The following discussion should be read in conjunction with the accompanying consolidated financial statements and notes thereto.

Forward-Looking Statements

This discussion contains forward-looking statements. Historical results and percentage relationships set forth in the consolidated financial statements, including trends which might appear, should not be taken as indicative of future operations. The Company considers portions of the information to be "forward-looking statements" within the meaning of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended, with respect to the Company's expectations for future periods. Some examples of forward-looking statements include statements related to acquisitions (including any related pro forma financial information), future capital expenditures, financing sources and availability, and the effects of environmental and other regulations. Although the Company believes that the expectations reflected in those forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. Factors that may cause actual results to differ include general economic and local real estate conditions, the weather and other conditions that might affect operating expenses, the timely completion of repositioning activities and development within anticipated budgets, the actual pace of future development, acquisitions and sales, and continued access to capital to fund growth. For this purpose, any statements contained in this report that are not statements of historical fact should be considered to be forward-looking statements. Some of the words used to identify forward-looking statements include "believes", "anticipates", "plans", "expects", "seeks", "estimates", and similar expressions. Readers should exercise caution in interpreting and relying on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond the Company's control and could materially affect the Company's actual results, performance or achievements.

Liquidity and Capital Resources

The Company's principal liquidity demands are expected to be distributions to the common stockholders and holders of UPREIT Units, capital improvements and repairs and maintenance for the properties, acquisition and development of additional properties, stock repurchases, debt repurchases, and debt repayments. The Company may also acquire equity ownership in other public or private companies that own and manage portfolios of apartment communities. Management anticipates the acquisition of communities of approximately $102 million in 2008, $52 million of which were closed through October 31, 2008, although there can be no assurance that additional acquisitions will actually occur.

The Company intends to meet its short-term liquidity requirements through net cash flows provided by operating activities and its existing bank line of credit, described below. The Company considers its ability to generate cash to be adequate to meet all operating requirements, including availability to make distributions to its stockholders in accordance with the provisions of the Internal Revenue Code, as amended, applicable to REITs.

As of September 30, 2008, the Company had an unsecured line of credit agreement with M&T Bank for $140 million which expires September 1, 2009. During the second quarter of 2008, the Company executed a one-year extension to the credit agreement under the same terms and conditions as the agreement which was set to expire on September 1, 2008. The Company's outstanding balance as of September 30, 2008, was $68.5 million. The Company had no occurrences of default as of September 30, 2008. Borrowings under the line of credit bear interest at 0.75% over the one-month LIBOR rate. The one-month LIBOR rate was 3.93% at September 30, 2008. Accordingly, increases in interest rates will increase the Company's interest expense and as a result will affect the Company's results of operations and financial condition.

To the extent that the Company does not satisfy its long-term liquidity requirements through net cash flows provided by operating activities and its unsecured credit facility, it intends to satisfy such requirements through property debt financing, proceeds from the sale of properties, the issuance of UPREIT Units, proceeds from its Dividend Reinvestment and Direct Stock Purchase Plan ("DRIP"), or the issuance of additional debt and equity securities. As of September 30, 2008, the Company owned 33 properties with 8,041 apartment units which were unencumbered by debt.

During the nine months ended September 30, 2008, the Company repaid debt on ten mortgages in the amount of $74.3 million which bore an average interest rate of 7.30%. These properties were added to the unencumbered pool. In addition, the Company paid off a $4.0 million mortgage which bore interest at 1.65% over the one-month LIBOR rate and replaced it with an $11.5 million mortgage at a fixed interest rate of 4.96%. The Company entered into a new mortgage for a previously unencumbered property for $31.7 million with an interest rate that adjusts monthly at 1.99% over the 30 day Freddie Mac Reference Bill and matures July 31, 2015. The Company placed second mortgages on seven properties. Of the seven second mortgages, one was in the amount of $17.1 million with an interest rate of 6.46% and a maturity date of May 1, 2013 and the remaining six were for a total of $41.3 million at an interest rate of 5.55% with maturity dates of May 1, 2010.

During the first quarter of 2008, the Company closed on three separate sale transactions, with a total of 598 units, for $64.5 million. A gain on sale of approximately $30 million, before the allocation of minority interest, was recorded in the first quarter related to these sales. The weighted average first year capitalization rate projected on these dispositions was 6.25%.

Management has included in its operating plan that the Company will strategically dispose of assets totaling approximately $115 million in 2008, $78 million of which were closed during the first ten months of 2008, although there can be no assurance that additional dispositions will actually occur.

The issuance of UPREIT Units for property acquisitions continues to be a source of capital for the Company. During 2007, the Company issued $36.3 million in 634,863 UPREIT Units as partial consideration for three acquired properties. There were no UPREIT Units issued by the Company during the first nine months of 2008.

The Company's DRIP provides the stockholders of the Company an opportunity to automatically invest their cash dividends in additional shares of common stock. In addition, eligible participants may make monthly payments or other voluntary cash investments in shares of common stock. The maximum monthly investment permitted without prior Company approval is currently $10,000. The Company meets share demand under the DRIP through share repurchases by the transfer agent in the open market on the Company's behalf or new share issuance. From January 1, 2007 through September 25, 2007, the Company met demand by issuing new shares. As of September 26, 2007, the Company switched to meeting demand through share repurchases by the transfer agent in the open market on the Company's behalf.

Management monitors the relationship between the Company's stock price and its estimated net asset value ("NAV"). During times when the difference between these two values is small, resulting in little dilution of NAV by common stock issuances, the Company can choose to issue new shares. At times when the gap between NAV and stock price is greater, the Company has the flexibility to satisfy the demand for DRIP shares with stock repurchased in the open market. In addition, the Company can issue waivers to DRIP participants to provide for investments in excess of the $10,000 maximum monthly investment. No such waivers were granted during the nine months ended September 30, 2008 or the year ended December 31, 2007.

In October 2006, the Company issued $200 million of exchangeable senior notes with a coupon rate of 4.125%, which generated net proceeds of $195.8 million. The net proceeds were used to repurchase 933,000 shares of common stock for a total of $58 million, pay down $70 million on the line of credit, with the balance used for redemption of the Series F Preferred Shares and property acquisitions. The exchange terms and conditions are more fully described under Contractual Obligations and Other Commitments, below. During October and November 2008, the Company repurchased and retired $55 million face value of its exchangeable senior notes for $41.6 million, in several privately-placed transactions. A gain on debt extinguishment of approximately $12.7 million will be recorded in the fourth quarter.

On April 4, 2007, the Company filed a Form S-3 universal shelf registration statement with the SEC that registers the issuance, from time to time, of common stock, preferred stock or debt securities. The Company may offer and sell securities issued pursuant to the universal shelf registration statement after a prospectus supplement, describing the type of security and amount being offered, is filed with the SEC.

In March 2002, the Company issued 2,400,000 shares of its 9.00% Series F Cumulative Redeemable Preferred Stock ("Series F Preferred Shares"), with a $25.00 liquidation preference per share. This offering generated net proceeds of approximately $58 million. Each Series F Preferred share received an annual dividend equal to 9.00% of the liquidation preference per share (equivalent to a fixed annual amount of $2.25 per share). The Series F Preferred Shares were redeemed by the Company on March 26, 2007 at a redemption price of $25.00 per share, plus accrued and unpaid dividends totaling $0.39 million. In accordance with the SEC's clarification of EITF Abstracts, Topic No. D-42, The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock, the initial offering costs of $1.9 million associated with the issuance of the Series F Preferred Shares were written-off in the first quarter of 2007, and are reflected as a reduction of net income available to common stockholders in determining earnings per share for the nine months ended September 30, 2007.

In 1997, the Company's Board of Directors (the "Board") approved a stock repurchase program under which the Company may repurchase shares of its common stock or UPREIT Units ("Company Program"). The shares/units may be repurchased through open market or privately negotiated transactions at the discretion of Company management. The Board's action did not establish a target stock price or a specific timetable for repurchase. During the nine months ended September 30, 2008, the Company repurchased 1,071,588 of its common shares for $50 million, or a weighted average price of $46.66 per share. On May 1, 2008, the Board granted authorization to repurchase up to an additional two million shares/units. At September 30, 2008, the Company had authorization to repurchase an additional 2,291,160 shares. The Company will continue to monitor stock prices, the NAV, and acquisition/development alternatives to determine the current best use of capital between the two major uses of capital - stock buybacks and acquisitions/development.

As of September 30, 2008, the weighted average rate of interest on the Company's total indebtedness of $2.2 billion was 5.53% with staggered maturities averaging approximately six years. Approximately 94% of total indebtedness was at fixed rates. This limits the exposure to changes in interest rates, minimizing the effect of interest rate fluctuations on the Company's results of operations and cash flows.

The Company's cash provided by operating activities was $122 million during the nine months ended September 30, 2008 as compared to $121 million for the same period in 2007. The change is primarily due to timing differences in cash disbursements between periods.

Cash used in investing activities was $46 million during the nine months ended September 30, 2008 compared to $82 million for the same period in 2007. Cash outflows for property development and capital improvements were $94 million during the nine months ended September 30, 2008 as compared to $68 million for the same period in 2007. The higher outflow in 2008 reflects the increased development activity as well as increased rehabilitation of core and non-core communities between periods. Cash outflows for the purchase of properties were $16 million for the nine months ended September 30, 2008 as compared to $144 million for the same period in 2007. The lower outflows during 2008 are due to the 2007 period including the redeployment of proceeds from significant 2006 dispositions and the proceeds from the exchangeable senior notes, both of which did not recur during 2008. In addition, the acquisition environment has not produced that same level of accretive acquisition opportunities in 2008 as there were in 2007. Withdrawals from funds held in escrow were $1 million during the nine months ended September 30, 2008 as compared to $42 million for the same period in 2007. The 2007 activity represented the use of proceeds from significant 2006 dispositions which did not recur during 2008.

Net cash used in financing activities totaled $76 million for the nine months ended September 30, 2008, primarily as a result of net borrowing under our line of credit of $66 million and proceeds from stock option exercises of $9 million, more than offset by distributions paid to shareholders and OP Unitholders of $90 million, common stock repurchases of $53 million and net payments of mortgage notes of $7 million. Net cash used in financing activities totaled $134 million for the nine months ended September 30, 2007, primarily as a result of net proceeds of mortgage notes of $35 million and proceeds from stock option exercises of $7 million, more than offset by distributions paid to shareholders and OP Unitholders of $92 million, preferred stock repurchases of $60 million and common stock repurchases of $23 million. The overall significant decrease in cash used in financing between periods is primarily due to the 2007 repurchase of preferred stock of $60 million, which did not recur in the 2008 period.

Variable Interest Entities

The Company is the general partner in one variable interest entity ("VIE") syndicated using low income housing tax credits under Section 42 of the Internal Revenue Code. As general partner, the Company manages the day-to-day operations of the partnership for a management fee. In addition, the Company has an operating deficit guarantee and tax credit guarantee to the limited partner of that partnership. The Company is responsible to fund operating deficits to the extent there are any and can receive operating incentive awards if cash flows reach certain levels. The effect on the consolidated balance sheet of including this VIE as of September 30, 2008 includes total assets of $18.0 million, total liabilities of $17.6 million and minority interest of $0.4 million. Of the $17.6 million in total liabilities, $16.3 million represents non-recourse mortgage debt. The VIE is included in the Consolidated Statement of Operations for the nine months ended September 30, 2008 and 2007.

The Company, through its general partnership interest in the VIE, has guaranteed the low income housing tax credits to the limited partners for a remaining period of 6.25 years totaling approximately $3 million. Such guarantee requires the Company to operate the property in compliance with Internal Revenue Code
Section 42 for 15 years. The Company believes the property's operations conform to the applicable requirements as set forth above. In addition, acting as the general partner in this partnership, the Company is obligated to advance funds to meet partnership operating deficits.

Acquisitions and Dispositions

On March 4, 2008, the Company acquired a land parcel located in Silver Spring, MD for total consideration of $15.9 million. The transaction was funded in cash. The Company is proceeding with the approval of a final site plan developed by the prior owner which contemplates the development of up to 314 apartments.

On January 31, 2008, the Company sold Carriage Hill Apartments (140 units) in the Hudson Valley region of NY for $15.1 million. A gain on sale of approximately $8.8 million, before the allocation of minority interest, was recorded in the first quarter related to this sale. The weighted average first year capitalization rate projected on this disposition was 6.7%.

On February 1, 2008, the Company sold a five-property portfolio (363 units) in the Long Island region of NY in one transaction for $42.0 million. A gain on sale of approximately $16.6 million, before the allocation of minority interest, was recorded in the first quarter related to this sale. The weighted average first year capitalization rate projected on this disposition was 6.1%.

On February 21, 2008, the Company sold Mill Company Gardens (95 units) in Portland, Maine for $7.4 million. A gain on sale of approximately $4.6 million, before the allocation of minority interest, was recorded in the first quarter related to this sale. The weighted average first year capitalization rate projected on this disposition was 6.3%.

Contractual Obligations and Other Commitments

The primary obligations of the Company relate to its borrowings under the line of credit, exchangeable senior notes and mortgage notes payable. The Company's line of credit matures in September 2009 and had $68.5 million outstanding at September 30, 2008. The $2.0 billion in mortgage notes payable have varying maturities ranging from 1 to 26 years. The weighted average interest rate of the Company's secured fixed rate notes was 5.74% at September 30, 2008. The weighted average interest rate of the Company's variable rate notes and credit facility was 4.58% at September 30, 2008.

In October 2006, the Company issued $200 million of exchangeable senior notes with a coupon rate of 4.125%. The notes are exchangeable into cash equal to the principal amount of the notes and, at the Company's option, cash or common stock for the exchange value, to the extent that the market price of common stock exceeds the initial exchange price of $73.34 per share, subject to adjustment. The exchange price is adjusted for payments of dividends in excess of the reference dividend per the indenture of $0.64 per share. The adjusted exchange price at September 30, 2008 was $73.17 per share. Upon an exchange of the notes, the Company will settle any amounts up to the principal amount of the notes in cash and the remaining exchange value, if any, will be settled, at the Company's option, in cash, common stock or a combination of both. The notes are not redeemable at the option of the Company for five years, except to preserve the status of the Company as a REIT. Holders of the notes may require the Company to repurchase the notes

upon the occurrence of certain designated events. In addition, prior to November 1, 2026, the holders may require the Company to repurchase the notes on November 1, 2011, 2016 and 2021. The notes will mature on November 1, 2026, unless previously redeemed, repurchased or exchanged in accordance with their terms prior to that date. During October and November 2008, the Company repurchased and retired $55 million face value of its exchangeable senior notes for $41.6 million, in several privately-placed transactions. A gain on debt extinguishment of approximately $12.7 million will be recorded in the fourth quarter.

The Company leases its corporate office space from an affiliate and the office space for its regional offices from non-affiliated third parties. The corporate office space requires an annual base rent plus a pro-rata portion of property improvements, real estate taxes, and common area maintenance. The regional office leases require an annual base rent plus a pro-rata portion of real estate taxes.

As discussed in the section entitled Variable Interest Entities, the Company, through its general partnership interest in an affordable property limited partnership, has guaranteed low income housing tax credits to limited partners totaling approximately $3 million. With respect to the guarantee of the low income housing tax credits, the Company believes the property's operations conform to the applicable requirements and does not anticipate any payment on the guarantees. In addition, the Company, acting as general partner in this partnership, is obligated to advance funds to meet partnership operating deficits.

Capital Improvements (dollars in thousands, except unit and per unit data)

Effective January 1, 2007, the Company updated its estimate of the amount of recurring, non-revenue enhancing capital expenditures incurred on an annual basis for a standard garden style apartment. For 2007, the Company estimated that the proper amount was $760 per apartment unit. For 2008, the Company increased this amount, using a 3% inflation factor, to $780 per apartment unit.

The Company's policy is to capitalize costs related to the acquisition, development, rehabilitation, construction and improvement of properties. Capital improvements are costs that increase the value and extend the useful life of an asset. Ordinary repair and maintenance costs that do not extend the useful life of the asset are expensed as incurred. Costs incurred on a lease turnover due to normal wear and tear by the resident are expensed on the turn. Recurring capital improvements typically include: appliances, carpeting and flooring, HVAC equipment, kitchen/bath cabinets, new roofs, site improvements and various exterior building improvements. Non-recurring, revenue generating capital improvements include, among other items: community centers, new windows, and kitchen/bath apartment upgrades. Revenue generating capital improvements will directly result in increased rental earnings or expense savings. The Company capitalizes interest and certain internal personnel costs related to the communities under rehabilitation and construction.

The Company estimates that on an annual basis $780 and $760 per unit is spent on recurring capital expenditures in 2008 and 2007, respectively. During the three months ended September 30, 2008 and 2007, approximately $195 and $190 per unit, respectively, was estimated to be spent on recurring capital expenditures. For the nine months ended September 30, 2008 and 2007, approximately $585 per unit and $570 per unit, respectively, was estimated to be spent on recurring capital expenditures. The table below summarizes the actual total capital improvements incurred by major categories for the three and nine months ended September 30, 2008 and 2007 and an estimate of the breakdown of total capital improvements by major categories between recurring and non-recurring, revenue generating capital improvements for the three and nine months ended September 30, 2008 as follows:

                                                                        For the three months ended September 30,
                                                                         2008                                                             2007
                                                                Non-                            Total                             Total
                               Recurring         Per          Recurring         Per            Capital            Per            Capital            Per
                                Cap Ex         Unit(a)         Cap Ex         Unit(a)        Improvements       Unit(a)        Improvements       Unit(a)
New buildings                 $         -     $        -     $       547     $       15     $          547     $       15     $          306     $        8
Major building improvements         1,093             30           3,193             87              4,286            117              4,440            122
Roof replacements                     303              8             782             21              1,085             29                752             21
Site improvements                     395             11           3,105             84              3,500             95              2,954             81
Apartment upgrades                    760             21          10,508            286             11,268            307              6,001            165
Appliances                          1,315             35             500             14              1,815             49              1,103             30
Carpeting/flooring                  2,259             62           1,573             43              3,832            105              3,344             92
HVAC/mechanicals                      634             17           2,315             63              2,949             80              3,470             95
Miscellaneous                         404             11             102              3                506             14                506             14
Totals                        $     7,163     $      195     $    22,625     $      616     $       29,788     $      811     $       22,876     $      628

(a) Calculated using the weighted average number of units owned, including 35,188 core units, and 2007 non-core units of 1,541 for the three months ended September 30, 2008; and 35,188 core units and 2007 non-core units of 1,229 for the three months ended September 30, 2007.

                                                                   For the nine months ended September 30,
                                                                   2008                                                             2007
                                                          Non-                            Total                             Total
                         Recurring         Per          Recurring         Per            Capital            Per            Capital            Per
                          Cap Ex         Unit(b)         Cap Ex         Unit(b)        Improvements       Unit(b)        Improvements       Unit(b)
New buildings           $         -     $        -     $     1,773     $       48     $        1,773     $       48     $        1,418     $       39
Major building
improvements                  3,278             89           8,324            227             11,602            316             12,126            336
Roof replacements               909             25           2,501             68              3,410             93              2,427             67
Site improvements             1,185             32           5,041            137              6,226            169              5,722            158
Apartment upgrades            2,452             67          21,723            591             24,175            658             14,001            387
Appliances                    3,774            102             504             14              4,278            116              2,783             77
Carpeting/flooring            6,777            185           2,266             62              9,043            247              8,123            225
. . .