Description of New Out-Performance Program

Description of the Company’s
New Out-Performance Program

Exhibit 10.01

Background

      United Dominion Realty Trust, Inc. (the “Company”) competes for management talent with both public and private real estate investment vehicles and constantly reviews compensation structures and practices in an effort to remain competitive. The Company’s compensation programs are designed to further the Company’s primary goal of increasing dividend income and share price appreciation. The Company’s Board of Directors intends for these goals to be the primary economic motivation of the Company’s executive officers and other key employees.

      The Company’s Board of Directors believes that it is in the best interest of the Company’s stockholders to retain a management team that has a meaningful equity stake in the long-term success of the Company. The Company’s Board of Directors does not view stock options as an effective long-term incentive vehicle, due in part to the relatively low historical stock price appreciation in the REIT industry, and therefore does not plan to make grants of stock options to the Company’s executive officers. The Company’s out-performance programs and the 1999 Long-Term Incentive Plan currently represent the primary long-term incentive programs for the Company’s executive officers and other key employees.

      The Company’s New Out-Performance Program was approved by its stockholders at the Company’s Annual Meeting of Stockholders held on May 3, 2005 (the “Meeting”). Pursuant to the New Out-Performance Program, certain of the Company’s executive officers and other key employees may be given the opportunity to invest in performance shares of United Dominion Realty, L.P., a Delaware limited partnership (“UDR LP”), in which the Company is the sole general partner. The new out-performance partnership shares to be issued under the New Out-Performance Program are referred to herein as the “New OPPSs.” The first series of New OPPSs to be issued under the New Out-Performance Program will be the Series C OPPSs. The Company’s Series C Out-Performance Program was also approved by the Company’s stockholders at the Meeting and is described in more detail in Exhibit 10.02 to the Company’s Current Report on Form 8-K dated May 3, 2005 (Commission File No. 1-10524).

     Like the Series A Out-Performance Program approved by the Company’s stockholders in 2001 and the Series B Out-Performance Program approved by the Company’s stockholders in 2003, the New Out-Performance Program is designed to provide participants with the possibility of substantial returns on their investment if the total return on the Company’s common stock exceeds targeted levels, while putting the participants’ investment at risk if the targeted levels are not exceeded. The New Out-Performance Program will be administered by the Compensation Committee of the Company’s Board of Directors. Members of the Company’s Board of Directors who are not our employees are not eligible to participate in the New Out-Performance Program.

      The Company’s performance for each series of New OPPSs under the New Out-Performance Program will be measured over a period to be determined by the Compensation Committee with respect to each such series (the “Measurement Period”). Each series of New OPPSs will be issued by UDR LP to a separate limited liability company, referred to herein as a “New LLC,” to be formed for the benefit of selected executive officers and other key employees of the Company who agree to invest in that series of New OPPSs. The New LLC that holds such series of New 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 New OPPSs, or (ii) the date of a change of control of the Company (defined as a “Transaction” in UDR LP’s Amended and Restated Agreement of Limited Partnership).

      Each series of New 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, holders of such series of New 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 limited partnership interests in UDR LP, referred to herein as “OP Units.”

      For each series of New OPPSs, the total payout, if any, under each such series of New OPPSs will be capped at 1% of Market Capitalization. “Market Capitalization” is defined as the average number of shares of the Company outstanding (including common stock, common stock equivalents and OP Units) over the measurement period for each respective series of New OPPSs multiplied by the daily closing price of the Company’s common stock.

      If, on the respective Valuation Date, the threshold return does not meet the minimum return, then holders of each of such series of New OPPSs will forfeit their initial investment.

      Any executive officer or other key employee of the Company who is provided the opportunity to participate in the New OPPSs is under no obligation to exercise that right. Each New LLC will have the right, but not the obligation, to repurchase units from members whose employment with the Company terminates and such units may be re-sold by such New LLC to selected executive officers or

other key employees of the Company. If some of those eligible to participate elect not to participate in a particular series of New OPPSs, the remaining units of such series of New OPPSs shall be retained by UDR LP and may be offered in the future to existing participants or other executive officers or key employees.

      We may issue up to one series of New OPPSs per year for the next five years, beginning with the Series C OPPSs. Each series of New OPPSs will have the same terms and conditions as New OPPSs of the same series but may have different terms than New OPPSs of a different series. Each series of New OPPSs will be issued by UDR LP to a New LLC. The participants contribute funds or offer other consideration to purchase interests in such New LLC and will indirectly participate in such series of New OPPSs on the basis of each participant’s investment in the corresponding New LLC. The purchase price for each series of New OPPSs will be set by the Compensation Committee based upon the advice of an independent valuation expert. The specific features of the New 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 New OPPSs. The Company anticipates that interests under an outstanding OPPSs program may also be tendered to the Company 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.)

      Except as described below, no series of New OPPSs may be transferred by a New LLC without the approval of the managers of such New LLC, who are expected to be the two largest participants in such New LLC, as long as they are employees of the Company, and two or more representatives of the independent directors of our Board of Directors. New OPPSs of any series may only be transferred by such New LLC without the consent of the managers of such New LLC after targeted returns have been achieved and the measurement period for such series of New OPPSs has passed. Once the series of New OPPSs has vested, individuals may exchange their interests in such series for an equivalent number of OP Units. Participants in the New Out-Performance Program may transfer New OPPSs or OP Units received to a family member (or a family-owned entity), in the event of death or disability, sell them to the Company or exchange them for interests in subsequent out-performance programs. (Based on fair market value at the time as determined by an independent valuation expert.)

      The terms of the operating agreement of each New LLC will restrict the participants’ ability to transfer their interests in the New LLC without the consent of the managers of such New LLC. Each New LLC will have the right, but not the obligation, to repurchase the interest of any participant in such New LLC at the original purchase price if prior to the end of the Measurement Period such participant’s employment with the Company is terminated for any reason other than by death or disability and such units may be retained or re-sold by such New LLC to selected executive officers or other key employees of the Company. Each New LLC will be used as a vehicle to purchase such New OPPSs to ensure that there would be no opportunity for the participants to profit from the ownership of those New OPPSs of such series prior to the Valuation Date.

      The New OPPSs will not be convertible into shares of the Company’s common stock. However, in the event of a change of control of the Company, each New LLC or any participant that holds any New OPPSs will have the same redemption rights as other holders of OP Units. Upon the occurrence of a change of control, each New LLC or participant that holds New 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 Company’s common stock at the time of redemption. However, in the event that any units are tendered for redemption, the limited partnership’s obligation to pay the redemption price will be subject to the prior right of the Company to acquire such units in exchange for an equal number of shares of common stock.

      Although we do not believe that the sale of the New OPPSs will have an antitakeover effect, the New OPPSs could increase the potential cost of acquiring control of the Company and thereby discourage an attempt to take control of the Company. However, our Board of Directors is not aware of any attempt to take control of the Company, and our Board of Directors has not approved the sale of the New OPPSs with the intention of discouraging any such attempt.

      If with respect to any series of New OPPSs, the threshold return over the Measurement Period is achieved, then the New LLC that holds such series of New OPPSs will be entitled to receive the same distributions and allocations as the holder of a similar number of OP Units of UDR LP. This could have a dilutive effect on future earnings per share of our common stock and on our equity ownership in UDR LP. However, the dilutive impact of each series of New OPPSs will be limited to 1.0%.