UDR : 2020 Shareholder Letter

To My Fellow Shareholders:

This shareholder letter is an honor to write and something I look forward to every year. It provides me the opportunity to reflect on UDR's (the "Company") performance over the past year and opine on how our Company is built to outperform over the long‐term. I write this version now entering my 20th year serving as UDR's Chief Executive Officer, and while 2020 was certainly challenging, it was also gratifying. The successes we enjoyed, which are highlighted throughout this letter, were not accomplished by accident, but rather resulted from continual execution of our long‐term strategic plan by dynamically adjusting our tactics throughout the year. In short, I am pleased with our achievements, the resiliency of our business, and the dedication and compassion shown by my fellow UDR associates. I look forward to many more successful years as our country, and industry, return to a sense of normalcy in 2021 and beyond.

Regarding 2020, primary challenges included (1) ensuring, to the best of our ability, the safety of our associates and residents, (2) accommodating the hardships our residents and associates faced because of COVID‐19, and (3) navigating through widespread emergency regulatory environments that hampered our ability to conduct business. From the outset of the health emergency, our actions were dictated by the four "C"s of communication, compassion, cultivation, and capitalization. Ensuring that we maintained open lines of communication with existing residents and our associates, accommodating those that faced hardship, cultivating new prospects for our business, and executing on available growth opportunities reinforced the efficacy of our diversified business model, high‐level strategy, and status as a full‐cycle investment.

Strategically, we remained true to our foundational business principles which include (1) maintaining a diversified portfolio of communities, (2) proactively operating our business to maximize earnings growth,

1. nimbly allocating capital in a prudent manner, (4) consistently enhancing our balance sheet, (5) reinforcing our strong culture by investing in and implementing policies for responsible environmental, social, and governance ("ESG") corporate citizenry, and (6) adopting and utilizing new technologies. Solid execution of these principles helped us to effectively manage our risk throughout 2020, supported our commitment to accommodate those in need, and positioned the Company for success in 2021 and beyond as the economy recovers.

Over the years our Company, and industry, have operated through a multitude of challenges including the "tech wreck" and the Great Financial Crisis. While COVID‐19 will not be the last obstacle we face, I am tremendously proud of how our team responded throughout the pandemic and remain excited about our prospects.

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Full‐year 2020 highlights include:

• Activelysupported our associates and residents during the pandemicthrough additional paid time off for COVID‐related reasons, one‐time bonuses, multiple vacation time buyouts, remote/flexible working opportunities, enhanced cleaning at all UDR properties, rent repayment options for those facing hardship, and the implementation of new technologies that allowed our business interactions to go "touchless."
• Continued to roll‐out UDR's Next Generation Operating Platform ("NextGen Platform" or the "Platform"), an innovative way to conduct business more efficiently with our residents through increased self‐service via technological innovation, the centralization of certain tasks, and better utilization of data analytics to drive revenue growth, expense controls, and margin expansion. Under the supervision of Jerry Davis, Scott Wesson, and Kristen Nicholson, resident satisfaction has only improved since we first introduced the Platform in mid‐2018 and better‐than‐peer‐ average full‐year 2020 controllable expense growth showcased its ongoing value creation potential. In addition, resident acceptance of the Platform was proven out in the fourth quarter of 2020 when 93% of all prospective‐resident property tours were either touchless or self‐guided.
• Dynamically priced our portfolio throughout 2020 to combat demand volatility and maximize total revenue growth in constantly changing regulatory environments. My thanks goes out to David Lowrey (Governmental Affairs), Dave Thatcher, and Shane Summers (Legal Affairs) who produced timely regulatory updates across the markets in which we operate and helped to facilitate individualized operating strategies at the local level to accommodate our residents and maximize revenue growth. Evidence of our relative success versus peers came in the forms of better‐than‐average full‐year 2020 blended lease rate growth (i.e., combined new and renewal lease rate growth) and less of a decline in full‐year physical occupancy which never dropped below 95.5%. I thank Mike Lacy, Matt Cozad, and our leadership teams across the country for their hard work. Our best‐in‐class operations should continue to differentiate UDR's same‐store and earnings growth results in 2021 and beyond.
• Realized outsized growth from the roughly $2 billion of acquisitions completed throughout 2019 and early‐2020 primarily due to operational upside in excess of market growth. Generating above‐market returns on investments while paying market prices is a repeatable earnings and value accretion mechanism for UDR, and our transactions team headed by Harry Alcock and Andrew Cantor deserves credit for sourcing attractive investment opportunities.
• Incrementally improved the structure, liquidity, and duration of our balance sheet by taking advantage of historically low long‐term interest rates (the lowest during my lifetime) through the refinancing of higher‐cost debt. UDR's weighted average interest rate of 2.9% is the lowest among the multifamily peer group thanks to the efforts of Joe Fisher, Abe Claude, and their team.
• Generated only a modest 1.9% decline in full‐year 2020 Funds from Operations as Adjusted ("FFOA") per share versus the peer apartment average decline of 3.0%. UDR has now generated better‐than‐peer‐apartment‐average earnings growth in 7 of the last 8 years.

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• GRESB, a leading ESG benchmarking service for real assets, named UDR an ESGtop performer among global real estate companies in 2020 with a score of 83. In addition, we published our second annual Corporate Responsibility Reportwhich outlines our ESG accomplishments, long‐ term ESG targets, and conforms to Global Reporting Initiative ("GRI") Standards, the Sustainability Accounting Standards Board ("SASB") Standards, and the Task Force for Climate‐ related Financial Disclosure ("TCFD") framework. The continual improvement in both our ESG actions and reporting progress towards goals would not be possible without the dedication of Matt Cozad, Nathan Johnson, and Chris Van Ens.

Altogether, and despite the challenges we faced this past year, 2020 was successful because we effectively managed pandemic‐related short‐term risk while also continuing to create long‐term value for our stakeholders. These attributes were again exhibited by our strong, relative total shareholder return ("TSR"), wherein UDR has now outperformed the weighted average TSR of our six primary public apartment REIT peers as well as that of the National Association of Real Estate Investment Trusts ("NAREIT") Apartment Index over the past 1‐, 5‐, 10‐, and 20‐year periods as of year‐end. Perhaps the one statistic I am most proud of is UDR's 12.2% annualized TSR over the past 20 years. Investing $1,000 in the Company at year‐end 2000 would have yielded over $10,000 at year‐end 2020 versus ~$4,250 for the S&P 500 and ~$6,600 for the NAREIT Apartment Index.

UDR's Strategy

Our strategy, which emanates from our fourth long‐term strategic plan originally envisioned and approved by UDR management and its Board of Directors in late‐2017, again proved effective during 2020 despite the pandemic. It is built upon portfolio diversification, best‐in‐class operations, heeding cost of capital signals from the public market, maintaining a liquid and flexible balance sheet, and ensuring a vibrant and inclusive culture to maximize earnings, dividend, net asset value ("NAV") per share growth, and TSR. Integrated with these priorities is a strategic initiative to adopt and utilize new technologies to improve operating efficiencies, enhance customer service, and help to influence capital allocation decisions. Together, we believe these attributes make UDR a full‐cycle investment, capable of outperforming in "up" or "down" markets with a lower risk profile. Since implementing the Company's fourth long‐term strategic plan, our annualized TSR has outperformed the weighted average TSR of our six primary public apartment REIT peers by ~70 basis points. UDR's core strategic objectives remain:

1. Portfolio Composition: Maintain a diversified portfolio as defined by market mix, submarket locations, and price points to appeal to wider renter and investor bases and provide more opportunities to overlay our best‐in‐class operations and capital allocation acumen. UDR utilizes predictive analytics and qualitative factors to influence market selection for incremental investment and divestment decisions.
2. Operating Excellence: Maintain a best‐in‐class operating platform that stresses continuous innovation (e.g., Next Generation Operating Platform) and compares favorably versus apartment REIT peers and private‐market operators in same‐store growth, earnings growth, and controllable margin expansion.

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1. Accretive Capital Allocation: Heed public‐market cost of capital signals (i.e., equity trading at a premium to NAV and at a strong earnings yield) and pivot to investment opportunities (e.g., development, developer capital program ("DCP"), redevelopment, acquisitions, share repurchases, etc.) that offer (1) the best risk adjusted return, (2) the highest near‐term earnings per share accretion without sacrificing portfolio quality, and (3) that are accretive to NAV per share. UDR seeks to match fund investments to minimize dilution while also targeting leverage neutrality over time.
2. Balance Sheet Strength: Maintain a safe and flexible balance sheet fully capable of funding internal and external growth opportunities while also appropriately managing risk.
3. Culture of Empowerment and Innovation/ESG Progress: Continue to encourage an inclusive culture that supports Diversity, Equity, and Inclusion ("DEI") that rewards innovation, provides empowerment, creates paths towards career advancement, and drives strong financial results. Additionally, the Company seeks to invest in and report on ESG targets, goals, and successes that improve our corporate citizenry and produce strong returns.

The tactics we utilized to execute our strategy evolved throughout 2020 depending on the opportunities and challenges presented to us and the feedback we received from our associates and residents. Tactical decisions included (1) dynamically pricing our apartments at the unit level based on daily tracking of regulatory changes, (2) actively trading rental rate growth for occupancy and vice versa to maximize revenue growth, (3) consistently communicating with current and former residents, especially in more negatively impacted urban areas, to better understand their financial situation, (4) taking advantage of opportunities we could control while managing around exogenous factors out of our control, and (5) proactively positioning UDR to take advantage of the eventual recovery via focused capital investment/divestment and balance sheet management.

What worked well for us in 2020 should continue to work well in 2021. That is: further advancing our strategic goals by listening to our associates and residents while also remaining nimble, and pivoting as necessary, to appropriately manage risk. Like many, we look forward to the return of social, economic, and business activity norms and while cycles come and go, we believe UDR has the right strategy and team to capitalize on future opportunities. As referenced earlier in this letter, our strong, relative earnings growth and TSR versus peers over multiple periods continues to validate our long‐term strategy and near‐term tactical execution.

Operating Overview and the Next Generation Operating Platform

2020 represented one of the most challenging operating environments encountered during my 30 years in the multifamily industry. Evolving views on how to best slow the spread of COVID and lessen its economic impact led to a complex, constantly changing patchwork of federal, state, county, municipality, and judicial regulatory restrictions on everyday life and business activities and how we could operate our communities. Unlike many apartment operators that early in the pandemic implemented a "one size fits all approach" to pricing their apartments, we employed a dynamic pricing strategy, augmented by the touchless/self‐service aspects of our Next Generation Operating Platform, that drove top‐line growth. Our countless discussions with our residents suggest many were not economically impacted by

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COVID in a material way. For those that did suffer personal or financial hardship, we actively worked to find amenable solutions, and our plan is to continue to do so. Our residents are important to us, and our goal is to maintain these quality relationships to ensure our long‐term success.

UDR's operating approach and diversified portfolio as defined by market mix, location within markets, and price point, better insulated us against the worst of the pandemic as compared to most. This was underscored by blended lease rate growth and change in physical occupancy that outperformed peer apartment REIT averages by an estimated 300 and 50 basis points, respectively, during 2020. While portfolio and accounting differences lessened the comparability of same‐store and earnings results in 2020, we believe these headline numbers (i.e., blended lease rate growth and occupancy changes) should be differentiators for our future results as concessions diminish.

Last on the overall operating environment; apartments are considered an essential business. As such, our teams in the field and at the corporate office did not have the luxury of sitting on the sidelines when emergency maintenance, other customer service matters, deep cleaning of high‐use areas at our communities, or welfare checks, came up. In response, we actively supported our associates during the pandemic, as outlined earlier in this letter, engaged in regular company‐wide telephonic calls to explain how the business was performing and answer any questions our associates may have had, and adjusted resources to where they were most needed. To the UDR associates reading this letter, I am proud of the dedication and compassion you have exhibited throughout this crisis. Without you, our ability to successfully operate our Company and be there for our residents would not have been possible.

Moving on to our Next Generation Operating Platform. Version 1.0 of the NextGen Platform was first contemplated in 2017 as a new way of doing business in the multifamily industry. Its key advancements are the implementation of a self‐service business model through technological innovation, the installation of SmartHome tech (e.g., "smart" thermostats, keyless door locks, water leak detectors, etc.) in over 41,200 UDR apartment homes (i.e., greater than 80%) as of year‐end 2020, the centralization of certain on‐site functions to improve efficiency and customer service, and greater usage of data analytics to drive margin expansion. The genesis of the Platform revolved around the fact that our prospects and residents already utilized self‐service in nearly every aspect of their everyday lives (e.g., banking, hotels, restaurant reservations, airlines, on‐line shopping, etc.), but not when they rented an apartment from or interacted with UDR. As such, moving to a self‐service model meant the potential for significant efficiency gains across our portfolio. I am happy to say that we were correct. After beginning to implement the NextGen Platform in mid‐2018, 2020 marked the year where we rolled out the full technology package to 4 of UDR's 21 markets. By year‐end 2021, the remainder of our markets should be 100% Platform.

So, what do our stakeholders receive from this evolutionary way of conducting business? Our share‐ and bondholders should benefit from $15‐$20 million in additional projected run‐rate net operating income ("NOI") by year‐end 2022, 50% of which was realized at year‐end 2020 with another 25% projected to be realized during 2021, as well as the repeatable value creation we can generate on acquired properties versus private market operators (i.e., potential for 5‐10% in additional NOI growth above market growth over the first three years of ownership, with additional upside potential thereafter). Our associates

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