RELATED PARTY TRANSACTIONS (UNITED DOMINION REALTY, L.P.)

9 Months Ended

Sep. 30, 2020

7. RELATED PARTY TRANSACTIONS

Shared Services

The Operating Partnership self-manages its own properties and is party to an Inter-Company Employee and Cost Sharing Agreement with the General Partner. This agreement provides for reimbursements to the General Partner for the Operating Partnership’s allocable share of costs incurred by the General Partner for (a) general and administrative costs, and (b) shared services of corporate level property management employees and related support functions and costs.

Allocation of General and Administrative Expenses

The General Partner shares various general and administrative costs, employees and other overhead costs with the Operating Partnership including legal assistance, acquisitions analysis, marketing, human resources, IT, accounting, rent, supplies and advertising, and allocates these costs to the Operating Partnership first on the basis of direct usage when identifiable, with the remainder allocated based on the reasonably anticipated benefits to the parties. The general and administrative expenses allocated to the Operating Partnership by UDR were $3.5 million and $2.7 million during the three months ended September 30, 2020 and 2019, respectively, and $10.1 million and $9.7 million during the nine months ended September 30, 2020 and 2019, respectively, and are included in General and administrative on the Consolidated Statements of Operations. In the opinion of management, this method of allocation reflects the level of services received by the Operating Partnership from the General Partner.

During the three months ended September 30, 2020 and 2019, the Operating Partnership reimbursed the General Partner $3.9 million and $4.6 million, respectively, and during the nine months ended September 30, 2020 and 2019, the Operating Partnership reimbursed the General Partner $12.8 million and $12.7 million, respectively, for shared services related to corporate level property management costs incurred by the General Partner. These shared cost reimbursements are initially recorded within the line item General and administrative on the Consolidated Statements of Operations, and a portion related to management costs is reclassified to Property management on the Consolidated Statements of Operations. (See further discussion below.)

Notes Payable to the General Partner

The following table summarizes the Operating Partnership’s Notes payable due to the General Partner as of September 30, 2020 and December 31, 2019 (dollars in thousands):


	Interest rate at		Balance Outstanding
	September 30,		September 30,		December 31,
	2020		2020		2019
Note due August 2021	5.34	%	$	5,500	$	5,500
Note due December 2023	5.18	%		83,196		83,196
Note due April 2026	4.12	%		184,638		184,638
Note due November 2028	4.69	%		133,205		133,205
Note due December 2028 (a)	3.01	%		259,064		230,694
Total notes payable due to the General Partner			$	665,603	$	637,233

(a)

There is no limit on the total commitments under this unsecured revolving note. Interest is incurred on the unpaid principal balance at a variable interest rate equivalent to the General Partner’s weighted average interest rate on borrowings, or 3.01% as of September 30, 2020. The note matures on December 1, 2028. To the extent there is an outstanding principal balance on the revolving note payable, the General Partner, at its discretion, can demand payment at any time prior to the stated maturity date of the note.

Certain limited partners of the Operating Partnership have provided guarantees or reimbursement agreements related to these notes payable. The guarantees were provided by the limited partners in conjunction with their contribution of properties to the Operating Partnership. The Operating Partnership recognized interest expense on the notes payable of $6.6 million and $7.0 million during the three months ended September 30, 2020 and 2019, respectively, and $19.8 million and $21.4 million during the nine months ended September 30, 2020 and 2019, respectively.