EXHIBIT 99.1

PART I

Item 1. BUSINESS

General

UDR, Inc. is a self administered real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages apartment communities nationwide. At December 31, 2008, our wholly-owned apartment portfolio included 161 communities located in 23 markets, with a total of 44,388 completed apartment homes. In addition, we have an ownership interest in 4,158 apartment units through joint ventures.

We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, which we refer to in this Report as the “Code”. To continue to qualify as a REIT, we must continue to meet certain tests which, among other things, generally require that our assets consist primarily of real estate assets, our income be derived primarily from real estate assets, and that we distribute at least 90% of our REIT taxable income (other than our net capital gain) to our stockholders annually. As a qualified REIT, we generally will not be subject to U.S. federal income taxes at the corporate level on our net income to the extent we distribute such net income to our stockholders annually. In 2008, we declared total distributions on an adjusted basis of $2.11 per common share and a dividend of $0.89 per common share to our stockholders due to our disposition activities during 2008, which on a pre-adjusted dividend basis is $2.28 per common share, inclusive of a special dividend of $0.96 per common share to our stockholders. A detailed discussion of the special dividend and the accounting ramifications is included below under the heading “Special Dividend”.

	Dividends Declared in 2008				Dividends Paid in 2008
	Unadjusted		Adjusted		Unadjusted		Adjusted
First Quarter	$	0.330	$	0.305	$	0.330	$	0.305
Second Quarter		0.330		0.305		0.330		0.305
Third Quarter		0.330		0.305		0.330		0.305
Fourth Quarter		1.290		1.190		0.330		0.305
Total	$	2.280	$	2.105	$	1.320	$	1.220

We were formed in 1972 as a Virginia corporation. In June 2003, we changed our state of incorporation from Virginia to Maryland. Our corporate offices are located at 1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado. As of February 12, 2009, we had 1,264 full-time employees and 74 part-time employees.

Our subsidiaries include two operating partnerships, Heritage Communities L.P., a Delaware limited partnership, and United Dominion Realty L.P., a Delaware limited partnership, and RE³, our subsidiary that focuses on development, land entitlement and short-term hold investments. Unless the context otherwise requires, all references in this Report to “we,” “us,” “our,” “the Company,” or “UDR” refer collectively to UDR, Inc. and its subsidiaries.

Business Objectives

Our principal business objective is to maximize the economic returns of our apartment communities to provide our stockholders with the greatest possible total return and value. To achieve this objective, we intend to continue to pursue the following goals and strategies:

• own and operate apartments in markets that have the best growth prospects based on favorable job formation and low home affordability, thus enhancing stability and predictability of returns to our stockholders;

• manage real estate cycles by taking an opportunistic approach to buying, selling, and building apartment communities;

• empower site associates to manage our communities efficiently and effectively;

• measure and reward associates based on specific performance targets; and

• manage our capital structure to ensure predictability of earnings and dividends.

2008 Accomplishments

• We closed on a two-year unsecured term loan of $240 million of which $200 million was swapped into a fixed rate of 3.61% and $40 million has a rate of LIBOR plus 85 basis points. Proceeds from this loan were used to redeem maturing debt.

• We closed on a $400 million credit facility which matures November 2018. At December 31, 2008, we had $224.8 million outstanding on the facility — $70.0 million at a fixed interest rate of 5.85% and $154.8 million at a variable interest rate, fixed with two- and three-year LIBOR swaps at an average rate of 4.32%. The Company has five years to draw on the additional $175.2 million of capacity.

• We sold 8,661,201 shares of common stock adjusted for the special dividend (8,000,000 shares of common stock on an unadjusted basis) in a public offering, resulting in gross proceeds to us of $194.0 million, which were in part used to reduce corporate debt.

• We completed development on two wholly-owned communities consisting of 644 apartment homes with an aggregate carrying value of $44.4 million.

• We acquired 4,558 apartment homes in 13 communities for approximately $976.3 million, two parcels of land for $20.0 million, certain rights held by joint venture partner for $1.5 million and a retail property for $19.2 million.

• We sold 86 communities with a total of 25,684 apartment homes for gross consideration of $1.7 billion.

UDR’s Strategies and Vision

UDR previously announced its vision to be the innovative multifamily public real estate investment of choice. We identified the following strategies to guide decision-making and accelerated growth:

1.	Strengthen our portfolio
2.	Continually improve operations
3.	Maintain access to low-cost capital

Strengthen our Portfolio

UDR is focused on increasing its presence in markets with favorable job formation, low housing affordability, and a favorable demand/supply ratio for multifamily housing. Portfolio decisions consider third-party research, taking into account job growth, multifamily permitting and housing affordability.

In 2008, UDR sold a portfolio of properties in 86 communities for total consideration of approximately $1.7 billion. This portfolio sale dramatically accelerated our transformation to focus on markets that have the best growth prospects based on favorable job formation and low single-family home affordability. At December 31, 2008, approximately 56.6% of the Company’s same store net operating income was provided by our communities located in California, Washington, Oregon and Metropolitan Washington, D.C.

Acquisitions

During 2008, in conjunction with our strategy to strengthen our portfolio, UDR acquired 13 communities with 4,558 apartment homes at a total cost of approximately $976.3 million, including the assumption of secured debt. In addition, we purchased two parcels of land for $20.0 million, acquired certain rights held by a joint venture partner for $1.5 million in a consolidated operating joint venture and acquired a retail property for $19.2 million. UDR targets apartment community acquisitions in markets where job growth expectations are above the national average, home affordability is low, and the demand/supply ratio for multi-family housing is favorable.

2

When evaluating potential acquisitions, we consider:

• population growth, cost of alternative housing, overall potential for economic growth and the tax and regulatory environment of the community in which the property is located;

• geographic location, including proximity to our existing communities which can deliver significant economies of scale;

• construction quality, condition and design of the community;

• current and projected cash flow of the property and the ability to increase cash flow;

• potential for capital appreciation of the property;

• ability to increase the value and profitability of the property through upgrades and repositioning;

• terms of resident leases, including the potential for rent increases;

• occupancy and demand by residents for properties of a similar type in the vicinity;

• prospects for liquidity through sale, financing, or refinancing of the property; and

• competition from existing multifamily communities and the potential for the construction of new multifamily properties in the area.

The following table summarizes our apartment acquisitions and our year-end ownership position for the past five years (dollars in thousands):

	2008		2007		2006		2005		2004
Homes acquired		4,558		2,671		2,763		2,561		8,060
Homes owned at December 31		44,388		65,867		70,339		74,875		78,855
Total real estate owned, at cost	$	5,831,753	$	5,956,481	$	5,820,122	$	5,512,424	$	5,243,296

Dispositions

We regularly monitor and adjust our assets to increase the quality and performance of our portfolio. During 2008, as a major step in our portfolio repositioning, we sold 25,684 of our slower growing, non-core apartment homes while exiting some markets, specifically Arkansas, Delaware, Ohio, and South Carolina in an effort to increase the quality and performance of our portfolio. Proceeds from the disposition program were used primarily to reduce debt and fund acquisitions.

Factors we consider in deciding whether to dispose of a property include:

• current market price for an asset compared to projected economics for that asset;

• potential increases in new construction in the market area;

• areas where the economy is not expected to grow substantially; and

• markets where we do not intend to establish long-term concentration.

3

Development Activities

The following wholly owned projects were under development as of December 31, 2008:

	Number of		Completed		Cost to		Budgeted		Estimated		Expected
	Apartment		Apartment		Date		Cost		Cost		Completion
	Homes		Homes		(in thousands)		(in thousands)		Per Home		Date
Riachi at One21 — Phase II Plano, TX		200		56	$	13,602	$	17,900	$	89,500		1Q09
Vintage Lofts Tampa, FL		249		109		51,470		52,000		208,835		1Q09
Belmont Dallas, TX		465		—		32,108		62,900		135,269		2Q10
Residences at Stadium Village Surprise, AZ		382		—		25,698		47,400		124,084		1Q10
Tribute Raleigh, NC		359		—		15,242		46,500		129,526		1Q10
Vitruvian Park Dallas, TX		392		—		19,061		66,500		169,643		3Q10
Signal Hill Woodbridge, VA		360		—		29,642		82,700		229,722		3Q10
		2,407		165	$	186,823	$	375,900	$	156,170

Redevelopment Activities

During 2008, we continued to reposition properties in targeted markets where we concluded there was an opportunity to add value. Major renovations totaled $51.8 million or $1,123 per average stabilized home for the year ended December 31, 2008.

Joint Venture Activities

During 2008, we completed the development of an apartment community located in Marina del Rey, CA with 298 apartment homes and a carrying value of $139.3 million. The apartment community is currently in lease-up. In December 2008, we acquired our joint venture partner’s interest in their profit participation and terminated the property management agreement that had approximately two years remaining on the pre-existing contract.

The Company has the following unconsolidated joint venture project under development as of December 31, 2008 (based on UDR’s 49% ownership interest):

Number of

Completed

Cost to

Budgeted

Estimated

Expected

Apartment

Apartment

Date

Cost

Cost

Completion

Homes

Homes

(in thousands)

(in thousands)

Per Home

Date

Ashwood Commons Bellevue, WA

274

—

$

43,128

$

49,000

$

178,832

3Q09

The Company is also a partner in a joint venture to develop another site in Bellevue, Washington. Upon formation of the joint venture, we owned 49% of the entity that proposes to develop a 430 home high-rise apartment building with ground floor retail space. The project is ongoing and will commence construction once favorable financing has been obtained.

4

UDR through unconsolidated joint ventures owns 4,862 apartment homes (with ownership percentages ranging from 20% to 49%) of which 4,158 are operating and 704 are under development. Our total equity investment at December 31, 2008 was $47.0 million. For additional information, see Note 4 “Joint Ventures” of the Consolidated Financial Statements included in this Report.

Continually Improve Operations

UDR is committed to improving operations through automation and enhancing the customer’s experience. Since adopting our new corporate strategies, UDR has out-sourced a call center and created MyUDR, our resident services portal on our website. UDR customers have access to conduct business with us 24 hours a day, 7 days a week to pay rent on line and to submit a service request. Through transforming operations and engaging technology our residents get the convenience they want and our operating teams become more efficient.

In 2008, UDR continually enhanced www.udr.com and individual community websites deploying an innovative 3D interactive photo viewer, customized version of the apartment selector program, and special views or photos that feature specific apartment homes that commands an excellent view from the apartment, floor plans and availability. In addition to UDR.com improvements, we also launched a Quick Response 2D bar code program that can be used on most mobile devices. An industry first iPhone apartment search website was launched, and we established a social media website presence in MySpace.com. These enhancements have increased overall web visitor traffic to over 1.4 million visitors and more than 1.0 million organic search engine visitors which contributed to a 15% year-over-year lead stream increase.

Previously, UDR launched a new Spanish-language site, marketing to Latinos, the nation’s fastest-growing ethnic group. The site offers over 4,000 Spanish translated web pages and includes apartments for rent search resources. The website can be found at http://es.udr.com and can also be found on any web-enabled mobile device.

Maintaining Access to Low-Cost Capital

We seek to maintain a capital structure that allows us to seek, and not just react to, opportunities available in the marketplace. We have structured our borrowings to layer our debt maturities and to be able to access both secured and unsecured debt.

Special Dividend

On November 5, 2008, our Board of Directors declared a dividend on a pre-adjusted basis of $1.29 per share (approximately $176.0 million or $1.19 per share on an adjusted basis) payable to holders of our common stock (“the Special Dividend”). The Special Dividend was paid on January 29, 2009 to stockholders of record on December 9, 2008. The dividend represented the Company’s fourth quarter recurring pre-adjusted distribution of $0.33 per share ($0.305 per share on an adjusted basis) and an additional special distribution in the pre-adjusted amount of $0.96 per share ($0.89 per share on an adjusted basis) due to taxable income arising from our dispositions occurring during the year. Subject to the Company’s right to pay the entire Special Dividend in cash, stockholders had the option to make an election to receive payment in cash or in shares, however, the aggregate amount of cash payable to stockholders, other than cash payable in lieu of fractional shares, would not be less than $44.0 million.

The Special Dividend, totaling $177.1 million was paid on 137,266,557 pre-adjusted shares issued and outstanding on the record date. Approximately $133.1 million of the Special Dividend was paid through the issuance of 11,358,042 shares of common stock, which was determined based on the volume weighted average closing sales price of our common stock of $11.71 per share on the NYSE on January 21, 2009 and January 22, 2009. The effect of the issuance of additional shares of common stock pursuant to the Special Dividend was retroactively reflected in each of the historical periods presented within this Report as if those shares were issued and outstanding at the beginning of the earliest period presented. Accordingly, all activity including share issuances, repurchases and forfeitures have been adjusted to reflect the 8.27% increase in the number of shares, except where otherwise noted.

5

Financing Activities

As part of our plan to strengthen our capital structure, we utilized proceeds from dispositions, debt and equity offerings and refinancings to extend maturities, pay down existing debt, and acquire apartment communities. The following is a summary of our major financing activities in 2008:

• Closed on a $240 million, two-year unsecured term loan facility of which $200 million was swapped into a fixed rate of 3.61% and $40 million has a rate of LIBOR plus 85 basis points. Proceeds were used to redeem $200 million of our 4.5% medium term notes due in March 2008 with the remaining $40 million used for general corporate purposes.

• Closed on a $400 million credit facility which matures November 2018. At December 31, 2008, we had $224.8 million outstanding on the facility — $70.0 million at a fixed interest rate of 5.85% and $154.8 million at a variable interest rate, fixed with two- and three-year LIBOR swaps at an average rate of 4.32%. The Company has five years to draw on the additional $175.2 million of capacity.

• Sold 8,661,201 shares of our common stock adjusted for the Special Dividend (8,000,000 shares of common stock on an unadjusted basis) in a public offering, resulting in gross proceeds to us of $194.0 million.

• Obtained five construction loans for a total of $179.3 million of which the Company has drawn $53.9 million for our development projects. The construction loans all have a two- to three-year initial term with extension provisions ranging from one to two years and incur interest at variable rates which range from LIBOR plus 140 basis points to LIBOR plus 225 basis points.

• Repaid $216.4 million of secured debt and $793.0 million of unsecured debt (represents the notional amount of debt repaid and excludes the gain on extinguishment). The $793.0 million of unsecured debt consisted of $309.5 million for the revolving credit facility, $275.8 million for maturing debt instruments and $207.7 million for the repurchase of unsecured debt instruments.

• Repurchased unsecured debt with a notional amount of $207.7 million for $176.2 million resulting in a gain on extinguishment of $26.3 million, net of the write-off of unamortized premium on convertible debt ($3.3 million) and deferred finance charges. The debt retired by the Company matured in 2011, 2014, 2015 and 2016.

• Repurchased 969,300 shares of our Series G Cumulative Redeemable Preferred Stock for $20.3 million, less than their liquidation value of $24.2 million.

Markets and Competitive Conditions

Upon completion of our dispositions activity, approximately 56.6% of the Company’s same store net operating income was generated from apartment homes located in markets of California, Oregon, Washington and Metropolitan Washington D.C. We believe that this diversification increases investment opportunity and decreases the risk associated with cyclical local real estate markets and economies, thereby increasing the stability and predictability of our earnings.

Competition for new residents is generally intense across all of our markets. Some competing communities offer features that our communities do not have. Competing communities can use concessions or lower rents to obtain temporary competitive advantages. Also, some competing communities are larger or newer than our communities. The competitive position of each community is different depending upon many factors including sub-market supply and demand. In addition, other real estate investors compete with us to acquire existing properties and to develop new properties. These competitors include insurance companies, pension and investment funds, public and private real estate companies, investment companies and other public and private apartment REITs and our competitors may have greater resources, or lower capital costs, than we do.

We believe that, in general, we are well-positioned to compete effectively for residents and investments. We believe our competitive advantages include:

• a fully integrated organization with property management, development, redevelopment, acquisition, marketing, sales and financing expertise;

• scalable operating and support systems;

• purchasing power;

• geographic diversification with a presence in 23 markets across the country; and

• significant presence in many of our major markets that allows us to be a local operating expert.

6

Moving forward, we will continue to emphasize aggressive lease management, improved expense control, increased resident retention efforts and the alignment of employee incentive plans tied to our bottom line performance. We believe this plan of operation, coupled with the portfolio’s strengths in targeting renters across a geographically diverse platform, should position us for continued operational improvement in spite of the difficult economic environment.

Communities

At December 31, 2008, our apartment portfolio included 161 wholly-owned communities having a total of 44,388 completed apartment homes and an additional 2,242 under development. The overall quality of our portfolio has significantly improved with the disposition of non-core apartment homes and our upgrade and rehabilitation programs. The upgrading of the portfolio provides several key benefits related to portfolio profitability. It enables us to raise rents more significantly and to attract residents with higher levels of disposable income who are more likely to accept the transfer of expenses, such as water and sewer costs, from the landlord to the resident. In addition, it potentially reduces recurring capital expenditures per apartment home, and therefore should result in increased cash flow.

Same Community Comparison

We believe that one pertinent qualitative measurement of the performance of our portfolio is tracking the results of our same store community’s net operating income (“NOI”), which is total rental revenue, less rental expenses excluding property management and other operating expenses. Our same store population are operating communities which we own and have stabilized occupancy, revenues and expenses as of the beginning of the prior year. For the year ended December 31, 2008, our same store NOI increased by $10.8 million or 3.8% compared to the prior year. The increase in NOI for the 32,124 apartment homes which make up the same store population was driven by an increase in revenues and physical occupancy at our communities.

Revenue growth in 2009 may be impacted by general adverse conditions affecting the economy, reduced occupancy rates, increased rental concessions, increased bad debt and other factors which may adversely impact our ability to increase rents.

Tax Matters

We have elected to be taxed as a REIT under the Code. To continue to qualify as a REIT, we must continue to meet certain tests that, among other things, generally require that our assets consist primarily of real estate assets, our income be derived primarily from real estate assets, and that we distribute at least 90% of our REIT taxable income (other than net capital gains) to our stockholders annually. Provided we maintain our qualification as a REIT, we generally will not be subject to U.S. federal income taxes at the corporate level on our net income to the extent such net income is distributed to our stockholders annually. 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.

We may utilize taxable REIT subsidiaries to engage in activities that REITs may be prohibited from performing, including the provision of management and other services to third parties and the conduct of certain nonqualifying real estate transactions. Taxable REIT subsidiaries generally are taxable as regular corporations and therefore are subject to federal, state and local income taxes.

Inflation

Substantially all of our leases are for a term of one year or less, which may enable us to realize increased rents upon renewal of existing leases or the beginning of new leases. Such short-term leases generally minimize the risk to us of the adverse effects of inflation, although as a general rule these leases permit residents to leave at the end of the lease term without penalty. Short-term leases and relatively consistent demand allow rents to provide an attractive hedge against inflation.

Environmental Matters

Various environmental laws govern certain aspects of the ongoing operation of our communities. Such environmental laws include those regulating the existence of asbestos-containing materials in buildings, management of surfaces with lead-based paint (and notices to residents about the lead-based paint), use of active underground petroleum storage tanks, and waste-management activities. The failure to comply with such requirements could subject us to a government enforcement action and/or claims for damages by a private party.

7

To date, compliance with federal, state and local environmental protection regulations has not had a material effect on our capital expenditures, earnings or competitive position. We have a property management plan for hazardous materials. As part of the plan, Phase I environmental site investigations and reports have been completed for each property we acquire. In addition, all proposed acquisitions are inspected prior to acquisition. The inspections are conducted by qualified environmental consultants, and we review the issued report prior to the purchase or development of any property. Nevertheless, it is possible that our environmental assessments will not reveal all environmental liabilities, or that some material environmental liabilities exist of which we are unaware. In some cases, we have abandoned otherwise economically attractive acquisitions because the costs of removal or control of hazardous materials have been prohibitive or we have been unwilling to accept the potential risks involved. We do not believe we will be required to engage in any large-scale abatement at any of our properties. We believe that through professional environmental inspections and testing for asbestos, lead paint and other hazardous materials, coupled with a relatively conservative posture toward accepting known environmental risk, we can minimize our exposure to potential liability associated with environmental hazards.

Federal legislation requires owners and landlords of residential housing constructed prior to 1978 to disclose to potential residents or purchasers of the communities any known lead paint hazards and imposes treble damages for failure to provide such notification. In addition, lead based paint in any of the communities may result in lead poisoning in children residing in that community if chips or particles of such lead based paint are ingested, and we may be held liable under state laws for any such injuries caused by ingestion of lead based paint by children living at the communities.

We are unaware of any environmental hazards at any of our properties that individually or in the aggregate may have a material adverse impact on our operations or financial position. We have not been notified by any governmental authority, and we are not otherwise aware, of any material non-compliance, liability, or claim relating to environmental liabilities in connection with any of our properties. We do not believe that the cost of continued compliance with applicable environmental laws and regulations will have a material adverse effect on us or our financial condition or results of operations. Future environmental laws, regulations, or ordinances, however, may require additional remediation of existing conditions that are not currently actionable. Also, if more stringent requirements are imposed on us in the future, the costs of compliance could have a material adverse effect on us and our financial condition.

Insurance

We carry comprehensive general liability coverage on our communities, with limits of liability customary within the industry to insure against liability claims and related defense costs. We are also insured, in all material respects, against the risk of direct physical damage in amounts necessary to reimburse us on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period.

Executive Officers of the Company

The following table sets forth information about our executive officers as of February 15, 2009. The executive officers listed below serve in their respective capacities at the discretion of our Board of Directors.

Name	Age	Office	Since
Thomas W. Toomey	48	Chief Executive Officer, President and Director	2001
Warren L. Troupe	55	Senior Executive Vice President	2008
W. Mark Wallis	58	Senior Executive Vice President	2001
Richard A Giannotti	53	Executive Vice President — Redevelopment	1985
Matthew T. Akin	41	Senior Vice President — Acquisitions & Dispositions	1994
Mark M. Culwell, Jr.	57	Senior Vice President — Development	2006
Jerry A. Davis	46	Senior Vice President — Property Operations	2007
David L. Messenger	38	Senior Vice President — Chief Financial Officer	2002
Katie Miles-Ley	47	Senior Vice President — Human Resources	2007
Thomas P. Simon	48	Senior Vice President — Treasurer	2006
Dhrubo K. Sircar	56	Senior Vice President, Chief Information Officer	2007
Thomas A. Spangler	48	Senior Vice President — Business Development	1998
S. Douglas Walker	53	Senior Vice President — Transactions	2006

Set forth below is certain biographical information about our executive officers.

8

Mr. Toomey spearheads the vision and strategic direction of the Company and oversees its executive officers. He joined us in February 2001 as President, Chief Executive Officer and Director. Prior to joining us, Mr. Toomey was with Apartment Investment and Management Company (AIMCO), where he served as Chief Operating Officer and Chief Financial Officer. During his tenure at AIMCO, Mr. Toomey was instrumental in the growth of AIMCO from 34,000 apartment homes to 360,000 apartment homes. He currently serves as a member of the boards of the National Association of Real Estate Investment Trusts (NAREIT) and the National Multi Housing Council (NMHC). He serves on the Board of Governors of the Urban Land Institute (ULI) and serves on the Real Estate Roundtable and is an Oregon State University Foundation Trustee.

Mr. Troupe oversees all financial, treasury, tax and legal functions of the Company. He joined us in March 2008 as Senior Executive Vice President. In May 2008, he was appointed the Company’s Corporate Compliance Officer and in October 2008 he was named the Company’s Corporate Secretary. Prior to joining us, Mr. Troupe was a partner with Morrison & Forester LLP from 1997 to 2008, where his practice focused on all aspects of corporate finance including, but not limited to, public and private equity offerings, traditional loan structures, debt placements to subordinated debt financings, workouts and recapitalizations. While at Morrison & Forester LLP he represented both public and private entities in connection with merger and acquisition transactions, including tender offers, hostile proxy contests and negotiated acquisitions.

Mr. Wallis oversees the areas of acquisitions, dispositions, asset quality and development. He joined us in April 2001 as Senior Executive Vice President responsible for acquisitions, dispositions, condominium conversions, legal and certain administrative matters. Prior to joining us, Mr. Wallis was the President of Golden Living Communities, a company he established in 1995 to develop senior housing. From 1980 to 1995, Mr. Wallis was Executive Vice President of Finance and Administration at Lincoln Property Company where he handled interim and permanent financing for office, retail, multi-family and mixed-use developments. His responsibilities also included the negotiation of acquisitions, dispositions, and management contracts, and he oversaw the direction of the national accounting and computer services divisions. He currently serves as a member of the Board for NMHC and serves on the Board of Trustees for Harding University.

Mr. Giannotti oversees redevelopment projects and acquisition efforts and development projects in the mid-Atlantic region. He joined us in September 1985 as Director of Development and Construction. He was appointed Assistant Vice President in 1988, Vice President in 1989, and Senior Vice President in 1996. In 1998, he was assigned the additional responsibilities of Director of Development for the Eastern Region. In 2003, Mr. Giannotti was promoted to Executive Vice President.

Mr. Akin oversees the Company’s acquisition and disposition efforts. He joined us in 1996 in connection with the merger with SouthWest Property Trust, where he had been a Financial Analyst since 1994.

Mr. Culwell oversees all aspects of in-house development, joint venture development and pre-sale opportunities. He joined us in June 2006 as Senior Vice President — Development. Prior to joining us, Mr. Culwell served as Regional Vice President of Development for Gables Residential, where he established a $300 million pipeline of new development and redevelopment opportunities. Before joining Gables Residential, Mr. Culwell had over 30 years of real estate experience, including working for Elsinore Group, LLC, Lexford Residential Trust, Cornerstone Housing Corporation and Trammell Crow Residential Company, where his development and construction responsibilities included site selection and acquisition, construction oversight, asset management, as well as obtaining financing for acquisitions and rehabilitations.

Mr. Davis oversees property operations. He originally joined us in March 1989 as Controller and subsequently moved into Operations as an Area Director and in 2001, he accepted the position of Chief Operating Officer of JH Management Co., a California-based apartment company. He returned to the Company in March 2002 and in 2008, Mr. Davis was promoted to Senior Vice President — Property Operations. He began his career in 1984 as a Staff Accountant for Arthur Young & Co.

Mr. Messenger oversees the areas of accounting, risk management, financial planning and analysis, property tax administration and SEC reporting. He joined us in August 2002 as Vice President and Controller. In March 2006, Mr. Messenger was appointed Vice President and Chief Accounting Officer and in January 2007, while retaining the Chief Accounting Officer title, he was promoted to Senior Vice President. In June 2008 he was named Chief Financial Officer.

Ms. Miles-Ley oversees employee relations, organizational development, succession planning, staffing and recruitment, compensation, training and development, benefits administration, HRIS and payroll. She joined us in June 2007 as Senior Vice President — Human Resources. Prior to joining us, Ms. Miles-Ley was with Starz Entertainment Group LLC from 2001 to 2007 where she served as Vice President, Human Resources & Organizational Development. Ms. Miles-Ley had over twenty years of experience with both domestic and international work forces.

9

Mr. Simon oversees debt origination and treasury management. He joined us in October 2006 as Vice President and Treasurer and was promoted to Senior Vice President and Treasurer in June 2008. Prior to joining us, Mr. Simon was with Prentiss Properties Trust (Prentiss) where he most recently served as Senior Vice President and Treasurer. Mr. Simon began his career at Fox & Company, now Grant Thornton, as a tax accountant.

Mr. Sircar oversees all aspects of the Company’s Technology Management. He joined us in July 2007 as Senior Vice President, Chief Information Officer. Prior to joining the Company, Mr. Sircar was with Wachovia Corporation from 1995 to 2007, and when he left he was Senior Vice President, Division Information Officer of Finance Technology.

Mr. Spangler oversees utilities management, procurement and non-rental revenue programs. He joined us in August 1998 as Assistant Vice President, Operational Planning and Asset Management, and was promoted to Vice President, Director of Operational Planning and Asset Management that same year. He was promoted to Senior Vice President — Business Development in February 2003. Prior to joining us, Mr. Spangler served for nine years as an Asset Manager for Summit Enterprises, Inc. of Virginia, a private investment management firm.

Mr. Walker oversees the Company’s Asset Quality, Kitchen & Bath and “Green Building” programs in addition to all non-residential owned and leased real estate. He joined us in May 2006 as Senior Vice President — Transactions. He has authored “Green Building” articles for industry publications and has been recognized by the EPA and the Department of Energy for his contributions to the commercial real estate industry. Prior to joining us, Mr. Walker served as a consultant to the multi-family industry.

Available Information

We file electronically with the Securities and Exchange Commission our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to those reports on the day of filing with the SEC on our website at www.udr.com, or by sending an e-mail message to ir@udr.com.

NYSE Certification

On June 11, 2008, our Chief Executive Officer submitted to the New York Stock Exchange the annual certification required by Section 303A.12(a) of the NYSE Listed Company Manual regarding our compliance with NYSE corporate governance listing standards. In addition, the certifications of our Chief Executive Officer and Chief Financial Officer required under Section 302 of the Sarbanes-Oxley Act of 2002 are filed as Exhibits 31.1 and 31.2, respectively, to this Report.

10

Item 6. SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial and other information as of and for each of the years in the five-year period ended December 31, 2008. The table should be read in conjunction with our consolidated financial statements and the notes thereto, and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere in this Report. All historical share and per share data has been adjusted to reflect the impact of shares issued in connection with the Special Dividend. Certain information in this table has been adjusted retrospectively based upon the impact of recently issued accounting pronouncements as discussed in Note 1 to the consolidated financial statements.

	Years Ended December 31,
	(In thousands, except per share data
	and apartment homes owned)
	2008			2007		2006			2005			2004
OPERATING DATA:
Rental income	$	563,408		$	501,618	$	467,511		$	410,120		$	309,382
(Loss)/income from continuing operations		(63,742	)		44,660		(77,772	)		(54,068	)		(47,561	)
Income from discontinued operations		807,610			182,070		210,117			205,250			140,245
Consolidated net income		743,868			226,730		132,345			155,166			97,152
Distributions to preferred stockholders		12,138			13,910		15,370			15,370			19,531
Net income available to common stockholders		688,709			198,958		109,738			139,796			71,892
Common distributions declared		175,271			177,540		168,408			163,690			152,203
Special Dividend declared		177,074			—		—			—			—
Earnings per share — basic and diluted:
(Loss)/income from continuing operations available to stockholders	$	(0.84	)	$	0.12	$	(0.69	)	$	(0.44	)	$	(0.49	)
Income from discontinued operations (a)		5.73			1.25		1.45			1.39			1.01
Net income available to common stockholders		4.89			1.37		0.76			0.95			0.52
Weighted average number of common shares outstanding-basic and diluted		140,982			145,092		144,785			147,395			138,684
Weighted average number of common shares outstanding, OP Units and common stock equivalents outstanding-diluted		154,715			159,365		160,212			162,550			157,896
Common distributions declared	$	2.11		$	1.22	$	1.15		$	1.11		$	1.08
Balance Sheet Data:
Real estate owned, at cost	$	5,831,753		$	5,956,481	$	5,820,122		$	5,512,424		$	5,243,296
Accumulated depreciation	$	1,078,689		$	1,371,759	$	1,253,727		$	1,123,829		$	1,007,887
Total real estate owned, net of accumulated depreciation	$	4,753,064		$	4,584,722	$	4,566,395		$	4,388,595		$	4,235,409
Total assets	$	5,143,805		$	4,800,454	$	4,675,875		$	4,541,593		$	4,332,001
Secured debt	$	1,462,471		$	1,137,936	$	1,182,919		$	1,116,259		$	1,197,924
Unsecured debt	$	1,798,662		$	2,341,895	$	2,155,866		$	2,043,518		$	1,682,058
Total debt	$	3,261,133		$	3,479,831	$	3,338,785		$	3,159,777		$	2,879,982
Stockholders’ equity	$	1,549,034		$	941,204	$	1,055,255		$	1,107,724		$	1,195,451
Number of common shares outstanding		148,781			144,336		146,189			145,088			147,706

11

	Years Ended December 31,
	(In thousands, except per share data
	and apartment homes owned)
	2008			2007			2006			2005			2004
Other Data:
Total apartments owned (at end of period)		44,388			65,867			70,339			74,875			78,855
Weighted average number of apartment homes owned during the year		46,149			69,662			73,731			76,069			76,873
Cash Flow Data
Cash provided by operating activities	$	179,754			269,281			237,881			248,186			251,747
Cash provided by/(used in) investing activities	$	302,304			(90,100	)		(158,241	)		(219,017	)		(595,966	)
Cash (used in)/provided by financing activities	$	(472,537	)		(178,105	)		(93,040	)		(21,530	)		347,299
Funds from Operations (b)
Funds from operations — basic	$	201,158		$	240,983		$	240,851		$	238,254		$	211,670
Funds from operations — diluted	$	204,882		$	244,707		$	244,577		$	241,980		$	219,557

(a)	Reclassified to conform to current year presentation in accordance with FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” as described in Note 3 to the consolidated financial statements.
(b)	Funds from operations, or FFO, is defined as net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from sales of depreciable property, premiums or original issuance costs associated with preferred stock redemptions, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. This definition conforms with the National Association of Real Estate Investment Trust’s definition issued in April 2002. 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 flows 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.
	RE3 is our subsidiary that focuses on development, land entitlement and short-term hold investments. RE3 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 RE3 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.
	For 2008, FFO includes a gain of $26.3 million due to the extinguishment of unsecured debt and $1.6 million of net hurricane related recoveries, partially offset by a charge of $1.7 million incurred for exiting the condominium business, $1.7 million for cancelling a pre-sale contract, $4.7 million related to penalties and the write off of the associated deferred financing costs for debt refinancing and $0.7 million for severance.
	For 2005, FFO includes $2.5 million of hurricane related insurance recoveries. For 2004, FFO includes a charge of $5.5 million to cover hurricane related expenses. For the years ended December 31, 2007 and 2004, distributions to preferred stockholders exclude $2.6 million and $5.7 million, respectively, related to premiums on preferred stock repurchases.

12

Item 7. 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.

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. and its subsidiaries.

At December 31, 2008, our wholly-owned real estate portfolio included 161 communities with 44,388 apartment homes and our total real estate portfolio, inclusive of our unconsolidated communities, included an additional 11 communities with 4,158 apartment homes.

13

The following table summarizes our market information by major geographic markets as of December 31, 2008.

					Percentage			Total
	Number of		Number of		of Total			Carrying		Average			Total Income		Net Operating
	Apartment		Apartment		Carrying			Value		Physical			per Occupied		Income
	Communities		Homes		Value			(In thousands)		Occupancy			Home (a)		(In thousands)
SAME STORE COMMUNITIES
WESTERN REGION
Orange County, CA		13		4,067		12.2	%	$	706,764		95.0	%	$	1,588	$	52,925
San Francisco, CA		8		1,768		5.3	%		309,563		96.1	%		1,838		27,017
Los Angeles, CA		5		1,052		3.2	%		185,070		95.2	%		1,538		12,699
Seattle, WA		7		1,199		2.1	%		118,452		95.3	%		1,130		11,278
San Diego, CA		5		1,123		2.9	%		171,177		95.0	%		1,389		12,302
Monterey Peninsula, CA		7		1,565		2.6	%		149,033		95.3	%		1,069		13,275
Inland Empire, CA		2		660		1.4	%		80,309		92.6	%		1,159		5,627
Sacramento, CA		2		914		1.1	%		66,746		91.5	%		926		6,324
Portland, OR		3		716		1.1	%		66,316		94.3	%		987		5,526
MID-ATLANTIC REGION
Metropolitan DC		7		1,879		3.2	%		188,271		96.5	%		1,324		19,009
Baltimore, MD		8		1,556		2.6	%		151,818		96.6	%		1,176		14,865
Richmond, VA		6		1,958		2.6	%		153,747		95.7	%		1,008		16,202
Norfolk, VA		6		1,438		1.4	%		81,493		94.4	%		963		10,578
Other Mid-Atlantic		5		1,132		1.3	%		75,073		94.5	%		1,030		9,410
SOUTHEASTERN REGION
Tampa, FL		9		3,081		3.9	%		226,859		94.2	%		953		20,857
Orlando, FL		8		2,140		2.6	%		154,385		92.1	%		970		14,331
Nashville, TN		7		1,874		2.4	%		139,667		95.6	%		883		12,439
Jacksonville, FL		4		1,557		2.0	%		117,401		94.4	%		865		9,361
Other Florida		3		976		1.6	%		94,281		93.6	%		1,069		7,322
SOUTHWESTERN REGION
Phoenix, AZ		3		914		1.2	%		69,781		94.2	%		952		6,809
Austin, TX		1		250		0.3	%		20,279		96.9	%		966		1,713
Dallas, TX		1		305		1.1	%		61,469		94.2	%		1,636		3,471
Total/Average Same Store Communities		120		32,124		58.1	%	$	3,387,954		94.8	%	$	1,176	$	293,340
Non-Matures, Commercial Properties and Other		39		12,099		38.7	%	$	2,256,976
Total Real Estate Held for Investment		159		44,223		96.8	%	$	5,644,930
Real Estate Under Development (b)		2		165		3.2	%	$	186,823
Total		161		44,388		100.0	%	$	5,831,753

(a)	Total Income per Occupied Home represents total revenues per weighted average number of apartment homes occupied.
(b)	The Company is currently developing seven wholly-owned communities with 2,242 apartment homes that have not yet been completed.

14

Liquidity and Capital Resources

Liquidity is the ability to meet present and future financial obligations either through operating cash flows, the sale or maturity of existing assets, or by the acquisition of additional funds through capital management. 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. We routinely use our unsecured bank credit facility to temporarily fund certain operating, investing, financing and other activities prior to arranging for longer-term financing. During the past several years, proceeds from the sale of real estate have been used for debt repayment, investing and financing activities.

We expect to meet our short-term liquidity requirements generally through net cash provided by operations and borrowings under credit arrangements. We expect to meet certain long-term liquidity requirements such as scheduled debt maturities, the repayment of financing on development properties, and potential property acquisitions, through long-term secured and unsecured borrowings, the disposition of properties, and the issuance of additional debt or equity securities. Dividends and budgeted expenditures for improvements and renovations of certain properties are expected to be funded from cash provided by our unsecured revolving credit facility, other debt and equity issuances and cash flows provided by property operations.

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

Future Capital Needs

Future development expenditures are expected to be funded with proceeds from construction loans, the sale of property, our unsecured revolving credit facility, and to a lesser extent, with cash flows provided by operating activities. Acquisition activity in strategic markets is expected to be largely financed through the reinvestment of proceeds from the sale of properties, the issuance of equity and debt securities, the issuance of operating partnership units, the assumption or placement of secured and/or unsecured debt.

During 2009, we have approximately $146.1 million of secured debt and $250.1 million of unsecured debt maturing and we anticipate repaying that debt with proceeds from borrowings under our secured or unsecured credit facilities, proceeds from our note receivable, the issuance of new unsecured debt securities or equity or from disposition proceeds. We also anticipate using contractually provided extensions for secured debt.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. A critical accounting policy is one that is both important to our financial condition and results of operations as well as involves some degree of uncertainty. Estimates are prepared based on management’s assessment after considering all evidence available. Changes in estimates could affect our financial position or results of operations. Below is a discussion of the accounting policies that we consider critical to understanding our financial condition or results of operations where there is uncertainty or requires significant judgment.

Capital Expenditures

In conformity with GAAP, we capitalize those expenditures related to acquiring new assets, materially enhancing the value of an existing asset, or substantially extending the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred.

During 2008, $131.0 million or $2,838 per home was spent on capital expenditures for all of our communities, excluding development, condominium conversions and commercial properties compared to $194.4 million or $2,829 per home spent in 2007. These capital improvements included turnover related expenditures for floor coverings and appliances, other recurring capital expenditures such as roofs, siding, parking lots, and asset preservation capital expenditures, which aggregated $29.1 million or $630 per home. In addition, revenue enhancing capital expenditures, kitchen and bath upgrades, upgrades to HVAC equipment, and other extensive exterior/interior upgrades totaled $50.1 million or $1,085 per home, and major renovations totaled $51.8 million or $1,123 per home for the year ended December 31, 2008.

15

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:

	Year ended December 31,
	(dollars in thousands, except for per apartment homes)
								Per Apartment Home
	2008		2007		% Change			2008		2007		% Change
Turnover capital expenditures	$	9,342	$	13,362		-30.1	%	$	202	$	194		4.1	%
Asset preservation expenditures		19,737		31,071		-36.5	%		428		452		-5.3	%
Total recurring capital expenditures		29,079		44,433		-34.6	%		630		646		-2.5	%
Revenue enhancing improvements		50,059		78,209		-36.0	%		1,085		1,138		-4.7	%
Major renovations		51,823		71,785		-27.8	%		1,123		1,045		7.5	%
Total capital expenditures	$	130,961	$	194,427		-32.6	%	$	2,838	$	2,829		0.3	%
Repair and maintenance expense	$	32,679	$	42,518		-23.1	%	$	708	$	619		14.4	%
Average Stabilized Home Count		46,149		68,723

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 2009 are currently expected to be approximately $675 per home.

Impairment of Long-Lived Assets

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 market value. Our estimates of fair market value represent our best estimate based upon industry trends and reference to market rates and transactions.

Real Estate Investment Properties

We purchase real estate investment properties from time to time and allocate the purchase price to various components, such as land, buildings, and intangibles related to in-place leases in accordance with FASB Statement No. 141, “Business Combinations.” The purchase price is allocated based on the relative fair value of each component. The fair value of buildings is determined as if the buildings were vacant upon acquisition and subsequently leased at market rental rates. As such, the determination of fair value considers the present value of all cash flows expected to be generated from the property including an initial lease-up period. We determine the fair value of in-place leases by assessing the net effective rent and remaining term of the lease relative to market terms for similar leases at acquisition. In addition, we consider the cost of acquiring similar leases, the foregone rents associated with the lease-up period, and the carrying costs associated with the lease-up period. The fair value of in-place leases is recorded and amortized as amortization expense over the remaining contractual lease period.

REIT Status

We are a Maryland corporation that has elected to be treated for federal income tax purposes as a REIT. A REIT is a legal entity that holds interests in real estate and is required by the Code to meet a number of organizational and operational requirements, including a requirement that a REIT must distribute at least 90% of our REIT taxable income (other than our net capital gain) to our stockholders. If we were to fail to qualify as a REIT in any taxable year, we will be subject to federal and state income taxes at the regular corporate rates and may not be able to qualify as a REIT for four years. Based on the net earnings reported for the year ended December 31, 2008 in our Consolidated Statements of Operations we would have incurred $284.8 million in federal and state GAAP income taxes if we had failed to qualify as a REIT.

16

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 year ended December 31, 2008, our net cash flow provided by operating activities was $179.8 million compared to $269.3 million for 2007. During 2008, the decrease in cash flow from operating activities resulted primarily from a reduction in property operating income from our apartment community portfolio. The reduction was driven by the Company completing the sale of a significant component of our portfolio in the first quarter of 2008. A portion of the proceeds from the disposition were reinvested in subsequent quarters which diluted the net cash provided by operations for the period in which the Company held restricted 1031 cash funds in lieu of revenue generating operating communities.

For the year ended December 31, 2007, our net cash flow provided by operating activities was $269.3 million compared to $237.9 million for 2006. During 2007, the increase in cash flow from operating activities resulted primarily from the increase in property operating income from the Company’s portfolio performing well on a same community basis for revenues and NOI.

Investing Activities

For the year ended December 31, 2008, net cash provided by investing activities was $302.3 million compared to net cash used of $90.1 million for 2007. Changes in the level of investing activities from period to period reflects our strategy as it relates to acquisitions, capital expenditures, development and disposition activities, as well as the impact of the capital market environment on these activities, all of which are discussed in further detail throughout this Report.

For the year ended December 31, 2007, net cash used in investing activities was $90.1 million compared to $158.2 million for 2006. Changes in the level of investing activities from period to period reflects our strategy as it relates to our acquisition, capital expenditure, development, and disposition programs, as well as the impact of the capital market environment on these activities.

Acquisitions

For the year ended December 31, 2008, we acquired 13 apartment communities with 4,558 apartment homes, two parcels of land, and one retail property for aggregate consideration of $1.0 billion. Our long-term strategic plan is to achieve greater operating efficiencies by investing in fewer, more concentrated markets. As a result, we have been expanding our interests in communities located in California, Florida, Metropolitan Washington D.C. and the Washington markets over the past years. Prospectively, we plan to continue 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 and low housing affordability.

17

The following wholly-owned communities were acquired during the year ended December 31, 2008 (dollars in thousands):

					Purchase
Property Name	Market	Acquisition Date	Units		Price (a)
The Place at Millenia	Orlando, FL	January 2008		371	$	50,132
Dulaney Crescent	Baltimore, MD	March 2008		264		57,690
Delancey at Shirlington Village	Metro D.C.	March 2008		241		85,000
Edgewater	San Francisco, CA	March 2008		193		115,000
Circle Towers	Metro D.C.	March 2008		606		138,378	(b)
Legacy Village	Dallas, TX	March 2008		1,043		118,500
Pine Brook Village II	Orange County, CA	May 2008		296		87,320
Hearthstone at Merrill Creek	Seattle, WA	May 2008		220		38,000
Island Square	Seattle, WA	July 2008		235		112,202
Almaden Lake Village	San Francisco, CA	July 2008		250		47,270
Residences at the Domain	Austin, TX	August 2008		390		59,500
Waterford	Phoenix, AZ	August 2008		200		23,666
Vintage Lofts	Tampa, FL	August 2008		249		43,672	(c)
				4,558	$	976,330

(a)	The purchase price is the contractual amount paid by UDR to the seller and does not include any costs that the Company incurred as a result of the acquisition of the property.
(b)	The purchase price does not include the $5.9 million allocated to the commercial space acquired in the transaction.
(c)	This community was acquired by the Company while under development and is projected to be completed in the first quarter of 2009.

For the year ended December 31, 2007, we acquired 13 apartment communities with 2,671 apartment homes, six parcels of land, and an interest in an operating joint venture for an aggregate consideration of $486.5 million. In 2006, we acquired eight apartment communities with 2,763 apartment homes for an aggregate consideration of $327.5 million and two parcels of land for $19.9 million.

Real Estate Under Development

At December 31, 2008, our development pipeline for wholly-owned communities totaled 2,407 homes with a budget of $375.9 million in which we have a carrying value of $186.8 million. We expect to have the first of the communities complete development during 2009. In addition, we own several parcels of land held for future development in which the Company is seeking entitlements and preparing for development, although we do not anticipate development to commence during 2009.

For the year ended December 31, 2008, we invested approximately $160.1 million in development projects, an increase of $58.6 million from our 2007 level of $101.5 million. As a result of our investment in developments, we completed development on two wholly-owned communities with 644 apartment homes that have a carrying value of $44.4 million and acquired three pre-sale communities with 820 apartment homes that have a carrying value of $126.4 million during the year ended December 31, 2008.

Consolidated Development Joint Venture

In 2006, we entered into a joint venture to develop an apartment community with 298 apartment homes in Marina del Rey, California. Our initial investment was $27.5 million. Our joint venture partner was the managing partner as well as the developer, general contractor and property manager. In December 2008, we acquired for $1.5 million our joint venture partner’s interest in their profit participation and terminated the property management agreement that had approximately two years remaining on the pre-existing contract. As a result of terminating our arrangement, the Company recorded a charge to earnings of $305,000 as the profit component related to the management agreement and capitalized the balance as part of the investment in real estate, which will be depreciated over the average remaining life of the tangible asset. As of December 31, 2008, this property is included as a component of our wholly-owned communities.

18

Unconsolidated Joint Ventures

UDR is a partner in a joint venture to develop a site in Bellevue, Washington. At closing, we owned 49% of the project that involves building a 430 home high rise apartment building with ground floor retail. The project is currently ongoing and will commence construction once market conditions improve and favorable financing has been obtained. Our investment at December 31, 2008 and 2007 was $10.2 million and $8.1 million, respectively.

UDR is a partner in a joint venture which will develop 274 apartment homes in the central business district of Bellevue, Washington. Construction began in the fourth quarter of 2006 and is scheduled for completion in the third quarter of 2009. At closing, we owned 49% of the project. Our investment at December 31, 2008 and 2007 was $9.9 million and $8.9 million, respectively.

In January 2007, we entered into a joint venture which owns and operates a recently completed 23-story, 166 apartment home high rise community in the central business district of Bellevue, Washington. At closing, UDR owned 49% of the project. Our investment at December 31, 2008 and 2007 was $10.4 million and $11.2 million, respectively.

In November 2007, UDR and an institutional unaffiliated partner formed a joint venture which owns and operates various apartment communities located in Texas. On the closing date, UDR sold nine operating properties, consisting of 3,690 units, and contributed one property under development to the joint venture. The property under development has 302 units and was completed in the third quarter of 2008 and commenced lease up at that time. UDR contributed cash and property equal to 20% of the fair value of the properties. The unaffiliated partner contributed cash equal to 80% of the fair value of the properties comprising the venture, which was then used to purchase the nine operating properties from UDR. Our investment at December 31, 2008 and 2007 was $16.5 million and $20.1 million, respectively. In addition, during 2008 we received payment in full of a note receivable of $18.8 million from the joint venture.

Disposition of Investments

During the year ended December 31, 2008, UDR sold 86 communities with a total of 25,684 apartment homes, for gross consideration of $1.7 billion, 53 condominiums from two communities with a total of 640 condominiums for gross consideration of $6.9 million, one parcel of land for gross proceeds of $1.6 million and one commercial property for gross proceeds of $6.5 million. We recognized after-tax gains for financial reporting purposes of $786.4 million on these sales. Proceeds from the sales were used primarily to acquire new communities and reduce debt. During 2008, we decided to discontinue sales of units with the two communities identified for condominium conversion until such time that the market conditions turn favorable and it is economically beneficial to sell those units versus operate the residual 525 units of those communities. As a result of our decision to revert the remaining units to operations the Company recorded a charge to earnings of $1.7 million, excluding the catch up for depreciation on the units when they were returned to operations.

As a result of our disposition activities in 2008, the Company declared a Special Dividend payable to holders of our common stock for $0.96 per share included with our recurring distribution for the Company’s fourth quarter of 2008 for a total of $1.29 per share ($1.19 per share in the aggregate adjusted for the Special Dividend) payable on January 29, 2009 to stockholders of record on December 9, 2008. Additional information regarding the Special Dividend is set forth in Item 1. Business in Part 1 of this Report.

In conjunction with the transaction in which we sold 86 communities for $1.7 billion, we received a note in the amount of $200.0 million. The note, which is secured by a pledge, security agreement and a guarantee from the buyer’s parent entity, bears interest at the rate of 7.5% per annum and matures on March 31, 2014, provided however that the master credit facility agreement pursuant to which the buyer financed the acquisition of the properties provides that the buyer will pay or prepay the note on or before the date that is fourteen (14) months after the Initial Closing Date (May 3, 2009) and further that it is an event of default under the master credit facility agreement if the note is not paid in full by June 1, 2009.

For the year ended December 31, 2007, UDR sold 21 communities with a total of 7,125 apartment homes for gross consideration of $729.2 million, one parcel of land for $4.5 million, and contributed one property under development, at cost, to a joint venture arrangement in Texas. In addition, we sold 61 condominiums from two communities with a total of 640 condominiums for gross consideration of $10.4 million. We recognized after-tax gains for financial reporting purposes of $239.1 million on these sales. Proceeds from the sales were used primarily to reduce debt.

19

Financing Activities

For the year ended December 31, 2008, our net cash used in financing activities was $472.5 million compared to $178.1 million for the comparable period of 2007.

The following significant financing activity occurred during the year ended December 31, 2008:

• Closed on a $240.0 million, two-year unsecured term loan facility of which $200 million was swapped into a fixed rate of 3.61% and $40.0 million has a rate of LIBOR plus 85 basis points. Proceeds were used to redeem $200.0 million of our 4.5% medium term notes due in March 2008 with the remaining $40.0 million used for general corporate purposes.

• Closed on a $400 million credit facility which matures November 2018. At December 31, 2008, we had $224.8 million outstanding on the facility — $70.0 million at a fixed interest rate of 5.85% and $154.8 million at a variable interest rate, fixed with two- and three-year LIBOR swaps at an average rate of 4.32%. The Company has five years to draw on the additional $175.2 million of capacity. This facility replaced a debt instrument with an outstanding balance of $138.9 million that matured on April 1, 2010 that had a stated rate of 6.09%. As a result of this refinancing the Company incurred a charge to earnings of $4.7 million related to the write off of deferred financing charges and prepayment penalties associated with the retired debt instrument. Some of the incremental proceeds from this note were used to purchase unsecured long term debt at a discount to par.

• Sold 8,661,201 shares of our common stock adjusted for the Special Dividend (8,000,000 shares of common stock on an unadjusted basis) in a public offering resulting in gross proceeds of $194.0 million.

• Obtained five construction loans for a total of $179.3 million of which the Company has drawn $53.9 million for our development projects. The construction loans all have a three-year initial terms with an extension provision(s) and incur interest at a variable rates which range from LIBOR plus 140 basis points to LIBOR plus 225 basis points.

• Repaid $216.4 million of secured debt and $793.0 million of unsecured debt (represents the notional amount of debt repaid and excludes the gain on extinguishment). The $793.0 million of unsecured debt consisted of $309.5 million for the revolving credit facility, $275.8 million for maturing debt and $207.7 million for the repurchase of unsecured debt.

• Repurchased unsecured debt with a notional amount of $207.7 million for $176.2 million resulting in a gain on extinguishment of $26.3 million, net of the write-off of unamortized premium on convertible debt ($3.3 million) and deferred finance charges. The unsecured debt repurchased by the Company matured in 2011, 2014, 2015 and 2016, respectively. As a result of these repurchases, the gain is presented as a reduction to interest expense on the Consolidated Statement of Operations.

• Repurchased 969,300 shares of our Series G Cumulative Redeemable Preferred Stock for $20.3 million, less than their liquidation value of $24.2 million.

For the year ended December 31, 2007, our net cash used in financing activities was $178.1 million compared to $93.0 million for the comparable period of 2006. The increase in financing activities was due to the Company repaying additional secured debt, the redemption of our Series B Cumulative Redeemable Preferred Stock, repurchase of common stock in the marketplace which was offset by the issuance of issuance of debt and equity securities and drawing down on our unsecured credit facility.

Credit Facilities

As of December 31, 2008, we have secured revolving credit facilities with Fannie Mae with an aggregate commitment of $1.0 billion with $831.2 million 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 $666.6 million of the funded balance fixed at a weighted average interest rate of 5.5% and the remaining balance on these facilities is currently at a weighted average variable rate of 3.1%.

As of December 31, 2007, we had secured revolving credit facilities with Fannie Mae with an aggregate commitment of $748.9 million with $663.9 million outstanding. The Fannie Mae credit facilities are for an initial term of ten 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 had $583.1 million of the funded balance fixed at a weighted average interest rate of 5.9% and the remaining balance on these facilities was at a weighted average variable rate of 5.1%.

20

On July 27, 2007, we amended and restated our existing three-year $500 million unsecured revolving credit facility with a maturity date of May 31, 2008, (which could be extended for an additional year at our option) to increase the facility to $600 million and to extend its maturity to July 26, 2012. Under certain circumstances, we may increase the new $600 million credit facility to $750 million. Based on our current credit ratings, the $600 million credit facility carries an interest rate equal to LIBOR plus a spread of 47.5 basis points, which represents a 10 basis point reduction to the previous $500 million revolving credit facility. Under a competitive bid feature and for so long as we maintain an investment grade rating, we have the right under the new $600 million credit facility to bid out 50% of the commitment amount and we can bid out 100% of the commitment amount once per quarter. As of December 31, 2008 and 2007, there was $0 and $309.5 million, respectively, outstanding on the unsecured revolving credit facility.

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

Interest Rate Risk

We are exposed to interest rate risk associated with variable rate notes payable and maturing debt that has to be refinanced. We do not hold financial instruments for trading or other speculative purposes, but rather issue these financial instruments to finance our portfolio of real estate assets. Interest rate sensitivity is the relationship between changes in market interest rates and the fair value of market rate sensitive assets and liabilities. Our earnings are affected as changes in short-term interest rates impact our cost of variable rate debt and maturing fixed rate debt. We had $345.7 million in variable rate debt that is not subject to interest rate swap contracts as of December 31, 2008. If market interest rates for variable rate debt increased by 100 basis point, our interest expense would increase by $3.8 million based on the average balance outstanding during the year.

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

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, premiums or original issuance costs associated with preferred stock redemptions, 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.

21

The following table outlines our FFO calculation and reconciliation to GAAP for the three years ended December 31, 2008 adjusted for the Special Dividend (dollars in thousands):

	For the year ended December 31,
	2008			2007			2006
Net income attributable to UDR, Inc.	$	697,791		$	215,129		$	125,108
Adjustments:
Distributions to preferred stockholders		(12,138	)		(13,910	)		(15,370	)
Real estate depreciation and amortization, including discontinued operations		251,984			257,450			243,889
Non-controlling interest		46,077			11,601			7,237
Real estate depreciation and amortization on unconsolidated joint ventures		4,502			1,980			—
Net gains on the sale of depreciable property to a joint venture		—			(113,799	)		—
Net gains on the sale of depreciable property in discontinued operations, excluding RE3		(787,058	)		(117,468	)		(120,013	)
Funds from operations — basic	$	201,158		$	240,983		$	240,851
Distributions to preferred stockholders — Series E (Convertible)		3,724			3,724			3,726
Funds from operations — diluted	$	204,882		$	244,707		$	244,577
Write-off of convertible debt premium due to adoption of APB 14-1		3,333			—			—
Amortization of convertible debt premium due to adoption of APB 14-1		6,598			6,679			3,750
Funds from operations as adjusted — diluted	$	214,813		$	251,386		$	248,327
Weighted average number of common shares and OP Units outstanding — basic		150,457			153,496			154,198
Weighted average number of common shares and OP Units outstanding — diluted		154,715			159,365			160,212

In the computation of diluted FFO, OP Units, out-performance partnership units, convertible debt, and the shares of Series E Cumulative Convertible Preferred Stock are dilutive; therefore, they are included in the diluted share count.

RE³ is our subsidiary that focuses on development, land entitlement and short-term hold investments. RE³ 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 RE³ 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.

22

The following table is our reconciliation of FFO share information adjusted for the Special Dividend to weighted average common shares outstanding, basic and diluted, reflected on the Consolidated Statements of Operations for the three years ended December 31, 2008 (shares in thousands):

	For the year ended December 31,
	2008			2007			2006
Weighted average number of common shares and OP units outstanding basic		150,457			153,496			154,198
Weighted average number of OP units outstanding		(9,475	)		(8,404	)		(9,413	)
Weighted average number of common shares outstanding - basic per the Consolidated Statement of Operations		140,982			145,092			144,785
Weighted average number of common shares, OP units, and common stock equivalents outstanding — diluted		154,715			159,365			160,212
Weighted average number of OP units outstanding		(9,475	)		(8,404	)		(9,413	)
Weighted average incremental shares from assumed conversion of stock options		(445	)		(682	)		(833	)
Weighted average incremental shares from unvested restricted stock		(777	)		(442	)		(212	)
Weighted average number of incremental shares from assumed conversion of $250 million convertible debt		—			—			(74	)
Weighted average number of Series A OPPSs outstanding		—			(1,709	)		(1,859	)
Weighted average number of Series E preferred shares outstanding		(3,036	)		(3,036	)		(3,036	)
Weighted average number of common shares outstanding — diluted per the Consolidated Statements of Operations		140,982			145,092			144,785

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):

	For the year ended December 31,
	2008			2007			2006
Net cash provided by operating activities	$	179,754		$	269,281		$	237,881
Net cash provided by/(used in) investing activities		302,304			(90,100	)		(158,241	)
Net cash used in financing activities		(472,537	)		(178,105	)		(93,040	)

Results of Operations

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

Net Income Available to Common Stockholders

2008 -vs-2007

Net income available to common stockholders was $688.7 million ($4.89 per diluted share) for the year ended December 31, 2008 as compared to $199.0 million ($1.37 per diluted share) for the comparable period in the prior year after adjustment for the Special Dividend. The increase in net income available to common stockholders for the year ended December 31, 2008 resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report.

• An increase of $547.3 million in the gains on the disposition of our property inclusive of gains on sale to a joint venture;

• A decrease of $39. 0 million in total interest expense due in part to the Company recognizing gains of $26.3 on the extinguishment of certain unsecured debt instruments;

23

• An increase of $16.9 million related to interest income generated by the Company; and

• A gain of $3.1 million related to the repurchase of shares of our Series G Cumulative Redeemable Preferred Stock at less than their liquation value.

The increases to our net income available to common stockholders were offset by: a reduction in property NOI of $80.2 million due to our dispositions; an increase in non-controlling interest of $34.5 million; and an increase in general and administrative expense of $7.6 million when compared to 2007.

2007-vs.-2006

Net income available to common stockholders was $199.0 million ($1.37 per diluted share) for the year ended December 31, 2007, compared to $109.7 million ($0.76 per diluted share) for the year ended December 31, 2006 after adjustment for the Special Dividend. The increase for the year ended December 31, 2007, when compared to the same period in 2006, resulted primarily from the following items, all of which are discussed in further detail elsewhere within this Report:

• $98.7 million more in gains recognized from the sale of depreciable property in 2007;

• $11.4 million more in apartment community operating results in 2007;

• $309,000 less in interest expense in 2007; and

• $1.5 million less in distributions on preferred shares in 2007.

These increases in income were partially offset by: a $13.6 million increase in real estate depreciation and amortization expense; an $8.4 million increase in general and administrative expense; $4.3 million in severance costs and other restructuring charges in 2007; $2.3 million in premiums on preferred stock repurchases in 2007; and a $0.9 million decrease in non-property income during 2007 when compared to 2006.

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 for each of the periods presented (dollars in thousands):

	Year Ended December 31,									Year Ended December 31,
	2008			2007			% Change			2007			2006			% Change
Property rental income	$	601,998		$	735,293			-18.1	%	$	735,293		$	736,329			-0.1	%
Property operating expense (a)		(205,842	)		(258,895	)		-20.5	%		(258,895	)		(271,297	)		-4.6	%
Property NOI	$	396,156		$	476,398			-16.8	%	$	476,398		$	465,032			2.4	%

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

24

The following table is our reconciliation of property NOI to net income as reflected on the Consolidated Statements of Operations for the periods presented (dollars in thousands):

	Year Ended December 31,
	2008			2007			2006
Property net operating income	$	396,156		$	476,398		$	465,032
Other net operating income/(loss)		831			2,713			(350	)
Non-property income		27,190			4,321			3,590
Hurricane related expenses		(1,310	)		—			—
Depreciation and amortization		(256,850	)		(261,038	)		(246,934	)
Interest		(145,630	)		(184,597	)		(184,906	)
General and administrative and property management		(63,762	)		(59,881	)		(51,463	)
Severance costs and other restructuring charges		(653	)		(4,333	)		—
Other expenses		(4,569	)		(1,442	)		(1,238	)
Loss from unconsolidated entities		(3,612	)		(1,589	)		—
Tax benefit for the TRS		9,713			17,110			8,268
Net gain on sale of real estate		786,364			239,068			140,346
Non-controlling interests		(46,077	)		(11,601	)		(7,237	)
Net income per the Consolidated Statements of Operations	$	697,791		$	215,129		$	125,108

Same Communities

2008-vs.-2007

Our same store communities (those acquired, developed, and stabilized prior to January 1, 2007 and held on December 31, 2008) which consisted of 32,124 apartment homes and provided 74% of our property NOI for the year ended December 31, 2008.

NOI for our same community properties increased 3.8% or $10.8 million for the year ended December 31, 2008 compared to the same period in 2007. The increase in property NOI was primarily attributable to a 3.6% or $14.8 million increase in rental revenues and other income partially offset by a 3.1% or $4.1 million increase in operating expenses. The increase in revenues was primarily driven by a 1.4% or $6.0 million increase in rental rates, a 13.9% or $2.0 million increase in reimbursement income, and a 76.9% or $4.3 million decrease in rental concessions. Physical occupancy increased 0.3% to 94.8% and total income per occupied home increased $37 to $1,176.

The increase in property operating expenses was primarily driven by a 5.9% or $2.3 million increase in real estate taxes due to higher assessed values on our communities and favorable tax appeals in 2007 and a 5.4% or $1.7 million increase in personnel costs.

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) increased to 68.3% as compared to 68.1% in the comparable period in the prior year.

2007-vs.-2006

Our same communities (those communities acquired, developed, and stabilized prior to January 1, 2006 and held on December 31, 2007, which consisted of 30,686 apartment homes) provided 57% of our property net operating income for the year ended December 31, 2007.

Same community property net operating income increased 7.0% or $17.7 million compared to 2006. The increase in property operating income was primarily attributable to a 5.0% or $18.8 million increase in revenues from rental and other income and a 0.9% or $1.1 million increase in operating expenses. The increase in revenues from rental and other income was primarily driven by a 4.2% or $16.2 million increase in rental rates, an 11.4% or $3.0 million increase in reimbursement income and fee income, and a 16.2% or $1.0 million decrease in rental concessions. These increases were partially offset by a 6.8% or $1.3 million increase in vacancy loss. Physical occupancy decreased 0.2% to 94.6%.

25

The increase in property operating expenses was primarily driven by a 5.2% or $1.8 million increase in real estate taxes that was partially offset by a 7.6% or $0.8 million decrease in administrative and marketing costs.

As a result of the percentage changes in property rental income and property operating expenses, the operating margin (property operating income divided by property rental income) increased 1.3% to 68.2%.

Non-Mature Communities

2008-vs.-2007

The remaining $103.6 million and $196.5 million of our NOI during the year ended December 31, 2008 and 2007, respectively, 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, properties classified as real estate held for disposition and condominium properties. For the year ended December 31, 2008, we recognized NOI for our developments of $7.5 million, acquired communities of $46.0 million, redeveloped properties of $19.2 million and sold properties of $25.0 million. For the year ended December 31, 2007, we recognized net operating income for our developments of $4.0 million, acquired communities of $6.6 million, redeveloped properties of $14.9 million and sold properties of $146.1 million. In addition, in 2007 the Company sold a portfolio of properties into a joint venture that we continue to manage after the transaction and as such is not deemed discontinued operations. The NOI from those communities was $18.3 million.

2007-vs.-2006

The non-mature communities net operating income for the years ended December 31, 2007 and 2006 is derived largely from acquisitions, developments, redevelopments and dispositions as the Company executed our strategy to enhance our portfolio in high barrier-to-entry markets.

Other Income

For the year ended December 31, 2008, significant amounts reflected in other income include: interest income from a note for $200 million that the Company received related to the disposition of 86 properties during 2008; interest from uninvested 1031 proceeds; and fees earned for both recurring and non-recurring items related to the Company’s joint ventures. At December 31, 2008, the Company had redeployed all 1031 proceeds.

Tax Benefit for TRS

UDR elected for certain consolidated subsidiaries to be treated as Taxable REIT Subsidiaries (“TRS”). Income taxes for our TRS are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rate is recognized in earnings in the period of the enactment date. For the years ended December 31, 2008, 2007 and 2006 we have recognized a benefit due to the results of operations and temporary differences associated with the TRS.

Other Operating Expenses

For the year ended December 31, 2008, the increase in other operating expenses is primarily due to additional costs incurred by the Company related to ground leases. In December 2007 and in July 2008, we purchased operating communities that were subject to long-term ground leases. A schedule of future obligations related to ground leases is set forth under “Contractual Obligations” below.

26

Real Estate Depreciation and Amortization

For the year ended December 31, 2008, real estate depreciation and amortization on both continuing and discontinued operations decreased 2.1% or $5.5 million as compared to the comparable period in 2007. The decrease in depreciation and amortization for the year ended December 31, 2008 is a result of the Company’s repositioning efforts that included the sale of 86 operating communities. As the properties sold in 2008 did not meet the criteria to be deemed as held-for-sale the communities until late in the fourth quarter of 2008, we did not cease depreciation until that time. With the proceeds from the sale, the Company purchased $1.0 billion of properties. As part of our allocation of fair value associated with the purchase price, we attributed $14.0 million to in-place leases for our multi-family communities, which are generally amortized over an 11 month period. During the year ended December 31, 2008, the Company recorded $3.7 million of depreciation related to two properties that we had previously been marketing as condominiums and classified as held-for-sale when we determined it prudent to operate the communities.

For the year ended December 31, 2007, real estate depreciation and amortization on both continuing and discontinued operations increased $13.6 million or 5.6% compared to 2006, primarily due to the significant increase in per home acquisition cost compared to the existing portfolio and other capital expenditures.

Interest Expense

For the year ended December 31, 2008, interest expense on both continuing and discontinued operations decreased 21.1% or $39.0 million as compared to 2007. This decrease is primarily due to the Company recognizing a gain of $26.3 million on debt extinguishment that was partially offset by a $4.2 million prepayment penalty incurred by the Company in refinancing a secured debt instrument in 2008. The gain on debt extinguishment was a result of the Company repurchasing unsecured debt securities with a notional amount of $207.7 million in the open market throughout the year. In addition, the weighted average interest rate decreased from 5.3% in 2007 to 4.9% in 2008, which further reduced our interest expense. The decrease in the weighted average interest rate during 2008 reflects short-term bank borrowings and variable rate debt that had lower interest rates in 2008 when compared to the same period in 2007.

For the year ended December 31, 2007, interest expense on both continuing and discontinued operations decreased 0.2% or $0.3 million compared to 2006. For the year ended December 31, 2007, the weighted average amount of debt outstanding increased 5.9% or $193.8 million compared to 2006 and the weighted average interest rate decreased from 5.4% in 2006 to 5.3% in 2007. The weighted average amount of debt outstanding during 2007 was slightly higher than 2006 as acquisition costs in 2007 have been funded primarily by the issuance of debt. The decrease in the weighted average interest rate during 2007 reflects short-term bank borrowings and variable rate debt that had lower interest rates in 2007 when compared to the same period in 2006.

General and Administrative

For the year ended December 31, 2008, general and administrative expenses increased 19.2% or $7.6 million as compared to 2007. The increase was due to a number of factors, including the Company writing off acquisition-related costs, the Company no longer pursuing a condominium strategy resulted in writing off $1.7 million in deferred sales charges, the renegotiation and/or cancellation of certain operating leases and/or vendor contracts of $0.8 million, the Company cancelling a contract to acquire a pre-sale property resulting in a charge of $1.7 million and the Company acquiring certain contractual rights related to a joint venture resulted in the Company incurring a charge of $305,000 for the profit component of the contracts.

For the year ended December 31, 2007, general and administrative expenses increased $8.4 million or 26.8% compared to 2006. The increase was due to a number of factors, including increases in personnel costs, incentive compensation, and legal and professional fees.

Severance Costs and Other Restructuring Charges

For the year ended December 31, 2008, the Company recognized $653,000 of severance and restructuring charges as the Company continued to consolidate our operations in Highlands Ranch, Colorado. In addition, we announced reductions to certain positions related to both operations and corporate.

For the year ended December 31, 2007, UDR recognized $4.3 million in severance costs and other restructuring charges partly as a result of our disposition of 86 communities consisting of 25,684 apartment homes. As a result of a comprehensive review of the organizational structure of UDR and its operations, UDR recorded a charge of $3.6 million during the fourth quarter of 2007 related to workforce reductions, relocation costs, and other related costs. These charges are included in the Consolidated Statements of Operations within the line item “Severance costs and other restructuring charges.” All charges were approved by management and our Board of Directors in October 2007. The Company had a zero balance related to the 2007 charges as of December 31, 2008.

27

Gains on the Sale of Land and Depreciable Property

For the years ended December 31, 2008, 2007 and 2006, we recognized after-tax gains for financial reporting purposes of $786.4 million, $239.1 million and $140.3 million, respectively. Changes in the level of gains recognized from period to period reflect the changing level of our divestiture activity from period to period as well as the extent of gains related to specific properties sold.

Inflation

We believe that the direct effects of inflation on our operations have been immaterial. Substantially all of our leases are for a term of one year or less which generally minimizes our risk from the adverse effects of inflation.

Off-Balance Sheet Arrangements

UDR has entered into one contract to purchase an apartment community of 289 homes in Dallas, Texas for approximately $29.0 million upon completion of its development. This apartment community is expected to be completed in the fourth quarter of 2009.

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

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2008 (dollars in thousands):

	Payments Due by Period
Contractual Obligations	2009		2010-2011		2012-2013		Thereafter		Total
Long-term debt obligations	$	396,188	$	997,416	$	657,123	$	1,210,406	$	3,261,133
Interest on debt obligations		120,110		216,121		177,692		191,890		705,813
Unfunded commitments on development projects (a)		4,829		184,249		—				189,078
Purchase obligations		29,000		—		—		—		29,000
Operating lease obligations:
Operating space		1,264		1,978		793		—		4,035
Ground leases (b)		4,520		9,040		9,040		293,702		316,302
	$	555,911	$	1,408,804	$	844,648	$	1,695,998	$	4,505,361

(a)	Any unfunded costs at December 31, 2008 are shown in the year of estimated completion. The Company has project debt on many of our development projects.
(b)	For purposes of our ground lease contracts, the Company uses the minimum lease payment, if stated in the agreement. For ground lease agreements where there is a reset provision based on the communities appraised value or consumer price index but does not included a specified minimum lease payment, the Company uses the current rent over the remainder of the lease term.

During 2008, we incurred gross interest costs of $184.2 million, of which $14.9 million was capitalized.

28

Factors Affecting Our Business and Prospects

There are many factors that affect our business and the results of our operations, some of which are beyond our control. These factors include:

• general economic factors;

• 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;

• the timing and closing of planned dispositions under agreement;

• 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 Internal Revenue Code in any taxable year;

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

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

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

29

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
UDR, INC.

	Page
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting		31
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
Report of Independent Registered Public Accounting Firm		32
Consolidated Balance Sheets at December 31, 2008 and 2007		33
Consolidated Statements of Operations for each of the three years in the period ended December 31, 2008		34
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2008		35
Consolidated Statements of Stockholders’ Equity and Comprehensive Income for each of the three years in the period ended December 31, 2008		37
Notes to Consolidated Financial Statements		38
SCHEDULE FILED AS PART OF THIS REPORT
Schedule III — Summary of Real Estate Owned		69

All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto.

30

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of UDR, Inc.

We have audited UDR, Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). UDR, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting included in Item 9A. Our responsibility is to express an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, UDR, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of UDR, Inc. as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2008 of UDR, Inc. and our report dated February 20, 2009, except for the retrospective adjustments described in Notes 1 and 6, as to which the date is May 19, 2009, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Denver, Colorado
February 20, 2009

31

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of UDR, Inc.

We have audited the accompanying consolidated balance sheets of UDR, Inc. (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2008. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of UDR, Inc. at December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in Notes 1 and 6 to the financial statements, UDR, Inc. has retrospectively adopted the provisions of new accounting pronouncements for noncontrolling interests and convertible debt.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), UDR, Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2009 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Denver, Colorado
February 20, 2009, except for the retrospective adjustments
described in Notes 1 and 6, as to which the date is
May 19, 2009.

32

UDR, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)

	December 31,
	2008			2007
ASSETS
Real estate owned:
Real estate held for investment	$	5,644,930		$	4,186,360
Less: accumulated depreciation		(1,078,637	)		(832,598	)
		4,566,293			3,353,762
Real estate under development (net of accumulated depreciation of $52 and $963)		186,771			343,768
Real estate held for disposition (net of accumulated depreciation of $0 and $538,198)		—			887,192
Total real estate owned, net of accumulated depreciation		4,753,064			4,584,722
Cash and cash equivalents		12,740			3,219
Restricted cash		7,726			4,847
Deferred financing costs, net		29,168			33,469
Notes receivable		207,450			12,655
Investment in unconsolidated joint ventures		47,048			48,264
Escrow — 1031 exchange funds		—			56,217
Other assets		85,842			53,730
Other assets — real estate held for disposition		767			3,331
Total assets	$	5,143,805		$	4,800,454
LIABILITIES AND STOCKHOLDERS’ EQUITY
Secured debt	$	1,462,471		$	910,611
Secured debt — real estate held for disposition		—			227,325
Unsecured debt		1,798,662			2,341,895
Real estate taxes payable		14,035			8,922
Accrued interest payable		20,744			27,999
Security deposits and prepaid rent		28,829			22,061
Distributions payable		57,144			49,152
Deferred gains on the sale of depreciable property		28,845			28,690
Accounts payable, accrued expenses, and other liabilities		71,395			52,070
Other liabilities — real estate held for disposition		1,204			28,110
Total liabilities		3,483,329			3,696,835
Redeemable non-controlling interests in operating partnership		108,092			159,267
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, 2007)		46,571			46,571
4,430,700 shares of 6.75% Series G Cumulative Redeemable issued and outstanding (5,400,000 shares at December 31, 2007)		110,768			135,000
Common stock, $0.01 par value; 250,000,000 shares authorized 148,781,115 shares issued and outstanding (144,336,438 shares at December 31, 2007)		1,488			1,443
Additional paid-in capital		1,850,871			1,786,074
Distributions in excess of net income		(448,737	)		(1,027,114	)
Accumulated other comprehensive loss		(11,927	)		(770	)
Total UDR, Inc. stockholders’ equity		1,549,034			941,204
Non-controlling interest		3,350			3,148
Total equity		1,552,384			944,352
Total liabilities and stockholders’ equity	$	5,143,805		$	4,800,454

See accompanying notes to consolidated financial statements.

33

UDR, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

	Years Ended December 31,
	2008			2007			2006
REVENUES
Rental income	$	563,408		$	501,618		$	467,511
Non-property income:
Other income		27,190			4,320			3,585
Total Revenues		590,598			505,938			471,096
EXPENSES
Rental expenses:
Real estate taxes and insurance		68,428			59,036			55,603
Personnel		48,672			43,038			41,616
Utilities		29,301			26,147			24,717
Repair and maintenance		30,333			27,342			26,059
Administrative and marketing		14,640			13,009			13,039
Property management		15,494			13,792			12,856
Other operating expenses		4,563			1,442			1,238
Hurricane related expenses		1,310			—			—
Real estate depreciation and amortization		251,984			191,478			165,499
Interest
Expense incurred		165,123			168,338			182,798
Gain on debt extinguishment		(26,306	)		—			—
Prepayment penalty on debt restructure		4,201			—			—
General and administrative		47,179			39,566			31,198
Severance costs and other restructuring charges		653			4,333			—
Other depreciation and amortization		4,866			3,077			2,513
Total Expenses		660,441			590,598			557,136
Loss from operations		(69,843	)		(84,660	)		(86,040	)
Loss from unconsolidated entities		(3,612	)		(1,589	)		—
Tax benefit for TRS		9,713			17,110			8,268
Net gain on the sale of depreciable property to a joint venture		—			113,799			—
(Loss)/income from continuing operations		(63,742	)		44,660			(77,772	)
Income from discontinued operations		807,610			182,070			210,117
Consolidated net income		743,868			226,730			132,345
Net income attributable to non-controlling interests		(46,077	)		(11,601	)		(7,237	)
Net income attributable to UDR, Inc.		697,791			215,129			125,108
Distributions to preferred stockholders-Series B		—			(4,819	)		(11,644	)
Distributions to preferred stockholders-Series E (Convertible)		(3,724	)		(3,724	)		(3,726	)
Distributions to preferred stockholders-Series G		(8,414	)		(5,367	)		—
Discount/(premium) on preferred stock repurchases, net		3,056			(2,261	)		—
Net income available to common stockholders	$	688,709		$	198,958		$	109,738
(Loss)/earnings per weighted average common share — basic and diluted:
(Loss)/income from continuing operations available to common stockholders	$	(0.84	)	$	0.12		$	(0.69	)
Income from discontinued operations	$	5.73		$	1.25		$	1.45
Net income available to common stockholders	$	4.89		$	1.37		$	0.76
Common distributions declared per share	$	2.11		$	1.22		$	1.15
Weighted average number of common shares outstanding — basic		140,982			145,092			144,785
Weighted average number of common shares outstanding — diluted		140,982			145,092			144,785

See accompanying notes to consolidated financial statements.

34

UDR, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except for share data)

Year Ended December 31,	2008			2007			2006
Operating Activities
Consolidated net income	$	743,868		$	226,730		$	132,345
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		256,850			261,038			246,934
Net gains on the sale of depreciable property		(786,181	)		(125,269	)		(140,346	)
Net gains on the sale of land		(183	)		—			—
Net gains on the sale of depreciable property to a joint venture		—			(113,799	)		—
Gains on debt extinguishment		(26,306	)		—			—
Gains on the sale of technology investment		—			—			(796	)
Write off of bad debt		2,411			4,042			3,806
Loss from unconsolidated entities		3,612			1,589			—
Amortization of deferred financing costs and other		14,183			14,058			9,786
Amortization of deferred compensation		7,024			6,356			—
(Refunds)/prepayments on income taxes		(6,846	)		6,284			(6,288	)
Changes in operating assets and liabilities:
Increase in operating assets		(27,146	)		(7,495	)		(6,519	)
Decrease in operating liabilities		(1,532	)		(4,253	)		(1,041	)
Net cash provided by operating activities		179,754			269,281			237,881
Investing Activities
Proceeds from sales of real estate investments, net		1,487,067			737,201			484,476
Proceeds from note receivable		18,774			4,000			59,805
Disbursements related to notes receivable		(13,569	)		(6,155	)		(5,500	)
Acquisition of real estate assets (net of liabilities assumed) and initial capital expenditures		(936,538	)		(435,997	)		(365,606	)
Development of real estate assets		(160,074	)		(101,460	)		(101,849	)
Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement		(123,234	)		(194,427	)		(215,721	)
Capital expenditures — non-real estate assets		(23,249	)		(4,547	)		(3,465	)
Investment in unconsolidated joint venture		(2,396	)		(24,954	)		—
Contributions to unconsolidated joint ventures		—			—			(6,823	)
Proceeds from the sale of technology investment		—			—			796
Purchase deposits on pending real estate acquisitions		(694	)		(7,544	)		(4,354	)
Change in funds held in escrow from IRC Section 1031 exchanges		56,217			(56,217	)		—
Net cash provided by/(used in) investing activities		302,304			(90,100	)		(158,241	)

35

UDR, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except for share data) — (Continued)

Year Ended December 31,	2008			2007			2006
Financing Activities
Payments on secured debt		(216,354	)		(186,831	)		(70,339	)
Proceeds from the issuance of unsecured debt		240,000			150,000			375,000
Proceeds from the issuance of secured debt		445,162			91,804			78,860
Payments on unsecured debt		(452,156	)		(167,255	)		(138,849	)
Net (repayment)/proceeds of revolving bank debt		(309,500	)		222,300			(123,600	)
Purchase of capped call equity instrument		—			—			(12,588	)
Payment of financing costs		(6,702	)		(6,772	)		(10,284	)
Proceeds from the exercise of stock options		2,588			2,524			5,303
Proceeds from the issuance of common stock through public offering, net		184,327			—			—
Proceeds from the (redemption)/issuance of Series G preferred stock, net		(20,347	)		135,000			—
Payment of preferred stock issuance costs		—			(4,252	)		—
(Repayment)/proceeds from the investment of performance based programs, net		(944	)		50			400
Purchase of non-controlling interests owned by Series A LLC		—			—			(2,059	)
Distributions paid to non-controlling interests		(18,666	)		(12,099	)		(12,729	)
Distributions paid to preferred stockholders		(12,429	)		(13,312	)		(15,370	)
Distributions paid to common stockholders		(166,983	)		(175,923	)		(166,785	)
Repurchase of common stock		(140,533	)		(77,939	)		—
Redemption of Series B preferred stock		—			(135,400	)		—
Net cash used in financing activities		(472,537	)		(178,105	)		(93,040	)
Net increase/(decrease) in cash and cash equivalents		9,521			1,076			(13,400	)
Cash and cash equivalents, beginning of year		3,219			2,143			15,543
Cash and cash equivalents, end of year	$	12,740		$	3,219		$	2,143
Supplemental Information:
Interest paid during the year	$	176,087		$	197,722		$	174,871
Non-cash transactions:
Conversion of operating partnership non-controlling interests to common stock (1,596,402 shares in 2008, 1,012,788 shares in 2007 and 412,491 shares in 2006)		12,176			8,794			7,988
Issuance of restricted stock awards		6			1			3
Issuance of note receivable upon the disposition of real estate		200,000			—			—
Secured debt assumed with the acquisition of properties, net of fair value adjustment		95,728			72,680			24,512
Real estate assets contributed		—			10,350			—
Non-cash transactions associated with consolidated joint venture:
Real estate assets acquired		—			—			62,059
Secured debt assumed		—			—			33,627
Operating liabilities assumed		—			—			3,840

See accompanying notes to consolidated financial statements.

36

UDR, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
(In thousands, except share data)

																Distribution			Accumulated
																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, 2005		8,219,821		$	181,971			145,088,173		$	1,451		$	1,813,046		$	(888,744	)	$	—		$	—	$	1,107,724
Cumulative effect of change in accounting principles		—			—			—			—			32,602			(86,875	)		—			2,893		(51,380	)
Balance, January 1, 2006		8,219,821		$	181,971			145,088,173		$	1,451			1,845,648			(975,619	)		—			2,893		1,056,344
Comprehensive Income
Net income		—			—			—			—			—			125,108			—			103		125,211
Comprehensive income		—			—			—			—			—			125,108			—			103		125,211
Issuance of common and restricted shares and other		—			—			688,643			7			9,357			—			—			—		9,364
Adjustment for conversion of non-controlling interests of unitholders in operating partnerships		—			—			412,491			4			7,984			—			—			—		7,988
Adjustment for cancellation of non-controlling interests in Series A LLC		—			—			—			—			(2,059	)		—			—			—		(2,059	)
Purchase of capped call equity instrument		—			—			—			—			(12,588	)		—			—			—		(12,588	)
Common stock distributions declared ($1.25 per share)		—			—			—			—			—			(168,408	)		—			—		(168,408	)
Preferred stock distributions declared-Series B ($2.15 per share)		—			—			—			—			—			(11,644	)		—			—		(11,644	)
Preferred stock distributions declared-Series E ($1.33 per share)		—			—			—			—			—			(3,726	)		—			—		(3,726	)
Adjustment to reflect redeemable non-controlling OP units at redemption value		—			—			—			—			—			(55,017	)		—			—		(55,017	)
Balance, December 31, 2006		8,219,821		$	181,971			146,189,307		$	1,462		$	1,848,342		$	(1,089,307	)	$	—		$	2,996	$	945,464
Comprehensive Income
Net income		—			—			—			—			—			215,129			—			152		215,281
Other comprehensive income:
Unrealized loss on derivative financial instruments		—			—			—			—			—			—			(814	)		—		(814	)
Allocation to redeemable non-controllable interests		—			—			—			—			—			—			44			—		44
Comprehensive Income																	215,129			(770	)		152		214,511
Issuance of common and restricted shares		—			—			506,257			5			8,944			—			—			—		8,949
Purchase of common shares		—			—			(3,371,914	)		(34	)		(77,905	)		—			—			—		(77,939	)
Redemption of 8.60% Series B Cumulative Redeemable shares		(5,416,009	)		(135,400	)		—			—			2,261			(2,261	)		—			—		(135,400	)
Issuance of 6.75% Series G Cumulative Redeemable shares		5,400,000			135,000			—			—			(4,252	)		—			—			—		130,748
Adjustment for conversion of non-controlling interests of unitholders in operating partnerships		—			—			1,012,788			10			8,684			—			—			—		8,694
Common stock distributions declared ($1.32 per share)		—			—			—			—			—			(177,540	)		—			—		(177,540	)
Preferred stock distributions declared-Series B ($1.07 per share)		—			—			—			—			—			(4,819	)		—			—		(4,819	)
Preferred stock distributions declared-Series E ($1.33 per share)		—			—			—			—			—			(3,726	)		—			—		(3,726	)
Preferred stock distributions declared-Series G ($1.13 per share)		—			—			—			—			—			(5,366	)		—			—		(5,366	)
Adjustment to reflect redeemable non-controlling OP units at redemption value		—			—			—			—			—			40,776			—			—		40,776
Balance, December 31, 2007		8,203,812			181,571			144,336,438			1,443			1,786,074			(1,027,114	)		(770	)		3,148		944,352
Comprehensive Income
Net income		—			—			—			—			—			697,791			—			202		697,993
Other comprehensive income:
Unrealized loss on derivative financial instruments		—			—			—			—			—			—			(11,901	)				(11,901	)
Allocation to redeemable non-controllable interests		—			—			—			—			—			—			744			—		744
Comprehensive income		—			—			—			—			—			697,791			(11,157	)		202		686,836
Issuance of common and restricted shares		—			—			682,650			7			9,191			—			—			—		9,198
Issuance of common shares through public offering		—			—			8,661,201			87			183,085			—			—			—		183,172
Purchase of common shares		—			—			(6,495,576	)		(65	)		(140,468	)		—			—			—		(140,533	)
Redemption of 969,300 shares of 6.75% Series G Cumulative Redeemable Shares		(969,300	)		(24,232	)		—			—			829			3,056			—			—		(20,347	)
Adjustment for conversion of non-controlling interests of unitholders in operating partnerships		—			—			1,596,402			16			12,160			—			—			—		12,176
Common stock distributions declared ($2.2900 per share)		—			—			—			—			—			(175,271	)		—			—		(175,271	)
Preferred stock distributions declared-Series E ($1.3288 per share)		—			—			—			—			—			(3,724	)		—			—		(3,724	)
Preferred stock distributions declared-Series G ($1.6875 per share)		—			—			—			—			—			(8,414	)		—			—		(8,414	)
Adjustment to reflect redeemable non-controlling OP units at Redemption value		—			—			—			—			—			64,939			—			—		64,939
Balance, December 31, 2008		7,234,512		$	157,339			148,781,115		$	1,488		$	1,850,871		$	(448,737	)	$	(11,927	)	$	3,350	$	1,552,384

See accompanying notes to consolidated financial statements.

37

UDR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization, formation and special dividend

UDR, Inc. (“UDR”, the “Company” “we” or “our”) is a self-administered real estate investment trust, or REIT, that owns, operates, acquires, renovates, develops, and manages apartment communities generally in high barrier-to-entry markets located in the United States. The high barrier-to-entry markets are characterized by limited land for new construction, difficult and lengthy entitlement process, expensive single-family home prices and significant employment growth potential. At December 31, 2008, our apartment portfolio consisted of 161 wholly-owned communities located in 23 markets consisting of 44,388 apartment homes. In addition, the Company has an ownership interest in 4,158 apartment units through joint ventures.

On November 5, 2008, our Board of Directors declared a dividend on a pre-adjusted basis of $1.29 per share (“the Special Dividend”) (approximately $132.0 million or $1.19 per share adjusted for the Special Dividend) payable to holders of our common stock. The dividend was paid on January 29, 2009 to stockholders of record on December 9, 2008. The dividend represented the Company’s 2008 fourth quarter recurring distribution of $0.33 per share ($0.305 per share adjusted for the Special Dividend) and an additional special distribution in the amount of $0.96 per share ($0.89 per share adjusted for the Special Dividend) due to taxable income arising from our disposition activity occurring during the year. Subject to the Company’s right to pay the entire dividend in cash, stockholders had the option to make an election to receive payment in cash or in shares, however, the aggregate amount of cash payable to stockholders, other than cash payable in lieu of fractional shares, would not be less than $44.0 million.

The Special Dividend, totaling $177.1 million was paid on 137,266,557 shares issued and outstanding on the record date. Approximately $133.1 million of the Special Dividend was paid through the issuance of 11,358,042 shares of common stock, which was determined based on the volume weighted average closing sales price of our common stock of $11.71 per share on the NYSE on January 21, 2009 and January 22, 2009. The effect of the issuance of additional shares of common stock pursuant to the Special Dividend has been retroactively reflected in each of the historical periods presented within this filing as if those shares were issued and outstanding at the beginning of the earliest period presented. Accordingly, all activity including share issuances, repurchases and forfeitures have been adjusted to reflect an 8.27% increase in the number of shares, except where noted otherwise.

Basis of presentation

The accompanying Consolidated Financial Statements of UDR and its wholly-owned subsidiaries, includes certain joint ventures and variable interest entities where we are the primary beneficiary as defined by FASB Interpretation No. 46 R (“FIN 46 R”), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51”. All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company’s subsidiaries include United Dominion Realty, L.P., (the “Operating Partnership”), and Heritage Communities L.P. (the “Heritage OP”), (collectively, “UDR”). As of December 31, 2008, there were 179,848,233 units in the Operating Partnership outstanding, of which 171,919,064 units or 96% were owned by UDR and 7,929,169 units or 4% were owned by limited partners. As of December 31, 2008, there were 6,000,323 units in the Heritage OP outstanding, of which 5,814,507 units or 97% were owned by UDR and 185,816 units or 3% were owned by limited partners. The Consolidated Financial Statements of UDR include the non-controlling interests of the unitholders in the Operating Partnership and the Heritage OP.

Adoption of new accounting standards

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements” (“SFAS 160”). SFAS 160 amends Accounting Research Bulletin 51, “Consolidated Financial Statements” to establish accounting and reporting standards for the non-controlling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary should be reported as equity in the consolidated financial statements. Consolidated net income should include the net income for both the parent and the non-controlling interest with disclosure of both amounts on the consolidated statement of operations. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS 160 is effective for us on January 1, 2009. As part of our retrospective adoption of SFAS 160, we have reconsidered the measurement provisions of EITF Topic D-98, “Classification and Measurement of Redeemable Securities.” Upon adoption, we adjusted the carrying amount of the operating partnership units by recognizing an $86.8 million increase to “Redeemable non-controlling interests in operating partnership” on the balance sheet and a corresponding decrease in “Distributions in excess of net income,” which was accounted for as a cumulative effect adjustment on January 1, 2006.

38

In May 2008, the FASB issued FASB Staff Position APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion” (“APB 14-1”). APB 14-1 requires entities that issued certain convertible debt instruments that may be settled or partially settled in cash on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the entity’s nonconvertible debt borrowing rate. APB 14-1 requires that an entity determine the estimated fair value of a similar debt instrument as of the date of the issuance without the conversion feature but inclusive of any other embedded features such as puts and calls and assign that value to the debt component of the instrument, which would result in a discount being recorded. The debt would subsequently be accreted to its par value over its expected life using the market rate at the date of issuance. The residual value between the initial proceeds and the value allocated to the debt would be reflected in equity as additional paid in capital. APB 14-1 is effective for fiscal years beginning after December 15, 2008 and would be applied retrospectively to both new and existing convertible instruments. Due to the retrospective adoption of APB 14-1, the Company recognized a decrease in “Distributions in excess of net income” of $117,000 on January 1, 2006 for the cumulative change in interest expense. We also recorded a $32.6 million increase to “Additional paid in capital” for the allocation of the equity component. The Company recognized an additional $9.8 million, $6.6 million and $3.7 million of interest expense for the years ended December 31, 2008, 2007 and 2006, respectively, due to the adoption of APB 14-1.

In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities”, or the FSP, which for us was effective January 1, 2009 and has been applied retrospectively. The FSP clarifies that unvested share-based payment awards that participate in dividends similar to shares of common stock or operating partnership units should be treated as participating securities. The FSP affects the computation of basic and diluted earnings per share for unvested restricted stock awards which entitle the holders to dividends. The FSP did not affect earnings per share amounts for the years ended December 31, 2008 and 2006 because we reported a net loss for the period and accordingly had no undistributed earnings. The FSP had an immaterial affect on the earnings per share amount for the twelve months ended December 31, 2007. We do not expect the FSP to have a material effect on future earnings per share amounts.

Investment in joint ventures

We use the equity method to account for investments that qualify as variable interest entities, variable interest entities where we are not the primary beneficiary and entities that we do not control or where we do not own a majority of the economic interest but have the ability to exercise significant influence over the operating and financial policies of the investee. The Company will also use the equity method when we function as the managing member and our joint venture partner has substantive participating rights or where we can be replaced by our joint venture partner as managing member without cause. For a joint venture accounted for under the equity method, our share of net earnings or losses is reflected as income when earned and distributions are credited against our investment in the joint venture as received.

In determining whether a joint venture is a variable interest entity, the Company considers: the form of our ownership interest and legal structure; the size of our investment; the financing structure of the entity, including necessity of subordinated debt; estimates of future cash flows; ours and our partner’s ability to participate in the decision making related to acquisitions, disposition, budgeting and financing of the entity; obligation to absorb losses and preferential returns; nature of our partner’s primary operations; and the degree, if any, of disproportionally between the economic and voting interests of the entity. As of December 31, 2008, the Company did not assess any of our joint ventures as variable interest entities where UDR was the primary beneficiary.

Use of estimates

The preparation of these financial statements in accordance with 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 financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates. Certain previously reported amounts have been reclassified to conform to the current financial statement presentation.

39

Discontinued operations

For properties accounted for under SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”) , the results of operations for those properties sold during the year or classified as held-for-sale at the end of the current year are classified as discontinued operations in the current and prior periods. Further, to meet the discontinued operations criteria, the Company will not have any significant continuing involvement in the ownership or operation of the property after the sale or disposition. 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 for held-for-sale, the Company will recapture any unrecorded depreciation on the property. The sales related to condominium units are also included in discontinued operations.

Real estate

Real estate assets held for investment are carried at historical cost and consist of land, buildings and improvements, furniture, fixtures and equipment and other costs incurred during their development, acquisition and redevelopment.

Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to the acquisition and/or improvement of real estate assets are capitalized and depreciated over their estimated useful lives if the expenditures qualify as a betterment or the life of the related asset will be substantially extended beyond the original life expectancy.

UDR purchases real estate investment properties and allocates the purchase price to the tangible and identifiable intangible assets acquired based on their estimated fair value. The primary, although not only, identifiable intangible asset associated with our portfolio is the value of existing lease agreements. When allocating cost to an acquired community, we first allocate costs to the estimated intangible value of the existing lease agreements and then to the estimated value of the land, building and fixtures assuming the community is vacant. The Company estimates the intangible value of the lease agreements by determining the lost revenue associated with a hypothetical lease-up. Depreciation on the building is based on the expected useful life of the asset and the in-place leases are amortized over their remaining contractual life.

Quarterly or when changes in circumstances warrant, UDR will assess our real estate portfolio for indicators of impairment. In determining whether the Company has indicators of impairment in our real estate assets, we assess whether the long-lived asset’s carrying value exceeds the community’s undiscounted future cash flows, which is representative of projected NOI plus the residual value of the community. Our future 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. If such indicators of impairment are present and the excess carrying value exceeds the undiscounted cash flows of the community based on a probability weighted model, an impairment loss is recognized equal to the excess of the carrying amount of the asset over its estimated fair value. Our estimates of fair market value represent our best estimate based upon industry trends and reference to market rates and transactions.

For long-lived assets to be disposed of, impairment losses are recognized when the fair value of the asset less estimated cost to sell is less than the carrying value of the asset. Properties classified as real estate held for disposition generally represent properties that are actively marketed or contracted for sale which are expected to close within the next twelve months. Real estate held for disposition is carried at the lower of cost, net of accumulated depreciation, or fair value, less the cost to dispose, determined on an asset-by-asset basis. Expenditures for ordinary repair and maintenance costs on held for disposition properties are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to held for disposition properties are capitalized at cost. Depreciation is not recorded on real estate held for disposition.

Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets which are 35 years for buildings, 10 to 35 years for major improvements, and 3 to 10 years for furniture, fixtures, equipment, and other assets. As of December 31, 2008, the value of our net intangible assets which are reflected in “Other assets” was $10.7 million and the value of our net intangible liabilities which are reflected in “Accounts payable, accrued expenses, and other liabilities” was $7.2 million in our Consolidated Balance Sheets. The balances are being amortized over the remaining life of the respective intangible.

All development projects and related carrying costs are capitalized and reported on the Consolidated Balance Sheet as “Real estate under development.” As each building in a project is completed and becomes available for lease-up, the total cost of the building is transferred to real estate held for investment and the assets are depreciated over their estimated useful lives. The cost of development projects includes interest, real estate taxes, insurance, and allocated development overhead during the construction period.

40

Interest, real estate taxes, insurance and allocated development overhead related to support costs for personnel working directly on the development site are capitalized as part of the real estate under development to the extent that such charges do not cause the carrying value of the asset to exceed its net realizable value. During 2008, 2007, and 2006, total interest capitalized was $14.9 million, $13.2 million, and $5.2 million, respectively.

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, demand deposits with financial institutions and short-term, highly liquid investments. We consider all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The majority of the Company’s cash and cash equivalents are held at major commercial banks.

Restricted cash

Restricted cash consists of escrow deposits held by lenders for real estate taxes, insurance and replacement reserves, and security deposits.

Escrow — 1031 exchange funds

In most cases, disposition proceeds are set aside and designated to fund future tax-deferred exchanges of qualifying real estate investments. If these proceeds are not redeployed to qualifying real estate investment within 180 days, these funds are redesignated as cash and cash equivalents.

Derivative financial instruments

The Company utilizes derivative financial instruments to manage interest rate risk and will generally designate these financial instruments as a cash flow hedge. Derivative financial instruments are recorded on our Consolidated Balance Sheets as either an asset or liability and measured quarterly at their fair value. The changes in fair value for cash flow hedges that are deemed effective are reflected in other comprehensive income and for non-designated derivative financial instruments in earnings. For cash flow hedges the ineffective component, if any, is recorded in earnings.

Cost of raising capital

Costs incurred in connection with the issuance of equity securities are deducted from stockholders equity. Costs incurred in connection with the issuance or renewal of debt is subject to the provisions of EITF 96-19, “Debtors’ Accounting for a Modification or Exchange of Debt Instruments”. Accordingly, if the terms of the renewed or modified debt instrument are deemed to be substantially different (i.e. a 10 percent or greater difference in the cash flows between instruments), all unamortized financing costs associated with the extinguished debt are charged to earnings in the current period. When the cash flows are not substantially different, the costs associated with the renewal or modification are capitalized and amortized into interest expense over the term of the related debt instrument. The balance of any unamortized financing costs associated with retired debt is expensed upon retirement. Deferred financing costs for new debt instruments include fees and costs incurred by the Company to obtain financing. Deferred financing costs are generally amortized on a straight-line basis, which approximates the effective interest method, over a period not to exceed the term of the related debt.

Preferred share redemptions

When redeeming preferred stock, the Company recognizes share issuance costs as a charge to the preferred stock on a pro rata basis to the total costs incurred for the preferred stock offering.

The Company, during the years ended December 31, 2008, 2007 and 2006, recognized share issuance costs of $828,000, $2.3 million and $0, respectively as part of the amount reported in “Discount/(premium) on preferred stock repurchases, net”.

Comprehensive income

Comprehensive income, which is defined as all changes in equity during each period except for those resulting from investments by or distributions to stockholders, is displayed in the accompanying Statements of Stockholders’ Equity and Comprehensive Income. For the year ended December 31, 2008, other comprehensive income consisted of the change in the fair value of effective cash flow hedges from our consolidated subsidiaries and our proportionate percentage of an unconsolidated joint venture in which UDR has elected to utilize hedge accounting.

41

Revenue and real estate sales gain recognition

Rental income related to leases is recognized on an accrual basis when due from residents in accordance with SFAS No. 13 “Accounting for Leases” (SFAS 13) and SEC Staff Accounting Bulletin No. 104, “Revenue Recognition”. Rental payments are generally due on a monthly basis and recognized when earned. The Company recognizes interest income, management and other fees and incentives when earned, fixed and determinable.

The Company accounts for sales of real estate in accordance with SFAS 66, “Accounting for Sales of Real Estate”. For sale 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 to entities in which we retain or otherwise own an interest are accounted for as partial sales. If all other requirements for recognizing profit under the full accrual method have been satisfied and no other forms of continuing involvement are present, we recognize profit proportionate to the outside interest in the buyer and will defer the gain on the interest we retain. The Company will recognize any deferred gain when the property is then sold to a third party. In transactions accounted by us as partial sales, we determine if the buyer of the majority equity interest in the venture was provided a preference as to cash flows in either an operating or a capital waterfall. If a cash flow preference has been provided, we recognize profit only to the extent that proceeds from the sale of the majority equity interest exceed costs related to the entire property.

Advertising costs

All advertising costs are expensed as incurred and reported on the Consolidated Statements of Operations within the line item “Administrative and marketing”. During 2008, 2007, and 2006, total advertising expense was $6.1 million, $7.8 million, and $9.3 million, respectively.

Stock-based employee compensation plans

UDR adopted FASB Statement No. 123(R), “Share-Based Payments,” (SFAS 123(R)) on January 1, 2006 using the modified prospective method. SFAS 123(R) requires an entity to measure the cost of employee services received in exchange for an award of an equity instrument based on the award’s fair value on the grant date and recognize the cost over the period during which the employee is required to provide service in exchange for the award, which is generally the vesting period. The fair value for stock options issued by the Company is calculated utilizing the Black-Scholes-Merton formula. For performance based awards, the Company remeasures the fair value each balance sheet date with adjustment made on a cumulative basis until the award is settled and the final compensation is known. The adoption of the provisions of SFAS 123(R) did not have a material impact on our financial position, results of operations, or cash flows.

Non-controlling interests of unitholders 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. Operating Partnership units can be exchanged for cash or shares of UDR’s common stock on a one-for-one basis, at the option of UDR. Heritage OP units can be exchanged for cash or shares of UDR’s common stock on a 1.575 for one basis, at the option of UDR.

Earnings per share

Basic earnings per common share is computed based upon the weighted average number of common shares outstanding during the year. Diluted earnings per common share is computed based upon common shares outstanding plus the effect of dilutive stock options and other potentially dilutive common stock equivalents. The dilutive effect of stock options and other potentially dilutive common stock equivalents is determined using the treasury stock method based on UDR’s average stock price. The number of shares used to compute basic and dilutive earnings per share have been adjusted to reflect the Special Dividend.

42

The following table sets forth the computation of basic and diluted earning per share (dollars in thousands, except per share amounts):

	Years Ended December 31,
	2008			2007			2006
Numerator for earnings per share — basic and diluted:
Net earnings attributable to common stockholders	$	688,709		$	198,958		$	109,738
Denominator for earnings per share — basic and diluted:
Weighted average common shares outstanding		142,222			146,036			145,652
Non-vested restricted stock awards		(1,240	)		(944	)		(867	)
Denominator for basic and diluted earnings per share		140,982			145,092			144,785
Earnings per share — basic and diluted	$	4.89		$	1.37		$	0.76

The effect of the conversion of the operating partnership units, stock options, convertible preferred stock, and convertible debt, is not dilutive and is therefore not included in the above calculations.

If the operating partnership units were converted to common stock adjusted for the Special Dividend, the additional shares of common stock outstanding for the three years ended December 31, 2008, would be 9,474,668, 8,403,605 and 9,412,539 weighted average common shares, respectively.

At December 31, 2008, if the measurement period had ended on that date, no Series E Out-Performance Partnership Shares would have been issued had the Program terminated on that date. Accordingly, no additional operating partnership units would have been issued at that date and are not included in diluted earnings per share.

If the convertible preferred stock were converted to common stock, the additional shares of common stock outstanding for the years ended December 31, 2008, 2007 and 2006, would be 3,035,548 weighted average common shares.

Income taxes

UDR is operated as, and elects to be taxed as a REIT. Generally, a REIT complies with the provisions of the Code if it meets certain requirements concerning its income and assets, as well as if it distributes at least 90% of its REIT taxable income to its stockholders and will not be subject to U.S. federal income taxes if it distributes at least 100% of its income. Accordingly, no provision has been made for federal income taxes of the REIT. UDR is subject to certain state and local excise or franchise taxes, for which provision has been made. If we fail to qualify as a REIT in any taxable year, our taxable income will be subject to United States Federal income tax at regular corporate rates (including any applicable alternative minimum tax). Even if we qualify as a REIT, we may be subject to certain state and local income taxes and to United States Federal income tax. We also will be required to pay a 100% tax on non-arms length transactions between us and a taxable REIT subsidiary and on any net income from sales of property that the IRS successfully asserts was property held for sale to customers in the ordinary course.

UDR elected for certain consolidated subsidiaries to be treated as Taxable REIT Subsidiaries (“TRS”) relating to the Company’s developer, RE³ and condominium conversion activities. Income taxes for our TRS are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rate is recognized in earnings in the period of the enactment date.

43

Market concentration risk

Approximately 13.6% and 11.9% of our apartment communities are located in Orange County, CA and Metropolitan Washington, D.C., respectively, based on the carrying value of our real estate portfolio as of December 31, 2008. Therefore, the Company is subject to increased exposure (positive or negative) from economic and other competitive factors specific to those markets.

Impact of recently issued accounting pronouncements

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” (“SFAS 141R”). SFAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination, recognizing assets acquired and liabilities assumed arising from contingencies, and determining what information to disclose to enable users of the financial statement to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for fiscal years beginning after December 15, 2008. We believe that the adoption of SFAS 141R could materially impact our future consolidated financial position and results of operations depending on the Company’s acquisition activity as certain acquisition costs that have historically been capitalized as part of the basis of the real estate and amortized over the real estate’s useful life will now be expensed as incurred.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 requires enhanced disclosures related to derivatives and hedging activities. SFAS 161 will require disclosures relating to: (i) how and why an entity uses derivative instruments; (ii) how derivative instruments and related hedge items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”; and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 must be applied prospectively and will be effective for our fiscal year beginning January 1, 2009, although early adoption is allowed. We believe that the adoption of SFAS 161 will not have a material impact on our consolidated financial statements.

In May 2008, the FASB issued SFAS 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS 162 provides the framework for selecting the principles to be used in the preparation of financial statement in conformity with generally accepted accounting principles. SFAS 162 will become effective 60 days following the Securities and Exchange Commission’s approval. We believe that the adoption of SFAS 162 will not have a material impact on our consolidated financial statements.

2. 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 December 31, 2008, the Company owned and consolidated 161 communities in 10 states plus the District of Columbia totaling 44,388 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of December 31, 2008 and December 31, 2007 (dollar amounts in thousands):

	December 31,
	2008			2007
Land	$	1,567,737		$	1,143,516
Depreciable property — held and used
Building and improvements		3,859,245			2,871,763
Furniture, fixtures and equipment		217,948			171,081
Under development
Land		52,294			227,357
Construction in progress		134,529			117,374
Held for Sale
Land		—			235,344
Building and improvements		—			1,057,979
Furniture, fixtures and equipment		—			132,067
Investment in real estate		5,831,753			5,956,481
Accumulated depreciation		(1,078,689	)		(1,371,759	)
Investment in real estate, net	$	4,753,064		$	4,584,722

44

The following table summarizes the Company’s real estate community acquisitions for the year ended December 30, 2008 (dollar amounts in thousands):

					Purchase
Property Name	Market	Acquisition Date	Units		Price (a)
The Place at Millenia	Orlando, FL	January 2008		371	$	50,132
Dulaney Crescent	Baltimore, MD	March 2008		264		57,690
Delancey at Shirlington Village	Metro D.C.	March 2008		241		85,000
Edgewater	San Francisco, CA	March 2008		193		115,000
Circle Towers	Metro D.C.	March 2008		606		138,378	(b)
Legacy Village	Dallas, TX	March 2008		1,043		118,500
Pine Brook Village II	Orange County, CA	May 2008		296		87,320
Hearthstone at Merrill Creek	Seattle, WA	May 2008		220		38,000
Island Square	Seattle, WA	July 2008		235		112,202
Almaden Lake Village	San Francisco, CA	July 2008		250		47,270
Residences at the Domain	Austin, TX	August 2008		390		59,500
Waterford	Phoenix, AZ	August 2008		200		23,666
Vintage Lofts	Tampa, FL	August 2008		249		43,672	(c)
				4,558	$	976,330

(a)	The purchase price is the contractual amount paid by UDR to the seller and does not include any costs that the Company incurred as a result of the acquisition of the property.
(b)	The purchase price does not include the $5.9 million allocated to the commercial space acquired in the transaction.
(c)	This community was acquired by the Company while under development and is projected to be completed in the first quarter of 2009.

The Company also acquired a shopping center to be a cornerstone in a master development planned by the Company. The shopping center located in the Dallas, Texas market was purchased for $19.2 million, which included a $9.6 million note owed by the Company to the seller bearing interest at a rate of 5.0% per annum and due in November 2010.

The purchase prices of certain recent acquisitions were allocated to land; building and improvements; furniture, fixtures and equipment; and intangible assets based on preliminary estimates and are subject to change as we obtain more complete information.

The purchase of three of the communities during the year ended December 31, 2008 relate to the pre-sale agreements previously entered into by UDR, which contain provisions that will require the Company and the builder to jointly agree upon the fair market value of each property at a later point in time (generally within two years of stabilization). A percentage of the increase in the fair market value over cost will then be paid to the developer, ranging from 50% to 70%, which is not included in the initial purchase price listed in the table above nor is the contingent obligation accrued for by the Company.

The Company continued to reinvest proceeds from dispositions (see Note 3 — Discontinued Operations). As of December 31, 2008, the Company had entered into a binding agreement for one pre-sale 289 apartment unit real estate asset for $29.0 million.

During the year ended December 31, 2008, the Company terminated a pre-sale arrangement for a community located in Orlando, Florida. As a result of terminating the contract the Company incurred a write-off of $1.7 million.

3. DISCONTINUED OPERATIONS

The results of operations for properties sold during the year or designated as held-for-sale at the end of the year are classified as discontinued operations for all periods presented. Properties classified as real estate held for disposition generally represent properties that are actively marketed or contracted for sale which are expected to close within the next twelve months. The application of SFAS 144 does not have an impact on net income available to common stockholders. The application of SFAS 144 results in the reclassification of the operating results of all properties sold or classified as held for disposition through December 31, 2008, within the Consolidated Statements of Operations for the years ended December 31, 2008, 2007, and 2006, and the reclassification of the assets and liabilities within the Consolidated Balance Sheets as of December 31, 2008 and 2007, if applicable.

45

For the year ended December 31, 2008, UDR sold 86 communities, one commercial property, one parcel of land, and 53 condominiums from two communities with a total of 640 condominiums. UDR recognized after-tax gains for financial reporting purposes of $786.4 million on these sales. At December 31, 2008, UDR did not have any assets that met the criteria to be included in discontinued operations. In conjunction with the sale of the 86 communities during 2008, UDR received a note in the amount of $200 million. The note which is secured by a pledge, security agreement and a guarantee from the buyer’s parent entity bears a fixed rate of interest of 7.5% per annum and matures on March 31, 2014, provided however that the master credit facility agreement pursuant to which the buyer financed the acquisition of the properties provides that the buyer will pay or prepay the note on or before the date that is fourteen (14) months after the Initial Closing Date (May 3, 2009) and further that it is an event of default under the master credit facility agreement if the note is not paid in full by June 1, 2009.

For the year ended December 31, 2007, UDR sold 21 communities, 61 condominiums from two communities with a total of 640 condominiums, and one parcel of land. UDR recognized after-tax gains for financial reporting purposes of $239.1 million on these sales, of which $125.3 million are included in discontinued operations. The remaining $113.8 million of gains recognized, related to the sale of nine additional communities and the contribution of one development property, at cost, to a joint venture in which UDR holds a 20% interest, and is reported as a component of continuing operations as disclosed in Note 4 — Joint Ventures. At December 31, 2007, UDR had 86 communities with a net book value of $885.5 million, two communities with a total of 579 condominiums and a net book value of $40.8 million, and one commercial unit with a net book value of $0.4 million included in real estate held for disposition.

During 2006, UDR sold 24 communities and 384 condominiums from four communities with a total of 612 condominiums. We recognized gains for financial reporting purposes of $140.3 million on these sales. Previously deferred gains for financial reporting purposes of $6.4 million were recognized during the year ended December 31, 2006. The results of operations for these properties and the interest expense associated with the secured debt on these properties are classified on the Consolidated Statements of Operations in the line item entitled “Income from discontinued operations.”

The following is a summary of income from discontinued operations for the years ended December 31, (dollars in thousands):

	December 31,
	2008			2007		2006
Rental income	$	39,597		$	237,188	$	269,403
Non-property income		183			1		5
		39,780			237,189		269,408
Rental expenses		14,644			91,123		111,198
Property management fee		1,089			6,523		7,409
Real estate depreciation		—			65,972		78,390
Interest		2,612			16,259		2,108
Other expenses		6			511		532
		18,351			180,388		199,637
Income before net gain on the sale of depreciable property and minority interests		21,429			56,801		69,771
Net gain on the sale of depreciable property, excluding RE3		787,058			117,468		120,013
RE3 (loss)/gain on sale of real estate, net of tax		(877	)		7,801		20,333
Income from discontinued operations	$	807,610		$	182,070	$	210,117

46

The Company in the fourth quarter of 2008 made the strategic decision to exit our activity related to the conversion and sale of condominium units. As a result of our decision, the Company incurred a charge to earnings of $1.7 million. The unsold units will be reverted to operating apartment homes. In addition, as the Company reverted the former condominium properties to operating communities and removed operating results from discontinued operations to continuing operations. Previously unrecorded depreciation of $3.7 million was recorded during the year ended December 31, 2008.

4. JOINT VENTURES

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

UDR’s joint ventures, some of which are variable interest entities, are funded with a combination of debt and capital. The allocation between debt and capital will vary by joint venture with our investments having a weighted average of 11% of the initial total assets as contributed capital. Our losses are limited to our investment and the Company does not guarantee any debt, capital payout or other obligations associated with our joint venture portfolio.

Consolidated Joint Venture

During 2008, we completed the development of a consolidated joint venture located in Marina del Rey, CA with 298 apartment homes and a carrying value of $139.3 million, which is currently in lease-up. In December 2008, we acquired for $1.5 million our joint venture partner’s interest in their profit participation and terminated the property management agreement that had approximately two years remaining on the pre-existing contract. As a result of terminating our arrangement, the Company recorded a charge to earnings of $305,000 as the profit component related to the management agreement and capitalized the balance as part of the investment in real estate. The component capitalized as the investment in real estate will be depreciated over the average remaining life of the tangible assets. As of December 31, 2008, the Company included this property as a component of our wholly-owned communities.

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 earn fees for providing management and development services to the unconsolidated joint ventures. As of December 31, 2008, UDR had investments in the following unconsolidated development joint ventures which are accounted for under the equity method of accounting.

UDR is a partner in a joint venture to develop a site in Bellevue, Washington. At closing, we owned 49% of the joint venture which the Company proposes to develop that involves building a 430 home high rise apartment building with ground floor retail. Our initial investment was $5.7 million. The project is currently ongoing and will commence construction once favorable financing has been obtained. Our investment at December 31, 2008 and December 31, 2007 was $10.2 million and $8.1 million, respectively.

UDR is a partner in a joint venture which will develop 274 apartment homes in the central business district of Bellevue, Washington. Construction began in the fourth quarter of 2006 and is scheduled for completion in the third quarter of 2009. At closing, we owned 49% of the joint venture. Our initial investment was $10.0 million. Our investment at December 31, 2008 and December 31, 2007 was $9.9 million and $8.9 million, respectively.

UDR is a partner with an unaffiliated third party in a joint venture which owns and operates a recently completed 23-story, 166 home high-rise apartment community in the central business district of Bellevue, Washington. At closing, UDR owned 49% of the joint venture. Our initial investment was $11.8 million. Our investment at December 31, 2008 and December 31, 2007 was $10.4 million and $11.2 million, respectively.

47

UDR and an unaffiliated third party in November 2007 formed a joint venture which owns and operates various properties located in Texas. On the closing date, UDR sold nine operating properties, consisting of 3,690 units, and contributed one property under development to the joint venture. The property under development has 302 units and was completed in 2008 and commenced lease up at that time. UDR contributed cash and property equal to 20% of the fair value of the properties. The unaffiliated member contributed cash equal to 80% of the fair value of the properties comprising the joint venture, which was then used to purchase the nine operating properties from UDR. Our initial investment was $20.4 million. Our investment at December 31, 2008 and December 31, 2007 was $16.5 million and $20.1 million, respectively. In addition, during the year ended December 30, 2008 UDR received payment in full for a note receivable of $18.8 million from the joint venture.

The operating results of the properties sold to the Texas joint venture are included as a component of continuing operations on the Consolidated Statement of Operations as UDR will continue to recognize significant cash flows from management fees over the term of the joint venture.

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

	Year Ended December 31,
	2008			2007			2006
For the year ended:
Revenues	$	43,486		$	9,495		$	—
Real estate depreciation and amortization		22,509			4,671			—
Net loss		(18,167	)		(3,532	)		—

Combined summary balance sheets relating to 100% of all the unconsolidated joint ventures (not just our proportionate share) is presented below for the years ended December 31, (dollars in thousands):

	2008		2007
Real estate	$	544,541	$	480,374
Total assets		534,751		494,015
Amount due to UDR		3,898		9,813
Third party debt		373,353		314,673
Total liabilities		397,135		338,851
Equity		137,620		155,164

As of December 31, 2008, 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 $5.1 million of management fees for our involvement in the joint ventures.

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

48

5. SECURED DEBT

Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon payments due at maturity. For purposes of classification in the following table, variable rate debt with a derivative financial instrument designated as a cash flow hedge is deemed as fixed rate debt due to the Company having effectively established the interest rate for the underlying debt instrument. Secured debt on continuing and discontinued operations, which encumbers $2.1 billion or 37% of UDR’s real estate owned based upon book value ($3.7 billion or 63% of UDR’s real estate owned is unencumbered) consists of the following as of December 31, 2008 (dollars in thousands):

					2008
	Principal Outstanding				Weighted			Weighted		Number of
	December 31				Average			Average		Communities
	2008		2007		Interest Rate			Years to Maturity		Encumbered
Fixed Rate Debt
Mortgage notes payable	$	476,810	$	324,059		5.03	%		2.9		18
Tax-exempt secured notes payable		13,325		18,230		5.30	%		22.2		1
Fannie Mae credit facilities		666,642		583,071		5.52	%		7.0		26
Total fixed rate secured debt		1,156,777		925,360		5.32	%		5.5		45
Variable Rate Debt
Mortgage notes payable		114,181		124,023		3.34	%		3.5		7
Tax-exempt secured note payable		27,000		7,770		1.95	%		21.2		1
Fannie Mae credit facilities		164,513		80,783		3.08	%		5.2		8
Total variable rate secured debt		305,694		212,576		3.08	%		6.0		16
Total secured debt	$	1,462,471	$	1,137,936		4.85	%		5.6		61

UDR entered into secured revolving credit facilities with Fannie Mae with an aggregate commitment of $1.0 billion at December 31, 2008. 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 $666.6 million of the funded balance fixed at a weighted average interest rate of 5.5% and the remaining balance on these facilities is currently at a weighted average variable rate of 3.1%.

	December 31, 2008			December 31, 2007
Borrowings outstanding at end of year	$	831,155		$	663,854
Weighted average daily borrowings during the year ended		702,620			686,556
Maximum daily borrowings during the year ended		831,370			741,185
Weighted average interest rate during the year ended		5.5	%		5.9	%
Weighted average interest rate at the end of the year		5.0	%		5.8	%

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 an asset of $763,000 and a liability of $1.6 million at December 31, 2008 and December 31, 2007, respectively.

Fixed Rate Debt

Mortgage notes payable. Fixed rate mortgage notes payable are generally due in monthly installments of principal and interest and mature at various dates from February 2009 through June 2016 and carry interest rates ranging from 3.36% to 8.18%. Mortgage notes payable includes debt associated with development activities.

49

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 December 31, 2008, UDR’s fixed rate secured credit facilities consisted of $666.6 million on a $1.0 billion aggregate commitment under four revolving secured credit facilities with Fannie Mae (the Company also owes $164.5 million under the variable rate component of this instrument). 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 December 31, 2008, the fixed rate Fannie Mae credit facilities had a weighted average fixed rate of interest of 5.5%.

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 October 2009 through December 2015. The mortgage notes payable is based on LIBOR plus some basis points, which translate into interest rates ranging from 2.45% to 4.08% at December 31, 2008. The Company has the ability under the debt instrument maturing in October 2009 to exercise contractually provided extensions (two one-year extensions) on the outstanding balance of $110.3 million.

Tax-exempt secured note payable. The variable rate mortgage note payable that secures tax-exempt housing bond issues matures in March 2030. Interest on this note is payable in monthly installments. The mortgage notes payable has an interest rate of 1.95% as of December 31, 2008.

Secured credit facilities. The variable rate secured credit facilities consisted of $164.5 million outstanding on the Fannie Mae credit facilities. As of December 31, 2008, the variable rate Fannie Mae credit facilities had a weighted average floating rate of interest of 3.08%.

The aggregate maturities 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		Facilities		Notes		Notes		Facilities		Total
2009	$	138,235	$	—	$	2,507	$	5,318	$	—	$	—	$	146,060
2010		91,157		—		2,654		18,146		—		—		111,957
2011		58,925		—		52,808		35,802		—		39,513		187,048
2012		56,795		—		177,944		—		—		60,000		294,739
2013		61,386		—		38,631		37,415		—		—		137,432
Thereafter		70,312		13,325		392,098		17,500		27,000		65,000		585,235
	$	476,810	$	13,325	$	666,642	$	114,181	$	27,000	$	164,513	$	1,462,471

50

6. UNSECURED DEBT

A summary of unsecured debt as of December 31, 2008 and 2007 is as follows (dollars in thousands):

	December 31,
	2008		2007
Commercial Banks
Borrowings outstanding under an unsecured credit facility due July 2012 (a)	$	—	$	309,500
Borrowings outstanding under an unsecured term loan due February 2010 (b)		240,000		—
		240,000		309,500
Senior Unsecured Notes
4.50% Medium-Term Notes due March 2008		—		200,000
8.50% Monthly Income Notes due November 2008		—		29,081
4.25% Medium-Term Notes due January 2009		50,000		50,000
6.50% Notes due June 2009		200,000		200,000
3.90% Medium-Term Notes due March 2010 (includes premium of $190 and $344)		50,190		50,344
3.625% Convertible Senior Notes due September 2011 (net of APB 14-1 discount of $7,080 and $14,032) (c),(d)		164,255		235,968
5.00% Medium-Term Notes due January 2012		100,000		100,000
6.05% Medium-Term Notes due June 2013		125,000		125,000
5.13% Medium-Term Notes due January 2014 (d)		184,000		200,000
5.50% Medium-Term Notes due April 2014 (net of discount of $363 and $504) (d)		128,137		149,496
5.25% Medium-Term Notes due January 2015 (includes premium of $212 and $343) (d)		175,387		250,343
5.25% Medium-Term Notes due January 2016 (d)		83,260		100,000
8.50% Debentures due September 2024		54,118		54,118
4.00% Convertible Senior Notes due December 2035 (net of APB 14-1 discount of $5,834 and $8,813) (e)		244,166		241,187
Other		149		158
		1,558,662		1,985,695
Unsecured Notes —
ABAG Tax-Exempt Bonds due August 2008		—		46,700
	$	1,798,662	$	2,341,895

(a)

Our unsecured credit facility provides us with an aggregate borrowing capacity of $600 million, which at our election we can increase to $750 million under certain circumstances. Our unsecured credit facility held by a syndicate of financial institutions carries an interest rate equal to LIBOR plus a spread of 47.5 basis points and matures on July 26, 2012. 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)

During the year ended December 31, 2008, UDR borrowed $240 million in the form of a two-year unsecured term loan from a consortium of banks. UDR entered into one interest rate swap agreement associated with the borrowings under the term loan with an aggregate notional value of $200 million in which the Company pays a fixed rate of interest and receives a variable rate of interest on the notional amount. The interest rate swap effectively changes UDR’s interest rate exposure on $200 million of these borrowings from a variable rate to a weighted average fixed rate of approximately 3.61%. The remaining $40 million has a variable interest rate, which was 2.77% at December 31, 2008.

51

(c)	At any time on or after July 15, 2011, prior to the close of business on the second business day prior to September 15, 2011, and also following the occurrence of certain events, the notes will be convertible at the option of the holder. 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 is 26.6326 shares of our common stock, subject to adjustment under certain circumstances. The Company’s Special Dividend met the criteria to adjust the conversion rate and will result in an adjusted conversion rate of 29.0207 shares of our common stock for each $1,000 of principal. In connection with the issuance of the 3.625% convertible senior notes, UDR entered into a capped call transaction with respect to its common stock. The convertible note and capped call transaction, both of which expire September 2011, must be net share settled. The maximum number of shares to be issued under the convertible notes is 6.7 million shares, subject to certain adjustment provisions. 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. These transactions have no effect on the terms of the 3.625% convertible senior notes by effectively increasing the initial conversion price to $43.806 per share, representing a 40% conversion premium. The net cost of $12.6 million of the capped call transaction was included in stockholders’ equity.
(d)	During the year ended December 31, 2008, the Company repurchased several different traunches of our own unsecured debt in the marketplace. As a result of these transactions, we retired debt with a notional value of $207.7 million for $176.2 million of cash. The gain of $26.3 million is presented as a separate component of interest expense on our Consolidated Statement of Operations. Consistent with our accounting policy, the Company expensed $1.9 million of unamortized financing costs and $3.3 million of unamortized premium on convertible debt as a result of these debt retirements.
(e)	The debt holders at their discretion have the ability to convert the notes on January 15, 2011, December 15, 2015, December 15, 2020, December 15, 2025 and December 15, 2030 into cash, and in certain circumstances, shares of UDR’s common stock at an initial conversion price of approximately 35.2988 shares per $1,000 principal, subject to adjustment in certain circumstances. The Company’s Special Dividend met the criteria to adjust the conversion rate and will result in an adjusted conversion rate of 38.7123 shares of our common stock for each $1,000 of principal. The Company has at our discretion after providing adequate notification, the ability to redeem the instrument subsequent to January 15, 2011 for cash, and in certain instances shares of UDR’s common stock.

In May 2008, the Financial Accounting Standards Board (FASB) affirmed the consensus of APB 14-1, “Accounting for Convertible Debt instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement),” which 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. APB 14-1 requires issuers of convertible debt instruments that may be settled wholly or partially in cash upon conversion to separately account for the liability and equity components in a manner reflective of the issuers’ nonconvertible debt borrowing rate. The Company adopted FSP APB 14-1 as of January 1, 2009, and the adoption impacted the historical accounting for the 3.625% convertible senior notes due September 2011 and the 4.00% convertible senior notes due December 2035, and resulted in increased interest expense of $9.8 million, $6.6 million and $3.7 million for the years ended December 31, 2008, 2007 and 2008, respectively.

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

	December 31,
	2008			2007
Total revolving credit facility	$	600,000		$	600,000
Borrowings outstanding at end of year		—			309,500
Weighted average daily borrowings during the year ended		84,566			222,216
Maximum daily borrowings during the year ended		587,400			408,400
Weighted average interest rate during the year ended		4.1	%		5.6	%
Weighted average interest rate at the end of the year		N/A			5.4	%

52

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 December 31, 2008 are as follows (dollars in thousands):

	Credit		Unsecured
	Facility		Debt		Total
2009	$	—	$	250,128	$	250,128
2010		—		290,014		290,014
2011 (a)		—		408,397		408,397
2012		—		99,976		99,976
2013		—		124,976		124,976
Thereafter		—		625,171		625,171
	$	—	$	1,798,662	$	1,798,662

(a) The convertible debt balances have been adjusted to reflect the effect of APB 14-1. Excluding the adjustment, the total maturities in 2011 would be $421.3 million.

7. STOCKHOLDERS’ EQUITY

UDR has an effective registration statement that allows the Company to sell an undetermined number of debt and equity securities as defined in the prospectus. The Company has the ability to issue 250,000,000 shares of common stock and 50,000,000 shares of preferred shares as of December 31, 2008.

During the year ended December 31, 2008, the Company entered into the following equity transactions for our common stock, adjusted for the Special Dividend:

• Issued 8,661,201 shares of common stock (8,000,000 shares of common stock on an unadjusted basis) in connection with an equity offering where we received gross proceeds of $194.0 million;

• Issued 238,544 shares of common stock (220,333 shares of common stock on an unadjusted basis) in connection with stock options exercised;

• Issued 444,106 shares of common stock (410,203 shares of common stock on an unadjusted basis) through the Company’s 1999 Long-Term Incentive Plan (the “LTIP”), net of forfeitures;

• Converted 1,596,402 OP Units into Company common stock (1,474,531 shares of common stock on an unadjusted basis); and

• Repurchased 6,495,576 shares of common stock (5,999,700 shares of common stock on an unadjusted basis) through the Company’s stock repurchase program.

Distributions are subject to the approval of the Board of Directors and are dependent upon our strategy, financial condition and operating results. UDR distributions, inclusive and adjusted for the Special Dividend for the years ended December 31, 2008 and 2007 totaled $2.11 and $1.22 per share ($2.28 and $1.32 per share on an unadjusted basis), respectively. For taxable years ending on or before December 31, 2009, the IRS is allowing REITS to distribute up to 90% of total distributions in common shares with the residual distributed in cash as a means of enhancing liquidity.

Preferred Stock

The Series E Cumulative Convertible Preferred Stock (Series E) has no stated par value and a liquidation preference of $16.61 per share. Subject to certain adjustments and conditions, each share of the Series E is convertible at any time and from time to time at the holder’s option into one share of our common stock. The holders of the Series E are entitled to vote on an as-converted basis as a single class in combination with the holders of common stock at any meeting of our stockholders for the election of directors or for any other purpose on which the holders of common stock are entitled to vote. The Series E has no stated maturity and is not subject to any sinking fund or any mandatory redemption. In connection with the Special Dividend, the Company reserved for issuance upon conversion of the Series E additional shares of common stock to which a holder of the Series E would have received if the holder had converted the Series E immediately prior to the record date for the Special Dividend.

53

Distributions declared on the Series E in for the year ended December 31, 2008 and 2007 were $1.33 and $1.33 per share, respectively. The Series E is not listed on any exchange. At December 31, 2008 and 2007, a total of 2,803,812 shares of the Series E were outstanding, respectively. As a result of the Special Dividend the Series E shares can convert into 3,035,548 shares of Company common stock.

UDR is authorized to issue up to 20,000,000 shares of our Series F Preferred Stock (Series F). The Series F may be purchased by holders of UDR’s operating partnership units, or OP Units, at a purchase price of $0.0001 per share. OP Unitholders are entitled to subscribe for and purchase one share of UDR’s Series F for each OP Unit held. At December 31, 2008 and 2007, a total of 666,293 shares of the Series F were outstanding at a value of $67. Holders of the Series F are entitled to one vote for each share of the Series F they hold, voting together with the holders of our common stock, on each matter submitted to a vote of security holders at a meeting of our stockholders. The Series F does not entitle its holders to any other rights, privileges or preferences.

In May 2007, UDR issued 5,400,000 shares of our 6.75% Series G Cumulative Redeemable Preferred Stock (Series G). The Series G has no stated par value and a liquidation preference of $25 per share. The Series G generally has no voting rights except under certain limited circumstances and as required by law. The Series G has no stated maturity and is not subject to any sinking fund or mandatory redemption and is not convertible into any of our other securities. The Series G is not redeemable prior to May 31, 2012. On or after this date, the Series G may be redeemed for cash at our option, in whole or in part, at a redemption price of $25 per share plus accrued and unpaid dividends. During the year ended December 31, 2008, the Company redeemed 969,300 shares of Series G for less than the liquidation preference of $25 per share resulting in a $3.1 million benefit to our net income available to common stockholders.

Distributions declared on the Series G for the year ended December 31, 2008 and 2007 were $1.69 and $1.13 per share, respectively. The Series G is listed on the NYSE under the symbol “UDRPrG.” At December 31, 2008 and 2007, a total of 4,430,700 and 5,400,000 shares of the Series G were outstanding, respectively.

In May 2007, UDR completed the redemption of all of its outstanding 8.60% Series B Cumulative Redeemable Preferred Stock at $25 per share plus accrued and unpaid dividends using the net proceeds from the Series G Cumulative Redeemable Preferred Stock offering. Distributions declared on the Series B in 2007 were $1.07 per share.

Dividend Reinvestment and Stock Purchase Plan

UDR’s Dividend Reinvestment and Stock Purchase Plan (the “Stock Purchase Plan”) allows common and preferred stockholders the opportunity to purchase, through the reinvestment of cash dividends, additional shares of UDR’s common stock. From inception through December 31, 2008, shareholders have elected to utilize the Stock Purchase Plan to reinvest their dividends for the equivalent of 10,780,198 shares of Company common stock adjusted for the Special Dividend. Shares in the amount of 14,219,802 were reserved for issuance under the Stock Purchase Plan as of December 31, 2008. During the year ended December 31, 2008, UDR acquired all shares issued through the open market.

Shareholder Rights Plan

UDR’s First Amended and Restated Rights Agreement was intended to protect long-term interests of stockholders in the event of an unsolicited, coercive or unfair attempt to take over UDR. The Plan authorized a dividend of one Preferred Share Purchase Right (the “Rights”) on each share of common stock outstanding. Each Right entitled the holder to purchase 1/1000 of a share of a new series of UDR’s preferred stock, designated as Series C Junior Participating Cumulative Preferred Stock, at a price to be determined upon the occurrence of the event, and for which the holder must be paid $45 should the takeover occur. Under the Plan, the Rights were exercisable if a person or group acquired more than 15% of UDR’s common stock or announced a tender offer that would result in the ownership of 15% of UDR’s common stock. The Plan and the Rights expired on February 4, 2008.

54

8. EMPLOYEE BENEFIT PLANS

In May 2001, the stockholders of UDR approved the long term incentive plan (“LTIP”), which supersedes the 1985 Stock Option Plan. The LTIP authorizes the granting of awards which may take the form of options to purchase shares of common stock, stock appreciation rights, restricted stock, dividend equivalents, other stock-based awards, and any other right or interest relating to common stock or cash incentive awards to Company directors, employees and outside trustees to promote the success of the Company by linking individual’s compensation via grants of share based payment. The Board of Directors reserved 4,000,000 shares on an unadjusted basis for issuance upon the grant or exercise of awards under the LTIP, which all can be for incentive stock option grants. The LTIP generally provides, among other things, that options are granted at exercise prices not lower than the market value of the shares on the date of grant and that options granted must be exercised within 10 years. As of December 31, 2008, there were 1,373,994 common shares available for issuance under the LTIP.

The LTIP contains change of control provisions allowing for the immediate vesting of an award upon certain events such as a merger where UDR is not the surviving entity. Upon the death or disability of an award recipient all outstanding instruments will vest and all restrictions will lapse. Further, upon the retirement of an award, all outstanding instruments will vest and all restrictions will lapse. The LTIP specifies that in the event of a capital transaction, which includes but is not limited to stock dividends, stock split, extraordinary cash dividend and spin-off the number of shares available for grant in totality or to a single individual is to be adjusted proportionately. The LTIP specifies that when a capital transaction occurs that would dilute the holder of the stock award, prior grants are to be adjusted such that the recipient is no worse as a result of the capital transaction.

Stock Option Plan

UDR has granted stock options to our employees, subject to certain conditions. Each stock option is exercisable into one common share.

A summary of UDR’s stock option activity on an unadjusted basis during the three years ended December 31, 2008 is as follows:

	Option Outstanding					Option Exercisable
				Weighted				Weighted
				Average				Average
	Number of			Exercise		Number of		Exercise
	Options			Price		Options		Price
Balance, January 1, 2006		1,642,223		$	11.84
Exercised		(315,333	)		13.52
Forfeited		(27,500	)		11.47
Balance, December 31, 2006		1,299,390		$	11.44		1,299,390	$	11.44
Exercised		(213,731	)		12.25
Forfeited		(7,000	)		12.76
Balance, December 31, 2007		1,078,659		$	11.25		1,078,659	$	11.25
Granted		465,841			26.55
Exercised		(220,333	)		10.67
Forfeited		—			—
Balance, December 31, 2008		1,324,167		$	16.73		1,124,167	$	15.01

The weighted-average grant date fair value of options granted during the year ended December 31, 2008 was estimated at $1.73 per share. Utilizing the Black-Scholes-Merten option pricing model, the Company used the following assumptions: dividend yield of 5.3%, volatility of 23.8%, risk-free interest rate of 2.5% and an expected life of approximately 4.5 years. Total remaining compensation cost related to unvested share options as of December 31, 2008 was approximately $274,000.

The weighted average remaining contractual life on all options outstanding as of December 31, 2008 is 3.5 years. 245,611 of share options had exercise prices between $9.63 and $10.88, 523,296 of share options had exercise prices between $11.15 and $12.23, 89,419 of share options had exercise prices between $13.94 and $14.88 and 465,841 of share options had exercise prices between $26.40 and $27.17.

During the year ended December 31, 2008 we recognized $372,000 of net compensation expense related to our stock option grants.

55

Restricted Stock Awards

Restricted stock is granted to Company employees, officers, consultants, and directors. The restricted stock is valued on the grant date based upon the market price of UDR common stock on the date of grant. Compensation expense is recorded over the vesting period, which is generally three to four years. Restricted stock earn dividends payable in cash until the earlier of the date of the underlying restricted stock is exercised or the expiration of the underlying restricted stock award. Some of the restricted stock is performance based and is adjusted based on Company performance. For the years ended December 31, 2008, 2007 and 2006, we recognized $7.0 million, $6.1 million, and $4.5 million, respectively, of compensation expense related to the amortization of restricted stock, respectively. As of December 31, 2008, the Company had issued 1,600,807 shares of restricted stock under the LTIP. Total remaining compensation cost related to unvested restricted stock awards as of December 31, 2008 was $8.8 million.

Profit Sharing Plan

Our profit sharing plan (the “Plan”) is a defined contribution plan covering all eligible full-time employees. Under the Plan, UDR makes discretionary profit sharing and matching contributions to the Plan as determined by the Compensation Committee of the Board of Directors. Aggregate provisions for contributions, both matching and discretionary, which are included in UDR’s Consolidated Statements of Operations for the three years ended December 31, 2008, 2007, and 2006 were $0.9 million, $0.8 million, and $0.7 million, respectively.

9. INCOME TAXES

For 2008, 2007, and 2006, UDR believes that we have complied with the REIT requirements specified in the Code. As such the REIT would generally not be subject to federal income taxes.

The following table reconciles UDR’s net income to REIT taxable income for the three years ended December 31, 2008 (dollars in thousands):

	December 31,
	2008			2007			2006
GAAP net income	$	743,868		$	226,730		$	132,345
Book to tax differences
Elimination of TRS income		44,436			13,284			(6,955	)
Non-controlling interest		(8,714	)		(15,977	)		(11,682	)
Depreciation and amortization expense		52,662			18,539			66,754
Disposition of properties		(449,598	)		(52,192	)		47,168
Revenue recognition timing differences		(1,897	)		(2,439	)		(1,249	)
Compensation related differences		(1,666	)		(1,804	)		(3,264	)
Other expense timing differences		(9,443	)		7,125			5,516
Net operating loss		(3,925	)		(3,925	)		(47,522	)
REIT taxable income before dividends	$	365,723		$	189,341		$	181,111
Dividend paid deduction	$	365,723		$	189,341		$	181,111

56

For income tax purposes, distributions paid to common stockholders may consist of ordinary income, qualified dividends, capital gains, unrecaptured section 1250 gains, return of capital, or a combination thereof. Distributions that exceed our current and accumulated earnings and profits constitute a return of capital rather than taxable income and reduce the stockholder’s basis in their common shares. To the extent that a distribution exceeds both current and accumulated earnings and profits and the stockholder’s basis in the common shares, it generally will be treated as a gain from the sale or exchange of that stockholder’s common shares. For the three years ended December 31, 2008, taxable distributions paid per common share were taxable as follows:

	Adjusted for the Special Dividend						Unadjusted for the Special Dividend
	December 31,						December 31,
	2008		2007		2006		2008		2007		2006
Ordinary income	$	0.18	$	0.19	$	0.44	$	0.20	$	0.20	$	0.48
Long-term capital gain		1.67		0.79		0.42		1.82		0.84		0.46
Unrecaptured section 1250 gain		0.54		0.24		0.28		0.59		0.26		0.30
	$	2.39	$	1.22	$	1.14	$	2.61	$	1.30	$	1.24

We have TRSs that are subject to state and federal income taxes. A TRS is a C-corporation which has not elected REIT status and as such is subject to United States Federal and state income tax. The components of the provision for income taxes for the three years ended December 31, 2008 are as follows (dollars in thousands):

	December 31,
	2008			2007			2006
Income tax (benefit)/expense
Current
Federal	$	2,421		$	(6,749	)	$	4,596
State		(1,873	)		(832	)		937
Total current		548			(7,581	)		5,533
Deferred
Federal		(10,504	)		(908	)		(561	)
State		83			(111	)		(119	)
Total deferred		(10,421	)		(1,019	)		(680	)
Total income tax (benefit)/expense	$	(9,873	)	$	(8,600	)	$	4,853

57

Deferred income taxes are provided for the change in temporary differences between the basis of certain assets and liabilities for financial reporting purposes and income tax reporting purposes. The expected future tax rates are based upon enacted tax laws. The components of our TRSs deferred tax assets and liabilities are as follows for the three years ended December 31, 2008 (dollars in thousands):

	December 31,
	2008			2007			2006
Deferred tax assets:
Federal and state tax attributes	$	21,123		$	380		$	—
Book/tax depreciation		3,851			593			550
Construction capitalization differences		468			605			—
Debt and interest deductions		12,262			—			—
Other		270			124			254
Total deferred tax assets		37,974			1,702			804
Valuation allowance		(15,304	)		—			—
Net deferred income tax assets		22,670			1,702			804
Deferred tax liabilities
Investment in partnerships		(177	)		(35	)		—
Other		(1,149	)		(281	)		(437	)
Total deferred tax liabilities		(1,326	)		(316	)		(437	)
Net deferred tax asset	$	21,344		$	1,386		$	367

Income tax (benefit) or expense differed from the amounts computed by applying the U.S. statutory rate of 35% to pretax income or (loss) for the three years ended December 31, 2008, as follows (dollars in thousands):

	December 31,
	2008			2007			2006
Income tax (benefit)/expense
U.S. federal income tax (benefit)/expense	$	(19,019	)	$	(7,659	)	$	4,134
State income tax (net of federal benefit)		(1,991	)		(943	)		818
Valuation allowance		11,136			—			—
Other items		1			2			(99	)
Total income tax (benefit)/expense	$	(9,873	)	$	(8,600	)	$	4,853
Classification of income tax (benefit)/expense
Continuing operations	$	(9,713	)	$	(17,110	)	$	(8,268	)
Discontinued operations		(160	)		8,510			13,121

As of December 31, 2008, the Company through our TRSs had federal net loss carryovers (“NOL”) of approximately $48.5 million. Of the total NOL, $34.3 million ($12.0 million tax effected) will be carried back to previous years with the balance of $14.2 million expiring in 2028. As of December 31, 2008, the TRSs had state NOL of approximately $62.3 million, of which approximately $1.8 million begins to expire in 2012 with the remainder expiring in 2022 through 2028. As of December 31, 2008, the Company had a valuation allowance of $15.3 million for deferred tax assets primarily related to certain inter-Company debt and interest deductions.

58

UDR adopted the Financial Accounting Standards Board (“FASB”) Interpretation 48, “Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109” (“FIN 48”), on January 1, 2007. FIN 48 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. FIN 48 requires the financial statements reflect expected future tax consequences of income tax positions presuming the taxing authorities’ full knowledge of the tax position and all relevant facts, but without considering time values. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition.

The Company evaluates our tax position 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 of the benefit that is more likely than not to be realized upon ultimate settlement. When applicable, UDR recognizes interest and/or penalties related to uncertain tax positions in income tax expense. As of December 31, 2008, we reduced our recognized tax benefits under FIN 48 as a result of a change in measurement of certain items.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties is as follows (dollars in thousands):

	December 31,
	2008			2007			2006
Balance at beginning of year	$	415		$	538		$	—
Reductions for tax positions of prior years		(415	)		(123	)		—
Balance at end of year	$	—		$	415		$	—

The total amount of unrecognized tax benefits that, if recognized would affect the effective rate is $0. We do not currently believe the unrecognized tax benefits will change significantly within the next 12 months.

We recognize interest and penalties accrued related to unrecognized tax benefits as a component of the provision for income taxes. During the year ended December 31, 2008, the Company recognized $0 in interest and penalties. As of December 31, 2008 and 2007, UDR had $0 and $62,000 of interest and penalties accrued, respectively.

The Company files income tax returns in federal and various state jurisdictions. With few exceptions, the Company is no longer subject to federal, state and local income tax examination by tax authorities for years prior to 2005.

59

10. FINANCIAL INSTRUMENTS

Fair Value of Financial Instruments

At December 31, 2008 and 2007, the fair values of cash and cash equivalents, restricted cash, notes receivable, escrow 1031 exchange funds, accounts receivable, prepaids, real estate taxes payable, accrued interest payable, security deposits and prepaid rent, distributions payable and accounts payable approximated their carrying values because of the short term nature of these instruments. The estimated fair values of other financial instruments were determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company would realize on the disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts. The carrying amounts and estimated fair value of the Company’s financial instruments, where different, as of December 31, 2008 and 2007, are summarized as follows (dollars in thousands):

	December 31,
	2008						2007
	Carrying			Estimated			Carrying		Estimated
	Amounts			Fair Value			Amounts		Fair Value
Debt instruments
Secured debt	$	1,462,471		$	1,419,411		$	1,137,936	$	1,159,503
Unsecured debt		1,798,662			1,183,098			2,341,895		2,288,542
Derivative contracts
Interest rate swaps	$	(11,011	)	$	(11,011	)	$	—	$	—
Interest rate caps		62			62			—		—

Due to the terms of the notes receivables, the Company considered the note receivables to have a carrying amount equal to the estimated fair value. For the year ended December 31, 2008, the Company did not recognize an impairment on any of our notes receivable.

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

Derivative Instruments

The Company enters into interest rate swap and interest rate cap instruments as a means to mitigating exposure to the impact of interest rate fluctuation associated with our variable rate debt. In order to reduce the risk of our counterparty defaulting on our derivative instruments, the Company will only enter into contracts with major financial institutions that maintain investment grade status. We do not hold derivative instruments for trading or other speculative purposes

The Company accounts for its derivative instruments in accordance with SFAS No 133 “Accounting for Derivative Instruments and Hedging Activities” and SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” At December 31, 2008, UDR’s derivative financial instruments for our consolidated subsidiaries include swap agreements on eight interest rate hedges that we designate for hedge accounting, one interest rate cap that we designate for hedge accounting and four interest rate caps for which no designation was made. In addition, two of our unconsolidated joint ventures in which UDR has a 49% interest have a total of five interest rate swap agreements that are designated as cash flow hedges. In all cases the underlying debt instrument has a variable interest rate which the Company is attempting to fix or mitigate our exposure to interest rates rising about a pre-determined rate. These swaps and caps qualify for cash flow hedges for financial reporting purposes. For derivative instruments that we designated as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings during the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change.

60

The fair value of UDR’s derivative instruments is reported on the Consolidated Balance Sheet at its current fair value. Estimated fair values for interest rate swaps and interest rate caps rely on prevailing market interest rates. The fair value amount should not be viewed in isolation, but rather in relation to the value of the underlying hedged transaction and investment and to the overall reduction in exposure to adverse fluctuations in interest rates. The interest rate swap and interest rate cap agreements are designated with a portion of the principal balance and term of a specific debt obligation. The interest rate swap involves the periodic exchange of payments over the life of the related agreement. Amounts received or paid on the interest rate swap are recorded on an accrual basis as an adjustment to the related interest expense of the outstanding debt based on the accrual method of accounting. The related amounts payable to and receivable from counterparties are included in other liabilities and other assets, respectively.

The following table presents the fair value of UDR’s derivative financial instruments outstanding for the consolidated subsidiaries, based on external market quotations, as of December 31, 2008 (dollars in thousands):

					Carrying
			Earliest	Latest	and
	Notional		Maturity	Maturity	Estimated
	Amount		Date	Date	Fair Value
Cash flow hedges
Interest rate swaps	$	498,808	October 2009	December 2011	$	(11,011	)
Interest rate caps		197,666	April 2010	December 2012		62
Total cash flow hedges	$	696,474			$	(10,949	)

During the year ended December 31, 2008, UDR recognized $11.9 of unrealized losses on derivative financial instruments in other comprehensive income.

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

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

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

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

The Company’s’ derivative contracts are the only assets or liabilities that are measured and recognized at fair value using the SFAS 157 hierarchy. The derivative contracts use the Level 2 hierarchy and are recorded in “Other assets” and in “Accounts payable, accrued expenses and other liabilities” in the Consolidated Balance Sheet for $62,000 and $11.0 million, respectively as of December 31, 2008.

61

11. COMMITMENTS AND CONTINGENCIES

Commitments

Real Estate Under Development

The Company is committed to completing our real estate projects under development and our development joint ventures. The following summarizes the Company’s real estate commitments as of December 31, 2008 (dollars in thousands):

	December 31, 2008
	Number of		Costs Incurred		Expected Costs		Ownership
	Properties		to Date		to Complete		Stake
Wholly owned — under development		7	$	186,823	$	189,077		100	%
Joint ventures
Unconsolidated joint ventures (a)		1		43,128		5,872		49	%
			$	229,951	$	194,949

(a) Costs incurred to date and expected costs to complete are based on our 49% equity interest of the joint venture.

UDR has entered into a contract with a third party to purchase an apartment community upon completion of its development, which the Company will record at that time. Provided that the developer meet certain conditions, UDR will purchase this community for an aggregate of approximately $29.0 million. This apartment community is expected to be completed in the third quarter of 2009.

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

Ground and Other Leases

UDR owns six communities which are subject to ground leases expiring between 2019 and 2103. In addition, UDR is party to various operating leases related to office space rented by the Company with expiration dates though 2013. The leases are accounted for in accordance with SFAS 13. Future minimum lease payments as of December 31, 2008 are as follows (dollars in thousands):

	Ground		Office
	Leases (a)		Space
2009	$	4,520	$	1,264
2010		4,520		1,142
2011		4,520		836
2012		4,520		541
2013		4,520		252
Thereafter		293,702		—
	$	316,302	$	4,035

(a) For purposes of our ground lease contracts, the Company uses the minimum lease payment, if stated in the agreement. For ground lease agreements where there is a reset provision based on the communities appraised value or consumer price index but does not included a specified minimum lease payment, the Company uses the current rent over the remainder of the lease term.

UDR incurred $4.1 million, $1.4 million and $1.2 million of ground rent expense for the years ended December 31, 2008, 2007, and 2006, respectively. The Company incurred $1.4 million, $1.1 million and $703,000 of rent expense related to office space for the years ended December 31, 2008, 2007, and 2006, respectively.

62

Contingencies

Series C Out-Performance Program

In May 2005, the stockholders of UDR approved a new Out-Performance Program and the first series of new Out-Performance Partnership Shares under the program are the Series C Out-Performance Units (the “Series C Program”) pursuant to which certain executive officers and other key employees of UDR (the “Series C Participants”) were given the opportunity to invest indirectly in UDR by purchasing interests in UDR Out-Performance III, LLC, a Delaware limited liability company (the “Series C LLC”), the only asset of which is a special class of partnership units of the Operating Partnership (“Series C Out-Performance Partnership Shares” or “Series C OPPSs”). The purchase price for the Series C OPPSs was determined by the Compensation Committee of UDR’s Board of Directors to be $750,000, assuming 100% participation, and was based upon the advice of an independent valuation expert. UDR’s performance for the Series C Program was measured over the 36-month period from June 1, 2005 to May 30, 2008.

The Series C Program was designed to provide participants with the possibility of substantial returns on their investment if the cumulative total return on UDR’s common stock, as measured by the cumulative amount of dividends paid plus share price appreciation during the measurement period is at least the equivalent of a 36% total return, or 12% annualized (“Minimum Return”).

At the conclusion of the measurement period, if UDR’s cumulative total return satisfies these criteria, the Series C LLC as holder of the Series C OPPSs will receive (for the indirect benefit of the Series C Participants as holders of interests in the Series C LLC) distributions and allocations of income and loss from the Operating Partnership equal to the distributions and allocations that would be received on the number of OP Units obtained by:

i. determining the amount by which the cumulative total return of UDR’s common stock over the measurement period exceeds the Minimum Return (such excess being the “Excess Return”);

ii. multiplying 2% of the Excess Return by UDR’s market capitalization (defined as the average number of shares outstanding over the 36-month period, including common stock, common stock equivalents and OP Units); and

iii. dividing the number obtained in clause (ii) by the market value of one share of UDR’s common stock on the valuation date, computed as the volume-weighted average price per day of common stock for the 20 trading days immediately preceding the valuation date.

For the Series C OPPSs, the number determined pursuant to (ii) above is capped at 1% of market capitalization.

If, on the valuation date, the cumulative total return of UDR’s common stock does not meet the Minimum Return, then the Series C Participants will forfeit their entire initial investment.

At the conclusion of the measurement period, May 30, 2008, the total cumulative return on UDR’s common stock did not meet the minimum return threshold. As a result, there were no payouts under the Series C OPPSs program and the investment in the amount of $532,500 made by the holders of the Series C OPPSs was forfeited.

Series D Out-Performance Program

In February 2006, the Board of Directors of UDR approved the Series D Out-Performance Program (the “Series D Program”) pursuant to which certain executive officers of UDR (the “Series D Participants”) were given the opportunity to invest indirectly in UDR by purchasing interests in UDR Out-Performance IV, LLC, a Delaware limited liability company (the “Series D LLC”), the only asset of which is a special class of partnership units of the Operating Partnership (“Series D Out-Performance Partnership Shares” or “Series D OPPSs”). The Series D Program is part of the New Out-Performance Program approved by UDR’s stockholders in May 2005. The Series D LLC has agreed to sell 830,000 membership units unadjusted for the Special Dividend to certain members of UDR’s senior management at a price of $1.00 per unit. The aggregate purchase price of $830,000 for the Series D OPPSs, assuming 100% participation, is based upon the advice of an independent valuation expert. The Series D Program measured the cumulative total return on our common stock over the 36-month period beginning January 1, 2006 and ending December 31, 2008.

The Series D Program is designed to provide participants with the possibility of substantial returns on their investment if the cumulative total return on UDR’s common stock, as measured by the cumulative amount of dividends paid plus share price appreciation during the measurement period is at least the equivalent of a 36% total return, or 12% annualized (“Minimum Return”).

63

At the conclusion of the measurement period, if UDR’s cumulative total return satisfies these criteria, the Series D LLC as holder of the Series D OPPSs will receive (for the indirect benefit of the Series D Participants as holders of interests in the Series D LLC) distributions and allocations of income and loss from the Operating Partnership equal to the distributions and allocations that would be received on the number of OP Units obtained by:

i. determining the amount by which the cumulative total return of UDR’s common stock over the measurement period exceeds the Minimum Return (such excess being the “Excess Return”);

ii. multiplying 2% of the Excess Return by UDR’s market capitalization (defined as the average number of shares outstanding over the 36-month period, including common stock, OP Units, common stock equivalents and OP Units); and

iii. dividing the number obtained in (ii) by the market value of one share of UDR’s common stock on the valuation date, computed as the volume-weighted average price per day of the common stock for the 20 trading days immediately preceding the valuation date.

For the Series D OPPSs, the number determined pursuant to clause (ii) above is capped at 1% of market capitalization.

If, on the valuation date, the cumulative total return of UDR’s common stock does not meet the Minimum Return, then the Series D Participants will forfeit their entire initial investment.

At the conclusion of the measurement period, December 31, 2008, the total cumulative return on UDR’s common stock did not meet the minimum return threshold. As a result, there were no payouts under the Series D OPPSs program and the investment in the amount of $443,267 made by the holders of the Series D OPPSs was forfeited.

Series E Out-Performance Program

In February 2007, the Board of Directors of UDR approved the Series E Out-Performance Program (the “Series E Program”) pursuant to which certain executive officers of UDR (the “Series E Participants”) were given the opportunity to invest indirectly in UDR by purchasing interests in UDR Out-Performance V, LLC, a Delaware limited liability company (the “Series E LLC”), the only asset of which is a special class of partnership units of the Operating Partnership (“Series E Out-Performance Partnership Shares” or “Series E OPPSs”). The Series E Program is part of the New Out-Performance Program approved by UDR’s stockholders in May 2005. The Series E LLC has agreed to sell 805,000 membership units unadjusted for the Special Dividend to certain members of UDR’s senior management at a price of $1.00 per unit. The aggregate purchase price of $805,000 for the Series E OPPSs, assuming 100% participation, is based upon the advice of an independent valuation expert. The Series E Program will measure the cumulative total return on our common stock over the 36-month period beginning January 1, 2007 and ending December 31, 2009.

The Series E Program is designed to provide participants with the possibility of substantial returns on their investment if the cumulative total return on UDR’s common stock, as measured by the cumulative amount of dividends paid plus share price appreciation during the measurement period is at least the equivalent of a 36% total return, or 12% annualized (“Minimum Return”).

At the conclusion of the measurement period, if UDR’s cumulative total return satisfies these criteria, the Series E LLC as holder of the Series E OPPSs will receive (for the indirect benefit of the Series E Participants as holders of interests in the Series E LLC) distributions and allocations of income and loss from the Operating Partnership equal to the distributions and allocations that would be received on the number of OP Units obtained by:

i. determining the amount by which the cumulative total return of UDR’s common stock over the measurement period exceeds the Minimum Return (such excess being the “Excess Return”);

ii. multiplying 2% of the Excess Return by UDR’s market capitalization (defined as the average number of shares outstanding over the 36-month period, including common stock, OP Units, common stock equivalents and OP Units); and

iii. dividing the number obtained in (ii) by the market value of one share of UDR’s common stock on the valuation date, computed as the volume-weighted average price per day of the common stock for the 20 trading days immediately preceding the valuation date.

For the Series E OPPSs, the number determined pursuant to clause (ii) above is capped at 0.5% of market capitalization.

If, on the valuation date, the cumulative total return of UDR’s common stock does not meet the Minimum Return, then the Series E Participants will forfeit their entire initial investment.

64

Based on the results through December 31, 2008, no Series E OPPSs would have been issued had the Program terminated on that date. However, since the ultimate determination of Series E OPPSs to be issued will not occur until December 31, 2009, and the number of Series E OPPSs is determinable only upon future events, the financial statements do not reflect any impact for these events. Accordingly, the contingently issuable Series E OPPSs will only be included in basic earnings per share after the measurement period has ended and the applicable hurdle has been met. Furthermore, the Series E OPPSs will only be included in common stock and common stock equivalents in the calculation of diluted earnings per share after the hurdle has been met at the end of the reporting period (if any), assuming the measurement period ended at the end of the reporting period.

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.

12. REPORTABLE SEGMENTS

FASB Statement No. 131, “Disclosures about Segments of an Enterprise and Related Information,” (FAS 131”), 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, 2007, and held as of December 31, 2008. 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 2006, 2007 or 2008, 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 of FAS 131 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 years ended December 31, 2008, 2007, or 2006.

65

The accounting policies applicable to the operating segments described above are the same as those described in Note 1, “Summary of Significant Accounting Policies.” The following table details rental income and NOI for UDR’s reportable segments, for both continuing and discontinued operations, for the three years ended December 31, 2008, 2007, and 2006, and reconciles NOI to net income per the consolidated statement of operations (dollars in thousands):

	December 31,
	2008			2007			2006
Reportable apartment home segment rental income
Same Communities
Western Region	$	207,778		$	196,796		$	182,168
Mid-Atlantic Region		101,594			98,208			93,499
Southeastern Region		102,093			102,317			98,446
Southwestern Region		18,282			17,594			13,767
Non-Mature communities/Other		173,258			323,891			349,034
Total segment and consolidated rental income	$	603,005		$	738,806		$	736,914
Reportable apartment home segment NOI
Same Communities
Western Region	$	146,973		$	137,114		$	124,323
Mid-Atlantic Region		70,064			68,569			63,988
Southeastern Region		64,310			65,433			61,492
Southwestern Region		11,993			11,469			9,039
Non-Mature communities/Other		103,647			196,526			205,840
Total segment and consolidated NOI		396,987			479,111			464,682
Reconciling items:
Non-property income		27,190			4,321			3,590
Property management		(16,583	)		(20,315	)		(20,265	)
Other operating expenses		(4,569	)		(1,442	)		(1,238	)
Hurricane related expenses		(1,310	)		—			—
Depreciation and amortization		(251,984	)		(257,450	)		(243,889	)
Interest		(145,630	)		(184,597	)		(184,906	)
General and administrative		(47,179	)		(39,566	)		(31,198	)
Severance costs and other restructuring charges		(653	)		(4,333	)		—
Other depreciation and amortization		(4,866	)		(3,588	)		(3,045	)
Loss from unconsolidated entities		(3,612	)		(1,589	)		—
Tax benefit for the TRS		9,713			17,110			8,268
Non-controlling interests		(46,077	)		(11,601	)		(7,237	)
Net gain on the sale of depreciable property		786,364			239,068			140,346
Net income attributable to UDR, Inc.	$	697,791		$	215,129		$	125,108

Included within non-property income as other income for the year ended December 31, 2008 is net revenue of $2.9 million for insurance related recoveries owed from one of the Company’s joint ventures as a result of Hurricane Ike.

66

The following table details the assets of UDR’s reportable segments for the years ended December 31, 2008 and 2007 (dollars in thousands):

	December 31,
	2008			2007
Reportable apartment home segment assets
Same Communities
Western Region	$	1,853,430		$	1,820,519
Mid-Atlantic Region		650,403			619,307
Southeastern Region		732,593			713,039
Southwestern Region		151,529			148,358
Non-Mature communities/Other		2,443,798			2,655,258
Total segment assets		5,831,753			5,956,481
Accumulated depreciation		(1,078,689	)		(1,371,759	)
Total segment assets — net book value		4,753,064			4,584,722
Reconciling items:
Cash and cash equivalents		12,740			3,219
Restricted cash		7,726			4,847
Deferred financing costs, net		29,658			34,136
Notes receivable		207,450			12,655
Investment in unconsolidated joint ventures		47,048			48,264
Escrow — 1031 exchange funds		—			56,217
Other assets		85,842			53,730
Other assets — real estate held for disposition		767			3,331
Total consolidated assets	$	5,144,295		$	4,801,121

Capital expenditures related to our same communities totaled $69.5 million, $70.5 million, and $85.7 million for the three years ended December 31, 2008, 2007, and 2006, respectively. Capital expenditures related to our non-mature/other communities totaled $14.1 million, $65.6 million, and $112.7 million for the three years ended December 31, 2008, 2007, and 2006, respectively.

Markets included in the above geographic segments are as follows:

i.	Western — Orange Co., San Francisco, Los Angeles, Seattle, San Diego, Monterey Peninsula, 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 — Phoenix, Austin and Dallas.

13. RESTRUCTURING CHARGES

As of December 31, 2008, UDR restructured our operations resulting in a severance related charge of $912,000 reported in the Consolidated Statements of Operations within the line item “Severance costs and other restructuring charges”. The Company incurred this charge as a result of the restructuring and consolidating 24 positions as we continue to focus on obtaining efficiencies.

As of December 31, 2007, UDR has established Highlands Ranch, Colorado, as its corporate headquarters and realigned resources to improve efficiencies and centralize job functions in fewer locations. As a result of a comprehensive review of the organizational structure of UDR and its operations, UDR recorded a charge of $3.6 million during the fourth quarter of 2007 related to workforce reductions, relocation costs, and other related costs.

67

14. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY FINANCIAL DATA

Selected consolidated quarterly financial data for the years ended December 31, 2008 and 2007 is summarized in the table below adjusted for the Special Dividend. The amounts have been restated from previously disclosed amounts due to the disposal of properties in 2008 and 2007 whose results of operations were reclassified to discontinued operations in our Consolidated Statement of Operations, with restated amounts that reflect discontinued operations as of December 31, 2008 (dollars in thousands, except per share amounts):

	Three Months Ended
	March 31,			June 30,			September 30,			December 31,
2008
Rental income (a)	$	126,586		$	139,955		$	147,414		$	149,453
Loss before discontinued operations		(15,828	)		(13,682	)		(16,279	)		(17,953	)
Income/(loss) from discontinued operations		788,283			13,315			6,748			(763	)
Net income/(loss) available to common stockholders		720,510			(3,886	)		(8,945	)		(18,970	)
Earnings/(loss) per share (b)
Basic and diluted	$	5.05		$	(0.03	)	$	(0.07	)	$	(0.13	)
2007
Rental income (a)	$	122,629		$	124,745		$	129,116		$	125,128
(Loss)/income before discontinued operations		(15,410	)		(14,850	)		(14,932	)		89,852
Income from discontinued operations		47,324			19,939			96,490			18,317
Net income available to common stockholders		26,436			(744	)		74,015			99,251
Earnings per share (b)
Basic and diluted	$	0.18		$	(0.01	)	$	0.51		$	0.69

(a)	Represents rental income from continuing operations.
(b)	Quarterly earnings per common share amounts may not total to the annual amounts due to rounding and to the change in the number of common shares outstanding due to the Special Dividend.

68

UDR, INC.
SCHEDULE III — REAL ESTATE OWNED
FOR THE YEAR ENDED DECEMBER 31, 2008

									Cost of
									Improvements
									Capitalized		Gross Amount at Which
			Initial Costs				Total		Subsequent		Carried at Close of Period
			Land and		Buildings		Initial		to Acquisition		Land and		Buildings		Total
			Land		and		Acquisition		Costs		Land		and		Carrying		Accumulated		Date of		Date
	Encumbrances		Improvements		Improvements		Costs		(net of Disposals)		Improvements		Improvements		Value		Depreciation		Construction (a)		Acquired
WESTERN REGION
Harbor at Mesa Verde		46,627,165		20,476,466		28,537,805		49,014,271		9,791,298		20,547,605		38,257,964		58,805,569		12,822,771		2003	Jun-03
Pine Brook Village		18,270,000		2,581,763		25,504,086		28,085,849		4,115,340		3,824,329		28,376,860		32,201,189		9,079,709		1979	Jun-03
Pacific Shores		19,145,000		7,345,226		22,623,676		29,968,902		6,913,534		7,419,319		29,463,117		36,882,436		9,408,035		2003	Jun-03
Huntington Vista		30,965,678		8,055,452		22,485,746		30,541,198		5,149,632		8,135,333		27,555,497		35,690,830		8,920,541		1970	Jun-03
Pacific Palms		—		12,285,059		6,236,783		18,521,842		1,414,510		12,564,600		7,371,752		19,936,352		2,837,591		1962	Jul-03
Missions at Back Bay		—		229,270		14,128,763		14,358,033		1,221,487		10,649,846		4,929,674		15,579,520		1,621,240		1969	Dec-03
Huntington Villas		55,202,275		61,535,270		18,017,201		79,552,471		3,348,278		61,763,964		21,136,785		82,900,749		5,964,074		1972	Sep-04
Vista Del Rey		16,540,000		10,670,493		7,079,834		17,750,327		1,248,967		10,709,442		8,289,852		18,999,294		2,274,504		1969	Sep-04
Foxborough		—		12,070,601		6,186,721		18,257,322		1,762,836		12,121,983		7,898,175		20,020,158		2,026,595		1969	Sep-04
Coronado at Newport — North		52,221,541		62,515,901		46,082,056		108,597,957		12,018,030		62,670,682		57,945,305		120,615,987		15,113,098		2000	Oct-04
Villa Venetia		—		70,825,106		24,179,600		95,004,706		3,778,394		70,879,030		27,904,070		98,783,100		7,566,412		1972	Oct-04
The Arboretum		21,240,631		29,562,468		14,283,292		43,845,760		4,533,542		29,644,247		18,735,055		48,379,302		4,967,222		1970	Oct-04
Coronado South		92,753,546		58,784,785		50,066,757		108,851,542		9,118,282		58,974,367		58,995,457		117,969,824		14,079,831		2000	Mar-05
Pine Brook Village II		—		25,921,787		60,961,271		86,883,058		266,975		25,922,661		61,227,372		87,150,033		2,227,099		1975	May-08
ORANGE COUNTY, CA		352,965,836		382,859,647		346,373,591		729,233,238		64,681,105		395,827,408		398,086,935		793,914,343		98,908,722
2000 Post Street		—		9,860,627		44,577,506		54,438,133		5,225,601		10,106,983		49,556,751		59,663,734		13,769,271		1987	Dec-98
Birch Creek		—		4,365,315		16,695,509		21,060,824		4,358,282		4,944,899		20,474,207		25,419,106		8,120,009		1968	Dec-98
Highlands Of Marin		—		5,995,838		24,868,350		30,864,188		4,859,954		6,220,117		29,504,025		35,724,142		9,304,072		1991	Dec-98
Marina Playa		—		6,224,383		23,916,283		30,140,666		5,769,432		6,629,286		29,280,812		35,910,098		11,179,873		1971	Dec-98
2000 Post III		—		1,755,643		7,753,477		9,509,120		2,914,683		3,290,476		9,133,327		12,423,803		1,455,705		2006	Dec-98
Crossroads Apartments		—		4,811,488		10,169,520		14,981,008		2,832,473		4,958,256		12,855,225		17,813,481		3,573,488		1986	Jul-04
River Terrace		—		22,161,247		40,137,141		62,298,388		716,938		22,166,342		40,848,984		63,015,326		8,296,603		2005	Aug-05
Bay Terrace		—		8,544,559		14,457,992		23,002,551		1,000,294		8,544,559		15,458,286		24,002,845		2,922,660		1962	Oct-05
Lake Pines		—		14,031,365		30,536,982		44,568,347		3,446,213		14,031,365		33,983,195		48,014,560		6,020,176		1972	Nov-05
Highlands of Marin Phase II		—		5,352,554		18,558,883		23,911,437		284,292		5,352,843		18,842,886		24,195,729		1,353,311		1968	Oct-07
Edgewater		—		30,657,223		83,872,319		114,529,542		389,419		30,657,223		84,261,738		114,918,961		4,022,225		2007	Mar-08
Almaden Lake Village		27,000,000		593,923		49,906,070		50,499,993		664,257		593,923		50,570,327		51,164,250		1,389,499		1999	Jul-08
SAN FRANCISCO, CA		27,000,000		114,354,165		365,450,032		479,804,197		32,461,838		117,496,272		394,769,763		512,266,035		71,406,892
The Crest		57,731,579		21,953,480		67,808,654		89,762,134		5,729,809		22,047,615		73,444,328		95,491,943		18,852,997		1989	Sep-04
Rosebeach		—		8,414,478		17,449,593		25,864,071		1,216,180		8,427,922		18,652,329		27,080,251		4,845,357		1970	Sep-04
The Villas @ San Dimas		13,025,917		8,180,619		16,735,364		24,915,983		1,982,599		8,238,085		18,660,497		26,898,582		4,743,188		1981	Oct-04
The Villas at Bonita		8,286,853		4,498,439		11,699,117		16,197,556		641,200		4,518,624		12,320,132		16,838,756		3,123,682		1981	Oct-04
Ocean Villa		9,330,860		5,134,982		12,788,885		17,923,867		836,247		5,169,382		13,590,732		18,760,114		3,329,200		1965	Oct-04
Pine@Sixth		—		5,805,234		6,305,030		12,110,264		11,665,827		6,208,333		17,567,758		23,776,091		5,987,073		1987	Aug-06
Tierra Del Rey		—		39,585,534		36,678,725		76,264,259		993,903		39,588,890		37,669,272		77,258,162		2,275,767		1999	Dec-07
Jefferson at Marina del Rey		110,317,893		55,651,137		—		55,651,137		83,658,258		61,121,986		78,187,409		139,309,395		1,145,236		2008	Sep-07
LOS ANGELES, CA		198,693,102		149,223,903		169,465,368		318,689,271		106,724,023		155,320,837		270,092,457		425,413,294		44,302,500
Arbor Terrace		13,206,912		1,453,342		11,994,972		13,448,314		2,116,836		1,692,212		13,872,938		15,565,150		5,700,649		1996	Mar-98
Aspen Creek		—		1,177,714		9,115,789		10,293,503		1,390,169		1,403,221		10,280,451		11,683,672		3,673,207		1996	Dec-98
Crowne Pointe		11,002,109		2,486,252		6,437,256		8,923,508		3,303,263		2,663,431		9,563,340		12,226,771		3,927,008		1987	Dec-98
Hilltop		8,545,060		2,173,969		7,407,628		9,581,597		2,489,440		2,470,052		9,600,985		12,071,037		3,576,263		1985	Dec-98
The Hawthorne		26,825,490		6,473,970		30,226,079		36,700,049		1,124,988		6,476,060		31,348,977		37,825,037		6,576,701		2003	Jul-05
The Kennedy		23,450,000		6,178,440		22,306,568		28,485,008		595,366		6,195,752		22,884,622		29,080,374		4,185,965		2005	Nov-05
Borgata		9,832,672		6,378,894		24,569,021		30,947,915		50,884		6,378,894		24,619,905		30,998,799		2,337,091		2001	May-07
Hearthstone at Merrill Creek		—		6,848,144		30,922,147		37,770,291		482,574		6,848,144		31,404,721		38,252,865		1,159,161		2000	May-08
Island Square		—		21,284,245		89,389,087		110,673,332		658,390		21,284,245		90,047,477		111,331,722		2,489,999		2007	Jul-08
SEATTLE, WA		92,862,243		54,454,970		232,368,547		286,823,517		12,211,910		55,412,011		243,623,416		299,035,427		33,626,044
Rancho Vallecitos		18,356,242		3,302,967		10,877,286		14,180,253		4,443,720		3,704,506		14,919,467		18,623,973		8,067,591		1988	Oct-99
Presidio at Rancho Del Oro		13,325,000		9,163,939		22,694,492		31,858,431		4,031,464		9,413,960		26,475,935		35,889,895		7,506,010		1987	Jun-04
Villas at Carlsbad		8,884,650		6,516,636		10,717,601		17,234,237		1,003,765		6,594,460		11,643,542		18,238,002		2,892,699		1966	Oct-04
Summit at Mission Bay		—		22,598,529		17,181,401		39,779,930		3,273,173		22,599,544		20,453,559		43,053,103		5,250,663		1953	Nov-04
Milazzo		—		15,920,401		35,577,599		51,498,000		3,874,086		15,928,537		39,443,549		55,372,086		6,192,902		1986	May-06
SAN DIEGO, CA		40,565,892		57,502,472		97,048,379		154,550,851		16,626,208		58,241,007		112,936,052		171,177,059		29,909,865

69

									Cost of
									Improvements
									Capitalized		Gross Amount at Which
			Initial Costs				Total		Subsequent		Carried at Close of Period
			Land and		Buildings		Initial		to Acquisition		Land and		Buildings		Total
			Land		and		Acquisition		Costs		Land		and		Carrying		Accumulated		Date of		Date
	Encumbrances		Improvements		Improvements		Costs		(net of Disposals)		Improvements		Improvements		Value		Depreciation		Construction (a)		Acquired
WESTERN REGION (cont)
Boronda Manor		—		1,946,423		8,981,742		10,928,165		7,629,320		3,041,780		15,515,705		18,557,485		4,804,928		1979	Dec-98
Garden Court		—		888,038		4,187,950		5,075,988		3,885,641		1,423,967		7,537,662		8,961,629		2,370,929		1973	Dec-98
Cambridge Court		—		3,038,877		12,883,312		15,922,189		12,060,357		5,062,488		22,920,058		27,982,546		7,374,622		1974	Dec-98
Laurel Tree		—		1,303,902		5,115,356		6,419,258		4,937,960		2,016,282		9,340,936		11,357,218		2,886,843		1977	Dec-98
The Pointe At Harden Ranch		—		6,388,446		23,853,534		30,241,980		22,071,005		9,581,116		42,731,869		52,312,985		12,736,266		1986	Dec-98
The Pointe At Northridge		—		2,043,736		8,028,443		10,072,179		8,418,991		3,146,967		15,344,203		18,491,170		4,680,276		1979	Dec-98
The Pointe At Westlake		—		1,329,064		5,334,004		6,663,068		4,707,147		2,035,268		9,334,947		11,370,215		2,834,219		1975	Dec-98
MONTEREY PENINSULA, CA		—		16,938,486		68,384,341		85,322,827		63,710,421		26,307,868		122,725,380		149,033,248		37,688,083
Verano at Rancho Cucamonga Town Square		53,773,090		13,557,235		3,645,406		17,202,641		51,440,123		22,855,892		45,786,872		68,642,764		10,717,210		2006	Oct-02
Windemere at Sycamore Highland		23,434,559		5,809,490		23,450,119		29,259,609		1,467,527		5,888,296		24,838,840		30,727,136		9,076,736		2001	Nov-02
Waterstone at Murrieta		—		10,597,865		34,702,760		45,300,625		4,281,670		10,746,565		38,835,730		49,582,295		10,318,901		1990	Nov-04
INLAND EMPIRE, CA		77,207,649		29,964,590		61,798,285		91,762,875		57,189,320		39,490,753		109,461,442		148,952,195		30,112,847
Foothills Tennis Village		17,408,221		3,617,507		14,542,028		18,159,535		4,786,343		3,904,692		19,041,186		22,945,878		7,816,954		1988	Dec-98
Woodlake Village		31,154,663		6,772,438		26,966,750		33,739,188		10,061,167		7,546,508		36,253,847		43,800,355		14,815,603		1979	Dec-98
SACRAMENTO, CA		48,562,884		10,389,945		41,508,778		51,898,723		14,847,510		11,451,200		55,295,033		66,746,233		22,632,557
Tualatin Heights		11,312,843		3,272,585		9,134,089		12,406,674		4,343,317		3,539,536		13,210,455		16,749,991		5,030,170		1989	Dec-98
Andover Park		—		2,916,576		16,994,580		19,911,156		5,138,562		3,018,433		22,031,285		25,049,718		5,990,727		1989	Sep-04
Hunt Club		—		6,014,006		14,870,326		20,884,332		3,631,613		6,116,984		18,398,961		24,515,945		5,015,326		1985	Sep-04
PORTLAND, OR		11,312,843		12,203,167		40,998,995		53,202,162		13,113,492		12,674,953		53,640,701		66,315,654		16,036,223
TOTAL WESTERN REGION		849,170,449		827,891,345		1,423,396,316		2,251,287,661		381,565,827		872,222,309		1,760,631,179		2,632,853,488		384,623,733
MID-ATLANTIC REGION
Dominion Lake Ridge		23,402,597		2,366,061		8,386,439		10,752,500		4,420,872		2,679,780		12,493,592		15,173,372		6,131,273		1987	Feb-96
Dominion Middle Ridge		34,977,371		3,311,468		13,283,047		16,594,515		5,543,637		3,597,975		18,540,177		22,138,152		8,668,764		1990	Jun-96
Taylor Place		—		6,417,889		13,411,278		19,829,167		16,713,053		7,267,765		29,274,455		36,542,220		8,912,998		2008	Apr-02
Presidential Greens		—		11,237,698		18,789,985		30,027,683		6,192,023		11,499,261		24,720,445		36,219,706		10,352,260		1938	May-02
Ridgewood		—		5,612,147		20,085,474		25,697,621		5,802,855		5,773,117		25,727,359		31,500,476		10,517,199		1988	Aug-02
The Calvert		—		262,807		11,188,623		11,451,430		12,911,139		8,259,593		16,102,976		24,362,569		5,606,728		1962	Nov-03
Commons at Town Square		—		135,780		7,723,647		7,859,427		861,271		6,866,705		1,853,993		8,720,698		680,509		1971	Dec-03
Waterside Towers		—		873,713		38,209,345		39,083,058		6,804,132		26,148,328		19,738,862		45,887,190		6,656,875		1971	Dec-03
Waterside Townhomes		—		129,000		3,723,896		3,852,896		416,397		2,724,925		1,544,368		4,269,293		514,193		1971	Dec-03
Wellington Place at Olde Town		—		13,753,346		36,059,193		49,812,539		15,547,695		14,465,200		50,895,034		65,360,234		10,070,595		2008	Sep-05
Andover House		36,151,346		14,357,021		51,577,112		65,934,133		1,786,543		14,357,596		53,363,080		67,720,676		5,338,824		2004	Mar-07
Sullivan Place		—		1,136,778		103,676,103		104,812,881		758,755		1,170,167		104,401,469		105,571,636		6,420,031		2007	Dec-07
Delancey at Shirlington		—		21,605,992		66,765,252		88,371,244		243,472		21,611,692		67,003,024		88,614,716		2,923,138		2006/07	Mar-08
Circle Towers		68,936,494		33,010,740		107,051,197		140,061,937		1,514,036		32,815,406		108,760,567		141,575,973		4,625,986		1972	Mar-08
METROPOLITAN DC		163,467,808		114,210,440		499,930,591		614,141,031		79,515,880		159,237,510		534,419,401		693,656,911		87,419,373
Dominion Kings Place		—		1,564,942		7,006,574		8,571,516		2,899,493		1,772,867		9,698,142		11,471,009		5,307,272		1983	Dec-92
Dominion At Eden Brook		—		2,361,167		9,384,171		11,745,338		4,973,471		2,875,164		13,843,645		16,718,809		7,616,906		1984	Dec-92
Ellicott Grove		—		2,919,481		9,099,691		12,019,172		21,549,508		5,171,948		28,396,732		33,568,680		10,664,593		2008	Jul-94
Dominion Constant Friendship		—		903,122		4,668,956		5,572,078		2,719,324		1,112,097		7,179,305		8,291,402		3,551,958		1990	May-95
Lakeside Mill		—		2,665,869		10,109,175		12,775,044		2,844,548		2,787,738		12,831,854		15,619,592		7,071,900		1989	Dec-99
Tamar Meadow		20,010,000		4,144,926		17,149,514		21,294,440		3,645,946		4,440,588		20,499,798		24,940,386		7,852,951		1990	Nov-02
Calvert’s Walk		—		4,408,192		24,692,115		29,100,307		3,600,697		4,489,140		28,211,864		32,701,004		8,519,836		1988	Mar-04
Arborview		—		4,653,393		23,951,828		28,605,221		4,355,636		4,894,119		28,066,738		32,960,857		8,686,935		1992	Mar-04
Liriope		—		1,620,382		6,790,681		8,411,063		704,159		1,628,063		7,487,159		9,115,222		2,189,087		1997	Mar-04
Dulaney Crescent		—		11,749,575		45,589,714		57,339,289		985,763		11,757,716		46,567,336		58,325,052		2,281,027		2003	Mar-08
BALTIMORE, MD		20,010,000		36,991,049		158,442,419		195,433,468		48,278,545		40,929,440		202,782,573		243,712,013		63,742,465
Dominion Olde West		—		1,965,097		12,203,965		14,169,062		7,979,118		2,568,485		19,579,695		22,148,180		12,825,138		1978/82/84/85/87	Dec-84 & Aug-91
Dominion Creekwood		—		—		—		—		5,250,566		98,169		5,152,397		5,250,566		2,712,218		1984	Aug-91
Dominion English Hills		—		1,979,174		11,524,313		13,503,487		8,223,928		2,873,091		18,854,324		21,727,415		11,134,039		1969/76	Dec-91
Legacy at Mayland		—		—		—		—		22,781,603		1,637,851		21,143,752		22,781,603		9,217,601		2007	Dec-91
Gayton Pointe Townhomes		—		825,760		5,147,968		5,973,728		28,267,642		3,299,724		30,941,646		34,241,370		12,574,078		2007	Sep-95
Dominion West End		27,685,137		2,059,252		15,049,088		17,108,340		8,063,700		3,007,500		22,164,540		25,172,040		11,395,077		1989	Dec-95
Waterside At Ironbridge		—		1,843,819		13,238,590		15,082,409		5,248,380		2,185,351		18,145,438		20,330,789		7,101,238		1987	Sep-97
Carriage Homes at Wyndham		—		473,695		30,996,525		31,470,220		4,866,045		3,706,056		32,630,209		36,336,265		10,037,702		1998	Nov-03
RICHMOND, VA		27,685,137		9,146,797		88,160,449		97,307,246		90,680,982		19,376,227		168,612,001		187,988,228		76,997,091

70

									Cost of
									Improvements
									Capitalized		Gross Amount at Which
			Initial Costs				Total		Subsequent		Carried at Close of Period
			Land and		Buildings		Initial		to Acquisition		Land and		Buildings		Total
			Land		and		Acquisition		Costs		Land		and		Carrying		Accumulated		Date of		Date
	Encumbrances		Improvements		Improvements		Costs		(net of Disposals)		Improvements		Improvements		Value		Depreciation		Construction (a)		Acquired
MID-ATLANTIC REGION (cont)
Heather Lake		—		616,800		3,400,672		4,017,472		8,995,588		1,150,419		11,862,641		13,013,060		8,563,396		1972/74	Mar-80
Woodscape		—		798,700		7,209,525		8,008,225		7,902,471		1,904,989		14,005,707		15,910,696		9,456,327		1974/76	Dec-87
Eastwind		—		155,000		5,316,738		5,471,738		4,959,854		580,221		9,851,371		10,431,592		6,184,400		1970	Apr-88
Forest Lake At Oyster Point		17,447,968		780,117		8,861,878		9,641,995		7,347,199		1,288,049		15,701,145		16,989,194		7,746,409		1986	Aug-95
Dominion Waterside At Lynnhaven		—		1,823,983		4,106,710		5,930,693		4,959,479		2,130,427		8,759,745		10,890,172		4,762,284		1966	Aug-96
Dominion Yorkshire Downs		16,240,050		1,088,887		8,581,771		9,670,658		4,587,748		1,432,734		12,825,672		14,258,406		5,353,145		1987	Dec-97
NORFOLK, VA		33,688,018		5,263,487		37,477,294		42,740,781		38,752,339		8,486,839		73,006,281		81,493,120		42,065,961
Greens At Falls Run		—		2,730,722		5,300,203		8,030,925		3,929,296		3,016,479		8,943,742		11,960,221		4,273,575		1989	May-95
Manor At England Run		—		3,194,527		13,505,239		16,699,766		17,198,387		5,040,138		28,858,015		33,898,153		14,394,038		1990	May-95
Brittingham Square		—		650,143		4,962,246		5,612,389		3,068,412		906,755		7,774,046		8,680,801		3,603,373		1991	May-95
Greens At Schumaker Pond		—		709,559		6,117,582		6,827,141		4,478,583		943,501		10,362,223		11,305,724		4,971,478		1988	May-95
Greens At Cross Court		—		1,182,414		4,544,012		5,726,426		3,501,976		1,431,119		7,797,283		9,228,402		3,866,898		1987	May-95
OTHER MID-ATLANTIC		—		8,467,365		34,429,282		42,896,647		32,176,654		11,337,992		63,735,309		75,073,301		31,109,362
TOTAL MID-ATLANTIC REGION		244,850,963		174,079,138		818,440,035		992,519,173		289,404,400		239,368,008		1,042,555,565		1,281,923,573		301,334,252
SOUTHEASTERN REGION
Summit West		—		2,176,500		4,709,970		6,886,470		6,099,166		2,821,111		10,164,525		12,985,636		6,894,832		1972	Dec-92
The Breyley		—		1,780,375		2,458,172		4,238,547		16,053,403		3,086,124		17,205,826		20,291,950		8,281,287		2007	Sep-93
Lakewood Place		21,181,686		1,395,051		10,647,377		12,042,428		6,461,693		1,970,328		16,533,793		18,504,121		8,654,559		1986	Mar-94
Hunters Ridge		20,509,853		2,461,548		10,942,434		13,403,982		4,806,827		3,313,443		14,897,366		18,210,809		7,863,319		1992	Jun-95
Bay Meadow		—		2,892,526		9,253,525		12,146,051		7,786,993		3,727,701		16,205,343		19,933,044		8,137,411		2004	Dec-96
Cambridge Woods		—		1,790,804		7,166,329		8,957,133		5,954,281		2,251,618		12,659,796		14,911,414		5,852,885		1985	Jun-97
Sugar Mill Creek		10,185,064		2,241,880		7,552,520		9,794,400		5,034,274		2,628,294		12,200,380		14,828,674		4,880,864		1988	Dec-98
Inlet Bay		—		7,701,679		23,149,670		30,851,349		9,548,686		8,143,895		32,256,140		40,400,035		11,916,600		1988/89	Jun-03
MacAlpine Place		—		10,869,386		36,857,512		47,726,898		3,010,007		10,937,347		39,799,558		50,736,905		10,191,558		2001	Dec-04
Island Walk		—		7,230,575		19,897,415		27,127,990		9,220,551		9,111,665		27,236,876		36,348,541		11,206,796		1985/87	Jul-06
Gallery at Bayport II		—		5,775,144		17,236,146		23,011,290		1,323,948		9,635,059		14,700,179		24,335,238		4,720,721		2008	Oct-06
TAMPA, FL		51,876,603		46,315,468		149,871,070		196,186,538		75,299,829		57,626,585		213,859,782		271,486,367		88,600,832
The Canopy Apartment Villas		—		2,894,702		6,456,100		9,350,802		21,117,837		5,147,138		25,321,501		30,468,639		11,409,623		2008	Mar-93
Altamira Place		—		1,532,700		11,076,062		12,608,762		18,172,468		3,126,538		27,654,692		30,781,230		14,288,823		2007	Apr-94
Regatta Shore		—		757,008		6,607,367		7,364,375		13,145,015		1,777,716		18,731,674		20,509,390		10,777,647		2007	Jun-94
Alafaya Woods		21,781,374		1,653,000		9,042,256		10,695,256		6,802,546		2,275,534		15,222,268		17,497,802		7,838,910		2006	Oct-94
Seabrook		—		1,845,853		4,155,275		6,001,128		6,070,302		2,474,471		9,596,959		12,071,430		6,047,767		2004	Feb-96
Los Altos		23,804,268		2,803,805		12,348,464		15,152,269		6,450,989		3,557,294		18,045,964		21,603,258		8,858,105		2004	Oct-96
Lotus Landing		—		2,184,723		8,638,664		10,823,387		6,759,638		2,634,903		14,948,122		17,583,025		6,220,213		2006	Jul-97
Seville On The Green		—		1,282,616		6,498,062		7,780,678		5,366,363		1,638,797		11,508,244		13,147,041		5,261,013		2004	Oct-97
Ashton @ Waterford		28,972,446		3,871,744		17,537,879		21,409,623		1,250,069		4,025,167		18,634,525		22,659,692		8,904,003		2000	May-98
Arbors at Lee Vista DCO		—		6,692,423		12,860,210		19,552,633		9,760,345		6,837,524		22,475,454		29,312,978		9,698,573		2007	Aug-06
Millenia Mall		—		12,172,634		37,143,420		49,316,054		563,400		12,174,032		37,705,422		49,879,454		2,640,137		2007	Jan-08
ORLANDO, FL		74,558,088		37,691,208		132,363,759		170,054,967		95,458,972		45,669,114		219,844,825		265,513,939		91,944,814
Legacy Hill		—		1,147,660		5,867,567		7,015,227		7,019,922		1,571,870		12,463,279		14,035,149		7,012,294		1977	Nov-95
Hickory Run		—		1,468,727		11,583,786		13,052,513		6,856,715		1,941,983		17,967,245		19,909,228		8,060,227		1989	Dec-95
Carrington Hills		20,204,103		2,117,244		—		2,117,244		30,807,580		4,115,870		28,808,954		32,924,824		11,784,911		1999	Dec-95
Brookridge		—		707,508		5,461,251		6,168,759		3,320,246		988,475		8,500,530		9,489,005		4,242,693		1986	Mar-96
Breckenridge		—		766,428		7,713,862		8,480,290		3,081,165		1,088,248		10,473,207		11,561,455		4,623,690		1986	Mar-97
Colonnade		11,890,540		1,459,754		16,014,857		17,474,611		2,714,147		1,754,642		18,434,116		20,188,758		6,693,176		1998	Jan-99
The Preserve at Brentwood		27,813,813		3,181,524		24,674,264		27,855,788		3,702,767		3,224,349		28,334,206		31,558,555		8,279,999		1998	Jun-04
Polo Park		13,553,524		4,582,666		16,293,022		20,875,688		14,349,400		5,457,252		29,767,836		35,225,088		5,346,837		2008	May-06
NASHVILLE, TN		73,461,980		15,431,511		87,608,609		103,040,120		71,851,942		20,142,689		154,749,373		174,892,062		56,043,827
Greentree		15,655,691		1,634,330		11,226,990		12,861,320		11,286,052		2,625,322		21,522,050		24,147,372		11,253,539		2007	Jul-94
Westland		—		1,834,535		14,864,742		16,699,277		9,188,343		2,867,513		23,020,107		25,887,620		12,384,131		1990	May-96
Antlers		—		4,034,039		11,192,842		15,226,881		10,511,755		5,071,913		20,666,723		25,738,636		11,603,875		1985	May-96
St Johns Plantation		—		4,288,214		33,101,763		37,389,977		4,237,895		4,351,288		37,276,584		41,627,872		8,625,476		2006	Jun-05
The Kensley		—		3,178,992		30,711,474		33,890,466		1,123,180		3,185,580		31,828,066		35,013,646		2,856,021		2004	Jul-07
JACKSONVILLE, FL		15,655,691		14,970,110		101,097,811		116,067,921		36,347,225		18,101,616		134,313,530		152,415,146		46,723,042
The Groves		—		789,953		4,767,055		5,557,008		4,765,934		1,586,503		8,736,439		10,322,942		4,846,104		1989	Dec-95
Mallards of Brandywine		—		765,949		5,407,683		6,173,632		2,604,050		1,068,035		7,709,647		8,777,682		3,827,812		1985	Jul-97
The Reserve and The Park at Riverbridge		—		15,968,090		56,400,716		72,368,806		2,811,683		16,005,078		59,175,411		75,180,489		14,880,725		1999/2001	Dec-04
Piermont		—		3,373,265		7,095,763		10,469,028		5,346,716		3,782,615		12,033,129		15,815,744		6,028,057		2007	Dec-05
OTHER FLORIDA		—		20,897,257		73,671,217		94,568,474		15,528,383		22,442,231		87,654,626		110,096,857		29,582,698
TOTAL SOUTHEASTERN REGION		215,552,362		135,305,554		544,612,466		679,918,020		294,486,351		163,982,235		810,422,136		974,404,371		312,895,213

71

									Cost of
									Improvements
									Capitalized			Gross Amount at Which
			Initial Costs				Total		Subsequent			Carried at Close of Period
			Land and		Buildings		Initial		to Acquisition			Land and		Buildings		Total
			Land		and		Acquisition		Costs			Land		and		Carrying		Accumulated			Date of		Date
	Encumbrances		Improvements		Improvements		Costs		(net of Disposals)			Improvements		Improvements		Value		Depreciation			Construction (a)		Acquired
SOUTHWESTERN REGION
Highlands of Preston		—		2,151,056		8,167,630		10,318,686		27,455,282			5,754,903		32,019,065		37,773,968		7,762,529			2008	Mar-98
THIRTY377		—		24,035,881		32,950,822		56,986,703		4,482,043			24,092,279		37,376,467		61,468,746		5,489,492			2007	Aug-06
Garden Oaks		5,197,431		2,131,988		5,367,040		7,499,028		312,427			6,821,043		990,412		7,811,455		386,134			1979	Mar-07
Springhaven		—		6,687,621		3,354,680		10,042,301		67,377			8,203,548		1,906,130		10,109,678		954,390			1977	Apr-07
Glenwood		5,998,078		7,902,690		554,021		8,456,711		60,015			8,040,300		476,426		8,516,726		217,562			1970	May-07
Talisker of Addison		7,682,835		10,439,794		634,320		11,074,114		276,848			10,760,070		590,892		11,350,962		397,189			1975	May-07
Clipper Pointe		7,181,662		13,220,993		2,506,569		15,727,562		404,758			14,756,838		1,375,482		16,132,320		896,332			1978	May-07
Ridgeview Park		—		2,349,923		—		2,349,923		8,240,920			2,352,630		8,238,213		10,590,843		989,243			2007	Jul-07
RIACHI AT ONE21		17,107,068		2,341,936		—		2,341,936		15,966,457			4,662,823		13,645,570		18,308,393		1,633,071			2007	Dec-07
Legacy Village		—		16,881,795		100,101,840		116,983,635		851,978			16,882,584		100,953,029		117,835,613		4,625,094			2005/06/07	Mar-08
DALLAS, TX		43,167,074		88,143,677		153,636,922		241,780,599		58,118,105			102,327,018		197,571,686		299,898,704		23,351,036
Sierra Foothills		20,770,824		2,728,172		—		2,728,172		20,214,667			4,974,137		17,968,702		22,942,839		10,708,149			1998	Feb-98
Finisterra		—		1,273,798		26,392,207		27,666,005		2,889,067			1,565,655		28,989,417		30,555,072		10,579,886			1997	Mar-98
Sierra Canyon		14,890,446		1,809,864		12,963,581		14,773,445		1,509,884			1,978,602		14,304,727		16,283,329		6,371,729			2001	Dec-01
Lumiere		—		5,091,616		11,997,769		17,089,385		6,149,632			5,825,141		17,413,876		23,239,017		7,978,361			1996	May-06
Waterford		—		2,225,595		21,593,714		23,819,309		1,220,904			2,780,485		22,259,728		25,040,213		441,567			2008	Aug-08
PHOENIX, AZ		35,661,270		13,129,045		72,947,271		86,076,316		31,984,154			17,124,020		100,936,450		118,060,470		36,079,692
Barton Creek Landing		—		3,150,998		14,269,086		17,420,084		2,858,570			3,201,989		17,076,665		20,278,654		7,206,393			1986	Mar-02
Residences at the Domain		—		4,034,365		55,255,613		59,289,978		52,031			4,034,365		55,307,644		59,342,009		1,320,814			2007	Aug-08
AUSTIN, TX		—		7,185,363		69,524,699		76,710,062		2,910,601			7,236,354		72,384,309		79,620,663		8,527,207
Inn @ Los Patios		—		3,005,300		11,544,700		14,550,000		(1,453,572	)		3,023,264		10,073,164		13,096,428		3,290,182			1990	Aug-98
Tiburon		17,500,000		3,600,000		—		3,600,000		17,763,681			6,190,653		15,173,028		21,363,681		1,333,175			2008	Jul-06
Laurelwoode		18,145,979		3,458,393		—		3,458,393		19,601,856			7,254,480		15,805,769		23,060,249		729,304			2008	Jan-07
OTHER TEXAS		35,645,979		10,063,693		11,544,700		21,608,393		35,911,965			16,468,397		41,051,961		57,520,358		5,352,661
TOTAL SOUTHWESTERN REGION		114,474,323		118,521,778		307,653,592		426,175,370		128,924,825			143,155,789		411,944,406		555,100,195		73,310,596
TOTAL APARTMENTS		1,424,048,097		1,255,797,815		3,094,102,409		4,349,900,224		1,094,381,403			1,418,728,341		4,025,553,286		5,444,281,627		1,072,163,794
REAL ESTATE UNDER DEVELOPMENT
Vintage Lofts		—		6,611,191		37,662,923		44,274,114		7,195,620			6,611,191		44,858,543		51,469,734		50,492
Residences at Stadium Village		—		7,930,171		—		7,930,171		17,767,483			7,929,126		17,768,528		25,697,654		—
Signal Hill		—		13,290,186		—		13,290,186		16,351,968			13,192,444		16,449,710		29,642,154		—
The Tribute on Glenwood		—		4,718,622		—		4,718,622		10,523,065			4,216,168		11,025,519		15,241,687		—
The Belmont		12,922,260		11,720,456		—		11,720,456		20,387,450			11,398,188		20,709,718		32,107,906		—
Riachi at One21 Ph II		5,772,946		1,918,411		—		1,918,411		11,683,845			1,572,489		12,029,767		13,602,256		1,123
Vitruvian Phase I		—		7,374,000		3,367,009		10,741,009		8,320,362			7,374,000		11,687,371		19,061,371		—
TOTAL REAL ESTATE UNDER DEVELOPMENT		18,695,206		53,563,037		41,029,932		94,592,969		92,229,793			52,293,606		134,529,156		186,822,762		51,615
LAND
Waterside		—		11,861,682		93,478		11,955,160		92,233			11,861,682		185,711		12,047,393		127,168
Presidio		—		1,523,922		—		1,523,922		828,137			1,300,000		1,052,059		2,352,059		—
UDR Pacific Los Alisos, LP		—		17,297,661		—		17,297,661		1,740,795			16,311,758		2,726,698		19,038,456		—
2400 14th Street		—		31,747,409		—		31,747,409		6,909,878			32,192,614		6,464,673		38,657,287		—
Parkers Landing II TRS		—		1,709,606		—		1,709,606		777,348			1,511,375		975,579		2,486,954		(225,850	)
3033 Wilshire		—		11,055,310		—		11,055,310		933,344			11,055,310		933,344		11,988,654		—
Vitruvian		—		22,174,509		23,380,657		45,555,166		19,888,987			56,235,713		9,208,440		65,444,153		374,711
TOTAL LAND		—		97,370,099		23,474,135		120,844,234		31,170,722			130,468,452		21,546,504		152,014,956		276,029
TOTAL REAL ESTATE UNDER DEVELOPMENT		18,695,206		150,933,136		64,504,067		215,437,203		123,400,515			182,762,058		156,075,660		338,837,718		327,644
COMMERCIAL HELD FOR INVESTMENT
Hanover Village		—		1,623,910		—		1,623,910		5			1,103,600		520,315		1,623,915		491,869
The Calvert — commercial side		—		34,128		1,597,359		1,631,487		1,150,550			1,168,497		1,613,540		2,782,037		471,612
Circle Towers Office Bldg		—		1,406,626		4,498,210		5,904,836		(368,688	)		1,380,054		4,156,094		5,536,148		183,624
Brookhaven Shopping Center		9,600,000		4,137,935		7,093,172		11,231,107		10,527			4,137,935		7,103,699		11,241,634		36,933
Grandview DCO		10,127,936		7,266,024		9,701,625		16,967,649		1,932,266			10,750,324		8,149,591		18,899,915		5,012,542
TOTAL COMMERCIAL		19,727,936		14,468,623		22,890,366		37,358,989		2,724,660			18,540,410		21,543,239		40,083,649		6,196,580
CORPORATE
Other (b)		—		—		—		—		8,549,324			—		8,549,324		8,549,324		1,029
TOTAL CORPORATE		—		—		—		—		8,549,324			—		8,549,324		8,549,324		1,029
TOTAL COMMERCIAL & CORPORATE		19,727,936		14,468,623		22,890,366		37,358,989		11,273,984			18,540,410		30,092,563		48,632,973		6,197,609
TOTAL REAL ESTATE OWNED		1,462,471,239		1,421,199,574		3,181,496,842		4,602,696,416		1,229,055,902			1,620,030,809		4,211,721,509		5,831,752,318		1,078,689,047

(a)	Date of construction or date of last major renovation.
(b)	Includes unallocated accruals and capital expenditures.
	The aggregate cost for federal income tax purposes was approximately $5.2 billion at December 31, 2008.
	The depreciable life for all buildings is 35 years.

72

3-YEAR ROLLFORWARD OF REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION

The following is a reconciliation of the carrying amount of total real estate owned at December 31:

	2008			2007			2006
Balance at beginning of the year	$	5,956,481,074		$	5,820,122,155		$	5,512,424,090
Real estate acquired		1,014,231,819			509,976,871			392,058,366
Capital expenditures and development		297,564,557			234,724,992			379,629,467
Real estate sold		(1,436,525,132	)		(608,342,944	)		(463,989,768	)
Balance at end of year	$	5,831,752,318		$	5,956,481,074		$	5,820,122,155

The following is a reconcilation of total accumulated depreciation for real estate owned at December 31:

Balance at beginning of the year	$	1,371,759,339		$	1,253,726,781		$	1,123,829,081
Depreciation expense for the year		245,898,189			256,931,873			243,348,343
Accumulated depreciation on sales		(538,968,481	)		(138,899,315	)		(113,450,643	)
Balance at end of year	$	1,078,689,047		$	1,371,759,339		$	1,253,726,781

73

Exhibit 12

UDR, INC.
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
(Dollars in thousands)

	Years Ended December 31,
	2008			2007		2006			2005			2004
(Loss)/income before discontinued operations	$	(63,742	)	$	44,660	$	(77,772	)	$	(50,084	)	$	(43,055	)
Add:
Interest on indebtedness from continuing operations		169,324			168,338		182,798			159,433			118,504
Portion of rents representative of the interest factor		1,883			871		679			667			651
Earnings	$	107,465		$	213,869	$	105,705		$	110,016		$	76,100
Fixed charges and preferred stock dividend:
Interest on indebtedness from continuing operations	$	169,324		$	168,338	$	182,798		$	159,433		$	118,504
Capitalized interest		14,857			13,244		5,173			2,769			986
Portion of rents representative of the interest factor		1,883			871		679			667			651
Fixed charges		186,064			182,453		188,650			162,869			120,141
Add:
Preferred stock dividend		12,138			13,910		15,370			15,370			19,531
(Discount)/premium on preferred stock		(3,056	)		2,261		—			—			5,729
Preferred stock dividend and preferred stock		9,082			16,171		15,370			15,370			25,260
Combined fixed charges and preferred stock	$	195,146		$	198,624	$	204,020		$	178,239		$	145,401
Ratio of earnings to fixed charges		—			1.17		—			—			—
Ratio of earnings to combined fixed charges and preferred stock		—			1.08		—			—			—

For the year ended December 31, 2008, the ratio of earnings to fixed charges was deficient of achieving a 1:1 ratio by $78.6 million.

For the year ended December 31, 2008, the ratio of earnings to combined fixed charges and preferred stock was deficient of achieving a 1:1 ratio by $87.7 million.

For the year ended December 31, 2006, the ratio of earnings to fixed charges was deficient of achieving a 1:1 ratio by $82.9 million.

For the year ended December 31, 2006, the ratio of earnings to combined fixed charges and preferred stock was deficient of achieving a 1:1 ratio by $98.3 million.

For the year ended December 31, 2005, the ratio of earnings to fixed charges was deficient of achieving a 1:1 ratio by $52.9 million.

For the year ended December 31, 2005, the ratio of earnings to combined fixed charges and preferred stock was deficient of achieving a 1:1 ratio by $68.2 million.

For the year ended December 31, 2004, the ratio of earnings to fixed charges was deficient of achieving a 1:1 ratio by $44.0 million.

For the year ended December 31, 2004, the ratio of earnings to combined fixed charges and preferred stock was deficient of achieving a 1:1 ratio by $69.3 million.

74