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, potential development and redevelopment opportunities, projected costs and rental rates for development and redevelopment projects, 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 Form 10-Q 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, debt repayments and stock repurchases. The Company may also acquire equity ownership in other public or private companies that own and manage portfolios of apartment communities. Management does not anticipate the acquisition of communities in 2009.

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 pay dividends to its stockholders and make distributions to its Unitholders in accordance with the provisions of the Internal Revenue Code, as amended, applicable to REITs.

As of March 31, 2009, the Company had an unsecured line of credit agreement with M&T Bank of $140 million which expires September 1, 2009. The Company is currently negotiating a new line of credit with the current lender. The Company has had no defaults through March 31, 2009. The Company had $75.5 million outstanding under the credit facility on March 31, 2009. The Company's line of credit agreement provides the ability to issue up to $20 million in letters of credit. While the issuance of letters of credit does not increase our borrowings outstanding under the line of credit, it does reduce the amount available. At March 31, 2009, the Company had outstanding letters of credit of $7.4 million. As of March 31, 2009, the amount available on the credit facility was $57.1 million (net of $7.4 million which was restricted/dedicated to support letters of credit and net of $75.5 million in outstanding borrowings). Borrowings under the line of credit bear interest at 0.75% over the one-month LIBOR rate of 0.50% at March 31, 2009. 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 March 31, 2009, the Company owned 23 properties with 6,812 apartment units which were unencumbered by debt.

In response to the constrictions in the credit market, the Company is pursuing certain initiatives as follows: 1) The Company is evaluating alternatives to replace or extend the existing unsecured line of credit which matures September 1, 2009. The Company is working with its existing lead bank and discussions suggest that there is interest from banks to participate in the Company's facility. The Company anticipates it will be able to replace the entire $140 million line. Pricing will be more expensive, and may move from interest at 0.75% over the one-month LIBOR under the existing agreement possibly to a spread closer to 3.00%. In addition, up-front and on-going fees could add another 75 basis points to pricing. 2) During 2008, the Company increased the level of the value of unencumbered properties in relationship to the total property portfolio from 16% to 19%. This higher level adds flexibility in 2009 allowing the Company to place secured financing on unencumbered assets as required. 3) The Company benefits from its multifamily focus as the Government Sponsored Enterprises ("GSEs") Fannie Mae and Freddie Mac are still very active lending to apartment owners. Underwriting has become more stringent, but the Company believes it will be able to refinance its debt maturities during this cycle of reduced liquidity. 4) The Company is in the fortunate position of having only $19 million of secured loans maturing in 2009. For 2010 and 2011, that number rises to $334 million and $302 million, respectively. The Company is pursuing refinancing $180 million of 2010 maturities in the second half of 2009 with the GSEs at a time when the GSEs are still very active and open to such transactions. It is anticipated that $230 million of new debt could be placed, resulting in $50 million of net proceeds from refinancing. The loans being targeted are those that would have little or no prepayment penalties. The balance of the 2010 maturities could not be refinanced early without being cost prohibitive due to expensive yield maintenance provisions.

During the first quarter of 2009, the Company sold three apartment communities, with a total of 741 units, for $67.8 million. A gain on sale of approximately $13.5 million was recorded in the first quarter related to these sales. The weighted average first year capitalization rate projected on these dispositions was 7.6%.

Management has included in its operating plan that the Company will strategically dispose of assets totaling approximately $110 million in 2009, $68 million of which were closed during the first three months of 2009. There can be no assurance that additional dispositions will actually occur.

The Company considers the issuance of UPREIT Units for property acquisitions to be a potential source of capital. During 2008 and the first quarter of 2009, the Company did not issue any UPREIT Units as consideration for acquired properties.

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 issuances. From December 27, 2006 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 three months ended March 31, 2009 or the year ended December 31, 2008.

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. During the fourth quarter of 2008, the Company repurchased $60 million of the exchangeable senior notes for $45.4 million. The exchange terms and conditions are more fully described under "Contractual Obligations and Other Commitments," below.

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 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. At December 31, 2007, there was approval remaining to purchase 1,362,748 shares. During 2008, the Company repurchased 1,071,588 shares of its outstanding common stock at a cost of $50 million at a weighted average price of $46.66 per share. On May 1, 2008, the Board approved a 2,000,000-share increase in the stock repurchase program, resulting in a remaining authorization level of 2,291,160 shares as of December 31, 2008. There were no repurchases during the first three months of 2009. 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 March 31, 2009, the weighted average rate of interest on the Company's total indebtedness of $2.3 billion was 5.5% 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.

In 2000, the Company obtained an investment grade rating from Fitch, Inc. The rating in effect at March 31, 2009 (no change from initial rating) is a corporate credit rating of "BBB" (Triple B). Ratings are reviewed from time to time by the issuing agency and may change at any time.

The Company's cash provided by operating activities was $36 million for the three months ended March 31, 2009 compared to $39 million for the same period in 2008. The change is primarily due to timing differences in cash disbursements between periods.

Cash provided by investing activities was $35 million for the three months ended March 31, 2009 compared to $14 million for the same period in 2008. The change is primarily due to a change in the use of proceeds between periods, as the proceeds from sale of properties was similar in both periods at $67 million and $63 million, respectively. During the three months ended March 31, 2009, $31 million of the proceeds from disposed properties were redeployed on additions to property and new construction as compared to the three months ended March 31, 2008 where $26 million was spent on additions to property and new construction, plus $16 million on the purchase of land for development.

Cash used in financing activities was $69 million for the three months ended March 31, 2009 compared to $54 million for the same period in 2008. The $15 million increase in cash used between periods is primarily due to $47 million less cash provided by the line of credit and $19 million higher net mortgage payments in 2009 as compared to 2008, partially offset by $51 million less cash used for stock buybacks in the 2009 period as compared to 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 March 31, 2009 includes total assets of $12.7 million, total liabilities of $17.1 million and partners deficit of $4.4 million. Of the $17.1 million in total

liabilities, $16.2 million represents non-recourse mortgage debt. The VIE is included in the Consolidated Statement of Operations for the three months ended March 31, 2009 and 2008.

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 seven 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, as the general partner in this partnership, the Company is obligated to advance funds to meet partnership operating deficits.

Acquisitions and Dispositions

On January 30, 2009, the Company sold three apartment communities, with a total of 741 units, for $67.8 million. A gain on sale of approximately $13.5 million was recorded in the first quarter related to this sale. The weighted average first year capitalization rate projected on this disposition was 7.6%.

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 $75.5 million outstanding at March 31, 2009. The $2.1 billion in mortgage notes payable have varying maturities ranging from 3 months to 26 years. The weighted average interest rate of the Company's secured debt was 5.67% at March 31, 2009. The weighted average rate of interest on the Company's total indebtedness of $2.3 billion at March 31, 2009 was 5.53%.

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 set in the indenture of $0.64 per share. The adjusted exchange price at March 31, 2009 was $73.04 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 $60 million face value of its exchangeable senior notes for $45.4 million, in several privately-negotiated transactions which amounted to a 24.4% discount from face value. An adjusted gain on debt extinguishment of $11.3 million was recorded in the fourth quarter of 2008, as compared to the originally reported gain of $13.9 million. The adjustment is as a result of recently adopted accounting standards as more fully described in Note 3 to the Consolidated Financial Statements.

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, 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, 2009, 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. The Company now estimates that the proper amount is $800 per apartment unit compared to $780 in the prior year. This new amount better reflects current actual costs and the effects of inflation since the last update.

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 $800 and $780 per unit is spent on recurring capital expenditures in 2009 and 2008, respectively. During the three months ended March 31, 2009 and 2008, approximately $200 and $195 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 months ended March 31, 2009 and 2008 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 months ended March 31, 2009 as follows:

                                                                          For the three months ended March 31,
                                                                         2009                                                             2008
                                                                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                 $         -     $        -     $       521     $       14     $          521     $       14     $          657     $       19
Major building improvements         1,139             31           1,575             44              2,714             75              2,532             72
Roof replacements                     298              8              86              3                384             11                449             13
Site improvements                     390             11               -              -                390             11                781             22
Apartment upgrades                  1,405             39           5,099            141              6,504            180              4,777            135
Appliances                          1,180             33              26              -              1,206             33              1,040             29
Carpeting/flooring                  1,999             55             599             17              2,598             72              2,288             65
HVAC/mechanicals                      642             18           1,289             35              1,931             53              2,414             68
Miscellaneous                         181              5             509             14                690             19                596             17
Totals                        $     7,234     $      200     $     9,704     $      268     $       16,938     $      468     $       15,534     $      440

(a) Calculated using the weighted average number of units owned, including 35,360 core units, and 2008 acquisition units of 813 for the three months ended March 31, 2009; and 35,360 core units for the three months ended March 31, 2008.

The schedule below summarizes the breakdown of total capital improvements between core and non-core as follows:

                                                                    For the three months ended March 31,
                                                                   2009                                                             2008
                                                          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)
Core Communities        $     7,071     $      200     $     9,425     $      267     $       16,496     $      467     $       15,534     $      440
2008 Acquisition
Communities                     163            200             279            343                442            543                  -              -
Sub-total                     7,234            200           9,704            268             16,938            468             15,534            440
2009 Disposed
Communities                      49            200             126            509                175            709                544            734
2008 Disposed
Communities                       -              -               -              -                  -              -                366            426
Corporate office
expenditures(1)                   -              -               -              -                310              -              1,071              -
Totals                  $     7,283     $      200     $     9,830     $      270     $       17,423     $      470     $       17,515     $      445

(1) No distinction is made between recurring and non-recurring expenditures for corporate office. Corporate office expenditures include principally computer hardware, software, office furniture, fixtures and leasehold improvements.

(b) Calculated using the weighted average number of units owned, including 35,360 core units, 2008 acquisition units of 813 and 2009 disposed units of 247 for the three months ended March 31, 2009; and 35,360 core units, 2009 disposed units of 741 and 2008 disposed units of 859 for the three months ended March 31, 2008.

Results of Operations (dollars in thousands, except unit and per unit data)

Net operating income ("NOI") may fall within the definition of "non-GAAP financial measure" set forth in Item 10(e) of Regulation S-K and, as a result, the Company may be required to include in this report a statement disclosing the reasons why management believes that presentation of this measure provides useful information to investors. The Company believes that NOI is helpful to investors as a supplemental measure of the operating performance of a real estate company because it is a direct measure of the actual operating results of the Company's apartment properties. In addition, the apartment communities are valued and sold in the market by using a multiple of NOI. The Company also uses this measure to compare its performance to that of its peer group.

Summary of Core Properties

The Company had 104 apartment communities with 35,360 units which were owned during the three months ended March 31, 2009 and 2008 (the "Core . . .