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. During the year ended December 31, 2014, the stockholders of UDR voted to amend and restate the LTIP to increase the number of shares reserved from 16,000,000 shares to 19,000,000 shares on an unadjusted basis for issuance upon the grant or exercise of awards under the LTIP. As of December 31, 2014, there were 10,067,371 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. Unless otherwise specified in the agreement, upon the retirement of an award recipient, 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 splits, extraordinary cash dividends and spin-offs, 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.

A summary of UDR’s stock option and restricted stock activities during the year ended December 31, 2014 is as follows:



	Option Outstanding				Option Exercisable				Restricted Stock
	Number of Options		Weighted Average Exercise Price		Number of Options		Weighted Average Exercise Price		Number of shares		Weighted Average Fair Value Per Restricted Stock
Balance, December 31, 2013	2,430,127		$	12.63	2,430,127		$	12.63	758,745		$	23.89
Granted	—		—		—		—		873,010		23.14
Exercised	(164,285	)	10.06		(164,285	)	10.06		—		—
Vested	—		—		—		—		(619,578	)	22.70
Forfeited	—		—		—		—		(12,199	)	23.74
Balance, December 31, 2014	2,265,842		$	12.82	2,265,842		$	12.82	999,978		$	23.98

As of December 31, 2014, the Company had issued 4,517,514 shares of restricted stock under the LTIP.

Stock Option Plan

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

There is no remaining compensation cost related to unvested stock options as of December 31, 2014.

During the year ended December 31, 2014, stock options with a fair value of $4.8 million were exercised.

The weighted average remaining contractual life on all options outstanding as of December 31, 2014 is 3.4 years. 1,830,672 of share options had exercise prices at $10.06; 404,291 of share options had exercise prices at $24.38; and 30,879 of share options had exercise prices at $25.10.

During the years ended December 31, 2014, 2013, and 2012, respectively, we recognized $0.0, $0.0, and $95,000 of net compensation expense related to outstanding stock options.

Restricted Stock Awards

Restricted stock awards are granted to Company employees, officers, and directors. The restricted stock awards are valued based upon the closing sales price of UDR common stock on the date of grant. Compensation expense is recorded under the straight-line method over the vesting period, which is generally three to four years. Restricted stock awards earn dividends payable in cash. Some of the restricted stock grants are based on the Company’s performance and are subject to adjustment during the initial one year performance period. For the years ended December 31, 2014, 2013, and 2012, we recognized $4.2 million, $3.6 million, and $3.7 million of compensation expense related to the amortization of restricted stock awards, respectively. The total remaining compensation cost on unvested restricted stock awards was $2.5 million and had a weighted average remaining contractual life of 1.1 years as of December 31, 2014.

Long-Term Incentive Compensation

In February 2014, certain officers of the Company were awarded a restricted stock grant under the 2014 Long-Term Incentive Program (“2014 LTI”). Fifty percent of the 2014 LTI award is based upon FFO as Adjusted and fifty percent is based on Total Shareholder Return (“TSR”) as measured relative to comparable apartment REITs. The actual amount that vests was determined in February 2015 based upon the actual achievement of the metrics. Each award vests pro rata over three years commencing with the establishment of the award and continuing for two years following determination of the amount of the award at the end of the annual performance period. The portion of the restricted stock grant based upon FFO as Adjusted was valued based upon the closing sales price of UDR common stock on the date of grant. The portion of the restricted stock grant based upon TSR was valued at $21.15 per share on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 23.8%.

In February 2013, certain officers of the Company were awarded a restricted stock grant under the 2013 Long-Term Incentive Program (“2013 LTI”). Fifty percent of the 2013 LTI award is based upon FFO and fifty percent is based on Total Shareholder Return (“TSR”) as measured relative to comparable apartment REITs. The actual amount that vests was determined in February 2014 based upon the actual achievement of the metrics. Each award vests pro rata over three years commencing with the establishment of the award and continuing for two years following determination of the amount of the award at the end of the annual performance period. The portion of the restricted stock grant based upon FFO was valued based upon the closing sales price of UDR common stock on the date of grant. The portion of the restricted stock grant based upon TSR was valued at $21.97 per share on the grant date as determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation using a volatility factor of 15.8%.

Compensation expense is recorded under the accelerated method over the vesting period for the 2014 LTI and 2013 LTI. For the year ended December 31, 2014 and 2013, we recognized $9.8 million and $5.9 million, respectively, of compensation expense related to the amortization of the awards. The total remaining compensation cost on unvested 2014 LTI and 2013 LTI awards was $5.8 million and had a weighted average remaining contractual life of 1.8 years as of December 31, 2014.

During 2010, certain officers of the Company were awarded a restricted stock grant under the 2010-2012 Long-Term Incentive Program (“2010-2012 LTI”). The actual amount of the awards that vested in 2012 was determined based upon the Company’s achievement of the specified performance metrics during the three-year performance period. The grants were valued on the grant date based upon the market price of UDR common stock on the date of grant. Compensation expense was recorded pro rata over the three-year performance period. For the year ended December 31, 2012, we recognized $4.9 million of compensation expense related to the amortization of the awards.

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 years ended December 31, 2014, 2013, and 2012, was $854,000, $919,000, and $631,000, respectively.