice of each meeting of stockholders, specifying the place, if any, date and hour and, in the case of a special meeting or as otherwise may be required by law, purpose or purposes of the meeting, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, shall be given by the Secretary of the corporation not less than ten (10) nor more than ninety (90) days before the date of the meeting to each stockholder entitled to vote thereat, directed to his or her address as it appears upon the books of the corporation. No business shall be transacted at a special meeting of stockholders except as specifically designated in the notice.

(b) When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communication, if

any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting, are announced at the meeting at which the adjournment is taken unless the adjournment is for more than one hundred twenty (120) days after the original record date, or unless after the adjournment a new record date is fixed for the adjourned meeting, in which event a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

(c) Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, either before or after such meeting, and, to the extent permitted by law, will be waived by any stockholder by his or her attendance thereat, in person or by proxy. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.

(d) Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the corporation under any provision of Maryland General Corporation Law (“MGCL”), the Charter or these Bylaws shall be effective when it is (i) personally delivered to the stockholder, (ii) left at the stockholder’s residence or usual place of business, (iii) mailed to the stockholder at the stockholder’s address as it appears on the records of the corporation or (iv) if consented to by such stockholder, transmitted to the stockholder by electronic mail to any electronic mail address of the stockholder or by any other electronic means. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked if (i) the corporation is unable to deliver by electronic mail or other means two consecutive notices given by the corporation in accordance with such consent, and (ii) such inability becomes known to the Secretary or an assistant secretary of the corporation or to the transfer agent or other person responsible for the giving of notice; provided, however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. An affidavit of the Secretary or an assistant secretary or of the transfer agent or other agent of the corporation that the notice has been given by a form of electronic mail or other means shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of these Bylaws, “electronic mail” or “electronic means” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

Section 2.5 Record Date.

For purposes of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may (a) fix, in advance, a record date which shall not be more than ninety (90) days prior to the date of any such meeting or the taking of such other actions; or (b) direct that the stock transfer books be closed for a period not to exceed twenty (20) days. A record date may not precede the date on which the record date is fixed. In the case of a meeting of stockholders, the record date or the closing of the transfer books shall be at least ten (10) days before the meeting. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Except where the Board of Directors fixes a new record date for any adjourned meeting, any stockholder who was a stockholder on the original record date shall be entitled to receive notice of and to vote at a

meeting of stockholders or any adjournment thereof and to receive a dividend or allotment of rights even though he or she has since such date disposed of his or her shares, and no stockholder becoming a stockholder after such date shall be entitled to receive notice of or to vote at such meeting or any adjournment thereof or to receive such dividend or allotment of rights.

If the Board of Directors does not so fix a record date or close the stock transfer books, then:

(a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the later of (i) at the close of business on the day on which notice is mailed or (ii) at the close of business on the thirtieth (30th) day next preceding the day on which the meeting is held.

(b) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto provided that the payment of a dividend or allotment of rights may not be made more than sixty (60) days after the date on which such resolution was adopted.

Section 2.6 Quorum and Voting.

(a) At all meetings of stockholders except where otherwise provided by law, the Charter or these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of all the votes entitled to be cast at the meeting shall constitute a quorum for the transaction of business. Shares, the voting of which at said meeting have been enjoined, or which for any reason cannot be lawfully voted at such meeting, shall not be counted to determine a quorum at said meeting. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the original meeting.

(b) Except as otherwise provided in this Article II, in any “uncontested” election (as defined below), each director shall be elected by a majority of total votes cast for and against such director nominee at a meeting of stockholders duly called and at which a quorum is present. For purposes of the preceding sentence, “a majority of total votes cast” shall mean that the number of shares voted “for” a director’s election exceeds fifty percent (50%) of the total number of votes cast with respect to that director’s election. Votes “cast” shall mean votes “for” and “against” a director nominee, but shall exclude any abstention with respect to a director’s election or with respect to the election of directors generally. Each share may be voted for as many individuals as there are directors to be elected and for whose election the share is entitled to be voted. An election will be deemed to be an “uncontested” election if no stockholder provides notice of intention to nominate one or more candidates to compete with the Board of Directors’ nominees in a director election in the manner required by these Bylaws, or if any such stockholder or stockholders have withdrawn all such nominations at least ten (10) days prior to the corporation’s filing with the Securities and Exchange Commission of its definitive proxy statement for such meeting of stockholders.

(c) Notwithstanding the foregoing, in any contested election (which shall be any election other than an “uncontested” election, as defined above), each director shall be elected by a plurality of votes cast at a meeting of stockholders duly called and at which a quorum is present. Each share may be voted for as many individuals as there are directors to be elected and for whose election the share is entitled to be voted.

(d) Any director nominee not elected by the vote required in this Section 2.6 and who is an incumbent director shall promptly tender his or her resignation to the Board of Directors for consideration. The committee of the Board of Directors with primary responsibility for corporate governance matters (the “Governance Committee”) will make a recommendation to the Board of Directors as to whether to accept or reject the tendered resignation, or whether other action is recommended, taking into account any factors or other information that

they consider appropriate and relevant, including the circumstances that led to the failure to receive the required vote, if known. The Board of Directors will act on the tendered resignation within ninety (90) days following certification of the stockholder vote and will promptly disclose its decision and rationale as to whether to accept the resignation (or the reasons for rejecting the resignation, if applicable) in a press release, filing with the Securities and Exchange Commission or by other public announcement, including a posting on the corporation’s web site. No director who tenders his or her resignation pursuant to this Section shall participate in the Governance Committee recommendation or Board of Directors action with respect to his or her resignation. Notwithstanding the foregoing, in the event that no director nominee receives the vote required in these Bylaws, the Governance Committee shall make a final determination as to whether the corporation shall accept any or all resignations, including those resignations from the members of the Governance Committee. If an incumbent director’s resignation is accepted by the Board of Directors pursuant to this Section 2.6, or if a non-incumbent director nominee is not elected, the Board of Directors may fill the resulting vacancy or decrease the size of the Board of Directors as specified in these Bylaws. If a director’s resignation is not accepted by the Board of Directors, such director will continue to serve until his or her successor is duly elected and qualified, or his or her earlier death, resignation, retirement or removal.

(e) Except as otherwise provided by law, the Charter or these Bylaws, a majority of all the votes cast at a meeting at which a quorum is present is sufficient to approve any matter that properly comes before the meeting.

(f) Except as otherwise provided by law or the Charter, where a separate vote by a class or classes is required, a majority of the outstanding shares of such class or classes present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter, and the affirmative vote of the majority of shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class.

Section 2.7 Right to Vote; Proxies.

Unless the Charter provides for a greater or lesser number of votes per share or limit or deny voting rights, each outstanding share of stock, regardless of class, is entitled to one vote on each matter submitted to a vote at a meeting of stockholders. A stockholder may cast the votes entitled to be cast by the shares of the corporation owned of record by him or her, either in person or by proxy in any manner authorized by law, by the stockholder or by his or her duly authorized attorney in fact. Such proxy shall be filed with the Secretary before or at the time of the meeting. A stockholder may authorize another person to act as proxy by transmitting, or authorizing the transmission of, an authorization by datagram, electronic mail or any other electronic or telephonic means to the person authorized to act as proxy or to any other person authorized to receive the proxy authorization on behalf of the person authorized to act as proxy, including a proxy solicitation firm or proxy support service organization. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy. A proxy is revocable by a stockholder at any time without condition or qualification unless the proxy states that it is irrevocable and the proxy is coupled with an interest. A proxy may be made irrevocable for so long as it is coupled with an interest. The interest with which a proxy may be coupled includes an interest in the stock to be voted under the proxy or another general interest in the corporation or its assets or liabilities.

Section 2.8 Voting of Shares by Certain Holders.

(a) Shares registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by the president or a vice president, a general partner or trustee thereof, as the case may be, or a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such shares pursuant to a bylaw or a resolution of the governing body of such corporation or other entity or agreement of the partners of a partnership presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote such shares. Any director or other fiduciary may vote shares registered in his or her name as such fiduciary, either in person or by proxy.

(b) Shares registered in the name of a person adjudged incompetent may be voted and all rights incident thereto may be exercised only by his or her guardian, in person or by proxy. Shares registered in the name of a deceased person may be voted and all rights incident thereto may be exercised only by his or her executor or administrator, in person or by proxy. Shares registered in the name of a minor may be voted and all rights incident thereto may be exercised by his or her guardian, in person or by proxy, or in the absence of such representation by his or her guardian, by the minor, in person or by proxy, whether or not the corporation has notice, actual or constructive, of the minority or the appointment of a guardian, and whether or not a guardian has in fact been appointed.

(c) Shares registered in the names of two or more persons shall be voted or represented in accordance with the vote or consent of the majority of the persons in whose names the shares stand. If only one such person is present in person or by proxy, he or she may vote all the shares, and all the shares standing in the names of such persons are represented for the purpose of determining a quorum. This procedure also applies to the voting of shares by two or more administrators, executors, trustees or other fiduciaries, unless the instrument or order of court appointing them otherwise directs.

(d) Shares of the corporation directly or indirectly owned by it shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding shares at any given time.

(e) The Board of Directors may adopt by resolution a procedure by which a stockholder may certify in writing to the corporation that any shares registered in the name of the stockholder are held for the account of a specified person other than the stockholder. The resolution shall set forth: the class of stockholders who may make the certification; the purpose for which the certification may be made; the form of certification; the information to be contained in it; if the certification is with respect to a record date or closing of the stock transfer books, the time after the record date or closing of the stock transfer books within which the certification must be received by the corporation; and any other provisions with respect to the procedure which the Board of Directors considers necessary or desirable. On receipt of such certification, the person specified in the certification shall be regarded as, for the purposes set forth in the certification, the stockholder of record of the specified shares in place of the stockholder who makes the certification.

Section 2.9 Inspectors.

At any meeting of stockholders, the chairman of the meeting may appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of shares represented at the meeting based on their determination of the validity and effect of proxies, count all votes, report the results and perform such other acts as are proper to conduct the election and voting with impartiality and fairness to all the stockholders. Each report of an inspector or inspectors shall be in writing and signed by him or by a majority of them if there is more than one inspector; the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof.

Section 2.10 Stockholder Proposals.

(a) At any annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, otherwise properly brought before the meeting by or at the direction of the Board of Directors, or otherwise properly brought before the meeting by a stockholder who is a stockholder of record at the time of giving notice as provided in this Section 2.10(a), who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 2.10(a). In addition to any other applicable requirements for business to be properly brought before an annual meeting by a stockholder, whether or not the stockholder is seeking to have a proposal included in the corporation’s proxy statement or information statement under any applicable rule of the Securities and Exchange Commission (the “SEC”), including, but not limited to, Regulation 14A or Regulation 14C under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than one hundred twenty (120) days nor more than one hundred fifty (150) days prior to the one-year anniversary of the date on which the corporation first mailed its proxy materials for the previous year’s annual meeting of stockholders (or, if during the prior year the corporation did not hold an annual meeting or if the date of the annual meeting was changed more than thirty (30) days from the one-year anniversary of the prior year’s annual meeting, not less than the later of the ten (10) days following the day on which public announcement of the date of such annual meeting is first made by the corporation or one hundred twenty (120) days before the date of the meeting). In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described above. Other than with respect to stockholder proposals relating to director nomination(s), which are required to set forth the information specified in Section 2.11 below, a stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder or any Stockholder Associated Person (as defined below), (iv) any material interest of the stockholder or any Stockholder Associated Person in such business, including any anticipated benefit to such stockholder or Stockholder Associated Person, (v) a representation that such stockholder intends to appear in person or by proxy at the meeting to bring the business before the meeting, (vi) as to the stockholder giving the notice and any Stockholder Associated Person, whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including, but not limited to, any short position or any borrowing or lending of shares of stock) has been made, the effect or intent of which is to mitigate loss or increase profit to or manage the risk or benefit of stock price changes for, or to increase or decrease the voting power of, such stockholder or Stockholder Associated Person with respect to any share of stock of the corporation (each, a “Relevant Hedge Transaction”) and (vii) as to the stockholder giving the notice and any Stockholder Associated

Person, to the extent not set forth pursuant to the immediately preceding clause, (A) whether and the extent to which such stockholder or Stockholder Associated Person has direct or indirect beneficial ownership of any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the corporation or with a value derived in whole or in part from the value of any class or series of shares of the corporation, any derivative or synthetic arrangement having the characteristics of a long position in any class or series of shares of the corporation, or any contract, derivative, swap or other transaction or series of transactions designed to produce economic benefits and risks that correspond substantially to the ownership of any class or series of shares of the corporation, including due to the fact that the value of such contract, derivative, swap or other transaction or series of transactions is determined by reference to the price, value or volatility of any class or series of shares of the corporation, whether or not such instrument, contract or right shall be subject to settlement in the underlying class or series of capital stock of the corporation, through the delivery of cash or other property, or otherwise, and without regard of whether the stockholder of record, the beneficial owner, if any, or any Stockholder Associated Person therewith, may have entered into transactions that hedge or mitigate the economic effect of such instrument, contract or right (a “Derivative Instrument”), (C) any proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder has a right to vote any class or series of shares of the corporation, (D) whether and the extent to which such stockholder or Stockholder Associated Person has direct or indirect beneficial ownership of any agreement, arrangement, understanding, relationship or otherwise, including any repurchase or similar so called “stock borrowing” agreement or arrangement, engaged in, directly or indirectly, by such stockholder, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of any class or series of the shares of the corporation by, manage the risk of share price changes for, or increase or decrease the voting power of, such stockholder with respect to any class or series of the shares of the corporation, or which provides, directly or indirectly, the opportunity to profit or share in any profit derived from any decrease in the price or value of any class or series of the shares of the corporation (“Short Interests”), (E) any rights to dividends on the shares of the corporation owned beneficially by such stockholder or Stockholder Associated Person that are separated or separable from the underlying shares of the corporation, (F) any proportionate interest in shares of the corporation or Derivative Instruments or Short Interests held, directly or indirectly, by a general or limited partnership in which such stockholder or Stockholder Associated Person is a general partner or, directly or indirectly, beneficially owns an interest in a general partner (G) any performance-related fees (other than an asset-based fee) that such stockholder or Stockholder Associated Person (or any member of such stockholder’s or Stockholder Associated Person’s immediate family sharing the same household) is entitled to based on any increase or decrease in the value of shares of the corporation or Derivative Instruments or Short Interests, if any, as of the date of such notice (which information shall be supplemented not later than ten (10) days after the record date for the meeting to disclose such information as of the record date), (H) any significant equity interests or any Derivative Instruments or Short Interests in any principal competitor of the corporation held by such stockholder or Stockholder Associated Person, and (I) any direct or indirect interest of such stockholder or Stockholder Associated Person in any contract with the corporation, any affiliate of the corporation or any principal competitor of the corporation (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement). For purposes of this Section 2.10(a) and Section 2.11(a), “Stockholder Associated Person” of any stockholder shall mean (x) any person controlling or controlled by, directly or indirectly, or acting in concert with, such stockholder, (y) any beneficial owner of shares of stock of the corporation owned of record or beneficially by such stockholder and (z) any person controlling, controlled by or under common control with such Stockholder Associated Person.

(b) Subject to Section 2.11(b), below, only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors or otherwise properly brought before the meeting by or at the direction of the Board of Directors.

(c) At the same time as or prior to the submission by a stockholder of any stockholder nomination or proposal of business to be considered at an annual or special meeting that, if approved and implemented by the corporation, would cause the corporation to be in breach of any covenant of the corporation in any existing or proposed debt instrument, agreement of the corporation or other material contract or agreement, the proponent stockholder or stockholders must submit to the Secretary of the corporation at the principal executive offices of the corporation (i) evidence satisfactory to the Board of Directors of the lender’s or contracting party’s willingness to waive the breach of covenant or (ii) a plan for repayment of the indebtedness to the lender or correcting the contractual default, specifically identifying the actions to be taken or the source of funds to be used in the repayment, which plan must be satisfactory to the Board of Directors in its discretion.

(d) At the same time or prior to the submission by a stockholder of any stockholder nominations or proposal of business to be considered at an annual or special meeting that, if approved, could not be implemented by the corporation without notifying or obtaining the consent or approval of any federal, state, municipal or other regulatory body, the proponent stockholder or stockholders must submit to the Secretary of the corporation at the principal executive offices of the corporation (i) evidence satisfactory to the Board of Directors that any and all required notices, consents or approvals have been given or obtained, including without limitation such evidence as the Board of Directors may require so that any nominee may be determined to satisfy any suitability or other requirements or (ii) a plan for making the requisite notices or obtaining the requisite consents or approvals, as applicable, prior to the implementation of the proposal or election, which plan must be satisfactory to the Board of Directors in its discretion.

(e) If information submitted pursuant to this Section 2.10 by any stockholder proposing any business at a meeting of stockholders shall be inaccurate to any material extent, such information may be deemed not to have been provided in compliance with Section 2.10(a). Upon written request of the Secretary or the Board of Directors, any stockholder proposing business at a meeting of stockholders shall provide, within five (5) days of delivery of such request (or such other period as may be specified in such request), (i) written verification, satisfactory, in the discretion of the Board of Directors or any authorized officer of the corporation, to demonstrate the accuracy of any information submitted by the stockholder pursuant to this Section 2.10, and (ii) a written update of any information previously submitted by the stockholder pursuant to this Section 2.10, as of an earlier date. If a stockholder fails to provide such written verification or written update within such period, the information as to which written verification or a written update was requested may be deemed not to have been provided in accordance with this Section 2.10.

(f) Notwithstanding anything in these Bylaws to the contrary, only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.10. Unless otherwise required by law, if a stockholder intending to propose business at an annual meeting pursuant to this Section 2.10 does not provide the information required by Section 2.10(a) to the corporation within the applicable time period set forth in Section 2.10(a), is deemed not to have provided such information pursuant to Section 2.10(e), or does not appear in person or by proxy at the meeting to bring the business before the meeting, such business shall not be transacted, notwithstanding that proxies in respect of such business may have been received by the corporation. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 2.10, and if he or she should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. The requirements of Section 2.10 are included to provide the corporation notice of a stockholder’s intention to bring business before a meeting and shall in no event be construed as imposing upon any stockholder the requirement to seek approval from the corporation as a condition precedent to bringing any such business before a meeting.

(g) Notwithstanding the foregoing provisions of this Section 2.10, a stockholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with

respect to the matters set forth in this Section 2.10. Nothing in this Section 2.10 shall affect the right of a stockholder to request inclusion of a proposal in, nor the right of the corporation to omit such proposal from, the corporation’s proxy statement to the extent that such right is provided by an applicable rule of the SEC.

Section 2.11 Nominations of Persons for Election to the Board of Directors.

(a) In addition to any other applicable requirements, only persons who are nominated in accordance with the following procedures, or in accordance with Section 2.15, shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors, by any nominating committee or person appointed by the Board of Directors, by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.11(a) or by any Eligible Stockholder (as defined below) who complies with the procedures set forth in Section 2.15. Such nominations, other than those made by or at the direction of the Board of Directors or by an Eligible Stockholder in accordance with Section 2.15, shall be made pursuant to timely notice in writing to the Secretary of the corporation in accordance with this Section 2.11, which, subject to applicable law and Section 2.15, shall be the exclusive means for a stockholder to make nominations whether or not the stockholder is seeking to have a proposal included in the corporation’s proxy statement or information statement under an applicable rule of the SEC, including, but not limited to, Regulation 14A or Regulation 14C under the Exchange Act. To be timely, a stockholder’s notice delivered in connection with an annual meeting must be delivered to or mailed and received at the principal executive offices of the corporation, not less than one hundred twenty (120) days nor more than one hundred fifty (150) days prior to the one-year anniversary of the date on which the corporation first mailed its proxy materials for the previous year’s annual meeting of stockholders (or, if during the prior year the corporation did not hold an annual meeting or if the date of the annual meeting was changed more than thirty (30) days from the one-year anniversary of the prior year’s annual meeting, not less than the later of the ten (10) days following the day on which public announcement of the date of such annual meeting is first made by the corporation or one hundred twenty (120) days before the date of the meeting). In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described above. Such stockholder’s notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (A) the name, age, business address and residence address of the person, (B) the principal occupation or employment of the person during the past five years, (C) the person’s previous and/or current memberships on all public company boards of directors, (D) the class and number of shares of the corporation which are beneficially owned by the person, the date such shares were acquired and the investment intent of such acquisition, (E) any bankruptcy filings of the person or any affiliate of the person, (F) any criminal convictions of the person or any affiliate of the person, (G) any civil actions or actions by the SEC or other regulatory agency against the person or an affiliate of the person whereby they were found to have violated any Federal or State securities law, (H) any agreements, understandings or arrangements between the person and any other person or persons with respect to the nominee’s nomination or service on the Board of Directors or the capital stock or business of the corporation, (I) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among the stockholder or Stockholder Associated Person, if any, and their respective affiliates and associates, or others acting in concert with the stockholder or any Stockholder Associated Person, on the one hand, and each proposed nominee, or his or her respective affiliates and associates, or others acting in concert with the proposed nominee, on the other hand, including, without limitation all information that would be required to be disclosed pursuant to Item 404 of Regulation S‑K promulgated under the Securities Act of 1933, as amended (“Item 404 of Regulation S‑K”) if the stockholder making the nomination and any Stockholder Associated Person on whose behalf the nomination is made or any affiliate or associate of the stockholder or Stockholder Associated Person, if any, or any person acting in concert with the stockholder or any Stockholder Associated Person, were the “registrant” for purposes of Item 404 of Regulation S‑K and the nominee were a director or executive officer of such registrant, and (J) all other

information relating to the person that is required to be disclosed in solicitations of proxies for election of directors, or that is otherwise required, in each case pursuant to Regulation 14A or Regulation 14C (or any successor provisions) under the Exchange Act (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected), (ii) the name and record address of the stockholder giving the notice, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder giving the notice or any Stockholder Associated Person, (iv) as to the stockholder giving the notice and any Stockholder Associated Person, to the extent not set forth pursuant to the immediately preceding clause, (A) whether and the extent to which any Relevant Hedge Transaction has been entered into, (B) whether and the extent to which any Derivative Instrument is directly or indirectly beneficially owned, (C) any proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder has a right to vote any class or series of shares of the corporation, (D) whether and the extent to which any Short Interest is directly or indirectly beneficially owned, (E) any rights to dividends on the shares of the corporation owned beneficially by such stockholder that are separated or separable from the underlying shares of the corporation, (F) any proportionate interest in shares of the corporation or Derivative Instruments or Short Interests held, directly or indirectly, by a general or limited partnership in which such stockholder is a general partner or, directly or indirectly, beneficially owns an interest in a general partner, (G) any performance-related fees (other than an asset-based fee) that such stockholder is entitled to based on any increase or decrease in the value of shares of the corporation or Derivative Instruments or Short Interests, if any, as of the date of such notice, including without limitation any such interests held by members of such stockholder’s immediate family sharing the same household (which information shall be supplemented by such stockholder and beneficial owner, if any, not later than 10 days after the record date for the meeting to disclose such ownership as of the record date), (H) any significant equity interests or any Derivative Instruments or Short Interests in any principal competitor of the corporation held by such stockholder or Stockholder Associated Person, and (I) any direct or indirect interest of such stockholder or Stockholder Associated Person in any contract with the corporation, any affiliate of the corporation or any principal competitor of the corporation (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement). The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as a director of the corporation and to determine the independence of the proposed nominee under applicable standards. Each person nominated to serve as a director by a stockholder must submit the questionnaire, representation and agreement specified in Section 2.11(c) at the time notice of the proposed nomination is provided in accordance with this Section 2.11(a). Within 10 days of a request by the corporation, a stockholder nominating a person for election as a director of the corporation must also deliver to the corporation any additional information reasonably requested by the corporation concerning the stockholder or the person nominated for election as a director of the corporation as would be required, pursuant to applicable law, to be disclosed in the proxy materials concerning all persons nominated (by the corporation or otherwise) for election as a director of the corporation, whether or not the nominee is to be included in the corporation’s proxy statement. In this regard, the corporation may require, within 10 days of a request by the corporation, any proposed nominee to furnish such additional information as may be reasonably required by the corporation to determine the eligibility of such proposed nominee to serve as a director of the corporation or a member of any committee of the Board of Directors, or that could be material to a reasonable stockholder’s understanding of the qualifications or independence, or lack thereof, of such nominee. Subject to applicable law, no person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth herein. These provisions shall not apply to nomination of any persons entitled to be separately elected by holders of preferred stock.

(b) Nominations of individuals for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the notice of meeting (or any supplement thereto) (i) by or at the direction of the Board of Directors, or (ii) provided that the Board of Directors has determined that directors shall be elected at such special meeting, by a stockholder who is a stockholder of record at the time of giving notice as provided in this Section 2.11(b), who shall be entitled to vote at such meeting and who complies

with the notice procedures set forth in this Section 2.11(b). In the event a special meeting of stockholders is called for the purpose of electing one or more directors to the Board of Directors, any stockholder of record may nominate an individual or individuals (as the case may be) for election as a director as specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, if the stockholder’s notice containing the information required by Section 2.11(a) shall have been delivered to or mailed and received at the principal executive offices of the corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the date of the special meeting (or, if the first public announcement of the date of such special meeting is less than one hundred (100) days prior to the date of such special meeting, not less than ten (10) days following the day on which public announcement of the date of such special meeting is first made by the corporation). In no event shall any adjournment or postponement of a special meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described above.

(c) To be eligible to be a nominee for election or re-election as a director of the corporation under this Section 2.11, a person nominated by a stockholder must deliver (in accordance with the time periods prescribed for delivery of notice under Section 2.11(a)) to the Secretary at the principal offices of the corporation a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nominee is being nominated (which questionnaire shall be provided by the Secretary upon written request) and a written representation, and agreement (in the form provided by the Secretary upon written request) that the person (i) is not and will not become a party to (A) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how that person, if elected as a director of the corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the corporation or (B) any Voting Commitment that could limit or interfere with that person’s ability to comply, if elected as a director of the corporation, with that person’s duties to the corporation under applicable law, (ii) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed in the questionnaire, representation or agreement, and (iii) in the person’s individual capacity and on behalf of any person or entity on whose behalf the nominee is being nominated, would be in compliance, if elected as a director of the corporation, and will comply, with all applicable publicly disclosed corporate governance, code of business conduct and ethics, related person transaction, confidentiality and stock ownership and trading policies and guidelines of the corporation as presently exist or as may be amended or adopted from time to time.

(d) If information submitted pursuant to this Section 2.11 by any stockholder proposing a nominee for election as a director at a meeting of stockholders shall be inaccurate to any material extent, such information may be deemed not to have been provided in compliance with Section 2.11(a). Upon written request of the Secretary or the Board of Directors, any stockholder proposing a nominee for election as a director at a meeting of stockholders shall provide, within five (5) days of delivery of such request (or such other period as may be specified in such request), (i) written verification, satisfactory, in the discretion of the Board of Directors or any authorized officer of the corporation, to demonstrate the accuracy of any information submitted by the stockholder pursuant to this Section 2.11, and (ii) a written update of any information previously submitted by the stockholder pursuant to this Section 2.11, as of an earlier date. If a stockholder fails to provide such written verification or written update within such period, the information as to which written verification or a written update was requested may be deemed not to have been provided in accordance with this Section 2.11.

(e) If the chairman of the meeting determines that a nomination of any candidate for election as a director was not made in accordance with Section 2.11, such nomination shall be void. Notwithstanding anything in these Bylaws to the contrary, unless otherwise required by law, if a stockholder intending to make a nomination at an annual or special meeting pursuant to Section 2.11 does not provide the information required by Section 2.11(a) to the corporation within the applicable time period set forth in Section 2.11(a), is deemed not to have provided such information pursuant to Section 2.11(d), the nominee does not submit the questionnaire, representation and

agreement specified in Section 2.11(c) to the corporation within the applicable time period set forth in Section 2.11(a), or the stockholder does not appear in person or by proxy at the meeting to present the nomination, such nomination shall be disregarded, notwithstanding that proxies in respect of such nomination may have been received by the corporation.

(f) Notwithstanding the foregoing provisions of this Section 2.11, a stockholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.11. Nothing in this Section 2.11 shall affect the right of a stockholder to request inclusion of a director nominee in, nor the right of the corporation to omit such director nominee from, the corporation’s proxy statement to the extent that such right is provided by an applicable rule of the SEC.

Section 2.12 Action Without Meetings.

(a) Except as provided in the next sentence, any action required or permitted to be taken at a meeting of stockholders may be taken without a meeting if there is filed with the records of stockholders’ meetings a unanimous written consent which sets forth the action and is signed by each stockholder entitled to vote on the matter. Unless the Charter requires otherwise, the holders of any class of stock other than common stock, entitled to vote generally in the election of directors, may take action or consent to any action by the written consent of stockholders entitled to cast not less than the minimum number of votes that would be necessary to authorize or take the action at a stockholders meeting if the corporation gives notice of the action to each stockholder not later than ten (10) days after the effective time of the action. To be effective, a written consent must be delivered to the corporation by delivery to its registered office in Maryland, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered in the manner required by this Section 2.12 to the corporation, written consents signed by a sufficient number of holders to take action are delivered to the corporation in accordance with this Section 2.12.

(b) An electronic transmission consent to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes of this section, provided that any such electronic transmission sets forth or is delivered with information from which the corporation can determine (i) that the electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder or proxyholder, and (ii) the date on which such stockholder or proxyholder or authorized person or persons transmitted such electronic transmission. The date on which such electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the corporation by delivery to its registered office in Maryland, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation’s registered office shall be made by hand or by certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by electronic transmission may be otherwise delivered to the principal place of business of the corporation or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded if to the extent and in the manner provided by resolution of the Board of Directors of the corporation.

Section 2.13 Voting by Ballot.

If ordered by the presiding officer of any stockholder meeting, the vote upon any election or question shall be by ballot.

Section 2.14 Organization and Conduct of Meetings.

Every meeting of stockholders shall be conducted by an individual appointed by the Board of Directors to be chairman of the meeting or, in the absence of such appointment, by the Chairman of the Board or, in the case of a vacancy in the office or absence of the Chairman of the Board, by one of the following officers present at the meeting: the Vice Chairman of the Board, if there be one, the Chief Executive Officer, the President, the Vice Presidents in their order of rank and seniority, or, in the absence of such officers, a chairman chosen by the stockholders by the vote of a majority of the votes cast by stockholders present in person or by proxy. The Secretary, or, in the Secretary’s absence, an Assistant Secretary, or in the absence of both the Secretary and Assistant Secretaries, a person appointed by the Board of Directors or, in the absence of such appointment, a person appointed by the chairman of the meeting shall act as secretary. In the event that the Secretary presides at a meeting of the stockholders, an Assistant Secretary, or in the absence of any Assistant Secretaries, a person appointed by the Board of Directors or, in the absence of such appointment, a person appointed by the chairman of the meeting, shall record the minutes of the meeting. The order of business and all other matters of procedure at any meeting of stockholders shall be determined by the chairman of the meeting. The chairman of the meeting may prescribe such rules, regulations and procedures and take such action as, in the discretion of such chairman, are appropriate for the proper conduct of the meeting, including, without limitation: (a) restricting admission to the time set for the commencement of the meeting, (b) limiting attendance at the meeting to stockholders of record of the corporation, their duly authorized proxies or other such persons as the chairman of the meeting may determine, (c) limiting participation at the meeting on any matter to stockholders of record of the corporation entitled to vote on such matter, their duly authorized proxies or other such persons as the chairman of the meeting may determine, (d) limiting the time allotted to questions or comments by participants, (e) maintaining order and security at the meeting; (f) removing any stockholder who refuses to comply with meeting procedures, rules or guidelines as set forth by the chairman of the meeting, (g) determining when the polls should be opened and closed, and (h) recessing the meeting, adjourning the meeting to a later date and time and place announced at the meeting or concluding the meeting. Unless otherwise determined by the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

Section 2.15 Proxy Access.

(a) Notwithstanding anything to the contrary in these Bylaws, whenever the Board of Directors solicits proxies with respect to the election of directors at an annual meeting of stockholders, subject to the provisions of this Section 2.15, the corporation shall include in its proxy statement and other applicable filings pursuant to Section 14(a) of the Exchange Act (the “Corporation’s Proxy Materials”), in addition to any individuals nominated for election by or at the direction of the Board of Directors, the name, together with the Required Information (as defined below), of any individual nominated for election to the Board of Directors (each such individual being hereinafter referred to as a “Stockholder Nominee”) by a stockholder or group of no more than twenty (20) stockholders that satisfies the requirements of this Section 2.15 (such individual or group, including as the context requires each member thereof, being hereinafter referred to as the “Eligible Stockholder”). For purposes of this Section 2.15, the “Required Information” that the corporation shall include in the Corporation’s Proxy Materials is (A) the information provided to the Secretary of the corporation concerning the Stockholder Nominee and the Eligible Stockholder that is required to be disclosed in the Corporation’s Proxy Materials by the rules and regulations promulgated under the Exchange Act and (B) if the Eligible Stockholder so elects, a written statement in support of the Stockholder Nominee’s candidacy, not to exceed 500 words, delivered to the Secretary of the corporation at the time the Notice of Proxy Access Nomination (as defined below) required by this Section 2.15 is provided (the “Statement”). Notwithstanding anything to the contrary contained in this Section 2.15, the corporation may omit from the Corporation’s Proxy Materials any information or Statement (or portion thereof) that the Board of Directors, in its sole discretion, determines is materially false or misleading, omits to state any material fact necessary in order to make such information or Statement, in light of the circumstances under which it was provided or made, not misleading, or would violate any applicable law or regulation.

(b) To be eligible to require the corporation to include a Stockholder Nominee in the Corporation’s Proxy Materials pursuant to this Section 2.15, an Eligible Stockholder must have Owned (as defined below) at least three percent (3%) or more of the shares of common stock of the corporation outstanding from time to time (the “Required Shares”) continuously for at least three (3) years (the “Minimum Holding Period”) as of both the date the Notice of Proxy Access Nomination or Notice of Bylaw Amendment Proposal (as defined in Section 8.5), as applicable, is delivered or mailed to and received by the Secretary of the corporation in accordance with this Section 2.15 and the close of business on the record date for determining the stockholders entitled to vote at the annual meeting of stockholders, and must continuously Own the Required Shares through the date of such annual meeting (and any postponement or adjournment thereof). For purposes of this Section 2.15, an Eligible Stockholder shall be deemed to “Own” only those outstanding shares of common stock as to which the Eligible Stockholder possesses both (i) the full voting and investment rights pertaining to the shares and (ii) the full economic interest in (including the opportunity for profit from and risk of loss on) such shares; provided that the number of shares calculated in accordance with clauses (i) and (ii) shall not include any shares (A) sold by such Eligible Stockholder or any of its Affiliates (as defined below) in any transaction that has not been settled or closed, including short sales, (B) borrowed by such Eligible Stockholder or any of its Affiliates for any purpose or purchased by such Eligible Stockholder or any of its Affiliates pursuant to an agreement to resell, (C) that are subject to any option, warrant, forward contract, swap, contract of sale, other derivative or similar instrument, agreement, arrangement or understanding entered into by such stockholder or any of its Affiliates, whether any such instrument, agreement, arrangement or understanding is to be settled with shares or with cash based on the notional amount or value of shares of outstanding common stock, in any such case which instrument, agreement, arrangement or understanding has, or is intended to have, the purpose or effect of (1) reducing in any manner, to any extent or at any time in the future, such stockholder’s or its Affiliate’s full right to vote or direct the voting of any such shares and/or (2) hedging, offsetting or altering to any degree any gain or loss arising from the full economic ownership of such shares by such stockholder or its Affiliate or (D) for which the stockholder has transferred the right to vote the shares other than by means of a proxy, power of attorney or other instrument or arrangement that is unconditionally revocable at any time by the stockholder and that expressly directs the proxy

holder to vote at the direction of the stockholder. In addition, an Eligible Stockholder shall be deemed to “Own” shares of common stock held in the name of a nominee or other intermediary so long as the stockholder retains the full right to instruct how the shares are voted with respect to the election of directors and possesses the full economic interest in the shares of common stock. An Eligible Stockholder’s Ownership of shares of common stock shall be deemed to continue during any period in which the Eligible Stockholder has loaned such shares, provided that the Eligible Stockholder has the power to recall such loaned shares on no more than five (5) business days’ notice, the Eligible Stockholder recalls such loaned shares within five (5) business days of being notified that its Stockholder Nominee will be included in the Corporation’s Proxy Materials and the Eligible Stockholder holds such recalled shares through the date of the annual meeting of stockholders. For purposes of this Section 2.15, the terms “Owned,” “Owning” and other variations of the word “Own” shall have correlative meanings. Whether outstanding shares of common stock are “Owned” for these purposes shall be determined by the Board of Directors, in its sole discretion. In addition, the term “Affiliate” or “Affiliates” shall have the meaning ascribed thereto under the Exchange Act.

(c) To be eligible to require the corporation to include a Stockholder Nominee in the Corporation’s Proxy Materials pursuant to this Section 2.15, an Eligible Stockholder must provide to the Secretary of the corporation, in proper form and within the times specified below, (i) a written notice expressly electing to have such Stockholder Nominee included in the Corporation’s Proxy Materials pursuant to this Section 2.15 (a “Notice of Proxy Access Nomination”) and (ii) any updates or supplements to such Notice of Proxy Access Nomination. To be timely, the Notice of Proxy Access Nomination or Notice of Bylaw Amendment Proposal, as applicable, must be so delivered or mailed to and received at the principal executive offices of the corporation not less than one hundred twenty (120) days nor more than one hundred fifty (150) days prior to the one-year anniversary of the date on which the corporation first mailed its proxy materials for the previous year’s annual meeting of stockholders (or, if during the prior year the corporation did not hold an annual meeting or if the date of the annual meeting was changed more than thirty (30) days from the one-year anniversary of the prior year’s annual meeting, not less than the later of the ten (10) days following the day on which public announcement of the date of such annual meeting is first made by the corporation or one hundred twenty (120) days before the date of the meeting). The public announcement of a postponement or an adjournment of an annual meeting shall not commence a new time for the giving of a Notice of Proxy Access Nomination or Notice of Bylaw Amendment Proposal, as applicable, as described above.

(d) To be in proper form for purposes of this Section 2.15, the Notice of Proxy Access Nomination or Notice of Bylaw Amendment Proposal, as applicable, delivered or mailed to and received by the Secretary shall include the following information, as applicable: (i) one or more written statements from the record holder of the Required Shares (or from each intermediary through which the Required Shares are or have been held during the Minimum Holding Period and, if applicable, each participant in the Depository Trust Company (“DTC”) or affiliate of a DTC participant through which the Required Shares are or have been held by such intermediary during the Minimum Holding Period if the intermediary is not a DTC participant or an affiliate of a DTC participant) verifying that, as of a date within seven (7) business days prior to the date the Notice of Proxy Access Nomination or Notice of Bylaw Amendment Proposal, as applicable, is delivered to or mailed to and received by the Secretary of the corporation, the Eligible Stockholder Owns, and has Owned continuously for the Minimum Holding Period, the Required Shares, and the Eligible Stockholder’s agreement to provide (A) within five (5) business days after the record date for the annual meeting of stockholders, written statements from the record holder or intermediaries between the record holder and the Eligible Stockholder verifying the Eligible Stockholder’s continuous Ownership of the Required Shares through the close of business on the record date, together with a written statement by the Eligible Stockholder that such Eligible Stockholder will continue to Own the Required Shares through the date of such annual meeting (and any postponement or adjournment thereof), and (B) the updates and supplements to the Notice of Proxy Access Nomination or Notice of Bylaw Amendment Proposal, as applicable, at the times and in the forms required by this Section 2.15; (ii) a copy of the Schedule 14N filed or to be filed with the Securities and Exchange Commission as required by Rule 14a-18 under the

Exchange Act; (iii) information that is the same as would be required to be set forth in a stockholder’s notice of nomination pursuant to Section 2.11(a) of Article II of these Bylaws, including the written consent of the Stockholder Nominee to being named in the Corporation’s Proxy Materials as a nominee and to serving as a director if elected; (iv) the questionnaire and representation and agreement required by Section 2.11(c) of Article II of these Bylaws; (v) the written agreement of the Stockholder Nominee, upon such Stockholder Nominee’s election, to make such acknowledgments, enter into such agreements and provide such information as the Board of Directors requires of all directors at such time, including, without limitation, agreeing to be bound by the corporation’s code of business conduct and ethics, insider trading policy, stock ownership guidelines, statement on corporate governance and other corporation policies and procedures applicable to directors; (vi) a representation that the Eligible Stockholder (A) will continue to hold the Required Shares through the date of the annual meeting of stockholders, (B) acquired the Required Shares in the ordinary course of business and not with the intent to change or influence control of the corporation, and that neither the Eligible Stockholder nor any Stockholder Nominee being nominated thereby presently has such intent, (C) has not nominated and will not nominate for election to the Board of Directors at the annual meeting of stockholders (or any postponement or adjournment thereof) any individual other than the Stockholder Nominee(s) included in the Corporation’s Proxy Materials pursuant to this Section 2.15, (D) has not engaged and will not engage in, and has not been and will not be a “participant” in, another person’s “solicitation,” each within the meaning of Rule 14a-1(l) under the Exchange Act, in support of the election of any individual as a director at the annual meeting (or any postponement or adjournment thereof) other than such Stockholder Nominee(s) or a nominee of the Board of Directors, (E) has complied, and will comply, with all applicable laws and regulations applicable to solicitations and the use, if any, of soliciting material in connection with the annual meeting, including, without limitation, Rule 14a-9 under the Exchange Act, (F) will not distribute to any stockholder any form of proxy for the annual meeting other than the form distributed by the corporation and (G) has not provided and will not provide facts, statements or information in its communications with the corporation and the stockholders that were not or will not be true, correct and complete in all material respects or which omitted or will omit to state a material fact necessary in order to make such facts, statements or information, in light of the circumstances under which they were or will be provided, not misleading; (vii) a written undertaking that the Eligible Stockholder (A) assumes all liability stemming from any legal or regulatory violation arising out of communications with the stockholders by the Eligible Stockholder, its Affiliates and associates or their respective agents or representatives, either before or after providing a Notice of Proxy Access Nomination or Notice of Bylaw Amendment Proposal, as applicable, pursuant to this Section 2.15, or out of the facts, statements or information that the Eligible Stockholder or its Stockholder Nominee(s) provided to the corporation pursuant to this Section 2.15 or otherwise in connection with the inclusion of such Stockholder Nominee(s) in the Corporation’s Proxy Materials pursuant to this Section 2.15, and (B) indemnifies and holds harmless the corporation and each of its directors, officers and employees against any liability, loss or damages in connection with any threatened or pending action, suit or proceeding, whether legal, administrative or investigative, against the corporation or any of its directors, officers or employees arising out of any nomination of a Stockholder Nominee or inclusion of such Stockholder Nominee in the Corporation’s Proxy Materials pursuant to this Section 2.15; (viii) a written description of any compensatory, payment or other agreement, arrangement or understanding with any person or entity other than the corporation under which the Stockholder Nominee is receiving or will receive compensation or payments directly related to service on the Board of Directors, together with a copy of any such agreement, arrangement or understanding, if written; and (ix) in the case of the nomination by a group, the designation by all group members of one group member that is authorized to act on behalf of all group members with respect to matters relating to the nomination, including withdrawal of the nomination. The corporation may also require each Stockholder Nominee and the Eligible Stockholder to furnish such other information (A) as may reasonably be required by the corporation to determine the eligibility of such Stockholder Nominee to serve as an independent director (as determined under any applicable rules of the Securities and Exchange Commission, listing standards of any national securities exchange on which any securities of the corporation are listed, and any publicly disclosed standards used by the Board of Directors in determining and disclosing the independence of the corporation’s directors), (B) that could be

material to a stockholder’s understanding of the independence or lack of independence of such Stockholder Nominee or (C) as may reasonably be required by the corporation to determine that the Eligible Stockholder meets the criteria for qualification as an Eligible Stockholder.

(e) To be eligible to require the corporation to include a Stockholder Nominee in the Corporation’s Proxy Materials pursuant to this Section 2.15, an Eligible Stockholder must further update and supplement the Notice of Proxy Access Nomination, if necessary, so that the information provided or required to be provided in such Notice of Proxy Access Nomination pursuant to this Section 2.15 shall be true and correct as of the record date for the annual meeting of stockholders and as of the date that is ten (10) business days prior to such annual meeting or any postponement or adjournment thereof, and such update and supplement (or a written notice stating that there is no such update or supplement) shall be delivered or mailed to and received at the principal executive office of the corporation not later than the fifth (5th) business day after the record date for the meeting (in the case of the update and supplement required to be made as of the record date) and not later than the eighth (8th) business day prior to the date of the meeting, if practicable, or, if not practicable, on the first practicable date prior to the meeting or any postponement or adjournment thereof (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any postponement or adjournment thereof).

(f) In the event that any facts, statements or information provided by the Eligible Stockholder or a Stockholder Nominee to the corporation or the stockholders ceases to be true, correct and complete in all material respects or omits a material fact necessary to make such facts, statements or information, in light of the circumstances under which they were provided, not misleading, the Eligible Stockholder or Stockholder Nominee, as the case may be, shall promptly notify the Secretary of the corporation of any defect in such previously provided facts, statements or information and of the facts, statements or information required to correct any such defect.

(g) Whenever an Eligible Stockholder consists of a group of more than one stockholder, each provision in this Section 2.15 that requires the Eligible Stockholder to provide any written statements, representations, undertakings, agreements or other instruments or to comply with any other conditions shall be deemed to require each stockholder that is a member of such group to provide such statements, representations, undertakings, agreements or other instruments and to meet such other conditions (which, if applicable, shall apply with respect to the portion of the Required Shares Owned by such stockholder). When an Eligible Stockholder is comprised of a group, a violation of any provision of these Bylaws by any member of the group shall be deemed a violation by the entire group. No person may be a member of more than one group of persons constituting an Eligible Stockholder with respect to any annual meeting of stockholders. In determining the aggregate number of stockholders in a group, two or more funds that are (A) under common management and investment control, (B) under common management and funded by the same employer, or (C) a “group of investment companies” as such term is defined in Section 12(d)(1)(G)(ii) of the Investment Company Act of 1940, as amended (a “Qualifying Fund Group”) shall be treated as one stockholder. Not later than the deadline for delivery of the Notice of Proxy Access Nomination or Notice of Bylaw Amendment Proposal, as applicable, pursuant to this Section 2.15, a Qualifying Fund Group whose stock Ownership is counted for purposes of determining whether a stockholder or group of stockholders qualifies as an Eligible Stockholder shall provide to the Secretary of the corporation such documentation as is reasonably satisfactory to the Board of Directors, in its sole discretion, that demonstrates that the funds comprising the Qualifying Fund Group satisfy the definition thereof.

(h) The maximum number of Stockholder Nominees nominated by all Eligible Stockholders and entitled to be included in the Corporation’s Proxy Materials with respect to an annual meeting of stockholders shall be 20% of the number of directors up for election as of the last day on which a Notice of Proxy Access Nomination may be timely delivered pursuant to and in accordance with this Section 2.15 (the “Final Proxy Access Nomination Date”) or, if such percentage is not a whole number, the closest whole number below such percentage; provided that the maximum number of Stockholder Nominees entitled to be included in the Corporation’s Proxy Materials with respect to a forthcoming annual meeting of stockholders shall be reduced by (A) the number of individuals who were elected as directors at the immediately preceding or second preceding annual meeting of stockholders after inclusion in the Corporation’s Proxy Materials pursuant to this Section 2.15 and whom the Board of Directors nominates for re-election at such forthcoming annual meeting of stockholders, and (B) any directors in office or director candidates that, in either case, will be included in the Corporation’s Proxy Materials with respect to such annual meeting of stockholders as an unopposed (by the corporation) nominee pursuant to an agreement, arrangement or other understanding between the corporation and a stockholder or group of stockholders (other than any such agreement, arrangement or understanding entered into or in connection with an acquisition of common stock, by such stockholder or group of stockholders, from the corporation). In the event that one or more vacancies for any reason occur on the Board of Directors after the Final Proxy Access Nomination Date but before the date of the annual meeting of stockholders and the Board of Directors elects to reduce the size of the Board of Directors in connection therewith, the maximum number of Stockholder Nominees eligible for inclusion in the Corporation’s Proxy Materials pursuant to this Section 2.15 shall be calculated based on the number of directors serving as so reduced. Any individual nominated by an Eligible Stockholder for inclusion in the Corporation’s Proxy Materials pursuant to this Section 2.15 whose nomination is subsequently withdrawn or whom the Board of Directors decides to nominate for election to the Board of Directors shall be counted as one of the Stockholder Nominees for purposes of determining when the maximum number of Stockholder Nominees eligible for inclusion in the Corporation’s Proxy Materials pursuant to this Section 2.15 has been reached. Any Eligible Stockholder submitting more than one Stockholder Nominee for inclusion in the Corporation’s Proxy Materials pursuant to this Section 2.15 shall rank such Stockholder Nominees based on the order that the Eligible Stockholder desires such Stockholder Nominees be selected for inclusion in the Corporation’s Proxy Materials in the event that the total number of Stockholder Nominees submitted by Eligible Stockholders pursuant to this Section 2.15 exceeds the maximum number of Stockholder Nominees eligible for inclusion in the Corporation’s Proxy Materials pursuant to this Section 2.15(h). In the event the number of Stockholder Nominees submitted by Eligible Stockholders pursuant to this Section 2.15 exceeds the maximum number of nominees eligible for inclusion in the Corporation’s Proxy Materials pursuant to this Section 2.15(h), the highest-ranking Stockholder Nominee from each Eligible Stockholder pursuant to the preceding sentence shall be selected for inclusion in the Corporation’s Proxy Materials until the maximum number is reached, proceeding in order of the number of shares of common stock (largest to smallest) disclosed as Owned by each Eligible Stockholder in the Notice of Proxy Access Nomination submitted to the Secretary of the corporation. If the maximum number is not reached after the highest-ranking Stockholder Nominee from each Eligible Stockholder has been selected, this selection process shall continue as many times as necessary, following the same order each time, until the maximum number is reached. The Stockholder Nominees so selected in accordance with this Section 2.15(h) shall be the only Stockholder Nominees entitled to be included in the Corporation’s Proxy Materials and, following such selection, if the Stockholder Nominees so selected are not included in the Corporation’s Proxy Materials or are not submitted for election for any reason (other than the failure of the corporation to comply with this Section 2.15), no other Stockholder Nominees shall be included in the Corporation’s Proxy Materials pursuant to this Section 2.15.

(i) The corporation shall not be required to include, pursuant to this Section 2.15, a Stockholder Nominee in the Corporation’s Proxy Materials for any annual meeting of stockholders (i) for which meeting the Secretary of the corporation receives a notice that the Eligible Stockholder or any other stockholder has nominated one or more individuals for election to the Board of Directors pursuant to the advance notice requirements for stockholder nominees for director set forth in Section 2.11 of Article II of these Bylaws, (ii) if the Eligible

Stockholder who has nominated such Stockholder Nominee has engaged in or is currently engaged in, or has been or is a “participant” in another person’s, “solicitation,” each within the meaning of Rule 14a‑1(l) under the Exchange Act, in support of the election of any individual as a director at the annual meeting other than its Stockholder Nominee(s) or a nominee of the Board of Directors, (iii) if such Stockholder Nominee would not qualify as an independent (as determined under any applicable rules of the Securities and Exchange Commission, listing standards of any national securities exchange on which any securities of the corporation are listed, and any publicly disclosed standards used by the Board of Directors in determining and disclosing the independence of the corporation’s directors), (iv) if such Stockholder Nominee is or becomes a party to any agreement by which the Stockholder Nominee agrees or commits to vote a certain way on certain matters, (v) if the election of such Stockholder Nominee as a director would cause the corporation to fail to comply with these Bylaws, the Charter, the rules and listing standards of any national securities exchange on which any securities of the corporation are listed or over-the-counter market on which any securities of the corporation are traded, or any applicable state or federal law, rule or regulation, (vi) if such Stockholder Nominee is or has been, within the past three (3) years, an officer or director of a competitor, as defined in Section 8 of the Clayton Antitrust Act of 1914, (vii) if such Stockholder Nominee is a defendant in or named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses) or has been convicted or has pleaded nolo contendere in such a criminal proceeding within the past ten (10) years, (viii) if such Stockholder Nominee is subject to any order of the type specified in Rule 506(d) of Regulation D promulgated under the Securities Act of 1933, as amended, (ix) if the Eligible Stockholder who has nominated such Stockholder Nominee or such Stockholder Nominee provides any fact, statement or information to the corporation or the Stockholders required or requested pursuant to this Section 2.15 that is not true, correct and complete in all material respects or that omits a material fact necessary to make such facts, statements or information, in light of the circumstances in which they were provided, not misleading, or that otherwise contravenes any of the agreements, representations or undertakings made by such Eligible Stockholder or Stockholder Nominee pursuant to this Section 2.15 or (x) if the Eligible Stockholder who has nominated such Stockholder Nominee or such Stockholder Nominee fails to comply with any of its obligations pursuant to this Section 2.15, in each instance as determined by the Board of Directors, in its sole discretion.

(j) Notwithstanding anything to the contrary set forth herein, the Board of Directors or the presiding officer of the annual meeting of stockholders shall declare a nomination by an Eligible Stockholder to be invalid, and such nomination shall be disregarded notwithstanding that proxies in respect of such vote may have been received by the corporation, if (i) the Stockholder Nominee(s) and/or the applicable Eligible Stockholder shall have failed to comply with its or their obligations under this Section 2.15, as determined by the Board of Directors or the presiding officer, or (ii) the Eligible Stockholder, or a qualified representative thereof, does not appear at the annual meeting of stockholders to present the nomination of the Stockholder Nominee(s) included in the Corporation’s Proxy Materials pursuant to this Section 2.15. For purposes of this Section 2.15(j), to be considered a qualified representative of a stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as its proxy at the annual meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction thereof, at such annual meeting.

(k) Any Stockholder Nominee who is included in the Corporation’s Proxy Materials for an annual meeting of stockholders but either (i) withdraws from or becomes ineligible or unavailable for election to the Board of Directors at such annual meeting, or (ii) does not receive at least 10% of the votes cast in favor of such Stockholder Nominee’s election, will be ineligible for inclusion in the Corporation’s Proxy Materials as a Stockholder Nominee pursuant to this Section 2.15 for the next two annual meetings of stockholders. For the avoidance of doubt, this Section 2.15(k) shall not prevent any stockholder from nominating any individual to the Board of Directors pursuant to and in accordance with Section 2.11 of Article II of these Bylaws.

(l) This Section 2.15 provides the exclusive method for a stockholder to require the corporation to include nominee(s) for election to the Board of Directors in the Corporation’s Proxy Materials.

ARTICLE III DIRECTORS

Section 3.1 Number; Term of Office; Qualification.

(a) The number of directors of the corporation shall not be less than one (1) nor more than twelve (12) until changed by a resolution amending this Section 3.1 duly adopted by the Board of Directors. The exact number of directors shall be fixed from time to time, within the limits specified in this Section 3.1, by the Board of Directors.

(b) With the exception of the first Board of Directors, which shall be elected by the incorporators, and except as provided in Section 3.3, the directors shall be elected in accordance with the Charter and these Bylaws, at the stockholders annual meeting in each year and entitled to vote on the election of directors. Elected directors shall hold office until the next annual meeting and until their successors are duly elected and qualified. Directors need not be stockholders.

(c) Each director shall be at least 21 years of age. Each director shall own shares of common stock of the corporation, and the Board of Directors shall from time to time, following a review of the matter by the Governance Committee, adopt stock ownership guidelines for non-employee directors, which shall be publicly disclosed in accordance with applicable law and/or the listing standards of the securities exchange on which the common stock of the corporation is listed. Each director shall have the requisite experience, background and qualifications that the Board of Directors determines, in its sole discretion, is necessary to serve on the Board of Directors of the corporation. A majority of the directors of the corporation that do not also serve as employees of the corporation shall be “independent,” as determined in accordance with the policies of the corporation that are adopted by the Board of Directors from time to time, and applicable law and/or the listing standards of the securities exchange on which the common stock of the corporation is listed.

Section 3.2 Powers.

The powers of the corporation shall be exercised, its business conducted and its property controlled by or under the direction of the Board of Directors.

Section 3.3 Vacancies.

Unless the Charter requires otherwise, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and each director so elected shall hold office for the unexpired portion of the term of the director whose place is vacant and until his or her successor is duly elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Section 3.3 in the case of the death, removal or resignation of any director, or if the stockholders fail at any meeting of stockholders at which directors are to be elected (including any meeting referred to in Section 3.4 below) to elect the number of directors then constituting the whole Board of Directors.

Section 3.4 Resignations and Removals.

(a) Any director may resign at any time by delivering his or her resignation to the Secretary in writing or by electronic transmission, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors resigns from the Board of Directors effective at a future date and, unless the Charter requires otherwise, only a majority of the remaining directors then in office, even if such remaining directors do not constitute a quorum, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place is vacated and until his or her successor is duly elected and qualified.

(b) Subject to the rights of one or more classes or series of preferred stock of the corporation to elect or remove one or more directors, any director or the entire Board of Directors may be removed from office at any time, with or without cause, only at a meeting of the stockholders called for such purpose (in accordance with Section 2.4), by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote, voting as a class, in the election of directors. The notice of such meeting shall indicate that the purpose or one of the purposes of such meeting is to determine if a director should be removed.

Section 3.5 Meetings.

(a) The annual meeting of the Board of Directors shall be held immediately after the annual stockholders’ meeting and at the place where such meeting is held or at the place announced by the Chairman at such meeting. No notice of an annual meeting of the Board of Directors shall be necessary, and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it. The Board of Directors may provide, by resolution, the time and place, either within or outside the State of Maryland, for the holding of regular meetings of the Board of Directors without notice other than such resolution.

(b) Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board of Directors, the Chief Executive Officer or by a majority of the members of the Board of Directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or outside the State of Maryland, as the place for holding any special meeting of the Board of Directors called by them.

(c) Written notice of the time and place of all special meetings of the Board of Directors shall be delivered personally to each director or sent by facsimile transmission or other form of electronic transmission at least twenty-four (24) hours before the start of the meeting, or sent by first class mail at least five (5) days before the date of the meeting. Notice of any meeting may be waived in writing, which shall be filed with the records of the meeting, at any time before or after the meeting and will be waived by any director by attendance thereat.

Section 3.6 Quorum and Voting.

(a) A quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time in accordance with Section 3.1; provided, however, at any meeting whether a quorum is present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.

(b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by a vote of a majority of the directors present, unless a different vote is required by law, the Charter or these Bylaws.

(c) Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or other communication equipment by means of which all persons participating in the meeting can hear each other at the same time, and participation in a meeting by such means shall constitute presence in person at such meeting.

(d) The transactions of any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present.

Section 3.7 Action Without Meeting.

Unless otherwise restricted by the Charter or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or of such committee, as the case may be, consent thereto in writing or by electronic transmission, and such writings or electronic transmissions are filed with the minutes of proceedings of the Board of Directors or committee.

Section 3.8 Fees and Compensation.

Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board of Directors.

Section 3.9 Presumption of Assent.

A director of the corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (a) such director announces his or her dissent at the meeting and (b)(i) his or her dissent is entered in the minutes of the meeting, (ii) he or she files his or her written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or (iii) he or she forwards such dissent within twenty-four (24) hours after the meeting is adjourned, by certified mail, return receipt requested, bearing a postmark from the United States Postal Service to the secretary of the meeting or the Secretary of the corporation. Such right to dissent shall not apply to a director who voted in favor of such action or failed to make his or her dissent known at the meeting.

Section 3.10 Committees.

(a) The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, appoint an Executive Committee of one or more directors. The Executive Committee to the extent permitted by law shall have and may exercise all powers of the Board of Directors in the management of the business and affairs of the corporation, except as prohibited by law. If the Board of Directors has given general authorization for the issuance of stock providing for or establishing a method or procedure for determining the maximum number of shares to be issued, a committee of the Board of Directors, in accordance with that general authorization or any stock option or other plan or program adopted by the Board of Directors, may authorize or fix the terms of stock subject to classification or reclassification and the terms on which any stock may be issued, including all terms and conditions required or permitted to be established or authorized by the Board of Directors under Sections 2‑203 and 2‑208 of the MGCL.

(b) The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, from time to time appoint such other committees as may be permitted or required by law. Such other committees appointed by the Board of Directors shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committee, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws.

(c) The members of all committees of the Board of Directors shall serve a term coexistent with that of the Board of Directors which appointed such committee. The Board of Directors, subject to the provisions of subsections (a) or (b) of this Section 3.10, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee; provided that no committee shall consist of less than one member. The membership of a committee member shall terminate on the date of his or her death or voluntary resignation, but the Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.

(d) Unless the Board of Directors otherwise provides, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 3.10 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at the principal office of the corporation or at any place which has been designated from time to time by resolution of such committee or by written consent of all members thereof, and

may be called by any director who is a member of such committee upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.

ARTICLE IV OFFICERS

Section 4.1 Officers Designated.

The Board of Directors, promptly after its election in each year, shall appoint a Chairman of the Board of Directors, a President and a Treasurer and Secretary. Any vacancies among these offices shall be filled by the Board of Directors. The Board of Directors or the Chief Executive Officer may appoint one or more Vice Presidents and such other officers or assistant officers as the Board of Directors or the Chief Executive Officer may deem proper, and any vacancies among these officers and assistant officers shall be filled by either the Board of Directors or the Chief Executive Officer . Any officer may hold more than one office, except for the offices of President and Vice President. A person who holds more than one office in the corporation may not act in more than one capacity to execute, acknowledge or verify an instrument required by law to be executed, acknowledged or verified by more than one officer.

Section 4.2 Tenure and Duties of Officers.

(a) All officers shall hold office at the pleasure of the Board of Directors and until their successors are duly elected and qualified, unless sooner removed. Any officer of the corporation may be removed at any time by the Board of Directors if the Board of Directors in its judgment finds that the best interests of the corporation will be served. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors or by the Chief Executive Officer if the Chief Executive Officer has the authority to fill such vacancy pursuant to Section 4.1 of these Bylaws. Nothing in these Bylaws shall be construed as creating any kind of contractual right to employment with the corporation.

(b) The Chairman of the Board of Directors when present shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform such other duties and have such other powers as the Board of Directors may designate from time to time.

(c) The Board of Directors may designate a Vice Chairman of the Board of Directors. In the event of the death, disability or resignation of the Chairman of the Board of Directors, the Vice Chairman if designated shall serve as the Chairman of the Board of Directors until a new Chairman of the Board of Directors is duly appointed by the Board of Directors. The Vice Chairman of the Board of Directors shall perform such other duties and have such other powers as the Board of Directors may designate from time to time.

(d) The Board of Directors may designate a Chief Executive Officer. In the absence of such designation, the President shall be the Chief Executive Officer of the corporation. The Chief Executive Officer shall have general responsibility for implementation of the policies of the corporation, as determined by the Board of Directors, and for the management of the business and affairs of the corporation.

(e) In the absence of a Chief Executive Officer, the President shall in general supervise and control all of the business and affairs of the corporation and have the rights and duties of the Chief Executive Officer set forth in these Bylaws. The Chief Executive Officer , or if no Chief Executive Officer is appointed by the Board of Directors, the President may execute any deed, mortgage, bond, contract or other instrument, except in cases

where the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the corporation or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time.

(f) The Vice Presidents, in the order of their seniority, may assume and perform the duties of the President in the absence or disability of the President or whenever the office of the President is vacant, until such vacancy is filled by the Board of Directors in accordance with Section 4.1 of these Bylaws. The Vice Presidents shall perform such other duties and have such other powers as the Board of Directors or the President may designate from time to time. The Board of Directors may designate one or more Vice Presidents as Executive Vice President. In addition to such other powers, each Executive Vice President may execute any deed, mortgage, bond, contract or other instrument, except in cases where the execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the corporation or shall be required by law to be otherwise executed; and in general shall perform all duties incident to the office of Executive Vice President and such other duties as may be prescribed by the Board of Directors or the Chief Executive Officer from time to time.

(g) The Secretary shall attend all meetings of the stockholders and of the Board of Directors and any committee thereof, and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice, in conformity with these Bylaws, of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform such other duties and have such other powers as the Board of Directors may designate from time to time. The Chief Executive Officer may direct any assistant secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each assistant secretary shall perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer may designate from time to time.

(h) The Treasurer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner, and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the Chief Executive Officer . The Treasurer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Treasurer shall perform all other duties commonly incident to his or her office and shall perform such other duties and have such other powers as the Board of Directors or the Chief Executive Officer may designate from time to time. The Chief Executive Officer may direct any assistant treasurer to assume and perform the duties of the Treasurer in the absence or disability of the Treasurer, and each assistant treasurer shall perform such other duties and have such other powers as the Board of Directors or the President may designate from time to time.

ARTICLE V

EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION

Section 5.1 Execution of Corporate Instruments.

(a) The Board of Directors may in its discretion determine the method and designate the signatory officer or officers, or other person or persons, to execute any corporate instrument or document, or to sign the corporate name without limitation, except where otherwise provided by law, and such execution or signature shall be binding upon the corporation.

(b) All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors may authorize.

(c) Execution of any corporate instrument may be effected in such form, either manual, facsimile or electronic signature, as may be authorized by the Board of Directors.

Section 5.2 Voting of Securities Owned by Corporation.

All stock and other securities of other corporations owned or held by the corporation for itself or for other parties in any capacity shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President or any Vice President.

ARTICLE VI SHARES OF STOCK

Section 6.1 Certificates.

Each stockholder shall be entitled to a certificate or certificates which represent and certify the number of shares of each class held by him or her in the corporation; provided, however, that the Board of Directors may provide by resolution or resolutions that some or all of any class or series of shares may be uncertificated. Each certificate shall include on its face the name of the corporation, the name of the stockholder or other person to whom it is issued and the class of stock and number of shares it represents. Each certificate shall be signed by the Chairman of the Board of Directors , the Chief Executive Officer , the President or any Vice President and countersigned by the Secretary or an assistant secretary or the Treasurer , an assistant treasurer or any other officer of the corporation to the extent permitted by applicable law and may be sealed with the seal, if any, of the corporation. The signatures may be either manual or facsimile. Certificates shall be consecutively numbered; and if the corporation issues several classes of shares, each class may have its own numbered series. A certificate is valid and may be issued whether or not an officer who signed it is still an officer when it is issued. A stock certificate may not be issued until the stock represented by it is fully paid. Each certificate representing shares which are restricted as to their transferability shall contain a full statement of such restriction or state that the corporation will furnish information about the restriction to the stockholder on request and without charge. Except as otherwise provided by law, the fact that a stock certificate does not contain or refer to a restriction on transferability that is adopted after the date of issuance of the stock certificate does not mean that the restriction is invalid or unenforceable. If the corporation has authority to issue shares of more than one class, the certificate shall contain on the face or back a full statement or summary of the designations and any preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of each class of shares which the corporation is authorized to issue and, if the corporation is authorized to issue any preferred or special class in series, the differences in the relative rights and preferences between the shares of each series to the extent they have been set and the authority of the Board of Directors to set the relative rights and preferences of subsequent series. In lieu of such statement or summary, the certificate may state that the corporation will furnish a full statement of such information to any stockholder upon request and without charge.

Section 6.2 Transfers.

Transfers of stock shall be made on the books of the corporation only by the record holder of such stock, or by attorney lawfully constituted in writing, and, in the case of stock represented by a certificate, upon surrender of the certificate. Notwithstanding the foregoing, transfers of shares of any class will be subject in all respects to the Charter and all of the terms and conditions contained therein.

Section 6.3 Replacement Certificate.

The Secretary and any other officer designated by the Board of Directors may direct a new certificate to be issued in place of any certificate previously issued by the corporation alleged to have been lost, stolen or destroyed upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing the issuance of a new certificate, the Secretary or other officer designated by the Board of Directors may, in his or her discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or the owner’s legal representative to give bond, with sufficient surety, to the corporation to indemnify it against any loss or claim which may arise as a result of the issuance of a new certificate.

Section 6.4 Stock Ledger.

The corporation shall maintain at its principal office or at the office of its counsel, accountants or transfer agent, an original or duplicate stock ledger containing the name and address of each stockholder and the number of shares of each class held by such stockholder. The stock ledger may be in written form or in any other form which can be converted within a reasonable time into written form for visual inspection. The corporation shall be entitled to treat the holder of record of any share as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Share or on the part of any other person, whether or not it has express or other notice thereof, except as otherwise provided by the laws of the State of Maryland.

Section 6.5 Issuance of Units.

Notwithstanding any other provision of these Bylaws to the contrary, the Board of Directors may issue units consisting of different securities of the corporation. Any security issued in a unit shall have the same characteristics as any identical securities issued by the corporation, except that the Board of Directors may provide that, for a specified period, securities of the corporation issued in such unit may be transferred on the books of the corporation only in such unit.

Section 6.6 Fractional Share Interests or Scrip.

The corporation may, but is not obliged to, issue fractional shares of stock, eliminate a fractional interest by rounding off to a full share of stock, arrange for the disposition of a fractional interest by the person entitled to it, pay cash for the fair value of a fractional share of stock determined as of the time when the person entitled to receive it is determined, or issue scrip, or other evidence of ownership aggregating a full share for a certificate which represents the share and, unless otherwise provided, does not entitle the holder to exercise any voting rights, to receive dividends thereon or to participate in any of the assets of the corporation in the event of liquidation. The Board of Directors may impose any reasonable condition on the issuance of scrip or other evidence of ownership, and may cause such scrip or other evidence of ownership to be issued subject to the condition that it will become void if not exchanged for a certificate representing a full share of stock before a specified date or subject to the condition that the shares for which such scrip or other evidence of indebtedness are exchangeable may be sold by the corporation and the proceeds thereof distributed to the holders of such scrip or other evidence of indebtedness, or subject to a provision of forfeiture of such proceeds to the corporation if not claimed within a period of not less than three years from the date the scrip or other evidence of ownership was originally issued.

Section 6.7 Dividends.

If declared by the Board of Directors at any meeting thereof, the corporation may pay dividends on its shares in cash, property, or in shares of the capital stock of the corporation, unless such dividend is contrary to law or to a restriction contained in the Charter.

ARTICLE VII INDEMNIFICATION

Section 7.1 Right to Indemnification.

The corporation shall indemnify its directors and officers, whether serving the corporation or, at its request, any other entity, to the full extent required or permitted by the general laws of the State of Maryland now or hereafter in force, including the advancement of expenses under the procedures and to the full extent permitted by law. The corporation may indemnify other employees and agents, whether serving the corporation or, at its request, any other entity, to such extent as may be authorized by the Board of Directors and as permitted by law. The foregoing rights of indemnification shall not be exclusive of any other rights to which those seeking indemnification may be entitled. The Board of Directors may take such action as is necessary to carry out these indemnification provisions and is expressly empowered to adopt, approve and amend from time to time resolutions or contracts implementing such provisions or such further indemnification arrangements as may be permitted by law. No amendment of these Bylaws or repeal of any of its provisions shall limit or eliminate the foregoing right to indemnification, including the advancement of expenses, provided hereunder with respect to acts or omissions or alleged acts or omissions occurring prior to such amendment or repeal. The rights conferred upon indemnitees in this Article VII shall be contract rights that vest upon such indemnitee’s commencement of service to or at the request of the corporation, and such rights shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee’s heirs, executors and administrators.

Section 7.2 Provisions Nonexclusive.

The rights conferred on any person by this Article VII shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the Charter, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. To the extent that any provision of the Charter, agreement or vote of the stockholders or disinterested directors is inconsistent with these Bylaws, such provision, agreement or vote shall take precedence.

Section 7.3 Authority to Insure.

The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation or who, while a director, officer, employee or agent of the corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust, other enterprise or employee benefit plan against any liability asserted against and incurred by such person in any such capacity or arising out of such person’s position, whether or not the corporation would have the power to indemnify against liability under the general laws of the State of Maryland.

Section 7.4 Survival of Rights.

The rights provided by this Article VII shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.

Section 7.5 Subrogation.

In the event of payment under this Article VII, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the director or officer, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the corporation effectively to bring suit to enforce such rights.

Section 7.6 No Duplication of Payments.

The corporation shall not be liable under this Article VII to make any payment in connection with any claim made against a director or officer to the extent the director or officer has otherwise actually received payment (under any insurance policy, agreement, vote or otherwise) of the amounts otherwise indemnifiable hereunder.

Section 7.7 Right of Claimant to Bring Suit.

If a claim under Section 7.1 of this Article VII is not paid in full by the corporation within ninety (90) days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to also be paid the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the MGCL for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the MGCL, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct.

ARTICLE VIII MISCELLANEOUS

Section 8.1 Fiscal Year.

The fiscal year of the corporation shall be the twelve (12) calendar months ending December 31 in each year, unless otherwise provided by the Board of Directors.

Section 8.2 Exemption From Control Share Acquisition Act.

The provisions of Title 3, Subtitle 7 of the MGCL (the Maryland Control Share Acquisition Act), or any successor statute, shall not apply to any acquisition by any person of shares of the corporation. This Section 8.2 may be repealed, in whole or in part, at any time, whether before or after an acquisition of control shares and, upon such repeal, may, to the extent provided by any successor bylaw and consistent with applicable law, apply to any prior or subsequent control share acquisition.

Section 8.3 Other Securities of the Corporation.

Each certificate which represents any bond, note, guaranty, obligation or other corporate security (other than stock) shall be signed by the Chairman of the Board of Directors, the Chief Executive Officer, the President or any Vice President and countersigned by the Secretary, an assistant secretary, the Treasurer or the assistant treasurer. Such certificate may be sealed with the actual corporate seal or a facsimile of it or in any other form. The signatures on the certificate may be either manual or facsimile signatures. A certificate is valid and may be issued whether or not an officer who signed it is still an officer at the time it is issued.

Section 8.4 Corporate Seal.

The corporate seal shall be a flat-faced circular die, of which there may be any number of counterparts, with the word “SEAL” and the name of the corporation engraved thereon. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. If the corporation is required to place its corporate seal to a document, it is sufficient to meet the requirements of any law, rule or regulation relating to a corporate seal to place the word “(seal)” adjacent to the signature of the person authorized to sign the document on behalf of the corporation.

Section 8.5 Amendments.

(a) The Board of Directors shall have the power to adopt, alter or repeal any provision of these Bylaws and to make new Bylaws.

(b) In addition, pursuant to a binding proposal that is submitted to the stockholders for approval at a duly called annual meeting or special meeting of stockholders by an Eligible Stockholder (as defined in Section 2.15) that provides to the Secretary of the Company a timely notice of such proposal which satisfies the notice procedures and all other relevant provisions of Section 2.3, Section 2.10 or Section 2.15 of these Bylaws (the “Notice of Bylaw Amendment Proposal”) and is otherwise permitted by applicable law, the stockholders shall have the power, by the affirmative vote of a majority of all votes entitled to be cast on the matter, to adopt, alter or repeal any provision of these Bylaws and to make new Bylaws, except that the stockholders shall not have the power to alter or repeal Article VII or this Section 8.5 or adopt any provision of these Bylaws inconsistent with Article VII or this Section 8.5 without the approval of any indemnitees adversely affected by such proposal or the Board of Directors, respectively.

Section 8.6 Reliance.

Each director of the corporation shall, in the performance of his or her duties with respect to the corporation, be entitled to rely on any information, opinion report or statement, including financial statements or other financial data, prepared or presented by an officer or employee of the corporation whom the director reasonably believes to be reliable and competent in the matters presented, by a lawyer, certified public accountant or other person as to a matter which the director reasonably believes to be within the person’s professional or expert competence or by a committee of the Board of Directors on which the director does not serve, as to a matter within its designated authority, if the director believes the committee to merit confidence.

EXHIBIT 12.1

UDR, Inc.

Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends

(Dollars in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Earnings:
Income/(loss) from continuing operations	$	20,258	$	17,570	$	61,627	$	54,896
Add (from continuing operations):
Interest on indebtedness (a)		34,401		30,095		95,942		94,500
Portion of rents representative of the interest factor		681		488		1,737		1,662
Amortization of capitalized interest		1,451		1,384		4,257		3,866
Total earnings	$	56,791	$	49,537	$	163,563	$	154,924

Fixed charges and preferred stock dividends (from continuing operations):
Interest on indebtedness (a)	$	34,401	$	30,095	$	95,942	$	94,500
Interest capitalized		1,657		4,638		9,833		13,990
Portion of rents representative of the interest factor		681		488		1,737		1,662
Fixed charges	$	36,739	$	35,221	$	107,512	$	110,152

Add:
Preferred stock dividends		971		926		2,897		2,784
Combined fixed charges and preferred stock dividends	$	37,710	$	36,147	$	110,409	$	112,936

Ratio of earnings to fixed charges		1.55		1.41		1.52		1.41
Ratio of earnings to combined fixed charges and preferred stock dividends		1.51		1.37		1.48		1.37

(a)

Includes interest expense of consolidated subsidiaries, amortization of deferred loan costs, realized losses related to hedging activities and amortization of premiums and discounts related to indebtedness.

EXHIBIT 12.2

United Dominion Realty, L.P.

Computation of Ratio of Earnings to Fixed Charges

(Dollars in thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Earnings:
Income/(loss) from continuing operations	$	28,135	$	21,110	$	74,861	$	46,310
Add (from continuing operations):
Interest on indebtedness (a)		5,100		5,055		15,209		25,318
Portion of rents representative of the interest factor		661		468		1,677		1,600
Amortization of capitalized interest		174		187		521		559
Total earnings	$	34,070	$	26,820	$	92,268	$	73,787

Fixed charges from continuing operations:
Interest on indebtedness (a)	$	5,100	$	5,055	$	15,209	$	25,318
Interest capitalized		1		5		10		14
Portion of rents representative of the interest factor		661		468		1,677		1,600
Fixed charges	$	5,762	$	5,528	$	16,896	$	26,932

Ratio of earnings to fixed charges		5.91		4.85		5.46		2.74

(a)

EXHIBIT 31.1

CERTIFICATION

I, Thomas W. Toomey, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of UDR, Inc.;

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

(d) Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: October 30, 2018	/s/ Thomas W. Toomey

	Thomas W. Toomey
	Chairman of the Board, Chief Executive Officer, and President (Principal Executive Officer)

EXHIBIT 31.2

CERTIFICATION

I, Joseph D. Fisher, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of UDR, Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: October 30, 2018	/s/ Joseph D. Fisher

	Joseph D. Fisher
	Chief Financial Officer and Senior Vice President (Principal Financial Officer)

EXHIBIT 31.3

CERTIFICATION

I, Thomas W. Toomey, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of United Dominion Realty, L.P.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 30, 2018	/s/ Thomas W. Toomey

	Thomas W. Toomey
	Chairman of the Board, Chief Executive Officer, and President
	(Principal Executive Officer) of UDR, Inc.,
	general partner of United Dominion Realty, L.P.

EXHIBIT 31.4

CERTIFICATION

I, Joseph D. Fisher, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of United Dominion Realty, L.P.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 30, 2018	/s/ Joseph D. Fisher

	Joseph D. Fisher
	Chief Financial Officer and Senior Vice President (Principal Financial Officer) of UDR, Inc.,
	general partner of United Dominion Realty, L.P.

EXHIBIT 32.1

CERTIFICATION

In connection with the periodic report of UDR, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2018, as filed with the Securities and Exchange Commission (the “Report”), I, Thomas W. Toomey, Chief Executive Officer and President of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Uly 27Jul
Date: October 30, 2018	/s/ Thomas W. Toomey

	Thomas W. Toomey
	Chairman of the Board, Chief Executive Officer, and President (Principal Executive Officer)

EXHIBIT 32.2

CERTIFICATION

In connection with the periodic report of UDR, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2018, as filed with the Securities and Exchange Commission (the “Report”), I, Joseph D. Fisher, Senior Vice President and Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Uly 27
Date: October 30, 2018	/s/ Joseph D. Fisher

	Joseph D. Fisher
	Chief Financial Officer and Senior Vice President (Principal Financial Officer)

EXHIBIT 32.3

CERTIFICATION

In connection with the periodic report of United Dominion Realty, L.P. (the “Operating Partnership”) on Form 10-Q for the quarter ended September 30, 2018, as filed with the Securities and Exchange Commission (the “Report”), I, Thomas W. Toomey, Chief Executive Officer and President of UDR, Inc., the general partner of the Operating Partnership, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership at the dates and for the periods indicated.


Date: October 30, 2018	/s/ Thomas W. Toomey

	Thomas W. Toomey

	Chairman of the Board, Chief Executive Officer, and President
	(Principal Executive Officer) of UDR, Inc.,
	general partner of United Dominion Realty, L.P.

EXHIBIT 32.4

CERTIFICATION

In connection with the periodic report of United Dominion Realty, L.P. (the “Operating Partnership”) on Form 10-Q for the quarter ended September 30, 2018, as filed with the Securities and Exchange Commission (the “Report”), I, Joseph D. Fisher, Senior Vice President and Chief Financial Officer of UDR, Inc., the general partner of the Operating Partnership, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and


Date: October 30, 2018	/s/ Joseph D. Fisher

	Joseph D. Fisher
	Chief Financial Officer and Senior Vice President
	(Principal Financial Officer) of UDR, Inc.,
	general partner of United Dominion Realty, L.P.