The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in Part I, Item 1 of this report on Form 10-Q. This discussion may contain forward-looking statements based on current judgments and current knowledge of management, which are subject to certain risks, trends and uncertainties that could cause actual results to vary from those projected, including but not limited to, expectations regarding our 2009 performance, which are based on certain assumptions. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements which speak only as of the dates of the document. These forward-looking statements are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words "expects," "projects," "believes," "plans," "anticipates" and similar expressions are intended to identify forward-looking statements. Investors are cautioned that these forward-looking statements involve risks and uncertainty that could cause actual results to differ from estimates or projections contained in these forward-looking statements, including without limitation the following:

• changes in the economic climate in the markets in which we own and manage properties, including interest rates, our ability to consummate the sale of properties pursuant to our current plan, the overall level of economic activity, the availability of consumer credit and mortgage financing, unemployment rates and other factors;
• our ability to refinance debt on favorable terms at maturity;
• our ability to defease or prepay debt pursuant to our current plan;
• risks of a lessening of demand for the multifamily units that we own or manage;
• competition from other available multifamily units and changes in market rental rates;
• increases in property and liability insurance costs;
• unanticipated increases in real estate taxes and other operating expenses;
• weather conditions that adversely affect operating expenses;
• expenditures that cannot be anticipated such as utility rate and usage increases, unanticipated repairs and real estate tax valuation reassessments or millage rate increases;
• our inability to control operating expenses or achieve increases in revenue;
• the results of litigation filed or to be filed against us;
• changes in tax legislation;
• risks of personal injury claims and property damage related to mold claims because of diminished insurance coverage;
• catastrophic property damage losses that are not covered by our insurance;
• our ability to acquire properties at prices consistent with our investment criteria;
• risks associated with property acquisitions such as environmental liabilities, among others;
• changes in or termination of contracts relating to third party management and advisory business; and
• risks related to the perception of residents and prospective residents as to the attractiveness, convenience and safety of our properties or the neighborhoods in which they are located.

Overview.

We are engaged primarily in the ownership and operation of multifamily residential units. We also provide asset and property management services to third party owners of multifamily residential units. Our primary source of cash and revenue from operations is rents from the leasing of owned apartment units, which represented 98.3% of our consolidated revenue for the three months ended March 31, 2009.

The operating performance of our properties is affected by general economic trends including but not limited to factors such as household formation, job growth, unemployment rates, population growth, immigration, the supply of new multifamily rental communities and in certain markets the supply of other housing alternatives, such as condominiums, single and multifamily rental homes and owner occupied single and multifamily homes. Additionally, our performance may be affected by access to and the cost of capital.

Rental revenue collections are a combination of rental rates, occupancy levels and rent concessions. We attempt to adjust these factors to adapt to changing market conditions, thus allowing us to maximize rental income. Indicators that we use in measuring these factors include physical occupancy and net rents. These indicators are more fully described in the Results of Operations comparison. Additionally, we consider property NOI to be an important indicator of our overall performance. Property NOI (property operating revenue less property operating and maintenance expenses) is a measure of the profitability of our properties and has the largest impact on our financial condition and operating results. See Note 8 of the Notes to Consolidated Financial Statements presented in Part I, Item 1 of this report on Form 10-Q for additional information regarding property NOI and total NOI, in addition to a reconciliation of NOI to consolidated net income in accordance with GAAP.

We have three reportable segments: (1) Acquisition/Disposition Multifamily Properties; (2) Same Community Multifamily Properties; and (3) Management and Service Operations. Our Same Community portfolio consists of 47 properties containing 12,040 units and accounted for 94.8% of total property revenue and 94.0% of our property NOI during the three months ended March 31, 2009. NOI for the Same Community portfolio decreased $551,000 or 3.0% during the three months ended March 31, 2009 when compared to the three months ended March 31, 2008. This decrease was primarily attributable to an $806,000 or 15.6% reduction in NOI at our Florida and Georgia properties, while NOI at our Midwest portfolio increased $342,000 or 3.2%.

Updated 2009 Expectations.

• Portfolio performance - We expect Same Community property NOI to decrease in the range of -3.1% to -0.6% in 2009.
• Property acquisitions and sales - We plan to acquire approximately $80.0 million of properties, while disposing of approximately $80.0 million of properties. We also plan to develop 60 units on the land parcel adjacent to one of our properties in the Richmond, Virginia metropolitan area, at an approximate cost of $7.0 million.
• Debt repayment - We expect net defeasance/prepayment costs to be approximately $1.2 million to defease/prepay debt during 2009. Defeasance/prepayment costs are expected to be incurred in conjunction with the sales of certain properties that are secured by mortgages that are subject to defeasance/prepayment penalties if the debt is repaid prior to their respective prepayment dates.

Forecast Qualification. The uncertainties caused by the current economic turndown and the unprecedented financial crisis complicate our ability to forecast future performance and disposition/acquisition activity. We believe that the apartment industry is better situated to weather the recession and financial crisis than other real estate sectors, because people will normally choose shelter over discretionary spending such as going to the mall or hotel stays and because government sponsored agencies such as Fannie Mae and Freddie Mac continue to provide needed financing and refinancing credit facilities, which are otherwise unavailable to other commercial real estate sectors. However, our 2009 expectations may be adversely impacted if recessionary forces accelerate or Congress curtails Fannie Mae or Freddie Mac financing support to the apartment industry.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows and Liquidity.  Significant sources and uses of cash during the three
months ended March 31, 2009 and 2008 are summarized as follows:

                                                                      Three Months Ended
                                                                          March 31,
(In thousands)                                                         2009        2008
Net cash provided by operating activities                            $   6,701    $ 2,619
Fixed assets:
Property/land acquisitions, net                                            (58)    (5,630)
Net property disposition proceeds                                        3,836     61,210
Recurring, revenue enhancing and non-recurring capital expenditures     (2,262)    (1,448)
Debt:
Decrease in mortgage notes                                             (20,334)   (43,594)
Increase (decrease) in revolver borrowings                              16,800     (7,000)
Cash dividends and operating partnership distributions paid             (3,864)    (3,979)

Our primary sources of liquidity are cash flow provided by operations, short-term borrowings on the revolver and proceeds from property sales. We believe that we are well positioned to weather the recent turmoil in the financial markets. Four mortgage loans totaling approximately $72.2 million were to mature in 2009. During the three months ended March 31, 2009, we repaid $52.5 million of the maturing debt with funds from new mortgage loans that mature in 2016 and we utilized short term funding from our revolver for the remaining $19.7 million. As of March 31, 2009, our revolver had $111.7 million available for borrowing and matures on March 11, 2011.

While we expect the slowing of rental revenue growth rates to continue, we anticipate that cash flow provided by operations for the remainder of the year will remain nearly consistent with current levels and will be adequate to fund our cash needs, other than the $7.0 million required to develop a 60-unit expansion of a Richmond, Virginia property, which we intend to fund with borrowings on our revolver.

Cash flow provided by operations increased during 2009 compared to 2008 primarily due to an increase in cash flow from property operations of $2.3 million and changes in accounts payable and accrued expenses of $1.7 million.
The changes in accounts payable and accrued expenses are primarily a result of the payment of capital improvement projects completed in 2008 but paid for during the first quarter of 2009 and differences in the timing of the payment of insurance premiums.

We anticipate funding approximately $9.1 million for recurring, revenue enhancing and nonrecurring capital expenditures for the remainder of 2009. These expenditures are expected to be funded largely from cash flow provided by operating activities.

Any future multifamily property acquisitions or developments would be financed with the most appropriate sources of capital, which may include secured or unsecured debt financings, borrowings on the revolver, the assumption of mortgage indebtedness, bank and other institutional borrowings, the exchange of properties and undistributed earnings.

We anticipate that we will meet our 2009 liquidity requirements through cash flow provided by operations. We believe that this and other sources, such as the revolver, should be sufficient to meet operating requirements, capital additions, mortgage amortization payments and the payment of dividends in accordance with REIT requirements. We anticipate that we will continue paying quarterly regular dividends in cash.

RESULTS OF OPERATIONS

Comparison of the three months ended March 31, 2009 to the three months ended March 31, 2008.

In the following discussion, Same Community properties represent 47 properties that we have owned during the entirety of the comparison periods. Acquired properties represent two properties acquired in April 2008.

The net loss from continuing operations decreased $825,000 during 2009 compared to 2008 primarily due to total property NOI increases and reductions in interest expense during 2009. Property NOI for the acquisition properties increased approximately $1.1 million in the first quarter. Property NOI for the Same Community properties decreased approximately $551,000 during 2009, primarily as a result of increased property operating expenses coupled with flat property revenue during the first quarter. These reductions to net loss from continuing operations were partially offset by increases in depreciation and amortization during the first quarter.

The following chart reflects the amount and percentage change in line items that are relevant to the changes in overall operating performance:

                                         Increase (decrease) when
                                        comparing the three months
                                           ended March 31, 2009
(In thousands)                               to March 31, 2008
Property revenue                      $       1,659              5.3 %
Property operating and maintenance            1,093              8.3 %
Property NOI                                    566              3.1 %

Depreciation and amortization                   961             11.3 %
Interest expense                               (870)            (9.6)%
Income from discontinued operations         (39,357)           (94.6)%

Property revenue. Property revenue is impacted by a combination of rental rates, rent concessions and occupancy levels, i.e., net collected rent per unit. We measure these factors using indicators such as physical occupancy (number of units occupied divided by total number of units at the end of the period) and average monthly net rent per unit (gross potential rents less concessions divided by total number of units). This information is presented in the following tables for the three months ended March 31, 2009 and 2008:

                               Physical Occupancy
                                   March 31,
                              2009             2008
Same Community Properties:
Midwest                       95.8%            95.2%
Mid-Atlantic                  95.1%            96.0%
Southeast                     88.8%            92.6%
Total Same Community          94.0%            94.6%
Acquired Properties           93.5%             N/A

                                 Average Monthly Net Collected
                                         Rent Per Unit
                                      For the Three Months
                                        Ended March 31,
                                  2009                       2008
Same Community Properties:
Midwest                      $          777                 $   754
Mid-Atlantic                 $        1,239                 $ 1,226
Southeast                    $          874                 $   943
Total Same Community         $          837                 $   838
Acquired Properties          $          997                N/A

Total property revenue increased in the first quarter primarily as a result of increases in revenue from the Acquired properties of $1.7 million. Property revenue for the Same Community segment remained relatively flat in the first quarter of 2009 compared to the first quarter of 2008. Property revenue for the Midwest portfolio increased $564,000 or 3.0% during 2009 primarily as a result of stable occupancy combined with rental rate increases and a reduction in concessions being offered. Property revenue for the Southeast portfolio decreased $665,000 or 7.6% during 2009 primarily because of decreased physical occupancy and increases in concessions being offered. Property revenue for the Mid-Atlantic portfolio remained relatively unchanged during the first quarter of 2009 when compared to the first quarter of 2008.

Property operating and maintenance expenses. Property operating and maintenance expenses for the Same Community segment increased $510,000 or 3.9% during the first quarter of 2009 primarily as a result of increases in real estate tax and insurance expense, repairs and maintenance costs, and utilities expense. Additionally, property operating and maintenance expenses related to the Acquired properties increased $583,000 during the first quarter of 2009.

Depreciation and amortization. Depreciation and amortization expense increased in 2009 primarily due to an increase in depreciation and the amortization of intangible assets related to the Acquired properties.

Interest expense. Interest expense decreased in 2009 primarily as a result of a refund of $563,000 in defeasance costs in connection with certain previously defeased loans and decreased interest expense of $137,000 for borrowings on our revolver.

Income from Discontinued Operations. Discontinued operations include the operating results of a property sold in the first quarter of 2009 and 15 properties that were sold during 2008 and the gains related to sales completed during the first quarter of 2009 and 2008. Defeasance/prepayment costs recognized in 2008 totaling $2.0 million were included in discontinued operations. For further details on "Income from discontinued operations," see Note 2 of the Notes to Consolidated Financial Statements presented in Part I, Item 1 of this report on Form 10-Q.

CONTINGENCIES

For a discussion of contingencies, see Note 9 of the Notes to Consolidated Financial Statements presented in Part I, Item 1 of this report on Form 10-Q.