Forward-Looking Statements
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, without limitation, statements concerning property acquisitions and dispositions, development activity and capital expenditures, capital raising activities, rent growth, occupancy, and rental expense growth. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. Such factors include, among other things, unanticipated adverse business developments affecting us, or our properties, adverse changes in the real estate markets and general and local economies and business conditions. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore such statements included in this report may not prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that the results or conditions described in such statements or our objectives and plans will be achieved. The following factors, among others, could cause our future results to differ materially from those expressed in the forward-looking statements:
• general economic factors;

• 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 June 30, 2009, our portfolio included 162 communities with 44,701 apartment homes nationwide. The following table summarizes our market information by major geographic markets:

                                                                                                                  Three Months Ended                      Six Months Ended
                                                       As of June 30, 2009                                           June 30, 2009                       June 30, 2009 (a)
                                                                   Percentage             Total
                              Number of          Number of          of Total             Carrying            Average          Total Income          Average          Total Income
                              Apartment          Apartment          Carrying              Value              Physical         per Occupied         Physical          per Occupied
Same Communities             Communities           Homes             Value            (in thousands)        Occupancy           Home (b)           Occupancy           Home (b)

Western Region
Orange Co, CA                          13             4,067               11.9 %     $        710,536             95.5 %      $       1,533              94.9 %      $       1,550
San Francisco, CA                       7             1,548                4.6 %              276,970             95.9 %              1,847              95.5 %              1,873
Los Angeles, CA                         6             1,222                4.4 %              263,090             95.7 %              1,624              94.9 %              1,505
San Diego, CA                           5             1,123                2.9 %              172,751             95.8 %              1,386              95.2 %              1,396
Seattle, WA                             7             1,270                2.5 %              150,393             96.2 %              1,189              96.0 %              1,191
Monterey Peninsula, CA                  7             1,565                2.5 %              150,348             95.2 %              1,100              94.1 %              1,091
Inland Empire, CA                       3             1,074                2.5 %              149,334             95.5 %              1,247              94.5 %              1,264
Portland, OR                            3               716                1.1 %               67,504             95.7 %                993              95.8 %                994
Sacramento, CA                          2               914                1.1 %               67,125             93.2 %                904              92.5 %                912

Mid-Atlantic Region
Metropolitan DC                         7             2,050                4.3 %              257,943             97.4 %              1,431              96.8 %              1,430
Richmond, VA                            6             1,958                2.6 %              155,180             95.8 %              1,013              95.7 %              1,011
Baltimore, MD                           8             1,556                2.6 %              153,722             96.8 %              1,179              96.8 %              1,177
Norfolk VA                              6             1,438                1.4 %               82,202             96.0 %                967              95.7 %                963
Other Mid-Atlantic                      5             1,132                1.3 %               75,905             96.8 %              1,016              96.3 %              1,019

Southeastern Region
Tampa, FL                              10             3,278                4.2 %              248,878             95.1 %                931              94.8 %                933
Orlando, FL                             9             2,500                3.1 %              186,398             95.3 %                920              94.8 %                930
Jacksonville, FL                        5             1,857                2.6 %              153,780             95.1 %                833              94.3 %                842
Nashville, TN                           7             1,874                2.4 %              140,686             95.6 %                873              95.7 %                876
Other Florida                           4             1,184                1.9 %              110,487             94.8 %              1,011              94.4 %              1,020

Southwestern Region
Phoenix, AZ                             3               914                1.2 %               70,225             95.4 %                894              94.6 %                910
Dallas, TX                              1               305                1.0 %               61,628             96.7 %              1,628              96.6 %              1,626


Total/Average Same
Communities                           124            33,545               62.1 %            3,705,085             95.7 %      $       1,165              95.2 %      $       1,167


Non Matures, Commercial
Properties & Other                     36            10,865               33.8 %            2,014,984


Total Real Estate Held
for Investment                        160            44,410               95.9 %            5,720,069


Real Estate Under
Development (c)                         2               291                4.1 %              249,458


Total                                 162            44,701              100.0 %     $      5,969,527

(a) The same community population for the six months ended June 30, 2009 includes 33,166 homes.

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

(c) The Company is currently developing six wholly-owned communities with a total of 2,207 apartment homes of which 1,916 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 agreements. We routinely use our unsecured credit facility to temporarily fund certain investing and financing activities prior to arranging for longer-term financing or the issuance of equity or debt securities. During the past several years, proceeds from the sale of real estate have been used for both investing and financing activities as we repositioned our portfolio.
We expect to meet our short-term liquidity requirements generally through net cash provided by operations and borrowings under credit agreements. 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 secured and unsecured borrowings, the disposition of properties, and the issuance of debt or equity securities. We believe that our net cash provided by operations and borrowings under credit agreements 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 agreements.

We have a shelf registration statement filed with the SEC which provides for the issuance of an indeterminate amount of common stock, preferred stock, 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, unsecured or secured credit facilities, proceeds from the issuance of equity or debt securities, 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, 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 $123.3 million of secured debt maturing and we anticipate repaying that debt with proceeds from 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 Form 8-K filed with the SEC on May 22, 2009. 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 and investing activities and net cash used in financing activities that are presented in our Consolidated Statements of Cash Flows. Operating Activities
For the six months ended June 30, 2009, our cash flow provided by operating activities was $124.0 million compared to $82.8 million for the comparable period in 2008. The increase in cash flow from operating activities is primarily due to changes in our receivables and accrued liabilities. Investing Activities
For the six months ended June 30, 2009, net cash provided by investing activities was $10.1 million as compared to $500.3 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 expenditures, and development programs, as well as the impact of the capital market environment on these activities, all of which are discussed in further detail below.
Acquisitions
During the six months ended June 30, 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 GAAP, 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 six months ended June 30, 2009, $40.2 million or approximately $924 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 $14.4 million or $332 per home. In addition, revenue enhancing capital expenditures, kitchen and bath upgrades, and other extensive exterior/interior upgrades totaled $13.4 million or $309 per home, and major renovations totaled $12.3 million or $283 per home for the six months ended June 30, 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:

                                 Six Months Ended June 30,                    Six Months Ended June 30,
                                  (dollars in thousands)                             (per home)
                            2009           2008         % Change         2009           2008         % Change
Turnover capital
expenditures              $   4,510      $  4,548            -0.8 %    $    104       $    109            -4.6 %
Asset preservation
expenditures                  9,924         8,886            11.7 %         228            214             6.5 %

Total recurring
capital expenditures         14,434        13,434             7.4 %         332            323             2.8 %

Revenue enhancing
improvements                 13,406        23,482           -42.9 %         309            565           -45.3 %
Major renovations            12,310        32,692           -62.3 %         283            787           -64.0 %

Total capital
expenditures              $  40,150      $ 69,608           -42.3 %    $    924       $  1,675           -44.8 %


Repair and maintenance
expense                   $  14,622        16,700           -12.4 %    $    337       $    402           -16.2 %

Average stabilized
home count                   43,452        41,549

Total capital expenditures for our communities decreased $29.5 million for the six months ended June 30, 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 85 communities during the six months ended June 30, 2008. Recurring capital expenditures during 2009 are currently expected to be approximately $675 per home. Development
At June 30, 2009, our development pipeline for wholly-owned communities totaled 2,207 homes with a budget of $359.5 million in which we have a carrying value of $249.5 million. We expect to have the first of these communities complete development during the third quarter of 2009. In addition, we own several parcels of land held for future development with a gross book value of $145.0 million in which the Company is seeking entitlements and preparing for development, although we do not anticipate commencing any new developments during 2009.
For the six months ended June 30, 2009, we invested approximately $97.8 million in development projects, an increase of $39.2 million from our 2008 level of $58.6 million. We funded these costs with $40.0 million in draws on our construction facilities. At June 30, 2009, the Company has drawn $204.3 million and has $114.6 million of remaining capacity on our construction facilities. We completed development on one wholly-owned community with 200 apartment homes at a total cost of $16.4 million during the six months ended June 30, 2009. Unconsolidated Development Joint Ventures UDR is a partner with an unaffilitated third party in a joint venture which is developing a 274 home apartment community 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 and at June 30, 2009, we owned 49% of the joint venture. Our initial investment was $10.0 million. During the three months ended June 30, 2009, the Company made additional capital contributions of $16.1 million to the joint venture to fund development costs. Our investment at June 30, 2009 and December 31, 2008 was $28.4 million and $9.9 million, respectively.
UDR is a partner with an unaffiliated third party in a joint venture which owns a site in Bellevue, Washington. At closing and at June 30, 2009, we owned 49% of the joint venture. Our initial investment was $5.7 million. Our investment at June 30, 2009 and December 31, 2008 was $10.0 million and $10.2 million, respectively. The Company initially planned to develop a 430 home high rise apartment building with ground floor retail on an existing operating retail center. However, during the six months ended June 30, 2009, the Company decided to operate the retail property as opposed to developing the site.

Disposition of Investments
During the six months ended June 30, 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.
During the six months ended June 30, 2009, UDR received full payment of a $200.0 million note issued in conjunction with the sale of 85 communities during the six months ended June 30, 2008.
Financing Activities
Net cash used in financing activities during the six months ended June 30, 2009, was $141.8 million versus $584.8 million for the comparable period in 2008. The following is a summary of our significant financing activities for the six months ended June 30, 2009:
• Repaid $22.8 million of secured debt and $380.8 million of unsecured debt (represents the notional amount of debt repaid and excludes the gain on extinguishment). The $380.8 million of unsecured debt includes $141.9 million for maturing medium-term notes and $238.9 million for the repurchase of unsecured debt.

• Repurchased unsecured debt with a notional amount of $238.9 million for $222.3 million resulting in a gain on extinguishment of $9.8 million, net of deferred finance charges. The unsecured debt repurchased by the Company matured in 2009, 2011, 2013, 2024 and 2035. As a result of these repurchases, the gain is represented as a reduction to interest expense on the Consolidated Statement of Operations.

• 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 $289.6 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 $40.0 million additional construction loans.

Credit Facilities
As of June 30, 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 $755.4 million of the funded balance fixed at a weighted average interest rate of 5.4% and the remaining funded balance on these facilities is currently at a weighted average variable rate of 1.8%.
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 June 30, 2009, we had $61.1 million of borrowings outstanding under the credit facility leaving $538.9 million of unused capacity.
The Fannie Mae credit facilities and the unsecured 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 . . .