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 budget or 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 September 30, 2009, our portfolio included 164 communities with 45,249 apartment homes nationwide. The following table summarizes our market information by major geographic markets:

                                                      As of September 30, 2009                                     Three Months Ended                      Nine Months Ended
                                                                    Percentage             Total                   September 30, 2009                    September 30, 2009 (a)
                               Number of          Number of          of Total              Gross              Average          Total Income          Average            Total Income
                               Apartment          Apartment           Gross                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               11.7 %     $        712,193             95.3 %      $       1,498               95.1 %       $       1,531
San Francisco, CA                        8             1,741                6.5 %              393,339             95.9 %              1,910               95.6 %               1,835
Monterey Peninsula, CA                   7             1,565                2.5 %              150,604             95.6 %              1,111               94.6 %               1,098
Los Angeles, CA                          6             1,222                4.3 %              263,367             94.4 %              1,571               94.7 %               1,485
San Diego, CA                            5             1,123                2.9 %              173,222             95.1 %              1,361               95.2 %               1,384
Seattle, WA                              7             1,270                2.5 %              150,881             96.2 %              1,158               96.1 %               1,169
Inland Empire, CA                        3             1,074                2.5 %              149,432             94.7 %              1,228               94.6 %               1,248
Sacramento, CA                           2               914                1.1 %               67,248             94.7 %                897               93.2 %                 907
Portland, OR                             3               716                1.1 %               68,192             96.1 %                974               95.9 %                 987

Mid-Atlantic Region
Metropolitan DC                          8             2,656                6.6 %              402,950             96.7 %              1,460               96.9 %               1,429
Richmond, VA                             7             2,211                3.1 %              190,338             96.8 %              1,026               96.1 %               1,007
Baltimore, MD                            9             1,820                3.5 %              214,263             96.8 %              1,237               97.0 %               1,180
Norfolk VA                               6             1,438                1.4 %               82,582             95.7 %                950               95.7 %                 959
Other Mid-Atlantic                       5             1,132                1.3 %               77,112             96.3 %              1,011               96.3 %               1,016

Southeastern Region
Tampa, FL                               10             3,278                4.1 %              249,581             95.2 %                920               95.0 %                 927
Orlando, FL                              9             2,500                3.1 %              187,021             94.7 %                904               94.8 %                 921
Nashville, TN                            7             1,874                2.3 %              141,390             96.3 %                859               95.9 %                 871
Jacksonville, FL                         5             1,857                2.5 %              154,404             94.9 %                822               94.5 %                 835
Other Florida                            4             1,184                1.8 %              110,728             94.5 %                990               94.4 %               1,010

Southwestern Region
Phoenix, AZ                              3               914                1.2 %               70,318             95.4 %                871               94.9 %                 897
Dallas, TX                               3               555                1.5 %               90,875             95.1 %              1,360               96.5 %               1,618


Total/Average Same
Communities                            130            35,111               67.5 %            4,100,040             95.6 %      $       1,167               95.4 %       $       1,157


Non Matures, Commercial
Properties & Other                      32             9,837               28.6 %            1,735,812


Total Real Estate Held
for Investment                         162            44,948               96.1 %            5,835,852


Real Estate Under
Development (c)                          2               301                3.9 %              233,439


Total                                  164            45,249              100.0 %     $      6,069,291

(a) The same community population for the nine months ended September 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 five wholly-owned communities with a total of 1,958 apartment homes of which 1,657 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 of properties, and the issuance of debt and equity. 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 issuance of debt or equity securities, and the disposition of properties. 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. On September 15, 2009, under its "At the Market" equity distribution program, the Company entered into a sales agreement (the "Sales Agreement") with Merrill Lynch, Pierce, Fenner & Smith Incorporated ("BAML") and Morgan Stanley & Co. Incorporated, as sales agents and/or principals (the "Agents"). Under the terms of the Sales Agreement, the Company may sell up to 15 million shares of its common stock from time to time, to or through the Agents, by means of ordinary brokers' transactions on the New York Stock Exchange at prevailing market prices at the time of sale, or as otherwise agreed with the applicable Agent. The Company will pay each Agent compensation for sales of the shares equal to 2% of the gross sales price per share of shares sold through such Agent, as sales agent, under the Sales Agreement. During the three months ended September 30, 2009, the Company sold 2,269,400 shares of common stock under the Sales Agreement through BAML, acting as our agent, at an average price per share of $14.89, for aggregate gross proceeds of approximately $33.8 million. Aggregate net proceeds from such sales, after deducting commissions to BAML of approximately $676,000 and other transaction costs of approximately $161,000, were approximately $33.0 million.
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.
In addition to the $1.6 million of scheduled debt maturities outstanding at September 30, 2009, the Company anticipates prepaying $90.3 million of 2010 secured debt with proceeds from borrowings under our secured or unsecured credit facilities during the remainder of 2009. 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 FASB ASC 360-20 (formerly 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 UDR's Form 8-K filed with the SEC on May 22, 2009. 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 nine months ended September 30, 2009, our cash flow provided by operating activities was $189.7 million compared to $138.7 million for the comparable period in 2008. The increase in cash flow from operating activities is primarily due to changes in other assets and accrued liabilities. Investing Activities
For the nine months ended September 30, 2009, net cash used in investing activities was $95.7 million as compared to net cash provided by investing activities of $409.5 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 nine months ended September 30, 2009, we acquired one community with 289 units. 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 nine months ended September 30, 2009, $65.2 million or approximately $1,500 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 $22.2 million or $511 per home. In addition, revenue enhancing capital expenditures, kitchen and bath upgrades, and other exterior/interior upgrades totaled $19.3 million or $445 per home, and major renovations totaled $23.7 million or $544 per home for the nine months ended September 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:

                                             Nine months ended September 30,                 Nine months ended September 30,
                                                 (dollars in thousands)                                 (per home)
                                          2009              2008         % Change         2009              2008          % Change
Turnover capital expenditures          $     7,163       $    7,074            1.3 %   $       165       $       150           10.5 %
Asset preservation expenditures             15,027           13,247           13.4 %           346               282           22.4 %

Total recurring capital expenditures        22,190           20,321            9.2 %           511               432           18.0 %

Revenue enhancing improvements              19,342           35,830          -46.0 %           445               762          -41.5 %
Major renovations                           23,639           44,977          -47.4 %           544               956          -43.1 %

Total capital expenditures             $    65,171       $  101,128          -35.6 %   $     1,500       $     2,150          -30.2 %


Repair and maintenance expense         $    22,557       $   24,862           -9.3 %   $       519       $       528           -1.6 %


Average stabilized home count               43,451           47,045

Total capital expenditures for our communities decreased $36.0 million for the nine months ended September 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 86 communities during the nine months ended September 30, 2008. Recurring capital expenditures during 2009 are currently expected to be approximately $675 per home. Development
At September 30, 2009, our development pipeline for wholly-owned communities totaled 1,958 homes with a budget of $308.5 million in which we have a carrying value of $233.4 million. We expect to have the first of these communities complete development during the first quarter of 2010. In addition, we own several parcels of land held for future development with a gross book value of $151.2 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 nine months ended September 30, 2009, we invested approximately $142.2 million in development projects, an increase of $40.2 million from our 2008 level of $102.0 million. We funded these costs with $78.3 million in draws on our construction facilities. At September 30, 2009, the Company has drawn $242.6 million and has $107.7 million of remaining capacity on our construction facilities. We completed development on two wholly-owned communities with 449 apartment homes at a total cost of $70.4 million during the nine months ended September 30, 2009.
Unconsolidated Joint Ventures
During the quarter ended September 30, 2009, the Company established a joint venture with Kuwait Finance House to invest up to $450.0 million in multifamily properties located in key, high barrier to entry markets. The partners will contribute equity of $180.0 million of which the Company's maximum equity contribution will be 30% or $54.0 million when fully invested. At closing and at September 30, 2009, we owned 30% of the joint venture. Our investment at September 30, 2009 was $226,000. At September 30, 2009, the joint venture did not hold any property.

UDR is a partner with an unaffiliated third party in a joint venture which owns and operates a 23-story, 166 home high-rise apartment community in the central business district of Bellevue, Washington. At closing, UDR owned 49% of the joint venture. Our initial investment was $11.8 million. Our investment at September 30, 2009 and December 31, 2008 was $10.0 million and $10.4 million, respectively.
UDR is a partner with an unaffiliated 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 fourth quarter of 2009. At closing and at September 30, 2009, we owned 49% of the joint venture. Our initial investment was $10.0 million. During the three and nine months ended September 30, 2009, the Company made additional capital contributions of $6.0 million and $22.1 million to the joint venture to fund development costs. Our investment at September 30, 2009 and December 31, 2008 was $24.4 million and $9.9 million, respectively. The September 30, 2009 investment is net of an $11.0 million equity loss recorded in the third quarter of 2009, discussed below. Subsequent to September 30, 2009, the Company agreed to increase its guarantee to 100% of the project debt related to the joint venture. Concurrent with its agreement to increase its guarantee, the Company was appointed managing member of the joint venture. As managing member, the Company obtained significant control over major operating and financial decisions of the joint venture. As a result, the Company will be required to consolidate the joint venture with an estimated fair value of $96.0 million of assets and an estimated fair value of $70.5 million of debt during the quarter ended December 31, 2009.
UDR is a partner with an unaffiliated third party in a joint venture which owns an operating retail site in Bellevue, Washington. At closing and at September 30, 2009, we owned 49% of the joint venture. Our initial investment was $5.7 million. Our investment at September 30, 2009 and December 31, 2008 was $5.0 million and $10.2 million, respectively. The September 30, 2009 investment is net of a $5.0 million equity loss recorded in the third quarter of 2009, discussed below. The joint venture initially planned to develop a 430 home high rise apartment building with ground floor retail on an existing operating retail center. However, during the nine months ended September 30, 2009, the joint venture decided to continue to operate the retail property as opposed to developing the site.
In accordance with Subtopic 323-10, we evaluated our investments in unconsolidated joint ventures for impairment for events or changes in circumstances that indicate that there may be an other-than-temporary decline in value. We considered various factors to determine if a decrease in the value of . . .