JOINT VENTURES

UDR has entered into joint ventures with unrelated third parties to acquire 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, and are included in investment in unconsolidated joint ventures on our Consolidated Balance Sheets. The Company consolidates an entity in which we own less than 100% but control the joint venture as well as any variable interest entity where we are the primary beneficiary. In addition, the Company would 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 without cause.

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

Consolidated Joint Ventures

In 2011, the Company invested in a joint venture with an unaffiliated third party to acquire and redevelop an existing commercial property into a 173 apartment home community in Orange County, California. At closing the Company contributed $9.0 million and at June 30, 2012, UDR owned a 90% controlling interest in the investment. Under the terms of the operating agreement, our partner is required to achieve certain criteria as it relates to the entitlement process. If the criteria is met on or before 730 days after the site plan application is deemed complete by the city, the Company is obligated to contribute an additional $3.0 million to the joint venture for distribution to our partner. At the acquisition date, the Company accrued and capitalized $3.0 million related to the contingent consideration, which represents the difference between fair value of the property of $9.8 million on the formation date and the estimated fair value of the underlying property upon completion of the entitlement process of $12.8 million. The Company estimated the fair value based on Level 3 inputs utilized in a third party valuation.

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 ventures. In addition, we may earn fees for providing management services to the unconsolidated joint ventures. As of June 30, 2012, UDR had investments in the following unconsolidated joint ventures which are accounted for under the equity method of accounting.

In 2010, the Company acquired The Hanover Company’s (“Hanover”) partnership interests in the Hanover/MetLife Master Limited Partnership (“UDR/MetLife I”) at a cost of $100.8 million. UDR/MetLife I currently owns a portfolio of 19 operating communities containing 3,930 apartment homes and 10 land parcels with the potential to develop approximately 2,000 additional apartment homes. Under the terms of UDR/MetLife I, UDR acts as the general partner with significant participating rights held by our partner, and earns fees for property management, asset management, and financing transactions.

UDR has a weighted average ownership interest of 12.6% in the operating communities and 4.0% in the land parcels. Our initial investment of $100.8 million consisted of $71.8 million in cash, which included associated transaction costs, and a $30 million payable (includes present value discount of $1 million) to Hanover. UDR agreed to pay the $30 million balance to Hanover in two interest free installments in the amounts of $20 million (paid in 2011) and $10 million on the first and second anniversaries of the closing, respectively. The $30 million payable was recorded at its present value of $29 million using an effective interest rate of 2.67%. At June 30, 2012 and December 31, 2011, the net carrying value of the payable was $9.9 million and $9.8 million, respectively. Interest expense of $66,000 and $132,000 and $196,000 and $391,000 was recorded during the three and six months ended June 30, 2012 and 2011, respectively. At June 30, 2012 and December 31, 2011, the Company’s investment was $100.2 million and $133.8 million, respectively.

UDR’s inital cost of its equity investment of $100.8 million differed from the proportionate share in the underlying net assets of UDR/MetLife I of $111.4 million. The difference of $10.6 million was attributable to certain assets and adjustments that were allocated to UDR’s proportionate share in UDR/MetLife I’s buildings of $8.4 million, land of $3.9 million, and $(1.6) million of lease intangible assets. With the exception of land, the difference related to buildings is accreted and recorded as a component of loss from unconsolidated entities over 45 years and the difference related to lease intangible assets was amortized and recorded as a component of loss from unconsolidated entities over 11 months with the offset to the Company’s carrying value of its equity investment. During the three and six months ended June 30, 2012, the Company recorded $42,000 and $88,000 of net accretion, respectively. During the three and six months ended June 30, 2011, the Company recorded $395,000 and $791,000 net of amortization, respectively.

On January 12, 2012, the Company formed a new real estate joint venture, UDR/MetLife II, with MetLife wherein each party owns a 50% interest in a $1.3 billion portfolio of 12 operating communities containing 2,528 apartment homes. The 12 communities in the joint venture include seven from UDR/MetLife I while the remaining five operating communities were newly acquired by UDR/MetLife II. The newly acquired communities, collectively known as Columbus Square, are recently developed, high-rise apartment buildings located on the Upper West Side of Manhattan and were purchased for $637.5 million. The Company serves as the general partner with significant participating rights held by our partner. The Company earns property management, asset management and financing fees. Our initial investment was $327.1 million, which consisted of $293.5 million of cash paid and $33.6 million of our equity in the seven communities transferred from UDR/MetLife I. (Of the $293.5 million of cash paid for its investment, the Company paid $80.4 million of purchase deposits for the acquisition of Columbus Square in 2011.) Our investment at June 30, 2012 was $323.7 million.

In January 2012, the Company formed a joint venture to acquire land for future development in San Francisco, California. At June 30, 2012, UDR owned a non-controlling interest of 92.5% in the joint venture. Our initial investment was $37.3 million, and our investment at June 30, 2012 was $38.9 million.

In May 2012, the Company formed a joint venture to acquire land for future development in Boston, Massachusetts. At closing and at June 30, 2012, UDR owned a non-controlling interest of 98.0% in the joint venture. Our initial investment was $26.0 million, and our investment at June 30, 2012 was $27.1 million.

The Company is a partner in a joint venture to develop a 240-home community in Stoughton, Massachusetts. At June 30, 2012 and December 31, 2011, UDR owned a non-controlling interest of 95% in the joint venture. Our initial investment was $10.0 million. Our investment at June 30, 2012 and December 31, 2011 was $16.7 million and $17.2 million, respectively.

The Company is a partner in a joint venture to develop a 263-home community in San Diego, California. At June 30, 2012 and December 31, 2011, UDR owned a non-controlling interest of 95% in the joint venture. Our initial investment was $9.9 million. Our investment at June 30, 2012 and December 31, 2011 was $22.5 million and $12.1 million, respectively.

The Company is a partner in a joint venture to develop a 256-home community in College Park, Maryland. At June 30, 2012 and December 31, 2011, UDR owned a non-controlling interest of 95% in the joint venture. Our initial investment was $7.1 million. Our investment at June 30, 2012 and December 31, 2011 was $14.4 million and $8.6 million , respectively.

UDR is a partner with an unaffiliated third party, which formed a joint venture for the investment of up to $450 million in multifamily properties located in key, high barrier to entry markets. The partners will contribute equity of $180 million of which the Company’s maximum equity will be 30% or $54 million when fully invested. The joint venture owns and operates three communities (660 homes) in Metropolitan Washington D.C. At June 30, 2012 and December 31, 2011, the Company owned a 30% interest in the joint venture. Our investment at June 30, 2012 and December 31, 2011 was $32.1 million and $34.1 million, respectively.

UDR is a partner with an unaffiliated third party which owns and operates apartment communities located in Texas. UDR initially contributed cash and a property equal to 20% of the fair value of ten properties (3,992 homes). The unaffiliated member contributed cash equal to 80% of the fair value of the properties, which amount was then used to purchase the nine operating properties from UDR. During three months ended June 30, 2012, the Company acquired the remaining 80% ownership interests in two apartment communities (633 homes) for $11.7 million from its Texas joint venture partner. Our initial investment was $20.4 million. Our investment at June 30, 2012 and December 31, 2011 was $4.6 million and $7.1 million, respectively.

We evaluate our investments in unconsolidated joint ventures when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. The Company did not recognize any other-than-temporary decrease in the value of its other investments in unconsolidated joint ventures during the three and six months ended June 30, 2012 and 2011.

Combined summary financial information relating to all of the unconsolidated joint ventures operations (not just our proportionate share), is presented below for the three and six months ended June 30, 2012 and 2011 (dollars in thousands):



	2012			2011
For the Three Months Ended June 30,
Revenues	$	74,725		$	48,414
Real estate depreciation and amortization	26,489			16,737
Net income/(loss)	3,544			(3,142		)
UDR recorded loss from unconsolidated entities	2,412			1,348

For the Six Months Ended June 30,
Revenues	$	137,750		$	95,005
Real estate depreciation and amortization	52,374			33,338
Net income/(loss)	(5,077		)	(8,731		)
UDR recorded loss from unconsolidated entities	5,103			2,680

Combined summary balance sheets relating to all of the unconsolidated joint ventures (not just our proportionate share) are presented below as of June 30, 2012 and December 31, 2011 (dollars in thousands):



	June 30, 2012		December 31, 2011
Real estate, net	$	3,550,889	$	2,908,623
Total assets	3,655,128		2,998,866
Amount due to UDR	12,853		6,251
Third party debt	1,770,990		1,499,419
Total liabilities	1,823,697		1,561,396
Total equity	1,816,754		1,437,470
Equity held by non-controlling interest	14,677		14,641
UDR's investment in unconsolidated joint ventures	580,098		213,040

As of June 30, 2012, the Company had deferred fees and deferred profit from the sale of properties to a joint venture of $29.4 million, the majority of which the Company will not recognize until the underlying property is sold to a third party. The Company recognized $2.7 million and $5.7 million and $2.5 million and $3.8 million of management fees during the three and six months ended June 30, 2012 and 2011, respectively, for our management of the joint ventures. The management fees are classified in “Other Income” in the Consolidated Statements of Operations.

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