REPORTABLE SEGMENTS (UNITED DOMINION REALTY, L.P.)

9 Months Ended

Sep. 30, 2018

13. REPORTABLE SEGMENTS

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

UDR owns and operates multifamily apartment communities that generate rental and other property related income through the leasing of apartment homes to a diverse base of tenants. The primary financial measures for UDR’s apartment communities are rental income and net operating income (“NOI”). Rental income represents gross market rent less adjustments for concessions, vacancy loss and bad debt. NOI is defined as rental income less direct property rental expenses. Rental expenses include real estate taxes, insurance, personnel, utilities, repairs and maintenance, administrative and marketing. Excluded from NOI is property management expense, which is calculated as 2.75% of property revenue to cover the regional supervision and accounting costs related to consolidated property operations, and land rent. UDR’s Chief Operating Decision Maker utilizes NOI as the key measure of segment profit or loss.

UDR’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 July 1, 2017 (for quarter-to-date comparison) or January 1, 2017 (for year-to-date comparison) and held as of September 30, 2018. 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 period, there is no plan to conduct substantial redevelopment activities, and the community is not held for disposition within the current year. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

Non-Mature 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 evaluates the performance of each of our 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. Therefore, the Company’s reportable segments have been aggregated by geography in a manner identical to that which is provided to the Chief Operating Decision Maker.

All revenues are from external customers and no single tenant or related group of tenants contributed 10% or more of UDR’s total revenues during the three and nine months ended September 30, 2018 and 2017.

The following table details rental income and NOI for UDR’s reportable segments for the three and nine months ended September 30, 2018 and 2017, and reconciles NOI to Net income/(loss) attributable to UDR, Inc. on the Consolidated Statements of Operations (dollars in thousands):


	Three Months Ended				Nine Months Ended
	September 30, (a)				September 30, (b)
	2018		2017		2018		2017
Reportable apartment home segment rental income
Same-Store Communities
West Region	$	102,615	$	98,264	$	298,456	$	286,040
Mid-Atlantic Region		55,323		53,539		164,811		160,399
Northeast Region		38,822		38,162		114,974		113,814
Southeast Region		30,984		29,297		91,472		87,103
Southwest Region		12,902		12,620		32,696		32,181
Non-Mature Communities/Other		22,610		16,382		67,964		54,656
Total segment and consolidated rental income	$	263,256	$	248,264	$	770,373	$	734,193

Reportable apartment home segment NOI
Same-Store Communities
West Region	$	77,321	$	72,962	$	225,240	$	213,375
Mid-Atlantic Region		38,220		37,107		114,465		112,232
Northeast Region		25,941		26,100		79,123		80,151
Southeast Region		21,597		20,712		63,806		60,432
Southwest Region		7,640		7,416		19,636		19,722
Non-Mature Communities/Other		14,095		10,424		42,433		34,915
Total segment and consolidated NOI		184,814		174,721		544,703		520,827
Reconciling items:
Joint venture management and other fees		2,888		2,827		8,819		8,718
Property management		(7,240)		(6,827)		(21,185)		(20,190)
Other operating expenses		(3,314)		(1,950)		(8,148)		(6,010)
Real estate depreciation and amortization		(107,881)		(107,171)		(322,537)		(320,653)
General and administrative		(11,896)		(12,467)		(36,028)		(36,976)
Casualty-related (charges)/recoveries, net		(678)		(2,056)		(2,364)		(3,749)
Other depreciation and amortization		(1,682)		(1,585)		(5,057)		(4,760)
Income/(loss) from unconsolidated entities		(1,382)		1,819		(5,091)		11,591
Interest expense		(34,401)		(30,095)		(95,942)		(94,500)
Interest income and other income/(expense), net		1,188		481		5,075		1,423
Tax (provision)/benefit, net		(158)		(127)		(618)		(825)
Gain/(loss) on sale of real estate owned, net of tax		—		—		70,300		2,132
Net (income)/loss attributable to redeemable noncontrolling interests in the Operating Partnership and DownREIT Partnership		(1,616)		(1,415)		(10,819)		(4,607)
Net (income)/loss attributable to noncontrolling interests		(32)		35		(141)		(107)
Net income/(loss) attributable to UDR, Inc.	$	18,610	$	16,190	$	120,967	$	52,314

(a)

Same-Store Community population consisted of 38,307 apartment homes.

(b)

Same-Store Community population consisted of 37,673 apartment homes.

The following table details the assets of UDR’s reportable segments as of September 30, 2018 and December 31, 2017 (dollars in thousands):


	September 30,		December 31,
	2018		2017
Reportable apartment home segment assets:
Same-Store Communities:
West Region	$	3,752,322	$	3,727,230
Mid-Atlantic Region		2,308,495		2,290,241
Northeast Region		1,871,387		1,865,762
Southeast Region		774,090		762,102
Southwest Region		368,729		364,607
Non-Mature Communities/Other		1,252,641		1,167,264
Total segment assets		10,327,664		10,177,206
Accumulated depreciation		(3,626,327)		(3,330,166)
Total segment assets — net book value		6,701,337		6,847,040
Reconciling items:
Cash and cash equivalents		1,084		2,038
Restricted cash		26,996		19,792
Notes receivable, net		41,009		19,469
Investment in and advances to unconsolidated joint ventures, net		767,376		720,830
Other assets		140,982		124,104
Total consolidated assets	$	7,678,784	$	7,733,273

Capital expenditures related to our Same-Store Communities totaled $24.2 million and $24.6 million for the three months ended September 30, 2018 and 2017, respectively, and $59.2 million and $63.2 million for the nine months ended September 30, 2018 and 2017, respectively. Capital expenditures related to our Non-Mature Communities/Other totaled $1.8 million and $1.2 million for the three months ended September 30, 2018 and 2017, respectively, and $3.8 million and $3.7 million for the nine months ended September 30, 2018 and 2017, respectively.

Markets included in the above geographic segments are as follows:

West Region — Orange County, San Francisco, Seattle, Los Angeles, Monterey Peninsula, Other Southern California and Portland

ii.

Mid-Atlantic Region — Metropolitan D.C., Richmond and Baltimore

iii.

Northeast Region — New York and Boston

iv.

Southeast Region — Orlando, Nashville, Tampa and Other Florida

Southwest Region — Dallas, Austin and Denver

United Dominion Reality L.P.

Entity information

REPORTABLE SEGMENTS

11. 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 Operating 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 Operating 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 Operating Partnership’s apartment communities are rental income and net operating income (“NOI”), and are included in the Chief Operating Decision Maker’s assessment of the Operating Partnership’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 Operating Partnership’s allocable share of costs incurred by 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 Operating 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 July 1, 2017 (for the quarter-to-date comparison) or January 1, 2017 (for the year-to-date comparison) and held as of September 30, 2018. 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 period, there is no plan to conduct substantial redevelopment activities, and the community is not held for disposition within the current year. A community is considered to have stabilized occupancy once it achieves 90% occupancy for at least three consecutive months.

Management of the General Partner evaluates the performance of each of the Operating 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. Therefore, the Operating Partnership’s reportable segments have been aggregated by geography in a manner identical to that which is provided to the Chief Operating Decision Maker.

All revenues are from external customers and no single tenant or related group of tenants contributed 10% or more of the Operating Partnership’s total revenues during the three and nine months ended September 30, 2018 and 2017.

The following table details rental income and NOI for the Operating Partnership’s reportable segments for the three and nine months ended September 30, 2018 and 2017, and reconciles NOI to Net income/(loss) attributable to OP unitholders on the Consolidated Statements of Operations (dollars in thousands):


	Three Months Ended				Nine Months Ended
	September 30, (a)				September 30, (b)
	2018		2017		2018		2017
Reportable apartment home segment rental income
Same-Store Communities
West Region	$	62,320	$	59,383	$	183,885	$	175,378
Mid-Atlantic Region		15,085		14,657		45,172		44,203
Northeast Region		13,771		13,746		40,780		40,850
Southeast Region		13,262		12,448		38,881		37,171
Non-Mature Communities/Other		5,101		5,019		14,679		14,344
Total segment and consolidated rental income	$	109,539	$	105,253	$	323,397	$	311,946
Reportable apartment home segment NOI
Same-Store Communities
West Region	$	47,692	$	44,605	$	140,603	$	132,368
Mid-Atlantic Region		10,178		9,843		30,953		30,073
Northeast Region		9,471		9,884		29,373		30,488
Southeast Region		9,336		8,844		26,979		25,671
Non-Mature Communities/Other		3,471		3,385		10,064		10,038
Total segment and consolidated NOI		80,148		76,561		237,972		228,638
Reconciling items:
Property management		(3,012)		(2,894)		(8,893)		(8,578)
Other operating expenses		(2,347)		(1,572)		(6,098)		(5,248)
Real estate depreciation and amortization		(35,043)		(37,057)		(108,906)		(113,167)
General and administrative		(4,143)		(4,134)		(12,997)		(13,760)
Casualty-related (charges)/recoveries, net		10		43		(906)		(1,701)
Income/(loss) from unconsolidated entities		(2,378)		(4,782)		(10,102)		(14,556)
Interest expense		(5,100)		(5,055)		(15,209)		(25,318)
Gain/(loss) on sale of real estate owned		—		—		70,300		—
Net (income)/loss attributable to noncontrolling interests		(440)		(374)		(1,278)		(1,067)
Net income/(loss) attributable to OP unitholders	$	27,695	$	20,736	$	143,883	$	45,243

(a)

Same-Store Community population consisted of 16,216 apartment homes.

(b)

Same-Store Community population consisted of 16,216 apartment homes.

The following table details the assets of the Operating Partnership’s reportable segments as of September 30, 2018 and December 31, 2017 (dollars in thousands):


	September 30,		December 31,
	2018		2017
Reportable apartment home segment assets
Same-Store Communities
West Region	$	1,973,796	$	1,955,962
Mid-Atlantic Region		660,775		655,850
Northeast Region		680,227		677,767
Southeast Region		338,964		334,811
Non-Mature Communities/Other		154,356		192,566
Total segment assets		3,808,118		3,816,956
Accumulated depreciation		(1,627,511)		(1,543,652)
Total segment assets - net book value		2,180,607		2,273,304
Reconciling items:
Cash and cash equivalents		83		293
Restricted cash		13,515		12,579
Investment in unconsolidated entities		53,772		76,907
Other assets		34,005		32,490
Total consolidated assets	$	2,281,982	$	2,395,573

Capital expenditures related to the Operating Partnership’s Same-Store Communities totaled $11.1 million and $10.9 million for the three months ended September 30, 2018 and 2017, respectively, and $28.4 million and $30.8 million for the nine months ended September 30, 2018 and 2017, respectively. Capital expenditures related to the Operating Partnership’s Non-Mature Communities/Other totaled $0.4 million and $0.5 million for the three months ended September 30, 2018 and 2017, respectively, and $0.6 million and $1.2 million for the nine months ended September 30, 2018 and 2017, respectively.

Markets included in the above geographic segments are as follows:

West Region — Orange County, San Francisco, Seattle, Los Angeles, Monterey Peninsula, Other Southern California and Portland

ii.

Mid-Atlantic Region — Metropolitan, D.C. and Baltimore

iii.

Northeast Region — New York and Boston

iv.

Southeast Region — Nashville, Tampa and Other Florida

Southwest Region — Denver