UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

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UDR, INC.

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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April 2, 2009

 

Dear Fellow Stockholders:

 

It is my pleasure to invite you to attend our Annual Meeting of Stockholders. The meeting will be held on May 13, 2009, at 8:30 a.m. local time at the Hyatt Regency Tech Center, 7800 E. Tufts Avenue, Denver, Colorado.

 

We have elected to take advantage of the Securities and Exchange Commission rules that allow companies to furnish proxy materials to their stockholders on the Internet. We believe that these 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 2, 2009

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

The Annual Meeting of Stockholders of UDR, Inc. will be held at the Hyatt Regency Tech Center, 7800 E. Tufts Avenue, Denver, Colorado, on May 13, 2009, at 8:30 a.m. local time, for the following purposes:

 

1. To elect eleven directors to serve for the ensuing year.

 

2. To ratify the appointment of Ernst & Young LLP to serve as independent auditors for the year ending December 31, 2009.

 

3. To approve the amended and restated 1999 Long-Term Incentive Plan, including to (i) increase the number of shares reserved for issuance under the plan from 4,000,000 shares to 16,000,000 shares (with future Awards other than Stock Options and Stock Appreciation Rights counting against the reserve at the rate of 2.28 shares for each share actually used) and (ii) raise the annual per person limit on Awards other than Options and Stock Appreciation Rights to $5,000,000, and shares of Stock with respect to Options and/or Stock Appreciation Rights to 5,000,000 shares.

 

4. To transact such other business as may properly come before the meeting or any adjournment of the meeting.

 

On or about April 2, 2009, we intend to mail our stockholders a notice containing instructions on how to access our 2009 proxy statement and annual report and to 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

 

WARREN L. TROUPE

Senior Executive Vice President

and 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 13, 2009, and at any adjournment, continuation or postponement of the meeting. These proxy materials are being provided to stockholders on or about April 2, 2009.

 

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 materials” includes this proxy statement, as well as the enclosed proxy card. References to “fiscal 2008” and “fiscal 2009” mean our 2008 fiscal year which began on January 1, 2008 and ended on December 31, 2008 and our 2009 fiscal year which began on January 1, 2009 and will end on December 31, 2009, respectively. Our 2009 Annual Meeting of Stockholders to be held on May 13, 2009 is simply referred to as the “meeting.”

 

In accordance with rules and regulations recently adopted by the Securities and Exchange Commission (the “SEC”), instead of mailing a printed copy of our proxy materials to each stockholder of record, we may now furnish proxy materials, including this proxy statement and our 2008 Annual Report, by providing access to such documents on the Internet. Most stockholders will not receive printed copies of the proxy materials unless they request them, in which case printed copies of the proxy materials will be provided at no charge.

 

Instead of mailing a printed copy of our proxy 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 2, 2009 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 March 23, 2009, 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 149,112,455 shares of common stock, 2,803,812 shares of Series E preferred stock and 2,903,575 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, there are four different ways to vote:

 

 

All valid proxies received and not revoked prior to the meeting will be voted in accordance with each stockholder’s 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, bank 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. With respect to Proposal No. 3, however, abstentions will be treated as “votes cast.” Therefore, abstentions will have the same effect as a vote against Proposal No. 3.

 

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. With respect to Proposal No. 3, which requires that the total votes cast with respect to the proposal represents more than 50% of all shares entitled to vote, broker non-votes will be treated as “votes cast” and will have the same effect as a vote against the proposal, unless holders of more than 50% in interests of all securities entitled to vote cast votes for the proposal, in which case broker non-votes will not have any effect on the results of the vote for this proposal.

 

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 2009.

 

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 orientation programs upon the recommendation of our Governance Committee. In addition, 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, our Code of Business Conduct and Ethics, and our principal officers, internal and external auditors.

 

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 serves as our nominating committee. The Governance Committee works closely with the Chairman of the Board and recommends to the board of directors 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 3, 2009 and no later than January 2, 2010:

 

 

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

 

Directors are elected annually for a term of one-year. The board does not impose arbitrary limits on 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. 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’s policy is that a significant majority of its members should be independent directors (see Statement on Corporate Governance). Each year the board affirmatively determines that each director has 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. Additional information about each of the directors standing for election is set forth under Proposal No. 1 in 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 generally 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 2008 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 nine meetings during fiscal 2008. 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 2008. The board of directors has standing Audit, Compensation, Governance and Executive Committees to assist it in discharging its duties. Information regarding each committee is set forth below.

 

 

 

 

The Chairman of the Board is an ex-officio member of the Audit, Compensation and Governance Committees.

 

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 2008 Annual Meeting of Stockholders.

 

The following table provides information concerning the compensation of our directors for 2008.

 

 

 

 

 

 

 

 

 

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 2006-2008 Director Compensation Report.

 

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. For 2008, the program consisted of a combination of cash retainers for board and committee service and service-based restricted stock. Total compensation 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. 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.

 

2008 Director Compensation Program

 

On October 15, 2007, the board approved the independent director compensation program for 2008, which was unchanged from the 2007 program. On May 30, 2008, the board amended the 2008 program with the following terms.

 

Retainer.  For 2008, each non-employee director received 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 received an annual retainer fee of $7,500 for each committee on which they served. The chairpersons of each of the Audit, Compensation and Governance Committees received an annual retainer fee of $15,000. Under the 2008 program as amended, non-employee directors who were members of the Executive Committee, other than the Chairman of the Board, received an annual retainer fee of $7,500 for their service on the Executive Committee. 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. Under the 2008 program as amended, the 4,505 shares of restricted stock that were granted to each non-employee director (9,009 shares for the non-employee Chairman of the Board) 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 three-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 are reimbursed for expenses incurred in connection with attending a board meeting or committee meeting in accordance with our Director Expense Reimbursement Policy.

2009 Director Compensation Program

 

Retainer.  Director compensation for 2009 remains unchanged from the compensation paid in 2008. In 2009, 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, also receive an annual retainer fee of $7,500 for each committee on which they serve. The chairpersons of each of the Audit, Compensation and Governance Committees receive an annual retainer fee of $15,000. Non-employee directors who are members of the Executive Committee, other than the Chairman of the Board, also receive an annual retainer fee of $7,500 for their service on the Executive Committee and the Chairperson of the Executive Committee, other than the Chairman of the Board, receives an annual retainer fee of $15,000. These fees were paid in January 2009.

 

Stock Grant.  On January 5, 2009, 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 approximately $13.92 per share, which was the average closing price of our common stock for the trailing twenty (20) days ended January 5, 2009, the date of the grant. The 6,464 shares of restricted stock (12,929 shares for the non-employee Chairman of the Board) 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 are reimbursed for expenses incurred in connection with attending a board meeting or committee meeting in accordance with our Director Expense Reimbursement Policy.

 

The individuals listed below have been nominated for election to the board. 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.

 

 

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 is Chairman, President and Chief Executive Officer of The Pepsi Bottling Group, Inc. 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, Klingbeil Multifamily Fund V (f/k/a American Apartment Communities III), Klingbeil Multifamily Fund VI, Klingbeil Multifamily Fund VII and Klingbeil Multifamily Fund VIII. 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 and The Klingbeil Company. He currently serves as a director of Broad Street Financial and numerous other private companies. He is also the past Chairman and a lifetime member of the Board of Trustees of the Urban Land Institute and Chairman of the ULI Foundation Board.

 

Robert C. Larson has been Chairman of the Board of Directors since March 2001. He is a Senior Advisor of Lazard Alternative Investments LLC and Chairman and Senior Advisor 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. 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. Mr. Larson currently serves as a Director of Atria Senior Living Group, Inc.

 

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 the Earle W. Kazis and Benjamin Schore Professor of Real Estate and Director of the Paul Milstein Center for Real Estate at Columbia Business School since July 2008, positions she also held from 1992 through 2003. From January 2004 to July 2008 she was 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). She is an associate professor of Planning and Real Estate Development at Massachusetts Institute of Technology. Currently, 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 and a member of the Advisory Board of Goldman Family Enterprises. She also serves on the Board of Directors of the Regional Plan Association of New York, an independent not-for-profit regional planning organization. In addition, 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. 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, an Urban Land Institute Governor and a trustee of the Oregon State University Foundation.

 

Thomas C. Wajnert currently serves as a Senior Advisor to Irving Place Capital Partners. 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. (NASDAQ).

 

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 March 23, 2009.

 

 

 

 

 

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 directors, is responsible for developing and administering compensation programs for (1) executive officers, including base salaries and short-term 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. 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, short-term incentive compensation and long-term incentive compensation should be targeted at the 50th percentile to 75th percentile of similarly-sized relevant peer group companies when performance objectives are met. As an executive officer’s level of responsibility increases consistent with his relative ability to impact long-term performance of the company, 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 thirteen comparably-sized public REITs. For 2008, 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), 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) and Regency Centers Corporation (NYSE: REG). Two additional companies that we used for the peer group in 2007 are now privately held (Archstone-Smith Trust and New Plan Excel Realty Trust, Inc.) and therefore are not included in our peer group for 2008. With respect to our other executive officers, the peer group includes other publicly traded and private real estate investment companies against which we compete.

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 thirteen comparably-sized REITs, a number of whom are direct competitors with the company. For 2008, 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.

 

Components of Our Compensation

 

The mix, level and structure of the elements of TDC (base salary, short-term incentive compensation 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 using information from 2006 to 2008 reflects that the average market median compensation mix for the overall compensation of the top five named executive officer positions was as follows: (1) for the CEO, base salary was 23%, short-term incentive compensation was 27% and LTI compensation was 50%, and (2) for the other four named executive officers, base salary was 28%, short-term incentive compensation was 25% and LTI compensation was 47%. Under our compensation structure, the mix of base salary, short-term incentive compensation and LTI compensation has varied. For our CEO and Executive Vice Presidents (and equivalents) for the same time period, the base salary was approximately 20%-25% of TDC, short-term incentive compensation has been approximately 40%-45%, and LTI compensation has been approximately 35%-40%.

 

Base Salary.  Base salaries for our named executive officers are designed to reward individual effort associated with job-related duties and to attract and retain talented executive officers for our company. 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. Base salaries are generally targeted at the 50th percentile of the peer group companies. In setting base salaries for named executive officers, the Compensation Committee considers the individual officer’s qualifications, performance against specific goals and the competitive market for qualified executives.

 

Short-Term Incentive Compensation.  Short-term incentive compensation for our named executive officers is designed to motivate the named executive officers to achieve company and individual goals by rewarding performance measured against key annual and long-term financial, individual and strategic objectives (generally derived from our business plans and those of our major business units) and, for the CEO, using the independent directors’ evaluation of his performance towards achieving long-term goals. Short-term incentive compensation awards are based on pre-determined weighting between company performance and individual performance. For 2008, we weighted company performance generally at 25% and individual performance generally at 75%; for 2009 we decided to change the weighting to 60% to 70% based on company performance and 30% to 40% based on individual performance. Short-term incentive compensation is measured against performance measures such as: total shareholder return, Funds From Operations (“FFO”) growth, earnings multiple improvement, same store revenue growth, same store expense growth, dividend growth and FFO payout ratio. Short-term incentive compensation is targeted at the 50th percentile (of the peer group) for achieving the required minimum performance and 100th percentile (of the peer group) for superior performance. With respect to other executive officers, each executive sets specific goals which are reviewed

with our CEO who establishes performance measures and targets that vary based on company, departmental and personal performance objectives. The company’s overall short-term incentive compensation structure is reviewed annually by the Compensation Committee.

 

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 company. The Compensation Committee reviews the LTI compensation programs at least annually to ensure that the key elements continue to meet the company’s objective of enhancing the alignment of our executive officers’ interest with those of our stockholders.

 

For 2008, the components of our LTI compensation were Performance Accelerated Restricted Stock Awards (“PARS”) under the 1999 Long-Term Incentive Plan and time vested restricted stock grants, which focus on current year FFO or Same Store Net Operating Income (“SSNOI”) or Net Asset Value (“NAV”) results compared to our target and to a peer group consisting of apartment REITS (using a matrix with FFO results compared to target as the primary component and performance compared to the peer group as a modifier). For 2008, the Compensation Committee eliminated the Out-Performance Program, which was linked to the company’s share price.

 

For 2009, LTI compensation for most executive officers will be based upon an FFO target, SSNOI target and cash availability target. In 2009, LTI compensation for our three top executives will be payable in stock options or restricted shares of common stock with the executive having the option to take up to 50% of the total award in restricted shares. The stock options will be subject to a three-year vesting period with an additional term of seven years in which the executive officer may exercise the options. Upon termination of employment after vesting, the executive officer will have a 90 day period to exercise the options with the Compensation Committee having the discretion to extend this up to the original period. The stock options additionally require the executive to retain shares equal to 27.5% of the “after tax profit” upon exercise (market price less exercise price time the number of options exercised) until termination of employment. The number of options will be determined using the Black-Scholes Merton formula for estimating the option value and the exercise price will be based on the market value of the company’s stock on the date of the grant. Where the executive officer elects to receive restricted shares, the proportionate amount of the award was reduced by 10% and the number of shares determined using the market value on the date of grant. The restricted shares will vest pro rata over a three-year period and vesting of the restricted shares will be contingent on achieving an FFO per share of $1.00 in 2009.

 

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.  The primary perquisites that we offer to our CEO and our other 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 CEO and other 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. In order to help us attract and retain qualified personnel, we also offer relocation benefits, but these benefits are individually negotiated when they occur.

 

We review our policies with respect to perquisites on a regular basis to consider whether the perquisites should be maintained and whether, or to what extent, it may be appropriate for us to discontinue particular perquisites or to require repayment of the cost of perquisites. During 2008, we did not change our policies with respect to perquisites that we offer to our CEO and other named executive officers.

2008 Compensation

 

How We Determined Compensation for 2008.  Base salaries for 2008 were determined through competitive “benchmarking” based primarily on detailed analysis of selected industry peers. Base salaries for our named executive officers are generally at the median level of the base salary of companies in the relevant peer group which, for 2008, consisted of the diversified REIT peer group companies previously listed under “Compensation Design and Philosophy.” In 2008, short-term incentive compensation of our executive officers was based 25% on the company’s performance and 75% on the individual’s performance against specific goals and, in the case of the CEO, the independent directors’ evaluation of his performance. 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 that to the percentile short-term incentive compensation in the peer group companies.

 

Company Performance.  The company’s performance was evaluated based on the company’s performance against our business plan and against the following seven performance variables compared to relevant peer group companies: total shareholder return, or TSR; FFO growth; earnings multiple improvement; same store revenue growth; same store expense growth, dividend growth and FFO payout ratios. For 2008, our overall company performance is at the 90th percentile when compared to the relevant peer group companies, which consists of the following publicly traded apartment REITs: Apartment Investment and Management Company (NYSE: AIV), AvalonBay Communities Inc. (NYSE: AVB), BRE Properties, Inc. (NYSE: BRE), Camden Property Trust (NYSE: CPT), Colonial Properties Trust (NYSE: CLP), Equity Residential (NYSE: EQR), Essex Property Trust (NYSE: ESS), Home Properties, Inc. (NYSE: HME), Mid-America Apartment Communities, Inc. (NYSE: MAA) and Post Properties, Inc. (NYSE: PPS). We believe that meeting our goals in these areas will further our goal of increasing stockholder value. For 2008, 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 Compensation Committee. For 2008, 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

 

For 2008, 25% of Mr. Toomey’s compensation was based on the company’s performance and 75% 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. The company’s performance was at the 90th percentile and the Compensation Committee rated Mr. Toomey’s individual performance to be at the 90th to 100th percentile based on achievement of his primary performance goals of (1) completion of the $1.7 billion sale of 25,684 apartment homes which made substantial progress toward our long-term goal of reducing the number of markets in which we compete, refocusing our assets into what we believe to be long-term high growth, high barrier to entry markets, as well as increasing our level of liquidity, (2) completion of the sale of 8,000,000 shares of our common stock raising $194 million of common equity which was used to reduce our short-term borrowings and further increase liquidity before the full impact of the capital market turmoil of 2008 was fully apparent, (3) extension and expansion totaling $1.3 billion of our available lines of credit so that we are able to fund debt maturities for 2009, 2010 and 2011 using available resources and lines of credit without having to resort to volatile capital markets and (4) strengthening our executive management team.

 

Salary.  For 2008, Mr. Toomey received a base salary of $500,000.

 

Short-Term Incentive Compensation.  In February 2009, the Compensation Committee awarded Mr. Toomey short-term incentive compensation in the amount of $2 million for fiscal 2008.

 

Long-Term Incentive Compensation.  For 2008, our LTI compensation for Mr. Toomey utilized PARS programs focused on (1) FFO results compared to our target and (2) achievement of an 11% increase in NAV per share. Actual awards under the plans could vary from 50% at a minimum threshold to 100% at target, with

a maximum of 200% at predetermined levels above the target. Under the plans, the Compensation Committee could reduce the awards up to 20% at its discretion, but could not increase the awards. In February 2008, the Compensation Committee approved an award of $2 million for Mr. Toomey equally divided between the FFO and NAV components. The actual LTI award for fiscal 2008 was 0% for the NAV linked program and 50% for the FFO linked program resulting in compensation of $500,000 for Mr. Toomey (paid through the issuance of 23,917 shares of restricted stock).

 

2009 Compensation.  For 2009 Mr. Toomey’s base salary will remain at $500,000. The range for Mr. Toomey’s short-term incentive compensation is $0 to $2 million with a target of $1 million and will be based 60% on a combination of three company goals; (1) 35% based on targeted FFO, (2) 40% based on SSNOI compared to a peer group of apartment REITs and (3) 25% based on targeted coverage of debt maturities for 2009, 2010 and 2011 by available resources and lines of credit with the remaining 40% based on his individual performance. The short-term incentive compensation will be at a 50% level ($500,000) for achieving a threshold result, 100% level ($1 million) for hitting targets with a maximum of 200% ($2 million) for achieving pre-determined amounts above the targets. His LTI was determined to have a $2 million target awarded in the form of stock options vesting over three years (see “Components of Our Compensation — Long-Term Incentive Compensation” for details of the stock options).

 

Compensation of Messrs. Troupe and Wallis

 

For 2008, 25% of the compensation for Messrs. Troupe and Wallis was based on the company’s performance and 75% was based on the degree to which they met individual goals established at the beginning of the year between Mr. Toomey and Messrs. Troupe and Wallis.

 

Salary.  For 2008, Messrs. Troupe and Wallis each received an annual base salary of $450,000.

 

Short-Term Incentive Compensation.  Based on their performances in achieving their individual goals as well as their substantial performance in completing the $1.7 billion asset sale, the company’s sale of common stock and the increases in our available credit lines, Mr. Troupe was awarded short-term incentive compensation of $1.4 million and Mr. Wallis was awarded short-term incentive compensation of $1.5 million.

 

Long-Term Incentive Compensation.  For 2008, our LTI compensation for Messrs. Troupe and Wallis utilized PARS programs focused on (1) FFO results compared to our target and (2) achievement of an 11% increase in NAV per share. Actual awards under the plans could vary from 50% at a minimum threshold to 100% at target, with a maximum of 200% at predetermined levels above the targets. Under the plans, the Compensation Committee could reduce the awards up to 20% at its discretion, but could not increase the awards. The Compensation Committee approved awards of $1,400,000 each for Messrs. Troupe and Wallis, each equally divided between the FFO and NAV components. Actual awards for 2008 were 0% for the NAV linked program and 50% for the FFO linked program resulting in compensation of $350,000 each for Messrs. Troupe and Wallis (paid through the issuance of 16,742 shares of restricted stock, respectively).

 

2009 Compensation.  For 2009, the base salaries for Messrs. Troupe and Wallis will remain the same as 2008. The range for Mr. Troupe’s short-term incentive compensation is $0 to $1.3 million with a target of $700,000 and will be based 70% on company performance as measured (1) 50% on achieving targeted FFO and (2) 50% on achieving targeted coverage of debt maturities for 2009, 2010 and 2011 by available resources and lines of credit, with the remaining 30% based on his individual performance. The range for Mr. Wallis’s short-term incentive compensation is $0 to $1.3 million with a target of $700,000 and will be based 70% on company performance as measured (1) 50% on achieving target FFO and (2) 50% on SSNOI compared to the peer group of apartment REITs, with the remaining 30% based on his individual performance. In both cases the short-term incentive compensation will be at a 50% level ($350,000) for achieving threshold result, 100% level ($700,000) for hitting targets, with a maximum of 200% ($1.3 million) for achieving pre-determined amounts above the targets. LTI for both Messrs. Troupe and Wallis was determined to have a $1,300,000 target awarded 50% in the form of stock options vesting over three years and 50% in restricted stock. Vesting of the restricted stock will be contingent on achieving an FFO per share of $1.00 in 2009 (see “Components of Our Compensation — Long-Term Incentive Compensation”).

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.

 

Under the terms of our agreement with Warren L. Troupe, our Senior Executive Vice President, General Counsel and Corporate Secretary, in the event of a change of control, all of Mr. Troupe’s 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 short-term incentive compensation.

 

Under the terms of our agreement with Richard A. Giannotti, our Executive Vice President — Redevelopment, Mr. Giannotti is 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 Mr. Giannotti’s employment agreement as amended in December 2008, compensation following a change of control as discussed above will be delayed to the extent necessary to comply with Section 409A(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended (the “Code”).

 

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 and are subject to approval by the Compensation Committee.

 

Under the terms of our agreement with Mr. Giannotti, if we terminate 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 the employment agreement as amended in December 2008, the severance payments discussed above will be delayed to the extent necessary to comply with Section 409A(a)(2)(B)(i) of the Code.

 

Other than the agreements discussed above, we currently do not have any other contractual severance or change of control 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. To access the guidelines on our website, click on “Corporate” and then click on “Governance Documents” under the heading “Corporate Governance.”

 

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 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 18 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
Katherine A. Cattanach, Chair ⁽¹⁾
Jon A. Grove, Chair ⁽²⁾
James D. Klingbeil
Thomas R. Oliver
Lynne B. Sagalyn

 

 

 

 

The following table summarizes total compensation for the 2008, 2007 and 2006 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 2008. The executive officers named in the table below are referred to in this proxy statement as the “named executive officers.”

 

Summary Compensation Table

 

 

 

 

 

 

 

The following table provides information concerning each grant of an award made to a named executive officer in the 2008 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.

 

In February 2008, the Compensation Committee approved the 2008 PARS Program, which commenced January 1, 2008 with a maximum pay-out of $5.7 million if the company’s performance was at 100% of FFO, operations and NAV targeted levels. The number of PARS granted to the participants in the 2008 PARS Program was based on the closing price of our common stock on December 31, 2007, the date of the grant, which price was $20.9055. The actual number of shares earned could have ranged from 0% to 124% of the target award level depending on the company’s performance during the performance period. For the 2008 PARS Program, the Compensation Committee authorized actual awards at FFO — 50%, Operations — 104% and NAV — 0% of the targeted award level. The earned shares vest over three years. There were 64 participants in the 2008 PARS Program.

 

In addition, under the LTI plan based on FFO and NAV growth, the targeted award levels and the initial number of shares granted to Messrs. Toomey, Troupe and Wallis were as follows:

 

 

 

 

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

 

 

 

 

In December 2008, the Compensation Committee approved the 2009 PARS Program, which commenced as of January 1, 2009 and could result in a maximum pay-out of $2,326,411 if the company’s performance is at 100% of the targeted performance percentile. The actual number of shares earned could range from 0% to 135% of the target award level depending on the company’s performance during the performance period.

 

The number of PARS granted to the participants in the 2009 PARS Program was based on the trailing 20-day average closing price of our common stock as of December 31, 2008, the date of grant, which price

was $13.9225. For the 2009 PARS Program, the target award levels expressed as a percentage of the 2009 base salary and the initial number of shares granted to our named executive officers under the target award are as follows:

 

 

 

 

Under the LTI plan, the targeted award levels and the initial number of shares granted to Messrs. Toomey, Troupe and Wallis are as follows:

 

 

 

 

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

 

As previously discussed in this proxy statement, for 2008 and 2009 the Compensation Committee eliminated the Out-Performance Program that was utilized from 2001 through 2007. Below is a brief overview of the Series C, Series D and Series E Out-Performance Programs that were established prior to 2008.

 

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.

 

The five-year Out-Performance Program was 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 are 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. We engaged Citigroup to advise the Compensation Committee on appropriate methodology for valuing the Series C OPPS and the Series D OPPS and Houlihan Lokey for 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.

 

Series C and Series D Programs.  Under our Series C Out-Performance Program pursuant to which certain of our executive officers were given the opportunity to purchase interests in the Series C 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 C OPPSs.” The purchase price for the Series C OPPSs was determined by our board of directors to be $750,000 assuming 100% participation, and was based upon the advice of an independent valuation expert. The Series C Program measured the cumulative total return on our common stock over the 36-month period from June 1, 2005 to May 30, 2008. The Series C Program was designed to provide the possibility of substantial returns to the participants if the total cumulative return on our 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 36% total return, or 12% annualized. At the conclusion of the measurement period on May 30, 2008, the total cumulative return on our common stock did not satisfy these criteria. As a result, there was no payout under the Series C Program and the investment of $532,500 made by the holders of the Series C OPPSs was forfeited.

 

Under our Series D Out-Performance Program pursuant to which certain of our executive officers were given the opportunity to purchase interests in the Series D 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 D OPPSs.” The purchase price for the Series D OPPSs was determined by our board of directors to be $830,000, assuming 100% participation, and was based upon the advice of an independent valuation expert. The Series D Program measured the cumulative total return on our common stock over the 36-month period from January 1, 2006 to December 31, 2008. The Series D Program was designed to provide the possibility of substantial returns to the participants if the total cumulative return on our 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 36% total return, or 12% annualized. At the conclusion of the measurement period on December 31, 2008, the total cumulative return on our common stock did not satisfy these criteria. As a result, there was no payout under the Series D Program and the investment of $443,267 made by the holders of the Series D OPPSs was forfeited.

 

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

 

The LLC membership units that are held by our named executive officers in accordance with the Series E Program are as follows:

 

 

Messrs. Messenger and Giannotti were not eligible and Mr. Troupe did not join the company until 2008 and did not participate in the Series E Program. We repurchased Mr. Ernst’s LLC membership units in the Series E Program in connection with his departure from the company.

 

If the valuation date for Series E Program had been December 31, 2008, 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 E units under different share prices and total returns on our common stock at the applicable valuation date: