EX-99.1 16 c208-20171231ex9912ca52c.htm EX-99.1 udr_Ex99_1

Exhibit 99.1

UDR LIGHTHOUSE DOWNREIT L.P.

Financial Statements as of December 31, 2017  (unaudited) and 2016 (audited) and

for the years ended December 31, 2017  (unaudited), 2016 (audited), and

for the period from October 5, 2015 through December 31, 2015 (unaudited)

and Independent Auditors’ Report

 

 

 

1

 

UDR LIGHTHOUSE DOWNREIT L.P.

 

 

INDEX

 

PAGE

Combined Financial Statements

 

 

 

Combined Balance Sheets as of December 31, 2017 (unaudited) and 2016  (audited)

4

 

 

Combined Statements of Operations for the years ended December 31, 2017 (unaudited), 2016 (audited), and period from October 5, 2015 through December 31, 2015 (unaudited)

5

 

 

Combined Statements of Comprehensive Income/(Loss) for the years ended December 31, 2017 (unaudited), 2016 (audited), and period from October 5, 2015 through December 31, 2015 (unaudited)

6

 

 

Combined Statement of Changes in Capital for the years ended December 31, 2017 (unaudited), 2016 (audited), and period from October 5, 2015 through December 31, 2015 (unaudited)

7

 

 

Combined Statements of Cash Flows for the years ended December 31, 2017 (unaudited), 2016 (audited), and period from October 5, 2015 through December 31, 2015 (unaudited)

8

 

 

Notes to Combined Financial Statements

9

 

2

 

 

Report of Independent Auditors

 

The Partners
UDR Lighthouse DownREIT L.P.

 

We have audited the accompanying combined financial statements of UDR Lighthouse DownREIT L.P., which comprise the combined balance sheet as of December 31, 2016, and the related combined statements of operations, comprehensive income/(loss), changes in capital, and cash flows for the year then ended, and the related notes to the combined financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.

Auditor’s Responsibility 

Our responsibility is to express an opinion on these financial statements based on our audit.  We conducted our audit in accordance with auditing standards generally accepted in the 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 involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.  The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.  In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.  Accordingly, we express no such opinion.  An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of UDR Lighthouse DownREIT L.P. at December 31, 2016, and the combined results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

Report on summarized comparative information

We have not audited, reviewed or compiled the summarized combined comparative information presented herein as of December 31, 2017 or for the year then ended or as of December 31, 2015 or for the period from October 5, 2015 to December 31, 2015, and, accordingly, we express no opinion on it. 

 

 

/s/ Ernst & Young LLP

Denver, Colorado
February 21, 2017

3

 

UDR LIGHTHOUSE DOWNREIT L.P.

COMBINED BALANCE SHEETS

(In thousands, except for unit data)

 

 

 

 

 

 

 

 

 

    

December 31, 

    

December 31, 

 

 

2017

 

2016

 

 

(unaudited)

 

(audited)

ASSETS

 

 

  

 

 

  

Real estate owned:

 

 

  

 

 

  

Real estate held for investment

 

$

1,540,781

 

$

1,511,627

Less: accumulated depreciation

 

 

(181,611)

 

 

(97,644)

Total real estate owned, net of accumulated depreciation

 

 

1,359,170

 

 

1,413,983

Cash and cash equivalents

 

 

39

 

 

66

Restricted cash

 

 

316

 

 

334

Note receivable from the General Partner

 

 

126,500

 

 

126,500

Other assets

 

 

4,621

 

 

4,509

Total assets

 

$

1,490,646

 

$

1,545,392

 

 

 

 

 

 

 

LIABILITIES AND CAPITAL

 

 

  

 

 

  

Liabilities:

 

 

  

 

 

  

Secured debt, net

 

$

437,510

 

$

443,607

Real estate taxes payable

 

 

7,347

 

 

6,832

Accrued interest payable

 

 

1,470

 

 

1,443

Security deposits and prepaid rent

 

 

3,151

 

 

3,565

Distributions payable

 

 

10,034

 

 

9,548

Accounts payable, accrued expenses, and other liabilities

 

 

5,572

 

 

6,183

Total liabilities

 

 

465,084

 

 

471,178

 

 

 

 

 

 

 

Commitments and contingencies (Note 9)

 

 

  

 

 

  

 

 

 

 

 

 

 

Capital:

 

 

  

 

 

  

Limited partners:

 

 

  

 

 

  

32,367,380 DownREIT Units outstanding at December 31, 2017 and December 31, 2016

 

 

968,175

 

 

1,022,890

Accumulated other comprehensive income/(loss), net

 

 

(1)

 

 

(46)

Total partners’ capital

 

 

968,174

 

 

1,022,844

Advances (to)/from the General Partner

 

 

57,388

 

 

51,370

Total capital

 

 

1,025,562

 

 

1,074,214

Total liabilities and capital

 

$

1,490,646

 

$

1,545,392

 

See accompanying notes to the combined financial statements.

4

 

UDR LIGHTHOUSE DOWNREIT L.P.

COMBINED STATEMENTS OF OPERATIONS

(In thousands, except per unit data)

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

Period From

 

 

Year Ended

 

Year Ended

 

October 5, 2015 to

 

 

December 31, 2017

 

December 31, 2016

 

December 31, 2015

 

 

(unaudited)

 

(audited)

 

(unaudited)

REVENUES:

 

 

  

 

 

  

 

 

 

Rental income

 

$

134,669

 

$

130,121

 

$

29,933

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

  

 

 

  

 

 

  

Property operating and maintenance

 

 

24,666

 

 

24,849

 

 

5,640

Real estate taxes and insurance

 

 

19,353

 

 

18,603

 

 

3,943

Property management

 

 

3,703

 

 

3,578

 

 

823

Other operating expenses

 

 

251

 

 

195

 

 

62

Real estate depreciation and amortization

 

 

84,000

 

 

111,453

 

 

28,934

General and administrative

 

 

7,305

 

 

7,503

 

 

3,750

Casualty-related charges/(recoveries), net

 

 

209

 

 

271

 

 

84

Total operating expenses

 

 

139,487

 

 

166,452

 

 

43,236

 

 

 

 

 

 

 

 

 

 

Operating income/(loss)

 

 

(4,818)

 

 

(36,331)

 

 

(13,303)

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(14,483)

 

 

(14,208)

 

 

(3,632)

Interest income on note receivable from the General Partner

 

 

4,718

 

 

4,743

 

 

1,131

Net income/(loss) attributable to DownREIT unitholders

 

$

(14,583)

 

$

(45,796)

 

$

(15,804)

 

 

 

 

 

 

 

 

 

 

Net income/(loss) per weighted average DownREIT Unit - basic and diluted:

 

$

(0.45)

 

$

(1.41)

 

$

(0.49)

 

 

 

 

 

 

 

 

 

 

Weighted average DownREIT Units outstanding - basic and diluted

 

 

32,367

 

 

32,367

 

 

32,367

 

See accompanying notes to the combined financial statements.

5

 

 

UDR LIGHTHOUSE DOWNREIT L.P.

COMBINED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

Period From

 

 

Year Ended

 

Year Ended

 

October 5, 2015 to

 

 

December 31, 2017

 

December 31, 2016

 

December 31, 2015

 

 

(unaudited)

 

(audited)

 

(unaudited)

Net income/(loss) attributable to DownREIT unitholders

 

$

(14,583)

 

$

(45,796)

 

$

(15,804)

Other comprehensive income/(loss), including portion attributable to noncontrolling interests:

 

 

  

 

 

  

 

 

  

Other comprehensive income/(loss) - derivative instruments:

 

 

  

 

 

  

 

 

  

Unrealized holding gain/(loss)

 

 

 —

 

 

(2)

 

 

(52)

(Gain)/loss reclassified into earnings from other comprehensive income/(loss)

 

 

46

 

 

 5

 

 

 3

Other comprehensive income/(loss)

 

 

46

 

 

 3

 

 

(49)

Comprehensive income/(loss) attributable to DownREIT unitholders

 

$

(14,537)

 

$

(45,793)

 

$

(15,853)

 

6

 

UDR LIGHTHOUSE DOWNREIT L.P.

COMBINED STATEMENTS OF CHANGES IN CAPITAL

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

UDR, Inc

    

Accumulated Other

    

Total

    

Advances

    

 

 

 

 

Limited

 

Limited

 

Comprehensive

 

Partners’

 

(to)/from the

 

 

 

 

 

Partners

 

Partner

 

Income/(Loss), net

 

Capital

 

General Partner

 

Total

Beginning balance at October 5, 2015

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

Units issued in exchange for Real Estate

 

 

564,514

 

 

567,713

 

 

 —

 

 

1,132,227

 

 

 —

 

 

1,132,227

Net income/(loss)

 

 

4,514

 

 

(20,318)

 

 

 —

 

 

(15,804)

 

 

 —

 

 

(15,804)

Distributions

 

 

(4,768)

 

 

(4,791)

 

 

 —

 

 

(9,559)

 

 

 —

 

 

(9,559)

Adjustment to reflect limited partners’ capital at redemption value

 

 

42,044

 

 

(42,044)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Unrealized gain on derivative financial investments

 

 

 —

 

 

 —

 

 

(49)

 

 

(49)

 

 

 —

 

 

(49)

Net change in advances (to)/from the General Partner

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(35,293)

 

 

(35,293)

Balance at December 31, 2015

 

 

606,304

 

 

500,560

 

 

(49)

 

 

1,106,815

 

 

(35,293)

 

 

1,071,522

Net income/(loss)

 

 

18,081

 

 

(63,877)

 

 

 —

 

 

(45,796)

 

 

 —

 

 

(45,796)

Distributions

 

 

(18,921)

 

 

(19,257)

 

 

 —

 

 

(38,178)

 

 

 —

 

 

(38,178)

DownREIT Unit redemptions for common shares of UDR

 

 

(8,939)

 

 

8,939

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Adjustment to reflect limited partners’ capital at redemption value

 

 

(17,136)

 

 

17,136

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Unrealized gain on derivative financial investments

 

 

 —

 

 

 —

 

 

 3

 

 

 3

 

 

 —

 

 

 3

Net change in advances (to)/from the General Partner

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

86,663

 

 

86,663

Balance at December 31, 2016

 

 

579,389

 

 

443,501

 

 

(46)

 

 

1,022,844

 

 

51,370

 

 

1,074,214

Net income/(loss)

 

 

18,854

 

 

(33,437)

 

 

 —

 

 

(14,583)

 

 

 —

 

 

(14,583)

Distributions

 

 

(19,401)

 

 

(20,731)

 

 

 —

 

 

(40,132)

 

 

 —

 

 

(40,132)

DownREIT Unit redemptions for common shares of UDR

 

 

(14,255)

 

 

14,255

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Adjustment to reflect limited partners’ capital at redemption value

 

 

32,509

 

 

(32,509)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Unrealized gain on derivative financial investments

 

 

 —

 

 

 —

 

 

45

 

 

45

 

 

 —

 

 

45

Net change in advances (to)/from the General Partner

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

6,018

 

 

6,018

Balance at December 31, 2017

 

$

597,096

 

$

371,079

 

$

(1)

 

$

968,174

 

$

57,388

 

$

1,025,562

 

See accompanying notes to the combined financial statements.

7

 

UDR LIGHTHOUSE DOWNREIT L.P.

COMBINED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

Period From

 

 

Year Ended

 

Year Ended

 

October 5, 2015 to

 

 

December 31, 2017

 

December 31, 2016

 

December 31, 2015

 

 

(unaudited)

 

(audited)

 

(unaudited)

Operating Activities

 

 

  

 

 

  

 

 

  

Net income/(loss) attributable to DownREIT unitholders

 

$

(14,583)

 

$

(45,796)

 

$

(15,804)

Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:

 

 

  

 

 

  

 

 

  

Depreciation and amortization

 

 

84,000

 

 

111,453

 

 

28,934

Other

 

 

(2,825)

 

 

(5,578)

 

 

(2,232)

Changes in operating assets and liabilities:

 

 

  

 

 

  

 

 

  

(Increase)/decrease in operating assets

 

 

(190)

 

 

(475)

 

 

(1,709)

Increase/(decrease) in operating liabilities

 

 

(394)

 

 

1,549

 

 

4,467

Net cash provided by/(used in) operating activities

 

 

66,008

 

 

61,153

 

 

13,656

 

 

 

 

 

 

 

 

 

 

Investing Activities

 

 

  

 

 

  

 

 

  

Capital expenditures and other major improvements — real estate assets, net of escrow reimbursement

 

 

(29,458)

 

 

(35,190)

 

 

(2,927)

Issuance of note receivable from the General Partner

 

 

 —

 

 

 —

 

 

(126,500)

Net cash provided by/(used in) investing activities

 

 

(29,458)

 

 

(35,190)

 

 

(129,427)

 

 

 

 

 

 

 

 

 

 

Financing Activities

 

 

  

 

 

  

 

 

  

Advances (to)/from the General Partner, net

 

 

(14,227)

 

 

67,972

 

 

(5,414)

Proceeds from the issuance of secured debt

 

 

 —

 

 

50,000

 

 

127,600

Payments on secured debt

 

 

(2,949)

 

 

(124,998)

 

 

(796)

Distributions paid to partnership unitholders

 

 

(19,401)

 

 

(18,921)

 

 

(4,768)

Payments of financing costs

 

 

 —

 

 

(39)

 

 

(762)

Net cash provided by/(used in) financing activities

 

 

(36,577)

 

 

(25,986)

 

 

115,860

Net increase/(decrease) in cash and cash equivalents

 

 

(27)

 

 

(23)

 

 

89

Cash and cash equivalents, beginning of year

 

 

66

 

 

89

 

 

 —

Cash and cash equivalents, end of year

 

$

39

 

$

66

 

$

89

 

 

 

 

 

 

 

 

 

 

Supplemental Information:

 

 

  

 

 

  

 

 

  

Interest paid during the period, net of amounts capitalized

 

$

17,603

 

$

19,480

 

$

4,694

Non-cash transactions:

 

 

  

 

 

  

 

 

  

Contribution of real estate in exchange for DownREIT Units

 

 

 —

 

 

 —

 

 

1,132,227

Secured debt assumed in the contribution of real estate in exchange for DownREIT Units

 

 

 —

 

 

 —

 

 

366,069

Fair value adjustment of secured debt assumed in the contribution of real estate in exchange for DownREIT Units

 

 

 —

 

 

 —

 

 

16,912

Reallocation of credit facilities debt from the General Partner

 

 

 —

 

 

 —

 

 

16,798

Development costs and capital expenditures incurred but not yet paid

 

 

1,217

 

 

1,535

 

 

504

Dividends declared but not yet paid

 

 

10,034

 

 

9,548

 

 

8,982

 

See accompanying notes to the combined financial statements.

 

 

8

 

UDR LIGHTHOUSE DOWNREIT L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2017

1. CONSOLIDATION AND BASIS OF PRESENTATION

Basis of Presentation

UDR Lighthouse DownREIT L.P. (the “DownREIT Partnership," "we" or "our"), a Delaware limited partnership, was formed on October 5, 2015 ("inception") to own, acquire, renovate, redevelop, manage and dispose of multifamily apartment communities. The DownREIT Partnership is a subsidiary of UDR, Inc. (“UDR” or the “General Partner”), a self-administered real estate investment trust, or REIT. At December 31, 2017, the DownREIT Partnership’s apartment portfolio consisted of 13 communities located in four markets consisting of 6,261 apartment homes.

Interests in the DownREIT Partnership are represented by units of limited partnership interest (“DownREIT Units”). The DownREIT Partnership’s net income (or individual items thereof) is allocated to the partners in accordance with the terms of the Agreement of Limited Partnership of UDR Lighthouse DownREIT L.P. (the “DownREIT Partnership Agreement”), which is generally first based on their respective distributions made during the year and secondly, 99% to UDR and 1% to the outside partners. Distributions are made in accordance with the terms of the DownREIT Partnership Agreement first on a per unit basis that is generally equal to the dividend per share on UDR’s common stock, which is publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “UDR” and secondly, 99% to UDR and 1% to the outside partners.

UDR is the sole general partner and a limited partner of the DownREIT Partnership. As the sole general partner of the DownREIT Partnership, UDR has full, complete and exclusive discretion to manage and control the business of the DownREIT Partnership and to make all decisions affecting the business and assets of the DownREIT Partnership, subject to certain limitations. United Dominion Realty, L.P., a Delaware limited partnership (the “Operating Partnership”), a subsidiary of UDR, is also a limited partner in the DownREIT Partnership. UDR and the Operating Partnership received their limited partnership interests in exchange for their contribution of the properties to the DownREIT Partnership. As of December 31, 2017, UDR and the Operating Partnership owned approximately 10.5% and 41.6%, respectively, of the DownREIT Units.

The Operating Partnership accounts for its ownership interest in the DownREIT Partnership as an equity method investment.

These financial statements are being presented pursuant to Rule 3-09 of Regulation S-X as the DownREIT Partnership was a significant subsidiary of the Operating Partnership for the year ended December 31, 2016. The DownREIT Partnership was not a significant subsidiary of the Operating Partnership for the year ended December 31, 2017 or the period from inception through December 31, 2015.

As of December 31, 2017, there were 32,367,380 DownREIT Units outstanding, of which 16,866,443, or 52.1%, were owned by UDR and affiliated entities, of which 13,470,651, or 41.6%, were held by the Operating Partnership, and 15,500,937 or 47.9% were owned by non-affiliated limited partners. See Note 8, Capital Structure.

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

2. SIGNIFICANT ACCOUNT POLICIES

Recent Accounting Pronouncements

In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-12, Derivatives and Hedging, Targeted Improvements to Accounting for Hedging Activities. The ASU aims to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. The updated standard will be effective for the DownREIT Partnership on January 1, 2019 and must be applied using a modified retrospective approach; however, early adoption of the ASU is permitted. The DownREIT Partnership expects to early adopt the guidance on January 1, 2018, but does not expect the updated standard to have a material

9

 

UDR LIGHTHOUSE DOWNREIT L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2017

 

impact on the consolidated financial statements. Related disclosures will be updated pursuant to the requirements of the ASU.

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

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

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

In February 2016, the FASB issued ASU No. 2016‑02, Leases. The standard amends the existing lease accounting guidance and requires lessees to recognize a lease liability and a right-of-use asset for all leases (except for short-term leases that have a duration of one year or less) on their balance sheets. Lessees will continue to recognize lease expense in a manner similar to current accounting. For lessors, accounting for leases under the new guidance is substantially the same as in prior periods, but eliminates current real estate-specific provisions and changes the treatment of initial direct costs. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparable period presented, with an option to elect certain transition relief. Full retrospective application is prohibited. The standard will be effective for the DownREIT Partnership on January 1, 2019, however, early adoption of the ASU is permitted. While the DownREIT is currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures, we expect to adopt the guidance on its effective date, at which time we do not expect the updated standard to have a material impact on the consolidated financial statements. Related disclosures will be updated pursuant to the requirements of the ASU.

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

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

10

 

UDR LIGHTHOUSE DOWNREIT L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2017

 

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.

The DownREIT Partnership purchases real estate investment properties and records the tangible and identifiable intangible assets and liabilities 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 recording the acquisition of a community, we first assign fair value 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 DownREIT Partnership 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 average contractual life. Property acquisition costs are expensed as incurred.

Quarterly or when changes in circumstances warrant, the DownREIT Partnership will assess our real estate properties for indicators of impairment. In determining whether the DownREIT Partnership 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 net operating income (“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 carrying value exceeds the undiscounted cash flows of the community, 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 primarily upon unobservable inputs related to rental rates, operating costs, growth rates, discount rates and capitalization rates, 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 with the closing expected to occur 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 sell, 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 to 55 years for buildings, 10 to 35 years for major improvements, and 3 to 10 years for furniture, fixtures, equipment, and other assets.

Predevelopment, development, and redevelopment projects and related costs are capitalized and reported on the Combined Balance Sheets as Total real estate owned, net of accumulated depreciation. The DownREIT Partnership capitalizes costs directly related to the predevelopment, development, and redevelopment of a capital project, which include, but are not limited to, interest, real estate taxes, insurance, and allocated development and redevelopment overhead related to support costs for personnel working on the capital projects. We use our professional judgment in determining whether such costs meet the criteria for capitalization or must be expensed as incurred. These costs are capitalized only during the period in which activities necessary to ready an asset for its intended use are in progress and such costs are incremental and identifiable to a specific activity to get the asset ready for its intended use. These costs, excluding the direct costs of redevelopment and capitalized interest, for the years ended December 31, 2017,  2016 and period from inception through December 31, 2015 were $0.4 million  (unaudited),  $0.3 million  (audited), and less than $0.1 million  (unaudited), respectively. During the years ended December 31, 2017,  2016, and period from inception through December 31, 2015, total interest capitalized was less than $0.1 million  (unaudited),  $0.1 million (audited), and $0.0  (unaudited), respectively. As each home in a capital project is completed and becomes available for lease-up, the DownREIT Partnership ceases capitalization on the related portion and depreciation commences over the estimated useful life.

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

11

 

UDR LIGHTHOUSE DOWNREIT L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2017

 

purchased to be cash equivalents. The majority of the DownREIT Partnership’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.

Revenue and Real Estate Sales Gain Recognition

Rental income related to leases is recognized on an accrual basis when due from residents and tenants in accordance with GAAP. Rental payments are generally due on a monthly basis and recognized when earned. The DownREIT Partnership recognizes interest income when earned, fixed and determinable.

For sale transactions meeting the requirements for full accrual profit recognition, we remove the related assets and liabilities from our Combined Balance Sheets 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. Unless certain limited criteria are met, non-monetary transactions, including property exchanges, are accounted for at fair value.

Sales to entities in which we or our General Partner 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 defer the gain on the interest we or our General Partner retain. The DownREIT Partnership recognizes any deferred gain when the property is 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.

Derivative Financial Instruments

The General Partner utilizes derivative financial instruments to manage interest rate risk and generally designates these financial instruments as cash flow hedges. Derivative financial instruments associated with the DownREIT Partnership’s allocation of the General Partner’s debt are recorded on our Combined Balance Sheets as either an asset or liability and measured quarterly at their fair value. The changes in fair value for the General Partner’s cash flow hedges allocated to the DownREIT Partnership that are deemed effective are reflected in other comprehensive income/(loss) and for non-designated derivative financial instruments in earnings. The ineffective component of cash flow hedges, if any, is recorded in earnings.

Income Taxes

The taxable income or loss of the DownREIT Partnership is reported on the tax returns of the partners. Accordingly, no provision has been made in the accompanying financial statements for federal or state income taxes on income that is passed through to the partners. However, any state or local revenue, excise or franchise taxes that result from the operating activities of the DownREIT Partnership are recorded at the entity level. The DownREIT Partnership’s tax returns are subject to examination by federal and state taxing authorities. Net income for financial reporting purposes differs from the net income for income tax reporting purposes primarily due to temporary differences, principally real estate depreciation and the tax deferral of certain gains on property sales. The differences in depreciation result from differences in the book and tax basis of certain real estate assets and the differences in the methods of depreciation and lives of the real estate assets.

The DownREIT Partnership evaluates the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing the DownREIT Partnership’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Management of the DownREIT Partnership is required to analyze all open tax years, as defined by the statute of limitations, for all major

12

 

UDR LIGHTHOUSE DOWNREIT L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2017

 

jurisdictions, which include federal and certain states. The DownREIT Partnership has no examinations in progress and none are expected at this time.

Management of the DownREIT Partnership has reviewed all open tax years (2015 through 2016) of tax jurisdictions and concluded there is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted, reducing the U.S. federal corporate income tax rate from 35% to 21%, among other changes. The SEC staff issued Staff Accounting Bulletin 118, which provides guidance on accounting for the tax effects of the Act for which the accounting under ASC 740, Income Taxes (“ASC 740”) is incomplete. To the extent that a company's accounting for certain income tax effects of the Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before enactment of the Act. As of December 31, 2017, the impact to the DownREIT Partnership related to the accounting for the tax effects of the Act was not material.

Allocation of General and Administrative Expenses

The DownREIT Partnership is charged directly for general and administrative expenses it incurs. The DownREIT Partnership is also charged with other general and administrative expenses that have been allocated by the General Partner to each of its subsidiaries, including the DownREIT Partnership, based on reasonably anticipated benefits to the parties. (See Note 5, Related Party Transactions.)

Advertising Costs

All advertising costs are expensed as incurred and reported on the Combined Statements of Operations within the line item Property operating and maintenance. During the years ended December 31, 2017,  2016, and period from inception through December 31, 2015, total advertising expense was $1.1 million  (unaudited),  $1.3 million  (audited), and $0.3 million  (unaudited), respectively.

Comprehensive Income/(Loss)

Comprehensive income/(loss), which is defined as the change in capital during each period from transactions and other events and circumstances from nonowner sources, including all changes in capital during a period except for those resulting from investments by or distributions to partners, is displayed in the accompanying Combined Statements of Comprehensive Income/(Loss). For the years ended December 31, 2017,  2016, and period from inception through December 31, 2015, the DownREIT Partnership’s other comprehensive income/(loss) consisted of the gain/(loss) (effective portion) on derivative instruments that are designated as and qualify as cash flow hedges and (gain)/loss reclassified from other comprehensive income/(loss) into earnings. The (gain)/loss reclassified from other comprehensive income/(loss) is included in Interest expense on the Combined Statements of Operations. See Note 7, Derivatives and Hedging Activity, for further discussion.

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.

Market Concentration Risk

The DownREIT Partnership is subject to increased exposure from economic and other competitive factors specific to those markets where it holds a significant percentage of the carrying value of its real estate portfolio at December 31, 2017, the DownREIT Partnership held greater than 10% of the carrying value of its real estate portfolio in the Metropolitan D.C., Boston, Massachusetts and Dallas, Texas markets.

13

 

UDR LIGHTHOUSE DOWNREIT L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2017

 

3. REAL ESTATE OWNED

Real estate assets owned by the DownREIT Partnership consist of income producing operating properties. At December 31, 2017, the DownREIT Partnership owned and combined 13 operating communities in two states plus the District of Columbia totaling 6,261 apartment homes. The following table summarizes the carrying amounts for our real estate owned (at cost) as of December 31, 2017 and 2016 (dollars in thousands):

 

 

 

 

 

 

 

 

    

December 31, 

    

December 31, 

 

 

2017

 

2016

 

 

(unaudited)

 

(audited)

Land

 

$

265,520

 

$

265,520

Depreciable property — held and used:

 

 

  

 

 

  

Land improvements

 

 

3,664

 

 

1,347

Buildings, improvements, and furniture, fixtures and equipment

 

 

1,271,597

 

 

1,244,760

Real estate owned

 

 

1,540,781

 

 

1,511,627

Accumulated depreciation

 

 

(181,611)

 

 

(97,644)

Real estate owned, net

 

$

1,359,170

 

$

1,413,983

 

During the years ended December 31, 2017 and 2016, the DownREIT Partnership did not have any acquisitions or dispositions.

At inception, the DownREIT Partnership received the 13 operating communities noted above in exchange for DownREIT Units with a value of $1.1 billion and the assumption of $366.1 million of secured debt. Nine of the communities were contributed by the General Partner and the remaining four were contributed by outside limited partnership holders.

4. DEBT, NET

Our secured debt instruments generally feature either monthly interest and principal or monthly interest-only payments with balloon payments due at maturity. For purposes of classification in the following table, variable rate debt with a derivative financial instrument designated as a cash flow hedge is deemed as fixed rate debt due to the DownREIT Partnership having effectively established the fixed interest rate for the underlying debt instrument. Secured debt consists of the following as of December 31, 2017 and 2016  (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal Outstanding

 

For the Year Ended December 31, 2017

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Weighted

 

Average

 

Number of

 

 

December 31,

 

Average

 

Years to

 

Communities

 

    

2017

    

2016

    

Interest Rate

    

Maturity

    

Encumbered

 

 

(unaudited)

 

(audited)

 

 

 

 

 

 

Fixed Rate Debt

 

 

  

 

 

  

 

  

 

  

 

  

Mortgage notes payable

 

$

319,671

 

$

325,991

 

4.13

%  

5.6

 

 5

Fannie Mae credit facilities

 

 

90,000

 

 

48,292

 

3.95

%  

2.5

 

 1

Deferred financing costs

 

 

(1,192)

 

 

(1,236)

 

  

 

  

 

  

Total fixed rate secured debt, net

 

 

408,479

 

 

373,047

 

4.09

%  

4.9

 

 6

Variable Rate Debt

 

 

  

 

 

  

 

  

 

  

 

  

Fannie Mae credit facilities

 

 

29,034

 

 

70,741

 

2.92

%  

0.9

 

 1

Deferred financing costs

 

 

(3)

 

 

(181)

 

  

 

  

 

  

Total variable rate secured debt, net

 

 

29,031

 

 

70,560

 

2.92

%  

0.9

 

 1

Total secured debt, net

 

$

437,510

 

$

443,607

 

3.25

%  

4.6

 

 7

 

As of December 31, 2017, an aggregate commitment of $119.0 million of the General Partner’s secured credit facilities with Fannie Mae was allocated to the DownREIT Partnership based on the ownership of the assets securing the debt. The entire commitment was outstanding at December 31, 2017. The portion of the Fannie Mae credit facilities allocated to the DownREIT Partnership mature at various dates from December 2018 through July 2020 and bear interest at floating and fixed rates. At December 31, 2017,  $90.0 million of the outstanding balance was fixed and had a weighted average interest rate of 3.95% and the remaining balance of $29.0 million on these facilities had a weighted

14

 

UDR LIGHTHOUSE DOWNREIT L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2017

 

average variable interest rate of 2.92%. The following information relates to the credit facilities owed by the DownREIT Partnership (dollars in thousands):

 

 

 

 

 

 

 

 

 

    

December 31,

    

December 31,

 

 

 

2017

 

2016

 

 

 

(unaudited)

 

(audited)

 

Borrowings outstanding

 

$

119,034

 

$

119,033

 

Weighted average borrowings during the period ended

 

 

119,034

 

 

119,033

 

Maximum daily borrowings during the period ended

 

 

119,034

 

 

119,033

 

Weighted average interest rate during the period ended

 

 

3.6

%  

 

3.2

%

Interest rate at the end of the period

 

 

3.7

%  

 

3.3

%

 

Upon the contribution of communities to the DownREIT Partnership, contributed secured debt was recorded at its estimated fair value and the difference between the fair value and par is amortized to interest expense over the life of the underlying debt instrument. As of December 31, 2017 and 2016, the DownREIT Partnership had $6.4 million  (unaudited) and $9.7 million (audited), respectively, of unamortized fair value adjustments associated with the fixed rate debt instruments on the DownREIT Partnership’s properties.

Fixed Rate Debt

At December 31, 2017, the General Partner had borrowings against its fixed rate facilities of $285.8 million, of which $90.0 million was owed by the DownREIT Partnership based on the ownership of the assets securing the debt. As of December 31, 2017, the fixed rate Fannie Mae credit facilities allocated to the DownREIT Partnership had a weighted average fixed interest rate of 3.95%.

Variable Rate Debt

At December 31, 2017, the General Partner had borrowings against its variable rate facilities of $29.0 million, of which $29.0 million was owed by the DownREIT Partnership based on the ownership of the assets securing the debt. As of December 31, 2017, the variable rate borrowings under the Fannie Mae credit facilities allocated to the DownREIT Partnership had a weighted average floating interest rate of 2.92%.

The aggregate maturities of the DownREIT Partnership’s secured debt due during each of the next ten calendar years subsequent to December 31, 2017 are as follows (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

 

Variable

 

 

 

 

Mortgage

 

Secured Credit

 

 Secured Credit

 

 

 

 

Notes Payable

 

Facilities

 

Facilities

 

Total

2018

    

$

3,096

    

$

 —

    

$

29,034

    

$

32,130

2019

 

 

51,960

 

 

 —

 

 

 —

 

 

51,960

2020

 

 

80,664

 

 

90,000

 

 

 —

 

 

170,664

2021

 

 

 —

 

 

 —

 

 

 —

 

 

 —

2022

 

 

 —

 

 

 —

 

 

 —

 

 

 —

2023

 

 

 —

 

 

 —

 

 

 —

 

 

 —

2024

 

 

 —

 

 

 —

 

 

 —

 

 

 —

2025

 

 

127,600

 

 

 —

 

 

 —

 

 

127,600

2026

 

 

50,000

 

 

 —

 

 

 —

 

 

50,000

2027

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Thereafter

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Subtotal

 

 

313,320

 

 

90,000

 

 

29,034

 

 

432,354

Non-cash (a)

 

 

5,496

 

 

(337)

 

 

(3)

 

 

5,156

Total

 

$

318,816

 

$

89,663

 

$

29,031

 

$

437,510

(a)

Includes the unamortized balance of fair market value adjustments, premiums/discounts and deferred financing costs. During the years ended December 31, 2017 and 2016, the DownREIT Partnership amortized $0.3 million (unaudited)  and less than $0.1 million  (audited) of deferred financing costs into Interest expense.

15

 

UDR LIGHTHOUSE DOWNREIT L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2017

 

5. RELATED PARTY TRANSACTIONS

Advances (To)/From the General Partner

The DownREIT Partnership participates in the General Partner’s central cash management program, wherein all the DownREIT Partnership’s cash receipts are remitted to the General Partner and all cash disbursements are funded by the General Partner. In addition, other miscellaneous costs such as administrative expenses are incurred by the General Partner on behalf of the DownREIT Partnership. As a result of these various transactions between the DownREIT Partnership and the General Partner, the DownREIT Partnership had net Advances (to)/from the General Partner of $57.4 million (unaudited)  and $51.4 million (audited) at December 31, 2017 and 2016, respectively, which is reflected as increases/(decreases) of capital on the Combined Balance Sheets.

Note Receivable from the General Partner

On October 6, 2015, the DownREIT Partnership entered into a note receivable with the General Partner with an aggregate commitment of $126.5 million. As of December 31, 2017 and 2016, the note had a balance of $126.5 million. Interest is incurred at a rate of 3.75% per annum and is paid monthly. The note matures on October 6, 2025. For the years ended December 31, 2017,  2016, and period from inception through December 31, 2015, the DownREIT Partnership recognized $4.7 million (unaudited),  $4.7 million (audited)and $1.1 million (unaudited), respectively, of interest income from the note.

Allocation of General and Administrative Expenses

The General Partner shares various general and administrative costs, employees and other overhead costs with the DownREIT Partnership including legal assistance, acquisitions analysis, marketing, human resources, IT, accounting, rent, supplies and advertising, and allocates these costs to the DownREIT Partnership first on the basis of direct usage when identifiable, with the remainder allocated based on the reasonably anticipated benefits to the parties. During the years ended December 31, 2017,  2016, and period from inception through December 31, 2015, the general and administrative expenses allocated to the DownREIT Partnership by UDR were $5.3 million (unaudited),  $5.7 million (audited)  and $1.7 million (unaudited), respectively, and are included in General and administrative on the Combined Statements of Operations. In the opinion of management, this method of allocation reflects the level of services received by the DownREIT Partnership from the General Partner.

During the years ended December 31, 2017,  2016, and period from inception through December 31, 2015, the DownREIT Partnership reimbursed the General Partner $5.8 million (unaudited), $5.4 million (audited)  and $1.5 million (unaudited), respectively, for shared services related to corporate level property management costs incurred by the General Partner. These shared cost reimbursements and related party management fees are initially recorded within the line item General and administrative on the Combined Statements of Operations, and a portion related to management costs is reclassified to Property management on the Combined Statements of Operations. (See further discussion below.)

Shared Services/Management Fee

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

6. FAIR VALUE OF DERIVATIVES AND FINANCIAL INSTRUMENTS

Fair value is based on the price that would be received to sell an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level valuation

16

 

UDR LIGHTHOUSE DOWNREIT L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2017

 

hierarchy prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below:

·

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

·

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

·

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

The estimated fair values of the DownREIT Partnership’s financial instruments either recorded or disclosed on a recurring basis as of December 31, 2017 and 2016 are summarized as follows (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value at December 31, 2017, Using

 

 

 

 

 

 

(unaudited)

 

 

Total

 

 

 

Quoted

 

 

 

 

 

 

Carrying

 

 

 

Prices in

 

 

 

 

 

 

Amount in

 

 

 

Active

 

 

 

 

 

 

Statement of

 

 

 

Markets

 

Significant

 

 

 

 

Financial

 

Fair Value

 

for Identical

 

Other

 

Significant

 

 

Position at

 

Estimate at

 

Assets or

 

Observable

 

Unobservable

 

 

December 31, 

 

December 31, 

 

Liabilities

 

Inputs

 

Inputs

 

 

2017

 

2017

 

(Level 1)

 

(Level 2)

 

(Level 3)

Description:

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

Secured debt instruments - fixed rate: (a)

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Mortgage notes payable

 

$

319,671

 

$

315,348

 

$

 —

 

$

 —

 

$

315,348

Fannie Mae credit facilities

 

 

90,000

 

 

90,591

 

 

 —

 

 

 —

 

 

90,591

Secured debt instruments - variable rate: (a)

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Fannie Mae credit facilities

 

 

29,034

 

 

29,034

 

 

 —

 

 

 —

 

 

29,034

Total liabilities

 

$

438,705

 

$

434,973

 

$

 —

 

$

 —

 

$

434,973

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value at December 31, 2016, Using

 

 

 

 

 

 

(audited)

 

 

Total

 

 

 

Quoted

 

 

 

 

 

 

Carrying

 

 

 

Prices in

 

 

 

 

 

 

Amount in

 

 

 

Active

 

 

 

 

 

 

Statement of

 

 

 

Markets

 

Significant

 

 

 

 

Financial

 

Fair Value

 

for Identical

 

Other

 

Significant

 

 

Position at

 

Estimate at

 

Assets or

 

Observable

 

Unobservable

 

 

December 31, 

 

December 31, 

 

Liabilities

 

Inputs

 

Inputs

 

 

2016

 

2016

 

(Level 1)

 

(Level 2)

 

(Level 3)

Description:

    

 

  

    

 

  

    

 

  

    

 

  

    

 

  

Secured debt instruments - fixed rate: (a)

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Mortgage notes payable

 

$

325,991

 

$

310,553

 

$

 —

 

$

 —

 

$

310,553

Fannie Mae credit facilities

 

 

48,292

 

 

49,080

 

 

 —

 

 

 —

 

 

49,080

Secured debt instruments - variable rate: (a)

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

Fannie Mae credit facilities

 

 

70,741

 

 

70,741

 

 

 —

 

 

 —

 

 

70,741

Total liabilities

 

$

445,024

 

$

430,374

 

$

 —

 

$

 —

 

$

430,374

(a)

See Note 4, Debt, Net.

There were no transfers into or out of each of the levels of the fair value hierarchy.

17

 

UDR LIGHTHOUSE DOWNREIT L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2017

 

Financial Instruments Carried at Fair Value

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

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

Although the General Partner, on behalf of the DownREIT Partnership, has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of December 31, 2017 and December 31, 2016, the DownREIT Partnership has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the DownREIT Partnership has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. In conjunction with the FASB’s fair value measurement guidance, the DownREIT Partnership made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Financial Instruments Not Carried at Fair Value

At December 31, 2017, the fair values of cash and cash equivalents, restricted cash, accounts receivable, prepaids, real estate taxes payable, accrued interest payable, security deposits and prepaid rent, distributions payable and accounts payable approximated their carrying values because of the short term nature of these instruments. The estimated fair values of other financial instruments were determined by the DownREIT Partnership 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 DownREIT Partnership 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 General Partner estimates the fair value of our debt instruments by discounting the remaining cash flows of the debt instrument at a discount rate equal to the replacement market credit spread plus the corresponding treasury yields. Factors considered in determining a replacement market credit spread include general market conditions, borrower specific credit spreads, time remaining to maturity, loan-to-value ratios and collateral quality (Level 3).

The DownREIT Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by the future operation and disposition of those assets are less than the net book value of those assets. Cash flow estimates are based upon historical results adjusted to reflect management’s best estimate of future market and operating conditions and our estimated holding periods. The net book value of impaired assets is reduced to fair value. The General Partner’s estimates of fair value represent management’s estimates based upon Level 3 inputs such as industry trends and reference to market rates and transactions.

18

 

UDR LIGHTHOUSE DOWNREIT L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2017

 

7. DERIVATIVES AND HEDGING ACTIVITY

Risk Management Objective of Using Derivatives

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

Cash Flow Hedges of Interest Rate Risk

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

A portion of the General Partner’s interest rate derivatives has been allocated to the DownREIT Partnership based on the General Partner’s underlying debt instruments owed by the DownREIT Partnership. (See Note 4, Debt, Net.)

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated other comprehensive income/(loss), net in the Combined Balance Sheets, and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the years ended December 31, 2017,  2016, and period from inception through December 31, 2015, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the year ended December 31, 2017 the DownREIT Partnership recognized a loss of $0.1 million (unaudited)  reclassified from Accumulated other comprehensive income/(loss), net to Interest expense due to the de-designation of a cash flow hedge. During the year ended December 31, 2016, the DownREIT Partnership recorded no gain or loss (audited)  from ineffectiveness. For the period from inception through December 31, 2015, the DownREIT Partnership recognized a loss of less than $0.1 million (unaudited)  reclassified from Accumulated other comprehensive income/(loss), net to Interest expense due to the de-designation of a cash flow hedge and recorded no other ineffectiveness to earnings.

Amounts reported in Accumulated other comprehensive income/(loss), net related to derivatives will be reclassified to interest expense as interest payments are made on the General Partner’s variable-rate debt that is allocated to the DownREIT Partnership. Through December 31, 2018, we estimate that no amounts will be reclassified as an increase to interest expense.

Derivatives not designated as hedges are not speculative and are used to manage the DownREIT Partnership’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements of GAAP. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings and resulted in an adjustment to earnings of less than $0.1 million for the years ended December 31, 2017,  2016, and period from inception through December 31, 2015.

19

 

UDR LIGHTHOUSE DOWNREIT L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2017

 

As of December 31, 2017, we had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollars in thousands):

 

 

 

 

 

 

 

    

Number of

    

 

Product

 

Instruments

 

Notional

Interest rate caps

 

 2

 

$

251,196

 

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

The fair value of the DownREIT Partnership’s derivative financial instruments as of December 31, 2017 and 2016 was zero and had no impact on the combined balance sheets.

 

Tabular Disclosure of the Effect of Derivative Instruments on the Combined Statements of Operations

The tables below present the effect of the derivative financial instruments on the Combined Statements of Operations for the years ended December 31, 2017,  2016, and period from inception through December 31, 2015 (dollars in thousands):

Derivatives in Cash Flow Hedging Relationships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain/(Loss) Recognized

 

 

Unrealized holding

 

Gain/(Loss) Reclassified

 

in Interest expense

 

 

gain/(loss) Recognized in

 

from Accumulated OCI into

 

(Ineffective Portion and

 

 

OCI

 

Interest expense

 

Amount Excluded from

 

 

(Effective Portion)

 

(Effective Portion)

 

Effectiveness Testing)

 

 

 

 

 

 

Period From

 

 

 

 

 

Period From

 

 

 

 

 

Period From

 

 

 

 

 

 

October 5, 2015

 

 

 

 

 

October 5, 2015

 

 

 

 

 

October 5, 2015

 

 

Year Ended

 

Year Ended

 

to

 

Year Ended

 

Year Ended

 

to

 

Year Ended

 

Year Ended

 

to

 

    

December 31, 

    

December 31, 

 

December 31,

    

December 31, 

    

December 31, 

 

December 31,

    

December 31, 

    

December 31, 

 

December 31,

 

 

2017

 

2016

 

2015

 

2017

 

2016

 

2015

 

2017

 

2016

 

2015

 

 

(unaudited)

 

(audited)

 

(unaudited)

 

(unaudited)

 

(audited)

 

(unaudited)

 

(unaudited)

 

(audited)

 

(unaudited)

Interest rate products

 

$

 —

 

$

(2)

 

$

(52)

 

$

 —

 

$

(5)

 

$

(3)

 

$

(46)

 

$

 —

 

$

(3)

 

 

Derivatives Not Designated as Hedging Instruments

 

 

 

 

 

 

 

 

 

 

 

 

Gain/(Loss) Recognized in

 

 

Interest income and other

 

 

income/(expense), net

 

 

 

 

 

 

Period From

 

 

Year Ended

 

Year Ended

 

October 5, 2015 to

 

 

December 31, 2017

 

December 31, 2016

 

December 31, 2015

 

 

(unaudited)

 

(audited)

 

(unaudited)

Interest rate products

    

$

 —

    

$

(1)

 

$

(1)

 

Credit-risk-related Contingent Features

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

Certain of the General Partner’s agreements with its derivative counterparties contain provisions where if there is a change in the General Partner’s financial condition that materially changes the General Partner’s creditworthiness in an adverse manner, the General Partner may be required to fully collateralize its obligations under the derivative instrument. At December 31, 2017 and 2016, no cash collateral was posted or required to be posted by the General Partner or by a counterparty.

20

 

UDR LIGHTHOUSE DOWNREIT L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2017

 

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

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

As of December 31, 2017, the fair value of derivatives that were allocated to the DownREIT Partnership, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was zero.

The General Partner has elected not to offset derivative positions in the combined financial statements. As the fair value of the derivatives that were allocated to the DownREIT Partnership was zero as of December 31, 2017 and December 31, 2016, an election by the General Partner to offset its derivative positions would not have had an impact the DownREIT Partnership’s financial position.

8. CAPITAL STRUCTURE

General Partner

The General Partner has complete discretion to manage and control the operations and business of the Operating Partnership, which includes but is not limited to the acquisition and disposition of real property, construction of buildings and making capital improvements, and the borrowing of funds from outside lenders or UDR and its subsidiaries to finance such activities. The General Partner can generally authorize, issue, sell, redeem or purchase any DownREIT Unit or securities of the DownREIT Partnership without the approval of the limited partners. The General Partner can also approve, with regard to the issuances of DownREIT Units, the class or one or more series of classes, with designations, preferences, participating, optional or other special rights, powers and duties including rights, powers and duties senior to limited partnership interests without approval of any limited partners.

UDR, Inc. is the sole general partner of the DownREIT Partnership. Limited partners have no power to remove the general partner. No general partner DownREIT Units have been issued.

Limited Partnership Units

At December 31, 2017 and 2016, there were 32,367,380 limited partnership units outstanding. UDR owned 16,866,433 limited partnership units, or 52.1%, and 16,485,014 limited partnership units, or 50.9%, at December 31, 2017 and 2016, respectively, of which, 13,470,651 limited partnership units, or 41.6%, of all units outstanding were held by the Operating Partnership at December 31, 2017 and 2016. The remaining 15,500,937, or 47.9%, and 15,882,366, or 49.1%, limited partnership units outstanding were held by non-affiliated partners at December 31, 2017 and 2016, respectively.

Subject to the terms of the DownREIT Partnership Agreement, the limited partners have the right to require the DownREIT Partnership to redeem all or a portion of the DownREIT Units held by the limited partner at a redemption price equal to and in the form of the Cash Amount (as defined in the DownREIT Partnership Agreement), provided that such DownREIT Units have been outstanding for at least one year. UDR, as the general partner of the DownREIT Partnership, may, in its sole discretion, purchase the DownREIT Units by paying to the limited partner either the Cash Amount or the REIT Share Amount (generally one share of common stock of UDR for each DownREIT Unit), as defined in the DownREIT Partnership Agreement.

The non-affiliated limited partners’ capital is adjusted to redemption value at the end of each reporting period with the corresponding offset against UDR’s limited partner capital account based on the redemption rights noted above.

21

 

UDR LIGHTHOUSE DOWNREIT L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2017

 

The aggregate value upon redemption of the then-outstanding DownREIT Units held by limited partners was $597.1 million and $579.4 million as of December 31, 2017 and 2016, respectively, based on the value of UDR’s common stock at each period end. A limited partner has no right to receive any distributions from the DownREIT Partnership on or after the date of redemption of its DownREIT Units.

The following table shows DownREIT Units outstanding and DownREIT Unit activity as of and for the years ended December 31, 2017,  2016, and period from inception through December 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

UDR, Inc.

 

 

 

    

 

    

 

    

UDR, L.P.

    

 

 

 

Limited

 

Limited

 

Limited

 

 

 

 

Partners

 

Partner

 

Partner

 

Total

Inception, October 5, 2015 (unaudited)

 

16,137,973

 

2,758,756

 

13,470,651

 

32,367,380

Ending balance at December 31, 2015 (unaudited)

 

16,137,973

 

2,758,756

 

13,470,651

 

32,367,380

DownREIT redemptions for UDR stock

 

(255,607)

 

255,607

 

 —

 

 —

Ending balance at December 31, 2016 (audited)

 

15,882,366

 

3,014,363

 

13,470,651

 

32,367,380

DownREIT redemptions for UDR stock

 

(381,429)

 

381,429

 

 —

 

 —

Ending balance at December 31, 2017 (unaudited)

 

15,500,937

 

3,395,792

 

13,470,651

 

32,367,380

 

Allocation of Profits and Losses

The DownREIT Partnership’s net income is allocated to the partners in accordance with the terms of the DownREIT Partnership Agreement, which is generally first based on their respective distributions made during the year and secondly, 99% to UDR and 1% to the Outside Partners. Distributions are made in accordance with the terms of the DownREIT Partnership Agreement first on a per unit basis that is generally equal to the dividend per share on UDR’s common stock, which is publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “UDR” and secondly, 99% to UDR and 1% to the Outside Partners.

9. COMMITMENTS AND CONTINGENCIES

Contingencies

Litigation and Legal Matters

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

10. REPORTABLE SEGMENTS

GAAP guidance requires that segment disclosures present the measure(s) used by the chief operating decision maker to decide how to allocate resources and for purposes of assessing such segments’ performance. The DownREIT Partnership has the same chief operating decision maker as that of its parent, the General Partner. The chief operating decision maker consists of several members of UDR’s executive management team who use several generally accepted industry financial measures to assess the performance of the business for our reportable operating segments.

The DownREIT Partnership owns and operates multifamily apartment communities throughout the United States that generate rental and other property related income through the leasing of apartment homes to a diverse base of tenants. The primary financial measures of the DownREIT Partnership’s apartment communities are rental income and net operating income (“NOI”), and are included in the chief operating decision maker’s assessment of UDR’s performance on a consolidated basis. Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. NOI is defined as total revenues less direct property operating expenses. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI are property management costs, which are the DownREIT Partnership’s allocable share of costs incurred by

22

 

UDR LIGHTHOUSE DOWNREIT L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2017

 

the General Partner for shared services of corporate level property management employees and related support functions and costs. The chief operating decision maker of the General Partner utilizes NOI as the key measure of segment profit or loss.

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

·

Same-Store Communities represent those communities acquired, developed, and stabilized prior to January 1, 2016 and held as of December 31, 2017. 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 communities are not held for disposition within the current year. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

·

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

Management of the General Partner evaluates the performance of each of the DownREIT Partnership’s apartment communities on a Same-Store Community and Non-Mature Community/Other basis, as well as individually and geographically. This is consistent with the aggregation criteria under GAAP as each of our apartment communities generally has similar economic characteristics, facilities, services, and tenants.

All revenues are from external customers and no single tenant or related group of tenants contributed 10% or more of the DownREIT Partnership’s total revenues during the years ended December 31, 2017,  2016, and period from inception through December 31, 2015.

The following table details rental income and NOI for the DownREIT Partnership’s reportable segments during the years ended December 31, 2017,  2016, and period from inception through December 31, 2015, and reconciles NOI to

23

 

UDR LIGHTHOUSE DOWNREIT L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2017

 

Net income/(loss) attributable to DownREIT unitholders in the Combined Statements of Operations (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

Period From

 

 

Year Ended

 

Year Ended

 

October 5, 2016 to

 

 

December 31, 2017

 

December 31, 2016

 

December 31, 2016

 

 

(unaudited)

 

(audited)

 

(unaudited)

Reportable apartment home segment rental income

 

 

 

 

 

  

 

 

  

Same-Store Communities

 

 

 

 

 

 

 

 

 

Mid-Atlantic Region

 

$

62,994

 

$

61,088

 

$

13,969

Northeast Region

 

 

16,605

 

 

16,262

 

 

3,772

Southwest Region

 

 

21,942

 

 

21,341

 

 

4,860

Non-Mature Communities/Other

 

 

33,128

 

 

31,430

 

 

7,332

Total segment and consolidated rental income

 

$

134,669

 

$

130,121

 

$

29,933

Reportable apartment home segment NOI

 

 

 

 

 

 

 

 

 

Same-Store Communities

 

 

 

 

 

 

 

 

 

Mid-Atlantic Region

 

$

42,985

 

$

40,807

 

$

9,252

Northeast Region

 

 

12,298

 

 

12,062

 

 

2,856

Southwest Region

 

 

13,709

 

 

13,440

 

 

3,126

Non-Mature Communities/Other

 

 

21,658

 

 

20,360

 

 

5,116

Total segment and consolidated NOI

 

 

90,650

 

 

86,669

 

 

20,350

Reconciling items:

 

 

  

 

 

  

 

 

  

Property management

 

 

(3,703)

 

 

(3,578)

 

 

(823)

Other operating expenses

 

 

(251)

 

 

(195)

 

 

(62)

Real estate depreciation and amortization

 

 

(84,000)

 

 

(111,453)

 

 

(28,934)

General and administrative

 

 

(7,305)

 

 

(7,503)

 

 

(3,750)

Casualty-related recoveries/(charges), net

 

 

(209)

 

 

(271)

 

 

(84)

Interest expense

 

 

(14,483)

 

 

(14,208)

 

 

(3,632)

Interest income on note receivable from the General Partner

 

 

4,718

 

 

4,743

 

 

1,131

Net income/(loss) attributable to DownREIT unitholders

 

$

(14,583)

 

$

(45,796)

 

$

(15,804)

 

The following table details the assets of the DownREIT Partnership’s reportable segments as of December 31, 2017 and 2016 (dollars in thousands):

 

 

 

 

 

 

 

 

    

December 31, 

    

December 31, 

 

 

2017

 

2016

 

 

(unaudited)

 

(audited)

Reportable apartment home segment assets

 

 

  

 

 

  

Same-Store Communities

 

 

 

 

 

 

Mid-Atlantic Region

 

$

761,748

 

$

750,750

Northeast Region

 

 

209,903

 

 

207,143

Southwest Region

 

 

197,679

 

 

192,174

Non-Mature Communities/Other

 

 

371,451

 

 

361,560

Total Segments assets

 

 

1,540,781

 

 

1,511,627

Accumulated depreciation

 

 

(181,611)

 

 

(97,644)

Total segment assets - net book value

 

 

1,359,170

 

 

1,413,983

Reconciling items:

 

 

  

 

 

  

Cash and cash equivalents

 

 

39

 

 

66

Restricted cash

 

 

316

 

 

334

Note receivable from the General Partner

 

 

126,500

 

 

126,500

Other assets

 

 

4,621

 

 

4,509

Total combined assets

 

$

1,490,646

 

$

1,545,392

 

Capital expenditures related to the DownREIT Partnership’s Same-Store Communities totaled $13.3 million  (unaudited), $13.9 million  (audited), and $2.0 million (unaudited)  for the years ended December 31, 2017, 2016, and period from inception through December 31, 2015. Capital expenditures related to the DownREIT Partnership’s  Non-

24

 

UDR LIGHTHOUSE DOWNREIT L.P.

NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)

DECEMBER 31, 2017

 

Mature Communities/Other totaled $1.0 million  (unaudited),  $1.0 million (audited), and $0.4 million (unaudited)  for the years ended December 31, 2017,  2016, and period from inception through December 31, 2015.

11. UNAUDITED SUMMARIZED COMBINED QUARTERLY FINANCIAL DATA

Selected combined quarterly financial data for the years ended December 31, 2017 and 2016 is summarized in the table below (dollars in thousands, except per share amounts):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

June 30,

 

September 30,

 

December 31,

2017

    

 

  

    

 

  

    

 

  

    

 

  

Rental income

 

$

33,298

 

$

33,628

 

$

33,883

 

$

33,860

Net income/(loss) attributable to DownREIT unitholders

 

 

(3,980)

 

 

(3,064)

 

 

(3,691)

 

 

(3,848)

Net income/(loss) attributable to DownREIT unitholders per weighted average DownREIT Unit — basic and diluted (a)

 

$

(0.12)

 

$

(0.09)

 

$

(0.11)

 

$

(0.12)

2016

 

 

  

 

 

  

 

 

  

 

 

  

Rental income

 

$

31,617

 

$

32,646

 

$

33,004

 

$

32,854

Net income/(loss) attributable to DownREIT unitholders

 

 

(15,266)

 

 

(13,628)

 

 

(14,258)

 

 

(2,644)

Net income/(loss) attributable to DownREIT unitholders per weighted average DownREIT Unit — basic and diluted (a)

 

$

(0.47)

 

$

(0.42)

 

$

(0.44)

 

$

(0.08)

(a)

Quarterly net income/(loss) per weighted average DownREIT Unit amounts may not total to the annual amounts.

 

25