UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

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UDR, INC.

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April 15, 2008

 

Dear Fellow Stockholders:

 

It is my pleasure to invite you to attend our Annual Meeting of Stockholders. The meeting will be held on May 30, 2008, at 9:00 a.m. local time at The Crescent Hotel, Dallas, Texas.

 

We have elected to take advantage of the new Securities and Exchange Commission rules that allow issuers to furnish proxy materials to their stockholders on the Internet. We believe that the new rules will allow us to provide our stockholders with the information they need, while lowering the costs of delivery and reducing the environmental impact of our annual meeting.

 

The business to be conducted at the meeting is set forth in the formal notice of annual meeting of stockholders and proxy statement that accompany this letter. At the meeting we will also report on the Company’s performance and respond to questions.

 

Your vote is important. Whether or not you plan to attend the meeting, we urge you to vote your shares electronically through the Internet, by telephone or, if you have requested and received a paper copy of the proxy statement, by completing, signing and returning the paper proxy card enclosed with the proxy statement. Voting through the Internet or by telephone will eliminate the need to return your proxy card.

 

Sincerely,

UDR, INC.

 

 

ROBERT C. LARSON

Chairman of the Board of Directors

 

UDR, INC.

 

1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado 80129-1540
Tel: 720.283.6120 Fax: 720.283.2452

 

April 15, 2008

 

Notice of Annual Meeting of Stockholders

 

The Annual Meeting of Stockholders of UDR, Inc. will be held at The Crescent Hotel, 400 Crescent Court, Dallas, Texas, on May 30, 2008, at 9:00 a.m. local time, for the following purposes:

 

 

On or about April 15, 2008, we intend to mail our stockholders a notice containing instructions on how to access our 2008 proxy statement and annual report and vote online. The notice also provides instruction on how you can request a paper copy of these documents if you desire, and how you can enroll in e-delivery. If you received your annual materials via email, the email contains voting instructions and links to the annual report and proxy statement on the Internet.

 

By Order of the Board of Directors

 

 

MARY ELLEN NORWOOD

Corporate Secretary

TABLE OF CONTENTS

 

 

PROXY STATEMENT

 

The enclosed proxy is solicited on behalf of the board of directors of UDR, Inc., a Maryland corporation, for use at our Annual Meeting of Stockholders to be held on May 30, 2008, and at any adjournment, continuation or postponement of the meeting. These proxy solicitation materials are being provided on or about April 15, 2008 to all stockholders entitled to vote at the meeting.

 

We use a number of abbreviations in this proxy statement. We refer to the company as “the company,” “we,” “us” or “our” and to our board of directors as “board” or “board of directors.” The term “proxy solicitation materials” includes this proxy statement, as well as the enclosed proxy card. References to “fiscal 2007” and “fiscal 2008” mean our 2007 fiscal year which began on January 1, 2007 and ended on December 31, 2007 and our 2008 fiscal year which began on January 1, 2008 and will end on December 31, 2008, respectively. Our 2008 Annual Meeting of Stockholders to be held on May 30, 2008 is simply referred to as the “meeting.”

 

In accordance with rules and regulations recently adopted by the Securities and Exchange Commission (“SEC”), instead of mailing a printed copy of our proxy solicitation materials to each stockholder of record, we may now furnish proxy solicitation materials, including this proxy statement and our 2007 Annual Report, by providing access to such documents on the Internet. Most stockholders will not receive printed copies of the proxy solicitation materials unless they request them, in which case printed copies of the proxy solicitation materials will be provided at no charge.

 

Instead of mailing a printed copy of our proxy solicitation materials to each stockholder of record, a Notice of Internet Availability of Proxy Materials (the “Notice of Internet Availability”) was mailed to such stockholders on or about April 15, 2008 that instructs you as to how you may access and review all of the proxy materials on the Internet. The Notice of Internet Availability also instructs you as to how you may submit your proxy on the Internet or by telephone.

 

Any stockholder may request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis by following the instructions set forth in the Notice of Internet Availability. Choosing to receive future proxy materials by e-mail will save us the cost of printing and delivering documents to stockholders and will reduce the environmental impact of our annual meetings. A stockholder’s election to receive proxy materials by e-mail will remain in effect until the stockholder terminates it.

 

We are providing this proxy statement and proxy card to you on the Internet or, upon your request, we are sending printed versions of this proxy statement and proxy card to you by mail, because you owned shares of our common stock and/or our Series E preferred stock or our Series F preferred stock at the close of business on April 4, 2008, which is the record date for the meeting. This proxy statement describes matters on which we would like you, as a stockholder, to vote. It also gives you information on these matters so that you can make an informed decision.

 

When you vote, you appoint Robert C. Larson and Thomas W. Toomey as your representatives at the meeting. Messrs. Larson and Toomey will vote your shares at the meeting as you instructed them when you voted. This way, your shares will be voted whether or not you attend the meeting. Even if you plan to attend the meeting, you should

vote by telephone, through the Internet or, if you have requested and received a paper copy of the proxy statement, by completing, signing and returning the paper proxy card enclosed with the proxy statement in advance of the meeting, just in case your plans change.

 

At the meeting, stockholders entitled to vote will act upon the matters set forth in the accompanying notice of annual meeting of stockholders.

 

The holders of shares of our common stock and our Series E and Series F preferred stock outstanding at the close of business on the record date are entitled to receive notice of the meeting and are entitled to one vote for each share held on each proposal presented at the meeting. Cumulative voting is not permitted.

 

The presence, in person or by proxy, of holders of at least a majority of the total number of shares of outstanding common stock, Series E preferred stock and Series F preferred stock, taken together, as of the record date, must be present in order to hold the meeting and to conduct business. Your shares will be counted as being present at the meeting if you vote your shares in person at the meeting, if you vote your shares by telephone or through the Internet, or if you submit a properly executed proxy card. Votes against a particular proposal will be counted both to determine the presence of a quorum and to determine whether the requisite number of votes has been obtained to approve the proposal. Abstentions, broker non-votes, which are explained below, and shares as to which authority to vote on any proposal is withheld, are each included in the determination of the number of shares present and voting at the meeting for purposes of obtaining a quorum. Each will be tabulated separately.

 

At the record date, we had 128,676,505 shares of common stock, 2,803,812 shares of Series E preferred stock and 666,293 shares of Series F preferred stock issued and outstanding.

 

For Shares Directly Registered in Your Name

 

If you hold your shares in your own name as holder of record with Wells Fargo Shareowner Services, you may vote in person at the meeting or instruct the proxy holders named in the enclosed proxy card how to vote your shares by:

 

 

All valid proxies received and not revoked prior to the meeting will be voted in accordance with the stockholders’ instructions.

 

For Shares held in “Street Name”

 

If your shares are held by a brokerage firm, bank or other nominee (i.e., in “street name”), you will receive instructions from your nominee that you must follow in order to have your shares voted. “Street name” stockholders who wish to vote in person at the meeting will need to obtain a proxy form from the brokerage firm or other nominee that holds their shares of record.

In addition, a number of brokers and banks are participating in a program provided through Broadridge that offers telephone and Internet voting options. This program is different from the program provided by Wells Fargo Shareowner Services for shares registered directly in the name of the stockholder. If your shares are held in an account with a broker or a bank participating in the Broadridge program, you may vote those shares telephonically by calling the telephone number shown on the voting form received from your broker or bank, or via the Internet at Broadridge voting website (www.proxyvote.com).

 

All shares represented by properly executed proxies received in time for the meeting will be voted at the meeting in accordance with the instructions marked thereon or otherwise as provided therein, unless such proxies have previously been revoked. Unless instructions to the contrary are marked, or if no instructions are specified, shares represented by proxies will be voted:

 

 

We have not received notice of any other matters that may properly be presented at the meeting. However, if a matter comes up for vote at the meeting that is not described in this proxy statement or listed on the proxy card, Messrs. Larson and Toomey will vote your shares, under your proxy, in their discretion. It is the intention of Messrs. Larson and Toomey to vote the shares they represent as directed by the board of directors.

 

Yes, you may revoke your proxy at any time prior to the date of the meeting by:

 

 

 

Broadridge will tabulate votes cast by proxy by an automated system. Votes cast by proxy or in person at the meeting will be counted by the persons appointed by us to act as election inspectors for the meeting.

 

An “abstention” occurs when the beneficial owner of shares is present, in person or by proxy, and entitled to vote at the meeting (or when a nominee holding shares for a beneficial owner is present and entitled to vote at the meeting), but such person does not vote on the particular proposal. For purposes of Proposal Nos. 1 and 2, abstentions will not be counted as “votes cast” for purposes of determining whether stockholder approval has been obtained and, therefore, will have no effect on the results of the vote with respect to such proposals.

 

A “broker non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have the discretionary voting power with respect to that proposal and has not received instructions from the beneficial owner. Broker non-votes are not deemed to be “votes cast” for purposes of determining whether stockholder approval has been obtained. Therefore, broker non-votes will have no effect on the voting results for Proposals 1 and 2.

 

This solicitation is being made on behalf of our board of directors, but may also be made without additional remuneration by our officers or employees by telephone, telegraph, facsimile transmission, e-mail or personal interview. We will bear the expense of the preparation, printing and delivery of the enclosed form of proxy, notice of annual meeting of stockholders and this proxy statement and any additional material relating to the meeting that may be furnished to our stockholders by our board subsequent to the furnishing of this proxy statement. We will reimburse banks and brokers who hold shares in their name or custody, or in the name of nominees for others, for their out-of-pocket expenses incurred in forwarding copies of the proxy materials to those persons for whom they hold such shares. To obtain the necessary representation of stockholders at the meeting, supplementary solicitations may be made by mail, telephone or interview by our officers or employees, without additional compensation.

 

We will announce the preliminary voting results at the meeting and publish the final results in our Quarterly Report on Form 10-Q for the second quarter of fiscal 2008.

 

We believe that effective and transparent corporate governance is critical to our long-term success and our ability to create value for our stockholders. We frequently review our corporate governance policies, monitor emerging developments in corporate governance and enhance our policies and procedures when our board of directors determines that it would benefit our company and our stockholders to do so.

 

We maintain a corporate governance page on our website that includes key information about UDR corporate governance, including our Statement on Corporate Governance, Code of Business Conduct and Ethics, Code of Ethics for Senior Financial Officers, Related Person Transactions Policy and the charters for the Audit, Compensation and Governance Committees of the board of directors, all of which can be found at www.udr.com by clicking on “Corporate” then on “Corporate Governance.” The documents noted above will also be provided without charge to any stockholder who requests them. Any changes to these documents, and any waivers granted by us with respect to our Code of Business Conduct and Ethics and our Code of Ethics for Senior Financial Officers, will be posted on our website.

 

We also monitor our corporate governance policies and practices to maintain compliance with the provisions of the Sarbanes-Oxley Act of 2002, rules of the SEC and the corporate governance rules of the New York Stock Exchange (“NYSE”). Our policies and practices meet, and in many cases exceed, the listing requirements of the NYSE, applicable SEC rules and the corporate governance requirements of the Sarbanes-Oxley Act of 2002, including:

 

 

 

In addition to each director’s basic duties of care and loyalty, the board has separate and specific obligations under our Statement on Corporate Governance. Among other things, these obligations require directors to effectively monitor management’s capabilities, compensation, leadership and performance, without undermining management’s ability to successfully operate the business. In addition, the board and the board’s committees have the authority to retain outside legal, accounting or other advisors, as necessary, to carry out their responsibilities.

 

All directors are expected to be knowledgeable about the company and its industry and to understand their duties and responsibilities as directors. The company recognizes the importance of continuing education for directors and is committed to supporting continuing director education in order to enhance board and committee performance. We conduct periodic continuing education for directors and, at a director’s request, we will arrange for the director’s participation in cost-effective continuing education programs offered by third parties that are relevant to the director’s role as a board and committee member.

 

All of our independent directors are expected to participate in an orientation program upon the recommendation of our Governance Committee. Orientation sessions are conducted by senior management to familiarize directors with the company’s strategic plans, significant financial, accounting and risk management issues, our compliance programs, Code of Business Conduct and Ethics, and our principal officers, internal and external auditors. All directors are invited to attend these orientation programs.

 

The board, acting through the Governance Committee, annually evaluates the effectiveness of the board collectively and of board members individually, and the performance of each standing board committee. The Governance Committee determines the appropriate means for this evaluation.

 

The Governance Committee works closely with the Chairman of the Board and the board of directors to develop criteria for open board positions, taking into account such factors as it deems important, including, among others, the current composition of the board, the range of talents, experiences and skills that would complement those already represented on the board and those that would help achieve the company’s goals. The Governance Committee will consider, among other things, whether a potential director nominee has the time available, in light of other business and personal commitments, to perform the responsibilities required for effective service. The Governance Committee considers candidates for board membership suggested by its members and other board members, as well as management, our stockholders and any director search firm retained by the board.

 

Once the Governance Committee has identified a potential director nominee, the Governance Committee, in consultation with the Chairman of the Board and our Chief Executive Officer, will evaluate the prospective nominee against the specific criteria that the Governance Committee has established, as well as the standards and qualifications contained in our Statement on Corporate Governance. If the Governance Committee, in consultation with the Chairman of the Board and our Chief Executive Officer, determines, based upon its preliminary review, to

proceed with further consideration, then members of the Governance Committee and the board, as appropriate, interview the prospective nominee. After completing this evaluation and interview, the Governance Committee makes a recommendation to the board, which makes the final determination whether to nominate or appoint the new director.

 

In addition to any other applicable requirements, Section 2.11 of our Amended and Restated Bylaws sets forth the procedures and requirements relating to nominations of directors by stockholders. Any stockholder who wishes to recommend a prospective nominee for consideration must submit the following information no sooner than December 16, 2008 and no later than January 15, 2009:

 

 

Such information should be sent to the attention of our Corporate Secretary at 1745 Shea Center Drive, Suite 200, Highlands Ranch, Colorado 80129-1540.

 

The board does not impose arbitrary limits to the number of terms a director may serve. However, the Governance Committee will consider various criteria, including a director’s contribution to the board, in determining whether or not to recommend a director for re-election.

 

A director who reaches the age of 70 must tender his or her resignation to the Chairman of the Board before the next occurring annual meeting of stockholders unless the board asks the director to continue to serve. Employee directors are required to resign as a director after ceasing to be an employee, unless the board asks them to continue to serve. The Chairman will refer the resignation to the Governance Committee for review. The board will decide, in light of the circumstances and the recommendation of the Governance Committee, the date at which the resignation will become effective. A vacancy created by a director’s retirement may be filled by a majority of the remaining directors in accordance with our bylaws. A director so appointed to fill the vacancy will stand for re-election at the first annual meeting of stockholders following that director’s appointment to the board. In addition, the company requires that directors tender their resignation when their present position or job responsibility changes significantly. The board then decides, in light of the circumstances and the recommendation of the Governance Committee, whether to accept such resignation.

 

The board has adopted a formal policy that a significant majority of its members should be independent directors who have no material relationship with the company (either directly or as a partner, stockholder or officer of an organization that has such a relationship with the company), as defined under the NYSE listing standards and the company’s director independence standards. The board has determined that all directors standing for election are independent under both sets of standards, except Mr. Toomey, who is not independent because he is the company’s Chief Executive Officer and President. For additional information about the directors standing for election, see Proposal No. 1 beginning on page 12 of this proxy statement. In making these independence determinations, the board considered information submitted by the directors in response to directors’ questionnaires and information obtained from the company’s internal records.

 

The Audit, Compensation and Governance Committees consist entirely of independent directors, as defined in the NYSE listing standards and the company’s director independence standards. Each member of the Audit Committee also satisfies the additional independence requirements set forth in rules under the Securities Exchange Act of 1934.

 

Each member of the Audit Committee is financially literate, and the board has determined that each member of the Audit Committee is an “audit committee financial expert” within the meaning of the SEC’s regulations.

 

Our independent directors hold regularly scheduled executive sessions at which our independent directors meet without the presence of management. These executive sessions are expected to occur around regularly scheduled meetings of the board of directors. The Chairman of the Board, or the Vice Chairman in the Chairman’s absence, presides as chairman of these executive sessions. Both the Chairman of the Board and the Vice Chairman are independent directors.

 

Our Statement on Corporate Governance provides that each director is expected to develop a meaningful equity stake in our company over time and that after the second anniversary of election to the board of directors, each director is required to own a minimum of 5,000 shares of our common stock. Each of our directors currently owns shares in an amount sufficient to comply with these guidelines.

 

None of the members of the Compensation Committee during fiscal 2007 or as of the date of this proxy statement is a former or current officer or employee of the company or has any interlocking relationships as set forth in applicable SEC rules. In addition, none of our executive officers serve as a member of the board of directors or compensation committee of any company that has one or more executive officers serving as a member of our board of directors or compensation committee.

 

Any stockholder or interested party who wishes to communicate with the board of directors or any specific director, including independent directors, the Chairman, or committee members, may write to:

 

UDR, INC.

Attn: Board of Directors

1745 Shea Center Drive

Suite 200

Highlands Ranch, Colorado 80129-1540

 

Depending on the subject matter of the communication, management will:

 

 

Stockholders and other interested persons may submit concerns regarding accounting matters via the company’s third-party anonymous reporting system at www.mysafeworkplace.com or by calling 1-800-461-9330. Instructions for making a report are published in the Corporate Governance subsection of the Investor Relations section of the company’s website.

 

The board of directors held seven meetings during fiscal 2007. No director attended fewer than 75% of the aggregate of (1) the total number of meetings of the board of directors, and (2) the total number of meetings held by all committees of the board of directors on which he or she served during fiscal 2007. The board of directors has standing Audit, Compensation, Executive and Governance Committees. The Governance Committee also serves as our nominating committee.

 

The board of directors has established the following committees to assist it in discharging its responsibilities:

 

 

 

 

The board has adopted the following policy on director attendance at meetings: Absent extenuating circumstances, directors are expected to attend in person our Annual Meeting of Stockholders, all regularly scheduled board and committee meetings and to participate telephonically in regularly scheduled board and committee meetings when they are unable to attend in person. All of our directors attended our 2007 Annual Meeting of Stockholders.

 

The following table provides information concerning the compensation of our directors for 2007.

 

 

 

 

 

 

 

 

Our board of directors has retained Mercer Human Resource Consulting (“Mercer”), a nationally recognized consulting firm, to assist the Compensation Committee, in consultation with the Chairman of the Board and the board of directors, in structuring a compensation program for the board of directors. Mercer reviewed information concerning director pay from our REIT peer group and the National Association of Corporate Directors 2006-2007 Director Compensation Report. The goal of the Compensation Committee and the board of directors was to structure director compensation so that we could attract and retain quality directors and to align director compensation with the goal of increasing dividend income and share price appreciation.

 

Our compensation program for independent directors is designed to attract and retain highly qualified board members who can work with senior management to establish key strategic goals in support of long-term stockholder value creation. In 2007, the program consisted of a combination of cash retainers for board and committee service and service-based restricted stock. Total pay associated with cash retainers and restricted stock was targeted at the median level of the designated peer group of apartment REITs. Annual retainers for board and committee service were set at competitive levels in recognition of the time commitments and responsibility levels associated with serving on public company boards within the current environment.

We believe that the attraction and retention of quality board members has become more challenging as a result of global and domestic trends in corporate governance and regulation and competition for qualified, talented director candidates. Time commitments and performance expectations of board members have increased in recent years and may increase further. As a result we expect to continue to review our independent director compensation annually to ensure that we are competitive and to allow us to recruit and retain qualified candidates to serve as directors of the company.

 

2007 Director Compensation Program

 

In December 2006, the board of directors approved the following 2007 compensation program for directors:

 

Retainer.  Each independent director received an annual cash retainer fee of $50,000 ($100,000 for a non-employee Chairman of the Board). Non-employee directors, other than committee chairpersons, also received an annual cash retainer fee of $7,500 for each committee on which they serve; provided however that, no retainer is paid to the members of the Executive Committee. The chairpersons of each of the Audit, Compensation and Governance Committees received an annual cash retainer fee of $15,000. These fees were paid in January 2007.

 

Stock Grant.  Each non-employee director also received a grant of $90,000 in value of shares of restricted stock ($180,000 for a non-employee Chairman of the Board) priced at $31.81 per share, which was the closing price of our common stock on January 3, 2007, the date of the grant. The shares of restricted stock will vest on the anniversary of the date of grant. As of January 1, 2008, 2,829 shares (or 5,659 for a non-employee Chairman of the Board) vested, which represents the $90,000 amount (or the $180,000 amount for a non-employee Chairman of the Board) reflected in the Director Compensation Table. The non-employee directors receiving restricted stock are entitled to receive dividends during the vesting period; however, any unvested shares at the end of the vesting period will be returned to us and cancelled. Based on recommendations provided by Mercer, the board approved a director compensation program that eliminated performance-based restricted stock grants and established a targeted long-term incentive grant value (as opposed to a fixed number of shares). In reviewing our 2006 program, Mercer noted that performance-contingent long-term incentive awards to non-employee directors are rare, the sample size of our total stockholder return peer group is low due to industry consolidation, and no true-up is permitted under FAS 123(R) accounting rules for performance shares with market-based vesting criteria if performance goals are not met. Targeted long-term incentive values under the 2007 program are also less costly to the company, as compared to the 2006 program, in terms of accounting expense and number of shares granted.

 

Directors are entitled to receive dividends on their restricted stock awards during the vesting period. The amount reflected under the heading “All Other Compensation” in the Director Compensation Table includes the total amount of dividends received by the independent director on all of his or her outstanding awards in 2007. Absent extenuating circumstances, upon a director’s resignation, any unvested shares will be returned to us and cancelled. All restricted stock granted to our independent directors is priced at the closing price of our common stock on the grant date.

 

Directors who were also employees of the company received no additional compensation for service as a director. All directors are reimbursed for reasonable expenses incurred in connection with attending a board meeting or committee meeting.

 

2008 Director Compensation Program

 

Retainer.  On October 15, 2007, the board approved the director compensation program for 2008, which remained unchanged from the 2007 program. For 2008, each non-employee director will receive an annual retainer fee of $50,000 ($100,000 for a non-employee Chairman of the Board). Non-employee directors, other than committee chairpersons and the non-executive Chairman of the Board, also receive an annual retainer fee of $7,500 for each committee on which they serve; provided however that, no retainer is paid to the members of the Executive Committee. The chairpersons of each of the Audit, Compensation and Governance Committees receive an annual retainer fee of $15,000. These fees were paid in January 2008.

 

Stock Grant.  Each non-employee director also received a grant of $90,000 in value of shares of restricted stock ($180,000 for a non-employee Chairman of the Board) priced at $19.98 per share, which was the closing price

of our common stock on January 2, 2008, the date of the grant. The shares of restricted stock will vest on the anniversary of the date of grant. The non-employee directors receiving restricted stock are entitled to receive dividends during the vesting period; however, any unvested shares at the end of the one-year vesting period will be returned to us and cancelled.

 

Directors who are also employees of the company receive no additional compensation for service as a director. All directors will be reimbursed for expenses incurred in connection with attending a board meeting or committee meeting in accordance with our Director Expense Reimbursement Policy.

 

Our board is currently comprised of eleven members. All of the nominees are currently serving on the board. Unless otherwise directed, the proxy holders will vote the proxies received by them for the eleven nominees named below. If any of the nominees is unable or declines to serve as a director at the time of the meeting, the proxies will be voted for any nominee who is designated by the present board of directors to fill the vacancy. It is not expected that any nominee will be unable or will decline to serve as a director. The directors elected will hold their respective offices until the next annual meeting of stockholders or until their successors are elected and qualified.

 

The names of the nominees and certain information about them are set forth below.

 

 

There is no family relationship between any of our directors or executive officers.

 

Katherine A. Cattanach, Ph.D. was a General Partner of INVESCO Private Capital, Inc. (formerly Sovereign Financial Services, Inc.), a company specializing in private equity investments, from 1987 to 2005. From 2005 to March 2006, she served as a director and member of the audit and compensation committees of Collect America, Ltd. She is currently a member and Vice Chair of the Denver Museum of Nature and Science Foundation Board and a member, former director and President of the Denver Society of Security Analysts. She is active in and serves as a member of numerous charitable organizations.

 

Eric J. Foss has served as President and Chief Executive Officer of The Pepsi Bottling Group, Inc. since July 2006. From September 2005 to July 2006, Mr. Foss served as the Chief Operating Officer of The Pepsi Bottling Group, Inc. Previously, Mr. Foss served as the President of the North America division of Pepsi Bottling Group, Inc. from September 2001 to September 2005. Mr. Foss also served as Executive Vice President of the North America division of Pepsi Bottling Group, Inc., from August 2000 to September 2001, was Senior Vice President of Sales and Marketing for the North America division of Pepsi Bottling Group, Inc., from March 1999 to August 2000 and was General Manager of European Operations for PepsiCo from December 1996 to March 1999.

 

Robert P. Freeman has served as Senior Managing Director and Principal of Greyfields Investors LLC, a real estate private equity company, since 2007, and has also served as President of Landfall Capital LLC, a private real estate merchant bank, since 2001. Previously, Mr. Freeman was a Managing Director of Wells Hill Partners, Ltd., a real estate investment banking firm, from 1999-2001 and a Managing Director of Lazard Frères & Co. LLC, a

private investment bank, and President of Lazard Frères Real Estate Investors, L.L.C., a real estate investment company, from 1992 to 1999. Each of the companies mentioned is based in New York, New York. He is active in and serves as a director of numerous private companies and charitable organizations.

 

Jon A. Grove was the Chairman, President and Chief Executive Officer of ASR Investments Corporation since its organization in 1987 until our acquisition of ASR in 1998. He currently serves as a director of American Southwest Holdings, Inc. in Phoenix, Arizona.

 

James D. Klingbeil is Vice Chairman of the Board of Directors and the Chairman and Chief Executive Officer of Klingbeil Multifamily Fund IV and Klingbeil Multifamily Fund V, f/k/a American Apartment Communities III, and Klingbeil Multifamily Fund VI. He was Chairman and Chief Executive Officer of American Apartment Communities II from 1995 until its merger with the company in December of 1998. He is also Chairman and Chief Executive Officer of Klingbeil Capital Management, The Klingbeil Company and Khempco Building Supply Company. He currently serves as a director of Broad Street Financial and numerous private companies. He is also a member of the Board of Trustees of the Urban Land Institute.

 

Robert C. Larson has been Chairman of the Board of Directors since March 2001. He is a Managing Director of Lazard Alternative Investments LLC and Chairman and Managing Principal of Lazard Real Estate Partners LLC. He is also chairman of Larson Realty Group, a privately owned, Detroit-based company engaged in real estate investment, development, management and leasing. Mr. Larson currently serves as a Director of Atria Senior Living Group, Inc., and InterContinental Hotels Group, PLC. He was a Managing Director of Lazard Frères & Co. LLC from 1999 until May 2005. Prior to joining Lazard, Mr. Larson was Chairman of the Taubman Realty Group from 1990 until 1998, Chief Executive Officer from 1988 through 1990 and President and Chief Operating Officer from 1978 until 1988. He joined Taubman in 1974 as Senior Vice President. Previously he held various management positions with Inland Steel Company in Chicago.

 

Thomas R. Oliver was Chairman of InterContinental Hotels, Inc. from 2002 until his retirement on March 31, 2003. From 1997 to October 2002 he also served as Chief Executive Officer of InterContinental Hotels, Inc. From 1996 to 1997 he was Chief Executive Officer of AudioFax, Inc. and from 1993 to 1996 he was Chief Executive Officer of VoiceCom Systems, Inc. From 1991 to 1993 Mr. Oliver served as Chief Operating Officer and Executive Vice President of Worldwide Customer Operations for FedEx. At FedEx he led the development and launch of the FedEx letter packaging concept, and created and led the quality process that enabled FedEx to become the first American service company to win the United States Malcolm Baldrige National Quality Award. He currently serves as a director of Interface, Inc., the world’s largest manufacturer and marketer of carpet tiles.

 

Lynne B. Sagalyn, Ph.D. has been a Professor of Real Estate Development and Planning at the University of Pennsylvania, with appointments in both the School of Design (City Planning) and the Wharton School (Real Estate) since January 2004. Previously, she was the Earle W. Kazis and Benjamin Schore Director of the M.B.A. Real Estate Program and director of the Paul Milstein Center for Real Estate at the Columbia University Graduate School of Business, where she was a professor and the director of the program from 1992 through 2003. From 1991 to 1992, she was a visiting professor at Columbia University. From 1987 to 1991, she was an associate professor of Planning and Real Estate Development at Massachusetts Institute of Technology. She is also on the faculty of the Weimer School for Advanced Studies in Real Estate and Land Economics. Dr. Sagalyn is a trustee and Chair of the Audit Committee of Capital Trust, Inc., a public real estate investment trust that specializes in real estate lending, a member of the Advisory Board of Goldman Family Enterprises and on the Advisory Board of the Taubman Center for State and Local Government at the J.F.K. School of Government at Harvard University. She has also served on the New York City Board of Education Chancellor’s Commission on the Capital Plan.

 

Mark J. Sandler was a Senior Managing Director of Bear, Stearns & Co., Inc., an investment banking firm, in charge of its real estate operations until his retirement in October 1988. From 1968 through 1980 he was a Partner with Donaldson Lufkin & Jenrette, an investment banking firm. Since that time, Mr. Sandler has managed his personal and family investments. Mr. Sandler was a director of South West Property Trust Inc. at the time we acquired South West in 1996. He served as a Trustee of Amherst College and of Northfield Mt. Hermon School and was also a founder of New Jersey SEEDS, which provides private school education for gifted , motivated but financially disadvantaged children.

Thomas W. Toomey has been our Chief Executive Officer and President since February 2001. Prior to joining us, Mr. Toomey was with Apartment Investment and Management Company, or AIMCO, a publicly traded real estate investment trust, where he served as Chief Operating Officer for two years and Chief Financial Officer for four years. During his tenure at AIMCO, Mr. Toomey was instrumental in the growth of AIMCO from 34,000 apartment homes to 360,000 homes. He has also served as a Senior Vice President at Lincoln Property Company, a national real estate development, property management and real estate consulting company, from 1990 to 1995. He currently serves as a member of the board of the National Association of Real Estate Investment Trusts, the National MultiHousing Council, a member of the Real Estate Roundtable and a trustee of the Oregon State University Foundation.

 

Thomas C. Wajnert is self-employed and provides advisory services within the financial services industry. He currently serves as a Senior Advisor to Bear Stearns Merchant Banking. Mr. Wajnert had been Managing Director of Fairview Advisors, LLC, a merchant bank, from January 2002 to July 2006. He was Chairman and Chief Executive Officer of SEISMIQ, Inc, a provider of advanced technology to the commercial finance and leasing industry, from its founding in April 2000 until December 2001. Mr. Wajnert also was the Chairman of EPIX Holdings, Inc., a professional employer organization, from March 1998 until November 2003, where he also served as Chief Executive Officer from March 1998 to April 1999. Previously, Mr. Wajnert was Chairman of the Board of Directors from January 1992 until December 1997, and Chief Executive Officer from November 1984 until December 1997, of AT&T Capital Corporation (NYSE), a commercial finance and leasing company. He was self-employed from December 1997 to March 1998. Mr. Wajnert serves on the boards of directors of Reynolds American, Inc. (NYSE) and NYFIX, Inc.

 

The eleven nominees receiving the highest number of affirmative votes cast at the meeting shall be elected as directors.

 

Our board of directors recommends that the stockholders vote “FOR” the director nominees listed above.

 

The following table sets forth the shares of our common stock beneficially owned by (1) each of our directors, (2) the named executive officers, (3) all of our directors and executive officers as a group, and (4) all persons known by us to beneficially own more than 5% of our outstanding voting stock. We have determined the beneficial ownership shown on this table in accordance with the rules of the SEC. Under those rules, shares are considered beneficially owned if held by the person indicated, or if such person, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares the power to vote, to direct the voting of and/or to dispose of or to direct the disposition of such security. Except as otherwise indicated in the accompanying footnotes, beneficial ownership is shown as of April 4, 2008.

 

 

 

 

 

Compensation Design and Philosophy.  Our compensation programs are designed to further our strategic plan and our goal of increasing stockholder value by providing equitable economic motivation to our executive officers and other key employees. The compensation of each of our executive officers is influenced significantly by the executive officer’s performance, measured by financial, non-financial and market performance, as well as the compensation levels of appropriate peer group companies. More specifically, our compensation program seeks to:

 

 

 

Our Compensation Committee, which is composed of independent members of our board of directors, is responsible for developing and administering compensation programs for (1) executive officers, including base salaries and annual and long-term incentive compensation plans, and (2) long-term incentive compensation plans for all of our associates. The independent directors meet each year in executive session, without the CEO present, to evaluate the performance of our CEO and determine and approve our CEO’s compensation. Our CEO makes recommendations to, and consults with, the Compensation Committee as to the amount of proposed base salaries for the executive officers who report directly to our CEO. After such consultation, the Compensation Committee sets the base salaries for the year for these executive officers and approves salary ranges for other executive officers, typically through competitive “benchmarking” based primarily on salaries paid for similar positions within the real estate and REIT industry (with an emphasis on the multi-family sector) as published in industry statistical surveys and the proposed base salary relative to that of the other executive officers.

 

Our compensation philosophy is that total direct compensation, or TDC, which consists of base salary, annual incentive compensation and long-term incentive compensation, and each individual element of TDC, should be targeted at median levels of similarly-sized relevant peer group companies when performance objectives are met. As an executive’s level of responsibility increases, a greater portion of TDC is based on long-term performance-based incentive compensation and less on base salary, thereby creating the potential for greater variability in the individual’s compensation level from year to year. Performance-based compensation can significantly exceed median levels for superior results and fall well below median levels when performance objectives are not achieved. With respect to our senior executives, such as our named executive officers, the peer group is made up of a diversified group of 15 comparably-sized public REITs. For 2007, this peer group, which we refer to as the “diversified public REIT peer group,” included the following companies: Apartment Investment and Management Company (NYSE: AIV), Archstone-Smith Trust (NYSE: ASN), AvalonBay Communities Inc. (NYSE: AVB), BRE Properties, Inc. (NYSE: BRE), Camden Property Trust (NYSE: CPT), CBL & Associates Properties, Inc. (NYSE: CBL), Colonial Properties Trust (NYSE: CLP), Developers Diversified Realty Corporation (NYSE: DDR), Essex Property Trust (NYSE: ESS), Home Properties, Inc. (NYSE: HME), Liberty Property Trust (NYSE: LRY), The Macerich Company (NYSE: MAC), Mack-Cali Realty Corporation (NYSE: CLI), New Plan Excel Realty Trust, Inc. (NYSE: NXL) and Regency Centers Corporation (NYSE: REG). With respect to our other executive officers, the peer group includes other publicly traded and private real estate investment companies against which we compete.

 

Forms of Compensation.  The mix, level and structure of the elements of TDC (base salary, annual incentive compensation, which we refer to in this proxy statement as “bonuses,” and long-term incentive, or “LTI,” compensation), reflect real estate industry practices as well as the executive’s role and relative impact on business results consistent with our variable pay-for-performance philosophy. An analysis by Mercer Human Resource Consulting reflects that the average market median compensation mix for the top five named executive officer positions was as follows: base salary: 28% of overall compensation; bonus 29% of overall compensation, and LTI compensation: 43% of overall compensation. Under our compensation structure, the mix of base salary, bonus and LTI compensation has varied. For the CEO and Executive Vice Presidents (and equivalents) the base salary has been approximately 20%-25% of TDC, bonuses have been approximately 40%-45%, and LTI compensation has been approximately 35%-40%. We believe these allocations are consistent with median levels for peer group companies and our overall compensation philosophy as described above.

 

Base Salary.  The Compensation Committee annually reviews and determines the base salary of our named executive officers in consultation with our CEO. Base salaries are determined through competitive “benchmarking” based primarily on general industry salary surveys and supplemented by detailed analysis of selected industry or

market peers. In setting named executive officer base salaries, the Compensation Committee considers the individual officer’s qualifications, performance against specific goals and the competitive market for qualified executives.

 

Annual Incentive Compensation.  Annual bonuses for our named executive officers are designed to reward performance measured against key annual financial and strategic objectives generally derived from our business plans and those of our major business units. No bonus is paid until threshold performance (usually expressed as a percentage of the goals set for the seven performance variables) is achieved and a minimum bonus is paid at the threshold performance, generally based on the 50th percentile of the peer group companies. Bonuses are paid for achieving the performance goals and there is typically a cap on bonuses paid, generally based on the 75th percentile of the peer group companies. The range between the threshold and cap provides a range in which executive officers may receive incremental increases to bonuses in amounts that correspond to incremental improvements in performance. With respect to other executive officers, our CEO establishes individual goals and performance measures and targets that vary based on company, departmental and personal performance objectives. The company’s overall bonus structure is reviewed annually by the Compensation Committee. In 2007, bonuses were paid in cash, shares of our common stock or a combination of cash and shares of our common stock and options to purchase shares of our common stock.

 

Long-Term Incentive Compensation.  Our LTI compensation plans are designed to foster significant ownership of our common stock by our management, to align the interests of our management with the creation of stockholder value and to motivate our management to achieve long-term growth and success of our organization. Our LTI plans are designed to measure success through Net Asset Value, or “NAV,” and FFO growth and earnings growth, which will create stockholder value. Both the annual and long-term components of LTI compensation are generally earned based on meeting or exceeding targeted increases in NAV, FFO, net operating income from operations and dividends. Given UDR’s emphasis on performance, the time vested restricted stock is used only selectively for purposes of promotion, retention and recruiting.

 

In 2007, the components of our LTI compensation were Performance Accelerated Restricted Stock Awards, or “PARS” under the 1999 Long-Term Incentive Plan and time vested restricted stock grants, each of which focus on current year FFO results compared to our target and to a peer group consisting of apartment REITs (using a matrix with FFO results compared to the target as the primary component and performance compared to the peer group as a modifier) and our Out-Performance Programs, which focus on long-term total return of our stockholders compared to a threshold rate. The Compensation Committee considers the Out-Performance Programs, the PARS Programs, time vested restricted stock grants and grants of stock options to be the principal methods of retaining key members of senior management and incentivising them to focus on increasing dividend income and share price appreciation. Each of these programs is intended to align the interests of our executive officers with those of our stockholders. The Compensation Committee reviews the LTI compensation at least annually to ensure that the key elements continue to meet the company’s objective of enhancing the alignment of our executive officers’ interests with those of our stockholders.

 

For 2008, the Compensation Committee has eliminated the Out-Performance Program, which is linked to the company’s share price, in favor of the new plan because the Compensation Committee believes an LTI plan based on FFO and NAV growth more directly links the executive’s compensation with value creation, and introduced a new LTI plan based on FFO and NAV growth, two key measures which the Compensation Committee believes will create stockholder value. The initial participants in the new plan will be Messrs. Toomey and Wallis and Warren L. Troupe, our Senior Executive Vice President and General Counsel, but the plan could be expanded to include additional participants with the approval of the Compensation Committee. The compensation to be paid pursuant to the plan will be based upon FFO and NAV growth for 2008. The compensation linked to FFO growth will utilize the existing PARS program structure and the compensation linked to NAV growth will utilize a time-vested restricted stock structure similar to the PARS program. For 2008, the Compensation Committee has approved awards of $1,000,000 of FFO-linked compensation and $1,000,000 of NAV-linked compensation for Mr. Toomey, and $700,000 of FFO-linked compensation and $700,000 of NAV-linked compensation for Messrs. Wallis and Troupe. Actual awards may vary from 50% at a minimum threshold to 100% at target, with a maximum of 200% at predetermined levels above the target. Under the plan, the Compensation Committee can reduce the awards up to

20%, at its discretion, but cannot increase the awards. In addition, the Compensation Committee has introduced a new LTI plan based on FFO growth for other members of senior management.

 

Retirement Plans.  We have a Profit Sharing Plan, which is a defined contribution plan covering all eligible full-time employees. Under the Profit Sharing Plan, we make discretionary profit sharing and matching contributions to the plan as determined by the Compensation Committee. Details regarding our matching contributions for our named executive officers are set forth below under the Summary Compensation Table.

 

Perquisites and Other Benefits.  We annually review the perquisites that our executive officers receive. The primary perquisites for senior managers at or above the level of executive vice president (and equivalents) are company-paid health insurance (including dental), life insurance, disability insurance and accidental death and disability insurance.

 

Our executive officers also participate in our other benefit plans on the same terms as other employees. These plans include group health insurance, dental insurance, long-term disability insurance and life insurance. Relocation benefits are also paid but are individually negotiated when they occur.

 

Compensation Consultants.  We have engaged Mercer Human Resource Consulting to advise the Compensation Committee on all principal aspects of executive compensation, including competitiveness of the program design, and provide analysis with respect to the named executive officers and other executive officers. Mercer reports directly to the Compensation Committee and the Compensation Committee is free to replace Mercer or to hire additional consultants from time to time.

 

As part of their engagement, Mercer provides the Compensation Committee and the CEO with a market pay analysis of composite market values for base salary, total cash compensation (consisting of base salary plus annual incentives), LTI and total direct compensation. In addition, Mercer reviews the competitiveness of the pay levels of our named executive officers and company performance against pay and performance levels for a diversified REIT peer group of 15 comparably-sized REITs, a number of whom are direct competitors with the company. For 2007, the diversified REIT peer group included the companies previously listed under “Compensation Design and Philosophy.” The Compensation Committee also considers recommendations from management (and any consultants retained by management) and reviews information concerning compensation offered by other companies in the REIT industry, as well as other publicly traded companies similar in size and growth rate to the company.

 

In addition, at the direction of the Compensation Committee, management retained Semler Brossy Consulting Group, LLC to assist management in reviewing the compensation program for all employees, including the executive officers and other key employees, and proposing changes to the program for review by the Compensation Committee.

 

Our Compensation Committee has retained an independent consultant, Independent Compensation Committee Adviser, LLC (“Independent Consultant”), to help the Compensation Committee understand all of the relevant compensation, financial and technical information it needs to make proper decisions regarding executive compensation. The Independent Consultant generally attends meetings of the Compensation Committee where compensation is discussed, participates in executive sessions of the Compensation Committee and also communicates with the Chair of the Compensation Committee outside of meetings.

 

The Independent Consultant is available to the Compensation Committee, as needed, to:

 

 

The Compensation Committee has told the Independent Consultant that:

 

 

Accordingly, the Independent Consultant provides no other services for the company.

 

How We Determined Compensation for 2007.  The Compensation Committee annually reviews and determines the base salary of our named executive officers. Base salaries are determined through competitive “benchmarking” based primarily on general industry salary surveys and supplemented by detailed analysis of selected industry or market peers. For 2007, the selected industry or market peers consisted of the diversified REIT peer group companies previously listed under “Compensation Design and Philosophy.” In setting named executive officer base salaries, the Compensation Committee considers the individual officer’s qualifications, performance against specific goals and the competitive market for qualified executives. In 2007, the annual incentive compensation of our executive officers was based 25% on the company’s performance and 75% on the individual’s performance against specific goals. Each executive sets specific goals, which are reviewed with the Chief Executive Officer. The Compensation Committee uses this mix of the company’s performance and the individual’s performance to determine an overall performance rating, or percentile, for the executive, and then compares the executive’s performance rating against the percentile bonuses in peer group companies. The Chief Executive Officer, in consultation with the Compensation Committee, intends to review the mix for 2008 to determine if it is appropriate or should be modified.

 

Company Performance.  The company’s performance is evaluated based on the following seven performance variables compared to relevant peer group companies: total stockholder return, or TSR; FFO growth; earnings multiple improvement; same store revenue growth; same store expense growth, dividend growth and FFO payout ratios. For 2007, our overall company performance is at the 60th percentile when compared to the relevant peer group companies, which consists of nine publicly traded apartment REITs, three of which have national portfolios and six of which have regional portfolios. We believe that meeting our goals in these areas will further our goal of increasing stockholder value. 25% of the executive’s total compensation is based upon company performance.

 

Individual Performance.  The individual’s performance is evaluated against specific goals set by the executives and reviewed by our CEO or in the CEO’s case, by the board of directors. 75% of the executive’s total compensation is based upon the evaluation of the executive’s achievement of the specific goals and the recommendation of our CEO as to the executive’s performance.

 

Compensation of CEO.  25% of Mr. Toomey’s compensation was based upon the company’s performance and 75% was based on the degree to which Mr. Toomey met individual goals established at the beginning of the year between Mr. Toomey and the Compensation Committee and evaluations of his performance during the year by the Compensation Committee and our board of directors.

 

In February 2008, the Compensation Committee awarded Mr. Toomey a bonus of $1.3 million for fiscal 2007, $1 million of which is payable in cash, restricted common stock or a combination of cash and restricted common stock, at Mr. Toomey’s discretion, and $300,000 of which is payable in the form of an option to purchase 173,410 shares of common stock at an exercise price of $26.40 per share. The exercise price for the options was at a 20% premium to the market price of our stock at the date of grant, which represents a TSR in excess of 11% when combined with UDR’s dividend level. The options have a term of seven years and the number of options was determined using the Black-Scholes Merton formula for estimating the option value.

 

Compensation of Other Executive Officers.  The Compensation Committee generally makes its final compensation decisions for each fiscal year after the end of that fiscal year including determining bonuses, which may consist of a combination of cash, restricted stock and LTI awards, if any. LTI awards to our executive officers reviewed and approved by the Compensation Committee were recommended by our CEO. Primary considerations were the performance of the company in meeting the goals set for the seven performance variables, as well as the assessed contribution of the individual executives to the company’s performance and the degree to which the individual executives attained their individual goals.

After the end of the fiscal year, base salaries and criteria for bonuses and LTI compensation are set for the following fiscal year. In accordance with our stated compensation philosophy, we increased the other executive officers’ base salaries for fiscal 2008 by approximately 0% to 25% so that they were generally at the median level of the base salary of companies in the relevant peer group, also taking into account each officer’s qualifications, performance against specific goals and the competitive market for qualified executives.

 

Severance and Change of Control Arrangements.

 

Benefits in the Event of a Change of Control.  Under the provisions of our 1999 Long-Term Incentive Plan, all outstanding options, stock appreciation rights and other awards that may be exercised generally become fully exercisable and all restrictions on outstanding awards will lapse upon the occurrence of a change of control unless otherwise provided in the award agreement. “Change of control” is defined in the Plan as (1) a merger or consolidation in which we are not the surviving entity, except for a transaction the principal purpose of which is to change the state in which we are incorporated; (2) the transfer or sale of all or substantially all of our assets other than to an affiliate or subsidiary of ours; (3) the liquidation of our company; or (4) the acquisition by any person, or by a group of persons acting in concert, of more than 50% of our outstanding voting securities, which results in the resignation or addition of 50% or more independent members of our board of directors.

 

In addition, our letter agreement dated May 26, 2006 with Mr. Ernst, our Chief Financial Officer, provides that, in the event of a change of control, all of Mr. Ernst’s outstanding options, restricted stock, OPPSs Units and any other awards in the nature of rights that may be exercised shall become fully vested and immediately exercisable; all restrictions on any outstanding other awards held by Mr. Ernst (such as awards of restricted stock) shall lapse; and the balance in any deferred compensation plan or stockholder value plan shall become fully vested and immediately payable. Additionally, within the first 24 months of Mr. Ernst’s employment, if a change of control occurs he will be paid a minimum of two times his two-year average salary and incentive bonus.

 

Severance Benefits.  We believe that, in order to attract and retain the best management talent, companies should provide reasonable severance benefits to employees. We believe these severance benefits should reflect the fact that it may be difficult for employees to find comparable employment within a short period of time. They also should disentangle the company from the former employee as soon as practicable. With respect to our senior management, severance benefits are individually negotiated.

 

Under the terms of our agreement with Mr. Ernst, if, prior to 36 months, his employment is terminated for any reason other than cause, any shares of restricted stock held by Mr. Ernst will fully vest. Under the terms of the agreement, “cause” may be defined as fraud, theft, willful misfeasance, gross negligence or negligent performance of responsibilities or duties. If Mr. Ernst had been terminated effective December 31, 2007 for any reason other than cause, the total value of his severance benefits would have been $544,347.

 

On December 8, 1998, we entered into an employment agreement with Richard A. Giannotti, our Executive Vice President — Redevelopment. Under the terms of the agreement, we have agreed to pay Mr. Giannotti an annual base salary of at least $175,000. For 2007 and 2006 we paid Mr. Giannotti a base salary of $240,000. The employment agreement also provides that Mr. Giannotti shall have the opportunity to earn an annual bonus of at least 45% of his base salary, based upon the company and Mr. Giannotti meeting certain performance goals and objectives as determined by the Compensation Committee. Mr. Giannotti received a bonus of $225,000 for 2006 and a bonus of $550,000 for 2007. The employment agreement also provides that Mr. Giannotti may participate in the company’s long-term compensation plans for senior officers as adopted by the board of directors or the Compensation Committee.

 

Mr. Giannotti’s employment agreement is automatically renewable for successive one year periods, ending as of December 31 of each year, unless sooner terminated in accordance with the terms of agreement. If the company terminates the agreement without cause, Mr. Giannotti will be entitled to severance compensation that includes one year of base salary, annual incentive compensation actually earned, if any, prorated through the effective date of termination, and an amount equal to the sum of the annual incentive compensation actually earned over the two calendar years prior to the effective date of termination, divided by two. Mr. Giannotti is also entitled to certain compensation following a change of control of the company that results in his termination (unless the termination is by Mr. Giannotti other than for “good reason,” as such term is defined in the employment agreement). This compensation

includes two years of base salary and the equivalent of two years of annual incentive compensation based upon the average annual incentive compensation earned by Mr. Giannotti for the two calendar years prior to the effective date of the termination, plus all other amounts to which he is entitled under any of the company’s compensation plans.

 

Under the terms of our agreement with Mr. Troupe, in the event of a change of control, all of his outstanding options, restricted stock, and any other awards in the nature of rights that may be exercised shall become fully vested and immediately exercisable; all restrictions on any outstanding other awards held by Mr. Troupe (such as awards of restricted stock) shall lapse; and the balance in any deferred compensation plan or shareholder value plan shall become fully vested and immediately payable. Additionally, within the first 24 months of Mr. Troupe’s employment, should a change of control occur, he will be paid a minimum of 2 times his 2 year average salary and incentive bonus.

 

We generally negotiate severance benefits individually, and other than the agreements discussed above, we currently do not have any other contractual severance arrangements with our named executive officers.

 

Stock Ownership Guidelines.  Each of our executive officers is required to comply with our Executive Stock Ownership Guidelines. These guidelines require our executive officers to own a specified number of shares of the company’s common stock as determined by the executive officer’s position within four years of the date of the executive officer’s employment with the company. A copy of our Executive Stock Ownership Guidelines may be found on our corporate governance page on our website at www.udr.com.

 

Accounting and Tax Effects.  The impact of accounting treatment is considered in developing and implementing our compensation programs generally, including the accounting treatment as it applies to amounts awarded or paid to our executives. The impact of federal tax laws on our compensation programs is also considered, including the deductibility of compensation paid to our named executive officers, as regulated by Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Our 1999 Long-Term Incentive Plan has been designed to permit awards under the plan to qualify as a “performance-based” and, therefore, compensation realized in connection with options and grants of restricted stock that qualify as performance-based are fully tax deductible on our federal income tax return. To maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals, the Compensation Committee has not adopted a policy that all compensation must be deductible on our federal income tax returns. The impact of Section 409A of the Code is also taken into account. The 1999 Long-Term Incentive Plan has been designed to comply with the requirements of Section 409A of the Code so as to avoid possible adverse tax consequences that may result from noncompliance.

 

Equity Granting Process.  Grants of stock options, restricted stock and other equity awards to our executive officers and other employees are approved by the Compensation Committee at regularly-scheduled meetings, or occasionally by unanimous written consent. If approval is made at a meeting, the grant date of the award is the date of the meeting; if approval is by unanimous written consent, the grant date of the award is the day the last Compensation Committee member signs the consent.

 

We have no practice of timing grants of stock options, restricted stock and other equity awards to coordinate with the release of material non-public information, nor have we timed the release of material non-public information for the purpose of affecting the value of the named executive officer compensation.

 

The Compensation Committee has reviewed and discussed with our management the Compensation Discussion and Analysis beginning on page 17 of this proxy statement. Based on such review and discussions, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

COMPENSATION COMMITTEE
Jon A. Grove, Chair
James D. Klingbeil
Thomas R. Oliver
Lynne B. Sagalyn

 

The following table summarizes total compensation for the 2006 and 2007 fiscal years earned by our principal executive officer, our principal financial officer, and the three other most highly compensated executive officers who were serving as executive officers at the end of 2007. The executive officers named in the table below are referred to in this proxy statement as the “named executive officers.”

 

Summary Compensation Table

 

 

 

 

Grants of Plan-Based Awards

 

The following table provides information concerning each grant of an award made to a named executive officer in the 2007 fiscal year.

 

 

 

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards

 

PARS Program.  As part of our LTI compensation, executive officers are eligible to receive grants of Performance Accelerated Restricted Stock Awards, or “PARS,” under our 1999 Long-Term Incentive Plan. An executive may be awarded a number of shares of common stock with a target grant date value equal to a percentage of the executive’s base salary. The shares of common stock may be adjusted, upward or downward, based on the company’s FFO and incremental growth in FFO compared to selected peer companies in the REIT industry and our FFO targets during the performance period. The target award level is set by the Compensation Committee, in consultation with our CEO, each year and compares our performance to the relative performance of selected peer companies in the REIT industry during the performance period. Participants are paid dividends on the target award shares during the performance period.

 

The 2007 PARS Program commenced January 1, 2007 with a maximum pay-out of $4.9 million if the company’s performance was at 100% of targeted FFO and performance percentile. The number of PARS granted to the participants in the 2007 PARS Program was based on the closing price of our common stock on December 31, 2006, the date of the grant, which price was $31.79. The actual number of shares earned could have ranged from 0% to 136% of the target award level depending on the company’s performance during the performance period. For 2007 PARS grants, the FFO per share performance range was $1.71 to $2.00, with the number of PARS earned varying based on our FFO per share growth relative to REIT peers. For example, no PARS could be earned for FFO per share results below $1.71 per share unless our FFO per share growth was at or above the peer group median level. For the 2007 PARS Program, the Compensation Committee authorized actual awards at 60% of the target award level. The earned shares vest over four years. There were 92 participants in the 2007 PARS Program.

 

For the 2007 PARS Program, the target award levels expressed as a percentage of the 2007 base salary, the initial number of shares and the actual number of shares granted to our named executive officers was as follows:

 

 

 

 

In February 2008, the Compensation Committee approved the 2008 PARS Program, which commenced as of January 1, 2008 and could result in a maximum pay-out of $5.7 million if the company’s performance is at 100% of the targeted performance percentile. The actual number of shares earned could range from 0% to 124% of the target award level depending on the company’s performance during the performance period.

In addition, as discussed under “Long-Term Incentive Compensation,” the Compensation Committee introduced a new LTI plan based on FFO and NAV growth. For the new LTI plan, the targeted award levels and the initial number of shares granted to Messrs. Toomey and Wallis are as follows:

 

 

 

 

For the 2008 PARS Program, the target award levels expressed as a percentage of the 2008 base salary and the initial number of shares granted to others of our named executive officers under the target award are as follows:

 

 

 

 

The number of PARS granted to the participants in the 2008 PARS Program was based on the trailing 20 day average closing price of our common stock on December 31, 2007, which price was $20.9055. It is anticipated that there will be 96 participants in the 2008 PARS Program.

 

Participants are paid dividends on the target award shares during the performance period. Subject to the participant’s continued employment with us, the target award shares and actual award shares, if applicable, vest pro rata over three years from the date of grant in three annual installments.

 

Out-Performance Programs.

 

Series A and Series B Programs.

 

Our stockholders approved our Series A Out-Performance Program in May 2001, pursuant to which certain of our executives and other key officers were given the opportunity to purchase interests in a limited liability company (the “Series A LLC”), the only asset of which was a special class of partnership units (which we refer to as the “Series A OPPSs”) of United Dominion Realty, L.P., a limited partnership in which we are the sole general partner (“UDR LP”), for an initial investment of $1.27 million. The Series A Out-Performance Program measured the performance of our common stock over a 28-month period beginning February 1, 2001 and ending on May 31, 2003. On December 21, 2007, the Series A LLC was dissolved and the Series A OPPSs were distributed pro rata to the participants.

 

The Series A Program was designed to provide participants with the possibility of substantial returns on their investment if the total return on our common stock, measured by the cumulative amount of dividends paid plus share price appreciation during the measurement period, exceeded the greater of (a) the cumulative total return of the Morgan Stanley REIT Index over the same period; and (b) is at least the equivalent of a 30% total return, or 12% annualized.

At the conclusion of the measurement period on May 31, 2003, the total return on our common stock satisfied these criteria. As a result, the holders of the Series A OPPSs are entitled to receive distributions and allocations of income and loss from UDR LP equal to the distributions and allocations that would be received on 1,853,204 partnership units of UDR LP (which we refer to as “OP Units”). Such distributions and allocations are distributed to the participants on a pro rata basis based on their ownership of the Series A OPPSs.

 

In May 2003, our stockholders approved the Series B Out-Performance Program pursuant to which certain of our executive officers were given the opportunity to purchase interests in the Series B limited liability company, the only asset of which is a special class of partnership units of UDR LP (which we refer to as the “Series B OPPSs”). The purchase price for the Series B OPPSs was determined by our board of directors to be $1 million, assuming 100% participation, and was based upon the advice of an independent valuation expert. The Series B Program measured the cumulative total return on our common stock over the 24-month period from June 1, 2003 to May 31, 2005.

 

The Series B Program was designed to provide participants with the possibility of substantial returns on their investment if the total cumulative return on UDR, Inc.’s common stock, as measured by the cumulative amount of dividends paid plus share price appreciation during the measurement period (a) exceeded the cumulative total return of the Morgan Stanley REIT Index peer group over the same period; and (b) was at least the equivalent of a 22% total return, or 11% annualized. At the conclusion of the measurement period on May 31, 2005, the total cumulative return on our common stock did not satisfy these criteria. As a result, there was no payout under the Series B Program and the investment made by the holders of the Series B OPPSs was forfeited.

 

Five-Year Out-Performance Program

 

Overview.  In May 2005, our stockholders approved our five-year Out-Performance Program, which includes our Series C, Series D and Series E Out-Performance Programs. Pursuant to the five-year Out-Performance Program, certain of our executive officers and other key employees may be given the opportunity to purchase various series of performance shares of UDR LP, which we refer to generally as “OPPSs.” The OPPSs are not securities of UDR, Inc.

 

Our five-year Out-Performance Program is designed to provide participants with the possibility of substantial returns on their investment if the total return on our common stock exceeds targeted levels, while putting the participants’ investment at risk if those levels are not exceeded. The Out-Performance Program is administered by our Compensation Committee, and participants are recommended to the Compensation Committee by the Chief Executive Officer. Members of the board of directors who are not our employees are not eligible to participate in the Out-Performance Program.

 

Each series of OPPSs will be issued by UDR LP to a separate limited liability company, referred to herein as an “LLC,” formed for the benefit of selected executive officers and other key employees who agree to invest in that series of OPPSs. We do not have an ownership interest in the LLC. The participants contribute funds or offer other consideration to purchase interests in such LLC and will indirectly participate in such series of OPPSs on the basis of each participant’s investment in the corresponding LLC. Any executive officer or other key employee who is provided the opportunity to participate in the OPPSs is under no obligation to exercise that right. Prior to the applicable Valuation Date, each LLC will have the right, but not the obligation, to repurchase units from members whose employment terminates and such units may be re-sold by such LLC to selected executive officers or other key employees.

 

We anticipate that interests under an outstanding OPPSs program may also be tendered to us for purchase or exchanged in payment for a participant’s investment in any subsequent Out-Performance Programs. Any such exchange will be based on the fair market value at the time as determined by an independent valuation expert and will be made solely at the discretion of our board of directors.

 

The specific features of the OPPSs, the designation of executive officers and other key employees as potential participants and the level of participation of each participant may vary from series to series of OPPSs.

 

Determination of Purchase Price.  The purchase price for each series of OPPSs is set by the Compensation Committee based upon the advice of an independent valuation expert. The company engaged Citigroup to advise the Compensation Committee on appropriate methodology for valuing the Series C OPPS, the Series D OPPS and

the Series E OPPS. Citigroup concluded that the OPPS should be viewed, for valuation purposes, as a security having a non-transferable option-like component (i.e., during the period prior to the measurement date) and an illiquid income-producing component (i.e., following the measurement date if the out-performance thresholds are met). In other words, because the number of operating partnership (“OP”) units that will be earned if the out-performance thresholds are met will be determined in part by the stock price of the common stock on the measurement date, just valuing the income stream of the common stock would have ignored other market variables that form a part of the price of the common stock. Therefore, it was deemed appropriate to use a valuation methodology that would account for market influences on the value of the common stock prior to the measurement date and not just the discounted future dividends on the common stock.

 

Measurement Period.  Our performance for each series of OPPSs under the Out-Performance Program is measured over a period to be determined by the Compensation Committee with respect to each such series. The LLC that holds such series of OPPSs will have no right to receive distributions or allocations of income or loss, or to redeem those units prior to the date, referred to as the “Valuation Date,” that is the earlier of (i) the expiration of the measurement period for such series of OPPSs, or (ii) the date of a change of control of our company.

 

Total Payout.  For each series of OPPSs, the total payout, if any, under each such series of OPPSs will be calculated by (i) determining the amount by which the cumulative total return of our stock exceeds the applicable threshold (the “Excess Return”); (ii) multiplying up to 2.0% of the Excess Return by our Market Capitalization capped at up to 1% of Market Capitalization for each of the Series C and Series D and capped at up to .50% of Market Capitalization for the Series E; and (iii) dividing that number by the market value of one share of our common stock on the applicable Valuation Date, computed as the weighted average price per day for 20 trading days immediately preceding the Valuation Date, in order to determine the equivalent number of OP units. “Market Capitalization” is defined as the average number of our shares outstanding (including common stock, common stock equivalents and OP Units) over the measurement period for each respective series of OPPSs multiplied by the daily closing price of our common stock.

 

Distributions and Allocations of Income.  Each series of OPPSs will only be entitled to receive distributions and allocations of income and loss if, as of the Valuation Date, the threshold return during the measurement period for such series was achieved. If the threshold return is met, the LLC, as the holder of such series of OPPSs, will be entitled to begin receiving distributions and allocations of income and loss from UDR LP equal to the distributions and allocations that would be received on the similar number of OP Units, which is determined based on the total payout described in the preceding paragraph. If, on the respective Valuation Date, the threshold return does not meet the minimum return, then holders of each of such series of OPPSs will forfeit their investment.

 

Change-in-Control.  Upon the occurrence of a change of control, each LLC or any participant that holds any OPPSs will have the same redemption rights as other holders of OP Units. In the event of a change of control, each LLC or participant that holds OPPSs may require UDR LP to redeem all or a portion of the units held by such party in exchange for a cash payment per unit equal to the market value of a share of the our common stock at the time of redemption. However, in the event that any units are tendered for redemption, UDR LP’s obligation to pay the redemption price will be subject to our prior right to acquire such units in exchange for an equal number of shares of our common stock. Otherwise, no securities of UDR, Inc. are issued in connection with the Out-Performance Programs.

 

Features of the Existing OPPS Programs.  In addition to the features described above with respect to our five-year Out-Performance Program, the Series C, Series D and Series E Programs have the following features:

 

The LLC membership units that are held by our named executive officers in accordance with our Out-Performance Programs are as follows:

 

 

We repurchased Ms. Carlin’s LLC membership units in connection with her departure from the company.

 

If the valuation date for the Series C, Series D and Series E Programs had been December 31, 2007, the total value of the Series C OPPSs to the Series C participants would have been $0, the total value of the Series D OPPSs to the Series D participants would have been $0, and the total value of the Series E OPPSs to the Series E participants would have been $0.

 

The following tables illustrate the value of the Series C, Series D and Series E units under different share prices and total returns on our common stock at the applicable valuation date:

 

SERIES C PROGRAM

 

 

 

 

SERIES D PROGRAM

 

 

 

 

SERIES E PROGRAM