• unfavorable changes in apartment market and economic conditions that could adversely affect occupancy levels and rental rates;

• the failure of acquisitions to achieve anticipated results;

• possible difficulty in selling apartment communities;

• the timing and closing of planned dispositions under agreement;

• competitive factors that may limit our ability to lease apartment homes or increase or maintain rents;

• insufficient cash flow that could affect our debt financing and create refinancing risk;

• failure to generate sufficient revenue, which could impair our debt service payments and distributions to stockholders;

• development and construction risks that may impact our profitability;

• potential damage from natural disasters, including hurricanes and other weather-related events, which could result in substantial costs to us;

• risks from extraordinary losses for which we may not have insurance or adequate reserves;

• uninsured losses due to insurance deductibles, self-insurance retention, uninsured claims or casualties, or losses in excess of applicable coverage;

• delays in completing developments and lease-ups on schedule;

• our failure to succeed in new markets;

• changing interest rates, which could increase interest costs and affect the market price of our securities;

• potential liability for environmental contamination, which could result in substantial costs to us;

• the imposition of federal taxes if we fail to qualify as a REIT under the Internal Revenue Code in any taxable year;

• our internal control over financial reporting may not be considered effective which could result in a loss of investor confidence in our financial reports, and in turn have an adverse effect on our stock price; and

• changes in real estate laws, tax laws and other laws affecting our business.

A discussion of these and other factors affecting our business and prospects is set forth below in Part II, Item 1A. Risk Factors. We encourage investors to review these risks factors.
Business Overview
We are a real estate investment trust, or REIT, that owns, acquires, renovates, develops, and manages apartment communities nationwide. We were formed in 1972 as a Virginia corporation. In June 2003, we changed our state of incorporation from Virginia to Maryland. Our subsidiaries include two operating partnerships, Heritage Communities L.P., a Delaware limited partnership, and United Dominion Realty, L.P., a Delaware limited partnership. Unless the context otherwise requires, all references in this report to "we," "us," "our," "the company," or "UDR" refer collectively to UDR, Inc. and its subsidiaries.

At March 31, 2009, our portfolio included 161 communities with 44,571 apartment homes nationwide. The following table summarizes our market information by major geographic markets:

                                                                                                                Three Months Ended
                                                       As of March 31, 2009                                       March 31, 2009
                                                                   Percentage            Total
                                Number of         Number of         of Total            Carrying           Average         Total Income
                                Apartment         Apartment         Carrying             Value             Physical        per Occupied
Same Communities               Communities          Homes            Value           (In thousands)       Occupancy          Home (a)
Western Region
Orange Co, CA                            13            4,067              12.0 %    $        708,392            94.4 %     $       1,565
San Francisco, CA                         8            1,768               5.3 %             311,472            95.1 %             1,874
Monterey Peninsula, CA                    7            1,565               2.5 %             149,557            93.0 %             1,082
Los Angeles, CA                           5            1,052               3.1 %             185,339            94.1 %             1,522
San Diego, CA                             5            1,123               2.9 %             171,863            94.5 %             1,408
Seattle, WA                               7            1,270               2.5 %             149,928            95.7 %             1,195
Inland Empire, CA                         3            1,074               2.5 %             149,201            93.4 %             1,282
Sacramento, CA                            2              914               1.1 %              66,922            91.9 %               919
Portland, OR                              3              716               1.1 %              66,744            95.8 %               995

Mid-Atlantic Region
Metropolitan DC                           7            2,050               4.4 %             256,839            96.3 %             1,427
Richmond, VA                              6            1,958               2.6 %             154,409            95.7 %             1,007
Baltimore, MD                             8            1,556               2.6 %             152,709            96.9 %             1,175
Norfolk, VA                               6            1,438               1.4 %              81,898            95.4 %               959
Other Mid-Atlantic                        5            1,132               1.3 %              75,522            95.9 %             1,021

Southeastern Region
Tampa, FL                                 9            3,069               3.9 %             227,684            94.4 %               939
Orlando, FL                               9            2,500               3.1 %             185,803            94.2 %               941
Nashville, TN                             7            1,874               2.4 %             140,338            95.7 %               881
Jacksonville, FL                          5            1,857               2.6 %             153,140            93.5 %               852
Other Florida                             4            1,184               1.9 %             110,318            94.0 %             1,029

Southwestern Region
Phoenix, AZ                               3              914               1.2 %              70,055            93.9 %               924
Austin, TX                                1              250               0.3 %              20,471            95.6 %               947
Dallas, TX                                1              305               1.0 %              61,576            96.5 %             1,625


Total/Average Same
Communities                             124           33,636              61.7 %           3,650,180            94.7 %     $       1,176


Non-Matures, Commercial
Properties and Other                     36           10,774              34.7 %           2,043,609


Total Real Estate Held for
Investment                              160           44,410              96.4 %           5,693,789


Real Estate Under
Development (b)                           1              161               3.6 %             209,584


Total                                   161           44,571             100.0 %    $      5,903,373

(a) Total Income per Occupied Home represents total revenues per weighted average number of apartment homes occupied.

(b) The Company is currently developing six wholly-owned communities with a total of 2,207 apartment homes of which 2,046 have not yet been completed.

Liquidity and Capital Resources
Liquidity is the ability to meet present and future financial obligations either through operating cash flows, the sale or maturity of existing assets, or by the acquisition of additional funds through capital management. Both the coordination of asset and liability maturities and effective capital management are important to the maintenance of liquidity. Our primary source of liquidity is our cash flow from operations as determined by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment homes and borrowings under credit arrangements. We routinely use our unsecured bank credit facility to temporarily fund certain investing and financing activities prior to arranging for longer-term financing or the issuance of equity securities. During the past several years, proceeds from the sale of real estate have been used for both investing and financing activities as we reposition our portfolio. We expect to meet our short-term liquidity requirements generally through net cash provided by operations and borrowings under credit arrangements. We expect to meet certain long-term liquidity requirements such as scheduled debt maturities, the repayment of financing on development activities, and potential property acquisitions, through long-term secured and unsecured borrowings, the disposition of properties, and the issuance of additional debt or equity securities. We believe that our net cash provided by operations and borrowings under credit arrangements will continue to be adequate to meet both operating requirements and the payment of dividends by the Company in accordance with REIT requirements. Likewise, the budgeted expenditures for improvements and renovations of certain properties are expected to be funded from property operations and borrowings under credit arrangements.
We have a shelf registration statement filed with the Securities and Exchange Commission which provides for the issuance of an indeterminate amount of common stock, preferred stock, debt securities, guarantees of debt securities, warrants, subscription rights, purchase contracts and units to facilitate future financing activities in the public capital markets. Access to capital markets is dependent on market conditions at the time of issuance. Future Capital Needs
Future development expenditures are expected to be funded with proceeds from construction loans, through joint ventures, the use of our unsecured revolving credit facility, the use of proceeds from the issuance of unsecured borrowings, the sale of properties and to a lesser extent, with cash flows provided by operating activities. Acquisition activity in strategic markets is expected to be largely financed by the reinvestment of proceeds from the sale of properties and through the issuance of equity and debt securities, the issuance of operating partnership units, and the assumption or placement of secured and/or unsecured debt.
During the remainder of 2009, we have approximately $130.9 million of secured debt and $92.0 million of unsecured debt maturing and we anticipate repaying that debt with cash on hand or borrowings under our secured or unsecured credit facilities and by exercising extension rights, as applicable, with respect to such debt.
Critical Accounting Policies and Estimates Our critical accounting policies are those having the most impact on the reporting of our financial condition and results and those requiring significant judgments and estimates. These policies include those related to (1) capital expenditures, (2) impairment of long-lived assets, and (3) real estate investment properties. Based on the Company's repositioning initiative, management deemed our policy surrounding real estate sales to be a critical accounting policy.

Real Estate Sales
The Company accounts for sales of real estate in accordance with SFAS 66. For sale transactions meeting the requirements for full accrual profit recognition, such as the Company no longer having continuing involvement in the property we remove the related assets and liabilities from our consolidated balance sheet and record the gain or loss in the period the transaction closes. For sales transactions that do not meet the full accrual sale criteria due to our continuing involvement, we evaluate the nature of the continuing involvement and account for the transaction under an alternate method of accounting. Sales to entities in which we retain or otherwise own an interest are accounted for as partial sales. If all other requirements for recognizing profit under the full accrual method have been satisfied and no other forms of continuing involvement are present, we recognize profit proportionate to the outside interest in the buyer and will defer the gain on the interest we retain. The Company will recognize any deferred gain when the property is then sold to a third party. In transactions accounted by us as partial sales, we determine if the buyer of the majority equity interest in the venture was provided a preference as to cash flows in either an operating or a capital waterfall. If a cash flow preference has been provided, we recognize profit only to the extent that proceeds from the sale of the majority equity interest exceed costs related to the entire property.
Our other critical accounting policies are described in more detail in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2008. There have been no significant changes in our critical accounting policies from those reported in our 2008 Annual Report on Form 10-K. With respect to these critical accounting policies, we believe that the application of judgments and assessments is consistently applied and produces financial information that fairly depicts the results of operations for all periods presented.
Statements of Cash Flows
The following discussion explains the changes in net cash provided by operating activities and net cash used in investing and financing activities that are presented in our Consolidated Statements of Cash Flows. Operating Activities
For the three months ended March 31, 2009, our cash flow provided by operating activities was $71.6 million compared to $22.4 million for the comparable period in 2008. The increase in cash flow from operating activities resulted primarily due to the changes from operating assets and liabilities during the three months ended March 31, 2009 as compared to the same period in 2008, and is partially offset by a reduction in property operating income (see discussion under "Apartment Community Operations").
Investing Activities
For the three months ended March 31, 2009, net cash (used in)/provided by investing activities was ($99.2) million as compared to $577.1 million for the comparable period in 2008. Changes in the level of investing activities from period to period reflects our strategy as it relates to our disposition, acquisition, capital expenditure, and development programs, as well as the impact of the capital markets environment on these activities, all of which are discussed in further detail below.

Acquisitions
During the three months ended March 31, 2009, we did not acquire any real estate. Our long-term strategic plan is to achieve greater operating efficiencies by investing in fewer, more concentrated markets. As a result, we have been expanding our interests in the Southern California, Northern California, Florida, Metropolitan Washington DC and the Washington State markets over the past several years. Prospectively, any additional acquisitions will be channeled into those markets that we believe will provide the best investment returns. Markets will be targeted based upon defined criteria including high barriers to entry, favorable job formation and low single-family home affordability.
Capital Expenditures
In conformity with accounting principles generally accepted in the United States, we capitalize those expenditures related to acquiring new assets, materially enhancing the value of an existing asset, or substantially extending the useful life of an existing asset. Expenditures necessary to maintain an existing property in ordinary operating condition are expensed as incurred. During the three months ended March 31, 2009, $18.2 million or approximately $419 per home was spent on capital expenditures for all of our communities, excluding development, condominium conversions and commercial properties. These capital improvements included turnover related expenditures for floor coverings and appliances, other recurring capital expenditures such as roofs, siding, parking lots, and asset preservation capital expenditures, which aggregated $5.7 million or $131 per home. In addition, revenue enhancing capital expenditures, kitchen and bath upgrades, upgrades to HVAC equipment, and other extensive exterior/interior upgrades totaled $8.0 million or $184 per home, and major renovations totaled $4.5 million or $104 per home for the three months ended March 31, 2009.
The following table outlines capital expenditures and repair and maintenance costs for all of our communities, excluding real estate under development, condominium conversions and commercial properties, for the periods presented:

                                Three months ended March 31,                   Three months ended March 31,
                                   (dollars in thousands)                               (per home)
                             2009            2008         % Change         2009           2008          % Change
Turnover capital
expenditures              $    2,111       $  2,702           -21.9 %    $     49       $     48              2.1 %
Asset preservation
expenditures                   3,570          3,108            14.9 %          82             55             49.1 %

Total recurring
capital expenditures           5,681          5,810            -2.2 %         131            103             27.2 %

Revenue enhancing
improvements                   7,989         11,664           -31.5 %         184            205            -10.2 %
Major renovations              4,529         14,385           -68.5 %         104            253            -58.9 %

Total capital
expenditures              $   18,199       $ 31,859           -42.9 %    $    419       $    561            -25.2 %


Repair and maintenance
expense                   $    7,018       $  9,314           -24.7 %    $    161       $    164             -1.8 %


Average stabilized
home count                    43,456         56,853

Total capital expenditures for our communities decreased $13.7 million for the three months ended March 31, 2009, compared to the comparable period in 2008. This decrease was primarily attributable to the Company's ongoing repositioning of our real estate portfolio evidenced by our disposition of 84 communities during the three months ended March 31, 2008. Recurring capital expenditures during 2009 are currently expected to be approximately $675 per home. Development
At March 31, 2009, our development pipeline for wholly-owned communities totaled 2,207 homes with a budget of $358.0 million in which we have a carrying value of $209.6 million. We expect to have the first of these communities complete development during the second quarter of 2009. In addition, we own several parcels of land held for future development with a gross book value of $160.7 million in which the Company is seeking entitlements and preparing for development, although we do not anticipate development to commence during 2009.

For the three months ended March 31, 2009, we invested approximately $53.6 million in development projects, an increase of $29.6 million from our 2008 level of $24.0 million. We funded these costs with $20.4 million in draws on our construction facilities. At March 31, 2009, the Company has drawn $184.7 million and has $134.3 million of remaining capacity on our construction facilities. As a result of our investment in developments, we completed development on one wholly-owned community with 200 apartment homes at a total cost of $15.8 million.
Unconsolidated Development Joint Ventures UDR is a partner in a joint venture which will develop 274 apartment homes in the central business district of Bellevue, Washington. Construction began in the fourth quarter of 2006 and is scheduled for completion in the third quarter of 2009. At closing, we owned 49% of the project. Our investment at March 31, 2009 and December 31, 2008 was $10.5 million and $9.9 million, respectively. The Company is a partner in a joint venture to develop a site in Bellevue, Washington. At closing, we owned 49% of the joint venture which the Company had intended to develop a 430 home high rise apartment building with ground floor retail. Our initial investment was $5.7 million. Our investment at March 31, 2009 and December 31, 2008 was $10.4 million and $10.2 million, respectively. The joint venture has no current plans to continue with the development. Disposition of Investments
During the three months ended March 31, 2009 UDR did not dispose of any communities. We plan to continue to pursue our strategy of exiting markets where long-term growth prospects are limited and redeploying capital into markets we believe will provide the best investment returns. Financing Activities
Net cash provided by/(used in) financing activities during the three months ended March 31, 2009, was $52.1 million as compared to ($542.6) million for the comparable period in 2008.
The following is a summary of our significant financing activities for the three months ended March 31, 2009:
• Repaid $15.2 million of secured debt and $209.6 million of unsecured debt (represents the notional amount of debt repaid and excludes the gain on extinguishment). The $209.6 million of unsecured debt includes $50 million for maturing medium-term notes and $159.6 million for the repurchase of unsecured debt.

• Repurchased unsecured debt with a notional amount of $159.6 million for $150.0 million resulting in a gain on extinguishment of $7.1 million, net of deferred finance charges. The unsecured debt repurchased by the Company matured in 2009, 2011, 2013 and 2035. As a result of these repurchases, the gain is represented as a reduction to interest expense on the Consolidated Statement of Operations.

• During the three months ended March 31, 2009, we repurchased 100,000 shares of UDR common stock at an average price per share of $7.98 under our share repurchase programs.

• Borrowed an additional $270.0 million of secured debt, which consisted of $186.4 million on our Fannie Mae credit facility, $63.2 million additional secured variable rate debt and $20.4 million additional construction loans.

Credit Facilities
As of March 31, 2009, we have secured revolving credit facilities with Fannie Mae with an aggregate commitment of $1.1 billion with $1.0 billion outstanding. The Fannie Mae credit facilities are for an initial term of 10 years, bear interest at floating and fixed rates, and certain variable rate facilities can be extended for an additional five years at our option. We have $666.0 million of the funded balance fixed at a weighted average interest rate of 5.5% and the remaining balance on these facilities is currently at a weighted average variable rate of 2.3%.
We have a $600 million unsecured revolving credit facility that matures on July 26, 2012. Under certain circumstances, we may increase the $600 million credit facility to $750 million. Based on our current credit rating, the $600 million credit facility carries an interest rate equal to LIBOR plus a spread of 47.5 basis points. Under a competitive bid feature and for so long as we maintain an Investment Grade Rating, we have the right under the $600 million credit facility to bid out 50% of the commitment amount and we can bid out 100% of the commitment amount once per quarter. As of March 31, 2009, we had $51.1 million of borrowings outstanding under the credit facility leaving $548.9 million of unused capacity.
The Fannie Mae credit facility and the bank revolving credit facility are subject to customary financial covenants and limitations. Derivative Instruments
As part of UDR's overall interest rate risk management strategy, we use derivatives as a means to fix the interest rates of variable rate debt obligations or to hedge anticipated financing transactions. UDR's derivative transactions used for interest rate risk management includes interest rate swaps with indexes that relate to the pricing of specific financial instrument of UDR. We believe that we have appropriately controlled our interest rate risk through the use of derivative instruments so that there will not be any material unintended effect on consolidated earnings. Derivative contracts did not have a material impact on the results of operations during the three months ended March 31, 2009 (see Note 8 - Derivatives and Hedging Activities). Funds from Operations
Funds from operations, or FFO, is defined as net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from sales of depreciable property, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We compute FFO for all periods presented in accordance with the recommendations set forth by the National Association of Real Estate Investment Trust's ("NAREIT") April 1, 2002 White Paper. We consider FFO in evaluating property acquisitions and our operating performance, and believe that FFO should be considered along . . .