UDR 10-Q Quarterly Report March 31, 2010

UDR, INC.

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10-Q 1 c00070e10vq.htm FORM 10-Q Form 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q


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

For the quarterly period ended March 31, 2010


o		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.

(Exact name of registrant as specified in its charter)


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

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. Yes þ No o

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

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


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

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

The number of shares of the issuer’s common stock, $0.01 par value, outstanding as of April 29, 2010, was 162,170,878.

UDR, Inc.

INDEX


	PAGE

PART I — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Consolidated Balance Sheets as of March 31, 2010 (unaudited) and December 31, 2009 (audited)		3

Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009 (unaudited)		4

Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009 (unaudited)		5

Consolidated Statements of Stockholders’ Equity and Comprehensive Income/(Loss) for the three months ended March 31, 2010 (unaudited)		6

Notes to Consolidated Financial Statements (unaudited)		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		28

Item 3. Quantitative and Qualitative Disclosures About Market Risk		41

Item 4. Controls and Procedures		41

PART II — OTHER INFORMATION

Item 1. Legal Proceedings		42

Item 1A. Risk Factors		42

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		51

Item 3. Defaults Upon Senior Securities		52

Item 4. (Removed and Reserved)		52

Item 5. Other Information		52

Item 6. Exhibits		52

Signatures		53

Exhibit 12
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

UDR, Inc.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)


	March 31,			December 31,
	2010			2009
	(unaudited)			(audited)
ASSETS

Real estate owned:
Real estate held for investment	$	6,115,026		$	5,995,290
Less: accumulated depreciation		(1,414,593	)		(1,350,067	)

		4,700,433			4,645,223

Real estate under development (net of accumulated depreciation of $1,464 and $1,226)		237,923			318,531

Total real estate owned, net of accumulated depreciation		4,938,356			4,963,754
Cash and cash equivalents		19,920			5,985
Marketable securities		37,992			37,650
Restricted cash		8,642			8,879
Deferred financing costs, net		26,710			26,601
Notes receivable		7,800			7,800
Investment in unconsolidated joint ventures		13,241			14,126
Other assets		63,055			67,822

Total assets	$	5,115,716		$	5,132,617


LIABILITIES AND STOCKHOLDERS’ EQUITY

Secured debt	$	1,945,065		$	1,989,434
Unsecured debt		1,469,013			1,437,155
Real estate taxes payable		16,895			16,976
Accrued interest payable		20,098			19,146
Security deposits and prepaid rent		30,223			31,798
Distributions payable		32,000			30,857
Deferred gains on the sale of depreciable property		28,822			28,826
Accounts payable, accrued expenses, and other liabilities		56,449			80,685

Total liabilities		3,598,565			3,634,877

Redeemable non-controlling interests in operating partnership		105,229			98,758

Stockholders’ equity
Preferred stock, no par value; 50,000,000 shares authorized
2,803,812 shares of 8.00% Series E Cumulative Convertible issued and outstanding (2,803,812 shares at December 31, 2009)		46,571			46,571
3,432,962 shares of 6.75% Series G Cumulative Redeemable issued and outstanding (3,432,962 shares at December 31, 2009)		85,824			85,824
Common stock, $0.01 par value; 250,000,000 shares authorized
161,369,435 shares issued and outstanding (155,465,482 shares at December 31, 2009)		1,614			1,555
Additional paid-in capital		2,027,966			1,948,669
Distributions in excess of net income		(752,226	)		(687,180	)
Accumulated other comprehensive (loss) income		(1,403	)		2

Total UDR, Inc. stockholders’ equity		1,408,346			1,395,441
Non-controlling interest		3,576			3,541

Total equity		1,411,922			1,398,982

Total liabilities and stockholders’ equity	$	5,115,716		$	5,132,617

See accompanying notes to consolidated financial statements.

UDR, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)


	Three Months Ended
	March 31,
	2010			2009
	(unaudited)			(unaudited)
REVENUES
Rental income	$	151,629		$	150,615
Non-property income:
Other income		3,320			5,024

Total Revenues		154,949			155,639


EXPENSES
Rental expenses:
Real estate taxes and insurance		19,601			20,020
Personnel		13,533			12,633
Utilities		8,710			8,367
Repair and maintenance		7,912			7,209
Administrative and marketing		3,850			3,333
Property management		4,170			4,142
Other operating expenses		1,485			1,654
Real estate depreciation and amortization		72,207			68,985
Interest
Expense incurred		35,899			36,509
Net gain on debt extinguishment		—			(7,113	)
Amortization of convertible debt premium		967			1,296
Hurricane related expenses		—			241
General and administrative		9,575			9,456
Other depreciation and amortization		1,223			1,394

Total Expenses		179,132			168,126
Loss from operations		(24,183	)		(12,487	)
Loss from unconsolidated entities		(737	)		(717	)
Tax expense for taxable REIT subsidiary		(65	)		(51	)

Loss from continuing operations		(24,985	)		(13,255	)
Loss from discontinued operations		(41	)		(168	)

Consolidated net loss		(25,026	)		(13,423	)
Net loss attributable to non-controlling interests		970			794

Net loss attributable to UDR, Inc.		(24,056	)		(12,629	)
Distributions to preferred stockholders — Series E (Convertible)		(931	)		(931	)
Distributions to preferred stockholders — Series G		(1,448	)		(1,869	)

Net loss attributable to common stockholders	$	(26,435	)	$	(15,429	)


Earnings per weighted average common share — basic and diluted:
Loss from continuing operations attributable to common stockholders	$	(0.17	)	$	(0.11	)
Loss from discontinued operations	$	0.00		$	0.00
Net loss attributable to common stockholders	$	(0.17	)	$	(0.11	)

Common distributions declared per share	$	0.180		$	0.305

Weighted average number of common shares outstanding — basic and diluted		156,131			144,176

See accompanying notes to consolidated financial statements.

UDR, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except for share data)


	Three Months Ended March 31,
	2010			2009
	(unaudited)			(unaudited)
Operating Activities
Consolidated net loss	$	(25,026	)	$	(13,423	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		73,430			70,379
Net (loss)/gain on the sale of depreciable property		41			168
Gains on debt extinguishment		—			(7,113	)
Write off of bad debt		674			915
Write off of note receivable and other assets		—			439
Loss from unconsolidated entities		737			717
Amortization of deferred financing costs and other		2,094			1,243
Amortization of deferred compensation		2,898			2,339
Amortization of convertible debt discount		967			1,296
Prepayments on income taxes		502			414
Changes in operating assets and liabilities:
Increase in operating assets		2,044			11,051
(Decrease)/increase in operating liabilities		(16,851	)		3,132

Net cash provided by operating activities		41,510			71,557

Investing Activities
Payments related to the buyout of joint venture partner		(16,141	)		—
Development of real estate assets		(28,565	)		(53,583	)
Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement		(10,907	)		(10,269	)
Capital expenditures — non-real estate assets		(1,936	)		(3,343	)
Investment in unconsolidated joint ventures		(148	)		(1,084	)
Distributions received from unconsolidated joint venture		328			—
Purchase of marketable securities		—			(30,936	)

Net cash used in investing activities		(57,369	)		(99,215	)

Financing Activities
Payments on secured debt		(72,357	)		(15,196	)
Proceeds from the issuance of secured debt		28,052			269,969
Proceeds from the issuance of unsecured debt		149,190			—
Payments on unsecured debt		(50,000	)		(200,031	)
Net (repayment)/proceeds of revolving bank debt		(68,300	)		51,100
Payment of financing costs		(1,766	)		(3,330	)
Issuance of common and restricted stock, net		3,442			(335	)
Proceeds from the issuance of common shares through public offering, net		73,310			—
Distributions paid to non-controlling interests		(1,344	)		(4,404	)
Distributions paid to preferred stockholders		(2,379	)		(2,800	)
Distributions paid to common stockholders		(28,054	)		(42,125	)
Repurchase of common stock		—			(798	)

Net cash provided by financing activities		29,794			52,050

Net increase in cash and cash equivalents		13,935			24,392
Cash and cash equivalents, beginning of period		5,985			12,740

Cash and cash equivalents, end of period	$	19,920		$	37,132


Supplemental Information:
Interest paid during the year, net of amounts capitalized	$	38,429		$	39,376
Non-cash transactions:
Conversion of operating partnership non-controlling interests to common stock (41,804 in 2010 and 110,631 shares in 2009)		215			4,225
Payment of Special Dividend through the issuance of 11,358,042 shares of common stock		—			132,787
Issuance of restricted stock awards		15			3
Retirement of fully depreciated assets		7,183			—

See accompanying notes to consolidated financial statements.

UDR, Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME/(LOSS)
(In thousands, except per share data)
(Unaudited)


														Accumulated
											Distributions in			Other			Non-
	Preferred Stock				Common Stock				Paid-in		Excess of			Comprehensive			controlling
	Shares		Amount		Shares		Amount		Capital		Net Income			Income/(Loss)			interest		Total
Balance, December 31, 2009		6,236,774	$	132,395		155,465,482	$	1,555	$	1,948,669	$	(687,180	)	$	2		$	3,541	$	1,398,982

Comprehensive income (loss)
Net loss		—		—		—		—		—		(24,056	)		—			35		(24,021	)
Other comprehensive income (loss)
Change in fair value of marketable securities		—		—		—		—		—		—			(224	)		—		(224	)
Unrealized gain on derivative financial instruments		—		—		—		—		—		—			(1,234	)		—		(1,234	)
Allocation to redeemable non-controllable interests		—		—		—		—		—		—			53			—		53

Comprehensive income (loss)												(24,056	)		(1,405	)		35		(25,426	)

Issuance of common and restricted shares		—		—		1,524,638		15		5,816		—			—			—		5,831
Issuance of common shares through public offering		—		—		4,358,753		44		73,266										73,310
Adjustment for conversion of non-controlling interests of unitholders in operating partnerships		—		—		20,562		—		215		—			—			—		215
Common stock distributions declared ($0.18 per share)		—		—		—		—		—		(29,117	)		—			—		(29,117	)
Preferred stock distributions declared-Series E ($0.322 per share)		—		—		—		—		—		(931	)		—			—		(931	)
Preferred stock distributions declared-Series G ($0.421875 per share)		—		—		—		—		—		(1,448	)		—			—		(1,448	)
Adjustment to reflect redeemable non-controlling redemption value		—		—		—		—		—		(9,494	)		—			—		(9,494	)

Balance, March 31, 2010		6,236,774	$	132,395		161,369,435	$	1,614	$	2,027,966	$	(752,226	)	$	(1,403	)	$	3,576	$	1,411,922

See accompanying notes to consolidated financial statements.

UDR, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010

(UNAUDITED)

1. CONSOLIDATION AND BASIS OF PRESENTATION

Consolidation and Basis of Presentation

UDR, Inc., collectively with our consolidated subsidiaries (“we”, “our”, “us”, “the Company” or “UDR”) is a self-administered real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages apartment communities nationwide. The accompanying consolidated financial statements include the accounts of UDR and its subsidiaries, including United Dominion Realty, L.P. (the “Operating Partnership”), and Heritage Communities L.P. (the “Heritage OP”). As of March 31, 2010, there were 179,863,065 units in the Operating Partnership outstanding, of which 173,897,719 units or 96.7% were owned by UDR and 5,965,346 units or 3.3% were owned by limited partners. As of March 31, 2010, UDR owned 100% of the 6,264,460 units outstanding in Heritage OP. The consolidated financial statements of UDR include the non-controlling interests of the unitholders in the Operating Partnership. The consolidated financial statements of UDR include the non-controlling interests of the unitholders in the Heritage OP prior to UDR’s ownership of 100% of the units outstanding in Heritage OP.

The accompanying interim unaudited consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted according to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments and eliminations necessary for the fair presentation of our financial position as of March 31, 2010, and results of operations for the three months ended March 31, 2010 and 2009 have been included. Such adjustments are normal and recurring in nature. The interim results presented are not necessarily indicative of results that can be expected for a full year. The accompanying interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes appearing in UDR’s Annual Report on Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission on February 25, 2010.

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

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

2. SIGNIFICANT ACCOUNTING POLICIES

Accounting Policies

Real Estate Sales

For sales transactions meeting the requirements for full accrual profit recognition, such as the Company no longer having continuing involvement in the property, we remove the related assets and liabilities from our consolidated balance sheet and record the gain or loss in the period the transaction closes. For sale transactions that do not meet the full accrual sale criteria due to our continuing involvement, we evaluate the nature of the continuing involvement and account for the transaction under an alternate method of accounting.

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

Redeemable non-controlling interests in operating partnerships

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

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

Marketable Securities

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

Investment in Unconsolidated Joint Ventures

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

Income Taxes

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

Income taxes for our TRS are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rate is recognized in earnings in the period of the enactment date. The Company’s deferred tax assets are generally the result of differing depreciable lives on capitalized assets and timing of expense recognition for certain accrued liabilities. As of March 31, 2010, UDR has recorded a net current liability of $2.3 million and a deferred tax asset of approximately $6.6 million and recorded income tax expense of $65,000 for the three months ended March 31, 2010.

Effective January 1, 2007, the Company adopted guidance which defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition.

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

UDR had no unrecognized tax benefit, accrued interest or penalties at March 31, 2010. UDR and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The tax years 2005 — 2009 remain open to examination by the major taxing jurisdictions to which we are subject. When applicable, UDR recognizes interest and/or penalties related to uncertain tax positions in income tax expense.

Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) Topic 810, Consolidation (originally issued as Statement of Financial Accounting Standards No. 167, “Amendments to FASB Interpretation No. (“FIN”) 46(R)”), which (1) addresses the effects of eliminating the qualifying special-purpose entity concept from ASC 860, Transfers and Servicing (formerly SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”), and (2) responds to concerns about the application of certain key provisions of ASC 810, Consolidation (formerly FIN 46(R), “Consolidation of Variable Interest Entities”), including concerns over the transparency of enterprises’ involvement with variable interest entities. ASC 810 is effective for calendar yearend companies beginning on January 1, 2010. The Company adopted this standard for the interim period ended March 31, 2010. There was no impact on the Company’s financial position, results of operations, cash flows, or disclosures.

In January 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-06, “Improving Disclosures about Fair Value Measurements” an amendment to ASC Topic 820, “Fair Value Measurements and Disclosures.” This amendment provides for more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. ASU No. 2010-06 is effective for the Company for interim and annual reporting beginning after December 15, 2009, with one new disclosure effective after December 15, 2010. See Note 9, “Fair Value of Derivatives and Financial Instruments”.

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 properties deemed as held for sale. As of March 31, 2010 the Company owned and consolidated 167 communities in 10 states plus the District of Columbia totaling 46,357 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of March 31, 2010 and December 31, 2009 (dollar amounts in thousands):


	March 31, 2010			December 31, 2009

Land	$	1,672,972		$	1,635,401
Depreciable property — held and used:
Building and improvements		4,184,962			4,111,254
Furniture, fixtures and equipment		257,092			248,635
Under development:
Land		48,653			65,525
Construction in progress		190,734			254,232

Real estate owned	$	6,354,413		$	6,315,047
Accumulated depreciation		(1,416,057	)		(1,351,293	)


Real estate owned, net	$	4,938,356		$	4,963,754

4. DISCONTINUED OPERATIONS

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

UDR did not dispose of any communities during the three months ended March 31, 2010 and 2009, nor did we have any classified as held for disposition at March 31, 2010 and 2009. The only activity related to discontinued operations during the three months ended March 31, 2010 and 2009 was “net loss on the sale of depreciable property, excluding RE3” of $41,000 and $168,000, respectively.

5. JOINT VENTURES

UDR has entered into joint ventures with unrelated third parties that are either consolidated and included in real estate owned on our Consolidated Balance Sheets or are accounted for under the equity method of accounting, which are not consolidated and are included in investment in unconsolidated joint ventures on our Consolidated Balance Sheets. The Company consolidates an entity in which we own less than 100% when we have the power to direct the activities of the entity that most significantly affect the entity’s economic performance. In addition, the Company consolidates any joint venture in which we are the general partner or managing member and the third party partner or member does not have the ability to substantively participate in the decision-making process nor the ability to remove us as general partner or managing member, without cause.

UDR’s joint ventures are funded with a combination of debt and equity. Our losses are limited to our investment and the Company does not guarantee any debt (issued by our unconsolidated joint ventures), capital payout or other obligations associated with our joint venture portfolio. The Company guarantees 100% of the debt issued by one of our consolidated joint ventures for which our equity ownership percentage is 98%.

Consolidated Joint Ventures

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

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

UDR is a partner with an unaffiliated third party in a joint venture (“Bellevue”) which owns an operating retail site in Bellevue, Washington. The Company initially planned to develop a 430 home high rise apartment building with ground floor retail on an existing operating retail center. However, during the year ended December 31, 2009, the joint venture decided to continue to operate the retail property as opposed to developing a high rise apartment building on the site. On December 30, 2009, UDR entered into an agreement with our partner to purchase its 49% interest in Bellevue for $5.2 million. In addition, our partner resigned as managing member and appointed UDR as managing member. Concurrent with its resignation, our partner relinquished its voting rights and approval rights and its ability to substantively participate in the decision-making process of the joint venture resulting in the consolidation of the joint venture at fair value. Prior to consolidation, our equity investment in Bellevue was $5.0 million (net of a $5.0 million equity loss discussed below). The fair value of the assets was $33.0 million ($32.8 million of real estate owned and $211,000 of current assets) and the fair value of liabilities was $23.0 million ($22.3 million of a mortgage payable, $506,000 of a derivative instrument, and $213,000 of current liabilities). In March 2010, the Company paid $5.2 million and acquired our partner’s 49% interest in the joint venture. At closing of the agreement and at March 31, 2010, the Company’s interest in Bellevue was 98%.

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

Unconsolidated Joint Ventures

The Company recognizes earnings or losses from our investments in unconsolidated joint ventures consisting of our proportionate share of the net earnings or loss of the joint venture. In addition, we may earn fees for providing management and development services to the unconsolidated joint ventures. As of March 31, 2010, UDR had investments in the following unconsolidated joint ventures which are accounted for under the equity method of accounting.

In August 2009, UDR and an unaffiliated third party, Kuwait Finance House, formed a jointed venture for the investment of up to $450.0 million in multifamily properties located in key, high barrier to entry markets. The partners will contribute equity of $180.0 million of which the Company’s maximum equity will be 30% or $54.0 million when fully invested. At closing and at March 31 2010, the Company owned 30%. Our investment at March 31, 2010 and December 31, 2009 was $382,000 and $242,000, respectively. At March 31, 2010 and December 31, 2009, the joint venture did not own any multifamily properties.

In November 2007, UDR and an unaffiliated third party formed a joint venture which owns and operates 10 operating properties located in Texas (3,992 homes). UDR contributed cash and property equal to 20% of the fair value of the properties. The unaffiliated member contributed cash equal to 80% of the fair value of the properties comprising the joint venture, which was then used to purchase the nine operating properties from UDR. Our initial investment was $20.4 million. Our investment at March 31, 2010 and December 31, 2009 was $12.9 million and $13.9 million, respectively.

We evaluate our investments in unconsolidated joint ventures when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. During the three months ended March 31, 2010, the Company did not recognize any other-than-temporary decreases in the value of its investments in unconsolidated joint ventures.

Summary financial information relating to 100% of all the unconsolidated joint ventures operations (not just our proportionate share), is presented below for the three months ended March 31, ( dollars in thousands):


	2010			2009 (a)

Revenues	$	10,003		$	11,520
Real estate depreciation and amortization		5,043			5,155
Net loss		(3,614	)		(2,886	)


(a)		Includes results of operations of joint ventures subsequently consolidated during the fourth quarter of 2009. See “Consolidated Joint Ventures” above.

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


	March 31,		December 31,
	2010		2009
As of March 31, 2010 and December 31, 2009:
Real estate, net	$	316,092	$	320,786
Total assets		323,310		332,694
Amount due to UDR		630		779
Third party debt		254,000		254,000
Total liabilities		260,117		265,091
Equity		63,193		67,603

As of March 31, 2010, the Company had deferred profit from the sale of properties of $28.8 million, which the Company will not recognize until the underlying property is sold to a third party. The Company recognized $391,000 and $474,000 of management fees for our involvement in the joint ventures for the three months ended March 31, 2010 and 2009, respectively.

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

6. SECURED DEBT

Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon payments due at maturity. For purposes of classification of the following table, variable rate debt with a derivative financial instrument designated as a cash flow hedge is deemed as fixed rate debt due to the Company having effectively established the interest rate for the underlying debt instrument. Secured debt on continuing operations, which encumbers $3.0 billion or 47% of UDR’s real estate owned based upon book value ($3.4 billion or 53% of UDR’s real estate owned is unencumbered) consists of the following as of March 31, 2010 ( dollars in thousands ):


					2010
	Principal Outstanding				Weighted			Weighted		Number of
	March 31,		December 31,		Average			Average		Communities
	2010		2009		Interest Rate			Years to Maturity		Encumbered
Fixed Rate Debt
Mortgage notes payable	$	341,907	$	506,203		5.08	%		2.7		10
Tax-exempt secured notes payable		13,325		13,325		5.30	%		20.9		1
Fannie Mae credit facilities		949,288		949,971		5.40	%		6.8		14

Total fixed rate secured debt		1,304,520		1,469,499		5.32	%		5.9		25

Variable Rate Debt
Mortgage notes payable		353,094		243,810		2.23	%		2.4		14
Tax-exempt secured note payable		27,000		27,000		1.15	%		20.0		1
Fannie Mae credit facilities		260,451		249,125		1.64	%		5.9		35

Total variable rate secured debt		640,545		519,935		1.93	%		4.6		50

Total secured debt	$	1,945,065	$	1,989,434		4.21	%		5.5		75

UDR entered into secured revolving credit facilities with Fannie Mae with an aggregate commitment of $1.4 billion at March 31, 2010. The Fannie Mae credit facilities are for an initial term of 10 years, bear interest at floating and fixed rates, and certain variable rate facilities can be extended for an additional five years at our option. We have $949.3 million of the funded balance fixed at a weighted average interest rate of 5.4% and the remaining balance on these facilities is currently at a weighted average variable rate of 1.6%.


	March 31, 2010			December 31, 2009
	(dollar amounts in thousands)

Borrowings outstanding	$	1,209,739		$	1,199,096
Weighted average borrowings during the period ended		1,202,444			1,033,658
Maximum daily borrowings during the period ended		1,209,739			1,199,322
Weighted average interest rate during the period ended		4.6	%		4.6	%
Weighted average interest rate at the end of the period		4.6	%		4.6	%

The Company will from time to time acquire properties subject to fixed rate debt instruments. In those situations, management will record the secured debt at its estimated fair value and amortize any difference between the fair value and par to interest expense over the life of the underlying debt instrument. The unamortized fair market adjustment was a net discount of $979,000 and $987,000 at March 31, 2010 and December 31, 2009, respectively.

Fixed Rate Debt

Mortgage notes payable. Fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from August 2010 through June 2016 and carry interest rates ranging from 2.66% to 6.84%. Mortgage notes payable includes debt associated with development activities.

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

Secured credit facilities. At March 31, 2010, UDR’s fixed rate secured credit facilities consisted of $949.3 million on a $1.4 billion aggregate commitment under five revolving secured credit facilities with Fannie Mae (the Company also owes $260.5 million under the variable rate component of this credit facility). The Fannie Mae credit facilities are for an initial term of 10 years, bear interest at floating and fixed rates, and certain variable rate facilities can be extended for an additional five years at our option. As of March 31, 2010, the fixed rate Fannie Mae credit facilities had a weighted average fixed rate of interest of 5.40%.

Variable Rate Debt

Mortgage notes payable. Variable rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from August 2010 through April 2016. The mortgage notes payable are based on LIBOR plus basis points, which translate into interest rates ranging from 0.91% to 5.25% at March 31, 2010.

Tax-exempt secured note payable. The variable rate mortgage note payable that secures tax-exempt housing bond issue matures in March 2030. Interest on this note is payable in monthly installments. The variable mortgage note has an interest rate of 1.15% as of March 31, 2010.

Secured credit facilities. The variable rate secured credit facilities consisted of $260.5 million outstanding on the Fannie Mae credit facilities. As of March 31, 2010, the variable rate Fannie Mae credit facilities had a weighted average floating rate of interest of 1.64%.

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


	Fixed						Variable
	Mortgage		Tax Exempt		Credit		Mortgage		Tax Exempt		Credit
	Notes		Notes Payable		Facilities		Notes		Notes Payable		Facilities		Total

2010	$	49,944	$	—	$	1,970	$	113,211	$	—	$	—	$	165,125
2011		103,460		—		52,808		73,272		—		39,513		269,053
2012		56,791		—		177,944		50,498		—		59,529		344,762
2013		61,390		—		38,631		38,522		—		—		138,543
2014		—		—		3,328		1,115		—		—		4,443
Thereafter		70,322		13,325		674,607		76,476		27,000		161,409		1,023,139


Total	$	341,907	$	13,325	$	949,288	$	353,094	$	27,000	$	260,451	$	1,945,065

7. UNSECURED DEBT

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


	March 31,		December 31,
	2010		2009
Commercial Banks
Borrowings outstanding under an unsecured credit facility due July 2012 (a)	$	121,000	$	189,300

Senior Unsecured Notes
3.90% Medium-Term Notes due March 2010 (includes premium of $34)		—		50,034
3.625% Convertible Senior Notes due September 2011 (net of discount of $2,883 and $3,351) (b), (g)		123,452		122,984
5.00% Medium-Term Notes due January 2012		100,000		100,000
3.72% Term Notes due July 2012 (c)		100,000		100,000
6.05% Medium-Term Notes due June 2013		122,500		122,500
5.13% Medium-Term Notes due January 2014 (d)		184,000		184,000
5.50% Medium-Term Notes due April 2014 (net of discount of $277 and $295) (d)		128,223		128,205
5.25% Medium-Term Notes due January 2015 (includes net discount of $615 and premium $177) (d), (e)		324,560		175,352
5.25% Medium-Term Notes due January 2016 (d)		83,260		83,260
8.50% Debentures due September 2024		15,644		15,644
4.00% Convertible Senior Notes due December 2035 (net of discount of $1,416 and $1,916) (f), (g)		166,334		165,834
Other		40		42

		1,348,013		1,247,855


	$	1,469,013	$	1,437,155


(a)		We have a $600 million unsecured revolving credit facility that matures on July 26, 2012. Under certain circumstances, we may increase the $600 million credit facility to $750 million. Based on our current credit rating, the $600 million credit facility carries an interest rate equal to LIBOR plus 47.5 basis points. In addition, the unsecured credit facility contains a provision that allows us to bid up to 50% of the commitment and we can bid out the entire unsecured credit facility once per quarter so long as we maintain an investment grade rating.

(b)		Subject to the restrictions on ownership of our common stock and certain other conditions, at any time on or after July 15, 2011 and prior to the close of business on the second business day prior to the maturity date of September 15, 2011, and also following the occurrence of certain events, holders of outstanding 3.625% notes may convert their notes into cash and, if applicable, shares of our common stock, at the conversion rate in effect at such time. Upon conversion of the notes, UDR will deliver cash and common stock, if any, based on a daily conversion value calculated on a proportionate basis for each trading day of the relevant 30 trading day observation period. The initial conversion rate for each $1,000 principal amount of notes was 26.6326 shares of our common stock (equivalent to an initial conversion price of approximately $37.55 per share), subject to adjustment under certain circumstances. The Company’s Special Dividend paid in January 2009 met the criteria to adjust the conversion rate and resulted in an adjusted conversion rate of 29.0207 shares of our common stock for each $1,000 of principal (equivalent to a conversion price of approximately $34.46 per share). If UDR undergoes certain change in control transactions, holders of the 3.625% notes may require us to repurchase their notes in whole or in part for cash equal to 100% of the principal amount of the notes to be repurchased plus any unpaid interest accrued to the repurchase date. In connection with the issuance of the 3.625% notes, UDR entered into a capped call transaction covering approximately 6.7 million shares of our common stock, subject to anti-dilution adjustments similar to those contained in the notes. The capped call expires on the maturity date of the 3.625% notes. The capped call transaction combines a purchased call option with a strike price of $37.548 with a written call option with a strike price of $43.806. The capped call transaction effectively increased the initial conversion price to $43.806 per share, representing a 40% conversion premium. The net cost of approximately $12.6 million of the capped call transaction was included in stockholders’ equity.


(c)		The Company had an interest rate swap agreement related to these notes, which expired during the three months ended March 31, 2010. The notes carried a variable interest rate of 3.72% at March 31, 2010 and a fixed interest rate of 6.26% at December 31, 2009.

(d)		During the three months ended March 31, 2009, the Company repurchased several different traunches of its unsecured debt in open market purchases. As a result of these transactions, we retired debt with a notional value of $159.6 million for $150 million of cash. The gain of $7.1 million is presented as a separate component of interest expense on our Consolidated Statements of Operations for the three months ended March 31, 2009. Consistent with our accounting policy, the Company expensed $737,000 million of unamortized financing costs and $1.8 million of unamortized discount on convertible debt as a result of these debt retirements for the three months ended March 31, 2009.

(e)		On December 7, 2009, the Company entered into an amended and restated distribution agreement with respect to the issue and sale by the Company from time to time of its Medium-Term Notes, Series A Due Nine Months or More From Date of Issue. During the three months ended March 31, 2010, the Company issued $150 million of 5.25% senior unsecured medium-term notes under the amended and restated distribution agreement dated December 7, 2009. These notes were priced at 99.46% of the principal amount at issuance and had a discount of $783,000 at March 31, 2010.

(f)		Holders of the outstanding 4.00% notes may require us to repurchase their notes in whole or in part on January 15, 2011, December 15, 2015, December 15, 2020, December 15, 2025 and December 15, 2030, or upon the occurrence of a fundamental change, for cash equal to 100% of the principal amount of the notes to be repurchased plus any accrued and unpaid interest. On or after January 15, 2011, UDR will have the right to redeem the 4.00% notes in whole or in part, at any time or from time to time, for cash equal to 100% of the principal amount of the notes to be redeemed plus any accrued and unpaid interest. Subject to the restrictions on ownership of shares of our common stock and certain other conditions, holders of the 4.00% notes may convert their notes, into cash and, if applicable, shares of our common stock, at the conversion rate in effect at such time, as follows: (i) prior to the close of business on the second business day immediately preceding the stated maturity date at any time on or after December 15, 2030, and (ii) prior to December 15, 2030 under certain specified circumstances. The initial conversion rate for the notes was 35.2988 shares of our common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $28.33 per share), subject to adjustment under certain circumstances. The Company’s Special Dividend paid in January 2009 met the criteria to adjust the conversion rate and the conversion rate was adjusted to 38.7123 shares of our common stock for each $1,000 of principal (equivalent to a conversion price of approximately $25.83 per share).

(g)		Effective January 1, 2009, the Company adopted guidance that applies to all convertible debt instruments that have a “net settlement feature”, which means that such convertible debt instruments, by their terms, may be settled either wholly or partially in cash upon conversion. This guidance requires issuers of convertible debt instruments that may be settled wholly or partially in cash upon conversion to separately account for the liability and equity components in a manner reflective of the issuers’ nonconvertible debt borrowing rate. The adoption impacted the historical accounting for the 3.625% convertible senior notes due September 2011 and the 4.00% convertible senior notes due December 2035, and resulted in increased interest expense of $967,000 and $1.3 million for the three months ended March 31, 2010 and 2009, respectively.

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


	March 31,			December 31,
	2010			2009

Total revolving credit facility	$	600,000		$	600,000
Borrowings outstanding at end of period (1)		121,000			189,300
Weighted average daily borrowings during the period ended		165,468			83,875
Maximum daily borrowings during the period ended		296,700			279,400
Weighted average interest rate during the period ended		0.7	%		0.9	%
Weighted average interest rate at the end of the period		0.7	%		0.7	%


(1)		Excludes $11.3 million of letters of credit at March 31, 2010

The convertible notes are convertible at the option of the holder, and as such are presented as if the holder will convert the debt instrument at the earliest available date. The aggregate maturities of unsecured debt for the five years subsequent to March 31, 2010 are as follows (dollars in thousands):


	Bank		Unsecured
	Lines		Debt		Total

2010	$	—	$	—	$	—
2011 (a)		—		289,594		289,594
2012		121,000		199,808		320,808
2013		—		122,308		122,308
2014		—		312,353		312,353
Thereafter		—		423,950		423,950


	$	121,000	$	1,348,013	$	1,469,013


(a)		The convertible debt balances have been adjusted to reflect the effect of guidance adopted effective January 2009. Excluding the adjustment, the total maturities in 2011 would be $294.1 million.

Our debt instruments contain covenants that we were in compliance with at March 31, 2010.

8. LOSS PER SHARE

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

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


	Three months ended
	March 31,
	2010			2009

Numerator for loss per share — basic and diluted:
Net loss attributable to common stockholders	$	(26,435	)	$	(15,429	)


Denominator for loss per share — basic and diluted:
Weighted average common shares outstanding		157,192			145,543
Non-vested restricted stock awards		(1,061	)		(1,367	)


Denominator for basic and diluted loss per share		156,131			144,176


Loss per share — basic and diluted	$	(0.17	)	$	(0.11	)

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

If the operating partnership units were converted to common stock, the additional weighted average common shares outstanding for the three months ended March 31, 2010 and 2009, would be 5,975,967 and 7,854,830.

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

If the convertible preferred stock were converted to common stock, the additional shares of common stock outstanding for the three months ended March 31, 2010 and 2009 would be 3,035,548 weighted average common shares.

If the stock options and unvested restricted stock were converted to common stock, the additional weighted average common shares outstanding for the three months ended March 31, 2010 and 2009 would be 1,514,041 and 18,037 weighted average common shares, respectively.

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 March 31, 2010 and December 31, 2009 are summarized as follows (dollars in thousands) :


			Fair Value at March 31, 2010 Using
			Quoted Prices in Active Markets		Significant
			for Identical		Other		Significant
			Assets or		Observable		Unobservable
			Liabilities		Inputs		Inputs
	March 31, 2010		(Level 1)		(Level 2)		(Level 3)

Description:

Available-for-sale debt securities- Corporate debt	$	37,992	$	37,992	$	—	$	—
Derivatives- Interest rate contracts (c)		831		—		831		—

Total assets	$	38,823	$	37,992	$	831	$	—


Derivatives- Interest rate contracts (c)	$	6,035	$	—	$	6,035	$	—
Contingent purchase consideration (d)		6,037		—		—		6,037
Secured debt instruments- fixed rate: (a)
Mortgage notes payable		353,968		—		—		353,968
Tax-exempt secured notes payable		14,917		—		—		14,917
Fannie Mae credit facilities		964,641		—		—		964,641
Secured debt instruments- variable rate: (a)
Mortgage notes payable		353,094		—		—		353,094
Tax-exempt secured notes payable		27,000		—		—		27,000
Fannie Mae credit facilities		260,451		—		—		260,451
Unsecured debt instruments: (b)
Commercial bank		121,000		—		—		121,000
Senior Unsecured Notes		1,356,984		—		—		1,356,984

Total liabilities	$	3,464,127	$	—	$	6,035	$	3,458,092


			Fair Value at December 31, 2009 Using
			Quoted Prices in Active Markets		Significant
			for Identical		Other		Significant
			Assets or		Observable		Unobservable
			Liabilities		Inputs		Inputs
	December 31, 2009		(Level 1)		(Level 2)		(Level 3)

Description:

Available-for-sale debt securities- Corporate debt	$	37,650	$	37,650	$	—	$	—
Derivatives- Interest rate contracts (c)		2,294		—		2,294		—

Total assets	$	39,944	$	37,650	$	2,294	$	—


Derivatives- Interest rate contracts (c)	$	5,947	$	—	$	5,947	$	—
Secured debt instruments- fixed rate: (a)
Mortgage notes payable		516,578		—		—		516,578
Tax-exempt secured notes payable		13,540		—		—		13,540
Fannie Mae credit facilities		952,468		—		—		952,468
Secured debt instruments- variable rate: (a)
Mortgage notes payable		243,810		—		—		243,810
Tax-exempt secured notes payable		27,000		—		—		27,000
Fannie Mae credit facilities		249,125		—		—		249,125
Unsecured debt instruments: (b)
Commercial bank		189,300		—		—		—
Senior Unsecured Notes		1,236,515		—		—		1,236,515

Total liabilities	$	3,434,283	$	—	$	5,947	$	3,239,036


(a)		See Note 6, “Secured Debt”

(b)		See Note 7, “Unsecured Debt”

(c)		See Note 10, “Derivatives and Hedging Activity”

(d)		As of March 31, 2010, the Company accrued a liability of $6.0 million related to a contingent purchase consideration on one of its properties. The contingent consideration was determined based on the fair market value of the related asset which is estimated using Level 3 inputs utilized in a third party appraisal.

Financial Instruments Carried at Fair Value

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

The amortized cost, gross unrealized gains and fair value of the Company’s investments at March 31, 2010 and December 31, 2009 are as follows ( dollars in thousands ):


	March 31,		December 31,
	2010		2009
Corporate debt securities- U.S.:
Amortized cost	$	33,632	$	33,066
Gross unrealized gains		4,360		4,584


Estimated fair value (net carrying amount)	$	37,992	$	37,650

The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The fair values of interest rate options are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.

The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2010 and 2009, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Financial Instruments Not Carried at Fair Value

At March 31, 2010, the fair values of cash and cash equivalents, restricted cash, notes receivable, accounts receivable, prepaids, real estate taxes payable, accrued interest payable, security deposits and prepaid rent, distributions payable and accounts payable approximated their carrying values because of the short term nature of these instruments. The estimated fair values of other financial instruments were determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company would realize on the disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts.

We estimate the fair value of our debt instruments by discounting the remaining cash flows of the debt instrument at a discount rate equal to the replacement market credit spread plus the corresponding treasury yields. Factors considered in determining a replacement market credit spread include general market conditions, borrower specific credit spreads, time remaining to maturity, loan-to-value ratios and collateral quality (Level 3).

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.

The Company did not recognize any other-than-temporary decrease in the value of its other investments in unconsolidated joint ventures during the three months ended March 31, 2010 and 2009. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. These factors include, but are not limited to, age of the venture, our intent and ability to retain our investment in the entity, the financial condition and long-term prospects of the entity, and the relationships with the other joint venture partners and its lenders. Based on the significance of the unobservable inputs, we classify these fair value measurements within Level 3 of the valuation hierarchy.

After determining an other-than-temporary decrease in the value of an equity method has occurred, we estimate the fair value of our investment by estimating the proceeds we would receive upon a hypothetical liquidation of the investment at the date of measurement. Inputs reflect management’s best estimate of what market participants would use in pricing the investment giving consideration to the terms of the joint venture agreement and the estimated discounted future cash flows to be generated from the underlying joint venture asset. The inputs and assumptions utilized to estimate the future cash flows of the underlying asset are based upon the Company’s evaluation of the economy, market trends, operating results, and other factors, including judgments regarding costs to complete any construction activities, lease up and occupancy rates, rental rates, inflation rates, capitalization rates utilized to estimate the projected cash flows at the disposition, and discount rates.

10. DERIVATIVES AND HEDGING ACTIVITY

Risk Management Objective of Using Derivatives

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

Cash Flow Hedges of Interest Rate Risk

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

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in “Accumulated Other Comprehensive Income/(Loss)” and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three months ended March 31, 2010 and 2009, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three months ended March 31, 2010 and 2009, the Company recorded less than $1,000 of ineffectiveness in earnings attributable to reset date and index mismatches between the derivative and the hedged item, and the fair value of interest rate swaps that were not zero at inception of the hedging relationship.

Amounts reported in “Accumulated Other Comprehensive Income/(Loss)” related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve months, the Company estimates that an additional $5.3 million will be reclassified as an increase to interest expense.

As of March 31, 2010, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk ( dollar amounts in thousands ):


	Number of
Interest Rate Derivative	Instruments		Notional
Interest rate swaps		11	$	327,344

Interest rate caps		2	$	113,909

Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted in a loss of $317,000 and $55,000 for the three months ended March 31, 2010 and 2009, respectively. As of March 31, 2010, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships ( dollar amounts in thousands ):


	Number of
Product	Instruments		Notional
Interest rate caps		4	$	244,787

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

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009 (amounts in thousands).


	Asset Derivatives					Liability Derivatives
		Fair Value at:					Fair Value at:
	Balance	March 31,		December 31,		Balance	March 31,		December 31,
	Sheet Location	2010		2009		Sheet Location	2010		2009
Derivatives designated as hedging instruments:
Interest Rate Products	Other Assets	$	436	$	1,348	Other Liabilities	$	6,035	$	5,282


Total derivatives designated as hedging instruments		$	436	$	1,348		$	6,035	$	5,282


Derivatives not designated as hedging instruments:
Interest Rate Products	Other Assets	$	395	$	946	Other Liabilities	$	—	$	665


Total derivatives not designated as hedging instruments		$	395	$	946		$	—	$	665

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 months ended March 31, 2010 and 2009 (dollar amounts in thousands):


								Location of Gain or	Amount of Gain or
								(Loss) Recognized in Income on	(Loss) Recognized in Income on
				Location of Gain	Amount of Gain or			Derivative (Ineffective Portion	Derivative (Ineffective Portion
	Amount of Loss			Reclassified from	(Loss) Reclassified			and Amount	and Amount
Derivatives in Cash	Recognized in OCI			Accumulated OCI	from Accumulated			Excluded from	Excluded from
Flow Hedging	on Derivative			into Income	OCI into Income			Effectiveness	Effectiveness
Relationships	(Effective Portion)			(Effective Portion)	(Effective Portion)			Testing)	Testing)

For the three months ended March 31, 2010:

Interest Rate Products	$	(3,314	)	Interest expense	$	2,080		Other expense	$	—


Total	$	(3,314	)		$	2,080			$	—


For the three months ended March 31, 2009:

Interest Rate Products	$	(2,493	)	Interest expense	$	(2,646	)	Other expense	$	—


Total	$	(2,493	)		$	(2,646	)		$	—


		Amount of Loss
	Location of Gain or (Loss)	Recognized in
	Recognized in Income on	Income on
Derivatives Not Designated as Hedging Instruments	Derivative	Derivative

For the three months ended March 31, 2010:
Interest Rate Products	Other income / (expense)	$	(317	)


Total		$	(317	)


For the three months ended March 31, 2009:
Interest Rate Products	Other income / (expense)	$	(55	)


Total		$	(55	)

Credit-risk-related Contingent Features

The Company has agreements with some of its derivative counterparties that contain a provision whereby (1) if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations; or (2) the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness.

Certain of the Company’s agreements with its derivative counterparties contain provisions where if there is a change in the Company’s financial condition that materially changes the Company’s creditworthiness in an adverse manner, the Company may be required to fully collateralize its obligations under the derivative instrument.

The Company also has an agreement with a derivative counterparty that incorporates the loan and financial covenant provisions of the Company’s indebtedness with a lender affiliate of the derivative counterparty. Failure to comply with these covenant provisions would result in the Company being in default on any derivative instrument obligations covered by the agreement.

As of March 31, 2010, the fair value of derivatives in a net liability position related to these agreements, which includes accrued interest but excludes any adjustment for nonperformance risk, was $6.6 million. As of March 31, 2010, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at March 31, 2010, it would have been required to settle its obligations under the agreements at their termination value of $6.6 million.

11. OTHER COMPREHENSIVE INCOME/(LOSS)

During the three months ended March 31, 2010 and 2009, components of comprehensive income/(loss) consisted of an unrealized (loss)/gain of ($224,000) and $765,000, respectively, from the mark-to-market of marketable securities classified as available-for-sale and an unrealized (loss)/gain of ($1.2 million) and $154,000, respectively, from derivative financial instruments. The Company allocated a pro-rata share of gain/(loss) of $53,000 and ($47,000) to non-controlling interests for the three months ended March 31, 2010 and 2009, respectively. Total comprehensive loss for the three months ended March 31, 2010 and 2009 was $25.4 million and $11.7 million, respectively.

12. STOCK BASED COMPENSATION

Effective January 1, 2006, the Company adopted the modified prospective method for stock based compensation. During the three months ended March 31, 2010 and 2009, we recognized $2.9 million and $2.3 million, respectively as stock based compensation expense, which is inclusive of awards granted to our outside directors.

13. COMMITMENTS AND CONTINGENCIES

Commitments

Real Estate Under Development

The following summarizes the Company’s real estate commitments at March 31, 2010 ( dollars in thousands ):


	Number of		Costs Incurred		Expected Costs		Ownership
	Properties		to Date		to Complete		Stake

Wholly owned — under development		4	$	239,387	$	22,113		100	%

Contingencies

Litigation and Legal Matters

UDR is subject to various legal proceedings and claims arising in the ordinary course of business. UDR cannot determine the ultimate liability with respect to such legal proceedings and claims at this time. UDR believes that such liability, to the extent not provided for through insurance or otherwise, will not have a material adverse effect on our financial condition, results of operations or cash flow.

14. REPORTABLE SEGMENTS

GAAP guidance requires that segment disclosures present the measure(s) used by the chief operating decision maker to decide how to allocate resources and for purposes of assessing such segments’ performance. UDR’s chief operating decision maker is comprised of several members of its executive management team who use several generally accepted industry financial measures to assess the performance of the business for our reportable operating segments.

UDR owns and operates multifamily apartment communities 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 for UDR’s apartment communities are rental income and net operating income (“NOI”). Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. NOI is defined as total revenues less direct property operating expenses. UDR’s chief operating decision maker utilizes NOI as the key measure of segment profit or loss.

UDR’s two reportable segments are same communities and non-mature/other communities:

•

Same communities represent those communities acquired, developed, and stabilized prior to January 1, 2009, and held as of March 31, 2010. 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 year, 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/other communities represent those communities that were acquired or developed in 2008, 2009 or 2010, sold properties, redevelopment properties, properties classified as real estate held for disposition, condominium conversion properties, joint venture properties, properties managed by third parties and the non-apartment components of mixed use properties.

Management evaluates the performance of each of our apartment communities on a same community and non-mature/other basis, as well as individually and geographically. This is consistent with the aggregation criteria under GAAP as each of our apartment communities generally has similar economic characteristics, facilities, services, and tenants. Therefore, the Company’s reportable segments have been aggregated by geography in a manner identical to that which is provided to the chief operating decision maker.

All revenues are from external customers and no single tenant or related group of tenants contributed 10% or more of UDR’s total revenues during the three months ended March 31, 2010 and 2009.

The accounting policies applicable to the operating segments described above are the same as those described in Note 2, “Significant Accounting Policies.” The following table details rental income and NOI for UDR’s reportable segments for the three months ended March 31, 2010 and 2009, and reconciles NOI to loss from continuing operations per the Consolidated Statements of Operations (dollars in thousands) :


	Three Months Ended
	March 31,
	2010			2009

Reportable apartment home segment rental income
Same Communities
Western Region	$	56,410		$	59,495
Mid-Atlantic Region		37,688			37,741
Southeastern Region		28,872			29,728
Southwestern Region		11,301			11,558
Non-Mature communities/Other		17,358			12,093


Total segment and consolidated rental income	$	151,629		$	150,615


Reportable apartment home segment NOI
Same Communities
Western Region	$	38,711		$	42,110
Mid-Atlantic Region		25,247			25,632
Southeastern Region		18,130			18,579
Southwestern Region		6,634			6,514
Non-Mature communities/Other		9,301			6,218


Total segment and consolidated NOI		98,023			99,053


Reconciling items:
Non-property income		3,320			5,024
Property management		(4,170	)		(4,142	)
Other operating expenses		(1,485	)		(1,654	)
Depreciation and amortization		(72,207	)		(68,985	)
Interest, net		(36,866	)		(30,692	)
Hurricane related expenses		—			(241	)
General and administrative		(9,575	)		(9,456	)
Other depreciation and amortization		(1,223	)		(1,394	)
Loss from unconsolidated entities		(737	)		(717	)
Tax expense for the TRS		(65	)		(51	)


Net loss from continuing operations	$	(24,985	)	$	(13,255	)

The following table details the assets of UDR’s reportable segments as of March 31, 2010 and December 31, 2009 (dollars in thousands) :


	March 31,			December 31,
	2010			2009
Reportable apartment home segment assets:
Same communities:
Western Region	$	2,407,611		$	2,404,218
Mid-Atlantic Region		1,259,936			1,263,755
Southeastern Region		914,309			911,973
Southwestern Region		419,530			418,303
Non-mature communities/Other		1,353,027			1,316,798

Total segment assets		6,354,413			6,315,047
Accumulated depreciation		(1,416,057	)		(1,351,293	)

Total segment assets — net book value		4,938,356			4,963,754


	March 31,		December 31,
	2010		2009
Reconciling items:
Cash and cash equivalents		19,920		5,985
Marketable securities		37,992		37,650
Restricted cash		8,642		8,879
Deferred financing costs, net		26,710		26,601
Notes receivable		7,800		7,800
Investment in unconsolidated joint ventures		13,241		14,126
Other assets		63,055		67,822

Total consolidated assets	$	5,115,716	$	5,132,617

Capital expenditures related to our same communities totaled $8.4 million and $13.3 million for the three months ended March 31, 2010 and 2009, respectively. Capital expenditures related to our non-mature/other communities totaled $456,000 and $2.0 million for the three months ended March 31, 2010 and 2009, respectively.

Markets included in the above geographic segments are as follows:

Western — Orange County, San Francisco, Monterey Peninsula, Los Angeles, Seattle, San Diego, Inland Empire, Sacramento and Portland

	ii.		Mid-Atlantic — Metropolitan DC, Baltimore, Richmond, Norfolk, and Other Mid-Atlantic

	iii.		Southeastern — Tampa, Orlando, Nashville, Jacksonville, and Other Florida

	iv.		Southwestern — Dallas, Phoenix, Austin, and Houston

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, without limitation, statements concerning property acquisitions and dispositions, development activity and capital expenditures, capital raising activities, rent growth, occupancy, and rental expense growth. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Such factors include, among other things, unanticipated adverse business developments affecting us, or our properties, adverse changes in the real estate markets and general and local economies and business conditions. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements included in this Report may not prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved.

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

•

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,

•

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,

•

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,

•

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 below in Part II, Item 1A. Risk Factors. We encourage investors to review these risk factors.

Business Overview

We are a real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages apartment communities nationwide. 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 two operating partnerships, Heritage Communities L.P., a Delaware limited partnership, and United Dominion Realty, L.P., a Delaware limited partnership. Unless the context otherwise requires, all references in this Report to “we,” “us,” “our,” “the Company,” or “UDR” refer collectively to UDR, Inc., its subsidiaries and its consolidated joint ventures.

At March 31, 2010, our consolidated real estate portfolio included 167 communities with 46,357 apartment homes and our total real estate portfolio, inclusive of our unconsolidated communities, included an additional 10 communities with 3,992 apartment homes.

The following table summarizes our market information by major geographic markets as of March 31, 2010.


					Percentage			Total
	Number of		Number of		of Total			Carrying			Average			Total Income
	Apartment		Apartment		Carrying			Value			Physical			per Occupied
Same Communities	Communities		Homes		Value			(in thousands)			Occupancy			Home (a)

Western Region
Orange Co, CA		14		4,363		12.6	%	$	802,601			95.6	%	$	1,466
San Francisco, CA		9		1,727		6.3	%		402,701			96.4	%		1,886
Seattle, WA		9		1,725		4.8	%		302,994			96.8	%		1,159
Monterey Peninsula, CA		7		1,565		2.4	%		151,231			93.5	%		1,044
Los Angeles, CA		7		1,380		4.5	%		288,307			96.6	%		1,529
San Diego, CA		5		1,123		2.7	%		173,708			95.5	%		1,320
Inland Empire, CA		3		1,074		2.4	%		149,712			95.3	%		1,211
Portland, OR		3		716		1.1	%		68,849			95.4	%		936
Sacramento, CA		2		914		1.1	%		67,508			94.2	%		874

Mid-Atlantic Region
Metropolitan DC		11		3,765		10.5	%		667,358			96.6	%		1,508
Baltimore, MD		10		2,121		3.9	%		249,433			97.1	%		1,240
Richmond, VA		6		2,211		2.9	%		182,279			95.8	%		1,009
Norfolk VA		6		1,438		1.3	%		83,277			95.3	%		943
Other Mid-Atlantic		5		1,132		1.2	%		77,589			96.2	%		1,005

Southeastern Region
Tampa, FL		10		3,278		4.0	%		251,164			95.6	%		915
Orlando, FL		10		2,796		3.4	%		218,621			95.4	%		900
Nashville, TN		8		2,260		2.8	%		178,005			96.3	%		833
Jacksonville, FL		5		1,857		2.4	%		155,287			95.3	%		814
Other Florida		4		1,184		1.8	%		111,232			95.3	%		977

Southwestern Region
Dallas, TX		9		2,595		4.2	%		266,970			96.0	%		947
Phoenix, AZ		3		914		1.1	%		70,897			95.3	%		847
Austin, TX		1		390		0.9	%		59,957			97.1	%		1,081
Houston, TX		1		320		0.4	%		21,706			90.8	%		899

Total/Average Same Communities		148		40,848		78.7	%		5,001,386			95.8	%	$	1,144


Non Matures, Commercial Properties & Other		16		4,905		17.5	%		1,113,640


Total Real Estate Held for Investment		164		45,753		96.2	%		6,115,026


Real Estate Under Development (b)		3		604		3.8	%		239,387


Total Real Estate Owned		167		46,357		100.0	%		6,354,413


Total Accumulated Depreciation									(1,416,057	)


Total Real Estate Owned, Net of Accumulated Depreciation								$	4,938,356


(a)		Total Income per Occupied Home represents total monthly revenues per weighted average number of apartment homes occupied.

(b)		The Company is currently developing four wholly-owned communities with a total of 1,575 apartment homes of which 971 have not yet been completed.

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 and equity. Both the coordination of asset and liability maturities and effective capital management are important to the maintenance of liquidity. 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 credit agreements. We routinely use our 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 repositioned our portfolio.

We expect to meet our short-term liquidity requirements generally through net cash provided by operations and borrowings under credit agreements. 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 secured and unsecured borrowings, the issuance of debt or equity securities, and the disposition of properties. We believe that our net cash provided by operations and borrowings under credit agreements 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, and the issuance of debt or equity securities.

We have a shelf registration statement filed with the Securities and Exchange Commission, or “SEC” which provides for the issuance of an indeterminate amount of common stock, preferred stock, 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.

On September 15, 2009, the Company entered into an equity distribution agreement under which the Company may offer and sell up to 15.0 million shares of its common stock over time to or through its sales agents. During the three months ended March 31, 2010, we sold 4,358,753 shares of common stock through this program for aggregate gross proceeds of approximately $74.8 million at a weighted average price per share of $17.16. Aggregate net proceeds from such sales, after deducting related expenses, including commissions paid to the sales agents of approximately $1.5 million, were approximately $73.3 million.

On December 7, 2009, the Company entered into an amended and restated distribution agreement with respect to the issue and sale by the Company from time to time of its Medium-Term Notes, Series A Due Nine Months or More From Date of Issue. In February 2010, the Company issued $150 million of 5.25% senior unsecured medium-term notes under the amended and restated distribution agreement dated December 7, 2009. These notes were priced at 99.46% of the principal amount at issuance and had a discount of $783,000 at March 31, 2010.

Future Capital Needs

Future development expenditures are expected to be funded with proceeds from construction loans, through joint ventures, unsecured or secured credit facilities, proceeds from the issuance of equity or debt securities, the sale of properties and to a lesser extent, with cash flows provided by operating activities. Acquisition activity in strategic markets is expected to be largely financed 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 2010, we have approximately $165.1 million of secured debt and no unsecured debt maturing and we anticipate repaying that debt with proceeds from borrowings under our secured or unsecured credit facilities, the issuance of equity or debt securities, and by exercising extension rights with respect to secured debt of $151.2 million.

Critical Accounting Policies and Estimates

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, and (3) real estate investment properties. Based on the Company’s repositioning initiative, management deemed our policy surrounding real estate sales to be a critical accounting policy.

Our other 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 for the year ended December 31, 2009, filed with the SEC on February 25, 2010. 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 25, 2010. 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 Flow

The following discussion explains the changes in net cash provided by operating activities and net cash provided by/(used in) investing and financing activities that are presented in our Consolidated Statements of Cash Flows.

Operating Activities

For the three months ended March 31, 2010, our net cash flow provided by operating activities was $41.5 million compared to $71.6 million for the comparable period in 2009. The decrease in cash flow from operating activities is primarily due to changes in operating assets and liabilities.

Investing Activities

For the three months ended March 31, 2010, net cash used in investing activities was $57.4 million compared to $99.2 million for the comparable period in 2009. The change is primarily driven by a reduction in development expenditures and the purchase of marketable securities in 2009 partially offset by the payment of $16.1 million to buy out a joint venture partner, all of which are discussed in further detail throughout this Report.

Acquisitions

We did not have any acquisitions during the three months ended March 31, 2010 Our long-term strategic plan is to achieve greater operating efficiencies by investing in fewer, more concentrated markets. As a result, we have been seeking to expand our interests in communities located in California, Metropolitan D.C., Texas and the Washington State markets over the past years. Prospectively, we plan to channel new investments into those markets we believe will provide the best investment returns. Markets will be targeted based upon defined criteria including favorable job formation, low single-family home affordability and favorable demand/supply ratio for multifamily housing.

Capital Expenditures

In conformity with GAAP, 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.

During the three months ended March 31, 2010, $8.8 million or $199 per home was spent on recurring capital expenditures. These include revenue enhancing capital expenditures, kitchen and bath upgrades, and other extensive exterior/interior upgrades, turnover related expenditures for floor coverings and appliances, other recurring capital expenditures such as exterior paint, roofs, siding, parking lots, and asset preservation capital expenditures. Total aggregated capital expenditures, which include recurring capital expenditures, of $13.5 million or $306 per home was spent on all of our communities, excluding development and commercial properties, for the three months ended March 31, 2010. In addition, major renovations totaled $4.7 million for the three months ended March 31, 2010.

The following table outlines capital expenditures and repair and maintenance costs for all of our communities, excluding real estate under development, condominium conversions and commercial properties, for the periods presented:


	Three months ended March 31,							Three months ended March 31,
	(dollars in thousands)							(per home)
	2010		2009		% Change			2010		2009		% Change
Revenue enhancing improvements	$	3,052	$	7,989		-61.8	%	$	69	$	184		-62.5	%
Turnover capital expenditures		1,933		2,111		-8.4	%		44		49		-10.2	%
Asset preservation expenditures		3,812		3,570		6.8	%		86		82		4.9	%

Total recurring capital expenditures		8,797		13,670		-35.6	%		199		315		-36.8	%

Major renovations		4,747		4,529		4.8	%		107		104		2.9	%

Total capital expenditures	$	13,544	$	18,199		-25.6	%	$	306	$	419		-27.0	%


Repair and maintenance expense	$	7,477	$	7,018		6.5	%	$	169	$	161		5.0	%


Average stabilized home count		44,270		43,456

We will continue to selectively add revenue enhancing improvements which we believe will provide a return on investment substantially in excess of our cost of capital. Recurring capital expenditures during 2010 are currently expected to be approximately $1,000 per home.

Development

At March 31, 2010, our development pipeline for wholly-owned communities totaled 1,575 homes with a budget of $261.5 million in which we have a carrying value of $239.4 million. We anticipate the completion of these communities during 2010.

For the three months ended March 31, 2010, we invested approximately $28.6 million in development projects, a decrease of $25.0 million from our 2009 level of $53.6 million. We also completed development of one community held by a joint venture with 274 apartment homes and retail space with costs of $120.1 million as of March 31, 2010.

Consolidated Joint Ventures

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

For additional information regarding these joint ventures, see Note 5, “Joint Ventures,” in the Consolidated Financial Statements included in this Report.

Unconsolidated Joint Ventures

In November 2007, UDR and an unaffiliated third party formed a joint venture which owns and operates various properties located in Texas. UDR contributed cash and property equal to 20% of the fair value of the properties. The unaffiliated member contributed cash equal to 80% of the fair value of the properties comprising the joint venture, which was then used to purchase the nine operating properties from UDR. Our initial investment was $20.4 million. Our investment at March 31, 2010 and December 31, 2009 was $12.9 million and $13.9 million, respectively.

For additional information regarding these joint ventures, see Note 5, “Joint Ventures,” in the Consolidated Financial Statements included in this Report.

Disposition of Investments

During the three months ended March 31, 2010, we did not dispose of any communities. We plan to continue to pursue our strategy of exiting markets where long-term growth prospects are limited and redeploying capital into markets we believe will provide the best investment returns.

Financing Activities

For the three months ended March 31, 2010, our net cash provided by financing activities was $29.8 million compared to $52.1 million for the comparable period of 2009.

The following significant financing activities occurred during the three months ended March 31, 2010:

	•		repaid $72.4 million of secured debt and $50.0 million of maturing medium-term unsecured notes. The $72.4 million of secured debt includes $70.5 million for a maturing construction loan held by one of our consolidated joint ventures, repayment of $684,000 of credit facilities and $1.2 million of mortgage payments;

	•		net repayments of $68.3 million were applied toward the Company’s $600 million revolving credit facility;

	•		received proceeds of $28.1 million from the issuance of secured debt. The $28.1 million includes $9.8 million in variable rate mortgages, $7.0 million in fixed rate mortgages, and $11.3 million in credit facilities;

	•		in December 2009, the Company entered into an amended and restated distribution agreement with respect to the issue and sale by the Company from time to time of its Medium-Term Notes, Series A Due Nine Months or More From Date of Issue. In February 2010, the Company issued $150 million of 5.25% senior unsecured medium-term notes under the amended and restated distribution agreement dated December 7, 2009. These notes were priced at 99.46% of the principal amount at issuance and had a discount of $783,000 at March 31, 2010; and

	•		in September 2009, the Company initiated an “At the Market” equity distribution program pursuant to which we may sell up to 15 million shares of common stock from time to time to or through sales agents, by means of ordinary brokers’ transactions on the New York Stock Exchange at prevailing market prices at the time of sale, or as otherwise agreed with the applicable agent. During the three months ended March 31, 2010, we sold 4,358,753 shares of common stock through this program for aggregate gross proceeds of approximately $74.8 million at a weighted average price per share of $17.16. Aggregate net proceeds from such sales, after deducting related expenses, including commissions paid to the sales agents of approximately $1.5 million, were approximately $73.3 million.

Credit Facilities

As of March 31, 2010, we have secured revolving credit facilities with Fannie Mae with an aggregate commitment of $1.4 billion with $1.2 billion outstanding. The Fannie Mae credit facilities are for an initial term of 10 years, bear interest at floating and fixed rates, and certain variable rate facilities can be extended for an additional five years at our option. We have $949.3 million of the funded balance fixed at a weighted average interest rate of 5.4% and the remaining balance on these facilities is currently at a weighted average variable rate of 1.6%.

We have a $600 million unsecured revolving credit facility that matures on July 26, 2012. Under certain circumstances, we may increase the $600 million credit facility to $750 million. Based on our current credit rating, the $600 million credit facility carries an interest rate equal to LIBOR plus 47.5 basis points. In addition, the unsecured credit facility contains a provision that allows us to bid up to 50% of the commitment and we can bid out the entire unsecured credit facility once per quarter so long as we maintain an investment grade rating. As of March 31, 2010, we had $121.0 million of borrowings outstanding under the credit facility leaving $479.0 million of unused capacity (excluding $11.3 million of letters of credit at March 31, 2010).

The Fannie Mae credit facility and the bank revolving credit facility are subject to customary financial covenants and limitations.

Derivative Instruments

As part of UDR’s overall interest rate risk management strategy, we use derivatives as a means to fix the interest rates of variable rate debt obligations or to hedge anticipated financing transactions. UDR’s derivative transactions used for interest rate risk management includes interest rate swaps with indexes that relate to the pricing of specific financial instruments of UDR. We believe that we have appropriately controlled our interest rate risk through the use of derivative instruments so that there will not be any material unintended effect on consolidated earnings. Derivative contracts did not have a material impact on the results of operations during the three months ended March 31, 2010 (see Note 10- Derivatives and Hedging Activity in Notes to Consolidated Financial Statements in this Report ).

Funds from Operations

Funds from operations, or FFO, is defined as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable property, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We compute FFO for all periods presented in accordance with the recommendations set forth by the National Association of Real Estate Investment Trust’s (“NAREIT”) April 1, 2002 White Paper. We consider 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 generally accepted accounting principles. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs.

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 REIT operating performance and defines FFO as net income (computed in accordance with accounting principles generally accepted in the United States), excluding gains (or losses) from sales of depreciable property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. The use of FFO, combined with the required presentations, has been fundamentally beneficial, improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. We generally consider FFO to be a useful measure for reviewing our comparative operating and financial performance (although FFO should be reviewed in conjunction with net income which remains the primary measure of performance) because by excluding gains or losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization, FFO can help one compare the operating performance of a Company’s real estate between periods or as compared to different companies. We believe that FFO is the best measure of economic profitability for real estate investment trusts.

The following table outlines our FFO calculation and reconciliation to GAAP for the three months ended March 31, 2010 and 2009 ( dollars in thousands):


	Three Months Ended
	March 31,
	2010			2009

Net loss attributable to UDR, Inc.	$	(24,056	)	$	(12,629	)

Distributions to preferred stockholders		(2,379	)		(2,800	)
Real estate depreciation and amortization, including discontinued operations		72,207			68,985
Non-controlling interest		(970	)		(794	)
Real estate depreciation and amortization on unconsolidated joint ventures		1,009			1,143
Net loss on the sale of depreciable property in discontinued operations, excluding RE3		41			168

Funds from operations (“FFO”) — basic	$	45,852		$	54,073


Distribution to preferred stockholders — Series E (Convertible)		931			931


Funds from operations — diluted	$	46,783		$	55,004


FFO per common share — basic	$	0.28		$	0.36

FFO per common share — diluted	$	0.28		$	0.35


Weighted average number of common shares and OP Units outstanding — basic		162,107			152,031
Weighted average number of common shares, OP Units, and common stock equivalents outstanding — diluted		166,657			155,085

In the computation of diluted FFO, OP Units, unvested restricted stock, stock options, and the shares of Series E Cumulative Convertible Preferred Stock are dilutive; therefore, they are included in the diluted share count. The effect of the conversion of the Series E Out-Performance Partnership Shares (the Series E Out-Performance Program terminated on December 31, 2009) are dilutive for the quarter ended March 31, 2009 and is included in the diluted share count.

RE ³ is our subsidiary that focuses on development, land entitlement and short-term hold investments. RE ³ tax benefits and gain on sales, net of taxes, is defined as net sales proceeds less a tax provision and the gross investment basis of the asset before accumulated depreciation. We consider FFO with RE ³ tax benefits and gain on sales, net of taxes, to be a meaningful supplemental measure of performance because the short-term use of funds produce a profit that differs from the traditional long-term investment in real estate for REITs.

The following table is our reconciliation of FFO share information to weighted average common shares outstanding, basic and diluted, reflected on the Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009 (shares in thousands):


	Three Months Ended
	March 31,
	2010			2009

Weighted average number of common shares and OP units outstanding basic		162,107			152,031
Weighted average number of OP units outstanding		(5,976	)		(7,855	)

Weighted average number of common shares outstanding — basic per the Consolidated Statements of Operations		156,131			144,176

Weighted average number of common shares, OP units, and common stock equivalents outstanding — diluted		166,657			155,085
Weighted average number of OP units outstanding		(5,976	)		(7,855	)
Weighted average incremental shares from assumed conversion of stock options		(1,353	)		(18	)
Weighted average incremental shares from unvested restricted stock		(161	)		—
Weighted average number of Series E preferred shares outstanding		(3,036	)		(3,036	)


Weighted average number of common shares outstanding — diluted per the Consolidated Statements of Operations		156,131			144,176

FFO also does not represent cash generated from operating activities in accordance with GAAP, and therefore should not be considered an alternative to net cash flows from operating activities, as determined by generally accepted accounting principles, as a measure of liquidity. Additionally, it is not necessarily indicative of cash availability to fund cash needs. A presentation of cash flow metrics based on GAAP is as follows (dollars in thousands):


	Three Months Ended
	March 31,
	2010			2009
Net cash provided by operating activities	$	41,510		$	71,557
Net cash used in investing activities	$	(57,369	)	$	(99,215	)
Net cash provided by financing activities	$	29,794		$	52,050

Results of Operations

The following discussion includes the results of both continuing and discontinued operations for the periods presented.

Net Loss Attributable to Common Stockholders

Net loss attributable to common stockholders was $26.4 million ($0.17 per diluted share) for the three months ended March 31, 2010 as compared to net loss attributable to common stockholders of $15.4 million ($0.11 per diluted share) for the comparable period in the prior year. The increase in net loss attributable to common stockholders for the three months ended March 31, 2010 resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

	•		a decrease in our net operating income;

	•		an increase in depreciation expense primarily due to the Company’s acquisition of operating properties and the completion of redevelopment and development communities in 2008 and 2009;

	•		a decrease in the recognition of net gain on debt extinguishment related to unsecured debt repurchase activity in 2009; and

	•		a decrease in other income primarily due to a decrease in interest income offset by an increase in recoveries from real estate tax accruals.

The increase to our net loss attributable to common stockholders was partially offset by a decrease in interest expense.

Apartment Community Operations

Our net income is primarily generated from the operation of our apartment communities. The following table summarizes the operating performance of our total apartment portfolio which excludes commercial operating income and expense for each of the periods presented (dollars in thousands):


	Three Months Ended
	March 31,
	2010			2009			% Change

Property rental income	$	149,945		$	148,762			0.8	%
Property operating expense (a)		(52,707	)		(50,363	)		4.7	%

Property net operating income	$	97,238		$	98,399			-1.2	%


(a)		Excludes depreciation, amortization, and property management expenses.

The following table is our reconciliation of property NOI to net loss attributable to UDR as reflected, for both continuing and discontinued operations, for the periods presented (dollars in thousands ):


	Three Months Ended
	March 31,
	2010			2009

Property net operating income	$	97,238		$	98,399
Other net operating income		785			654
Non-property income, net		3,320			5,024
Hurricane related expenses		—			(241	)
Real estate depreciation and amortization		(72,207	)		(68,985	)
Interest, net		(36,866	)		(30,692	)
General and administrative and property management		(13,745	)		(13,598	)
Other expenses		(1,485	)		(1,654	)
Other depreciation and amortization		(1,223	)		(1,394	)
Loss from unconsolidated entities		(737	)		(717	)
Tax expense for taxable REIT subsidiary		(65	)		(51	)
Net loss on sale of depreciable property		(41	)		(168	)
Non-controlling interests		970			794


Net loss attributable to UDR	$	(24,056	)	$	(12,629	)

Same Communities

Our same community properties (those acquired, developed, and stabilized prior to January 1, 2009 and held on March 31, 2010) consisted of 40,848 apartment homes and provided 91% of our total NOI for the three months ended March 31, 2010.

NOI for our same community properties decreased 4.4% or $4.1 million for the three months ended March 31, 2010 compared to the same period in 2009. The decrease in property NOI was primarily attributable to a 3.1% or $4.3 million decrease in property rental income, which was partially offset by a 0.3% or $138,000 decrease in operating expenses. The decrease in revenues was primarily driven by a 5.1% or $7.1 million decrease in rental rates which was offset by a 41.2% or $439,000 decrease in rental concessions, a 26.9% or $1.8 million decrease in vacancy loss, a 39.1% or $341,000 decrease in bad debt, and an 12.0% or $667,000 increase in reimbursement income. Physical occupancy increased 1.1% to 95.8% and total monthly income per occupied home decreased $50 to $1,144.

The decrease in property operating expenses was primarily driven by a 6.1% or $936,000 decrease in real estate taxes partially offset by a 14.3% or $299,000 increase in insurance, and a 4.7% or $312,000 increase in repairs and maintenance primarily due to snow removal costs in the Mid-Atlantic region.

As a result of the percentage changes in property rental income and property operating expenses, the operating margin (property net operating income divided by property rental income) decreased to 66.1% for the three months ended March 31, 2010 as compared to 67.0% for the comparable period in 2009.

Non-Mature Communities

The remaining $8.5 million or 9% of our NOI during the three months ended March 31, 2010, was generated from communities that we classify as “non-mature communities.” UDR’s non-mature communities consist of communities that do not meet the criteria to be included in same communities, which includes communities developed or acquired, redevelopment properties, sold properties, non-apartment components of mixed use properties, properties classified as real estate held for disposition and condominium properties. For the three months ended March 31, 2010, we recognized NOI for our developments of $2.6 million, acquired communities of $1.5 million, and redeveloped properties of $2.9 million.

Other Income

For the three months ended March 31, 2010, significant amounts reflected in other income include: interest income and discount amortization from an interest in a convertible debt security, a recovery from real estate tax accruals, and fees earned for both recurring and non-recurring items related to the Company’s joint ventures. Other income for the three months ended March 31, 2009 includes interest income on a note receivable and excludes the recovery from real estate tax accruals.

Real Estate Depreciation and Amortization

For the three months ended March 31, 2010, real estate depreciation and amortization in continuing operations increased 4.7% or $3.2 million as compared to the comparable period in 2009. The increase in depreciation and amortization for the three months ended March 31, 2010 is primarily the result of the consolidation of certain joint ventures assets in the fourth quarter of 2009, development completions during 2010 and 2009, and additional capital expenditures. As part of the Company’s acquisition activity a portion of the purchase price is allocated to intangible assets and are typically amortized over a period of less than one year.

Interest Expense

For the three months ended March 31, 2010, interest expense in continuing operations increased 20.1% or $6.2 million as compared to the comparable period in 2009. This increase is primarily due to the recognition of a $7.1 million gain from the repurchase of unsecured debt securities during the three months ended March 31, 2009. The decrease in the gain was partially offset by a reduction in interest expense of $610,000, which was primarily due to the slight decrease in the weighted average interest rate from 4.5% in 2009 to 4.4% in 2010.

General and Administrative

For the three months ended March 31, 2010, general and administrative expenses increased 1.3% or $119,000 as compared to the comparable period in 2009. The increase was due to a number of factors, none of which were significant.

Inflation

We believe that the direct effects of inflation on our operations have been immaterial. While the impact of inflation primarily impacts our results through wage pressures, utilities and material costs, substantially all of our leases are for a term of one year or less, which generally enables us to compensate for any inflationary effects by increasing rents on our apartment homes. Although an extreme escalation in energy and food 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 months ended March 31, 2010.

Off-Balance Sheet Arrangements

We do not have any other 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.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We 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. UDR’s involvement with derivative financial instruments is limited and we do not expect to use them for trading or other speculative purposes. UDR uses derivative instruments solely to manage its exposure to interest rates.

See our Annual Report on Form 10-K for the year ended December 31, 2009 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 March 31, 2010, our market risk has not changed materially from the amounts reported on our Annual Report on Form 10-K for the year ended December 31, 2009.

Item 4. CONTROLS AND PROCEDURES

As of March 31, 2010, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Our disclosure controls and procedures 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. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. In addition, our Chief Executive Officer and our Chief Financial Officer concluded that during the quarter ended March 31, 2010, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our internal control over financial reporting is designed with the objective of providing reasonable assurance regarding the reliability of our financial reporting and preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

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. However, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective under circumstances where our disclosure controls and procedures should reasonably be expected to operate effectively.

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 averse effect on our business, financial position or results of operations.

Item 1A. RISK FACTORS

There are many factors that affect our business and our results of operations, some of which are beyond our control. The following is a description of important factors that may cause our actual results of operations 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. Except as required by law, we undertake no obligation to update any such forward-looking statements to reflect events or circumstances after the date on which it is made.

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 strategically acquire or dispose of apartment communities on economically favorable terms. Some of our major expenses, including mortgage payments and real estate taxes, 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 our stockholders, which could adversely affect our financial condition and 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 national, regional and local economic conditions, particularly increases in unemployment;

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

	•		government or builder incentives which enable first time homebuyers to put little or no money down, 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;

	•		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.

We Are Subject to Certain Risks Associated with Selling Apartment Communities, Which Could Limit Our Operational and Financial Flexibility. We have periodically disposed 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, and purchasers may not be willing to pay prices acceptable to us. These conditions may limit our ability to dispose of properties and to change our portfolio promptly in order to meet our strategic objectives, which may in turn have a materially adverse effect on our financial condition and the market value of our securities. We are also subject to the following risks in connection with sales of our apartment communities:

	•		a significant portion of the proceeds from our overall 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 flow generated from our property sales;

	•		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, 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.

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:

	•		we may be unable to obtain financing for acquisitions on favorable terms or at all;

	•		even if we enter into an acquisition agreement for an apartment community, we may be unable to complete the acquisition after incurring certain acquisition-related costs;

	•		an acquired apartment community may fail to perform as we expected in analyzing our investment, or a significant exposure related to the acquired property may go undetected during our due diligence procedures;

	•		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; 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 adversely affect our expected return on our investments and our overall profitability.

We do not expect to acquire apartment communities at the rate we have in prior years, which may limit our growth and have a material adverse effect on our business and the market value of our securities. 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 pursue attractive investment opportunities on favorable terms, which could adversely affect growth.

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:

•

we may be unable to obtain construction financing for development activities under favorable terms, including but not limited to interest rates, maturity dates 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 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 pro forma;

	•		if we are unable to find joint venture partners to help fund the development of a community or otherwise obtain acceptable financing for the developments, our development capacity may be limited;

	•		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 opportunities;

	•		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 and rents at a newly developed community may fluctuate depending on a number of factors, including market and economic conditions, preventing us from meeting our profitability goals for that community; 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.

In some cases in the past, the costs of upgrading acquired communities exceeded our original estimates. We may experience similar cost increases in the future. Our inability to charge rents that will be sufficient to offset the effects of any increases in these costs may impair our profitability.

Some Potential Losses May Not Be Adequately Covered by Insurance. We have a comprehensive insurance program covering our property and operating activities. 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 occur, 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, 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 cash flow and ability to make distributions to our stockholders.

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.

Risk of Inflation/Deflation. Substantial inflationary or deflationary pressures could have a negative effect on rental rates and property operating expenses. Although inflation has not materially impacted our operations in the recent past, increased inflation could have a more pronounced negative impact on our debt interest and general and administrative expenses, as these costs could increase at a rate higher than our rental rates.

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.

Property Ownership Through Joint Ventures May Limit Our Ability to Act Exclusively in Our Interest. We have in the past and may in the future develop and acquire properties in joint ventures with other persons or entities when we believe circumstances warrant the use of such structures. If we use such a structure, we could become engaged in a dispute with one or more of our joint venture partners that might affect our ability to operate a jointly-owned property. Moreover, joint venture 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, joint venture partners may have competing interests in our markets that could create conflicts of interest.

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 this 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 will affect our cash flow and results of operations.

Real Estate Tax and Other Laws. 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 regulating housing, such as the Americans with Disabilities Act and the Fair Housing Amendments Act of 1988, may result in significant unanticipated expenditures, which would adversely affect funds from operations and the ability to make distributions to stockholders.

Risk of Damage from Catastrophic Weather Events. Certain of our communities are located in the general vicinity of active earthquake faults, mudslides and fires, and others where there are hurricanes, tornadoes or risks of other inclement weather. The adverse weather 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 materially and adversely affect our business and 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 a material 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 a material adverse effect on our business and results of operations.

Any Weaknesses Identified in Our Internal Control Over Financial Reporting Could Have an Adverse Effect on Our 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 our stock price.

Our Success Depends on Our Senior Management. Our success depends upon the retention of our senior management, whose continued service in 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.

We are Unable to Predict the Effect of Current Governmental Proposals. The current United States administration and Congress have enacted, or called for consideration of, proposals relating to a variety of issues, including with respect to health care, financial regulation reform, climate control, executive compensation and others. We believe that these and other potential proposals could have varying degrees of impact on us ranging from minimal to material. At this time, we are unable to predict with certainty what level of impact any such proposal could have on us.

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 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 our distribution requirements to maintain our status as a REIT for federal income tax purposes, and the full limits of our line of credit may not be available to us if our operating performance falls outside the constraints of our debt covenants. Additionally, we are 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 an adverse effect on our cash flow and increase our financing costs.

Failure to Generate Sufficient Revenue Could Impair Debt Service Payments and Distributions to Stockholders. If our apartment communities do not generate sufficient net rental income to meet rental expenses, our ability to make required payments of interest and principal on our debt securities and to pay distributions to our stockholders will be adversely affected. The following factors, among others, may affect the net rental income 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;

	•		changes in interest rates and the availability of financing; and

	•		changes in tax and housing laws, including the enactment of rent control laws or other laws regulating multi-family 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 rental income 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.

Debt Level May Be Increased. Our current debt policy does not contain any limitations on the level of debt that we may incur, although 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 and other forms of secured and unsecured debt, and equity financing, including common and preferred equity. We and other companies in the real estate industry have experienced limited availability of financing from time to time. If we issue additional equity securities to finance developments and acquisitions instead of incurring debt, the interests of our existing stockholders could be diluted.

Financing Could be Impacted by Negative Capital Market Conditions. Recently, domestic financial markets have experienced unusual volatility and uncertainty. While this condition has occurred most visibly within the “subprime” mortgage lending sector of the credit market, liquidity has tightened in overall domestic financial markets, including the investment grade debt and equity capital markets. Consequently, there is greater risk that the financial institutions we do business with could experience disruptions that would negatively affect our ability to obtain financing.

Disruptions in Financial Markets May Adversely Impact Availability and Cost of Credit, Impact Our Tenant Base, and Have other Adverse Effects on Us and the Market Price of Our Stock. Our ability to make scheduled payments or to refinance 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. The United States stock and credit markets have recently experienced significant price volatility, dislocations and liquidity disruptions, which have caused market prices of many stocks to fluctuate substantially and the spreads on prospective debt financings to widen considerably. These circumstances have materially impacted liquidity in the financial markets, making terms for certain financings less attractive, and in some cases have resulted in the unavailability of financing. Continued uncertainty in the stock and credit markets may negatively impact our ability to access additional financing for acquisitions, development of our properties and other purposes at reasonable terms, which may negatively affect our business. Additionally, due to this uncertainty, we may be unable to refinance our existing indebtedness or the terms of any refinancing may not be as favorable as the terms of our existing indebtedness. If we are not successful in refinancing this debt 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 our common or preferred stock. The disruptions in the financial markets have had and may continue to have a material adverse effect on the market value of our common shares and other adverse effects on us and our business.

Prospective buyers of our properties may also experience difficulty in obtaining debt financing which might make it more difficult for us to sell properties at acceptable pricing levels. Current tightening of credit in financial markets and increasing unemployment may also adversely affect the ability of tenants to meet their lease obligations and for us to continue increasing rents on a prospective basis. Disruptions in the credit and financial markets may also have other adverse effects on us and the overall economy.

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 business and results of operations.

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 at rates that vary with market interest rates. As of March 31, 2010, we had approximately $861.5 million of variable rate indebtedness outstanding, which constitutes approximately 25.2% of our total outstanding indebtedness 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. 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. In addition, an increase in market interest rates may lead our security holders to demand a higher annual yield, which could adversely affect the market price of our common and preferred stock and debt securities.

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. Furthermore, the settlement of interest rate hedging contracts has involved and may in the future involve material charges.

Risks Related to Tax Laws

We Would Incur Adverse Tax Consequences if We Fail to Qualify as a REIT. We have 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 our stockholders.

If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates, and would not be allowed to deduct dividends paid to our stockholders in computing our taxable income. Also, unless the Internal Revenue Service granted us relief under certain statutory provisions, we would be disqualified from treatment as a REIT for the two taxable years following the year in which we first failed to qualify. 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 our 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 our 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.

REITs May Pay a Portion of Dividends in Common Stock. In December 2009, the Internal Revenue Service issued Revenue Procedure 2010-12, which expanded previously issued temporary guidance relating to certain stock distributions made by publicly traded REITs to satisfy their tax-related distribution requirements. This expanded temporary guidance is intended to permit REITs to limit cash distributions in order to maintain liquidity during the current downturn in economic conditions. Under this expanded guidance, for stock dividends declared on or after January 1, 2008 and before December 31, 2012, with respect to a taxable year ending on or before December 31, 2011, the Internal Revenue Service will treat a distribution of stock by a publicly traded REIT, pursuant to certain stockholder elections to receive either stock or cash, as a taxable distribution of property, provided that, among other conditions, (i) the total amount of cash available for distribution is not less than 10% of the aggregate declared distribution, and (ii) if too many stockholders elect to receive cash, each stockholder electing to receive cash will receive a pro rata amount of cash corresponding to its respective entitlement under the declaration, but in no event will any such electing stockholder receive less than 10% of the stockholder’s entire entitlement in money. The amount of such stock distribution will generally be treated as equal to the amount of cash that could have been received instead. If we pay a portion of our dividends in shares of our common stock pursuant to this temporary guidance, our stockholders may receive less cash than they received in distributions in prior years and the market value of our securities may decline.

We May Conduct a Portion of Our Business Through Taxable REIT Subsidiaries, Which are Subject to Certain Tax Risks. We have established several taxable REIT subsidiaries. Despite our qualification as a REIT, our 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 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, we are 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 our 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.

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 our ability to satisfy the income tests for qualification as a REIT for federal income tax purposes.

We Could Face Possible State and Local Tax Audits and Adverse Changes in State and Local Tax Laws. As discussed in the risk factors above, because we are organized and qualify as a REIT we are generally not subject to federal income taxes, but we are 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 municipalities 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 our stockholders. In the normal course of business, entities through which we own real estate may also become subject to tax audits. If such entities become subject to state or local tax audits, the ultimate result of such audits could have an adverse effect on our financial condition.

Risks Related to Our Organization and Our Shares

Changes in Market Conditions and Volatility of Stock Prices Could Adversely Affect the Market Price of Our Common Stock. The stock markets, including the New York Stock Exchange, on which we list our common shares, have experienced significant price and volume fluctuations. As a result, the market price of our common stock could be similarly volatile, and investors in our common stock may experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects.

The market price per share of our common stock may decline or fluctuate significantly in response to many factors, including:

	•		general market and economic conditions,

	•		actual or anticipated variations in our quarterly operating results or dividends or our payment of dividends in shares of our 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,

	•		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 our stock to demand a higher annual yield from future dividends,

	•		a change in analyst ratings,

	•		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 our securities trade, possibly increasing market volatility and causing the further erosion of business and consumer confidence and spending,

	•		governmental regulatory action and changes in tax laws, and

	•		the issuance of additional shares of our common stock, or the perception that such sales might occur, including under our 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 our common stock to decline, regardless of our financial condition, results of operations, business or our prospects.

We May Change the Dividend Policy for Our Common Stock in the Future. The decision to declare and pay dividends on our common stock in the future, 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 a material adverse effect on the market price of our common stock.

Maryland Law May Limit the Ability of a Third Party to Acquire Control of Us, Which May Not be in Our 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 our 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 our 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 Our Stockholders to Effect a Change in Control of Our Company May Prevent Takeovers That are Beneficial to Our 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 our 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. These provisions 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 our stockholders or might otherwise be in our stockholders’ best interests.

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

Repurchase of Equity Securities

In February 2006, our 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 sets forth information regarding our common stock repurchases during the quarter ended March 31, 2010.


					Total Number		Maximum Number
					of Shares		of Shares
					Purchased as		that May Yet
	Total Number		Average		Part of Publicly		Be Purchased
	of Shares		Price		Announced Plans		Under the Plans
Period	Purchased		Per Share		or Programs		or Programs (1)
Beginning Balance		9,967,490	$	22.00		9,967,490		15,032,510
January 1, 2010 through January 31, 2010		—		—		—		15,032,510
February 1, 2010 through February 28, 2010		—		—		—		15,032,510
March 1, 2010 through March 31, 2010		—		—		—		15,032,510

Balance as of March 31, 2010		9,967,490	$	22.00		9,967,490		15,032,510


(1)		This number reflects the amount of shares that were available for purchase under our 10 million share repurchase program in effect on December 31, 2007 and our 15 million share repurchase program announced on January 31, 2008.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. (REMOVED AND RESERVED)

Item 5. OTHER INFORMATION

There is no other information required to be disclosed in a report on Form 8-K during the quarter ended March 31, 2010, that was not previously disclosed in a Form 8-K.

Item 6. EXHIBITS

The exhibits filed or furnished with this report are set forth in the Exhibit Index.

SIGNATURES

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


		UDR, Inc.

		(registrant)

Date: May 4, 2010		/s/ David L. Messenger

		David L. Messenger
		Senior Vice President and Chief Financial Officer
		(duly authorized officer, principal financial officer and chief accounting officer)

EXHIBIT INDEX


Exhibit No.		Description

	10.1	Description of the 2010-2012 Long-Term Incentive Program for Senior Executive Officers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 26, 2010 and filed with the Securities and Exchange Commission on March 4, 2010, Commission File No. 1-10524).

	10.2	Summary of 2010 Non-Employee Director Compensation Program (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 8, 2010 and filed with the Securities and Exchange Commission on January 12, 2010, Commission File No. 1-10524).

	12	Computation of Ratio of Earnings to Fixed Charges.

	31.1	Rule 13a-14(a) Certification of the Chief Executive Officer.

	31.2	Rule 13a-14(a) Certification of the Chief Financial Officer.

	32.1	Section 1350 Certification of the Chief Executive Officer.

	32.2	Section 1350 Certification of the Chief Financial Officer.

TABLE OF CONTENTS

Part I Financial Information Item 1. Financial Statements Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. (removed and Reserved)Item 5. Other Information Item 6. Exhibits

Exhibits

Exhibit 12 Exhibit 31.1 Exhibit 31.2 Exhibit 32.1 Exhibit 32.2

UDR 10-Q Quarter ended March 31, 2010

Exhibits