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UNCONSOLIDATED ENTITIES (UNITED DOMINION REALTY, L.P.)
12 Months Ended
Dec. 31, 2019
Unconsolidated entities  
UNCONSOLIDATED ENTITIES

5. JOINT VENTURES AND PARTNERSHIPS

UDR has entered into joint ventures and partnerships with unrelated third parties to own, operate, acquire, renovate, develop, redevelop, dispose of, and manage real estate assets that are either consolidated and included in Real estate owned on the Consolidated Balance Sheets or are accounted for under the equity method of accounting, and are included in Investment in and advances to unconsolidated joint ventures, net, on the Consolidated Balance Sheets. The Company consolidates the entities that we control as well as any variable interest entity where we are the primary beneficiary. Under the VIE model, the Company consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the voting model, the Company consolidates an entity when it controls the entity through ownership of a majority voting interest.

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

The Company recognizes earnings or losses from our investments in unconsolidated joint ventures and partnerships consisting of our proportionate share of the net earnings or losses of the joint ventures and partnerships. In addition, we may earn fees for providing management services to the unconsolidated joint ventures and partnerships.

The following table summarizes the Company’s investment in and advances to unconsolidated joint ventures and partnerships, net, which are accounted for under the equity method of accounting as of December 31, 2019 and 2018 (dollars in thousands):

Number of

Number of

Apartment

 

Properties

Homes

Investment at

UDR’s Ownership Interest

  

Location of

  

December 31, 

  

December 31, 

  

December 31, 

  

December 31, 

December 31, 

  

December 31, 

 

Joint Venture

  

Properties

  

2019

    

2019

  

2019

  

2018

2019

  

2018

 

Operating and development:

  

  

  

  

  

  

  

  

 

UDR/MetLife I

Los Angeles, CA

1

operating community

150

$

28,812

$

30,839

50.0

%  

50.0

%

UDR/MetLife II (a)

 

Various

 

7

operating communities

 

1,250

 

150,893

 

296,807

50.0

%  

50.0

%

Other UDR/MetLife Joint Ventures

 

Various

 

5

operating communities

 

1,437

 

98,441

 

115,668

50.6

%  

50.6

%

UDR/MetLife Vitruvian Park® (a)

 

Addison, TX

 

 

 

 

71,730

%  

50.0

%

UDR/KFH (b)

 

Washington, D.C.

 

 

 

 

5,507

%  

30.0

%

West Coast Development Joint Ventures

Los Angeles, CA

1

operating community

293

34,907

36,143

47.0

%

47.0

%

Investment in and advances to unconsolidated joint ventures, net, before preferred equity investments and other investments

 

  

$

313,053

$

556,694

  

 

  

Investment at

Income from investments

Developer Capital Program

  

  

  

Years To

UDR

  

December 31, 

  

December 31, 

Year Ended December 31, 

and Other Investments (c)

  

Location

  

Rate

  

Maturity

Commitment (d)

  

2019

  

2018

    

2019

    

2018

    

2017

Preferred equity investments:

 

  

 

  

 

  

 

  

 

  

  

  

West Coast Development Joint Ventures (e)

 

Hillsboro, OR

 

6.5

%

N/A

$

$

17,064

$

65,417

$

(447)

$

865

$

23,230

1532 Harrison

San Francisco, CA

11.0

%

2.5

24,645

30,585

24,986

3,147

2,228

511

1200 Broadway (f)

Nashville, TN

8.0

%

2.8

55,558

63,958

58,982

4,888

2,970

370

Junction (g)

Santa Monica, CA

12.0

%

2.6

8,800

10,379

9,211

1,169

406

1300 Fairmount (h)

Philadelphia, PA

Variable

3.6

51,393

51,215

8,318

3,098

159

Essex (i)

Orlando, FL

12.5

%

3.7

12,886

14,804

9,940

1,639

258

Modera Lake Merritt (j)

Oakland, CA

9.0

%

4.3

27,250

22,653

1,067

Other investments:

The Portals

Washington, D.C.

11.0

%

1.4

38,559

48,181

43,167

5,012

3,692

839

Other investment ventures

N/A

N/A

N/A

$

18,000

13,598

4,154

$

4,053

$

(267)

$

(30)

Total Developer Capital Program and Other Investments

272,437

224,175

Total investment in and advances to unconsolidated joint ventures, net (k)

$

585,490

$

780,869

  

(a)In November 2019, the Company acquired the approximately 50% ownership interest not previously owned in 10 UDR/MetLife operating communities, one development community and four land parcels valued at $1.1 billion, or $564.2 million at UDR’s share, and sold its approximately 50% ownership interest in five UDR/MetLife operating communities valued at $645.8 million, or $322.9 million at UDR’s share, to MetLife, and recognized a net gain on sale of $114.9 million at our share, which is included in Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations. As a result, the Company consolidated the 10 operating communities, one development community and four land parcels, and they are no longer accounted for as equity method investments in an unconsolidated joint venture (see Note 3, Real Estate Owned). Upon closing of the transaction, the UDR/MetLife II joint venture holds seven operating communities and the UDR/MetLife Vitruvian Park® joint venture no longer holds any properties.
(b)As of January 1, 2019, the joint venture held three operating communities.

During 2019, the joint venture sold two communities with 368 homes, located in Arlington, Virginia, and Silver Spring, Maryland, for a combined sales price of approximately $118.3 million. As a result, the Company recorded total gains on the sales of approximately $10.6 million, which are included in Income/(loss) from unconsolidated entities on the Consolidated Statements of Operations.

In August 2019, the joint venture sold the third community, a 292 home operating community located in Washington, D.C., directly to the Company for a sales price at 100% of approximately $184.0 million, before $2.8 million of closing costs incurred by UDR at acquisition. The Company deferred its share of the gain on sale of approximately $23.8 million and recorded it as a reduction of the carrying amount of real estate assets owned (see Note 3, Real Estate Owned).

(c)The Developer Capital Program is the program through which the Company makes investments, including preferred equity investments, mezzanine loans or other structured investments that may receive a fixed yield on the investment and may include provisions pursuant to which the Company participates in the increase in value of the property upon monetization of the applicable property and/or holds fixed price purchase options.
(d)Represents UDR’s maximum funding commitment only and therefore excludes other activity such as income from investments.
(e)In January 2019, the Company increased its ownership interest from 49% to 100% in a 386 apartment home operating community located in Anaheim, California, for a cash purchase price of approximately $33.5 million. As a result, the Company consolidated the operating community and it is no longer accounted for as a preferred equity investment in an unconsolidated joint venture (see Note 3, Real Estate Owned). In connection with the purchase, the construction loan on the community was paid in full.

In January 2019, the Company increased its ownership interest from 49% to 100% in a 155 apartment home operating community located in Seattle, Washington, for a cash purchase price of approximately $20.0 million. As a result, the Company consolidated the operating community and it is no longer accounted for as a preferred equity investment in an unconsolidated joint venture (see Note 3, Real Estate Owned). In connection with the purchase, the construction loan on the community was paid in full.

In January 2020, the Company increased its ownership interest from 49% to 100% in a 276 apartment home operating community located in Hillsboro, Oregon, for a cash purchase price of approximately $21.6 million. As a result, in January 2020, the Company consolidated the operating community and it is no longer accounted for as a preferred equity investment in an unconsolidated joint venture (see Note 3, Real Estate Owned).

(f)The Company’s preferred equity investment receives a variable percentage of the value created from the project upon a capital or liquidating event.
(g)In August 2018, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 66 apartment home community located in Santa Monica, CA. The Company’s preferred equity investment of $8.8 million earns a preferred return of 12.0% per annum. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and, therefore, accounts for it under the equity method of accounting.
(h)In August 2018, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 471 apartment home community located in Philadelphia, PA. The Company’s preferred equity investment of up to $51.4 million earns a preferred return between 8.5% and 12.0% per annum and receives a variable percentage of the value created from the project upon a capital or liquidating event. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and, therefore, accounts for it under the equity method of accounting.
(i)In September 2018, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 330 apartment home community located in Orlando, FL. The Company’s preferred equity investment of up to $12.9 million earns a preferred return of 12.5% per annum. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and, therefore, accounts for it under the equity method of accounting.
(j)In April 2019, the Company entered into a joint venture agreement with an unaffiliated joint venture partner to develop and operate a 173 apartment home community located in Oakland, CA. The Company’s preferred equity investment of up to $27.3 million earns a preferred return of 9.0% per annum and receives a variable percentage of the value created from the project upon a capital or liquidating event. The unaffiliated joint venture partner is the managing member of the joint venture and the developer of the community. The Company has concluded that it does not control the joint venture and, therefore, accounts for it under the equity method of accounting.
(k)As of December 31, 2019, the Company’s negative investment in 13th and Market Properties LLC of $2.8 million is included in Other UDR/MetLife Joint Ventures in the table above and recorded in Accounts payable, accrued expenses, and other liabilities on the Consolidated Balance Sheet.

As of December 31, 2019 and 2018, the Company had deferred fees of $9.0 million and $11.0 million, respectively, which will be recognized through earnings over the weighted average life of the related properties, upon the disposition of the properties to a third party, or upon completion of certain development obligations.

The Company recognized management fees of $14.0 million, $11.6 million, and $11.4 million during the years ended December 31, 2019, 2018, and 2017, respectively, for management of the communities held by the joint ventures and partnerships. The management fees are included in Joint venture management and other fees on the Consolidated Statements of Operations.

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

We evaluate our investments in unconsolidated joint ventures and partnerships when events or changes in circumstances indicate that there may be an other-than-temporary decline in value. We consider various factors to determine if a decrease in the value of the investment is other-than-temporary. The Company did not recognize any other-than-temporary impairments in the value of its investments in unconsolidated joint ventures or partnerships during the years ended December 31, 2019, 2018, and 2017.

Condensed summary financial information relating to the unconsolidated joint ventures’ and partnerships’ operations (not just our proportionate share), is presented below for the years ended December 31, 2019, 2018, and 2017 (dollars in thousands):

    

    

    

    

UDR/

    

    

Other

MetLife

West Coast

 

As of and For the

UDR/

UDR/

UDR/MetLife

Vitruvian

Development

 

Year Ended December 31, 2019

MetLife I

MetLife II

Joint Ventures

Park®

UDR/KFH

Joint Ventures

Total

Condensed Statements of Operations:

 

  

 

  

 

  

 

  

 

  

 

  

Total revenues

$

9,834

$

151,226

$

64,273

$

26,398

$

12,217

$

14,058

$

278,006

Property operating expenses

 

4,533

 

54,445

 

22,019

 

12,541

 

4,982

 

6,829

 

105,349

Real estate depreciation and amortization

 

5,787

 

44,077

 

35,001

 

9,832

 

5,746

 

5,440

 

105,883

Gain/(loss) on sale of real estate (a)

115,516

115,516

Operating income/(loss)

 

(486)

 

52,704

 

7,253

 

4,025

 

117,005

 

1,789

 

182,290

Interest expense

 

(3,070)

 

(44,825)

 

(17,399)

 

(5,948)

 

(4,300)

 

(4,656)

 

(80,198)

Net gain/(loss) on revaluation of assets and liabilities (b)

458,195

25,711

483,906

Other income/(loss)

 

 

 

 

 

 

159

 

159

Net income/(loss)

$

(3,556)

$

466,074

$

(10,146)

$

23,788

$

112,705

$

(2,708)

$

586,157

Condensed Balance Sheets:

 

  

 

  

 

  

 

  

 

  

 

 

  

Total real estate, net

$

120,055

$

663,492

$

621,335

$

$

$

140,224

$

1,545,106

Cash and cash equivalents

 

2,317

 

4,208

 

7,973

 

 

 

5,692

 

20,190

Other assets

 

1,053

 

9,777

 

5,400

 

 

 

1,305

 

17,535

Total assets

 

123,425

 

677,477

 

634,708

 

 

 

147,221

 

1,582,831

Third party debt, net

 

70,890

 

425,303

 

454,972

 

 

 

90,498

 

1,041,663

Accounts payable and accrued liabilities

 

4,037

 

9,303

 

9,757

 

 

 

3,440

 

26,537

Total liabilities

 

74,927

 

434,606

 

464,729

 

 

93,938

 

1,068,200

Total equity

$

48,498

$

242,871

$

169,979

$

$

$

53,283

$

514,631

(a)

Represent the gains on the sale of three operating communities at the UDR/KFH joint venture level, as described in note (b) to the table above summarizing the Company’s investment in and advances to unconsolidated joint ventures and partnerships, net.

(b)

Represent the net gains on the revaluation of the assets and liabilities to fair value of 15 operating communities at the UDR/MetLife II joint venture level and one development community and four land parcels at the UDR/MetLife Vitruvian Park® joint venture level prior to their distribution to the Company or MetLife in November 2019, as described in note (a) to the table above summarizing the Company’s investment in and advances to unconsolidated joint ventures and partnerships, net. The net gain on revaluation of assets and liabilities to fair value was recognized at the joint venture level as the respective joint ventures distributed their equity interests in the real estate to the Company or MetLife at fair value.

For the approximately 50% ownership interest acquired in the 10 operating communities, one development community and four land parcels described above, the Company deferred its share of the net gain on revaluation of approximately $131.5 million and recorded it as a reduction of the carrying amount of real estate owned. (see Note 3, Real Estate Owned). For the 50% ownership interest acquired in the five communities by MetLife, the Company recognized a net gain on sale of $114.9 million at our share, when the communities were disposed of by the UDR/MetLife II joint venture.

    

UDR/

    

    

Other

MetLife

West Coast

 

As of and For the

UDR/

UDR/

UDR/MetLife

Vitruvian

Development

 

Year Ended December 31, 2018

MetLife I

MetLife II

Joint Ventures

Park®

UDR/KFH

Joint Ventures

Total

Condensed Statements of Operations:

  

  

  

 

  

 

  

 

  

Total revenues

$

3,187

$

158,738

$

61,967

$

26,096

$

20,703

$

16,392

$

287,083

Property operating expenses

 

3,066

 

56,403

 

21,998

 

13,732

 

8,318

 

8,830

 

112,347

Real estate depreciation and amortization

 

3,392

 

44,721

 

35,437

 

9,495

 

14,487

 

7,679

 

115,211

Operating income/(loss)

 

(3,271)

 

57,614

 

4,532

 

2,869

 

(2,102)

 

(117)

 

59,525

Interest expense

 

(1,872)

 

(49,118)

 

(17,408)

 

(6,051)

 

(6,739)

 

(6,175)

 

(87,363)

Other income/(loss)

 

 

 

 

 

 

148

 

148

Net income/(loss)

$

(5,143)

$

8,496

$

(12,876)

$

(3,182)

$

(8,841)

$

(6,144)

$

(27,690)

Condensed Balance Sheets:

 

  

 

  

 

  

 

  

 

  

 

 

  

Total real estate, net

$

124,112

$

1,609,903

$

653,729

$

315,541

$

182,970

$

281,729

$

3,167,984

Cash and cash equivalents

 

698

 

11,192

 

8,242

 

8,865

 

1,794

 

8,614

 

39,405

Other assets

 

1,074

 

18,670

 

4,904

 

2,241

 

1,320

 

1,610

 

29,819

Total assets

 

125,884

 

1,639,765

 

666,875

 

326,647

 

186,084

 

291,953

 

3,237,208

Third party debt, net

 

70,833

 

1,089,231

 

454,647

 

162,131

 

165,699

 

171,879

 

2,114,420

Accounts payable and accrued liabilities

 

1,935

 

21,258

 

9,753

 

14,968

 

1,860

 

9,943

 

59,717

Total liabilities

 

72,768

 

1,110,489

 

464,400

177,099

 

167,559

 

181,822

 

2,174,137

Total equity

$

53,116

$

529,276

$

202,475

$

149,548

$

18,525

$

110,131

$

1,063,071

    

    

UDR/

Other

MetLife

West Coast

For the

UDR/

UDR/

UDR/MetLife

Vitruvian

Development

 

Year Ended December 31, 2017

MetLife I

MetLife II

Joint Ventures

Park®

UDR/KFH

Joint Ventures

Total

Condensed Statements of Operations:

  

  

  

  

  

  

Total revenues

$

$

156,920

$

48,032

$

23,025

$

20,327

$

18,812

$

267,116

Property operating expenses

 

93

 

52,450

 

21,908

 

11,839

 

8,159

 

9,520

 

103,969

Real estate depreciation and amortization

 

 

45,144

 

32,625

 

7,169

 

14,480

 

7,387

 

106,805

 

(17)

 

(609)

 

 

 

 

72,216

 

71,590

Operating income/(loss)

 

(110)

 

58,717

 

(6,501)

 

4,017

 

(2,312)

 

74,121

 

127,932

Interest expense

 

 

(50,603)

 

(13,894)

 

(5,030)

 

(5,264)

 

(4,038)

 

(78,829)

Other income/(loss)

439

439

Net income/(loss)

$

(110)

$

8,114

$

(20,395)

$

(1,013)

$

(7,576)

$

69,644

$

48,664

Other than the West Coast Development Joint Ventures, the condensed summary financial information relating to the entities in which we have an interest through the Developer Capital Program is not included in the tables above. As of and for the year ended December 31, 2019, combined total assets, liabilities, equity, revenues, expenses, and other income/(loss), for such entities were $521.0 million, $135.0 million, $386.0 million, $11.2 million, $3.5 million, and $26.4 million, respectively. As of and for the year ended December 31, 2018, combined total assets, liabilities, equity, revenues, and expenses for such entities were $248.1 million, $22.5 million, $225.6 million, $6.0 million, and $1.8 million, respectively. For the year ended December 31, 2017, combined total revenues and expenses for such entities were $7.8 million, and $9.5 million, respectively.

United Dominion Realty L.P.  
Unconsolidated entities  
UNCONSOLIDATED ENTITIES

4. UNCONSOLIDATED ENTITIES

The DownREIT Partnership is accounted for by the Operating Partnership under the equity method of accounting and is included in Investment in unconsolidated entities on the Consolidated Balance Sheets. The Operating Partnership recognizes earnings or losses from its investments in unconsolidated entities consisting of our proportionate share of the net earnings or losses of the partnership in accordance with the Partnership Agreement.

The DownREIT Partnership is a VIE as the limited partners lack substantive kick-out rights and substantive participating rights. The Operating Partnership is not the primary beneficiary of the DownREIT Partnership as it lacks the power to direct the activities that most significantly impact its economic performance and will continue to account for its interest as an equity method investment.

As of December 31, 2019, the DownREIT Partnership owned 12 communities with 5,657 apartment homes. The Operating Partnership’s investment in the DownREIT Partnership was $76.2 million and $103.0 million as of December 31, 2019 and 2018, respectively.

In December 2018, the DownREIT Partnership sold an operating community in Fairfax, Virginia with a total of 604 apartment homes for gross proceeds of $150.7 million. As a result, the Operating Partnership recorded a gain of $51.1 million, which is included in Income/(loss) from unconsolidated entities on the Consolidated Statement of Operations.

Condensed summary financial information relating to the DownREIT Partnership (not just our proportionate share), is presented below for the years ended December 31, 2019, 2018 and 2017 (dollars in thousands):

December 31, 

December 31, 

    

2019

    

2018

Total real estate, net

 

$

1,106,703

 

$

1,167,720

Cash and cash equivalents

 

20

 

39

Note receivable from the General Partner

 

222,853

 

221,022

Other assets

 

4,829

 

5,561

Total assets

 

$

1,334,405

 

$

1,394,342

Secured debt, net

$

427,592

$

431,735

Other liabilities

 

28,087

 

26,597

Total liabilities

 

455,679

 

458,332

Total capital

$

878,726

$

936,010

Year Ended

December 31, 

    

2019

    

2018

2017

Total revenue

$

128,621

 

$

138,121

$

134,669

Property operating expenses

 

(51,747)

 

(56,998)

 

(55,487)

Real estate depreciation and amortization

 

(82,283)

 

(85,872)

 

(84,000)

Gain/(loss) on sale of real estate

24,053

Operating income/(loss)

 

(5,409)

 

19,304

 

(4,818)

Interest expense

 

(15,648)

 

(14,456)

 

(14,483)

Other income/(loss)

 

8,061

 

4,884

 

4,718

Net income/(loss)

$

(12,996)

 

$

9,732

 

$

(14,583)