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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, DC 20549


FORM 10-K

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31,
    2004                                             
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|           |  | For the transition period
    from          to          .                                   

Commission file number 1-16755

Archstone-Smith Trust

(Exact name of Registrant as Specified in Its
Charter)


|                                                                   |  |                                      
|------------------------------------------------------------------ |  | -------------------------------------
|MARYLAND                                                           |  | 84-1592064                           
|(State or other jurisdiction of
    incorporation or organization) |  | (IRS employer
    identification no.)

9200 E. Panorama Circle,
Suite 400

Englewood, Colorado 80112


(Address of principal executive offices and
zip code)


(303) 708-5959

(Registrants telephone number, including
area code)


Securities registered pursuant to
Section 12(b) of the Act: None

|                                                                    |  |                         
|------------------------------------------------------------------- |  | ------------------------
|                                                                    |  | Name of each exchange on
|Title of each class                                                 |  | which registered        
|                                                                    |  |                         
|Common Shares of Beneficial Interest, par value
    $0.01 per share |  | New York Stock Exchange 

Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for
the past
90 days.     Yes þ          No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this
Form 10-K.     o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).     Yes þ          No o

Based on the closing price of the
registrants Common Shares on June 30, 2004, the
aggregate market value of the voting common equity held by
non-affiliates of the registrant was approximately
$5,706,820,000.

At February 14, 2005 there were
approximately 199,782,439 of the registrants Common Shares
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants definitive
proxy statement for the 2005 annual meeting of its shareholders
are incorporated by reference in Part III of this report.



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|                                                           |  |                                                                                           |  |                                                                      |    |  |    | 
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------- | -- |  | -- | 
|Item                                                       |  | Description                                                                               |  | Page                                                                
|                                                           |  |                                                                                           |  |                                                                     
|PART I                                                    
|                                                           |  |                                                                                           |  | Glossary                                                             |    |  | 3  | 
|1.                                                         |  | Business                                                                                  |  |                                                                      | 7  | 
|                                                           |  |                                                                                           |  | The Company                                                          |    |  | 8  | 
|                                                           |  |                                                                                           |  | Officers of
    Archstone-Smith                                      |    |  | 13 | 
|                                                           |  |                                                                                           |  | Employees                                                            |    |  | 14 | 
|                                                           |  |                                                                                           |  | Insurance                                                            |    |  | 14 | 
|                                                           |  |                                                                                           |  | Risk Factors                                                         |    |  | 15 | 
|2.                                                         |  | Properties                                                                                |  |                                                                      | 19 | 
|                                                           |  |                                                                                           |  | Geographic Distribution                                              |    |  | 19 | 
|                                                           |  |                                                                                           |  | Real Estate Portfolio                                                |    |  | 20 | 
|3.                                                         |  | Legal Proceedings                                                                         |  |                                                                      | 22 | 
|4.                                                         |  | Submission of Matters to a
    Vote of Security Holders                                   |  |                                                                      | 23 | 
|PART II                                                   
|5.                                                         |  | Market for the
    Registrants Common Equity and Related Stockholder
    Matters         |  |                                                                      | 23 | 
|6.                                                         |  | Selected Financial Data                                                                   |  |                                                                      | 26 | 
|7.                                                         |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations |  |                                                                      | 28 | 
|                                                           |  |                                                                                           |  | Results of Operations                                                |    |  | 28 | 
|                                                           |  |                                                                                           |  | Liquidity and Capital
    Resources                                  |    |  | 36 | 
|                                                           |  |                                                                                           |  | Litigation and
    Contingencies                                     |    |  | 40 | 
|                                                           |  |                                                                                           |  | Critical Accounting
    Policies                                     |    |  | 41 | 
|                                                           |  |                                                                                           |  | Off Balance Sheet
    Arrangements                                   |    |  | 43 | 
|                                                           |  |                                                                                           |  | Contractual Commitments                                              |    |  | 43 | 
|                                                           |  |                                                                                           |  | Related Party
    Transactions                                       |    |  | 44 | 
|                                                           |  |                                                                                           |  | New Accounting
    Pronouncements                                    |    |  | 44 | 
|7A.                                                        |  | Quantitative and Qualitative
    Disclosures About Market Risk                            |  |                                                                      | 46 | 
|8.                                                         |  | Financial Statements and
    Supplementary Data                                           |  |                                                                      | 48 | 
|9.                                                         |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure  |  |                                                                      | 48 | 
|9A.                                                        |  | Controls and Procedures                                                                   |  |                                                                      | 48 | 
|                                                           |  |                                                                                           |  | Managements Report on
    Internal Control Over Financial Reporting |    |  | 49 | 
|                                                           |  |                                                                                           |  | PART III                                                             |    |  |    | 
|10.                                                        |  | Trustees and Executive
    Officers of the Registrant                                     |  |                                                                      | 50 | 
|11.                                                        |  | Executive Compensation                                                                    |  |                                                                      | 50 | 
|12.                                                        |  | Security Ownership of
    Certain Beneficial Owners and Management                        |  |                                                                      | 50 | 
|13.                                                        |  | Certain Relationships and
    Related Transactions...                                     |  |                                                                      | 50 | 
|14.                                                        |  | Principal Accounting Fees
    and Services                                                |  |                                                                      | 50 | 
|                                                           |  |                                                                                           |  | PART IV                                                              |    |  |    | 
|15.                                                        |  | Exhibits, Financial
    Statement Schedules                                               |  |                                                                      | 51 | 
|Amended and Restated Credit Agreement                     
|Computation of Ratio of Earnings to Fixed Charges         
|Computation of Ratio of Earnings to Combined Fixed Charges
|Consent of Independent Registered Public Accounting Firm  
|Subsidiaries of Archstone-Smith                           
|Certification of CEO Pursuant to Section 302              
|Certification of CFO Pursuant to Section 302              
|Certification of CEO Pursuant to Section 906              
|Certification of CFO Pursuant to Section 906              



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GLOSSARY

The following abbreviations, acronyms or defined
terms used in this document are defined below:

|                                         |  |                                                                                                                                                                                                                                                                                                                                                                            
|---------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Abbreviation, Acronym or Defined Term    |  | Definition/Description                                                                                                                                                                                                                                                                                                                                                     
|                                         |  |                                                                                                                                                                                                                                                                                                                                                                            
|A-1 Common Unitholders                   |  | Holders of A-1 Common Units.                                                                                                                                                                                                                                                                                                                                               
|A-1 Common Units                         |  | Operating Trust Class A-1 common units of
    beneficial interest, which are redeemable for cash, or at the
    option of Archstone-Smith, Common Shares. A-1 Common Units are
    the common units of the Operating Trust not held by
    Archstone-Smith and represent a minority interest of 10.9% in
    the Operating Trust at December 31, 2004.                     
|A-2 Common Units                         |  | Operating Trust Class A-2 common units of
    beneficial interest. Archstone-Smith is the sole holder of A-2
    Common Units, which represent approximately an 89.1% interest in
    the Operating Trust at December 31, 2004.                                                                                                                                            
|A-1 Minority Interest                    |  | The A-1 Common Unitholders share of net
    earnings.                                                                                                                                                                                                                                                                                                                     
|Ameriton                                 |  | AMERITON Properties Incorporated, which is a
    taxable REIT subsidiary that engages in the opportunistic
    acquisition, development and eventual disposition of real estate
    with a shorter-term investment horizon.                                                                                                                                                
|Annual Report                            |  | This Annual Report on Form 10-K filed with the
    Securities and Exchange Commission for the fiscal year ended
    December 31, 2004.                                                                                                                                                                                                                                     
|Archstone-Smith                          |  | Archstone-Smith Trust. Unless indicated
    otherwise, financial information and references throughout this
    document are labeled, Archstone-Smith for periods
    before and after the Smith Merger.                                                                                                                                                                 
|Board                                    |  | Archstone-Smiths Board of Trustees.                                                                                                                                                                                                                                                                                                                                       
|Class B Common Units                     |  | Operating Trust common units of beneficial
    interest issued in connection with contributions of property
    between dividend distribution dates; they are entitled to
    receive a pro-rata distribution with respect to the quarter in
    which the property is contributed and, after that distribution
    date, they automatically convert into A-1 Common Units.
|Common Share(s)                          |  | Archstone-Smith common shares of beneficial
    interest, par value $0.01 per share.                                                                                                                                                                                                                                                                                       
|Consolidated Engineering Services or CES |  | Consolidated Engineering Services, Inc. was a
    taxable REIT subsidiary in the business of delivering mission
    critical facilities management services for corporate,
    government and institutional customers. CES was sold to a third
    party in December 2002 for $178 million.                                                                                
|Convertible Preferred Shares             |  | Collectively, the Series A, H, J, K and L
    Preferred Shares.                                                                                                                                                                                                                                                                                                            
|Declaration of Trust                     |  | Archstone-Smiths Amended and Restated
    Declaration of Trust as filed with the State of Maryland on
    October 26, 2001, as amended and supplemented.                                                                                                                                                                                                                  
|DEU                                      |  | Dividend Equivalent Unit; an amount credited to
    certain options and RSUs under our long-term incentive
    plan.                                                                                                                                                                                                                                                      
|EPS                                      |  | Earnings Per Share determined in accordance with
    GAAP.                                                                                                                                                                                                                                                                                                                 
|FASB                                     |  | Financial Accounting Standards Board.                                                                                                                                                                                                                                                                                                                                      
|GAAP                                     |  | Generally accepted accounting principles in the
    United States.                                                                                                                                                                                                                                                                                                         
|Independent Trustees                     |  | Members of the Board with no employment
    relationship.                                                                                                                                                                                                                                                                                                                  

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|                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Abbreviation, Acronym or Defined Term |  | Definition/Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|In Planning                           |  | Parcels of land owned or Under Control, which are
    in the development planning process, upon which construction of
    apartments is expected to commence within 36 months.                                                                                                                                                                                                                                                                                                                                                                        
|IRR                                   |  | Internal Rate of Return, calculated as the cash
    rate of return generated over the investment holding period on
    invested capital.                                                                                                                                                                                                                                                                                                                                                                                                              
|Lease-Up                              |  | The phase during which newly constructed
    apartment units are being leased for the first time, but prior
    to the community becoming Stabilized.                                                                                                                                                                                                                                                                                                                                                                                                 
|LIBOR                                 |  | London Interbank Offered Rate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Long-Term Unsecured Debt              |  | Collectively, Archstone-Smiths long-term
    unsecured senior notes payable and tax-exempt unsecured bonds.                                                                                                                                                                                                                                                                                                                                                                                                                                          
|NAREIT                                |  | National Association of Real Estate Investment
    Trusts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Net Operating Income or NOI           |  | Represents rental revenues less rental expenses
    and real estate taxes. We rely on NOI for purposes of making
    decisions about resource allocations and assessing segment
    performance. We also believe NOI is a valuable means of
    comparing period-to-period property performance. See a
    reconciliation of NOI to Earnings from Operations in this Annual
    Report under the caption Item 7. Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Apartment Community
    Operations.
|NYSE                                  |  | New York Stock Exchange.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Operating Trust                       |  | Archstone-Smith Operating Trust, the entity
    through which we conduct all property ownership and business
    operations.                                                                                                                                                                                                                                                                                                                                                                                                                          
|Perpetual Preferred Shares            |  | Collectively, the Series B, C, D, I and M
    Preferred Shares. These shares are not convertible, but are
    redeemable at the option of Archstone-Smith after certain future
    dates.                                                                                                                                                                                                                                                                                                                                                             
|Preferred Shares                      |  | Collectively, the Series A, B, C, D,
    H, I, J, K, L and M Preferred Shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|REIT                                  |  | Real estate investment trust.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Restricted Share Unit or RSU          |  | A unit representing an interest in one Common
    Share, subject to certain vesting provisions, through our
    long-term incentive plan.                                                                                                                                                                                                                                                                                                                                                                                                             
|Same-Store                            |  | Term used to refer to a group of operating
    communities that had attained stabilization and were fully
    operating during the entire time two periods are being compared.
    Excludes communities which were not eligible for inclusion due
    to (i) recent acquisition or development, (ii) major
    redevelopment, or (iii) a significant number of non-
    operational units (fires, floods, etc.). Also excludes the
    Ameriton properties due to their short-term holding periods.                                                   
|Series A Preferred Shares             |  | Archstone-Smith Series A Cumulative
    Preferred Shares of Beneficial Interest, par value
    $0.01 per share, which were redeemed in full in November
    2003.                                                                                                                                                                                                                                                                                                                                                                                     
|Series B Preferred Shares             |  | Archstone-Smith Series B Cumulative
    Perpetual Preferred Shares of Beneficial Interest, par value
    $0.01 per share, which were redeemed in full in May 2001.                                                                                                                                                                                                                                                                                                                                                                                    
|Series C Preferred Shares             |  | Archstone-Smith Series C Cumulative
    Perpetual Preferred Shares of Beneficial Interest, par value
    $0.01 per share, which were redeemed in full in August 2002.                                                                                                                                                                                                                                                                                                                                                                                 

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|                                      |  |                                                                                                                                                                                                                                                                           
|------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Abbreviation, Acronym or Defined Term |  | Definition/Description                                                                                                                                                                                                                                                    
|                                      |  |                                                                                                                                                                                                                                                                           
|Series D Preferred Shares             |  | Archstone-Smith Series D Cumulative
    Perpetual Preferred Shares of Beneficial Interest, par value
    $0.01 per share, which were redeemed in full in August 2004.                                                                                                     
|Series E Perpetual Preferred Units    |  | 8.375% Cumulative Perpetual Preferred Units.
    520,000 units were redeemed in August 2004 and 400,000
    Units were redeemed in November 2004.                                                                                                                         
|Series F Perpetual Preferred Units    |  | 8.125% Cumulative Perpetual Preferred Units,
    which were redeemed in full in September 2004, redeemable in
    March 2005.                                                                                                                                             
|Series G Perpetual Preferred Units    |  | 8.625% Cumulative Perpetual Preferred Units.                                                                                                                                                                                                                              
|Series H Preferred Shares             |  | Archstone-Smith Series H Cumulative
    Convertible Perpetual Preferred Shares of Beneficial Interest,
    par value $0.01 per share, which were converted into Common
    Shares in full in May 2003.                                                                    
|Series I Preferred Shares             |  | Archstone-Smith Series I Cumulative
    Perpetual Preferred Shares of Beneficial Interest, par value
    $100,000 per share, redeemable in February 2028.                                                                                                                 
|Series J Preferred Shares             |  | Archstone-Smith Series J Cumulative
    Convertible Perpetual Preferred Shares of Beneficial Interest,
    par value $0.01 per share, which were converted into Common
    Shares in full in July 2002.                                                                   
|Series K Preferred Shares             |  | Archstone-Smith Series K Cumulative
    Convertible Perpetual Preferred Shares of Beneficial Interest,
    par value $0.01 per share, which were converted into Common
    Shares in September 2004.                                                                      
|Series L Preferred Shares             |  | Archstone-Smith Series L Cumulative
    Convertible Perpetual Preferred Shares of Beneficial Interest,
    par value $0.01 per share, which were converted into Common
    Shares in December 2004.                                                                       
|Series M Preferred Unit               |  | Archstone-Smith Series M Preferred Unit of
    Beneficial Interest, par value $0.01 per unit.                                                                                                                                                                             
|Service Businesses                    |  | Collectively, Consolidated Engineering Services
    and Smith Management Construction. Both of these taxable REIT
    subsidiaries were acquired in the Smith Merger and subsequently
    sold by Archstone-Smith.                                                        
|Smith Management Construction or SMC  |  | Smith Management Construction Incorporated was a
    taxable REIT subsidiary in the business of providing
    construction management and building maintenance services. SMC
    was sold to members of its senior management in February 2003.                           
|Smith Merger                          |  | The series of merger transactions in
    October 2001 whereby Archstone-Smith merged with Smith
    Residential and Archstone Communities Trust merged with Smith
    Partnership.                                                                                        
|Smith Partnership                     |  | Charles E. Smith Residential Realty, L.P.                                                                                                                                                                                                                                 
|Smith Residential                     |  | Charles E. Smith Residential Realty, Inc.                                                                                                                                                                                                                                 
|SFAS                                  |  | Statement of Financial Accounting Standards.                                                                                                                                                                                                                              
|Stabilized or Stabilization           |  | The classification assigned to an apartment
    community that has achieved 93% occupancy, and for which
    development, new management and new marketing programs (or
    development and marketing in the case of a newly developed
    community) have been completed.
|Total Expected Investment             |  | For development communities, represents the total
    expected investment at completion; for operating communities,
    represents the total expected investment plus planned capital
    expenditures.                                                                   
|Trustees                              |  | Members of the Board of Trustees of
    Archstone-Smith.                                                                                                                                                                                                                  

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|                                      |  |                                                                                                                                                                                                                                                                                                                                        
|------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Abbreviation, Acronym or Defined Term |  | Definition/Description                                                                                                                                                                                                                                                                                                                 
|                                      |  |                                                                                                                                                                                                                                                                                                                                        
|Under Control                         |  | Land parcels which Archstone-Smith does not own,
    yet has an exclusive right (through contingent contract or
    letter of intent) during a contractually agreed upon time period
    to acquire for the future development of apartment communities,
    subject to approval of contingencies during the due diligence
    process.
|UPREIT                                |  | Umbrella Partnership Real Estate Investment Trust.                                                                                                                                                                                                                                                                                     

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Forward-Looking Statements

Certain statements in this Annual Report that
are not historical facts are forward-looking
statements as that term is defined under the Private
Securities Litigation Reform Act of 1995. These forward-looking
statements are based on our current expectations, beliefs,
assumptions, estimates and projections about the industry and
markets in which we operate. 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.
Information concerning expected investment balances, expected
funding sources, planned investments, forecasted dates and
revenue and expense growth assumptions are examples of
forward-looking statements. These statements are not guarantees
of future performance and involve certain risks, uncertainties
and assumptions, which are difficult to predict and many of
which are beyond our control. Therefore, actual outcomes and
results may differ materially from what is expressed, forecasted
or implied in such forward-looking statements. We undertake no
obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or
otherwise, except as required by applicable law.

Our operating results depend primarily on
income from apartment communities, which is substantially
influenced by supply and demand for apartment units, operating
expense levels, property level operations and the pace and price
at which we develop, acquire or dispose of apartment
communities. Capital and credit market conditions, which affect
our cost of capital, also influence operating results. See
Risk Factors in Item 1 of this Annual Report
for a complete discussion of the various risk factors that could
affect our future performance.




PART I






|        |         
|------- | --------
|Item 1. | Business

Archstone-Smith (the Company) is a recognized
leader in apartment investment and operations. We own and
operate a portfolio of high-rise and garden-style communities
that we believe cannot be replicated by any other public or
private apartment company. Our significant concentration of
high-rise assets, which represent approximately 35% of our
portfolio based on NOI, also makes us unique in the industry.
Our investment professionals generally live in their local
markets, allowing them to thoroughly research and evaluate
potential investments with a focus on the street corner level of
detail. We use this information to continually upgrade the
quality of our portfolio. As a result, our portfolio is
concentrated in many of the most desirable and expensive
neighborhoods in the Washington, D.C. metropolitan area,
Southern California, the San Francisco Bay area, Chicago,
the New York City metropolitan area, Boston, Southeast Florida
and Seattle. Through our two customer-facing brands, Archstone
and Charles E. Smith, we strive to provide great apartments and
great service, all backed by our unconditional Seal of
ServiceTM guarantees.

As of December 31, 2004, we owned or had an
ownership position in 46 high-rise communities and 189
garden-style communities, representing a total of 235
communities and 81,188 units, including 5,229 units

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under construction. At year-end, our operating
portfolio was concentrated in protected locations in the
following core markets, based on NOI (excluding communities
owned by Ameriton):


|                                   |        |  |      |       |  
|---------------------------------- | ------ |  | ---- | ----- | -
|Washington, D.C. Metropolitan Area |        |  | 39.4 | %    
|Southern California                |        |  | 18.9 |      
|San Francisco Bay Area, California |        |  | 8.2  |      
|Chicago, Illinois                  |        |  | 6.1  |      
|New York City Metropolitan Area    |        |  | 4.9  |      
|Boston, Massachusetts              |        |  | 4.7  |      
|Southeast Florida                  |        |  | 4.7  |      
|Seattle, Washington                |        |  | 3.1  |      
|Other                              |        |  | 10.0 |      
|                                   |        |  |      |      
|                                   | Total: |  |      | 100.0 | %
|                                   |        |  |      |      




The Company

We are a REIT engaged primarily in the operation,
development, redevelopment, acquisition and long-term ownership
of apartment communities in the United States. We are structured
as an UPREIT, under which all property ownership and business
operations are conducted through the Operating Trust. We are the
sole trustee and owned 89.1% of the Operating Trust at
December 31, 2004. Archstone-Smith Common Shares trade on
the New York Stock Exchange (NYSE: ASN).

We strive to create value for our shareholders by:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Maximizing the performance of our apartment
    communities by (i) generating long-term sustainable growth
    in operating cash flow, (ii) recruiting, training and
    retaining people who we believe are the best in the apartment
    business, (iii) strengthening our operating platform,
    (iv) leveraging the equity of our brands,
    (v) investing in technology that improves our core business
    and (vi) solidifying our reputation for innovative
    operational leadership;
|
| |  | Acquiring, developing and operating apartments in
    markets characterized by: (i) protected locations with
    limited land on which to build new housing; (ii) expensive
    single-family home prices; and (iii) a strong, diversified
    economic base with good employment growth potential; and                                                                                                                                                                                          
|
| |  | The selective sale of apartment communities,
    which allows us to continually upgrade our portfolio by using
    proceeds to fund investments with higher anticipated growth
    prospects in outstanding locations in our eight core markets.                                                                                                                                                                                                                                                 

2004 Accomplishments



| |                                                 
| | ------------------------------------------------
| | Attractive Shareholder Returns and
    Dividends



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Archstone-Smith produced a total shareholder
    return (TSR) of 48.8% in 2004. The Companys 2004 TSR
    exceeded the S&P 500 Index and the National Real Estate
    Investment Trusts (NAREIT) Apartment Index by 3,791 and
    1,407 basis points, respectively.                                                                                                                                                                                                                                                                 
|
| |  | Archstone-Smith paid a one-time special dividend
    of $1.00 per common share to all common shareholders of
    record on December 23, 2004. The $1.00 per share was
    in addition to the Companys annual common share dividend
    of $1.72 per share in 2004. The special dividend resulted
    primarily from the fourth quarter sale of approximately
    $596 million of non-core assets to condominium converters
    at an average capitalization rate below 4%, which created
    substantial value for our shareholders.
|
| |  | We also increased our 2005 annualized common
    share dividend level to $1.73, or $0.4325 per quarter, up
    from $1.72. This marks our 15th consecutive annual common
    share dividend increase and a total                                                                                                                                                                                                                                                                                                                     

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| |  |                                                                                                                                                        
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increase of 170% since 1991. Our first quarter
    2005 common share dividend paid in February represented our
    118th consecutive quarterly payment.



| |            
| | -----------
| | Recognition



| |   |                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On December 17, 2004, Archstone-Smith was
    added to the Standard & Poors 500 Index (S&P 500),
    which has been a long-term corporate goal.                        
|
| |  | Archstone-Smith was recognized as one of
    Americas Most Admired Companies by Fortune magazine
    in 2004, ranking as the number-one apartment company on the list.
|
| |  | Forbesmagazine
    ranked Archstone-Smith at 956 on the Forbes 2000 List,
    the magazines comprehensive ranking of the worlds
    largest corporations.            



| |                                         
| | ----------------------------------------
| | Operations and Investment
    Highlights



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Archstone-Smiths Same-Store reported NOI in
    2004 is approximately the same as it was in 2001, in spite of
    our peer group average being down approximately 9% for that same
    time period.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Archstone-Smith accelerated the implementation of
    MRI, a web-based, customer-centric property management system
    that automates virtually all of our daily on-site leasing and
    reporting tasks. Developed with our input by Intuit Real Estate
    Solutions (NASDAQ: INTU), MRI allows our site teams to better
    track customer service requests, manage customer records and
    execute leases more efficiently  which we believe
    enhances our customers experience with us. MRI is
    operational in 201 communities as of February 14, 2005,
    with full portfolio implementation anticipated by mid-2005.
|
| |  | We introduced resident-only web sites, which
    allow customers 24/7 access to us to complete new leases, pay
    rent online, submit and track service requests, view and update
    account information and more.                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | In 2004, we acquired $866.2 million of
    assets, excluding Ameriton, representing 3,753 units, and
    completed the development of $182.6 million of assets,
    representing 678 units in our core markets. Approximately
    90% of our portfolio is now concentrated in our core markets.                                                                                                                                                                                                                                                                                                                                       
|
| |  | We completed the disposition of $1.4 billion
    of non-core assets, excluding Ameriton, representing
    9,430 units, generating GAAP gains of $372.2 million
    and an average unleveraged internal rate of return (IRR) of
    13.8%.                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Ameriton, our wholly owned subsidiary that
    utilizes Archstone-Smiths development, acquisition and
    operating expertise to capitalize on short-term real estate
    investment opportunities, completed the sale of
    $360 million of assets in 2004, generating GAAP pre-tax
    gains of $65.1 million and an average unleveraged pre-tax
    IRR of 36.6%.                                                                                                                                                                                                                                                                

Customer-focused Operations

We believe that our long-term cash flow growth is
enhanced by the Archstone and Charles E. Smith brands, our
efficient operating platform, robust and scalable technology,
and continued investment in our associates.

Powerful brands.An
essential component of our strategy is to consistently offer a
higher level of service at our apartment communities. Through
our Seal of Service,TM we offer our residents
convenience and flexibility all backed by written guarantees.
The Seal of ServiceTM helps to create customer
loyalty and trust, and increase the likelihood of renewals and
referrals.

Core Process
Standardization.We believe that we
can create a distinct competitive advantage by identifying and
implementing the best practices for our most critical processes
and standardizing them at each of our communities. To do this,
we assembled a Core Process Project (CPP) team to focus on
three important customer touch-points: (i) customer
inquiries and leasing, (ii) the move-in experience, and
(iii) renewal, transfer or move-out. To capture best
practices, the CPP team conducts extensive field research with
front-

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line associates to translate proven tactics into
scalable tools that ensure consistency in our day-to-day
customer interactions.


In 2004, the CPP team rolled out Leasing Call
Excellence, a call-coaching program that dramatically improves
our phone interactions with customers. The CPP team began the
roll-out of the Move-in Tracker, a system that standardizes the
various tasks needed to prepare for new residents 
and ensure consistent, defect-free move-ins across our
portfolio. We believe that by enhancing our customers
experiences with us at these critical touch points, we will
ultimately increase customer acquisition, retention and
referrals.

Investing in
technology.We invest in technology to
improve our core operations and make it easier for our customers
to do business with us. In 2004, we accelerated the roll-out of
MRI, our web-based property management system. As of
February 14, 2005, MRI was operational in 201 communities,
with a full roll-out expected by mid-2005.

MRI provides a seamless online interface with our
customers via resident-only web sites, allowing customers 24/7
access to us to complete new leases, pay rent online, submit
service requests and more. Online rent payment went live in
January 2004; by the end of the year, we had collected a total
of $11.3 million in online rent payments including
approximately $4 million in December 2004 indicating
accelerating usage of the product. Since May 2004, when online
lease was rolled out, we have executed nearly 200 online leases.
These resident web sites  and the online leasing and
rent payment functionality  are expected to be fully
rolled out across our portfolio by July 2005.

In addition, MRIs automated work order
solution improves our ability to manage and execute service
requests, one of our most important customer relations
functions. Equally important, the system gives us the ability to
accurately track resident histories to better understand and
serve our customers.

Investing in our
associates.A critical component to
ensuring the integrity of our brand offering is attracting,
training and retaining the best professionals in our
industry  and giving them the support and tools to
provide an exceptional customer experience.

Through our Training Community program, new
community associates spend two to four days at a designated
training community  one that exemplifies excellence
in operations and customer service  in their market.
New associates are teamed with a Training Ambassador, a
community-based associate in a comparable position, to learn our
processes first-hand before they begin interacting with
customers on their own. Over the past year, we have added
full-time Training Ambassadors in our core markets. These
full-time Ambassadors are dedicated to training new associates
and providing critical one-on-one follow-up after 30 days
of employment for additional training support. We believe that
this hands-on training better prepares new associates to deliver
on our brand promises and create a consistent  and
positive  customer experience.

In addition to the Training Community and
Training Ambassador programs, each of our community management
and leasing associates receives extensive training in their
first year through our Customer-centered Sales Excellence
(CCSE) training program. CCSEs seven training modules
cover the various aspects of our sales process and are offered
to associates in manageable half-day classes. We are also
dedicated to ongoing training for each of our associates.

In 2004, we expanded The Practice of Leadership,
our feedback-based training program, from operations and
regional service managers to include corporate managers and
non-operations functions, giving them the tools to become better
leaders. This three-day program focuses on six leadership
practices consistent with our company culture and values that we
believe drive our success. This program is complemented by a
feedback component, through which direct reports and peers
evaluate corporate managers to identify strengths and
opportunities for improvement. Community and Service Managers
attend a comparable 3-day program, Leading Teams at
Archstone-Smith, where they learn  and practice
applying ideas, techniques and tools  to enhance
their effectiveness as team leaders. Approximately 375
community, service and corporate managers attended the Program
in 2004.

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Investment Strategy

Protected markets.We invest our capital in protected markets, where there is a
very limited amount of land on which new housing can be
developed, which minimizes new competition. In addition to
supply constraints, our core markets are characterized by very
expensive single-family home prices and a strong, diversified
economic base with employment growth potential, which we believe
maximizes our ability to maintain occupancy and produce
sustainable long-term cash flow growth.

Capital recycling
program.We utilize a successful
capital allocation strategy, using the selective sale of
non-core assets to redeploy disposition proceeds into
investments with higher anticipated long-term growth prospects.
We believe that concentrating our portfolio in protected markets
improves our growth rate, value creation and long-term business
fundamentals.

Our locally based investment professionals
generally live in their local markets, allowing them to
thoroughly research and evaluate potential investments at the
street corner level of detail. This locally based investment
acumen guides our decisions in making investments, allowing us
to continually upgrade the quality of our portfolio. As a
result, our portfolio is concentrated in many of the most
desirable neighborhoods in the Washington, D.C.
metropolitan area, Southern California, the San Francisco
Bay area, Chicago, the New York City metropolitan area, Boston,
Southeast Florida and Seattle.

We believe that one of our most important
responsibilities is to consistently make intelligent capital
allocation decisions that maximize shareholder value. For
example, we took advantage of an extraordinary opportunity to
sell $596 million of non-core assets to condominium
converters at very attractive sales prices in the fourth quarter
of 2004. We believe the sale of these non-strategic assets at
very low cap rates demonstrates the tremendous value embedded in
our remaining portfolio.

Development and
redevelopment.We believe we create
significant value through the development of new apartment
communities and the redevelopment of existing operating
communities. At December 31, 2004, we had 3,587 units,
representing a Total Expected Investment of $952.5 million,
of development communities under construction (excluding
Ameriton) in markets that include Southern California, downtown
Boston, the Washington, D.C. metropolitan area and the New
York City metropolitan area.

In 2004, we completed $182.6 million of new
development communities (excluding Ameriton), representing
678 units in markets that include Playa del Rey, Pasadena,
and Los Angeles, Calif. During the year, four development
properties achieved Stabilization, representing a Total Expected
Investment of $191.7 million and adding a total of
786 units to Archstone-Smiths same-store operating
portfolio.

Ameriton Properties
Incorporated.Ameriton is a wholly
owned subsidiary of Archstone-Smith that utilizes the
Companys development, acquisition and operating expertise
to capitalize on short-term real estate investment
opportunities. In 2004, Ameriton completed the sale of
$360 million of assets it had previously developed or
acquired, representing 2,618 units. Since 2000, Ameriton
has completed $961 million in dispositions, generating
pre-tax GAAP gains of $113 million; the weighted average
unleveraged pre-tax IRR on these dispositions was approximately
24.7%. As of December 31, 2004, Ameriton had
$400 million, representing 3,009 units, of communities
in development and owned or had an ownership position in
$372 million of operating communities, representing
4,131 units, that will be opportunistically sold over time.

Conservative Balance Sheet
Management

One of our primary financial objectives is to
structure our balance sheet to enhance our financial flexibility
in order to have access to capital when others in the industry
do not. We have a significant equity base, with equity market
capitalization of $8.6 billion, including the value of the
A-1 Common Units, as of December 31, 2004. Our
investment-grade debt ratings from Standard &
Poors (BBB+), Moodys Investors Service (Baa1) and
Fitch, Inc. (BBB+) are indicative of our solid financial
position.

In 2004, we increased our unencumbered asset base
to $6.1 billion as of the end of the year. As of
February 14, 2005, we had approximately $827 million
of liquidity, including cash on hand, restricted cash in

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escrows and capacity on unsecured credit
facilities. We believe this financial flexibility allows us to
act more quickly on new investment opportunities as they arise.


We repurchased $98.4 million of our common
stock in 2004, at prices ranging from $26.79 to $35.50 per
share at an average price of $27.93 per share. In the
fourth quarter, we paid a $221 million one-time special
dividend of $1.00 per share while maintaining our
relatively low ratio of total
debt-to-undepreciated-book-capitalization of 43.7% at year-end.
We also called all of our outstanding Series D Preferred
Shares and Series F Perpetual Preferred Units as well as a
portion of our Series E Perpetual Preferred Units for
redemption. Additionally, the Series K and Series L
Preferred Shares were converted into Common Shares during 2004.
The redemption and conversion of these Preferred Shares and
Units strengthens our balance sheet and will have a positive
impact on our fixed charge coverage ratio going forward.

During the fourth quarter of 2004, we
opportunistically took advantage of the increased liquidity in
the banking market to extend the maturity date of our
$600 million unsecured line of credit to December 2007 from
October 2006. The syndication of our facility was heavily
over-subscribed, as we received over $850 million of
commitments from 23 domestic and international financial
institutions. We also renegotiated several key terms, such as
reducing our pricing by 10 basis points to a LIBOR spread
of 50 bps, and lowered the cap rate used to value our
operating portfolio. With these modifications, Archstone-Smith
now enjoys the lowest facility pricing and portfolio cap rate of
any REIT to our knowledge, which will directly benefit the
Company over the next three years.

Our long-term debt is structured to create a
relatively level principal maturity schedule, without
significant repayment obligations in any year. We have only
$313.7 million of long-term debt maturing in 2005,
representing 2.5% of our total market capitalization. The
following summarizes our long-term debt maturity profile for
2005 through 2009, and thereafter, as of December 31, 2004
(dollar amounts in millions):

|           |       |       |         |                   |  |  |      |      |  
|---------- | ----- | ----- | ------- | ----------------- |  |  | ---- | ---- | -
|           |       |       |         | % of Total Market
|Year       |       | Total |         | Capitalization(1)
|           |       |       |         |                  
|2005       |       | $     | 313.7   |                   |  |  | 2.5  | %   
|2006       |       |       | 295.5   |                   |  |  | 2.3  | %   
|2007       |       |       | 542.5   |                   |  |  | 4.3  | %   
|2008       |       |       | 456.6   |                   |  |  | 3.6  | %   
|2009       |       |       | 454.6   |                   |  |  | 3.6  | %   
|Thereafter |       |       | 2,067.7 |                   |  |  | 16.2 | %   
|           |       |       |         |                   |  |  |      |     
|           | Total |       | $       | 4,130.6           |  |  |      | 32.4 | %
|           |       |       |         |                   |  |  |      |     



---



|    |                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Total market capitalization as of
    December 31, 2004, represents the market capitalization
    based on the closing share price on the last trading day of the
    period for publicly traded securities, units and the liquidation
    value for private securities as well as the book value of total
    debt.

Consistent dividend
growth.We paid dividends totaling
$2.72 per common share in 2004, including our annualized
quarterly dividend of $1.72 per share and a one-time
special dividend of $1.00 per share. The special dividend
resulted from the sale of approximately $596 million of
non-core assets to condominium converters at an average combined
capitalization rate below 4% in the fourth quarter of 2004. In
addition, we announced our anticipated 2005 distribution level
of $1.73 per share, a 170% increase since 1991, the year we
began to focus exclusively on apartment communities. With the
2005 increase, we have raised our annual distribution for 15
consecutive years. We have paid 118 consecutive quarterly
distributions.

Management

We have several senior executives who possess the
leadership, operational, investment and financial skills and
experience to oversee the overall operation of our Company.
Several of our senior officers could serve as the principal
executive officer and continue our strong performance. Our
management team emphasizes active training and organizational
development initiatives for associates at all levels of our
Company in order to build long-term management depth and
facilitate succession planning.

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Officers of Archstone-Smith



| |                                       
| | --------------------------------------
| | Senior Officers of
    Archstone-Smith

The senior officers of Archstone-Smith are:

|                       |  |                                                                      
|---------------------- |  | ---------------------------------------------------------------------
|Name                   |  | Title                                                                
|                       |  |                                                                      
|R. Scot Sellers        |  | Chairman and Chief Executive Officer                                 
|J. Lindsay Freeman     |  | Chief Operating Officer                                              
|Charles E. Mueller, Jr |  | Chief Financial Officer                                              
|Alfred G. Neely        |  | Chief Development Officer and President of the
    High-Rise Division
|Dana K. Hamilton       |  | Executive Vice President  National
    Operations                   
|Caroline Brower        |  | General Counsel and Secretary                                        
|Daniel E. Amedro       |  | Senior Vice President and Chief Information
    Officer              
|Mark A. Schumacher     |  | Senior Vice President and Chief Accounting Officer                   



| |                                   
| | ----------------------------------
| | Biographies of Senior
    Officers

R. Scot Sellers 
48 Trustee, Chairman and
Chief Executive Officer of Archstone-Smith since June 1997, with
overall responsibility for Archstone-Smiths strategic
direction, investments and operations; Co-Chairman and Chief
Investment Officer of Archstone-Smith from July 1998 to December
1998. From September 1994 to June 1997, Managing Director of
Archstone-Smith, where he had overall responsibility for
Archstone-Smiths investment strategy and implementation;
Senior Vice President of Archstone-Smith from May 1994 to
September 1994. Mr. Sellers is a member of the Executive
Committee and First Vice Chairman of the Board Governors of
NAREIT; a member of the Executive Committee of the Board of
Directors of the National Multi Housing Council; Director of
Christian International Scholarship Foundation; Director of
Alliance for Choice in Education.

J. Lindsay Freeman 
59 Chief Operating Officer
since September 2002, with responsibility for managing all
investment and operating activities for Archstone-Smith;
President-East Division of Archstone-Smith from October 2001 to
September 2002, with responsibility for all investments and
operations of the East Division; from July 1998 to October 2001,
Managing Director of Archstone-Smith, with responsibility for
investments and operations in the East and Central Regions;
Managing Director of Security Capital Atlantic Incorporated from
December 1997 to July 1998; Senior Vice President of Security
Capital Atlantic Incorporated from May 1994 to November 1997;
previously, Senior Vice President and Operating Partner of
Lincoln Property Company in Atlanta, Georgia, where he was
responsible for acquisitions, financing, construction and
management of apartment communities within the Atlantic region
and oversaw operations of 16,000 apartment units.

Charles E. Mueller, Jr. 
41 Chief Financial Officer
of Archstone-Smith since December 1998, with responsibility for
the planning and execution of the Companys financial
strategy and balance sheet management; Mr. Mueller oversees
the Companys accounting/financial reporting, corporate
finance, investor relations, corporate and property tax, due
diligence and risk management functions. Vice President of
Archstone-Smith from September 1996 to December 1998; prior
thereto, he held various financial positions with Security
Capital, where he provided financial services to Security
Capital and its affiliates.

Alfred G. Neely 
59 Named President of
High-Rise division in February 2005. Chief Development Officer
of Archstone-Smith since April 2003, with responsibility for the
oversight and direction of all Archstone-Smith residential
development projects; Executive Vice President of
Archstone-Smith or Charles E. Smith Residential Realty, Inc.
from April 1989 to April 2003 with responsibility for oversight
and direction of High-Rise residential development projects;
Executive Vice President and Managing General Partner of the New
Height Group from August 1981 to April 1989 with responsibility
for the development and

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management of 2.5 million square feet of
mixed-use property; General Manager of a 1,100-acre mixed-use
business park from October 1973 to April 1981 where he managed
the development of 3.5 million square feet of corporate
user buildings.


Dana K. Hamilton 
36 Executive Vice
President-National Operations for Archstone-Smith since May
2001, with responsibility for corporate services, including
human resources, training and development, marketing and
corporate communications, and new business development; Senior
Vice President of Archstone-Smith from December 1998 to May
2001; Vice President from December 1996 to December 1998, with
responsibility for new product development and revenue
enhancement through portfolio-wide initiatives.

Caroline Brower 
56 General Counsel and
Secretary of Archstone-Smith since September, 1999, with
responsibility for legal and corporate governance; from
September 1998 to September 1999, President of Ameriton
Properties Incorporated; prior thereto, Ms. Brower was a
partner of Mayer, Brown & Platt (now Mayer, Brown,
Rowe & Maw, LLP) where she practiced transaction and
real estate law.

Daniel E. Amedro 
48 Chief Information
Officer and Senior Vice President of Archstone-Smith since
January 1999, with primary responsibility for the Companys
information technology functions and initiatives; Chief
Information Officer and Vice President from May 1998 to January
1999; from September 1996 to March 1998, Vice President of
Information Services for American Medical Response, the largest
private ambulance operation in the United States; prior thereto,
Vice President of Information Services for Hyatt Hotels and
Resorts, where he was responsible for all strategic information
systems including Spirit,Hyatts worldwide
reservation system, which supported over 50,000 users and was
recognized as the leading reservations system in the hospitality
industry.

Mark A. Schumacher 
46 Senior Vice President
and Chief Accounting Officer of Archstone-Smith since January
2002, with principal responsibility for accounting and financial
reporting; prior thereto, Vice President and Corporate
Controller of Qwest Communications International from December
2000 to December 2001 where he had principal responsibility for
accounting and financial reporting; from April 1991 to December
2000, held various senior and executive level positions in the
accounting and financial reporting departments of US West; from
April 1984 to April 1991 he held various managerial level
positions in the accounting and financial reporting department
of US West.




Employees

We currently employ approximately 2,640
individuals, of whom approximately 2,080 are focused on the
site-level operation of our garden communities and high-rise
properties. Of the site-level associates, approximately 125 are
subject to collective bargaining agreements with four unions in
Illinois and New York. The balance are professionals who manage
corporate and regional operations, including our investment
program, property operations, financial activities and other
support functions. We consider our relationship with our
employees to be very good.




Insurance

We carry comprehensive general liability coverage
on our owned communities, with limits of liability customary
within the industry to insure against liability claims and
related defense costs. Similarly, we are insured against the
risk of direct physical damage in amounts necessary to reimburse
the Company on a replacement cost basis for costs incurred to
repair or rebuild each property, including loss of rental income
during the reconstruction period. Our property policies for all
operating and development communities include coverage for the
perils of flood and earthquake shock with limits and deductibles
customary in the industry. We also obtain title insurance
policies when acquiring new properties, which insure fee title
to our real properties. We currently have coverage for losses
incurred in connection with both domestic and foreign
terrorist-related activities. The terms of our property and
general liability policies may exclude certain mold-related
claims or other types of claims based on the specific
circumstances and allegations. Should an uninsured loss arise
against the Company, we would be required to use our own funds
to resolve the issue, including litigation costs.

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Competition

There are numerous commercial developers, real
estate companies and other owners of real estate that we compete
with in seeking land for development, apartment communities for
acquisition and disposition and residents for apartment
communities. All of our apartment communities are located in
developed areas that include other apartment communities. The
number of competitive apartment communities in a particular area
could have a material adverse effect on our ability to lease
units and on the rents charged. In addition, single-family homes
and other residential properties provide housing alternatives to
residents and potential residents of our apartment communities.

Available Information and Code of
Ethics

Our web site is
http://www.archstonesmith.com. We make available free of
charge, on or through our web site, our annual, quarterly and
current reports, as well as any amendments to these reports, as
soon as reasonably practicable after electronically filing these
reports with the Securities and Exchange Commission. The
reference to our web site does not incorporate by reference the
information contained in the web site and such information
should not be considered a part of this report. We have adopted
a code of ethics and business conduct applicable to our Board
and officers and employees, including our principal executive
officer, principal financial officer and principal accounting
officer or controller. A copy of our code of ethics and business
conduct is included as an exhibit to this report and is
available through our web site. In addition, copies of the code
of ethics and business conduct can be obtained, free of charge,
upon written request to Investor Relations, 9200 East Panorama
Circle, Suite 400, Englewood, Colorado 80112. Any
amendments to or waivers of our code of ethics and business
conduct that apply to the principal executive officer, principal
financial officer and principal accounting officer or controller
and that relate to any matter enumerated in
Item 406(b) of Regulation S-K, will be disclosed
on our web site.




Risk Factors

The following factors could affect our future
financial performance:



| |                                                            
| | -----------------------------------------------------------
| | We have restrictions on the sale of certain
    properties.

A sale of any of the properties acquired in the
Smith Merger prior to January 1, 2022, could result in
increased costs to us in light of the tax-related obligations
made to the former Smith Partnership Unitholders. Under the
shareholders agreement between Archstone-Smith, the
Operating Trust, Robert H. Smith and Robert P. Kogod, we are
restricted from transferring specified high-rise properties
located in the Crystal City area of Arlington, Virginia until
October 31, 2016, without the consent of Messrs. Smith
and Kogod, which could result in our inability to sell these
properties at an opportune time and at increased costs to us.
However, we are permitted to transfer these properties in
connection with a sale of all of the properties in a single
transaction or pursuant to a bona fide mortgage of any or all of
such properties in order to secure a loan or other financing.



| |                                    
| | -----------------------------------
| | We depend on our key
    personnel.

Our success depends on our ability to attract and
retain the services of executive officers, senior officers and
company managers. There is substantial competition for qualified
personnel in the real estate industry and the loss of several of
our key personnel could have an adverse effect on us.



| |                                                           
| | ----------------------------------------------------------
| | Debt financing could adversely affect our
    performance.

We are subject to risks associated with debt
financing and preferred equity. These risks include the risks
that we will not have sufficient cash flow from operations to
meet required payments of principal and interest or to pay
distributions on our securities at expected rates, that we will
be unable to refinance current or future indebtedness, that the
terms of any refinancing will not be as favorable as the terms
of existing indebtedness, and that we will be unable to make
necessary investments in new business initiatives due to lack of
available funds. Increases in interest rates could increase
interest expense, which would adversely affect net earnings

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and cash available for payment of obligations. If
we are unable to make required payments on indebtedness that is
secured by a mortgage on our property, the asset may be
transferred to the lender with a consequent loss of income and
value to us.


Additionally, our debt agreements contain
customary covenants which, among other things, restrict our
ability to incur additional indebtedness and, in certain
instances, restrict our ability to engage in material asset
sales, mergers, consolidations and acquisitions. These debt
agreements also require us to maintain various financial ratios.
Failure to comply with these covenants could result in a
requirement to repay the indebtedness prior to its maturity,
which could have an adverse effect on our operations and ability
to make distributions to shareholders.

Some of our debt instruments bear interest at
variable rates. Increases in interest rates would increase our
interest expense under these instruments and would increase the
cost of refinancing these instruments and issuing new debt. As a
result, higher interest rates would adversely affect cash flow
and our ability to service our indebtedness.

We had $4.1 billion in total debt
outstanding as of December 31, 2004, of which
$2.0 billion was secured by real estate assets and
$590.5 million was subject to variable interest rates,
including $19.0 million outstanding on our short-term
credit facilities.



| |                                              
| | ---------------------------------------------
| | We may not have access to equity
    capital.

A prolonged period in which we cannot effectively
access the public equity markets may result in heavier reliance
on alternative financing sources to undertake new investment
activities. These alternative sources of financing may be more
costly than raising funds in the public equity markets.



| |                                              
| | ---------------------------------------------
| | We could be subject to acts of
    terrorism.

Periodically, we receive alerts from government
agencies that apartment communities could be the target of both
domestic and foreign terrorism. Although we currently have
insurance coverage for losses incurred in connection with
terrorist-related activities, losses could exceed our coverage
limits and have a material adverse affect on our operating
results.



| |                                                                  
| | -----------------------------------------------------------------
| | We are subject to risks inherent in
    ownership of real estate.

Real estate cash flows and values are affected by
a number of factors, including changes in the general economic
climate, local, regional or national conditions (such as an
oversupply of communities or a reduction in rental demand in a
specific area), the quality and philosophy of management,
competition from other available properties and the ability to
provide adequate property maintenance and insurance and to
control operating costs. Real estate cash flows and values are
also affected by such factors as government regulations,
including zoning, usage and tax laws, interest rate levels, the
availability of financing, property tax rates, utility expenses,
potential liability under environmental and other laws and
changes in environmental and other laws. Although we seek to
minimize these risks through our market research and property
management capabilities, they cannot be totally eliminated.



| |                                                                 
| | ----------------------------------------------------------------
| | We are subject to risks inherent in real
    estate development.

We have developed or commenced development on a
substantial number of apartment communities and expect to
develop additional apartment communities in the future. Real
estate development involves risks in addition to those involved
in the ownership and operation of established communities,
including the risks that financing, if needed, may not be
available on favorable terms, construction may not be completed
on schedule, contractors may default, estimates of the costs of
developing apartment communities may prove to be inaccurate and
communities may not be leased or rented on profitable terms or
in the time frame anticipated. Timely construction may be
affected by local weather conditions, local moratoria on
construction, local or national strikes and local or national
shortages in materials, building supplies or energy and fuel for
equipment. These risks may cause the development project to fail
to perform as expected.

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| |                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------
| | Real estate investments are relatively
    illiquid and we may not be able to sell properties when
    appropriate.

Equity real estate investments are relatively
illiquid, which may tend to limit our ability to react promptly
to changes in economic or other market conditions. Our ability
to dispose of assets in the future will depend on prevailing
economic and market conditions.



| |                                                             
| | ------------------------------------------------------------
| | Compliance with environmental regulations
    may be costly.

We must comply with certain environmental and
health and safety laws and regulations related to the ownership,
operation, development and acquisition of apartments. Under
those laws and regulations, we may be liable for, among other
things, the costs of removal or remediation of certain hazardous
substances, including asbestos-related liability. Those laws and
regulations often impose liability without regard to fault. As
part of our due diligence procedures, we have conducted
Phase I environmental assessments on each of our
communities prior to acquisition; however, we cannot give any
assurance that those assessments have revealed all potential
liabilities.



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Costs associated with moisture infiltration
    and resulting mold remediation may be costly.

As a general matter, concern about indoor
exposure to mold has been increasing as such exposure has been
alleged to have a variety of adverse effects on health. As a
result, there has been a number of lawsuits in our industry
against owners and managers of apartment communities relating to
moisture infiltration and resulting mold. We have implemented
guidelines and procedures to address moisture infiltration and
resulting mold issues if and when they arise. We believe that
these measures will minimize the potential for any adverse
effect on our residents. The terms of our property and general
liability policies after June 30, 2002, may exclude certain
mold-related claims. Should an uninsured loss arise against the
company, we would be required to use our own funds to resolve
the issue, including litigation costs. We can make no assurance
that liabilities resulting from moisture infiltration and the
presence of or exposure to mold will not have a future material
impact on our financial results.



| |                                                  
| | -------------------------------------------------
| | Changes in laws may result in increased
    cost.

We may not be able to pass on increased costs
resulting from increases in real estate taxes, income taxes or
other governmental requirements, such as the enactment of
regulations relating to internal air quality, directly to our
residents. Substantial increases in rents, as a result of those
increased costs, may affect the ability of a resident to pay
rent, causing increased vacancy.



| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Archstone-Smiths failure to qualify
    as a REIT would have adverse consequences.

We believe that we have qualified for taxation as
a REIT under the Internal Revenue Code and we plan to continue
to meet the requirements for taxation as a REIT. We cannot,
however, guarantee that we will continue to qualify in the
future as a REIT. We cannot give any assurance that new
legislation, regulations, administrative interpretations or
court decisions will not significantly change the requirements
relating to Archstone-Smiths qualification. If we fail to
qualify as a REIT, we would be subject to federal income tax at
regular corporate rates. Also, unless the Internal Revenue
Service granted us relief, we would remain disqualified as a
REIT for four years following the year in which we failed to
qualify. In the event that we failed to qualify as a REIT, we
would be required to pay significant income taxes and would have
less money available for operations and distributions to
shareholders. This would likely have a significant adverse
effect on the value of our securities and our ability to raise
additional capital. In order to maintain our qualification as a
REIT under the Internal Revenue Code, our declaration of trust
limits the ownership of our shares by any person or group of
related persons to 9.8%, unless special approval is granted by
our Board.



| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | The Operating Trust intends to qualify as a
    partnership, but we cannot guarantee that the Operating Trust
    will qualify.

The Operating Trust intends to qualify as a
partnership for federal income tax purposes. However, the
Operating Trust will be treated as an association taxable as a
corporation for federal income tax purposes if it

17



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##### Table of Contents



is deemed to be a publicly traded partnership,
unless at least 90% of its income is qualifying income as
defined in the tax code. Qualifying income for the 90% test
generally includes passive income, such as real property rents,
dividends and interest. The income requirements applicable to
REITs and the definition of qualifying income for purposes of
this 90% test are similar in most respects. We believe that the
Operating Trust will meet this qualifying income test, but
cannot guarantee that it will. If the Operating Trust were to be
taxed as a corporation, it will incur substantial tax
liabilities, Archstone-Smith would fail to qualify as a REIT for
tax purposes and Archstone-Smiths and the Operating
Trusts ability to raise additional capital would be
impaired.




| |                                                                   
| | ------------------------------------------------------------------
| | We are subject to losses that may not be
    covered by insurance.

There are certain types of losses (such as from
war) that may be uninsurable or not economically insurable.
Additionally, many of our communities in California are located
in the general vicinity of active earthquake fault lines and
many of our Southeast Florida assets are in coastal locations
and subject to hurricanes. Although we maintain insurance to
cover most reasonably likely risks, including earthquakes and
hurricanes, if an uninsured loss or a loss in excess of insured
limits occurs, we could lose both our invested capital in, and
anticipated profits from, one or more communities. We may also
be required to continue to repay mortgage indebtedness or other
obligations related to such communities. The terms of our
property and general liability policies after June 30,
2002, may exclude certain mold-related claims. We can make no
assurance that liabilities resulting from moisture infiltration
and the presence of or exposure to mold will not have a future
material impact on our financial results. Should an uninsured
loss arise against the company, we would be required to use our
own funds to resolve the issue, including litigation costs. Any
such loss could materially adversely affect our business,
financial condition and results of operations.



| |                                                               
| | --------------------------------------------------------------
| | We have a concentration of investments in
    certain markets.

At December 31, 2004, approximately 39.4% of
our apartment communities are located in the
Washington, D.C. metropolitan area, based on NOI.
Approximately 18.9% of our apartment communities are located in
Southern California at December 31, 2004, based on NOI.
Southern California is the geographic area comprised of the Los
Angeles County, the Inland Empire, Orange County, San Diego
and Ventura County markets. Additionally, approximately 8.2% of
our apartment communities are located in the San Francisco
Bay area of California at December 31, 2004, based on NOI.
We are, therefore, subject to increased exposure (positive or
negative) to economic and other competitive factors specific to
protected markets within these geographic areas.



| |                                                      
| | -----------------------------------------------------
| | Our business is subject to extensive
    competition.

There are numerous commercial developers, real
estate companies and other owners of real estate that we compete
with in seeking land for development, apartment communities for
acquisition and disposition and residents for apartment
communities. All of our apartment communities are located in
developed areas that include other apartment communities. The
number of competitive apartment communities in a particular area
could have a material adverse effect on our ability to lease
units and on the rents charged. In addition, single-family homes
and other residential properties provide housing alternatives to
residents and potential residents of our apartment communities.

18



---



##### Table of Contents








|        |           
|------- | ----------
|Item 2. | Properties




Geographic Distribution

At December 31, 2004, the geographic
distribution for our eight core markets based on NOI, excluding
properties owned by Ameriton, was as follows:

|                                   |       |  |      |      |  
|---------------------------------- | ----- |  | ---- | ---- | -
|Washington, D.C. Metropolitan Area |       |  | 39.4 | %   
|Southern California                |       |  | 18.9 |     
|San Francisco Bay Area, California |       |  | 8.2  |     
|Chicago, Illinois                  |       |  | 6.1  |     
|New York City Metropolitan Area    |       |  | 4.9  |     
|Boston, Massachusetts              |       |  | 4.7  |     
|Southeast Florida                  |       |  | 4.7  |     
|Seattle, Washington                |       |  | 3.1  |     
|                                   |       |  |      |     
|                                   | Total |  |      | 90.0 | %
|                                   |       |  |      |     

The following table summarizes the geographic
distribution at December 31, 2004, 2003 and 2002 based on
NOI:

|                 |                                    |                        |                   |      |      |       |   |      |      |       |   |      |      |       |  
|---------------- | ---------------------------------- | ---------------------- | ----------------- | ---- | ---- | ----- | - | ---- | ---- | ----- | - | ---- | ---- | ----- | -
|                 |                                    |                       
|                 |                                    | Total Portfolio(1)(2) 
|                 |                                    |                       
|                 |                                    | 2004                   |                   | 2003 |      | 2002 
|                 |                                    |                        |                   |      |      |      
|Core Markets     |                                    |                        |                   |      |      |       |   |      |      |       |   |     
|                 | Washington, D.C. Metropolitan Area |                        |                   | 39.4 | %    |       |   | 40.0 | %    |       |   | 35.1 | %   
|                 | Southern California                |                        |                   | 18.9 |      |       |   | 15.2 |      |       |   | 13.2 |     
|                 | San Francisco Bay Area, California |                        |                   | 8.2  |      |       |   | 9.8  |      |       |   | 9.0  |     
|                 | Chicago, Illinois                  |                        |                   | 6.1  |      |       |   | 7.6  |      |       |   | 8.5  |     
|                 | New York City Metropolitan Area    |                        |                   | 4.9  |      |       |   | 2.5  |      |       |   | 2.2  |     
|                 | Boston, Massachusetts              |                        |                   | 4.7  |      |       |   | 5.0  |      |       |   | 5.2  |     
|                 | Southeast Florida                  |                        |                   | 4.7  |      |       |   | 4.2  |      |       |   | 6.6  |     
|                 | Seattle, Washington                |                        |                   | 3.1  |      |       |   | 3.3  |      |       |   | 3.4  |     
|                 |                                    |                        |                   |      |      |       |   |      |      |       |   |     
|                 |                                    | Total Core Markets     |                   |      | 90.0 | %     |   |      | 87.6 | %     |   |      | 83.2 | %    
|                 |                                    |                        |                   |      |      |       |   |      |      |       |   |     
|Non-Core Markets |                                    |                        |                   |      |      |       |   |      |      |       |   |     
|                 | Atlanta, Georgia                   |                        |                   | 2.3  | %    |       |   | 2.5  | %    |       |   | 3.1  | %   
|                 | Denver, Colorado                   |                        |                   | 1.9  |      |       |   | 2.2  |      |       |   | 2.4  |     
|                 | Houston, Texas                     |                        |                   | 1.5  |      |       |   | 1.4  |      |       |   | 1.0  |     
|                 | Raleigh, North Carolina            |                        |                   | 1.1  |      |       |   | 1.1  |      |       |   | 1.4  |     
|                 | Other                              |                        |                   | 3.2  |      |       |   | 5.2  |      |       |   | 8.9  |     
|                 |                                    |                        |                   |      |      |       |   |      |      |       |   |     
|                 |                                    | Total Non-Core Markets |                   |      | 10.0 | %     |   |      | 12.4 | %     |   |      | 16.8 | %    
|                 |                                    |                        |                   |      |      |       |   |      |      |       |   |     
|                 |                                    |                        | Total All Markets |      |      | 100.0 | % |      |      | 100.0 | % |      |      | 100.0 | %
|                 |                                    |                        |                   |      |      |       |   |      |      |       |   |     



---



|    |                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on NOI for the fourth quarter of each
    calendar year, excluding NOI from communities disposed of during
    the period. See Item 7 under the caption Apartment
    Community Operationsfor a discussion on why we
    believe NOI is a meaningful measure and a reconciliation of NOI
    to Earnings from Operations.
|   
|(2) | Excludes all Ameriton properties.                                                                                                                                                                                                                                                                                                

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##### Table of Contents






Real Estate Portfolio

We are a leading multifamily REIT focused on the
operation, development, redevelopment, acquisition, management
and long-term ownership of apartment communities in protected
markets throughout the United States. The following information
summarizes our wholly owned real estate portfolio as of
December 31, 2004 (dollar amounts in thousands). Additional
information on our real estate portfolio is contained in
Schedule III, Real Estate and Accumulated
Depreciation and in our audited financial statements
contained in this Annual Report:

|                                 |                                    |                                    |                                                   |           |     |            |  |            |        |        |   |           |           |           |  |      |      |      |  
|-------------------------------- | ---------------------------------- | ---------------------------------- | ------------------------------------------------- | --------- | --- | ---------- |  | ---------- | ------ | ------ | - | --------- | --------- | --------- |  | ---- | ---- | ---- | -
|                                 |                                    |                                    |                                                   |           |     | Archstone- |  |           
|                                 |                                    | Number of                          |                                                   | Number of |     | Smith      |  | Percentage
|                                 |                                    | Communities                        |                                                   | Units     |     | Investment |  | Leased(1) 
|                                 |                                    |                                    |                                                   |           |     |            |  |           
|OPERATING APARTMENT COMMUNITIES: |                                    |                                    |                                                   |           |     |            |  |            |        |        |   |           |           |           |  |     
|Garden Communities:              |                                    |                                    |                                                   |           |     |            |  |            |        |        |   |           |           |           |  |     
|                                 | Atlanta, Georgia                   |                                    |                                                   | 8         |     |            |  | 2,459      |        |        | $ | 203,824   |           |           |  | 97.2 | %   
|                                 | Austin, Texas                      |                                    |                                                   | 2         |     |            |  | 714        |        |        |   | 34,698    |           |           |  | 95.5 | %   
|                                 | Boston, Massachusetts              |                                    |                                                   | 5         |     |            |  | 1,204      |        |        |   | 207,428   |           |           |  | 98.1 | %   
|                                 | Chicago, Illinois                  |                                    |                                                   | 4         |     |            |  | 1,313      |        |        |   | 144,975   |           |           |  | 94.8 | %   
|                                 | Dallas, Texas                      |                                    |                                                   | 4         |     |            |  | 930        |        |        |   | 48,537    |           |           |  | 96.8 | %   
|                                 | Denver, Colorado                   |                                    |                                                   | 6         |     |            |  | 1,949      |        |        |   | 167,129   |           |           |  | 95.8 | %   
|                                 | Houston, Texas                     |                                    |                                                   | 2         |     |            |  | 1,408      |        |        |   | 74,894    |           |           |  | 94.8 | %   
|                                 | Inland Empire, California          |                                    |                                                   | 4         |     |            |  | 1,594      |        |        |   | 98,242    |           |           |  | 95.2 | %   
|                                 | Los Angeles County, California     |                                    |                                                   | 14        |     |            |  | 4,162      |        |        |   | 810,623   |           |           |  | 86.9 | %   
|                                 | Orange County, California          |                                    |                                                   | 7         |     |            |  | 1,647      |        |        |   | 181,064   |           |           |  | 97.7 | %   
|                                 | Orlando, Florida                   |                                    |                                                   | 1         |     |            |  | 312        |        |        |   | 21,706    |           |           |  | 98.7 | %   
|                                 | Phoenix, Arizona                   |                                    |                                                   | 2         |     |            |  | 876        |        |        |   | 53,880    |           |           |  | 96.5 | %   
|                                 | Portland, Oregon                   |                                    |                                                   | 1         |     |            |  | 228        |        |        |   | 13,757    |           |           |  | 95.2 | %   
|                                 | Raleigh, North Carolina            |                                    |                                                   | 5         |     |            |  | 1,324      |        |        |   | 97,760    |           |           |  | 97.3 | %   
|                                 | San Diego, California              |                                    |                                                   | 7         |     |            |  | 2,559      |        |        |   | 293,040   |           |           |  | 98.0 | %   
|                                 | San Francisco Bay Area, California |                                    |                                                   | 12        |     |            |  | 4,735      |        |        |   | 637,703   |           |           |  | 95.9 | %   
|                                 | Seattle, Washington                |                                    |                                                   | 7         |     |            |  | 2,808      |        |        |   | 236,583   |           |           |  | 94.9 | %   
|                                 | Southeast Florida                  |                                    |                                                   | 9         |     |            |  | 3,038      |        |        |   | 374,569   |           |           |  | 95.7 | %   
|                                 | Stamford, Connecticut              |                                    |                                                   | 1         |     |            |  | 160        |        |        |   | 36,487    |           |           |  | 97.5 | %   
|                                 | Washington, D.C. Metropolitan Area |                                    |                                                   | 19        |     |            |  | 8,019      |        |        |   | 1,026,128 |           |           |  | 97.7 | %   
|                                 | West Coast Florida                 |                                    |                                                   | 3         |     |            |  | 746        |        |        |   | 44,373    |           |           |  | 97.7 | %   
|                                 | Ventura County, California         |                                    |                                                   | 1         |     |            |  | 400        |        |        |   | 33,175    |           |           |  | 96.3 | %   
|                                 |                                    |                                    |                                                   |           |     |            |  |            |        |        |   |           |           |           |  |     
|                                 |                                    | Garden Community Subtotal/ Average |                                                   |           | 124 |            |  |            | 42,585 |        |   | $         | 4,840,575 |           |  |      | 95.7 | %   
|                                 |                                    |                                    |                                                   |           |     |            |  |            |        |        |   |           |           |           |  |     
|High-Rise Properties:            |                                    |                                    |                                                   |           |     |            |  |            |        |        |   |           |           |           |  |     
|                                 | Boston, Massachusetts              |                                    |                                                   | 3         |     |            |  | 693        |        |        | $ | 178,939   |           |           |  | 98.3 | %   
|                                 | Chicago, Illinois                  |                                    |                                                   | 5         |     |            |  | 3,025      |        |        |   | 516,756   |           |           |  | 93.8 | %   
|                                 | New York City Metropolitan Area    |                                    |                                                   | 3         |     |            |  | 1,062      |        |        |   | 460,182   |           |           |  | 97.6 | %   
|                                 | Southeast Florida                  |                                    |                                                   | 1         |     |            |  | 240        |        |        |   | 27,989    |           |           |  | 93.3 | %   
|                                 | Washington, D.C. Metropolitan Area |                                    |                                                   | 31        |     |            |  | 10,881     |        |        |   | 1,994,217 |           |           |  | 96.1 | %   
|                                 |                                    |                                    |                                                   |           |     |            |  |            |        |        |   |           |           |           |  |     
|                                 |                                    | High-Rise Subtotal/ Average        |                                                   |           | 43  |            |  |            | 15,901 |        |   | $         | 3,178,083 |           |  |      | 95.8 | %   
|                                 |                                    |                                    |                                                   |           |     |            |  |            |        |        |   |           |           |           |  |     
|                                 |                                    |                                    | Operating Apartment Communities Subtotal/ Average |           |     | 167        |  |            |        | 58,486 |   |           | $         | 8,018,658 |  |      |      | 95.7 | %
|                                 |                                    |                                    |                                                   |           |     |            |  |            |        |        |   |           |           |           |  |     

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|                                                    |                                    |                                                                         |                                                                |                                                            |    |            |     |            |       |       |        |         |         |         |           |      |     |     |  | 
|--------------------------------------------------- | ---------------------------------- | ----------------------------------------------------------------------- | -------------------------------------------------------------- | ---------------------------------------------------------- | -- | ---------- | --- | ---------- | ----- | ----- | ------ | ------- | ------- | ------- | --------- | ---- | --- | --- |  | 
|                                                    |                                    |                                                                         |                                                                |                                                            |    | Archstone- |     |           
|                                                    |                                    | Number of                                                               |                                                                | Number of                                                  |    | Smith      |     | Percentage
|                                                    |                                    | Communities                                                             |                                                                | Units                                                      |    | Investment |     | Leased(1) 
|                                                    |                                    |                                                                         |                                                                |                                                            |    |            |     |           
|APARTMENT COMMUNITIES UNDER
    CONSTRUCTION:       |                                    |                                                                         |                                                                |                                                            |    |            |     |            |       |       |        |         |         |         |           |     
|Garden Communities:                                 |                                    |                                                                         |                                                                |                                                            |    |            |     |            |       |       |        |         |         |         |           |     
|                                                    | Boston, Massachusetts              |                                                                         |                                                                | 1                                                          |    |            |     | 134        |       |       | $      | 40,292  |         |         |           | 53.0 | %  
|                                                    | Long Island, New York              |                                                                         |                                                                | 1                                                          |    |            |     | 396        |       |       |        | 58,462  |         |         |           | N/A  |    
|                                                    | Los Angeles County, California     |                                                                         |                                                                | 3                                                          |    |            |     | 1,002      |       |       |        | 143,989 |         |         |           | N/A  |    
|                                                    | San Diego, California              |                                                                         |                                                                | 1                                                          |    |            |     | 451        |       |       |        | 73,206  |         |         |           | 72.1 | %  
|                                                    | Ventura County, California         |                                                                         |                                                                | 1                                                          |    |            |     | 316        |       |       |        | 47,266  |         |         |           | 38.0 | %  
|                                                    |                                    |                                                                         |                                                                |                                                            |    |            |     |            |       |       |        |         |         |         |           |     
|                                                    |                                    | Garden Community Subtotal/ Average                                      |                                                                |                                                            | 7  |            |     |            | 2,299 |       |        | $       | 363,215 |         |           |      | N/A |    
|                                                    |                                    |                                                                         |                                                                |                                                            |    |            |     |            |       |       |        |         |         |         |           |     
|High-Rise Properties:                               |                                    |                                                                         |                                                                |                                                            |    |            |     |            |       |       |        |         |         |         |           |     
|                                                    | Boston, Massachusetts              |                                                                         |                                                                | 1                                                          |    |            |     | 420        |       |       | $      | 56,936  |         |         |           | N/A  |    
|                                                    | Washington, D.C. Metropolitan Area |                                                                         |                                                                | 2                                                          |    |            |     | 518        |       |       |        | 79,088  |         |         |           | N/A  |    
|                                                    |                                    |                                                                         |                                                                |                                                            |    |            |     |            |       |       |        |         |         |         |           |     
|                                                    |                                    | High Rise Property Subtotal/ Average                                    |                                                                |                                                            | 3  |            |     |            | 938   |       |        | $       | 136,024 |         |           |      | N/A |    
|                                                    |                                    |                                                                         |                                                                |                                                            |    |            |     |            |       |       |        |         |         |         |           |     
|                                                    |                                    |                                                                         | Apartment Communities Under Construction
    Subtotal/ Average |                                                            |    | 10         |     |            |       | 3,237 |        |         | $       | 499,239 |           |      |     | N/A | 
|                                                    |                                    |                                                                         |                                                                |                                                            |    |            |     |            |       |       |        |         |         |         |           |     
|APARTMENT COMMUNITIES IN PLANNING AND
    OWNED(2): |                                    |                                                                         |                                                                |                                                            |    |            |     |            |       |       |        |         |         |         |           |     
|Garden Communities:                                 |                                    |                                                                         | 2                                                              |                                                            |    |            | 484 |            |       | $     | 16,701 |         |         |         |           |     
|High-Rise Communities:                              |                                    |                                                                         | 2                                                              |                                                            |    |            | 767 |            |       | $     | 35,121 |         |         |         |           |     
|                                                    |                                    |                                                                         |                                                                |                                                            |    |            |     |            |       |       |        |         |         |         |           |     
|                                                    |                                    | Total Apartment Communities In Planning and Owned
    Subtotal/ Average |                                                                |                                                            | 4  |            |     |            | 1,251 |       |        | $       | 51,822  |         |           |      |     |    
|                                                    |                                    |                                                                         |                                                                |                                                            |    |            |     |            |       |       |        |         |         |         |           |     
|                                                    |                                    |                                                                         |                                                                | Total Apartment Communities Owned at
    December 31, 2004 |    |            | 181 |            |       |       | 62,974 |         |         | $       | 8,569,719 |      |     |     |  | 
|                                                    |                                    |                                                                         |                                                                |                                                            |    |            |     |            |       |       |        |         |         |         |           |     
|OTHER REAL ESTATE ASSETS(3)                         |                                    |                                                                         |                                                                |                                                            |    |            |    |            |       |       | 69,409 |         |         |         |           |     
|                                                    |                                    |                                                                         |                                                                |                                                            |    |            |     |            |       |       |        |         |         |         |           |     
|AMERITON PORTFOLIO:                                 |                                    |                                                                         |                                                                |                                                            |    |            |     |            |       |       |        |         |         |         |           |     
|                                                    |                                    | Operating Apartment Communities                                         |                                                                |                                                            | 10 |            |     |            | 3,189 |       |        |         | 358,431 |         |           |      |     |    
|                                                    |                                    | Apartment Communities Under Construction                                |                                                                |                                                            | 4  |            |     |            | 1,307 |       |        |         | 157,918 |         |           |      |     |    
|                                                    |                                    | Apartment Communities In Planning and Owned and
    Other               |                                                                |                                                            | 6  |            |     |            | 1,702 |       |        |         | 65,561  |         |           |      |     |    
|                                                    |                                    |                                                                         |                                                                |                                                            |    |            |     |            |       |       |        |         |         |         |           |     
|                                                    |                                    |                                                                         |                                                                | Subtotal/ Average                                          |    |            | 20  |            |       |       | 6,198  |         |         |         | 581,910   |      |     |     |  | 
|                                                    |                                    |                                                                         |                                                                |                                                            |    |            |     |            |       |       |        |         |         |         |           |     
|                                                    |                                    |                                                                         |                                                                | Total Real Estate Owned at December 31, 2004               |    |            | 201 |            |       |       | 69,172 |         |         | $       | 9,221,038 |      |     |     |  | 
|                                                    |                                    |                                                                         |                                                                |                                                            |    |            |     |            |       |       |        |         |         |         |           |     



---



|    |                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the percentage leased as of
    December 31, 2004. For communities in Lease-Up, the
    percentage leased is based on leased units divided by total
    number of units in the community (completed and under
    construction) as of December 31, 2004. A N/ A
    indicates markets with communities under construction where
    Lease-Up has not yet commenced.
|   
|(2) | As of December 31, 2004, we had one
    investment representing 713 units classified as In Planning
    and Under Control. Our actual investment in these communities
    was $1.5 million, which is reflected in the Other
    assets caption of our Balance Sheet.                                                                                                          
|   
|(3) | Includes land that is not In Planning and other
    real estate assets.                                                                                                                                                                                                                                                                                                         

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|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

We are subject to the following claims in
connection with moisture infiltration and resulting mold issues
at previously owned high-rise properties in Southeast Florida.

Henriques, et al. v. Archstone-Smith
Operating Trust, et al.,filed on
August 27, 2002 (the Henriques Claim), in the
Circuit Court of the Eleventh Judicial Circuit in and for
Miami-Dade County, Florida, on behalf of a class of residents at
Harbour House. We reached a court-approved settlement with the
plaintiffs in this matter. The case alleged that water
infiltration and resulting mold contamination at the property
was caused by faulty air-conditioning and had resulted in both
personal injuries to the plaintiffs and damage to their
property. Based on the settlement, we have recorded a liability
for estimated legal fees associated with known and anticipated
costs for our counsel and plaintiffs counsel, as well as
estimated settlement costs. We are working though the settlement
process and finalizing the claims for remaining claimants. Not
all plaintiffs accepted the court-approved settlement, and some
of these individuals have filed separate lawsuits or retained
the rights to file lawsuits at a later date. In the case where
separate lawsuits have been filed, we have either reached
settlements or are defending these claims in the normal course
of litigation. During 2004, we sold this property to an
unrelated third party. See Managements Discussion and
Analysis of Financial Conditions and Results of Operations in
this Annual Report for further discussion regarding this accrual.

Santos, et al. v. Archstone-Smith
Operating Trust, et al.,filed on
February 13, 2003, in the Circuit Court of the Eleventh
Judicial Circuit in and for Miami-Dade County, Florida, on
behalf of a class of residents at Harbour House. The plaintiffs
in this case make substantially the same allegations as those
made in the Henriquesclaim and seek both injunctive
relief and unspecified monetary and punitive damages. We have
reached individual settlement agreements with a significant
portion of the represented claimants and are in discussion with
the remaining individuals that are actually represented by
opposing counsel. We recorded a liability for estimated legal
fees associated with known and anticipated costs for our counsel
and plaintiffs counsel, as well as estimated settlement
costs. During 2004, we sold this property to an unrelated third
party. See Managements Discussion and Analysis of
Financial Conditions and Results of Operations in this Annual
Report for further discussion regarding this accrual.

Bercovits et al., v. Archstone-Smith
Operating Trust, et al.(formerly
known as Semidey, et al., v. Archstone-Smith
Operating Trust, et al. and Sullivan, et al., v.
Archstone-Smith Operating Trust, et al.) was filed on
October 27, 2004, in the Circuit Court of the Eleventh
Judicial Circuit in and for Miami-Dade County, Florida, on
behalf of the class of residents at the property. The plaintiffs
in this case made substantially the same allegations as those
made in the Henriquesclaim and are seeking both
injunctive relief and unspecified monetary and punitive damages.
We have reached settlements with the named plaintiffs in the
previous cases; however, opposing counsel amended these
complaints to name new class representatives. We recorded a
liability for estimated legal fees associated with known and
anticipated costs for our counsel and plaintiffs counsel,
as well as estimated settlement costs. We continue to defend the
remaining claims in the normal course of litigation. During
2004, we sold this property to an unrelated third party.

Equal Rights Center, et al. v.
Archstone-Smith Trust, et al.,
was filed on December 20, 2004, in the federal district
court in the State of Maryland by three organizations that
advocate on behalf of disabled individuals. This case alleges
various violations of the Fair Housing Act and the Americans
with Disabilities Act at 112 properties currently or formerly
owned by the Company. The plaintiffs are seeking injunctive
relief, in the form of retrofitting apartments and public
accommodations to comply with the Fair Housing Act and the
Americans with Disabilities Act, unspecified monetary damages
for the diversion of the plaintiffs resources to address
fair housing violations, punitive damages and attorneys
fees. We are in the process of evaluating the claims asserted in
this litigation. Due to the preliminary nature of the
litigation, it is not possible to predict or determine the
outcome of the legal proceeding, nor it is reasonably possible
to estimate the amount of loss, if any, that would be associated
with an adverse decision.

We are party to various other claims and routine
litigation arising in the ordinary course of business. We do not
believe that the results of any such claims and litigation,
individually or in the aggregate, will have a material adverse
effect on our business, financial position or results of
operations.

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|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

None




PART II






|        |                                                                              
|------- | -----------------------------------------------------------------------------
|Item 5. | Market for the Registrants Common
    Equity and Related Stockholder Matters

Our Common Shares are listed on the NYSE under
the symbol ASN. The following table sets forth the
high and low sales prices of our Common Shares, as reported on
the NYSE Composite Tape, and cash distributions per Common Share
for the periods indicated.

|      |                                           |      |   |       |  |               |   |       |  |  |   |        | 
|----- | ----------------------------------------- | ---- | - | ----- |  | ------------- | - | ----- |  |  | - | ------ | 
|      |                                           |      |   |       |  | Cash         
|      |                                           | High |   | Low   |  | Distributions
|      |                                           |      |   |       |  |              
|2003: |                                           |      |   |       |  |               |   |       |  |  |   |       
|      | First Quarter                             |      | $ | 24.42 |  |               | $ | 20.94 |  |  | $ | 0.4275 | 
|      | Second Quarter                            |      |   | 24.90 |  |               |   | 21.73 |  |  |   | 0.4275 | 
|      | Third Quarter                             |      |   | 26.87 |  |               |   | 23.90 |  |  |   | 0.4275 | 
|      | Fourth Quarter                            |      |   | 28.35 |  |               |   | 25.77 |  |  |   | 0.4275 | 
|2004: |                                           |      |   |       |  |               |   |       |  |  |   |       
|      | First Quarter                             |      | $ | 29.65 |  |               | $ | 26.63 |  |  | $ | 0.43   | 
|      | Second Quarter                            |      |   | 30.51 |  |               |   | 26.35 |  |  |   | 0.43   | 
|      | Third Quarter                             |      |   | 32.07 |  |               |   | 28.62 |  |  |   | 0.43   | 
|      | Fourth Quarter                            |      |   | 39.05 |  |               |   | 31.55 |  |  |   | 1.43   | 
|2005: |                                           |      |   |       |  |               |   |       |  |  |   |       
|      | First Quarter (through February 14, 2005) |      | $ | 38.28 |  |               | $ | 33.37 |  |  | $ | 0.4325 | 

As of February 14, 2005, we had
approximately 199,782,000 Common Shares outstanding,
approximately 3,500 record holders of Common Shares and
approximately 28,000 beneficial holders of Common Shares.

To qualify as a REIT, we are required to make
annual shareholder distributions of 90% of our taxable income.
The payment of distributions is also subject to the discretion
of the Board and is dependent upon our strategy, financial
condition and operating results. Our long-term objective is to
increase annual distributions per Common Share while maximizing
the amount of internally generated cash flow from operations to
fund future investment opportunities.

We announce the following years projected
annual distribution level after the Boards annual budget
review and approval, which occurs in December of each year. At
our December 2004 Board meeting, the Board announced an
anticipated increase in the annual distribution level from $1.72
to $1.73 per Common Share. In January 2005 the Board
declared the first quarter 2005 distribution of $0.4325 per
Common Share payable on February 28, 2005, to shareholders
of record on February 14, 2005. This dividend marks our
118th consecutive quarter of dividends declared and paid. All
future Common Share distributions are subject to approval by our
Board of Trustees.

We are restricted from declaring or paying any
distribution with respect to our Common Shares unless cumulative
distributions on all Preferred Shares have been paid and
sufficient funds have been set aside for Preferred Share
distributions that have been declared and not paid. All of our
declared distributions have been paid on schedule.

For federal income tax purposes, distributions
may consist of ordinary income, capital gains, non-taxable
return of capital or a combination thereof. Distributions that
exceed our current and accumulated earnings and profits
constitute a return of capital rather than ordinary income and
reduce the shareholders basis in the Common Shares. To the
extent that a distribution exceeds both current and accumulated
earnings and profits and the shareholders basis in the
Common Shares, it will generally be treated as a gain from the
sale or exchange of that shareholders Common Shares. We
notify our shareholders annually of the taxability of

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distributions paid during the preceding year. The
following table summarizes the taxability of cash distributions
paid on the Common Shares in 2004, 2003 and 2002:


|                     |                 |       |   |      |      |      |   |      |      |  |   |      |      | 
|-------------------- | --------------- | ----- | - | ---- | ---- | ---- | - | ---- | ---- |  | - | ---- | ---- | 
|                     |                 | 2004  |   | 2003 |      | 2002
|                     |                 |       |   |      |      |     
|Per Common Share(1): |                 |       |   |      |      |      |   |      |      |  |   |     
|                     | Ordinary income |       | $ | 1.24 |      |      | $ | 0.77 |      |  | $ | 1.33 |     
|                     | Capital gains   |       |   | 1.48 |      |      |   | 0.94 |      |  |   | 0.37 |     
|                     |                 |       |   |      |      |      |   |      |      |  |   |     
|                     |                 | Total |   | $    | 2.72 |      |   | $    | 1.71 |  |   | $    | 1.70 | 
|                     |                 |       |   |      |      |      |   |      |      |  |   |     

For federal income tax purposes, the following
summaries reflect the taxability of dividends paid on our
Preferred Shares:

|                                             |                 |       |   |      |   |      |   |      |      |  |   |      |      | 
|-------------------------------------------- | --------------- | ----- | - | ---- | - | ---- | - | ---- | ---- |  | - | ---- | ---- | 
|                                             |                 | 2004  |   | 2003 |   | 2002
|                                             |                 |       |   |      |   |     
|Per Series A Convertible Preferred Share(2): |                 |       |   |      |   |      |   |      |      |  |   |     
|                                             | Ordinary income |       | $ |     |   |      | $ | 0.95 |      |  | $ | 1.79 |     
|                                             | Capital gains   |       |   |     |   |      |   | 1.16 |      |  |   | 0.50 |     
|                                             |                 |       |   |      |   |      |   |      |      |  |   |     
|                                             |                 | Total |   | $    |  |      |   | $    | 2.11 |  |   | $    | 2.29 | 
|                                             |                 |       |   |      |   |      |   |      |      |  |   |     

|                                 |                 |       |   |      |   |      |   |   |   |  |   |      |      | 
|-------------------------------- | --------------- | ----- | - | ---- | - | ---- | - | - | - |  | - | ---- | ---- | 
|                                 |                 | 2004  |   | 2003 |   | 2002
|                                 |                 |       |   |      |   |     
|Per Series C Preferred Share(3): |                 |       |   |      |   |      |   |   |   |  |   |     
|                                 | Ordinary income |       | $ |     |   |      | $ |  |   |  | $ | 1.08 |     
|                                 | Capital gains   |       |   |     |   |      |   |  |   |  |   | 0.30 |     
|                                 |                 |       |   |      |   |      |   |   |   |  |   |     
|                                 |                 | Total |   | $    |  |      |   | $ |  |  |   | $    | 1.38 | 
|                                 |                 |       |   |      |   |      |   |   |   |  |   |     

|                                 |                 |       |   |      |      |      |   |      |      |  |   |      |      | 
|-------------------------------- | --------------- | ----- | - | ---- | ---- | ---- | - | ---- | ---- |  | - | ---- | ---- | 
|                                 |                 | 2004  |   | 2003 |      | 2002
|                                 |                 |       |   |      |      |     
|Per Series D Preferred Share(4): |                 |       |   |      |      |      |   |      |      |  |   |     
|                                 | Ordinary income |       | $ | 0.60 |      |      | $ | 0.99 |      |  | $ | 1.71 |     
|                                 | Capital gains   |       |   | 0.71 |      |      |   | 1.20 |      |  |   | 0.48 |     
|                                 |                 |       |   |      |      |      |   |      |      |  |   |     
|                                 |                 | Total |   | $    | 1.31 |      |   | $    | 2.19 |  |   | $    | 2.19 | 
|                                 |                 |       |   |      |      |      |   |      |      |  |   |     

|                                       |                 |       |   |      |      |      |   |      |      |  |   |      |      | 
|-------------------------------------- | --------------- | ----- | - | ---- | ---- | ---- | - | ---- | ---- |  | - | ---- | ---- | 
|                                       |                 | 2004  |   | 2003 |      | 2002
|                                       |                 |       |   |      |      |     
|Per Series H, K, L Preferred Share(5): |                 |       |   |      |      |      |   |      |      |  |   |     
|                                       | Ordinary income |       | $ | 1.55 |      |      | $ | 1.52 |      |  | $ | 2.62 |     
|                                       | Capital gains   |       |   | 1.85 |      |      |   | 1.86 |      |  |   | 0.74 |     
|                                       |                 |       |   |      |      |      |   |      |      |  |   |     
|                                       |                 | Total |   | $    | 3.40 |      |   | $    | 3.38 |  |   | $    | 3.36 | 
|                                       |                 |       |   |      |      |      |   |      |      |  |   |     

|                                 |                 |       |   |          |          |      |   |          |          |  |   |          |          | 
|-------------------------------- | --------------- | ----- | - | -------- | -------- | ---- | - | -------- | -------- |  | - | -------- | -------- | 
|                                 |                 | 2004  |   | 2003     |          | 2002
|                                 |                 |       |   |          |          |     
|Per Series I Preferred Share(6): |                 |       |   |          |          |      |   |          |          |  |   |         
|                                 | Ordinary income |       | $ | 3,501.00 |          |      | $ | 3,447.00 |          |  | $ | 5,982.46 |         
|                                 | Capital gains   |       |   | 4,159.00 |          |      |   | 4,213.00 |          |  |   | 1,677.54 |         
|                                 |                 |       |   |          |          |      |   |          |          |  |   |         
|                                 |                 | Total |   | $        | 7,660.00 |      |   | $        | 7,660.00 |  |   | $        | 7,660.00 | 
|                                 |                 |       |   |          |          |      |   |          |          |  |   |         

24



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##### Table of Contents



|                                 |                 |       |   |      |   |      |   |   |   |  |   |      |      | 
|-------------------------------- | --------------- | ----- | - | ---- | - | ---- | - | - | - |  | - | ---- | ---- | 
|                                 |                 | 2004  |   | 2003 |   | 2002
|                                 |                 |       |   |      |   |     
|Per Series J Preferred Share(7): |                 |       |   |      |   |      |   |   |   |  |   |     
|                                 | Ordinary income |       | $ |     |   |      | $ |  |   |  | $ | 1.34 |     
|                                 | Capital gains   |       |   |     |   |      |   |  |   |  |   | 0.37 |     
|                                 |                 |       |   |      |   |      |   |   |   |  |   |     
|                                 |                 | Total |   | $    |  |      |   | $ |  |  |   | $    | 1.71 | 
|                                 |                 |       |   |      |   |      |   |   |   |  |   |     



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes a $1.00 per share special dividend
    paid to our shareholders of record on December 23, 2004.                                                                                                                                                                                                                                                                                                    
|   
|(2) | The Series A Preferred Shares were redeemed
    during October 2003.                                                                                                                                                                                                                                                                                                                                        
|   
|(3) | The Series C Preferred Shares were redeemed
    in full plus accrued dividends during August 2002.                                                                                                                                                                                                                                                                                                          
|   
|(4) | The Series D Preferred Shares were redeemed
    in full plus accrued dividends during August 2004.                                                                                                                                                                                                                                                                                                          
|   
|(5) | The Series H, K and L Preferred Shares were
    converted into Common Shares during May 2003, September 2004 and
    December 2004, respectively. The dividend paid on the
    Series H, K and L Preferred Shares prior to conversion was
    $1.27 per share, $2.55 per share and $3.40 per
    share, respectively. The taxability of which is proportionate to
    the amounts listed in the table above.
|   
|(6) | The Series I Preferred Shares have a par
    value of $100,000 per share.                                                                                                                                                                                                                                                                                                                                   
|   
|(7) | The Series J Preferred Shares were converted
    into Common Shares during July 2002.                                                                                                                                                                                                                                                                                                                       

Our tax return for the year ended
December 31, 2004 has not been filed, and the taxability
information for 2004 is based upon the best available data we
have. Our tax returns for prior years have not been examined by
the Internal Revenue Service and, therefore, the taxability of
the dividends may be subject to change.

In 2004 and 2003 we issued 374,921 and 1,955,908
A-1 Common Units of the Operating Trust as partial consideration
for real estate, respectively. All units were issued in
transactions exempt from registration under Section 4(2) of
the Securities Act of 1933 and the rules thereunder.

The following table summarizes repurchases of our
Common Shares (amounts in thousands):

|                   |  |           |       |               |  |                  |       |                |  |  |       |  |  |   |         |    
|------------------ |  | --------- | ----- | ------------- |  | ---------------- | ----- | -------------- |  |  | ----- |  |  | - | ------- | ---
|                   |  |           |       |               |  |                  |       | Maximum       
|                   |  |           |       |               |  | Total Number     |       | Approximate   
|                   |  |           |       |               |  | of Shares        |       | Dollar Value  
|                   |  | Number of |       | Average Price |  | Purchased as     |       | That May Yet  
|                   |  | Shares    |       | Paid per      |  | Part of Publicly |       | Be Purchased  
|Period             |  | Purchased |       | Share(1)      |  | Announced Plan   |       | Under the Plan
|                   |  |           |       |               |  |                  |       |               
|1/1/04  1/31/04   |  |           |      |               |  |                  |      |                |  |  |      |  |  | $ | 86,837  |    
|2/1/04  2/29/04   |  |           | 1,163 |               |  | $                | 27.44 |                |  |  | 1,163 |  |  |   | 54,951  |    
|3/1/04  3/31/04   |  |           |      |               |  |                  |      |                |  |  |      |  |  |   | 54,951  |    
|4/1/04  4/30/04   |  |           |      |               |  |                  |      |                |  |  |      |  |  |   | 254,951 | (2)
|5/1/04  5/31/04   |  |           | 1,940 |               |  |                  | 27.13 |                |  |  | 1,940 |  |  |   | 202,452 |    
|6/1/04  6/30/04   |  |           |      |               |  |                  |      |                |  |  |      |  |  |   | 202,452 |    
|7/1/04  7/31/04   |  |           |      |               |  |                  |      |                |  |  |      |  |  |   | 202,452 |    
|8/1/04  8/31/04   |  |           | 112   |               |  |                  | 29.55 |                |  |  | 112   |  |  |   | 199,141 |    
|9/1/04  9/30/04   |  |           | 21    |               |  |                  | 31.31 |                |  |  | 21    |  |  |   | 198,497 |    
|10/1/04  10/31/04 |  |           |      |               |  |                  |      |                |  |  |      |  |  |   | 198,497 |    
|11/1/04  11/30/04 |  |           | 281   |               |  |                  | 35.16 |                |  |  | 281   |  |  |   | 188,633 |    
|12/1/04  12/31/04 |  |           |      |               |  |                  |      |                |  |  |      |  |  |   | 188,633 |    
|                   |  |           |       |               |  |                  |       |                |  |  |       |  |  |   |         |    
|Total              |  |           | 3,517 |               |  |                  |       |                |  |  | 3,517 |  |  |   |         |    
|                   |  |           |       |               |  |                  |       |                |  |  |       |  |  |   |         |    



---



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|(1) | Price includes amounts paid for commissions.                                                          
|   
|(2) | On April 22, 2004, the Board increased the
    total authorized for share repurchases to $255 million.

25



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##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following table provides selected financial
data relating to our historical financial condition and results
of operations as of and for each of the years ending
December 31, 2000 to 2004. This data is qualified in its
entirety by, and should be read in conjunction with,
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations and the
financial statements and related notes that have been included
or incorporated by reference in this Annual Report. Prior years
amounts have been restated for amounts classified within
discontinued operations. (in thousands, except per share data):

|                                                                        |                                           |                          |         |          |  |      |         |          |  |      |         |          |  |   |         |         |  |   |         |         | 
|----------------------------------------------------------------------- | ----------------------------------------- | ------------------------ | ------- | -------- |  | ---- | ------- | -------- |  | ---- | ------- | -------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                                                        |                                           |                         
|                                                                        |                                           | Years Ended December 31,
|                                                                        |                                           |                         
|                                                                        |                                           | 2004                     |         | 2003     |  | 2002 |         | 2001     |  | 2000
|                                                                        |                                           |                          |         |          |  |      |         |          |  |     
|Operations Summary(1)(2):                                               |                                           |                          |         |          |  |      |         |          |  |      |         |          |  |   |         |         |  |   |         |        
|Total revenues(3)                                                       |                                           | $                        | 873,329 |          |  | $    | 783,672 |          |  | $    | 754,339 |          |  | $ | 426,530 |         |  | $ | 465,476 |        
|Property operating expenses (rental expenses and
    real estate taxes) |                                           |                          | 301,649 |          |  |      | 257,429 |          |  |      | 255,542 |          |  |   | 119,968 |         |  |   | 134,569 |        
|Net Operating Income(4)                                                 |                                           |                          | 552,472 |          |  |      | 506,909 |          |  |      | 489,335 |          |  |   | 294,657 |         |  |   | 299,949 |        
|Depreciation on real estate investments                                 |                                           |                          | 203,183 |          |  |      | 162,723 |          |  |      | 148,588 |          |  |   | 83,961  |         |  |   | 99,620  |        
|Interest expense                                                        |                                           |                          | 175,249 |          |  |      | 160,871 |          |  |      | 149,538 |          |  |   | 63,409  |         |  |   | 90,860  |        
|General and administrative expense                                      |                                           |                          | 55,479  |          |  |      | 49,838  |          |  |      | 45,710  |          |  |   | 27,434  |         |  |   | 24,303  |        
|Earnings from operations                                                |                                           |                          | 131,797 |          |  |      | 116,932 |          |  |      | 137,947 |          |  |   | 100,078 |         |  |   | 101,887 |        
|Gains on dispositions of depreciated real estate,
    net(5)            |                                           |                          |        |          |  |      |        |          |  |      | 35,950  |          |  |   | 108,748 |         |  |   | 101,251 |        
|Income from unconsolidated entities                                     |                                           |                          | 17,902  |          |  |      | 5,745   |          |  |      | 53,602  |          |  |   | 10,998  |         |  |   | (449    | )      
|Net earnings from discontinued operations(6)                            |                                           |                          | 387,024 |          |  |      | 327,556 |          |  |      | 117,851 |          |  |   | 51,879  |         |  |   | 66,163  |        
|Preferred Share dividends                                               |                                           |                          | 10,892  |          |  |      | 20,997  |          |  |      | 32,185  |          |  |   | 25,877  |         |  |   | 25,340  |        
|Net earnings attributable to Common Shares:                             |                                           |                          |         |          |  |      |         |          |  |      |         |          |  |   |         |         |  |   |         |        
|                                                                        |  Basic                                   |                          |         | 531,450  |  |      |         | 412,660  |  |      |         | 282,630  |  |   |         | 232,115 |  |   |         | 236,045 | 
|                                                                        |  Diluted                                 |                          |         | 535,714  |  |      |         | 426,192  |  |      |         | 282,830  |  |   |         | 243,401 |  |   |         | 244,625 | 
|Common Share dividends                                                  |                                           |                          | 539,116 |          |  |      | 322,555 |          |  |      | 303,083 |          |  |   | 221,196 |         |  |   | 201,257 |        
|Per Share Data:                                                         |                                           |                          |         |          |  |      |         |          |  |      |         |          |  |   |         |         |  |   |         |        
|Net earnings attributable to Common Shares:                             |                                           |                          |         |          |  |      |         |          |  |      |         |          |  |   |         |         |  |   |         |        
|                                                                        |  Basic                                   |                          | $       | 2.71     |  |      | $       | 2.20     |  |      | $       | 1.59     |  |   | $       | 1.78    |  |   | $       | 1.79    | 
|                                                                        |  Diluted                                 |                          |         | 2.69     |  |      |         | 2.18     |  |      |         | 1.58     |  |   |         | 1.77    |  |   |         | 1.78    | 
|Common Share cash dividends paid(7)                                     |                                           |                          | 2.72    |          |  |      | 1.71    |          |  |      | 1.70    |          |  |   | 1.64    |         |  |   | 1.54    |        
|Cash dividends paid per share:                                          |                                           |                          |         |          |  |      |         |          |  |      |         |          |  |   |         |         |  |   |         |        
|                                                                        | Series A Preferred Share(8)               |                          |         |         |  |      |         | 2.11     |  |      |         | 2.29     |  |   |         | 2.21    |  |   |         | 2.07    | 
|                                                                        | Series B Preferred Share(9)               |                          |         |         |  |      |         |         |  |      |         |         |  |   |         | 0.79    |  |   |         | 2.25    | 
|                                                                        | Series C Preferred Share(10)              |                          |         |         |  |      |         |         |  |      |         | 1.38     |  |   |         | 2.16    |  |   |         | 2.16    | 
|                                                                        | Series D Preferred Share(11)              |                          |         | 1.31     |  |      |         | 2.19     |  |      |         | 2.19     |  |   |         | 2.19    |  |   |         | 2.19    | 
|                                                                        | Series H, J, K and L Preferred Shares(12) |                          |         |         |  |      |         | 3.38     |  |      |         | 3.36     |  |   |         |        |  |   |         |        | 
|                                                                        | Series I Preferred Share(12)(13)          |                          |         | 7,660.00 |  |      |         | 7,660.00 |  |      |         | 7,660.00 |  |   |         |        |  |   |         |        | 
|Weighted average Common Shares outstanding:                             |                                           |                          |         |          |  |      |         |          |  |      |         |          |  |   |         |         |  |   |         |        
|                                                                        |  Basic                                   |                          |         | 196,098  |  |      |         | 187,170  |  |      |         | 177,757  |  |   |         | 130,331 |  |   |         | 131,874 | 
|                                                                        |  Diluted                                 |                          |         | 199,233  |  |      |         | 195,640  |  |      |         | 178,780  |  |   |         | 137,832 |  |   |         | 137,730 | 



---



| |     |                                                                                              
| | --- | ---------------------------------------------------------------------------------------------
| | (1) | Includes Ameriton for all years presented.                                                   
|
| | (2) | Net earnings from discontinued operations have
    been reclassified for all years presented.

26



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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (3) | Annual revenues inclusive of discontinued
    operations for 2004, 2003, 2002, 2001 and 2000 were
    $987 million, $1.0 billion, $1.0 billion,
    $737 million and $732 million, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | (4) | Defined as rental revenues less rental expenses
    and real estate taxes. We believe that net earnings attributable
    to Common Shares and NOI are the most relevant measures of our
    operating performance and allow investors to evaluate our
    business against our industry peers and against all publicly
    traded companies as a whole. We rely on NOI for purposes of
    making decisions about resource allocations and assessing
    segment performance. We also believe NOI is a valuable means of
    comparing period-to-period property performance. See Item 7
    of this Annual Report under the caption Apartment
    Community Operationsfor a reconciliation of NOI to
    Earnings from Operations.
|
| | (5) | Gains on the disposition of real estate
    investments classified as held for sale after January 1,
    2002 are included in discontinued operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | (6) | Represents property-specific components of net
    earnings and gains/losses on the disposition of real estate
    classified as held for sale subsequent to January 1, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | (7) | Includes a $1.00 per share special dividend
    issued to our Common Shareholders and Unitholders in December
    2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (8) | The Series A Preferred Shares were called
    for redemption during October 2003; of the 2.9 million
    Preferred Shares outstanding, 2.8 million were converted to
    Common Shares and the remaining were redeemed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (9) | All of the outstanding Series B Preferred
    Shares were redeemed on May 2001. During 2001, cash dividends of
    $0.79 per share were paid for the period prior to the
    redemption.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | All of the outstanding Series C Preferred
    Shares were redeemed at liquidation value plus accrued dividends
    in August 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|(11) | All of the outstanding Series D Preferred
    Shares were redeemed at liquidation value plus accrued dividends
    in August 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|(12) | The Series L Preferred Shares were converted
    into Common Shares during December 2004 and the dividend paid
    during 2004 prior to conversion was $3.40 per share. In
    September 2004, the Series K Preferred Shares were
    converted into Common Shares and the dividend paid during 2004
    prior to conversion was $2.55 per share. The Series H
    Preferred Shares were converted into Common Shares during May
    2003 and the dividend paid during 2003 prior to conversion was
    $1.27 per share. In July 2002, Series J Preferred
    Shares were converted into Common Shares. During the fourth
    quarter 2001, we paid approximately $5.8 million of
    dividends on the Series H, I, J, K and L Preferred
    Shares that were declared by Smith Residential prior to the
    Smith Merger.
|    
|(13) | Series I Preferred Shares have a par value
    of $100,000 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                                                           |  |                          |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |           | 
|---------------------------------------------------------- |  | ------------------------ | --------- | ---- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- |  |  | - | --------- | 
|                                                           |  |                         
|                                                           |  | Years Ended December 31,
|                                                           |  |                         
|                                                           |  | 2004                     |           | 2003 |  | 2002 |           | 2001 |  | 2000
|                                                           |  |                          |           |      |  |      |           |      |  |     
|Financial Position:                                        |  |                          |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |           | 
|Real estate owned, at cost                                 |  | $                        | 8,958,195 |      |  | $    | 8,783,349 |      |  | $    | 9,132,183 |  |  | $ | 8,565,787 |  |  | $ | 5,267,554 | 
|Real estate held for sale(1)                               |  |                          | 262,843   |      |  |      | 215,831   |      |  |      | 165,552   |  |  |   | 46,426    |  |  |   | 46,046    | 
|Investments in and advances to unconsolidated
    entities |  |                          | 111,481   |      |  |      | 86,367    |      |  |      | 116,594   |  |  |   | 240,719   |  |  |   | 64,993    | 
|Total assets                                               |  |                          | 9,066,044 |      |  |      | 8,921,695 |      |  |      | 9,096,026 |  |  |   | 8,700,722 |  |  |   | 5,117,459 | 
|Unsecured credit facilities                                |  |                          | 19,000    |      |  |      | 103,790   |      |  |      | 365,578   |  |  |   | 188,589   |  |  |   | 193,719   | 
|Long-Term Unsecured Debt                                   |  |                          | 2,099,132 |      |  |      | 1,871,965 |      |  |      | 1,776,103 |  |  |   | 1,333,890 |  |  |   | 1,401,262 | 
|Total liabilities                                          |  |                          | 4,474,768 |      |  |      | 4,184,592 |      |  |      | 4,704,299 |  |  |   | 4,305,117 |  |  |   | 2,767,774 | 
|Preferred Shares                                           |  |                          | 50,000    |      |  |      | 148,940   |      |  |      | 294,041   |  |  |   | 374,114   |  |  |   | 286,856   | 
|Total shareholders equity                                 |  |                          | 4,093,178 |      |  |      | 4,144,687 |      |  |      | 3,843,818 |  |  |   | 3,801,144 |  |  |   | 2,251,606 | 
|Number of Common Shares outstanding                        |  |                          | 199,577   |      |  |      | 194,762   |      |  |      | 180,706   |  |  |   | 174,517   |  |  |   | 122,838   | 

27



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|                                      |                      |                          |   |          |   |      |   |          |   |      |   |          |   |  |   |          |   |  |   |          |  
|------------------------------------- | -------------------- | ------------------------ | - | -------- | - | ---- | - | -------- | - | ---- | - | -------- | - |  | - | -------- | - |  | - | -------- | -
|                                      |                      |                         
|                                      |                      | Years Ended December 31,
|                                      |                      |                         
|                                      |                      | 2004                     |   | 2003     |   | 2002 |   | 2001     |   | 2000
|                                      |                      |                          |   |          |   |      |   |          |   |     
|Other Data:                           |                      |                          |   |          |   |      |   |          |   |      |   |          |   |  |   |          |   |  |   |         
|Net cash flows provided by (used in): |                      |                          |   |          |   |      |   |          |   |      |   |          |   |  |   |          |   |  |   |         
|                                      | Operating activities |                          | $ | 369,772  |   |      | $ | 343,696  |   |      | $ | 385,107  |   |  | $ | 332,153  |   |  | $ | 322,077  |  
|                                      | Investing activities |                          |   | 552,388  |   |      |   | 428,166  |   |      |   | (137,401 | ) |  |   | 387,694  |   |  |   | 71,789   |  
|                                      | Financing activities |                          |   | (724,135 | ) |      |   | (779,478 | ) |      |   | (241,887 | ) |  |   | (721,897 | ) |  |   | (394,861 | )



---



|    |                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------
|(1) | Previous years have been restated to include
    assets that were sold or classified as held for sale as of
    December 31, 2004.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations



| |            
| | -----------
| | The Company

Archstone-Smith is a public equity REIT that is
engaged primarily in the operation, development, redevelopment,
acquisition, management and long-term ownership of apartment
communities throughout the United States. The company is
structured as an UPREIT, with all property ownership and
business operations conducted through the Operating Trust and
its subsidiaries and affiliates. We are the sole trustee and own
89.1% of the Operating Trusts common units as of
December 31, 2004.




Results of Operations



| |                  
| | -----------------
| | Executive Summary

We produced diluted net earnings per share of
$2.69 for the year ended December 31, 2004, a 23.4%
increase compared with the $2.18 per share reported for
2003. Our total shareholder return of 48.8% in 2004 exceeded the
NAREIT Apartment Index and S&P 500 Index equivalent returns
by 1,407 and 3,791 basis points, respectively. We also
closed out 2004 on a high note with the announcement that
Archstone-Smith was being added to the S&P 500 Index in
December.

Our Same-Store revenues were up 0.2% for the full
year in 2004. The increase in Same-Store revenues represents the
first time annual Same-Store revenue growth has been positive
since 2001. The Washington D.C. metropolitan area, Southern
California and Southeast Florida, which collectively represent
63% of the companys portfolio, produced annual Same-Store
revenue growth of 1.9%, 3.0% and 2.4%, respectively. Our most
challenging core-markets during 2004 were the San Francisco
Bay Area and Chicago, which produced negative revenue growth of
3.6% and 3.3%, respectively. Our Same-Store expenses increased
3.7% and NOI declined 1.6% for the full year in 2004.

The REIT completed $1.4 billion of non-core
asset sales in 2004, including dispositions totaling
$616.5 million in the fourth quarter. The 2004 dispositions
produced GAAP gains of $372.2 million and an unleveraged
internal rate of return of 13.8%. As a result of the significant
gains generated by these asset sales, we paid a $1.00 per
share special dividend to shareholders in December 2004.
Additionally, Ameriton completed the sale of $360 million
of assets producing pre-tax gains of $65.1 million. The
REIT acquired $866.2 million of apartment communities in
2004 excluding Ameriton, representing 3,753 units, in
markets that include the New York metropolitan area, Los Angeles
County, Southeast Florida and the Washington, D.C.
metropolitan area. These acquisitions were funded principally
with tax-deferred exchange proceeds from asset dispositions.

The REIT currently has $952.5 million in
operating and joint venture properties under construction in
markets that include Southern California and the
Washington, D.C. metropolitan area, as well as
$487.2 million of developments in planning. In addition,
Ameriton has $194.8 million of development under
construction and $205.6 million in planning. We expect our
substantial development pipeline to contribute significantly to
our earnings growth rate over the next five years as these
projects are completed and stabilized.

28



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##### Table of Contents





| |         
| | --------
| | Overview

In conjunction with our capital recycling
strategy, rental revenues and rental expenses, including real
estate taxes, will fluctuate based upon the timing and volume of
dispositions, acquisitions and development lease-ups.
Accordingly, our results are not only driven by the performance
of our operating portfolio, but also by gains/losses from the
disposition of real estate, the corresponding loss of ongoing
income from assets sold, and increased income generated from
acquisitions and new developments. These factors all contribute
to the overall financial performance of the company.

Basic net earnings attributable to Common Shares
increased $118.8 million, or 28.8%, in 2004 as compared to
2003. This increase is primarily attributable to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Increased revenues partially offset by a
    corresponding increase in operating expenses associated with
    $1.1 billion and $508.9 million in asset acquisitions,
    inclusive of Ameriton, that occurred during 2004 and 2003,
    respectively;                                                                                                                                                                                                                                                      
|
| |  | Increased income from the continued lease-up of
    new development projects;                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | A $92.8 million increase in gains from the
    sale of operating communities, which includes gains from the
    sale of assets by Ameriton;                                                                                                                                                                                                                                                                                                                                                                
|
| |  | A $29.9 million decrease in other expenses
    primarily due to lower moisture infiltration and resulting
    mold-related expenses recognized during 2004;                                                                                                                                                                                                                                                                                                                                                
|
| |  | Non-operating income of $28.2 million, from
    the sale and settlement of forward contracts on marketable
    equity securities resulting in a gain of $24.9 million, and
    the disposition of our property management business, resulting
    in a $3.3 million gain, during 2004;                                                                                                                                                                                                                     
|
| |  | A $12.2 million increase in income from
    unconsolidated entities, primarily related to the recognition of
    $3.2 million of contingent proceeds associated with the
    expiration of certain indemnifications from the sale of CES,
    which was sold in 2002, and $13.9 million of gains from the
    sale of joint venture operating assets during 2004 compared to
    $7.4 million of gains in 2003; and,                                                                                       
|
| |  | A $10.1 million reduction in Preferred Share
    dividends due to the conversion of Series A and H Preferred
    Shares during 2003, the redemption of Series D Preferred
    Shares in August 2004, the conversion of Series K Preferred
    Shares in September 2004 and the early conversion of
    Series L Preferred Shares in December 2004. These
    conversions and the redemption also eliminated the impact of the
    related Preferred Share dividends on our fixed charge coverage
    ratio.

These increases were partially offset by:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A 3.7% increase in Same-Store expenses during
    2004 as compared to 2003 primarily due to increases in personnel
    costs and real estate taxes at both our garden and high-rise
    properties (our Same-Store population excludes Ameriton
    properties, as they are acquired or developed to achieve
    short-term opportunistic gains, and therefore, the average
    holding period is typically much shorter than the holding period
    of assets operated by the REIT);
|
| |  | The loss of rental revenues and a corresponding
    decrease in rental expenses due to $1.8 billion and
    $1.6 billion in dispositions, including Ameriton, during
    2004 and 2003, respectively; and,                                                                                                                                                                                                                                                                           
|
| |  | A $4.7 million charge, net of anticipated
    insurance recoveries, associated with damage from hurricanes in
    Florida.                                                                                                                                                                                                                                                                                                                                                           

Basic net earnings attributable to Common Shares
increased approximately $130.0 million, or 46.0%, in 2003
as compared to 2002. This increase is largely attributable to:



| |   |                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Higher gains in 2003 of $353.6 million as
    compared to $139.6 million during 2002, associated with an
    increase in the dispositions of depreciated real estate assets;                       
|
| |  | Lower interest expense associated with lower debt
    extinguishment costs and lower debt balances during 2003 and a
    reduction in interest rates on floating rate debt and refinanced
    debt;

29



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| |   |                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A reduction in Preferred Share dividends during
    2003 due to the conversion of Series A and Series H
    Preferred Shares into Common Shares in 2003 and the conversion
    of Series J Preferred Shares into Common Shares and the
    redemption of Series A Preferred Shares during
    2002; and
|
| |  | Increased rental revenue and corresponding
    increase in rental expense due to the acquisition of operating
    communities and the continued lease-up and stabilization of
    development communities.                                                                                             

These increases were partially offset by:



| |   |                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A decline in rental revenue from our Same-Store
    portfolio of 1.4% for the twelve months ended December 31,
    2003 as compared to the same period in 2002, primarily due to a
    decline in potential effective rent per unit and a decrease in
    average occupancy;
|
| |  | The loss of rental revenue and a corresponding
    decrease in rental expense due to $1.6 billion and
    $602.1 million in dispositions during the twelve months
    ended December 31, 2003 and 2002, respectively; and                                                   
|
| |  | An increase of $24.8 million in expenses
    associated with moisture infiltration and resulting mold during
    2003 as compared to 2002.                                                                                                                                  



| |                                   
| | ----------------------------------
| | Apartment Community
    Operations

We utilize NOI as the primary measure to evaluate
the performance of our operating communities. NOI is defined as
rental revenues less rental expenses and real estate taxes for
each of our operating properties. We rely on NOI for purposes of
making decisions about resource allocations and assessing
segment performance. We also believe NOI is a valuable means of
comparing period-to-period property performance. The following
is a reconciliation of NOI to earnings from operations (in
thousands):

|                         |                                         |                          |         |          |   |      |         |          |   |   |         |          |  
|------------------------ | --------------------------------------- | ------------------------ | ------- | -------- | - | ---- | ------- | -------- | - | - | ------- | -------- | -
|                         |                                         |                         
|                         |                                         | Years Ended December 31,
|                         |                                         |                         
|                         |                                         | 2004                     |         | 2003     |   | 2002
|                         |                                         |                          |         |          |   |     
|Net operating income     |                                         | $                        | 552,472 |          |   | $    | 506,909 |          |   | $ | 489,335 |         
|                         | Other income                            |                          |         | 19,208   |   |      |         | 19,334   |   |   |         | 9,462    |  
|                         | Depreciation of real estate investments |                          |         | (203,183 | ) |      |         | (162,723 | ) |   |         | (148,588 | )
|                         | Interest expense                        |                          |         | (175,249 | ) |      |         | (160,871 | ) |   |         | (149,538 | )
|                         | General and administrative expenses     |                          |         | (55,479  | ) |      |         | (49,838  | ) |   |         | (45,710  | )
|                         | Other expense                           |                          |         | (5,972   | ) |      |         | (35,879  | ) |   |         | (17,014  | )
|                         |                                         |                          |         |          |   |      |         |          |   |   |         |         
|Earnings from operations |                                         | $                        | 131,797 |          |   | $    | 116,932 |          |   | $ | 137,947 |         
|                         |                                         |                          |         |          |   |      |         |          |   |   |         |         

At December 31, 2004, investments in
operating apartment communities comprised over 99% of our total
real estate portfolio, based on NOI. The following table
summarizes the performance of our operating portfolio (in
thousands, except for percentages):

|                 |                      |                          |   |         |  |      |   |         |  |  |   |         | 
|---------------- | -------------------- | ------------------------ | - | ------- |  | ---- | - | ------- |  |  | - | ------- | 
|                 |                      |                         
|                 |                      | Years Ended December 31,
|                 |                      |                         
|                 |                      | 2004                     |   | 2003    |  | 2002
|                 |                      |                          |   |         |  |     
|Rental revenues: |                      |                          |   |         |  |      |   |         |  |  |   |        
|                 | Garden communities   |                          | $ | 526,271 |  |      | $ | 465,368 |  |  | $ | 458,538 | 
|                 | High-rise properties |                          |   | 303,073 |  |      |   | 284,640 |  |  |   | 273,494 | 
|                 | Ameriton             |                          |   | 21,501  |  |      |   | 11,053  |  |  |   | 7,742   | 
|                 | Non-multifamily      |                          |   | 3,276   |  |      |   | 3,277   |  |  |   | 5,103   | 
|                 |                      |                          |   |         |  |      |   |         |  |  |   |        
|                 | Total revenues       |                          |   | 854,121 |  |      |   | 764,338 |  |  |   | 744,877 | 
|                 |                      |                          |   |         |  |      |   |         |  |  |   |        

30



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|                                                                |                            |                          |         |         |   |      |         |         |   |   |         |         |  
|--------------------------------------------------------------- | -------------------------- | ------------------------ | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                                |                            |                         
|                                                                |                            | Years Ended December 31,
|                                                                |                            |                         
|                                                                |                            | 2004                     |         | 2003    |   | 2002
|                                                                |                            |                          |         |         |   |     
|Operating expenses (rental expenses and real
    estate taxes): |                            |                          |         |         |   |      |         |         |   |   |         |        
|                                                                | Garden communities         |                          |         | 181,060 |   |      |         | 150,278 |   |   |         | 150,073 |  
|                                                                | High-rise properties       |                          |         | 108,879 |   |      |         | 101,568 |   |   |         | 100,272 |  
|                                                                | Ameriton                   |                          |         | 11,242  |   |      |         | 4,920   |   |   |         | 3,838   |  
|                                                                | Non-multifamily            |                          |         | 468     |   |      |         | 663     |   |   |         | 1,359   |  
|                                                                |                            |                          |         |         |   |      |         |         |   |   |         |        
|                                                                | Total operating expenses   |                          |         | 301,649 |   |      |         | 257,429 |   |   |         | 255,542 |  
|                                                                |                            |                          |         |         |   |      |         |         |   |   |         |        
|Net operating income:                                           |                            |                          |         |         |   |      |         |         |   |   |         |        
|                                                                | Garden communities         |                          |         | 345,211 |   |      |         | 315,090 |   |   |         | 308,465 |  
|                                                                | High-rise properties       |                          |         | 194,195 |   |      |         | 183,072 |   |   |         | 173,222 |  
|                                                                | Ameriton                   |                          |         | 10,259  |   |      |         | 6,133   |   |   |         | 3,904   |  
|                                                                | Non-multifamily            |                          |         | 2,807   |   |      |         | 2,614   |   |   |         | 3,744   |  
|                                                                |                            |                          |         |         |   |      |         |         |   |   |         |        
|                                                                | Total net operating income |                          |         | 552,472 |   |      |         | 506,909 |   |   |         | 489,335 |  
|                                                                |                            |                          |         |         |   |      |         |         |   |   |         |        
|NOI classified as discontinued operations                       |                            |                          | 61,494  |         |   |      | 128,664 |         |   |   | 199,953 |        
|                                                                |                            |                          |         |         |   |      |         |         |   |   |         |        
|NOI including discontinued operations                           |                            | $                        | 613,966 |         |   | $    | 635,573 |         |   | $ | 689,288 |        
|                                                                |                            |                          |         |         |   |      |         |         |   |   |         |        
|Operating margin (NOI/rental revenues):                         |                            |                          |         |         |   |      |         |         |   |   |         |        
|                                                                | Garden communities         |                          |         | 65.6    | % |      |         | 67.7    | % |   |         | 67.3    | %
|                                                                | High-rise properties       |                          |         | 64.1    | % |      |         | 64.3    | % |   |         | 63.3    | %
|Average occupancy during period:                                |                            |                          |         |         |   |      |         |         |   |   |         |        
|                                                                | Garden communities         |                          |         | 94.7    | % |      |         | 95.0    | % |   |         | 95.0    | %
|                                                                | High-rise properties       |                          |         | 95.2    | % |      |         | 93.2    | % |   |         | 93.8    | %

The following table reflects revenue, expense and
NOI growth/(decline) for Same-Store communities that were fully
operating during each respective comparison period:

|     |           |            |  |            |   |                |  |       |   |  |  |       |  
|---- | --------- | ---------- |  | ---------- | - | -------------- |  | ----- | - |  |  | ----- | -
|     |           | Same-Store |  | Same-Store |   |               
|     |           | Revenue    |  | Expense    |   | Same-Store NOI
|     |           | Growth/    |  | Growth/    |   | Growth/       
|     |           | (Decline)  |  | (Decline)  |   | (Decline)     
|     |           |            |  |            |   |               
|2004 |           |            |  |            |   |                |  |       |   |  |  |      
|     | Garden    |            |  | 0.0%       |   |                |  | 4.6%  |   |  |  | (2.1% | )
|     | High-Rise |            |  | 0.4%       |   |                |  | 2.3%  |   |  |  | (0.6% | )
|     | Total     |            |  | 0.2%       |   |                |  | 3.7%  |   |  |  | (1.6% | )
|2003 |           |            |  |            |   |                |  |       |   |  |  |      
|     | Garden    |            |  | (2.4%      | ) |                |  | (2.0% | ) |  |  | (2.6% | )
|     | High-Rise |            |  | 0.3%       |   |                |  | (1.0% | ) |  |  | 1.0%  |  
|     | Total     |            |  | (1.4%      | ) |                |  | (1.6% | ) |  |  | (1.3% | )

2004 vs. 2003
NOI Analysis

NOI increased by $45.6 million, or 9.0%,
during 2004 as compared to 2003. Of this increase,
$30.1 million was produced by our garden communities,
$11.1 million by our high-rise portfolio, $4.1 million
by Ameriton and the remainder by non-multifamily assets.

The $30.1 million increase in garden NOI
during 2004 as compared to 2003 was primarily attributable to
the acquisition of six garden communities for a total of
$443.9 million and the ongoing lease-up and stabilization
of development communities during 2004. This increase was
partially offset by a 2.1% decline in Same-Store NOI primarily
due to higher site and regional personnel costs and real estate
taxes.

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The $11.1 million increase in high-rise NOI
during 2004 compared to 2003 was primarily attributable to the
acquisition of two high-rise properties in the New York area and
two in the Washington D.C. metropolitan market for a total of
$379.0 million during 2004. This increase was partially
offset by a 0.6% decline in Same-Store NOI also attributable to
higher site and regional personnel costs and real estate taxes.

The $4.1 million increase in Ameriton NOI
during 2004 as compared to 2003 was primarily attributable to
the acquisition of 12 Ameriton communities and the ongoing
lease-up and stabilization of Ameriton developments during 2004.
This increase was partially offset by the loss of NOI from nine
Ameriton dispositions during 2004.

NOI for our entire portfolio, including
properties classified within discontinued operations, decreased
by $21.6 million, or 3.4%, during 2004 as compared to 2003.
This net decrease in NOI was primarily attributable to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The loss of NOI from the disposition of
    $1.8 billion and $1.6 billion in operating assets,
    including Ameriton, during 2004 and 2003, respectively;                                                                                                                                                                                                                                                                                                    
|
| |  | A decline in Same-Store NOI of 2.1% at our garden
    communities primarily due to 4.6% higher Same-Store expenses in
    2004 compared to 2003 resulting from higher property taxes and
    site and regional personnel costs. Garden rental revenues were
    flat in 2004, due principally to improvements in the Washington
    D.C. metropolitan area and Southern California markets offset by
    continuing weakness in the Bay Area and Atlanta; and,
|
| |  | A decline in Same-Store NOI of 0.6% for our
    high-rise properties primarily due to increased personnel costs
    and increased property taxes. These expense increases were
    partially offset by 0.4% higher revenues due to continued
    improvements in the Washington D.C. metropolitan market where we
    have the majority of our high-rise properties offset by ongoing
    weakness in Chicago.                                                

This decrease was partially offset by increased
NOI from the acquisitions, lease-ups and redevelopments
described previously, as well as an increase in NOI associated
with assets classified as held-for-sale, some of which related
to Ameriton lease-ups during 2003.

2003 vs. 2002
NOI Analysis

NOI increased by $17.6 million, or 3.6%,
during 2003 as compared to 2002. Of this increase,
$6.6 million was produced by our garden communities,
$9.9 million by our high-rise portfolio and
$2.2 million by Ameriton. These increases were partially
offset by a decrease in NOI from non-multifamily assets.

The $6.6 million increase in garden NOI
during 2003 as compared to 2002 was primarily attributable to
the acquisition of 10 garden communities for a total of
$523.5 million and the ongoing lease-up and stabilization
of development communities during 2003. This increase was
partially offset by a 2.6% decline in Same-Store NOI.

The $9.9 million increase in high-rise NOI
during 2003 as compared to 2002 was primarily attributable to an
increase in Same-Store NOI of 1.0% in 2003 compared to 2002.

The $2.2 million increase in Ameriton NOI
during 2003 as compared to 2002 was primarily attributable to
the ongoing lease-up and stabilization of Ameriton developments.
This increase was partially offset by the loss of NOI from the
six Ameriton dispositions in 2003.

NOI for our entire portfolio, including
properties classified within discontinued operations, decreased
by $53.7 million, or 7.8%, during 2003 as compared to 2002.
This net decrease in NOI was primarily attributable to:



| |   |                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The loss of NOI from the disposition of
    $1.6 billion and $602.1 million in operating assets,
    including Ameriton, during 2003 and 2002, respectively; and

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| |   |                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A decline in Same-Store NOI of 2.6% for our
    garden communities primarily due to a decrease in revenues in
    the Bay Area, Seattle and Atlanta markets, which were impacted
    by challenging economic conditions.

This decrease was partially offset by increased
NOI from the acquisitions, lease-ups and redevelopments
described previously, as well as an increase of 1.0% in NOI from
Same-Store high-rise properties in 2003 as compared to 2002.
This Same-Store NOI increase was primarily due to increased
Same-Store revenues in the Washington D.C. market, where
economic conditions remained strong, partially offset by
declining market conditions in Chicago. Additionally, Same-Store
expenses declined in 2003 compared to 2002, primarily due to
lower cost of utilities and administrative expenses.



| |             
| | ------------
| | Other Income

There was no significant change in the amount of
other income in 2004 as compared to 2003. Notable differences in
the composition of other income in 2004 as compared to 2003 were
the collection and recognition of $3.1 million related to
the settlement of an ongoing CES lawsuit during 2004, a decrease
in the collection of indemnified CES accounts receivable over
120 days of $4.4 million during 2004 as compared to
2003, an increase in gains related to the disposition of land of
$3.2 million during 2004 as compared to 2003, and
$5.7 million of dividend income on stock investments in
2003.

The $9.9 million, or 104.3%, increase in
2003 as compared to 2002 was principally attributable to the
collection of $5.3 million of contingent proceeds related
to indemnification of certain CES accounts receivable over
120 days and $5.7 million of dividend income on stock
investments.



| |                     
| | --------------------
| | Depreciation Expense

Depreciation expense increased
$40.5 million, or 24.9%, during 2004 as compared to 2003.
This increase is primarily due to a greater number of operating
assets classified within discontinued operations during the
prior year, resulting in a greater depreciation allocation to
discontinued operations of $23.8 million in 2003 as
compared to 2004.

Including depreciation expense on properties
classified within discontinued operations, depreciation expense
increased $16.6 million (comprised of a $40.5 million
increase from continuing operations offset by a
$23.9 million decrease from discontinued operations), or
8.2%, during 2004 as compared 2003. This increase is principally
attributable to the amortization of the intangible value of
lease agreements obtained in connection with apartment community
acquisitions, which are amortized over the average life of the
underlying lease. During 2004 and 2003, amortization of these
intangible assets was $16.4 million and $2.9 million,
respectively. Depreciation expense also increased due to the
disposition of assets with lower depreciable basis at
significant gains and the reinvestment of these proceeds into
assets with a higher depreciable basis.

The $14.1 million, or 9.5%, increase in
depreciation expense during 2003 as compared to 2002 is
attributable to a greater number of operating assets classified
within discontinued operations during the prior year. Including
depreciation expense on properties reported in discontinued
operations, depreciation expense decreased $3.3 million
(comprised of a $14.1 million increase from continuing
operations offset by a $17.4 million decrease from
discontinued operations), or 1.6%, in 2003 as compared to 2002
due principally to increased disposition activity during 2003.



| |                 
| | ----------------
| | Interest Expense

Interest expense increased $14.4 million, or
8.9%, during 2004 as compared to 2003. This increase is
primarily due to a greater number of operating assets classified
within discontinued operations during the prior year, resulting
in $17.7 million higher interest allocated to discontinued
operations in 2003 as compared to 2004.

Including interest expense on properties
reflected in discontinued operations, interest expense decreased
$3.3 million (comprised of a $14.4 million increase
from continuing operations offset by a $17.7 million
decrease from discontinued operations), or 1.6%, in 2004 as
compared 2003. The decrease is primarily the result of a
reduction in weighted average debt interest rates and a decrease
in the average outstanding mortgage balance during 2004 as
compared to 2003, as we paid off secured debt during the year,
partially offset by an increase in the average outstanding
long-term debt balance in 2004 as compared to 2003.

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The $11.3 million, or 7.6%, increase in
interest expense during 2003 as compared to 2002 is attributable
to a greater number of operating assets classified within
discontinued operations during the prior year. The
$30.1 million, or 12.4%, decrease in interest expense
(comprised of a $11.3 million increase from continuing
operations offset by a $41.4 million decrease from
discontinued operations), including interest on properties
reported in discontinued operations in 2003 as compared to 2002,
is the result of lower debt balances, a reduction in interest
rates on floating rate debt and refinanced debt, and the
repayment of Long-Term Unsecured Debt with proceeds from our
unsecured credit facilities, which were at lower average
interest rates during the period.



| |                                        
| | ---------------------------------------
| | General and Administrative
    Expenses

The $5.6 million, or 11.3%, increase in
general and administrative expenses in 2004 as compared to 2003
is due primarily to executive Common Share grants related to the
achievement of total shareholder return performance targets
associated with a three-year special incentive plan, an increase
in audit and consulting fees associated with Sarbanes-Oxley
compliance and the impact of the fourth quarter special dividend
on DEUs earned on restricted share units and some employee share
options. These expenses were partially offset by lower severance
costs and payroll expense in 2004 as compared to 2003.

The $4.1 million, or 9.0%, increase in
general and administrative expenses in 2003 as compared to 2002
relates primarily to additional severance costs and legal fees
incurred during 2003, as well as increased depreciation of
capitalized costs associated with our revenue management system
and our new on-site property management software.



| |               
| | --------------
| | Other Expenses

The $29.9 million, or 83.4%, decrease in
other expense during 2004 as compared to 2003 is primarily due
to a $29.0 million expense associated with moisture
infiltration and resulting mold recorded during 2003. The
moisture infiltration costs pertain to estimated and incurred
legal fees and estimated settlement costs, additional
residential property repair and replacement costs, and temporary
resident relocation expenses.

The $18.9 million, or 110.9%, increase in
other expense in 2003 as compared to 2002 is primarily related
to an increase in moisture infiltration and resulting mold costs
and a $3.5 million increase in Ameriton income taxes. These
increases were partially offset by lower merger integration
costs associated with the Smith Merger as well as lower pursuit
cost write-offs during 2003.



| |                                        
| | ---------------------------------------
| | Income from Unconsolidated
    Entities

Income from unconsolidated entities increased
$12.2 million, or 211.6%, in 2004 as compared to 2003,
primarily due to gains from the sale of joint venture operating
communities and the recognition of contingent proceeds from the
expiration of certain indemnifications related to the sale of
CES. This was partially offset by $1.5 million in hurricane
losses from damage to unconsolidated Florida communities.

Income from unconsolidated entities decreased by
$47.9 million in 2003 as compared to 2002 primarily due to
the gain on sale of CES recognized in December 2002.



| |                           
| | --------------------------
| | Other Non-Operating Income

Other non-operating income increased by
$28.2 million during 2004 as compared to 2003 due to the
recognition of $24.9 million in gains from the sale and
settlement of marketable securities, and a $3.3 million
gain from the sale of our property management business in 2004.
We had no non-operating income during 2003 or 2002.



| |                          
| | -------------------------
| | Preferred Share Dividends

Preferred Share distributions decreased by
$10.1 million, or 48.1%, during 2004 as compared to 2003.
This decrease was primarily due to the conversion of
Series H Preferred Shares into Common Shares in May 2003,
the conversion of Series A Preferred Shares into Common
Shares in December 2003, the redemption of our Series D
Preferred Shares in August 2004, the conversion of Series K
Preferred Shares into Common Shares in September 2004 and the
early conversion of Series L Preferred Shares into Common
Shares in December 2004. These savings were partially offset by
the recognition of $1.7 million of issuance costs related

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to the Series D Preferred Shares. The
decrease in Preferred Share distributions due to conversions was
offset by an increase in Common Share dividends.


Preferred Share distributions decreased by
$11.2 million, or 34.8%, during 2003 as compared to 2002.
This decrease was primarily attributable to the conversion of
Series A and Series H Preferred Shares into Common
Shares in 2003 and the conversion of Series J Preferred
Shares into Common Shares during 2002, as well as the redemption
of the Series C Preferred Shares in 2002. The decrease in
Preferred Share distributions due to conversions was offset by
an increase in Common Share dividends.



| |                        
| | -----------------------
| | Discontinued Operations

The results of operations for properties sold
during the period or designated as held-for-sale at the end of
the period are required to be classified as discontinued
operations. The property specific components of net earnings
that are classified as discontinued operations include rental
revenues, rental expenses, real estate taxes, depreciation
expense, minority interest, income taxes and interest expense
(actual interest expense for encumbered properties and a
pro-rata allocation of interest expense for any unencumbered
property up to our weighted average leverage ratio), as well as
the net gain or loss on the disposition of properties.

Consistent with our capital recycling program, we
had five operating apartment communities, representing
1,952 units (unaudited), classified as held for sale under
the provisions of SFAS No. 144, at December 31, 2004.
Accordingly, we have classified the operating earnings from
these five properties within discontinued operations for the
years ended December 31, 2004, 2003 and 2002. During the
twelve months ended December 31, 2004, we sold 30
Archstone-Smith and Ameriton operating communities. The
operating results of these 30 communities and the related
gain/loss on sale are also included in discontinued operations
for 2004, 2003 and 2002. During the twelve months ended
December 31, 2003, we sold 48 operating communities. The
operating results of these 48 communities and the related
gain/loss on the sale are also included in discontinued
operations for 2003 and 2002. In addition, discontinued
operations for the year ended December 31, 2002 includes
the net operating results of 12 operating communities and one
retail property which were sold during 2002.

The following is a summary of net earnings from
discontinued operations (in thousands):

|                                                                                       |                               |                          |         |         |  |      |         |         |  |   |          |         | 
|-------------------------------------------------------------------------------------- | ----------------------------- | ------------------------ | ------- | ------- |  | ---- | ------- | ------- |  | - | -------- | ------- | 
|                                                                                       |                               |                         
|                                                                                       |                               | Years Ended December 31,
|                                                                                       |                               |                         
|                                                                                       |                               | 2004                     |         | 2003    |  | 2002
|                                                                                       |                               |                          |         |         |  |     
|Rental revenue                                                                         |                               | $                        | 113,933 |         |  | $    | 242,287 |         |  | $ | 340,897  |        
|Rental expenses                                                                        |                               |                          | (39,656 | )       |  |      | (85,012 | )       |  |   | (107,088 | )      
|Real estate taxes                                                                      |                               |                          | (12,783 | )       |  |      | (28,611 | )       |  |   | (33,856  | )      
|Depreciation on real estate investments                                                |                               |                          | (16,806 | )       |  |      | (40,633 | )       |  |   | (58,037  | )      
|Interest expense(1)                                                                    |                               |                          | (33,503 | )       |  |      | (51,195 | )       |  |   | (92,651  | )      
|Income Taxes from taxable REIT subsidiaries                                            |                               |                          | (21,567 | )       |  |      | (12,206 | )       |  |   | (10,455  | )      
|                                                                                      
|Provision for possible loss on real estate
    investment                              |                               |                          |        |         |  |      | (3,714  | )       |  |   | (2,611   | )      
|Debt extinguishment costs related to dispositions                                      |                               |                          | (1,763  | )       |  |      | (3,002  | )       |  |   | (5,412   | )      
|Allocation of minority interest                                                        |                               |                          | (47,278 | )       |  |      | (43,958 | )       |  |   | (16,590  | )      
|Gain from the disposition of REIT real estate
    investments, net                     |                               |                          | 372,217 |         |  |      | 310,901 |         |  |   | 72,934   |        
|Gain from the dispositions of taxable REIT
    subsidiary real estate investments, net |                               |                          | 74,230  |         |  |      | 42,699  |         |  |   | 30,720   |        
|                                                                                       |                               |                          |         |         |  |      |         |         |  |   |          |        
|                                                                                       | Total discontinued operations |                          | $       | 387,024 |  |      | $       | 327,556 |  |   | $        | 117,851 | 
|                                                                                       |                               |                          |         |         |  |      |         |         |  |   |          |        



---



|    |                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The portion of interest expense included in
    discontinued operations that is allocated to properties based on
    the companys leverage ratio was $23.2 million,
    $32.7 million and $61.2 million for 2004, 2003 and
    2002, respectively.

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Gains from the disposition of REIT assets are the
result of our capital recycling strategy, which redeploys
capital from non-core assets to more desirable locations within
our core markets. Gains or losses associated with REIT
dispositions can vary significantly from year-to-year given
overall real estate market conditions.

The majority of our gains from taxable REIT
subsidiaries were from Ameriton, which is a wholly owned taxable
REIT subsidiary that engages in the opportunistic acquisition,
development and eventual disposition of real estate with a
short-term investment horizon. While Ameriton has established a
consistent track record of producing significant gains, which
contribute to our overall net earnings, these gains or losses
can fluctuate significantly on a year-to-year basis depending on
the relative success of this component of our strategy.

Assets held for sale as of December 31,
2004, represented gross real estate of $262.8 million and
$215.8 million with mortgages payable of $60.6 million
and $61.4 million at December 31, 2004 and 2003,
respectively. Additionally, of our investment in real estate and
debt balances at December 31, 2003, we disposed of
$1.5 billion of real estate and paid off related mortgages
of $85.8 million during the twelve months ended
December 31, 2004.




Liquidity and Capital Resources

We are committed to maintaining a strong balance
sheet and preserving our financial flexibility, which we believe
enhances our ability to capitalize on attractive investment
opportunities as they become available. As a result of the
significant cash flow generated by our operations, current cash
positions, the available capacity under our unsecured credit
facilities, gains from the disposition of real estate and ready
access to the capital markets by issuing securities under our
existing shelf registrations, we believe our liquidity and
financial condition are sufficient to meet all of our reasonably
anticipated cash flow needs during 2005.



| |                     
| | --------------------
| | Operating Activities

Net cash flow provided by operating activities
increased $26.1 million, or 7.6%, in 2004 as compared to
2003. This increase was principally due to lower moisture
infiltration and resulting mold-related expenses during 2004,
lower interest expense due to a reduction in the average debt
rates and a reduction in average debt balances during 2004, as
well as higher investment income from the sale of marketable
equity securities. See Results of Operations for a more complete
discussion of the factors impacting our operating performance.

Our net cash flows provided by operating
activities decreased by $41.4 million, or 10.8%, during
2003 as compared to 2002. This decrease was principally due to
lower net earnings before gains on the disposition of
depreciated real estate, payments related to remediation of
moisture infiltration and resulting mold that were accrued in
previous years and decreased contributions from unconsolidated
entities. See Results of Operations for a more complete
discussion of the factors impacting our operating performance.



| |                                       
| | --------------------------------------
| | Investing and Financing
    Activities

Net cash flows provided by investing activities
increased by $124.2 million, or 29.0%, in 2004 as compared
to 2003. This was due primarily to a $158.1 million
increase in net proceeds from the disposition of real estate
assets during 2004 as compared to the same period of 2003, and
proceeds from the sale of marketable securities in 2004 that
were acquired in 2003, which is included in Other,
net in the accompanying Condensed Consolidated Statement
of Cash Flows. The increase was partially offset by
$122.8 million more spent for acquisitions and development
activity during 2004 as compared to 2003. The disposition,
acquisition and development amounts above exclude transactions
funded by tax-deferred exchange proceeds.

Net cash flows provided by investing activities
increased by approximately $565.6 million in 2003 as
compared to 2002. This increase was primary attributable to a
$984.1 million increase in proceeds from the disposition of
real estate assets and a reduction in cash used to purchase
marketable securities during 2003 as compared to 2002. This was
partially offset by an increase in the balance of our
tax-deferred escrow.

Net cash flows used in financing activities
decreased by $55.3 million, or 7.1%, in 2004 as compared to
2003, due to increased borrowings to finance a net increase in
real estate investments during 2004 as compared

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to the prior year, partially offset by an
increase in cash used to repurchase Common and Preferred Shares
and pay the special dividend in 2004.


Net cash used in financing activities increased
by $537.6 million, or 222.2%, in 2003 as compared to 2002.
This is principally due to a $438.8 million net reduction
in our unsecured credit facility and a $283.5 million
reduction in the total proceeds received from long-term
unsecured debt offerings. This increase in cash used in
financing activities was partially offset by a
$361.7 million reduction in principal payments on mortgages
payable.

Significant non-cash investing and financing
activities for the years ended December 31, 2004, 2003 and
2002 consisted of the following:



| |   |                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Issued $10.8, $47.6 and $8.7 million of A-1
    Common Units as partial consideration for properties acquired
    during 2004, 2003 and 2002, respectively;                                                                        
|
| |  | Issued $4.5 million of Common Shares as
    partial consideration for real estate during 2004.                                                                                                                                     
|
| |  | Holders of Series K Preferred Shares and
    Series L Preferred Shares converted $25.0 million each
    of their shares into Common Shares during 2004;                                                                            
|
| |  | Holders of Series H Preferred Shares
    converted $71.5 million of their shares into Common Shares
    during 2003;                                                                                                               
|
| |  | Redeemed $47.9 million, $25.5 million
    and $41.7 million A-1 Common Units for Common Shares during
    2004, 2003 and 2002, respectively;                                                                                       
|
| |  | Holders of Series J Preferred Shares
    converted $25 million of their shares into Common Shares
    during 2002;                                                                                                                 
|
| |  | Recorded an accrual related to moisture
    infiltration and resulting mold remediation for
    $36.1 million and $11.3 million at one of our
    high-rise properties in Southeast Florida during 2003 and 2002,
    respectively;
|
| |  | Assumed mortgage debt of $113.6 million,
    $55.4 million and $195.6 million during 2004, 2003 and
    2002, respectively, in connection with the acquisition of
    apartment communities;                                       
|
| |  | Holders of Series A Preferred Shares
    converted $71.9 million and $5.7 million of their
    shares into Common Shares during 2003 and 2002, respectively.                                                                       



| |                                                                
| | ---------------------------------------------------------------
| | Scheduled Debt Maturities and Interest
    Payment Requirements

We have structured the repayments of our
long-term debt to create a relatively level principal maturity
schedule and to avoid significant repayment obligations in any
year which would impact our financial flexibility. We have
$313.7 million in scheduled maturities during 2005, and we
have $295.5 million and $542.5 million of long-term
debt maturing during 2006 and 2007, respectively. See
Note 5 in our audited financial statements in this Annual
Report for additional information on scheduled debt maturities.

In April 2004, the Operating Trust filed a shelf
registration statement on Form S-3 to register an
additional $450 million in unsecured debt securities. This
registration statement was declared effective in April 2004.
During August 2004, the Operating Trust issued $300 million
in long-term unsecured ten-year notes with net proceeds of
$297.1 million and with a coupon rate of 5.6% and an
effective interest rate of 5.8% from its shelf registration
statement. The proceeds were used to repay outstanding balances
on the Operating Trusts unsecured credit facilities. The
notes were issued pursuant to a supplemental indenture with
modified debt covenants, which are specific to these notes. The
primary change pertains to the leverage covenant, which limits
total debt to 65% of the market value of total assets as
defined, using a capitalization rate of 7.5% to value stabilized
operating assets. As of December 31, 2004, the Operating
Trust had $700 million available in shelf registered debt
securities which can be issued subject to our ability to affect
offerings on satisfactory terms based on prevailing market
conditions.

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In December 2004, we restructured our unsecured
revolving credit facility provided by a group of financial
institutions led by JPMorgan Chase Bank. The primary
modifications were extending the maturity, reducing the pricing
and lowering the capitalization rate used to value the operating
portfolio. The $600 million facility matures in December
2007 and has a one-year extension feature, exercisable at our
option. The facility bears interest at the greater of prime or
the federal funds rate plus 0.50%, or at our option, LIBOR plus
0.50%. The spread over LIBOR can vary from LIBOR plus 0.425% to
LIBOR plus 1.25% based upon the rating of our Long-Term
Unsecured Debt. The facility contains an accordion feature that
allows us to expand the commitment up to $900 million at
any time during the life of the facility, subject to lenders
providing additional commitments. Under the agreement, we pay a
facility fee of 0.15% of the commitment, which can vary from
0.125% to 0.200% based upon the ratings of our Long-Term
Unsecured Debt.

We also have a short-term unsecured borrowing
agreement with JPMorgan Chase Bank, which provides for maximum
borrowings of $100 million. The borrowings under the
agreement bear interest at an overnight rate agreed to at the
time of borrowing and ranged from 1.60% to 2.55% during 2004.
There were no borrowings outstanding under the agreement at
December 31, 2004 and $6.8 million of borrowings
outstanding under this agreement at December 31, 2003.

We had $61 million outstanding on our
unsecured line of credit, $14 million outstanding under
letters of credit and an available balance of $625 million
on our unsecured credit facilities at February 14, 2004.

Our unsecured credit facilities, Long-Term
Unsecured Debt and mortgages payable had effective weighted
average interest rates of 2.62%, 6.23% and 5.24%, respectively,
as of December 31, 2004. All of these rates give effect to
debt issuance costs, fair value hedges, the amortization of fair
market value purchase adjustments and other fees and expenses,
as applicable.

Our debt instruments generally contain covenants
common to the type of facility or borrowing, including financial
covenants establishing minimum debt service coverage ratios and
maximum leverage ratios. We were in compliance with all
financial covenants pertaining to our debt instruments as of and
for the year ended December 31, 2004.



| |                                                    
| | ---------------------------------------------------
| | Shareholder Dividend/ Distribution
    Requirements

Based on anticipated distribution levels for 2005
and the number of shares and units outstanding as of
December 31, 2004, we anticipate that we will pay the
following dividends/distributions in 2005 (in thousands, except
per share amounts):

|                                            |                                          |           |          |       |  |   |         |         | 
|------------------------------------------- | ---------------------------------------- | --------- | -------- | ----- |  | - | ------- | ------- | 
|                                            |                                          | Per Share |          | Total
|                                            |                                          |           |          |      
|Common Share and Common Unit distributions: |                                          |           |          |       |  |   |         |        
|Common Shares(1)                            |                                          | $         | 1.73     |       |  | $ | 345,625 |        
|A-1 Common Unit distributions(1)(2)         |                                          |           | 1.73     |       |  |   | 39,993  |        
|Series E Preferred Unit distributions(2)(3) |                                          |           | 0.20     |       |  |   | 40      |        
|Series G Preferred Unit distributions(2)(3) |                                          |           | 0.38     |       |  |   | 228     |        
|Series I Preferred Share dividends(4)       |                                          |           | 7,660.00 |       |  |   | 3,830   |        
|                                            |                                          |           |          |       |  |   |         |        
|                                            | Total dividend/distribution requirements |           |          |       |  |   | $       | 389,716 | 
|                                            |                                          |           |          |       |  |   |         |        



---



|    |                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Future distributions on Common Shares and Units
    are contingent upon approval by our Board of Trustees.                                    
|   
|(2) | See Note 8 in our audited financial
    statements in this Annual Report for more information on
    minority interests.                      
|   
|(3) | Distributions are prorated as we plan to redeem
    the remaining Series E and G Preferred Units in February
    and March 2005, respectively.
|   
|(4) | Series I Preferred Shares have a par value
    of $100,000 per share.                                                                         

38



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##### Table of Contents





| |                                             
| | --------------------------------------------
| | Share Repurchase and
    Redemption Activity

The following is a summary of our Preferred Share
activity since 2003:



| |   |                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In May 2003, the Series H Preferred Shares
    were converted into Common Shares.                                                                                                                                                                               
|
| |  | In October 2003, we called the Series A
    Preferred Shares for redemption. Of the 2.9 million
    Series A Convertible Preferred Shares outstanding,
    2.8 million were converted to common shares and the
    remaining were redeemed for cash and retired.
|
| |  | In September 2004, the Series K Preferred
    Shares were converted into Common Shares.                                                                                                                                                                         
|
| |  | In August 2004, the Series D Preferred
    Shares were redeemed in full plus accrued dividends.                                                                                                                                                                 
|
| |  | In December 2004, the Series L Preferred
    Shares were converted into Common Shares.                                                                                                                                                                          

In 2004 and 2003 we issued 374,921 and 1,955,908
A-1 Common Units of the Operating Trust as partial consideration
for real estate, respectively. All units were issued in
transactions exempt from registration under Section 4(2) of
the Securities Act of 1933 and the rules thereunder.



| |                    
| | -------------------
| | Planned Investments

Following is a summary of planned investments as
of December 31, 2004, including amounts for Ameriton
(dollar amounts in thousands). The amounts labeled
Discretionary represent future investments that we
plan to make, although there is not a contractual commitment to
do so. The amounts labeled Committed represent the
approximate amount that we are contractually committed to fund
for communities under construction in accordance with
construction contracts with general contractors.

|                                          |       |                     |       |               |  |           |         |         |  |   |         |         | 
|----------------------------------------- | ----- | ------------------- | ----- | ------------- |  | --------- | ------- | ------- |  | - | ------- | ------- | 
|                                          |       |                    
|                                          |       | Planned Investments
|                                          |       |                    
|                                          |       | Units               |       | Discretionary |  | Committed
|                                          |       |                     |       |               |  |          
|Communities under redevelopment           |       |                     | 1,535 |               |  | $         | 2,756   |         |  | $ | 27,485  |        
|Communities under construction            |       |                     | 4,894 |               |  |           |        |         |  |   | 458,453 |        
|Communities In Planning and owned         |       |                     | 2,953 |               |  |           | 485,889 |         |  |   |        |        
|Communities In Planning and Under Control |       |                     | 713   |               |  |           | 101,349 |         |  |   |        |        
|Community acquisitions under contract     |       |                     | 348   |               |  |           | 43,152  |         |  |   |        |        
|                                          |       |                     |       |               |  |           |         |         |  |   |         |        
|                                          | Total |                     |       | 10,443        |  |           | $       | 633,146 |  |   | $       | 485,938 | 
|                                          |       |                     |       |               |  |           |         |         |  |   |         |        

In addition to the planned investments noted
above, we expect to make additional investments relating to
planned expenditures on recently acquired communities as well as
recurring expenditures to improve and maintain our established
operating communities.

We anticipate completion of most of the
communities that are currently under construction and the
planned operating community improvements during 2005 and 2006.
We expect to start construction on approximately
$300-$350 million, based on Total Expected Investment, of
new development communities in 2005. We expect to fund the costs
of these development projects over a two-to-three year period
following the date construction commences. No assurances can be
given that communities we do not currently own will be acquired
or that planned developments will actually occur. In addition,
actual costs incurred could be greater or less than our current
estimates.



| |                
| | ---------------
| | Funding Sources

We anticipate financing our planned investment
and operating needs primarily with cash flow from operating
activities, disposition proceeds from our capital recycling
program, existing cash balances and borrowings under our
unsecured credit facilities, prior to arranging long-term
financing. We anticipate that net cash flow from operating
activities and gains on dispositions during 2005 will be
sufficient to fund anticipated distribution requirements and
debt principal amortization payments. To fund planned investment
activities, we had $625 million in available capacity on
our unsecured credit facilities, $50 million of cash in
tax-deferred

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exchange escrow and $152 million of cash on
hand at February 14, 2005. In addition, we expect to
complete the disposition of $400  $700 million
of REIT operating communities during 2005.


In March 2003, the Operating Trust filed a shelf
registration statement on Form S-3 to register an
additional $335 million in unsecured debt securities. In
June 2003, the Operating Trust issued $250 million in
long-term unsecured senior notes due in June 2008 for net
proceeds of $247.2 million. These notes bear interest at a
coupon rate of 3.0% annually, with an effective interest rate of
3.2%. The net proceeds were used to repay outstanding balances
on our unsecured credit facility.

In April 2004, the Operating Trust filed a shelf
registration statement on Form S-3 to register an
additional $450 million in unsecured debt securities. This
registration statement was declared effective in April 2004.
During August 2004, the Operating Trust issued $300 million
in long-term unsecured ten-year notes with net proceeds of
$297.1 million and with a coupon rate of 5.6% and an
effective interest rate of 5.8% from its shelf registration
statement. The proceeds were used to repay outstanding balances
on the Operating Trusts unsecured credit facilities. The
notes were issued pursuant to a supplemental indenture with
modified debt covenants, which are specific to these notes. The
primary change pertains to the leverage covenant, which limits
total debt to 65% of the market value of total assets as
defined, using a capitalization rate of 7.5% to value stabilized
operating assets. As of December 31, 2004, the Operating
Trust had $700 million available in shelf registered debt
securities which can be issued subject to our ability to affect
offerings on satisfactory terms based on prevailing market
conditions.

As of February 14, 2005, Archstone-Smith and
the Operating Trust collectively have $1.2 billion
available in shelf registered securities which can be issued
based on our ability to affect offerings on satisfactory terms
based on prevailing market conditions.




Litigation and Contingencies

We are subject to various claims in connection
with moisture infiltration and resulting mold issues at certain
high-rise properties in Southeast Florida. These claims
generally allege that water infiltration and resulting mold
contamination resulted in the claimants having personal injuries
and/or property damage. Although certain of these claims
continue to be at various stages of litigation, with respect to
the majority of these claims, we have either settled the claims
and/or we have been dismissed from the lawsuits that had been
filed. With respect to the lawsuits that have not been resolved,
we continue to defend these claims in the normal course of
litigation.

We have recorded accruals for moisture
infiltration and resulting mold issues. These accruals represent
managements best estimate of the probable and reasonably
estimable costs and are based, in part, on the settlements
reached with the various claimants, estimates obtained from
third-party contractors and actual costs incurred to date. It is
possible that these estimates could increase or decrease as
additional information becomes available.

We are aggressively pursuing recovery of a
significant portion of these costs from our insurance carriers.
We are in litigation with our insurance providers, and therefore
we have not recorded an estimate for future insurance recoveries
associated with moisture infiltration and resulting mold. In
addition, we will continue to pursue potential recoveries from
third parties whom we believe bear responsibility for a
considerable portion of the costs we have incurred. We cannot
make assurances that we will obtain these recoveries or that our
ultimate liability associated with these claims will not be
material to our results of operations.

During 2004, we incurred estimated losses
associated with multiple hurricanes in Florida. As a result of
this damage, we recorded a loss contingency of approximately
$5.5 million associated with both wholly owned and
unconsolidated apartment communities. This charge is offset by a
$750,000 receivable for anticipated insurance recoveries. These
estimates represent managements best estimate of the
probable and reasonably estimable costs and are based on the
most current information available from our insurance adjustors.

During December 2004, a lawsuit was filed against
us that alleges various violations of the Fair Housing Act and
the Americans with Disabilities Act at 112 properties currently
or formerly owned by the Company. The plaintiffs are seeking
injunctive relief, in the form of retrofitting apartments and
public accommodations

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to comply with the Fair Housing Act and the
Americans with Disabilities Act; unspecified monetary damages
for the diversion of the plaintiffs resources to address
fair housing violations, punitive damages and attorneys
fees. We are in the process of evaluating the claims asserted in
this litigation. Due to the preliminary nature of the
litigation, it is not possible to predict or determine the
outcome of the legal proceeding, nor is it reasonably possible
to estimate the amount of loss, if any, that would be associated
with an adverse decision.


We are a party to various other claims and
routine litigation arising in the ordinary course of business.
We do not believe that the results of any such claims or
litigation, individually or in the aggregate, will have a
material adverse effect on our business, financial position or
results of operations.




Critical Accounting Policies

We define critical accounting policies as those
accounting policies that require our management to exercise
their most difficult, subjective and complex judgments. Our
management has discussed the development and selection of all of
these critical accounting policies with our audit committee, and
the audit committee has reviewed the disclosure relating to
these policies. Our critical accounting policies relate
principally to the following key areas:



| |                             
| | ----------------------------
| | Internal Cost Capitalization

We have an investment organization that is
responsible for development and redevelopment of apartment
communities. Consistent with GAAP, all direct and certain
indirect costs, including interest and real estate taxes,
incurred during development and redevelopment activities are
capitalized. Interest is capitalized on real estate assets that
require a period of time to get them ready for their intended
use. The amount of interest capitalized is based upon the
average amount of accumulated development expenditures during
the reporting period. Included in capitalized costs are
managements estimates of the direct and incremental
personnel costs and indirect project costs associated with our
development and redevelopment activities. Indirect project costs
consist primarily of personnel costs associated with
construction administration and development accounting, legal
fees, and various office costs that clearly relate to projects
under development. Because the estimation of capitalizable
internal costs requires managements judgment, we believe
internal cost capitalization is a critical accounting
estimate.

If future accounting rules limit our ability to
capitalize internal costs or if our development activity
decreased significantly without a proportionate decrease in
internal costs, there could be an increase in our operating
expenses. For example, if hypothetically, we were to reduce our
development and land acquisition activity by 25% with no
corresponding decrease in internal costs, our net earnings per
Common Share could decrease by approximately 1.0% or
approximately $0.026 based on 2004 amounts.



| |                         
| | ------------------------
| | Valuation of Real Estate

Long-lived assets to be held and used are carried
at cost and evaluated for impairment when events or changes in
circumstances indicate such an evaluation is warranted. We also
evaluate assets for potential impairment when we deem them to be
held for sale. Valuation of real estate is considered a
critical accounting estimate because the evaluation
of impairment and the determination of fair values involve a
number of management assumptions relating to future economic
events that could materially affect the determination of the
ultimate value, and therefore, the carrying amounts of our real
estate.

When determining if there is an indication of
impairment, we estimate the assets NOI over the
anticipated holding period on an undiscounted cash flow basis
and compare this amount to its carrying value. Estimating the
expected NOI and holding period requires significant management
judgment. If it is determined that there is an indication of
impairment for assets to be held and used, or if an asset is
deemed to be held for sale, we then determine the assets
fair value.

The apartment industry uses capitalization rates
as the primary measure of fair value. Specifically, annual NOI
for a community is divided by an estimated capitalization rate
to determine the fair value of the community. Determining the
appropriate capitalization rate requires significant judgment
and is typically

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based on many factors including the prevailing
rate for the market or submarket. Further, capitalization rates
can fluctuate up or down due to a variety of factors in the
overall economy or within local markets. If the actual
capitalization rate for a community is significantly different
from our estimated rate, the impairment evaluation for an
individual asset could be materially affected. For example, we
would value a community with annual NOI of $10 million at
$200 million using a 5.0% capitalization rate, whereas that
same community would be valued at $166.7 million if the
actual capitalization rate were 6.0%. Historically we have had
limited and infrequent impairment charges, and the majority of
our apartment community sales have produced gains. For example,
we have sold approximately $6.8 billion of real estate
assets (excluding Ameriton) over the last nine years, which
produced $1.2 billion in gains at an unleveraged internal
rate of return of approximately 13.0%. We evaluate a real estate
asset for potential impairment when events or changes in
circumstances indicate that its carrying amount may not be
recoverable.




| |                                               
| | ----------------------------------------------
| | Capital Expenditures and Depreciable
    Lives

We incur costs relating to redevelopment
initiatives, revenue enhancing and expense reducing capital
expenditures, and recurring capital expenditures that are
capitalized as part of our real estate. These amounts are
capitalized and depreciated over estimated useful lives
determined by management. We allocate the cost of newly acquired
properties between net tangible and identifiable intangible
assets. The primary intangible asset associated with an
apartment community acquisition is the value of the existing
lease agreements. When allocating cost to an acquired property,
we first allocate costs to the estimated intangible value of the
existing lease agreements and then to the estimated value of the
land, building and fixtures assuming the property is vacant. We
estimate the intangible value of the lease agreements by
determining the lost revenue associated with a hypothetical
lease-up. We depreciate the building and fixtures based on the
expected useful life of the asset and amortize the intangible
value of the lease agreements over the average remaining life of
the existing leases.

Determining whether expenditures meet the
criteria for capitalization, the assignment of depreciable lives
and determining the appropriate amounts to allocate between
tangible and intangible assets for property acquisitions
requires our management to exercise significant judgment and is
therefore considered a significant accounting
estimate.

Total capital expenditures were 1.0% and 1.4% of
weighted average gross real estate as of December 31, 2004
and 2003, respectively. Additionally, depreciation expense as a
percentage of depreciable real estate was 3.3%, 3.2% and 3.1% or
$0.99, $1.04 and $1.16 per Share for the years ended
December 31, 2004, 2003 and 2002, respectively. If the
actual weighted average useful life were determined to be one
year shorter or longer than managements current estimate,
our annual depreciation expense would increase or decrease
approximately 3.3% or $0.03 per Common Share. See
Note 1 in our audited financial statements in this Annual
Report for additional detail on depreciable lives.



| |              
| | -------------
| | Pursuit Costs

We incur costs relating to the potential
acquisition of real estate which we refer to as pursuit costs.
To the extent that these costs are identifiable with a specific
property and would be capitalized if the property were already
acquired, the costs are accumulated by project and capitalized
in the Other Asset section of the balance sheet. If these
conditions are not met, the costs are expensed as incurred.
Capitalized costs include but are not limited to earnest money,
option fees, environmental reports, traffic reports, surveys,
photos, blueprints, direct and incremental personnel costs and
legal costs. Upon acquisition, the costs are included in the
basis of the acquired property. When it becomes probable that a
prospective acquisition will not be acquired, the accumulated
costs for the property are charged to other expense on the
statement of earnings in the period such a determination is made.

Because of the inherent judgment involved in
evaluating whether a prospective property will ultimately be
acquired, we believe capitalizable pursuit costs are a
critical accounting estimate. If it were determined
that a quarter of our prospective acquisitions were deemed
improbable as of December 31, 2004, net earnings for

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the year ended December 31, 2004 would
decrease by approximately $0.016 per share, excluding
refundable earnest money.





Off Balance Sheet Arrangements

Investments in entities that do not qualify as a
variable interest entity and are not controlled through majority
economic interest are not consolidated and are reported as
investments in unconsolidated entities. Our investments in
unconsolidated entities at December 31, 2004, consisted of
$111.5 million in real estate joint ventures, which
generally consist of our percentage ownership in the equity of
the joint ventures.

Consolidated Engineering Services is a service
business that we acquired in the Smith Merger in 2001, and prior
to its sale had been reported as an unconsolidated entity in our
financial statements. CES provides engineering services for
commercial and residential real estate across the country. On
December 19, 2002, CES was sold to a third party for
$178 million in cash. We recorded a $35.4 million net
gain on the sale of the business or $0.16 per share on a
fully diluted basis. As a condition of sale, we agreed to
indemnify the buyer for certain representations and warranties
contained in the sale contract. During 2004 we recognized
$3.2 million of additional income associated with the
expiration of these contingencies. Additionally, approximately
$6.7 million in contingent proceeds related to
indemnification of accounts receivable over 120 days were
excluded from the initial gain. We recognized $0.9 million
and $5.3 million of these contingent proceeds during 2004
and 2003, respectively. We also recognized $3.1 million
related to settlement of an ongoing CES lawsuit during 2004.

Smith Management Construction, Inc. (SMC) is a
service business that we acquired in the Smith Merger during
2001. We sold SMC during February 2003 to members of SMCs
senior management. Prior to the sale, we reported SMC as an
unconsolidated entity in our financial statements. We received
two notes receivable totaling $5.8 million and bearing an
interest rate of 7.0% as consideration for the sale. The first
note for $3.5 million has principal payments that began in
October 2003 with payment in full by February 2008. As of
December 31, 2004, the outstanding balance on this note
receivable was $3.1 million. The second note for
$2.3 million was fully repaid along with all accrued
interest due during May 2003. During the second quarter of 2004,
we recognized the divestiture since our responsibilities under
the majority of the outstanding performance guarantees, which
pertain to ongoing construction projects at the time of sale,
expired.

As part of the Smith Merger, we are required to
indemnify the former Smith Partnership unitholders for any
personal income tax expense resulting from the sale of high-rise
properties identified in the shareholders agreement
between Archstone-Smith, the Operating Trust, Robert H. Smith
and Robert P. Kogod until October 31, 2021.




Contractual Commitments

The following table summarizes information
contained in Managements Discussion and Analysis of
Financial Condition and Results of Operations and in our audited
financial statements in this Annual Report regarding contractual
commitments (amounts in millions):

|                                           |       |      |       |          |  |          |       |           |  |       |       |         |  |   |         |         |  |   |         |         | 
|------------------------------------------ | ----- | ---- | ----- | -------- |  | -------- | ----- | --------- |  | ----- | ----- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                           |       |      |       | 2006 and |  | 2008 and |       | 2010 thru |  |      
|                                           |       | 2005 |       | 2007     |  | 2009     |       | 2096      |  | Total
|                                           |       |      |       |          |  |          |       |           |  |      
|Scheduled long-term debt maturities        |       | $    | 313.7 |          |  | $        | 838.0 |           |  | $     | 911.2 |         |  | $ | 2,067.7 |         |  | $ | 4,130.6 |        
|Unsecured credit facilities(1)             |       |      |      |          |  |          | 19.0  |           |  |       |      |         |  |   |        |         |  |   | 19.0    |        
|Interest on indebtedness                   |       |      | 238.6 |          |  |          | 413.4 |           |  |       | 311.3 |         |  |   | 275.9   |         |  |   | 1,239.2 |        
|Development and redevelopment expenditures |       |      | 380.2 |          |  |          | 105.7 |           |  |       |      |         |  |   |        |         |  |   | 485.9   |        
|Performance bond guarantees(2)             |       |      | 18.9  |          |  |          | 0.7   |           |  |       |      |         |  |   | 2.4     |         |  |   | 22.0    |        
|Lease commitments and other(3)             |       |      | 34.0  |          |  |          | 18.5  |           |  |       | 13.3  |         |  |   | 347.2   |         |  |   | 413.0   |        
|                                           |       |      |       |          |  |          |       |           |  |       |       |         |  |   |         |         |  |   |         |        
|                                           | Total |      | $     | 985.4    |  |          | $     | 1,395.3   |  |       | $     | 1,235.8 |  |   | $       | 2,693.2 |  |   | $       | 6,309.7 | 
|                                           |       |      |       |          |  |          |       |           |  |       |       |         |  |   |         |         |  |   |         |        

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The $600 million unsecured facility matures
    December 2007, with a one-year extension option available at our
    discretion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(2) | Archstone-Smith, our subsidiaries and investees
    have not been required to perform on these guarantees, nor do we
    anticipate being required to perform on such guarantees. Since
    we believe that our risk of loss under these contingencies is
    remote, no accrual for potential loss has been made in the
    accompanying financial statements. We are still obligated for
    certain performance bond guarantees for SMC subsequent to their
    sale, but there are recourse provisions available to us to
    recover any potential future payments from the new owners of SMC.
|   
|(3) | Lease commitments relate principally to ground
    lease payments as of December 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         




Related Party Transactions

Ameriton paid approximately $3.2 million and
$1.5 million to certain officers and employees of
Archstone-Smith related to realized returns on investments sold
during 2004 and 2003, respectively, none of which were made to
members of Ameritons board. Four members of
Ameritons board (James H. Polk, III, John C. Schweitzer,
R. Scot Sellers and Charles E. Mueller, Jr.) are Trustees
of Archstone-Smith or executive officers of the Operating Trust.

During 1997, as part of the employee share
purchase plan, certain officers and other employees purchased
Common Shares of Archstone-Smith. Archstone-Smith financed 95%
of the total purchase price by issuing notes representing
approximately $17.1 million. As of December 31, 2004,
the aggregate outstanding balances on these notes were
approximately $917,000.

ArchstoneSmith has the following business
relationships with business entities or family members of Board
of Trustee member Robert H. Smith:

Mr. Smith owns a residence within a
condominium in Crystal City, where Archstone-Smith staffs the
property with doormen, maintenance, and administrative staff.
Archstone-Smith is contractually reimbursed by the condominium
association for payroll and benefits costs, and receives a
contractual monthly management fee of $848 for other
Archstone-Smith management oversight. ASN does not have an
ownership interest in this property. Archstone-Smith billed
$175,368 during 2004 for expenses incurred and management fees
for this property.

Mr. Smith and Mr. Kogod have a 0.33%
and 4.36% ownership interest, respectively, in a partnership
which owns two apartment communities in Washington D.C.
Archstone-Smith receives a contractual management fee of 4.5% of
revenues to employ the property maintenance and administrative
staff, manage the property, and perform all accounting
functions. Archstone-Smith does not have an ownership interest
in this property. We billed $941,301 during the twelve months
ended December 31, 2004, for expenses incurred and
management fees for this property.

Mr. Smiths daughter is employed as a
Vice President in Marketing at a salary and bonus of
approximately $109,000 and received option grants with a face
value of $237,000 as compensation during 2004. She has been
employed by the Company and its predecessor Charles E.
Smith Residential Realty since September 1980.




New Accounting Pronouncements

In November 2004, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 151,
Inventory Costs an amendment of ARB No. 43,
Chapter 4. This Statement is effective for the
accounting for abnormal amounts of idle facility expense,
freight, handling costs and wasted material associated with
inventory costs incurred during fiscal years beginning after
June 15, 2005. The Statement requires that the
above-mentioned items be recognized as current-period charges.
We do not believe that the adoption of SFAS No. 151
will have a material impact on our financial position, net
earnings or cash flows.

In December 2004, the FASB issued
SFAS No. 152, Accounting for Real Estate
Time-Sharing Transactions an amendment of FASB Statements
No. 66 and 67. This Statement amends
SFAS No. 66,

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Accounting for Sales of Real
Estate to reference the
financial accounting and reporting guidance for real estate
time-sharing transactions that is provided in AICPA Statement of
Position (SOP) 04-2, Accounting for Real Estate
Time-Sharing Transactions. This Statement also amends
SFAS No. 67, Accounting for Costs and Initial
Rental Operations of Real Estate Projects to specify
that guidance relating to (a) incidental operations
(b) costs incurred to sell real estate projects does not
apply to real estate time-sharing transactions. This Statement
is effective for fiscal years beginning after June 15,
2005. We do not believe that the adoption of
SFAS No. 152 will have a material impact on our
financial position, net earnings or cash flows.


In December 2004, the FASB issued
SFAS No. 153, Exchanges of Non-monetary
Assets an amendment of APB No. 29. This Statement
amends APB Opinion No. 29, Accounting for
Non-monetary Transactions to eliminate the exception
for non-monetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of
non-monetary assets that do not have commercial substance. That
exception required that some non-monetary exchanges be recorded
on a carryover basis versus this Statement, which requires that
an entity record a non-monetary exchange at fair value and
recognize any gain or loss if the transaction has commercial
substance. This Statement is effective for fiscal years
beginning after June 15, 2005. We do not believe that the
adoption of SFAS No. 153 will have a material impact
on our financial position, net earnings or cash flows.

In December 2004, the FASB issued
SFAS No. 123 revised 2004, Share-Based
Payment. This Statement is a revision of
SFAS No. 123, Accounting for Stock-Based
Compensation, and supercedes APB No. 25,
Accounting for Stock Issued to Employees. The
Statement requires companies to recognize in the income
statement the grant-date fair value of stock options and other
equity based compensation issued to employees. This Statement is
effective as of the beginning of the first interim or annual
period that commences after June 15, 2005. We do not
believe that the adoption of SFAS No. 123 revised 2004
will have a material impact on our financial position, net
earnings or cash flows.

In March 2004, the FASB issued EITF Issue
No. 03-6, Participating Securities and the
Two-Class Method under FASB Statement No. 128,
Earnings per Share(EITF No. 03-6). This issue
address whether the two-class method requires the presentation
of basic and diluted EPS for all participating securities and
how a participating security should be defined. The guidance to
this issue should be applied to reporting periods beginning
after March 31, 2004. Prior period earnings per share
amounts presented for comparative purposes should be restated to
conform to the guidance in this consensus. The adoption of EITF
No. 03-6 had no impact on our financial position, net
earnings or cash flows.

In October 2004, the FASB issued EITF Issue
No. 04-8, The Effect of Contingently Convertible
Instruments on Diluted Earnings Per Share(EITF
No. 04-8). This issue addresses when contingently
convertible instruments should be included in diluted earnings
per share and should be applied for reporting periods ending
after December 15, 2004. The adoption of EITF No. 04-8
had no impact on our financial position, net earnings or cash
flows.

In November 2004, the FASB issued EITF Issue
No. 03-13, Applying the Conditions in
Paragraph 42 of FASB Statement No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets, in Determining
Whether to Report Discontinued Operations(EITF
No. 03-13). This issue assists in the development of a
model for evaluating (a) which cash flows are to be
considered in determining whether cash flows have been or will
be eliminated and (b) what types of continuing involvement
constitute significant continuing involvement. The guidance in
this issue should be applied to a component of an enterprise
that is either disposed of or classified as held for sale in
fiscal periods beginning after December 15, 2004.
Previously reported operating results related to disposal
transactions initiated within an enterprises fiscal year
that includes the date that this consensus was ratified
(November 30, 2004) may be reclassified. The adoption of
EITF No. 03-13 had no impact on our financial position, net
earnings or cash flows.

In September 2004, the FASB issued EITF Issue
No. 03-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments(EITF No. 03-1). The guidance in EITF No. 03-1 was
effective for other-than-temporary impairment evaluations made
in reporting periods beginning after June 15, 2004.
However, certain provisions regarding the assessment of whether
an impairment is other than temporary have been delayed.
Although the disclosure requirements continue to be effective in
annual

45



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##### Table of Contents



financial statements for fiscal years ending
after December 15, 2003, for investments accounted for
under SFAS No. 115 and 124. For all other investments
addressed by EITF No. 03-1, the disclosures continue to be
effective in annual financial statements for fiscal years ending
after June 15, 2004. The adoption of EITF No. 03-1 had
no impact on our financial position, net earnings or cash flows.







|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk



| |                  
| | -----------------
| | Stock Investments

We have both public and private investments in
equity securities. The publicly traded equity securities are
classified as available for sale securities and
carried at fair value, with unrealized gains and losses reported
as a separate component of shareholders equity. The
private investments, for which we lack the ability to exercise
significant influence, are accounted for at cost. Declines in
the value of public and private investments that our management
determines are other than temporary, are recorded as a provision
for possible loss on investments. Our evaluation of the carrying
value of these investments is primarily based upon a regular
review of market valuations (if available), each companys
operating performance and assumptions underlying cash flow
forecasts. In addition, our management considers events and
circumstances that may signal the impairment of an investment.



| |                                     
| | ------------------------------------
| | Interest Rate Hedging
    Activities

We are exposed to the impact of interest rate
changes and will occasionally utilize interest rate swaps and
interest rate caps as hedges with the objective of lowering our
overall borrowing costs. These derivatives are designated as
either cash flow or fair value hedges. We do not use these
derivatives for trading or other speculative purposes. Further,
as a matter of policy, we only enter into contracts with major
financial institutions based upon their credit ratings and other
factors. When viewed in conjunction with the underlying and
offsetting exposure that the derivatives are designed to hedge,
we have not, nor do we expect to sustain a material loss from
the use of these hedging instruments.

We formally assess, both at inception of the
hedge and on an ongoing basis, whether each derivative is highly
effective in offsetting changes in fair values or cash flows of
the hedged item. We measure hedge effectiveness by comparing the
changes in the fair value or cash flows of the derivative
instrument with the changes in the fair value or cash flows of
the hedged item. We assess effectiveness of purchased interest
rate caps based on overall changes in the fair value of the
caps. If a derivative ceases to be a highly effective hedge, we
discontinue hedge accounting prospectively.

To determine the fair values of derivative and
other financial instruments, we use a variety of methods and
assumptions that are based on market value conditions and risks
existing at each balance sheet date. These methods and
assumptions include standard market conventions and techniques
such as discounted cash flow analysis, option pricing models,
replacement cost and termination cost. All methods of assessing
fair value result in a general approximation of value, and
therefore, are not necessarily indicative of the actual amounts
that we could realize upon disposition.

During the years ended December 31, 2004,
2003 and 2002 we recorded an increase/(decrease) to interest
expense of $33,000, $101,000 and $(312,000), for hedge
ineffectiveness caused by a difference between the interest rate
index on a portion of our outstanding variable rate debt and the
underlying index of the associated interest rate swap. We pursue
hedging strategies that we expect will result in the lowest
overall borrowing costs and least degree of earnings volatility
possible under the new accounting standards.

The following table summarizes the notional
amount, carrying value and estimated fair value of our
derivative financial instruments used to hedge interest rates,
as of December 31, 2004 (dollar amounts in

46



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##### Table of Contents



thousands). The notional amount represents the
aggregate amount of a particular security that is currently
hedged at one time, but does not represent exposure to credit,
interest rate or market risks.


|                   |                            |                         |              |            |         |                |  |           |           |           |   |        |        |       | 
|------------------ | -------------------------- | ----------------------- | ------------ | ---------- | ------- | -------------- |  | --------- | --------- | --------- | - | ------ | ------ | ----- | 
|                   |                            |                         |              |            |         | Carrying and  
|                   |                            | Notional                |              | Maturity   |         | Estimated Fair
|                   |                            | Amount                  |              | Date Range |         | Value         
|                   |                            |                         |              |            |         |               
|Cash flow hedges:  |                            |                         |              |            |         |                |  |           |           |           |   |       
|                   | Interest rate caps         |                         | $            | 109,008    |         |                |  | 2005-2007 |           |           | $ | 8      |       
|                   | Interest rate swaps        |                         |              | 150,000    |         |                |  | 2006      |           |           |   | (3,556 | )     
|                   |                            |                         |              |            |         |                |  |           |           |           |   |       
|                   |                            | Total cash flow hedges  |              | $          | 259,008 |                |  |           | 2005-2007 |           |   | $      | (3,548 | )    
|                   |                            |                         |              |            |         |                |  |           |           |           |   |       
|Fair value hedges: |                            |                         |              |            |         |                |  |           |           |           |   |       
|                   | Interest rate swaps        |                         | $            | 75,055     |         |                |  | 2008      |           |           | $ | 4,470  |       
|                   | Total rate of return swaps |                         |              | 77,006     |         |                |  | 2006-2007 |           |           |   | 8,593  |       
|                   |                            |                         |              |            |         |                |  |           |           |           |   |       
|                   |                            | Total fair value hedges |              | $          | 152,061 |                |  |           | 2005-2008 |           |   | $      | 13,063 |      
|                   |                            |                         |              |            |         |                |  |           |           |           |   |       
|                   |                            |                         | Total hedges |            | $       | 411,069        |  |           |           | 2005-2008 |   |        | $      | 9,515 | 
|                   |                            |                         |              |            |         |                |  |           |           |           |   |       

During 2004, we entered into interest rate swap
transactions to mitigate the risk of changes in the
interest-related cash outflows on a forecasted issuance of
long-term unsecured debt. At inception, these swap transactions
had an aggregate notional amount of $144 million and a fair
value of zero. The long-term unsecured debt these swap
transactions related to was issued in August 2004. The hedge was
terminated when the debt was issued. The fair value of the cash
flow hedge upon termination was a liability of approximately
$2.5 million. This amount was deferred in accumulated other
comprehensive income and will be reclassified out of accumulated
other comprehensive income as additional interest expense as the
hedged forecasted interest payments occur.



| |                                         
| | ----------------------------------------
| | Equity Securities Hedging
    Activities

We are exposed to price risk associated with
changes in the fair value of certain equity securities. During
2003, Archstone-Smith entered into forward sale agreements with
an aggregate notional amount, which represents the fair value of
the underlying marketable securities, of approximately
$128.5 million and an aggregate fair value of the forward
sale agreements of approximately $486,000, to protect against a
reduction in the fair value of these securities. We designated
this forward sale as a fair value hedge.

During 2004, we settled all of the forward sales
agreements for approximately 2.8 million shares, and sold
308,200 shares of marketable securities which were not
subject to forward sales agreements, resulting in an aggregate
gain of approximately $24.9 million. The total net proceeds
from the sale were $143.0 million, with the marketable
securities basis determined using the average costs of the
securities. The fair value of forward sales agreements at
December 31, 2004 and 2003 were $0 and $250,462,
respectively.



| |                                        
| | ---------------------------------------
| | Interest Rate Sensitive
    Liabilities

The table below provides information about our
liabilities that are sensitive to changes in interest rates as
of December 31, 2004. As the table incorporates only those
exposures that existed as of December 31, 2004, it does not
consider those exposures or positions, which could arise after
that date.

Moreover, because there were no firm commitments
to actually sell these instruments at fair value as of
December 31, 2004, the information presented herein is an
estimate and has limited predictive value. As a result, our
ultimate realized gain or loss, if any, will depend on the
exposures that arise during future periods, hedging strategies,
prevailing interest rates and other market factors existing at
the time. The debt

47



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##### Table of Contents



classification and interest rates shown below
give effect to fair value hedges and other fees or expenses,
where applicable (in thousands):


|                                     |                              |                    |                                  |        |         |      |   |      |         |      |   |            |         |         |   |           |         |     |   |   |         |     |   |   |         |     |   |        |           |     |   |        |           |   | 
|------------------------------------ | ---------------------------- | ------------------ | -------------------------------- | ------ | ------- | ---- | - | ---- | ------- | ---- | - | ---------- | ------- | ------- | - | --------- | ------- | --- | - | - | ------- | --- | - | - | ------- | --- | - | ------ | --------- | --- | - | ------ | --------- | - | 
|                                     |                              |                    |                                  |        |         |      |   |      |         |      |   |            |         |         |   | Estimated
|                                     |                              |                    |                                  |        |         |      |   |      |         |      |   |            |         | Total   |   | Fair     
|                                     |                              | 2005               |                                  | 2006   |         | 2007 |   | 2008 |         | 2009 |   | Thereafter |         | Balance |   | Value(1) 
|                                     |                              |                    |                                  |        |         |      |   |      |         |      |   |            |         |         |   |          
|Interest rate sensitive liabilities: |                              |                    |                                  |        |         |      |   |      |         |      |   |            |         |         |   |           |         |     |   |   |         |     |   |   |         |     |   |        |           |     |   |       
|                                     | Unsecured credit facilities: |                    | $                                | 19,000 |         |      | $ |     |         |      | $ |           |         |         | $ |          |         |     | $ |  |         |     | $ |  |         |     | $ | 19,000 |           |     | $ | 19,000 |          
|                                     |                              |                    | Average nominal interest rate(2) |        |         | 2.6  | % |      |         |     |   |            |         |        |   |           |         |    |   |   |         |    |   |   |         |    |   |        |           | 2.6 | % |        |           |  | 
|                                     | Long-Term Unsecured Debt:    |                    |                                  |        |         |      |   |      |         |      |   |            |         |         |   |           |         |     |   |   |         |     |   |   |         |     |   |        |           |     |   |        |          
|                                     |                              | Fixed rate         |                                  | $      | 251,250 |      |   | $    | 51,250  |      |   | $          | 386,250 |         |   | $         | 311,250 |     |   | $ | 82,277  |     |   | $ | 937,330 |     |   | $      | 2,019,607 |     |   | $      | 2,183,254 |  
|                                     |                              |                    | Average nominal interest rate(2) |        |         | 8.2  | % |      |         | 7.4  | % |            |         | 5.4     | % |           |         | 4.0 | % |   |         | 7.6 | % |   |         | 6.9 | % |        |           | 6.4 | % |        |           |  | 
|                                     |                              | Variable rate(3)   |                                  | $      |        |      |   | $    |        |      |   | $          |        |         |   | $         | 22,412  |     |   | $ |        |     |   | $ | 57,113  |     |   | $      | 79,525    |     |   | $      | 79,525    |  
|                                     |                              |                    | Average nominal interest rate(2) |        |         |      |   |      |         |      |   |            |         |         |   |           |         |     |   |   |         | 2.1 | % |   |         | 2.1 | % |        |           | 2.1 | % |        |           |  | 
|                                     | Mortgages payable:           |                    |                                  |        |         |      |   |      |         |      |   |            |         |         |   |           |         |     |   |   |         |     |   |   |         |     |   |        |           |     |   |        |          
|                                     |                              | Fixed rate debt    |                                  | $      | 18,051  |      |   | $    | 240,330 |      |   | $          | 122,216 |         |   | $         | 119,409 |     |   | $ | 368,512 |     |   | $ | 591,490 |     |   | $      | 1,460,008 |     |   | $      | 1,521,939 |  
|                                     |                              |                    | Average nominal interest rate(2) |        |         | 6.1  | % |      |         | 6.0  | % |            |         | 5.6     | % |           |         | 6.2 | % |   |         | 6.8 | % |   |         | 6.6 | % |        |           | 6.4 | % |        |           |  | 
|                                     |                              | Variable rate debt |                                  | $      | 44,442  |      |   | $    | 3,873   |      |   | $          | 34,056  |         |   | $         | 3,541   |     |   | $ | 3,830   |     |   | $ | 481,755 |     |   | $      | 571,497   |     |   | $      | 571,497   |  
|                                     |                              |                    | Average nominal interest rate(2) |        |         | 4.2  | % |      |         | 2.0  | % |            |         | 2.7     | % |           |         | 2.0 | % |   |         | 1.9 | % |   |         | 2.0 | % |        |           | 2.2 | % |        |           |  | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The estimated fair value for each of the
    liabilities listed was calculated by discounting the actual
    principal payment stream at prevailing interest rates (obtained
    from third party financial institutions) currently available on
    debt instruments with similar terms and features.                                                                                                                                                                                                                                                                                                    
|   
|(2) | Reflects the weighted average nominal interest
    rate on the liabilities outstanding during each period, giving
    effect to principal payments and final maturities during each
    period, if any. The nominal rates for variable rate mortgages
    payable have been held constant during each period presented
    based on the actual variable rates as of December 31, 2004.
    The weighted average effective interest rate on the unsecured
    credit facilities, Long- Term Unsecured Debt and mortgages
    payable was 2.62%, 6.23% and 5.24%, respectively, as of
    December 31, 2004.
|   
|(3) | Represents unsecured tax-exempt bonds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

Our Balance Sheets as of December 31, 2004
and 2003, and our Statements of Earnings, Shareholders
Equity and Cash Flows for each of the years in the three-year
period ended December 31, 2004,
Schedule III  Real Estate and Accumulated
Depreciation and Schedule IV  Mortgage Loans on
Real Estate, together with the reports of KPMG LLP, registered
public accounting firm, are included under Item 15 of this
Annual Report and are incorporated herein by reference. Selected
quarterly financial data is presented in Note 11 of our
audited financial statements in this Annual Report.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

Not applicable.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

An evaluation was carried out under the
supervision and with the participation of management, including
our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-14(c) under the Securities Exchange Act
of 1934). Based on their evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that our disclosure
controls and procedures were, to the best of their knowledge,
effective as of December 31, 2004, to ensure that
information required to be disclosed in reports that are filed
or submitted under the Securities Exchange Act are recorded,
processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
Subsequent to December 31, 2004, there were no significant
changes

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##### Table of Contents



in the Trusts disclosure controls or in
other factors that could significantly affect these controls,
including any corrective actions with regard to significant
deficiencies and material weaknesses.







| |                                                                     
| | --------------------------------------------------------------------
| | Managements Report on Internal
    Control Over Financial Reporting

Our management is responsible for establishing
and maintaining adequate internal control over financial
reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934, as amended). Our management
assessed the effectiveness of our internal control over
financial reporting as of December 31, 2004. In making this
assessment, we used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework. We
have concluded that, as of December 31, 2004, our internal
control over financial reporting was effective based on these
criteria. Our independent registered public accounting firm,
KPMG LLP, has issued an audit report on our assessment of our
internal control over financial reporting, which is included
herein.

Our management, including our Chief Executive
Officer and Chief Financial Officer, does not expect that our
disclosure controls and procedures or our internal controls will
prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. Because
of their inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within
Archstone-Smith have been detected.

49



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##### Table of Contents






Part III






|         |                                                      
|-------- | -----------------------------------------------------
|Item 10. | Trustees and Executive Officers of the
    Registrant

For information regarding our senior officers,
see Item 1. Business  Officers of
Archstone-Smith. For information on our Code of Ethics,
see Item 1. Business  Available
Information and Code of Ethics. The other information
required by this Item 10 is incorporated herein by
reference to the description under the captions Election
of Trustees, Section 16(a) Beneficial Ownership
Reporting Compliance, and Report of the Audit
Committee in our definitive proxy statement for our annual
meeting of shareholders (2005 Proxy Statement).






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Incorporated herein by reference to the
description under the captions Election of Trustees
and Executive Compensation in the 2005 Proxy
Statement.






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

Incorporated herein by reference to the
description under the captions Principal
Shareholders and Election of Trustees in the
2005 Proxy Statement.



| |                                         
| | ----------------------------------------
| | Equity Compensation Plan
    Information

|                                                               |       |                      |           |                   |  |                           |       |       |  |  |           |           | 
|-------------------------------------------------------------- | ----- | -------------------- | --------- | ----------------- |  | ------------------------- | ----- | ----- |  |  | --------- | --------- | 
|                                                               |       |                      |           |                   |  | (c)                      
|                                                               |       | (a)                  |           | (b)               |  | Number of securities     
|                                                               |       | Number of securities |           | Weighted-average  |  | remaining available for  
|                                                               |       | to be issued upon    |           | exercise price of |  | future issuance under    
|                                                               |       | exercise of          |           | outstanding       |  | equity compensation plans
|                                                               |       | outstanding options, |           | options, warrants |  | (excluding securities    
|Plan Category                                                  |       | warrants and rights  |           | and rights        |  | reflected in column (a)) 
|                                                               |       |                      |           |                   |  |                          
|Equity compensation plans approved by security
    holders     |       |                      | 4,745,351 |                   |  | $                         | 23.41 |       |  |  | 8,232,000 |          
|Equity compensation plans not approved by
    security holders |       |                      |          |                   |  |                           |      |       |  |  |          |          
|                                                               |       |                      |           |                   |  |                           |       |       |  |  |           |          
|                                                               | Total |                      |           | 4,745,351         |  |                           | $     | 23.41 |  |  |           | 8,232,000 | 
|                                                               |       |                      |           |                   |  |                           |       |       |  |  |           |          






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Incorporated herein by reference to the
description under the caption Certain Relationships and
Transactions in the 2005 Proxy Statement.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accounting Fees and
    Services

Incorporated herein by reference to the
description under the caption, Ratification of
Relationship with Registered Public Accountants in the
2005 Proxy Statement.

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##### Table of Contents






Part IV






|         |                                            
|-------- | -------------------------------------------
|Item 15. | Exhibits, Financial Statement
    Schedules

The following documents are filed as part of this
report:



| |                                       
| | --------------------------------------
| | (a) Financial Statements and Schedule:



| |                                
| | -------------------------------
| | 1.     Financial
    Statements



| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | See Index to Financial Statements and Schedule on
    page 52 of this report, which is incorporated herein by
    reference.



| |                                         
| | ----------------------------------------
| | 2.     Financial
    Statement Schedule:



| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | See Schedule III on page 95 of this
    report, which is incorporated herein by reference.                                                                       
|
| | See Schedule IV on page 97 of this
    report, which is incorporated herein by reference.                                                                        
|
| | All other schedules have been omitted since the
    required information is presented in the financial statements
    and the related notes or is not applicable.



| |                
| | ---------------
| | 3.     Exhibits



| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | See Index to Exhibits on page 100 of this
    report, which is incorporated herein by reference.



| |              
| | -------------
| | (b) Exhibits:



| |                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Exhibits required by Item 601 of
    Registration S-K are listed in the Index to Exhibits on
    page 100 of this Annual Report, which is incorporated
    herein by reference.

51



---










INDEX TO FINANCIAL STATEMENTS AND
SCHEDULE

|                                                                                                                                             |  |      |     | 
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                             |  | Page
|                                                                                                                                             |  |     
|Reports of Independent
    Registered Public Accounting Firm                                                                                 |  |      | 53  | 
|Consolidated Balance Sheets
    as of December 31, 2004 and 2003                                                                             |  |      | 55  | 
|Consolidated Statements of
    Earnings for the years ended December 31, 2004, 2003 and
    2002                                             |  |      | 56  | 
|Consolidated Statements of
    Shareholders Equity and Comprehensive Income (Loss) for
    the years ended December 31, 2004, 2003 and 2002 |  |      | 57  | 
|Consolidated Statements of
    Cash Flows for the years ended December 31, 2004, 2003 and
    2002                                           |  |      | 58  | 
|Notes to Consolidated
    Financial Statements                                                                                               |  |      | 59  | 
|Independent Auditors
    Report on Financial Statement Schedule                                                                             |  |      | 94  | 
|Schedule III 
    Real Estate and Accumulated Depreciation as of December 31,
    2004                                                      |  |      | 95  | 
|Schedule IV 
    Mortgage Loans on Real Estate as of December 31, 2004                                                                      |  |      | 97  | 
|Signatures                                                                                                                                   |  |      | 98  | 
|Index to Exhibits                                                                                                                            |  |      | 100 | 



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REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

The Board of Trustees and Shareholders

Archstone-Smith Trust:


We have audited the accompanying consolidated
balance sheets of Archstone-Smith Trust and subsidiaries as of
December 31, 2004 and 2003, and the related consolidated
statements of earnings, shareholders equity and
comprehensive income (loss), and cash flows for each of the
years in the three-year period ended December 31, 2004.
These consolidated financial statements are the responsibility
of Archstone-Smith Trusts management. Our responsibility
is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Archstone-Smith Trust and
subsidiaries as of December 31, 2004 and 2003, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2004, in
conformity with U.S. generally accepted accounting principles.

Effective July 1, 2003, Archstone-Smith
Trust adopted FASB Interpretation No. 46, Consolidation
of Variable Interest Entities (revised). As a result, the
accompanying consolidated financial statements, referred to
above, have been restated to reflect the consolidated financial
position and results of operations of Archstone-Smith Trust and
certain previously unconsolidated entities in accordance with
U.S. generally accepted accounting principles.

We also have audited, in accordance with the
standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of Archstone-Smith
Trusts internal control over financial reporting as of
December 31, 2004, based on criteria established in
Internal Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated February 28, 2005, expressed
an unqualified opinion on managements assessment of, and
the effective operation of, internal control over financial
reporting.

/s/ KPMG LLP

Denver, Colorado

February 28, 2005


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REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

The Board of Trustees and Shareholders

Archstone-Smith Trust:


We have audited managements assessment,
included in the accompanying Managements Report on
Internal Control over Financial Reporting appearing under
Item 9A, that Archstone-Smith Trust maintained effective
internal control over financial reporting as of
December 31, 2004, based on criteria established in
Internal Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Archstone Smith Trusts management is responsible
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is
to express an opinion on managements assessment and an
opinion on the effectiveness of Archstone-Smith Trusts
internal control over financial reporting based on our audit.

We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was
maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.

A companys internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A
companys internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal
control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.

In our opinion, managements assessment that
Archstone-Smith Trust maintained effective internal control over
financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on criteria established
in Internal Control  Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Also, in our opinion, Archstone-Smith Trust
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2004, based on
criteria established in Internal Control  Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).

We also have audited, in accordance with the
standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of
Archstone-Smith Trust and subsidiaries as of December 31,
2004 and 2003, and the related consolidated statements of
earnings, shareholders equity and comprehensive income
(loss), and cash flows for each of the years in the three-year
period ended December 31, 2004, and our report dated
February 28, 2005, expressed an unqualified opinion on
those consolidated financial statements.

/s/ KPMG LLP

Denver, Colorado

February 28, 2005


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ARCHSTONE-SMITH TRUST



CONSOLIDATED BALANCE SHEETS


(In thousands, except share data)


|                                                             |                                                                                                                                                                  |                                            |           |           |           |   |           |           |           | 
|------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                                             |                                                                                                                                                                  |                                           
|                                                             |                                                                                                                                                                  | December 31,                              
|                                                             |                                                                                                                                                                  |                                           
|                                                             |                                                                                                                                                                  | 2004                                       |           | 2003     
|                                                             |                                                                                                                                                                  |                                            |           |          
|ASSETS                                                      
|Real estate                                                  |                                                                                                                                                                  | $                                          | 8,958,195 |           |           | $ | 8,783,349 |          
|Real estate  held for sale                                  |                                                                                                                                                                  |                                            | 262,843   |           |           |   | 215,831   |          
|Less accumulated depreciation                                |                                                                                                                                                                  |                                            | 763,542   |           |           |   | 648,982   |          
|                                                             |                                                                                                                                                                  |                                            |           |           |           |   |           |          
|                                                             |                                                                                                                                                                  |                                            | 8,457,496 |           |           |   | 8,350,198 |          
|Investments in and advances to unconsolidated
    entities   |                                                                                                                                                                  |                                            | 111,481   |           |           |   | 86,367    |          
|                                                             |                                                                                                                                                                  |                                            |           |           |           |   |           |          
|                                                             |                                                                                                                                                                  | Net real estate investments                |           |           | 8,568,977 |   |           |           | 8,436,565 | 
|Cash and cash equivalents                                    |                                                                                                                                                                  |                                            | 203,255   |           |           |   | 5,230     |          
|Restricted cash in tax-deferred exchange and bond
    escrow |                                                                                                                                                                  |                                            | 120,095   |           |           |   | 180,920   |          
|Other assets                                                 |                                                                                                                                                                  |                                            | 173,717   |           |           |   | 298,980   |          
|                                                             |                                                                                                                                                                  |                                            |           |           |           |   |           |          
|                                                             |                                                                                                                                                                  | Total assets                               |           | $         | 9,066,044 |   |           | $         | 8,921,695 | 
|                                                             |                                                                                                                                                                  |                                            |           |           |           |   |           |          
|                                                            
|LIABILITIES AND SHAREHOLDERS
    EQUITY                    
|Liabilities:                                                 |                                                                                                                                                                  |                                            |           |           |           |   |           |          
|                                                             | Unsecured credit facilities                                                                                                                                      |                                            | $         | 19,000    |           |   | $         | 103,790   |          
|                                                             | Long-Term Unsecured Debt                                                                                                                                         |                                            |           | 2,099,132 |           |   |           | 1,871,965 |          
|                                                             | Mortgages payable                                                                                                                                                |                                            |           | 1,970,889 |           |   |           | 1,866,252 |          
|                                                             | Mortgages payable  held for sale                                                                                                                                |                                            |           | 60,616    |           |   |           | 61,373    |          
|                                                             | Accounts payable                                                                                                                                                 |                                            |           | 52,052    |           |   |           | 27,086    |          
|                                                             | Accrued expenses and other liabilities                                                                                                                           |                                            |           | 273,079   |           |   |           | 254,126   |          
|                                                             |                                                                                                                                                                  |                                            |           |           |           |   |           |          
|                                                             |                                                                                                                                                                  | Total liabilities                          |           |           | 4,474,768 |   |           |           | 4,184,592 | 
|                                                             |                                                                                                                                                                  |                                            |           |           |           |   |           |          
|Minority interest                                            |                                                                                                                                                                  |                                            | 498,098   |           |           |   | 592,416   |          
|                                                             |                                                                                                                                                                  |                                            |           |           |           |   |           |          
|Shareholders equity:                                        |                                                                                                                                                                  |                                            |           |           |           |   |           |          
|                                                             | Convertible Preferred Shares                                                                                                                                     |                                            |           |          |           |   |           | 50,000    |          
|                                                             | Perpetual Preferred Shares                                                                                                                                       |                                            |           | 50,000    |           |   |           | 98,940    |          
|                                                             | Common Shares (Par value $0.01; 450,000,000
    shares authorized; 199,577,459 and 194,762,263 shares issued and
    outstanding in 2004 and 2003, respectively) |                                            |           | 1,996     |           |   |           | 1,948     |          
|                                                             | Additional paid-in capital                                                                                                                                       |                                            |           | 4,026,113 |           |   |           | 3,952,404 |          
|                                                             | Accumulated other comprehensive (loss) income                                                                                                                    |                                            |           | (4,425    | )         |   |           | 14,235    |          
|                                                             | Retained Earnings                                                                                                                                                |                                            |           | 19,494    |           |   |           | 27,160    |          
|                                                             |                                                                                                                                                                  |                                            |           |           |           |   |           |          
|                                                             |                                                                                                                                                                  | Total shareholders equity                 |           |           | 4,093,178 |   |           |           | 4,144,687 | 
|                                                             |                                                                                                                                                                  |                                            |           |           |           |   |           |          
|                                                             |                                                                                                                                                                  | Total liabilities and shareholders equity |           | $         | 9,066,044 |   |           | $         | 8,921,695 | 
|                                                             |                                                                                                                                                                  |                                            |           |           |           |   |           |          

The accompanying notes are an integral part of
these consolidated financial statements.

55



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##### Table of Contents



ARCHSTONE-SMITH TRUST



CONSOLIDATED STATEMENTS OF EARNINGS


(In thousands, except per share
amounts)


|                                                       |                                                           |                          |         |         |   |      |         |         |   |   |         |         |  
|------------------------------------------------------ | --------------------------------------------------------- | ------------------------ | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                       |                                                           |                         
|                                                       |                                                           | Years Ended December 31,
|                                                       |                                                           |                         
|                                                       |                                                           | 2004                     |         | 2003    |   | 2002
|                                                       |                                                           |                          |         |         |   |     
|Revenues:                                              |                                                           |                          |         |         |   |      |         |         |   |   |         |        
|                                                       | Rental revenues                                           |                          | $       | 854,121 |   |      | $       | 764,338 |   |   | $       | 744,877 |  
|                                                       | Other income                                              |                          |         | 19,208  |   |      |         | 19,334  |   |   |         | 9,462   |  
|                                                       |                                                           |                          |         |         |   |      |         |         |   |   |         |        
|                                                       |                                                           |                          | 873,329 |         |   |      | 783,672 |         |   |   | 754,339 |        
|                                                       |                                                           |                          |         |         |   |      |         |         |   |   |         |        
|Expenses:                                              |                                                           |                          |         |         |   |      |         |         |   |   |         |        
|                                                       | Rental expenses                                           |                          |         | 219,717 |   |      |         | 189,691 |   |   |         | 189,099 |  
|                                                       | Real estate taxes                                         |                          |         | 81,932  |   |      |         | 67,738  |   |   |         | 66,443  |  
|                                                       | Depreciation on real estate investments                   |                          |         | 203,183 |   |      |         | 162,723 |   |   |         | 148,588 |  
|                                                       | Interest expense                                          |                          |         | 175,249 |   |      |         | 160,871 |   |   |         | 149,538 |  
|                                                       | General and administrative expenses                       |                          |         | 55,479  |   |      |         | 49,838  |   |   |         | 45,710  |  
|                                                       | Other expenses                                            |                          |         | 5,972   |   |      |         | 35,879  |   |   |         | 17,014  |  
|                                                       |                                                           |                          |         |         |   |      |         |         |   |   |         |        
|                                                       |                                                           |                          | 741,532 |         |   |      | 666,740 |         |   |   | 616,392 |        
|                                                       |                                                           |                          |         |         |   |      |         |         |   |   |         |        
|Earnings from operations                               |                                                           |                          | 131,797 |         |   |      | 116,932 |         |   |   | 137,947 |        
|                                                       | Minority interest                                         |                          |         | (22,543 | ) |      |         | (16,576 | ) |   |         | (30,535 | )
|                                                       | Gains on dispositions of depreciated real estate,
    net |                          |         |        |   |      |         |        |   |   |         | 35,950  |  
|                                                       | Income from unconsolidated entities                       |                          |         | 17,902  |   |      |         | 5,745   |   |   |         | 53,602  |  
|                                                       | Other non-operating income                                |                          |         | 28,162  |   |      |         |        |   |   |         |        |  
|                                                       |                                                           |                          |         |         |   |      |         |         |   |   |         |        
|Net earnings before discontinued operations            |                                                           |                          | 155,318 |         |   |      | 106,101 |         |   |   | 196,964 |        
|                                                       | Net earnings from discontinued operations                 |                          |         | 387,024 |   |      |         | 327,556 |   |   |         | 117,851 |  
|                                                       |                                                           |                          |         |         |   |      |         |         |   |   |         |        
|Net earnings                                           |                                                           |                          | 542,342 |         |   |      | 433,657 |         |   |   | 314,815 |        
|                                                       | Preferred Share dividends                                 |                          |         | (10,892 | ) |      |         | (20,997 | ) |   |         | (32,185 | )
|                                                       |                                                           |                          |         |         |   |      |         |         |   |   |         |        
|Net earnings attributable to Common Shares 
    Basic |                                                           | $                        | 531,450 |         |   | $    | 412,660 |         |   | $ | 282,630 |        
|                                                       |                                                           |                          |         |         |   |      |         |         |   |   |         |        
|Weighted average Common Shares outstanding:            |                                                           |                          |         |         |   |      |         |         |   |   |         |        
|                                                       | Basic                                                     |                          |         | 196,098 |   |      |         | 187,170 |   |   |         | 177,757 |  
|                                                       |                                                           |                          |         |         |   |      |         |         |   |   |         |        
|                                                       | Diluted                                                   |                          |         | 199,233 |   |      |         | 195,640 |   |   |         | 178,780 |  
|                                                       |                                                           |                          |         |         |   |      |         |         |   |   |         |        
|Net earnings per Common Share  Basic:                 |                                                           |                          |         |         |   |      |         |         |   |   |         |        
|                                                       | Net earnings before discontinued operations               |                          | $       | 0.74    |   |      | $       | 0.45    |   |   | $       | 0.93    |  
|                                                       | Discontinued operations, net                              |                          |         | 1.97    |   |      |         | 1.75    |   |   |         | 0.66    |  
|                                                       |                                                           |                          |         |         |   |      |         |         |   |   |         |        
|                                                       | Net earnings                                              |                          | $       | 2.71    |   |      | $       | 2.20    |   |   | $       | 1.59    |  
|                                                       |                                                           |                          |         |         |   |      |         |         |   |   |         |        
|Net earnings per Common Share  Diluted:               |                                                           |                          |         |         |   |      |         |         |   |   |         |        
|                                                       | Net earnings before discontinued operations               |                          | $       | 0.73    |   |      | $       | 0.44    |   |   | $       | 0.92    |  
|                                                       | Discontinued operations, net                              |                          |         | 1.96    |   |      |         | 1.74    |   |   |         | 0.66    |  
|                                                       |                                                           |                          |         |         |   |      |         |         |   |   |         |        
|                                                       | Net earnings                                              |                          | $       | 2.69    |   |      | $       | 2.18    |   |   | $       | 1.58    |  
|                                                       |                                                           |                          |         |         |   |      |         |         |   |   |         |        
|Dividends paid per Common Share                        |                                                           | $                        | 2.72    |         |   | $    | 1.71    |         |   | $ | 1.70    |        
|                                                       |                                                           |                          |         |         |   |      |         |         |   |   |         |        

The accompanying notes are an integral part of
these consolidated financial statements.

56



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##### Table of Contents



ARCHSTONE-SMITH TRUST



CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY AND


COMPREHENSIVE INCOME (LOSS)


Years Ended December 31, 2004, 2003 and
2002


(In thousands)


|                              |                                                           |                                                    |         |             |   |           |         |            |   |               |       |                |   |       |           |         |   |   |         |   |         |   |          |          |         |   |           |          |         |  
|----------------------------- | --------------------------------------------------------- | -------------------------------------------------- | ------- | ----------- | - | --------- | ------- | ---------- | - | ------------- | ----- | -------------- | - | ----- | --------- | ------- | - | - | ------- | - | ------- | - | -------- | -------- | ------- | - | --------- | -------- | ------- | -
|                              |                                                           | Convertible                                        |         | Perpetual   |   |           |         |            |   |               |       |                |   |      
|                              |                                                           | Preferred                                          |         | Preferred   |   |           |         |            |   | Accumulated   |       | Retained       |   |      
|                              |                                                           | Shares at                                          |         | Shares at   |   |           |         |            |   | Other         |       | Earnings/      |   |      
|                              |                                                           | Aggregate                                          |         | Aggregate   |   | Common    |         | Additional |   | Comprehensive |       | (Distributions |   |      
|                              |                                                           | Liquidation                                        |         | Liquidation |   | Shares at |         | Paid-in    |   | Income        |       | in Excess of   |   |      
|                              |                                                           | Preference                                         |         | Preference  |   | Par Value |         | Capital    |   | (Loss)        |       | Net Earnings)  |   | Total
|                              |                                                           |                                                    |         |             |   |           |         |            |   |               |       |                |   |      
|Balances at December 31, 2001 |                                                           | $                                                  | 225,351 |             |   | $         | 148,763 |            |   | $             | 1,745 |                |   | $     | 3,547,133 |         |   | $ | (5,517  | ) |         | $ | (116,331 | )        |         | $ | 3,801,144 |         
|                              | Comprehensive income:                                     |                                                    |         |             |   |           |         |            |   |               |       |                |   |       |           |         |   |   |         |   |         |   |          |          |         |   |           |          |        
|                              |                                                           | Net earnings                                       |         |             |  |           |         |            |  |               |       |                |  |       |           |         |  |   |         |   |        |   |          |          | 314,815 |   |           |          | 314,815 |  
|                              |                                                           | Change in fair value of cash flow hedges           |         |             |  |           |         |            |  |               |       |                |  |       |           |         |  |   |         |   | (7,554  | ) |          |          |        |   |           |          | (7,554  | )
|                              |                                                           | Change in fair value of marketable securities      |         |             |  |           |         |            |  |               |       |                |  |       |           |         |  |   |         |   | 732     |   |          |          |        |   |           |          | 732     |  
|                              |                                                           |                                                    |         |             |   |           |         |            |   |               |       |                |   |       |           |         |   |   |         |   |         |   |          |          |         |   |           |         
|                              | Comprehensive income attributable to Common Shares        |                                                    |         |             |   |           |         |            |   |               |       |                |   |       |           |         |   |   |         |   |         |   |          |          |         |   |           | 307,993  |        
|                              |                                                           |                                                    |         |             |   |           |         |            |   |               |       |                |   |       |           |         |   |   |         |   |         |   |          |          |         |   |           |         
|                              | Preferred Share dividends                                 |                                                    |         |            |   |           |         |           |   |               |       |               |   |       |           |        |   |   |         |  |         |   |          | (32,185  | )       |   |           | (32,185  | )      
|                              | Common Share dividends                                    |                                                    |         |            |   |           |         |           |   |               |       |               |   |       |           |        |   |   |         |  |         |   |          | (306,189 | )       |   |           | (306,189 | )      
|                              | A-1 Common Units converted into Common Shares             |                                                    |         |            |   |           |         |           |   |               |       | 13             |   |       |           | 41,710  |   |   |         |  |         |   |          |         |         |   |           | 41,723   |        
|                              | Conversion of Preferred Shares into Common Shares         |                                                    |         | (30,680     | ) |           |         |           |   |               |       | 17             |   |       |           | 30,663  |   |   |         |  |         |   |          |         |         |   |           |         |        
|                              | Common Share repurchases                                  |                                                    |         |            |   |           |         |           |   |               |       | (7             | ) |       |           | (15,355 | ) |   |         |  |         |   |          |         |         |   |           | (15,362  | )      
|                              | Preferred Share repurchases                               |                                                    |         |            |   |           |         | (49,393    | ) |               |       |               |   |       |           | (11     | ) |   |         |  |         |   |          |         |         |   |           | (49,404  | )      
|                              | Proceeds from Dividend Reinvestment Plan (DRIP)           |                                                    |         |            |   |           |         |           |   |               |       | 18             |   |       |           | 45,453  |   |   |         |  |         |   |          |         |         |   |           | 45,471   |        
|                              | Other, net                                                |                                                    |         |            |   |           |         |           |   |               |       | 21             |   |       |           | 50,756  |   |   |         |  |         |   |          | (150     | )       |   |           | 50,627   |        
|                              |                                                           |                                                    |         |             |   |           |         |            |   |               |       |                |   |       |           |         |   |   |         |   |         |   |          |          |         |   |           |         
|Balances at December 31, 2002 |                                                           |                                                    | 194,671 |             |   |           | 99,370  |            |   |               | 1,807 |                |   |       | 3,700,349 |         |   |   | (12,339 | ) |         |   | (140,040 | )        |         |   | 3,843,818 |         
|                              | Comprehensive income:                                     |                                                    |         |             |   |           |         |            |   |               |       |                |   |       |           |         |   |   |         |   |         |   |          |          |         |   |           |          |        
|                              |                                                           | Net earnings                                       |         |             |  |           |         |            |  |               |       |                |  |       |           |         |  |   |         |   |        |   |          |          | 433,657 |   |           |          | 433,657 |  
|                              |                                                           | Change in fair value of cash flow hedges           |         |             |  |           |         |            |  |               |       |                |  |       |           |         |  |   |         |   | 3,439   |   |          |          |        |   |           |          | 3,439   |  
|                              |                                                           | Change in fair value of marketable securities      |         |             |  |           |         |            |  |               |       |                |  |       |           |         |  |   |         |   | 23,135  |   |          |          |        |   |           |          | 23,135  |  
|                              |                                                           |                                                    |         |             |   |           |         |            |   |               |       |                |   |       |           |         |   |   |         |   |         |   |          |          |         |   |           |         
|                              | Comprehensive income attributable to Common Shares        |                                                    |         |             |   |           |         |            |   |               |       |                |   |       |           |         |   |   |         |   |         |   |          |          |         |   |           | 460,231  |        
|                              |                                                           |                                                    |         |             |   |           |         |            |   |               |       |                |   |       |           |         |   |   |         |   |         |   |          |          |         |   |           |         
|                              | Preferred Share dividends                                 |                                                    |         |            |   |           |         |           |   |               |       |               |   |       |           |        |   |   |         |  |         |   |          | (20,997  | )       |   |           | (20,997  | )      
|                              | Common Share dividends                                    |                                                    |         |            |   |           |         |           |   |               |       |               |   |       |           |        |   |   |         |  |         |   |          | (245,460 | )       |   |           | (245,460 | )      
|                              | A-1 Common Units converted into Common Shares             |                                                    |         |            |   |           |         |           |   |               |       | 13             |   |       |           | 25,521  |   |   |         |  |         |   |          |         |         |   |           | 25,534   |        
|                              | Conversion of Preferred Shares into Common Shares         |                                                    |         | (143,416    | ) |           |         |           |   |               |       | 91             |   |       |           | 143,325 |   |   |         |  |         |   |          |         |         |   |           |         |        
|                              | Common Share repurchases                                  |                                                    |         |            |   |           |         |           |   |               |       | (6             | ) |       |           | (13,157 | ) |   |         |  |         |   |          |         |         |   |           | (13,163  | )      
|                              | Preferred Share repurchases                               |                                                    |         | (1,255      | ) |           |         | (430       | ) |               |       |               |   |       |           | (196    | ) |   |         |  |         |   |          |         |         |   |           | (1,881   | )      
|                              | Exercise of Options                                       |                                                    |         |            |   |           |         |           |   |               |       | 22             |   |       |           | 43,398  |   |   |         |  |         |   |          |         |         |   |           | 43,420   |        
|                              | Proceeds from Dividend Reinvestment Plan (DRIP)           |                                                    |         |            |   |           |         |           |   |               |       | 21             |   |       |           | 48,105  |   |   |         |  |         |   |          |         |         |   |           | 48,126   |        
|                              | Other, net                                                |                                                    |         |            |   |           |         |           |   |               |       |               |   |       |           | 5,059   |   |   |         |  |         |   |          |         |         |   |           | 5,059    |        
|                              |                                                           |                                                    |         |             |   |           |         |            |   |               |       |                |   |       |           |         |   |   |         |   |         |   |          |          |         |   |           |         
|Balances at December 31, 2003 |                                                           |                                                    | 50,000  |             |   |           | 98,940  |            |   |               | 1,948 |                |   |       | 3,952,404 |         |   |   | 14,235  |   |         |   | 27,160   |          |         |   | 4,144,687 |         
|                              | Comprehensive income:                                     |                                                    |         |             |   |           |         |            |   |               |       |                |   |       |           |         |   |   |         |   |         |   |          |          |         |   |           |          |        
|                              |                                                           | Net earnings                                       |         |             |  |           |         |            |  |               |       |                |  |       |           |         |  |   |         |   |        |   |          |          | 542,342 |   |           |          | 542,342 |  
|                              |                                                           | Change in fair value of cash flow hedges           |         |             |  |           |         |            |  |               |       |                |  |       |           |         |  |   |         |   | 3,750   |   |          |          |        |   |           |          | 3,750   |  
|                              |                                                           | Change in fair value/sale of marketable securities |         |             |  |           |         |            |  |               |       |                |  |       |           |         |  |   |         |   | (22,410 | ) |          |          |        |   |           |          | (22,410 | )
|                              |                                                           |                                                    |         |             |   |           |         |            |   |               |       |                |   |       |           |         |   |   |         |   |         |   |          |          |         |   |           |         
|                              | Comprehensive income attributable to Common Shares        |                                                    |         |             |   |           |         |            |   |               |       |                |   |       |           |         |   |   |         |   |         |   |          |          |         |   |           | 523,682  |        
|                              |                                                           |                                                    |         |             |   |           |         |            |   |               |       |                |   |       |           |         |   |   |         |   |         |   |          |          |         |   |           |         
|                              | Preferred Share dividends                                 |                                                    |         |            |   |           |         |           |   |               |       |               |   |       |           |        |   |   |         |  |         |   |          | (10,892  | )       |   |           | (10,892  | )      
|                              | Common Share dividends                                    |                                                    |         |            |   |           |         |           |   |               |       |               |   |       |           |        |   |   |         |  |         |   |          | (539,116 | )       |   |           | (539,116 | )      
|                              | A-1 Common Units converted into Common Shares             |                                                    |         |            |   |           |         |           |   |               |       | 24             |   |       |           | 47,925  |   |   |         |  |         |   |          |         |         |   |           | 47,949   |        
|                              | Conversion of Preferred Shares into Common Shares         |                                                    |         | (50,000     | ) |           |         |           |   |               |       | 26             |   |       |           | 49,974  |   |   |         |  |         |   |          |         |         |   |           |         |        
|                              | Common Share repurchases                                  |                                                    |         |            |   |           |         |           |   |               |       | (35            | ) |       |           | (95,633 | ) |   |         |  |         |   |          |         |         |   |           | (95,668  | )      
|                              | Preferred Share repurchases                               |                                                    |         |            |   |           |         | (48,940    | ) |               |       |               |   |       |           | 1,727   |   |   |         |  |         |   |          |         |         |   |           | (47,213  | )      
|                              | Exercise of Options                                       |                                                    |         |            |   |           |         |           |   |               |       | 31             |   |       |           | 61,436  |   |   |         |  |         |   |          |         |         |   |           | 61,467   |        
|                              | Issuance of Common Shares in exchange for real
    estate |                                                    |         |            |   |           |         |           |   |               |       | 2              |   |       |           | 4,500   |   |   |         |  |         |   |          |         |         |   |           | 4,502    |        
|                              | Other, net                                                |                                                    |         |            |   |           |         |           |   |               |       |               |   |       |           | 3,780   |   |   |         |  |         |   |          |         |         |   |           | 3,780    |        
|                              |                                                           |                                                    |         |             |   |           |         |            |   |               |       |                |   |       |           |         |   |   |         |   |         |   |          |          |         |   |           |         
|Balances at December 31, 2004 |                                                           | $                                                  |        |             |   | $         | 50,000  |            |   | $             | 1,996 |                |   | $     | 4,026,113 |         |   | $ | (4,425  | ) |         | $ | 19,494   |          |         | $ | 4,093,178 |         
|                              |                                                           |                                                    |         |             |   |           |         |            |   |               |       |                |   |       |           |         |   |   |         |   |         |   |          |          |         |   |           |         

The accompanying notes are an integral part of
these consolidated financial statements.

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ARCHSTONE-SMITH TRUST



CONSOLIDATED STATEMENTS OF CASH
FLOWS


(In thousands)


|                                                 |                                                                                              |                                                                                    |         |            |          |      |        |           |          |   |        |          |          |  
|------------------------------------------------ | -------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ------- | ---------- | -------- | ---- | ------ | --------- | -------- | - | ------ | -------- | -------- | -
|                                                 |                                                                                              |                                                                                   
|                                                 |                                                                                              | Years Ended December 31,                                                          
|                                                 |                                                                                              |                                                                                   
|                                                 |                                                                                              | 2004                                                                               |         | 2003       |          | 2002
|                                                 |                                                                                              |                                                                                    |         |            |          |     
|Operating activities:                            |                                                                                              |                                                                                    |         |            |          |      |        |           |          |   |        |         
|                                                 | Net earnings                                                                                 |                                                                                    | $       | 542,342    |          |      | $      | 433,657   |          |   | $      | 314,815  |         
|                                                 | Adjustments to reconcile net earnings to net cash
    flow provided by operating activities: |                                                                                    |         |            |          |      |        |           |          |   |        |          |         
|                                                 |                                                                                              | Depreciation and amortization                                                      |         |            | 227,000  |      |        |           | 210,427  |   |        |          | 212,178  |  
|                                                 |                                                                                              | Gains on dispositions of depreciated real estate,
    net                          |         |            | (446,447 | )    |        |           | (353,600 | ) |        |          | (139,604 | )
|                                                 |                                                                                              | Gains on sale of marketable equity securities and
    property management business |         |            | (28,162  | )    |        |           |         |   |        |          |         |  
|                                                 |                                                                                              | Provisions for possible loss on investments                                        |         |            |         |      |        |           | 3,714    |   |        |          | 2,611    |  
|                                                 |                                                                                              | Minority interest                                                                  |         |            | 69,821   |      |        |           | 60,534   |   |        |          | 39,845   |  
|                                                 |                                                                                              | Income from unconsolidated entities                                                |         |            | (17,902  | )    |        |           | (5,745   | ) |        |          | (53,602  | )
|                                                 | Change in other assets                                                                       |                                                                                    |         | 526        |          |      |        | 19,441    |          |   |        | (25,597  | )       
|                                                 | Change in accounts payable, accrued expenses and
    other liabilities                       |                                                                                    |         | 32,113     |          |      |        | (18,583   | )        |   |        | 40,462   |         
|                                                 | Other, net                                                                                   |                                                                                    |         | (9,519     | )        |      |        | (6,149    | )        |   |        | (6,001   | )       
|                                                 |                                                                                              |                                                                                    |         |            |          |      |        |           |          |   |        |         
|                                                 |                                                                                              | Net cash flow provided by operating activities                                     |         |            | 369,772  |      |        |           | 343,696  |   |        |          | 385,107  |  
|                                                 |                                                                                              |                                                                                    |         |            |          |      |        |           |          |   |        |         
|Investing activities:                            |                                                                                              |                                                                                    |         |            |          |      |        |           |          |   |        |         
|                                                 | Real estate investments                                                                      |                                                                                    |         | (1,423,549 | )        |      |        | (932,777  | )        |   |        | (910,544 | )       
|                                                 | Change in investments in and advances to
    unconsolidated entities, net                    |                                                                                    |         | 2,473      |          |      |        | 35,972    |          |   |        | 177,727  |         
|                                                 | Proceeds from dispositions, net of closing costs                                             |                                                                                    |         | 1,816,272  |          |      |        | 1,563,556 |          |   |        | 579,451  |         
|                                                 | Change in restricted cash                                                                    |                                                                                    |         | 60,825     |          |      |        | (180,920  | )        |   |        | 120,421  |         
|                                                 | Other, net                                                                                   |                                                                                    |         | 96,367     |          |      |        | (57,665   | )        |   |        | (104,456 | )       
|                                                 |                                                                                              |                                                                                    |         |            |          |      |        |           |          |   |        |         
|                                                 |                                                                                              | Net cash flow provided by (used in) investing
    activities                       |         |            | 552,388  |      |        |           | 428,166  |   |        |          | (137,401 | )
|                                                 |                                                                                              |                                                                                    |         |            |          |      |        |           |          |   |        |         
|Financing activities:                            |                                                                                              |                                                                                    |         |            |          |      |        |           |          |   |        |         
|                                                 | Proceeds from Long-Term Unsecured Debt                                                       |                                                                                    |         | 297,052    |          |      |        | 247,225   |          |   |        | 530,774  |         
|                                                 | Payments on Long-Term Unsecured Debt                                                         |                                                                                    |         | (72,950    | )        |      |        | (171,250  | )        |   |        | (97,500  | )       
|                                                 | Principal prepayment of mortgages payable,
    including prepayment penalties                |                                                                                    |         | (159,558   | )        |      |        | (343,368  | )        |   |        | (705,103 | )       
|                                                 | Regularly scheduled principal payments on
    mortgages payable                              |                                                                                    |         | (11,512    | )        |      |        | (11,934   | )        |   |        | (11,761  | )       
|                                                 | Proceeds from mortgage notes payable                                                         |                                                                                    |         | 51,656     |          |      |        | 76,017    |          |   |        | 247,797  |         
|                                                 | Proceeds from (payments on) unsecured credit
    facilities, net                             |                                                                                    |         | (84,790    | )        |      |        | (261,788  | )        |   |        | 176,989  |         
|                                                 | Proceeds from Common Shares issued under DRIP and
    employee stock options                 |                                                                                    |         | 61,467     |          |      |        | 91,546    |          |   |        | 69,772   |         
|                                                 | Repurchase of Common Shares and Preferred Shares                                             |                                                                                    |         | (146,954   | )        |      |        | (15,044   | )        |   |        | (64,766  | )       
|                                                 | Repurchase of Series E and F Perpetual
    Preferred Units                                   |                                                                                    |         | (42,712    | )        |      |        |          |          |   |        |         |         
|                                                 | Redemption of Perpetual Preferred Units                                                      |                                                                                    |         |           |          |      |        |          |          |   |        | (12,000  | )       
|                                                 | Cash dividends paid on Common Shares                                                         |                                                                                    |         | (539,116   | )        |      |        | (322,555  | )        |   |        | (303,083 | )       
|                                                 | Cash dividends paid on Preferred Shares                                                      |                                                                                    |         | (9,165     | )        |      |        | (23,215   | )        |   |        | (32,512  | )       
|                                                 | Cash dividends paid to minority interests                                                    |                                                                                    |         | (69,799    | )        |      |        | (47,610   | )        |   |        | (41,585  | )       
|                                                 | Other, net                                                                                   |                                                                                    |         | 2,246      |          |      |        | 2,498     |          |   |        | 1,091    |         
|                                                 |                                                                                              |                                                                                    |         |            |          |      |        |           |          |   |        |         
|                                                 |                                                                                              | Net cash flow used in financing activities                                         |         |            | (724,135 | )    |        |           | (779,478 | ) |        |          | (241,887 | )
|                                                 |                                                                                              |                                                                                    |         |            |          |      |        |           |          |   |        |         
|Net change in cash and cash equivalents          |                                                                                              |                                                                                    | 198,025 |            |          |      | (7,616 | )         |          |   | 5,819  |         
|Cash and cash equivalents at beginning of period |                                                                                              |                                                                                    | 5,230   |            |          |      | 12,846 |           |          |   | 7,027  |         
|                                                 |                                                                                              |                                                                                    |         |            |          |      |        |           |          |   |        |         
|Cash and cash equivalents at end of period       |                                                                                              | $                                                                                  | 203,255 |            |          | $    | 5,230  |           |          | $ | 12,846 |         
|                                                 |                                                                                              |                                                                                    |         |            |          |      |        |           |          |   |        |         

See Note 15 for supplemental information on
non-cash investing and financing activities.

The accompanying notes are an integral part of
these consolidated financial statements.

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ARCHSTONE-SMITH TRUST



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


December 31, 2004, 2003 and
2002


(The glossary included in this Annual Report
is hereby incorporated by reference)




|    |                                                                           
|--- | --------------------------------------------------------------------------
|(1) | Description of Business and Summary of
    Significant Accounting Policies



| |         
| | --------
| | Business

Our business is conducted primarily through our
majority owned subsidiary, the Operating Trust. We are
structured as an UPREIT under which all property ownership and
business operations are conducted through the Operating Trust.
We are the sole trustee and own approximately 89.1% of the
Operating Trusts outstanding common units; the remaining
10.9% are owned by minority interest holders. As used herein,
we, our and the company
refers to the Operating Trust and Archstone-Smith, collectively,
except where the context otherwise requires. Archstone-Smith is
an equity REIT organized under the laws of the State of
Maryland. We focus on creating value for our shareholders by
acquiring, developing and operating apartments in markets
characterized by very expensive single-family home prices and a
strong, limited land on which to build new housing, diversified
economic base and employment growth potential.



| |                            
| | ---------------------------
| | Principles of Consolidation

The accounts of Archstone-Smith and its
controlled subsidiaries are consolidated in the accompanying
financial statements. All significant inter-company accounts and
transactions have been eliminated. We use the equity method to
account for investments that do not qualify as variable interest
entities or where we do not own a majority of the economic
interest, but have the ability to exercise significant influence
over the operating and financial policies of the investee. For
an investee accounted for under the equity method, our share of
net earnings or losses of the investee is reflected in income as
earned and dividends are credited against the investment as
received.

We adopted FASB Interpretation No. 46
Consolidation of Variable Interest Entities(revised) on July 1, 2003. As a result, the
accompanying consolidated financial statements have been
restated to reflect the consolidated financial position and
results of operations of Archstone-Smith Trust and certain
previously unconsolidated entities in accordance with accounting
principles generally accepted in the United States of America.
We previously accounted for Ameriton using the equity method.



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect amounts reported in the financial
statements and the related notes. Actual results could differ
from managements estimates. Estimates and assumptions are
reviewed periodically and the effects of revisions are reflected
in the period they are determined to be necessary.



| |                        
| | -----------------------
| | Discontinued Operations

For properties accounted for under
SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets,the results of
operations for properties sold during the period or classified
as held for sale at the end of the current period are required
to be classified as discontinued operations in the current and
prior periods. The property-specific components of net earnings
that are classified as discontinued operations include rental
revenue, rental expense, real estate tax, depreciation expense,
minority interest and interest expense (actual interest expense
for encumbered properties and a pro-rata allocation of interest
expense for any unencumbered portion up to our weighted average
leverage ratio). The net gain or loss on the eventual disposal
of the held for sale properties is also required to be
classified as discontinued operations. Properties sold by our
unconsolidated entities are not included in discontinued
operations and related gains or losses are reported as a
component of income from unconsolidated entities.

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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                          
| | -------------------------
| | Cash and Cash Equivalents

Cash and cash equivalents consist of cash on
hand, demand deposits with financial institutions and
short-term, highly liquid investments. We consider all highly
liquid instruments with maturities when purchased of three
months or less to be cash equivalents.



| |                                                             
| | ------------------------------------------------------------
| | Restricted Cash in Tax-Deferred Exchange
    and Bond Escrow

Disposition proceeds are set aside and designated
to fund future tax-deferred exchanges of qualifying real estate
investments. If these proceeds are not redeployed to qualifying
real estate investments within 180 days, these funds are
redesignated as cash and cash equivalents. Additionally, cash
held in escrow to fund future developments costs and cash held
as security deposits are classified as restricted cash.



| |                                                
| | -----------------------------------------------
| | Marketable Securities and Other
    Investments

All publicly traded equity securities are
classified as available for sale and carried at fair
value, with unrealized gains and losses reported as a separate
component of shareholders equity. Private investments, for
which we do not have the ability to exercise significant
influence, are accounted for at cost. Declines in the value of
public and private investments that management determines are
other than temporary are recorded as a provision for loss on
investments.



| |                             
| | ----------------------------
| | Real Estate and Depreciation

Real estate, other than properties held for sale,
is carried at depreciated cost. Long-lived assets designated as
being held for sale are reported at the lower of their carrying
amount or estimated fair value less cost to sell, and thereafter
are no longer depreciated.

We allocate the cost of newly acquired properties
between net tangible and identifiable intangible assets. The
primary intangible asset associated with an apartment community
acquisition is the value of the existing lease agreements. When
allocating cost to an acquired property, we first allocate costs
to the estimated intangible value of the existing lease
agreements and then to the estimated value of the land, building
and fixtures assuming the property is vacant. We estimate the
intangible value of the lease agreements by determining the lost
revenue associated with a hypothetical lease-up. We depreciate
the building and fixtures based on the expected useful life of
the asset and amortize the intangible value of the lease
agreements over the average remaining life of the existing
leases.

In accordance with SFAS No. 144,
long-lived assets, such as property, plant, and equipment, and
purchased intangibles subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the
amount by which the carrying amount of the asset exceeds the
fair value of the asset. Assets to be disposed of are separately
presented in the balance sheet and reported at the lower of the
carrying amount or fair value less costs to sell, and are no
longer depreciated. The assets and liabilities classified as
held for sale would be presented separately in the appropriate
asset and liability sections of the balance sheet.

We have an investment organization that is
responsible for development and redevelopment of apartment
communities. Consistent with GAAP, all direct and certain
indirect costs, including interest and real estate taxes,
incurred during development and redevelopment activities are
capitalized. Interest is capitalized on real estate assets that
require a period of time to get them ready for their intended
use. The amount of interest capitalized is based upon the
average amount of accumulated development expenditures during
the reporting period. Included in capitalized costs are
managements estimates of the direct and incremental
personnel costs

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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

and indirect project costs associated with our
development and redevelopment activities. Indirect project costs
consist primarily of personnel costs associated with
construction administration and development accounting, legal
fees, and various office costs that clearly relate to projects
under development.

Depreciation is computed over the expected useful
lives of depreciable property on a straight-line basis as
follows:

|                                         |  |  |             | 
|---------------------------------------- |  |  | ----------- | 
|Buildings and related land improvements  |  |  | 15-40 years | 
|Furniture, fixtures, equipment and other |  |  | 5-10 years  | 
|Intangible value of lease agreements     |  |  | 6-12 months | 



| |         
| | --------
| | Interest

During 2004, 2003 and 2002, the total interest
paid in cash on all outstanding debt was $229.6 million,
$244.8 million and $269.8 million, respectively.

We capitalize interest during the construction
period as part of the cost of apartment communities under
development. Interest capitalized during 2004, 2003 and 2002
aggregated $23.6 million, $26.9 million and
$32.4 million, respectively.



| |                        
| | -----------------------
| | Cost of Raising Capital

Costs incurred in connection with the issuance of
equity securities are deducted from shareholders equity.
Costs incurred in connection with the issuance or renewal of
debt are subject to the provisions of EITF 96-19. Accordingly,
if the terms of the renewed or modified debt instrument are
deemed to be substantially different (i.e., a 10 percent or
more difference in the present value of the remaining cash
flows), all unamortized loan costs associated with the
extinguished debt are charged against earnings during the
current period; otherwise, costs are capitalized as other assets
and amortized into interest expense over the term of the related
loan or the renewal period. The balance of any unamortized loan
costs associated with old debt is expensed upon replacement with
new debt. We utilize the straight-line method to amortize debt
issuance costs as it approximates the effective interest method
required under SFAS No. 91. Amortization of loan costs
included in interest expense for 2004, 2003 and 2002 was
$4.4 million, $4.5 million and $5.0 million,
respectively.



| |                                                     
| | ----------------------------------------------------
| | Moisture Infiltration and Mold Remediation
    Costs

We estimate and accrue costs related to the
correction of moisture infiltration and related mold remediation
when we anticipate incurring such remediation costs because of
the assertion of a legal claim or threatened litigation. When we
incur remediation costs at our own discretion, the cost is
recognized as incurred. Costs of addressing moisture
infiltration and resulting mold remediation issues are only
capitalized, subject to recoverability, when it is determined by
management that such costs also extend the life, increase the
capacity, or improve the safety or efficiency of the property
relative to when the community was originally constructed or
acquired, if later. All other related costs are expensed.



| |                                                     
| | ----------------------------------------------------
| | Interest Rate Contracts/ Forward Sales
    Contracts

We utilize derivative financial instruments to
manage our interest rate risk and exposure to changes in the
fair value of certain investments in equity securities. We
designate these financial instruments as hedges of specific
liabilities or anticipated transactions. During 2003, we adopted
SFAS No. 149 Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. Under
SFAS No. 149, the resulting assets and liabilities
associated with derivative financial instruments are carried on
our financial statements at estimated fair value at the end of
each reporting period. The changes in the fair value of a fair
value hedge and

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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

the fair value of the items hedged are recorded
in earnings for each reporting period. The change in the fair
value of effective cash flow hedges are carried on our financial
statements as a component of accumulated other comprehensive
income (loss). If effective, fair value hedges have no impact on
our current earnings.



| |                             
| | ----------------------------
| | Revenue and Gain Recognition

We generally lease our apartment units under
operating leases with terms of one year or less. Rental income
related to leases is recognized on an accrual basis when due
from residents in accordance with Securities and Exchange
Commission (SEC) Staff Accounting
Bulletin No. 104, Revenue Recognition and
Statement of Financial Accounting Standards
SFAS No. 13, Accounting for Leases. Rent
concessions are recognized as an offset to revenues collected
over the term of the underlying lease. We use the full accrual
method of profit recognition in accordance with
SFAS No. 66 to record gains on sales of real estate.
Accordingly, we evaluate the related GAAP requirements in
determining the profit to be recognized at the date of each sale
transaction (i.e., the profit is determinable and the earnings
process is complete).



| |                
| | ---------------
| | Rental Expenses

Rental expenses shown on the accompanying
Statements of Earnings include costs associated with on-site and
property management personnel, utilities (net of utility
reimbursements from residents), repairs and maintenance,
property insurance, marketing, landscaping and other on-site and
related administrative costs.



| |           
| | ----------
| | Legal Fees

We generally recognize legal expenses as
incurred; however, if such fees are related to the accrual for
an estimated legal settlement, we accrue for the related
incurred and anticipated legal fees at the same time we accrue
the cost of settlement.



| |                         
| | ------------------------
| | Stock-Based Compensation

As of December 31, 2004, the company has one
stock-based employee compensation plan. Effective
January 1, 2003, the company adopted the fair value
recognition provision of SFAS No. 123,
Accounting for Stock-Based Compensation,prospectively to all employee awards granted, modified or
settled after January 1, 2003, which results in expensing
of options. During 2004, we granted approximately 300,000
Restricted Share Units and 648,000 stock options. No significant
employee awards were granted during 2003. For employee awards
granted prior to January 1, 2003, the company accounted for
this plan under the recognition and measurement provisions of
APB Opinion No. 25, Accounting for Stock Issued to
Employees,and related Interpretations. With respect
to options granted under the plan prior to January 1, 2003,
no stock-based employee compensation expense is reflected in the
accompanying condensed consolidated statements of earnings, as
all options granted under those plans had an exercise price
equal to the market value of the underlying common stock on the
date of grant. The following table illustrates the effect on net
earnings and

62



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

earnings per share if the fair value based method
had been applied to all outstanding and unvested awards in each
period (dollar amounts in thousands, except per share amounts):

|                                                                                                                    |                       |                          |         |         |  |      |         |         |  |   |         |         | 
|------------------------------------------------------------------------------------------------------------------- | --------------------- | ------------------------ | ------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                                                                                                    |                       |                         
|                                                                                                                    |                       | Years Ended December 31,
|                                                                                                                    |                       |                         
|                                                                                                                    |                       | 2004                     |         | 2003    |  | 2002
|                                                                                                                    |                       |                          |         |         |  |     
|Net earnings attributable to Common
    Shares  Basic                                                              |                       | $                        | 531,450 |         |  | $    | 412,660 |         |  | $ | 282,630 |        
|Add: Stock-based employee compensation expense
    included in reported net earnings                                |                       |                          | 265     |         |  |      |        |         |  |   |        |        
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards |                       |                          | (1,835  | )       |  |      | (1,748  | )       |  |   | (1,835  | )      
|                                                                                                                    |                       |                          |         |         |  |      |         |         |  |   |         |        
|Pro forma net earnings attributable to Common
    Shares                                                           |                       |                          |         |         |  |      |         |         |  |   |         |        
|                                                                                                                    | Basic                 |                          | $       | 529,880 |  |      | $       | 410,912 |  |   | $       | 280,795 | 
|                                                                                                                    |                       |                          |         |         |  |      |         |         |  |   |         |        
|Net earnings per Common Share:                                                                                      |                       |                          |         |         |  |      |         |         |  |   |         |        
|                                                                                                                    | Basic  as reported   |                          | $       | 2.71    |  |      | $       | 2.20    |  |   | $       | 1.59    | 
|                                                                                                                    |                       |                          |         |         |  |      |         |         |  |   |         |        
|                                                                                                                    | Basic  pro forma     |                          | $       | 2.70    |  |      | $       | 2.20    |  |   | $       | 1.58    | 
|                                                                                                                    |                       |                          |         |         |  |      |         |         |  |   |         |        
|                                                                                                                    | Diluted  as reported |                          | $       | 2.69    |  |      | $       | 2.18    |  |   | $       | 1.58    | 
|                                                                                                                    |                       |                          |         |         |  |      |         |         |  |   |         |        
|                                                                                                                    | Diluted  pro forma   |                          | $       | 2.68    |  |      | $       | 2.17    |  |   | $       | 1.57    | 
|                                                                                                                    |                       |                          |         |         |  |      |         |         |  |   |         |        

The following is a table of the assumptions used
to value options for the respective grant year using the
Black-Scholes model:

|                                         |  |      |           |      |  |      |           |   |  |  |           |  
|---------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | - |  |  | --------- | -
|                                         |  | 2004 |           | 2003 |  | 2002
|                                         |  |      |           |      |  |     
|Weighted average risk-free interest rate |  |      | 3.77      | %    |  |      | 3.48      | % |  |  | 3.54      | %
|Weighted average dividend yield          |  |      | 5.63      | %    |  |      | 6.92      | % |  |  | 6.74      | %
|Weighted average volatility              |  |      | 21.97     | %    |  |      | 15.33     | % |  |  | 19.58     | %
|Weighted average expected option life    |  |      | 5.0 years |      |  |      | 5.0 years |   |  |  | 5.0 years |  



| |             
| | ------------
| | Income Taxes

We have made an election to be taxed as a REIT
under the Internal Revenue Code of 1986, as amended, and we
believe we qualify as a REIT and have made all required
distributions of our taxable income. See Note 13 for more
information on income taxes.

Income taxes for our taxable REIT subsidiaries
are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in earnings
in the period that includes the enactment date.



| |                     
| | --------------------
| | Comprehensive Income

Comprehensive income, which is defined as net
earnings and all other non-owner changes in equity, is displayed
in the accompanying Statements of Shareholders Equity and
Comprehensive Income (Loss). Other comprehensive income
(loss) reflects unrealized holding gains and losses on the
available-for-sale investments and changes in the fair value of
effective cash flow hedges as described above
(see Interest Rate Contracts/ Forward Sale
Contracts).

63



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Our accumulated other comprehensive income (loss)
for the year ended December 31, 2004 was as follows (in
thousands):

|                                                        |  |            |         |                  |  |                   |        |   |  |   |         |  
|------------------------------------------------------- |  | ---------- | ------- | ---------------- |  | ----------------- | ------ | - |  | - | ------- | -
|                                                        |  | Net        |         |                  |  |                  
|                                                        |  | Unrealized |         |                  |  |                  
|                                                        |  | Gains on   |         |                  |  | Accumulated Other
|                                                        |  | Marketable |         |                  |  | Comprehensive    
|                                                        |  | Securities |         | Cash Flow Hedges |  | Income/(Loss)    
|                                                        |  |            |         |                  |  |                  
|Balance at December 31, 2003                            |  | $          | 23,808  |                  |  | $                 | (9,573 | ) |  | $ | 14,235  |  
|Change in fair value of cash flow hedges                |  |            |        |                  |  |                   | 6,098  |   |  |   | 6,098   |  
|Change in fair value of long-term debt hedges           |  |            |        |                  |  |                   | (2,348 | ) |  |   | (2,348  | )
|Mark to market for marketable equity securities         |  |            | 1,372   |                  |  |                   |       |   |  |   | 1,372   |  
|Reclassification adjustments for realized net
    gains |  |            | (23,782 | )                |  |                   |       |   |  |   | (23,782 | )
|                                                        |  |            |         |                  |  |                   |        |   |  |   |         |  
|Balance at December 31, 2004                            |  | $          | 1,398   |                  |  | $                 | (5,823 | ) |  | $ | (4,425  | )
|                                                        |  |            |         |                  |  |                   |        |   |  |   |         |  



| |               
| | --------------
| | Per Share Data

Following is a reconciliation of basic EPS to
diluted EPS for the periods indicated (in thousands):

|                                                                                              |                                                               |                          |         |       |  |      |         |        |  |   |         |       | 
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ------------------------ | ------- | ----- |  | ---- | ------- | ------ |  | - | ------- | ----- | 
|                                                                                              |                                                               |                         
|                                                                                              |                                                               | Years Ended December 31,
|                                                                                              |                                                               |                         
|                                                                                              |                                                               | 2004                     |         | 2003  |  | 2002
|                                                                                              |                                                               |                          |         |       |  |     
|Reconciliation of numerator between basic and
    diluted net earnings per Common Share(1):   |                                                               |                          |         |       |  |      |         |        |  |   |         |      
|Net earnings attributable to Common
    Shares  Basic                                        |                                                               | $                        | 531,450 |       |  | $    | 412,660 |        |  | $ | 282,630 |      
|                                                                                              | Dividends on Convertible Preferred Shares                     |                          |         | 3,755 |  |      |         | 12,872 |  |   |         |      | 
|                                                                                              | Minority interest                                             |                          |         | 509   |  |      |         | 660    |  |   |         | 200   | 
|                                                                                              |                                                               |                          |         |       |  |      |         |        |  |   |         |      
|Net earnings attributable to Common
    Shares  Diluted                                      |                                                               | $                        | 535,714 |       |  | $    | 426,192 |        |  | $ | 282,830 |      
|                                                                                              |                                                               |                          |         |       |  |      |         |        |  |   |         |      
|Reconciliation of denominator between basic
    and diluted net earnings per Common Share(1): |                                                               |                          |         |       |  |      |         |        |  |   |         |      
|Weighted average number of Common Shares
    outstanding  Basic                              |                                                               |                          | 196,098 |       |  |      | 187,170 |        |  |   | 177,757 |      
|                                                                                              | Assumed conversion of Preferred Shares into
    Common Shares |                          |         | 2,182 |  |      |         | 7,972  |  |   |         |      | 
|                                                                                              | Incremental options and warrants                              |                          |         | 953   |  |      |         | 498    |  |   |         | 1,023 | 
|                                                                                              |                                                               |                          |         |       |  |      |         |        |  |   |         |      
|Weighted average number of Common Shares
    outstanding  Diluted                            |                                                               |                          | 199,233 |       |  |      | 195,640 |        |  |   | 178,780 |      
|                                                                                              |                                                               |                          |         |       |  |      |         |        |  |   |         |      



---



|    |                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------
|(1) | Excludes the impact of 13.1 million
    convertible equity securities during 2002 as they were
    anti-dilutive.



| |                          
| | -------------------------
| | Market Concentration Risk

At December 31, 2004, approximately 39.4% of
our apartment communities are located in the
Washington, D.C. metropolitan area, based on NOI.
Approximately 18.9% of our apartment communities are located in
Southern California at December 31, 2004, based on NOI.
Southern California is the geographic area comprised of the Los
Angeles County, the Inland Empire, Orange County, San Diego and
Ventura County markets. Additionally, approximately 8.2% of our
apartment communities are located in the San Francisco Bay
area of California at December 31, 2004, based on NOI. We
are, therefore, subject to

64



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

increased exposure (positive or negative) to
economic and other competitive factors specific to protected
markets within these geographic areas.



| |                            
| | ---------------------------
| | Preferred Share Redemptions

When redeeming Preferred Shares, we recognize
share issuance costs as a charge to earnings in accordance with
Financial Accounting Standards Board
(FASB)  Emerging Issues Task Force
(EITF) Topic D-42, The Effect on the
Calculation of Earnings per Share for the Redemption or Induced
Conversion of Preferred Stock. In July 2003, the
Securities and Exchange Commission (SEC) staff
issued a clarification of the SECs position on the
application of FASB-EITF Topic D-42. The SEC staffs
position, as clarified, is that in applying Topic D-42, the
carrying value of preferred shares that are redeemed should be
reduced by the amount of original issuance costs, regardless of
where in shareholders equity those costs are reflected.



| |                  
| | -----------------
| | Reclassifications

Certain prior year amounts have been reclassified
to conform to the current presentation.



| |                              
| | -----------------------------
| | New Accounting Pronouncements

In November 2004, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 151,
Inventory Costs an amendment of ARB No. 43,
Chapter 4. This Statement is effective for the
accounting for abnormal amounts of idle facility expense,
freight, handling costs and wasted material associated with
inventory costs incurred during fiscal years beginning after
June 15, 2005. The Statement requires that the
above-mentioned items be recognized as current-period charges.
We do not believe that the adoption of SFAS No. 151
will have a material impact on our financial position, net
earnings or cash flows.

In December 2004, the FASB issued
SFAS No. 152, Accounting for Real Estate
Time-Sharing Transactions an amendment of FASB Statements
No. 66 and 67. This Statement amends
SFAS No. 66, Accounting for Sales of Real
Estateto reference the financial accounting and
reporting guidance for real estate time-sharing transactions
that is provided in AICPA Statement of Position (SOP) 04-2,
Accounting for Real Estate Time-Sharing
Transactions. This Statement also amends
SFAS No. 67, Accounting for Costs and Initial
Rental Operations of Real Estate Projects to specify
that guidance relating to (a) incidental operations
(b) costs incurred to sell real estate projects does not
apply to real estate time-sharing transactions. This Statement
is effective for fiscal years beginning after June 15,
2005. We do not believe that the adoption of
SFAS No. 152 will have a material impact on our
financial position, net earnings or cash flows.

In December 2004, the FASB issued
SFAS No. 153, Exchanges of Non-monetary
Assets an amendment of APB No. 29. This Statement
amends APB Opinion No. 29, Accounting for
Non-monetary Transactions to eliminate the exception
for non-monetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of
non-monetary assets that do not have commercial substance. That
exception required that some non-monetary exchanges be recorded
on a carryover basis versus this Statement, which requires that
an entity record a non-monetary exchange at fair value and
recognize any gain or loss if the transaction has commercial
substance. This Statement is effective for fiscal years
beginning after June 15, 2005. We do not believe that the
adoption of SFAS No. 153 will have a material impact
on our financial position, net earnings or cash flows.

In December 2004, the FASB issued
SFAS No. 123 revised 2004, Share-Based
Payment. This Statement is a revision of
SFAS No. 123, Accounting for Stock-Based
Compensation, and supercedes APB No. 25,
Accounting for Stock Issued to Employees. The
Statement requires companies to recognize in the income
statement the grant-date fair value of stock options and other
equity based compensation issued to employees. This Statement is
effective as of the beginning of the first interim or annual
period that

65



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

commences after June 15, 2005. We do not
believe that the adoption of SFAS No. 123 revised 2004
will have a material impact on our financial position, net
earnings or cash flows.

In March 2004, the FASB issued EITF Issue
No. 03-6, Participating Securities and the
Two-Class Method under FASB Statement No. 128,
Earnings per Share(EITF No. 03-6). This issue
address whether the two-class method requires the presentation
of basic and diluted EPS for all participating securities and
how a participating security should be defined. The guidance to
this issue should be applied to reporting periods beginning
after March 31, 2004. Prior period earnings per share
amounts presented for comparative purposes should be restated to
conform to the guidance in this consensus. The adoption of EITF
No. 03-6 had no impact on our financial position, net
earnings or cash flows.

In October 2004, the FASB issued EITF Issue
No. 04-8, The Effect of Contingently Convertible
Instruments on Diluted Earnings Per Share(EITF
No. 04-8). This issue addresses when contingently
convertible instruments should be included in diluted earnings
per share and should be applied for reporting periods ending
after December 15, 2004. The adoption of EITF No. 04-8
had no impact on our financial position, net earnings or cash
flows.

In November 2004, the FASB issued EITF Issue
No. 03-13, Applying the Conditions in
Paragraph 42 of FASB Statement No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets, in Determining
Whether to Report Discontinued Operations(EITF
No. 03-13). This issue assists in the development of a
model for evaluating (a) which cash flows are to be
considered in determining whether cash flows have been or will
be eliminated and (b) what types of continuing involvement
constitute significant continuing involvement. The guidance in
this issue should be applied to a component of an enterprise
that is either disposed of or classified as held for sale in
fiscal periods beginning after December 15, 2004.
Previously reported operating results related to disposal
transactions initiated within an enterprises fiscal year
that includes the date that this consensus was ratified
(November 30, 2004) may be reclassified. The adoption of
EITF No. 03-13 had no impact on our financial position, net
earnings or cash flows.

In September 2004, the FASB issued EITF Issue
No. 03-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments(EITF No. 03-1). The guidance in EITF No. 03-1 was
effective for other-than-temporary impairment evaluations made
in reporting periods beginning after June 15, 2004.
However, certain provisions regarding the assessment of whether
an impairment is other than temporary have been delayed.
Although the disclosure requirements continue to be effective in
annual financial statements for fiscal years ending after
December 15, 2003, for investments accounted for under SFAS
No. 115 and 124. For all other investments addressed by
EITF No. 03-1, the disclosures continue to be effective in
annual financial statements for fiscal years ending after
June 15, 2004. The adoption of EITF No. 03-1 had no
impact on our financial position, net earnings or cash flows.

66



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |            
|--- | -----------
|(2) | Real Estate



| |                           
| | --------------------------
| | Investments in Real Estate

Investments in real estate, at cost, were as
follows (dollar amounts in thousands):

|                                           |                                             |                      |   |           |           |            |  |          |        |  |   |           |           |  |  |        |        | 
|------------------------------------------ | ------------------------------------------- | -------------------- | - | --------- | --------- | ---------- |  | -------- | ------ |  | - | --------- | --------- |  |  | ------ | ------ | 
|                                           |                                             |                     
|                                           |                                             | December 31,        
|                                           |                                             |                     
|                                           |                                             |                      |   |          
|                                           |                                             | 2004                 |   | 2003     
|                                           |                                             |                      |   |          
|                                           |                                             | Investment           |   | Units(1)  |           | Investment |  | Units(1)
|                                           |                                             |                      |   |           |           |            |  |         
|Archstone-Smith apartment
    communities: |                                             |                      |   |           |           |            |  |          |        |  |   |           |           |  |  |       
|                                           | Operating communities                       |                      | $ | 8,018,658 |           |            |  | 58,486   |        |  | $ | 8,067,075 |           |  |  | 63,848 |       
|                                           | Communities under construction              |                      |   | 499,239   |           |            |  | 3,237    |        |  |   | 301,634   |           |  |  | 2,607  |       
|                                           | Development communities In Planning:        |                      |   |           |           |            |  |          |        |  |   |           |           |  |  |        |       
|                                           |                                             | Owned                |   |           | 51,822    |            |  |          | 1,251  |  |   |           | 95,911    |  |  |        | 2,633  | 
|                                           |                                             | Under control(2)     |   |           |          |            |  |          | 593    |  |   |           |          |  |  |        | 112    | 
|                                           |                                             |                      |   |           |           |            |  |          |        |  |   |           |           |  |  |       
|                                           | Total development communities In Planning   |                      |   | 51,822    |           |            |  | 1,844    |        |  |   | 95,911    |           |  |  | 2,745  |       
|                                           |                                             |                      |   |           |           |            |  |          |        |  |   |           |           |  |  |       
|                                           | Total Archstone-Smith apartment communities |                      |   | 8,569,719 |           |            |  | 63,567   |        |  |   | 8,464,620 |           |  |  | 69,200 |       
|                                           | Ameriton apartment communities              |                      |   | 581,910   |           |            |  | 6,198    |        |  |   | 494,338   |           |  |  | 5,646  |       
|                                           | Other real estate assets                    |                      |   | 69,409    |           |            |  |          |        |  |   | 40,222    |           |  |  |        |       
|                                           |                                             |                      |   |           |           |            |  |          |        |  |   |           |           |  |  |       
|                                           |                                             | Total real estate(3) |   | $         | 9,221,038 |            |  |          | 69,765 |  |   | $         | 8,999,180 |  |  |        | 74,846 | 
|                                           |                                             |                      |   |           |           |            |  |          |        |  |   |           |           |  |  |       



---



|    |                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Unit information is based on managements
    estimates and has not been audited or reviewed by our
    independent auditors.                                                                                                                                                              
|   
|(2) | Archstone-Smiths investment as of
    December 31, 2004 and December 31, 2003 for
    development communities Under Control was $1.5 million and
    $1.1 million, respectively, and are reflected in the
    Other assets caption of Archstone-Smiths
    Consolidated Balance Sheets.
|   
|(3) | Includes land that is not In Planning and other
    real estate assets.                                                                                                                                                                                                                    



| |                     
| | --------------------
| | Capital Expenditures

In conjunction with the underwriting of each
acquisition of an operating community, we prepare acquisition
budgets that encompass the incremental capital needed to achieve
our investment objectives. These expenditures, combined with the
initial purchase price and related closing costs, are
capitalized and classified as acquisition-related
capital expenditures, as incurred.

As part of our operating strategy, we
periodically evaluate each communitys physical condition
relative to established business objectives and the
communitys competitive position in its market. In
conducting these evaluations, we consider our return on
investment in relation to our long-term cost of capital as well
as our research and analysis of competitive market factors.
Based on these factors, we make decisions on incremental capital
expenditures, which are classified as either
redevelopment or recurring.

The redevelopment category includes:
(i) redevelopment initiatives, which are intended to
reposition the community in the marketplace and include items
such as significant upgrades to the interiors, exteriors,
landscaping and amenities; (ii) revenue-enhancing
expenditures, which include investments that are expected to
produce incremental community revenues, such as building
garages, carports and storage facilities or gating a community;
and (iii) expense-reducing expenditures, which include
items such as water submetering systems and xeriscaping that
reduce future operating costs.

Recurring capital expenditures consist of
significant expenditures for items having a useful life in
excess of one year, which are incurred to maintain a
communitys long-term physical condition at a level

67



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

commensurate with our stringent operating
standards. Examples of recurring capital expenditures include
roof replacements, certain make-ready expenditures, parking lot
resurfacing and exterior painting.

The change in investments in real estate, at
cost, consisted of the following (in thousands):

|                       |                                                           |                                  |           |            |         |   |           |            |          |  
|---------------------- | --------------------------------------------------------- | -------------------------------- | --------- | ---------- | ------- | - | --------- | ---------- | -------- | -
|                       |                                                           |                                 
|                       |                                                           | Years Ended December 31,        
|                       |                                                           |                                 
|                       |                                                           | 2004                             |           | 2003      
|                       |                                                           |                                  |           |           
|Balance at January 1   |                                                           | $                                | 8,999,180 |            |         | $ | 9,297,735 |           
|                       | Acquisition-related expenditures                          |                                  |           | 1,080,639  |         |   |           | 573,768    |         
|                       | Redevelopment expenditures                                |                                  |           | 40,999     |         |   |           | 69,649     |         
|                       | Recurring capital expenditures                            |                                  |           | 50,147     |         |   |           | 48,960     |         
|                       | Development expenditures, excluding land
    acquisitions |                                  |           | 333,782    |         |   |           | 91,430     |         
|                       | Acquisition and improvement of land for
    development   |                                  |           | 175,470    |         |   |           | 125,581    |         
|                       | Dispositions                                              |                                  |           | (1,460,046 | )       |   |           | (1,209,956 | )       
|                       | Provision for possible loss on investments                |                                  |           |           |         |   |           | (3,714     | )       
|                       |                                                           |                                  |           |            |         |   |           |           
|                       |                                                           | Net apartment community activity |           |            | 220,991 |   |           |            | (304,282 | )
|                       | Change in other real estate assets                        |                                  |           | 867        |         |   |           | 5,727      |         
|                       |                                                           |                                  |           |            |         |   |           |           
|Balance at December 31 |                                                           | $                                | 9,221,038 |            |         | $ | 8,999,180 |           
|                       |                                                           |                                  |           |            |         |   |           |           

At December 31, 2004, we had unfunded
contractual commitments of $485.9 million related to
communities under construction and under redevelopment.



|    |                        
|--- | -----------------------
|(3) | Discontinued Operations

The results of operations for properties sold
during the period or designated as held-for-sale at the end of
the period are required to be classified as discontinued
operations. The property specific components of net earnings
that are classified as discontinued operations include rental
revenues, rental expenses, real estate taxes, depreciation
expense, minority interest, income taxes and interest expense
(actual interest expense for encumbered properties and a
pro-rata allocation of interest expense for any unencumbered
property up to our weighted average leverage ratio), as well as
the net gain or loss on the disposition of properties.

Consistent with our capital recycling program, we
had five operating apartment communities, representing 1,952
units (unaudited), classified as held for sale under the
provisions of SFAS No. 144, at December 31, 2004.
Accordingly, we have classified the operating earnings from
these five properties within discontinued operations for the
years ended December 31, 2004, 2003 and 2002. During the
twelve months ended December 31, 2004, we sold 30
Archstone-Smith and Ameriton operating communities. The
operating results of these 30 communities and the related
gain/loss on sale are also included in discontinued operations
for 2004, 2003 and 2002. During the twelve months ended
December 31, 2003, we sold 48 operating communities. The
operating results of these 48 communities and the related
gain/loss on the sale are also included in discontinued
operations for 2003 and 2002. In addition, discontinued
operations for the year ended December 31, 2002 includes
the net operating results of 12 operating communities and one
retail property which were sold during 2002.

68



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The following is a summary of net earnings from
discontinued operations (in thousands):

|                                                                                       |                               |                          |         |         |  |      |         |         |  |   |          |         | 
|-------------------------------------------------------------------------------------- | ----------------------------- | ------------------------ | ------- | ------- |  | ---- | ------- | ------- |  | - | -------- | ------- | 
|                                                                                       |                               |                         
|                                                                                       |                               | Years Ended December 31,
|                                                                                       |                               |                         
|                                                                                       |                               | 2004                     |         | 2003    |  | 2002
|                                                                                       |                               |                          |         |         |  |     
|Rental revenue                                                                         |                               | $                        | 113,933 |         |  | $    | 242,287 |         |  | $ | 340,897  |        
|Rental expenses                                                                        |                               |                          | (39,656 | )       |  |      | (85,012 | )       |  |   | (107,088 | )      
|Real estate taxes                                                                      |                               |                          | (12,783 | )       |  |      | (28,611 | )       |  |   | (33,856  | )      
|Depreciation on real estate investments                                                |                               |                          | (16,806 | )       |  |      | (40,633 | )       |  |   | (58,037  | )      
|Interest expense(1)                                                                    |                               |                          | (33,503 | )       |  |      | (51,195 | )       |  |   | (92,651  | )      
|Income taxes from taxable REIT subsidiaries                                            |                               |                          | (21,567 | )       |  |      | (12,206 | )       |  |   | (10,455  | )      
|Provision for possible loss on real estate
    investment                              |                               |                          |        |         |  |      | (3,714  | )       |  |   | (2,611   | )      
|Debt extinguishment costs related to dispositions                                      |                               |                          | (1,763  | )       |  |      | (3,002  | )       |  |   | (5,412   | )      
|Allocation of minority interest                                                        |                               |                          | (47,278 | )       |  |      | (43,958 | )       |  |   | (16,590  | )      
|Gain from the disposition of REIT real estate
    investments, net                     |                               |                          | 372,217 |         |  |      | 310,901 |         |  |   | 72,934   |        
|Gain from the dispositions of taxable REIT
    subsidiary real estate investments, net |                               |                          | 74,230  |         |  |      | 42,699  |         |  |   | 30,720   |        
|                                                                                       |                               |                          |         |         |  |      |         |         |  |   |          |        
|                                                                                       | Total discontinued operations |                          | $       | 387,024 |  |      | $       | 327,556 |  |   | $        | 117,851 | 
|                                                                                       |                               |                          |         |         |  |      |         |         |  |   |          |        



---



|    |                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The portion of interest expense included in
    discontinued operations that is allocated to properties based on
    the companys leverage ratio was $23.2 million,
    $32.7 million and $61.2 million for 2004, 2003 and
    2002, respectively.

Assets held for sale as of December 31,
2004, represented gross real estate of $262.8 million and
$215.8 million with mortgages payable of $60.6 million
and $61.4 million at December 31, 2004 and 2003,
respectively. Additionally, of our investment in real estate and
debt balances at December 31, 2003, we disposed of
$1.5 billion of real estate and paid off related mortgages
of $85.8 million during the twelve months ended
December 31, 2004.



|    |                                                           
|--- | ----------------------------------------------------------
|(4) | Investments in and Advances to Unconsolidated
    Entities



| |                                              
| | ---------------------------------------------
| | Sale of Consolidated Engineering
    Services

Consolidated Engineering Services is a service
business that we acquired in the Smith Merger in 2001, and prior
to its sale had been reported as an unconsolidated entity in our
financial statements. CES provides engineering services for
commercial and residential real estate across the country. On
December 19, 2002, CES was sold to a third party for
$178 million in cash. We recorded a $35.4 million net
gain on the sale of the business or $0.16 per share on a fully
diluted basis. As a condition of sale, we agreed to indemnify
the buyer for certain representations and warranties contained
in the sale contract. During 2004 we recognized
$3.2 million of additional income associated with the
expiration of these contingencies. Additionally, approximately
$6.7 million in contingent proceeds related to
indemnification of accounts receivable over 120 days were
excluded from the initial gain. We recognized $0.9 million
and $5.3 million of these contingent proceeds during 2004
and 2003, respectively. We also recognized $3.1 million
related to settlement of an ongoing CES lawsuit during 2004.



| |                                                
| | -----------------------------------------------
| | Sale of Smith Management Construction,
    Inc.

Smith Management Construction, Inc. is a service
business that we acquired in the Smith Merger during 2001. We
sold SMC during February 2003 to members of SMCs senior
management. Prior to the sale, we reported SMC as an
unconsolidated entity in our financial statements. We received
two notes receivable totaling $5.8 million and bearing an
interest rate of 7.0% as consideration for the sale. The first
note for

69



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

$3.5 million has principal payments that
began in October 2003 with payment in full by February 2008. As
of December 31, 2003, the outstanding balance on this note
receivable was $3.1 million. The second note for
$2.3 million was fully repaid along with all accrued
interest due during May 2003. During the second quarter of 2004,
we recognized the divestiture since our responsibilities under
the majority of the outstanding performance guarantees, which
pertain to ongoing construction projects at the time of sale,
expired.



| |                              
| | -----------------------------
| | Archstone Management Services

During May 2003, we sold Archstone Management
Services, our third-party management business. The transaction
included management contracts for 32 communities comprising
10,665 units. The $6.5 million sales price was paid in
three installments based on the retention of the contracts
acquired. During the second quarter of 2004, all contingencies
related to the sale expired and we recognized a gain of
$3.3 million.



| |                           
| | --------------------------
| | Real Estate Joint Ventures

At December 31, 2004, we had investments in
14 Archstone-Smith real estate joint ventures. Our ownership
percentage of economic interests range from 20% to 89%. The
voting interest for major decisions is split 50/50 between
ourselves and the venture partners. At December 31, 2004,
Ameriton had six real estate joint ventures in which the venture
partners are the development/managing members. Voting on major
investment decisions are split 50/50 and our venture partners
handle all day-to-day operational decisions. Economic interest
in the ventures varies depending upon the ultimate return of the
venture. The Archstone-Smith and Ameriton joint ventures do not
qualify as variable interest entities as neither partner is
deemed to substantially benefit from the joint venture.
Accordingly, we utilize the guidance provided by SOP 78-9
Accounting for Investments in Real Estate
Ventureswhen determining the basis of accounting for
these ventures. Because we do not control the voting interest of
these joint ventures, we account for these entities using the
equity method. In the aggregate, these ventures own 15,671
apartment units. At December 31, 2004, the investment
balance consists of $74.1 million in Archstone-Smith joint
ventures and $37.4 million in Ameriton joint ventures. At
December 31, 2003, the investment balance consists of
$42.9 million in Archstone-Smith joint ventures and
$43.5 million in Ameriton joint ventures.



| |                              
| | -----------------------------
| | Summary Financial Information

Combined summary balance sheet data for our
investments in unconsolidated entities presented on a
stand-alone basis follows (in thousands):

|                                |                                               |                   |                                      |           |           |           |   |           |           |           | 
|------------------------------- | --------------------------------------------- | ----------------- | ------------------------------------ | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                |                                               | 2004              |                                      | 2003     
|                                |                                               |                   |                                      |          
|Assets:                         |                                               |                   |                                      |           |           |           |   |          
|                                | Real estate                                   |                   | $                                    | 1,115,563 |           |           | $ | 1,283,904 |          
|                                | Other assets                                  |                   |                                      | 52,394    |           |           |   | 29,577    |          
|                                |                                               |                   |                                      |           |           |           |   |          
|                                |                                               | Total assets      |                                      | $         | 1,167,957 |           |   | $         | 1,313,481 |          
|                                |                                               |                   |                                      |           |           |           |   |          
|Liabilities and owners equity: |                                               |                   |                                      |           |           |           |   |          
|                                | Inter-company debt payable to Archstone-Smith |                   | $                                    | 4,124     |           |           | $ | 2,779     |          
|                                | Mortgages payable                             |                   |                                      | 777,924   |           |           |   | 913,142   |          
|                                | Other liabilities                             |                   |                                      | 24,254    |           |           |   | 20,804    |          
|                                |                                               |                   |                                      |           |           |           |   |          
|                                |                                               | Total liabilities |                                      |           | 806,302   |           |   |           | 936,725   |          
|                                |                                               |                   |                                      |           |           |           |   |          
|                                | Owners equity                                |                   |                                      | 361,655   |           |           |   | 376,756   |          
|                                |                                               |                   |                                      |           |           |           |   |          
|                                |                                               |                   | Total liabilities and owners equity |           | $         | 1,167,957 |   |           | $         | 1,313,481 | 
|                                |                                               |                   |                                      |           |           |           |   |          

70



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Selected summary results of operations for our
unconsolidated investees presented on a stand-alone basis
follows (in thousands):

|                                  |              |      |   |         |   |      |   |         |   |  |   |         |  
|--------------------------------- | ------------ | ---- | - | ------- | - | ---- | - | ------- | - |  | - | ------- | -
|                                  |              | 2004 |   | 2003    |   | 2002
|                                  |              |      |   |         |   |     
|Archstone-Smith Joint Ventures(1) |              |      |   |         |   |      |   |         |   |  |   |        
|                                  | Revenues     |      | $ | 140,390 |   |      | $ | 145,567 |   |  | $ | 145,061 |  
|                                  | Net Earnings |      |   | 29,559  |   |      |   | 7,726   |   |  |   | 16,118  |  
|Ameriton Joint Ventures           |              |      |   |         |   |      |   |         |   |  |   |        
|                                  | Revenues     |      | $ | 5,950   |   |      | $ | 11,549  |   |  | $ | 9,977   |  
|                                  | Net Earnings |      |   | (713    | ) |      |   | (4,569  | ) |  |   | (1,716  | )
|Service Businesses                |              |      |   |         |   |      |   |         |   |  |   |        
|                                  | Revenues     |      | $ |        |   |      | $ |        |   |  | $ | 432,193 |  
|                                  | Net Earnings |      |   |        |   |      |   |        |   |  |   | 5,227   |  
|Total                             |              |      |   |         |   |      |   |         |   |  |   |        
|                                  | Revenues     |      | $ | 146,340 |   |      | $ | 157,116 |   |  | $ | 587,231 |  
|                                  |              |      |   |         |   |      |   |         |   |  |   |        
|                                  | Net Earnings |      | $ | 28,846  |   |      | $ | 3,157   |   |  | $ | 19,629  |  
|                                  |              |      |   |         |   |      |   |         |   |  |   |        



---



|    |                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $32.4 million, $0 and
    $2.6 million of gains associated with the disposition of
    Joint Ventures during 2004, 2003 and 2002, respectively.

Our income from unconsolidated entities differs
from the stand-alone net earnings from the investees presented
above due to various accounting adjustments made in accordance
with GAAP. Examples of these differences include: (i) only
recording our proportionate share of net earnings in the
unconsolidated investees; (ii) the impact of certain
eliminating inter-company transactions; (iii) timing
differences in income recognition due to deferral of gains on
contribution of properties to joint ventures; and (iv) a
gain on the sale of CES, as previously discussed. Additionally,
we have incurred certain joint venture formation costs at the
Archstone-Smith level which we account for as outside basis as
these costs are not reflected on the stand-alone financial
statements of the joint venture. These amounts are reflected on
our consolidated financial statements and are amortized over the
life of the underlying assets.

We generally do not guarantee third party debt
incurred by our unconsolidated investees. Investee third-party
debt consists principally of mortgage notes payable. Generally,
mortgages on real estate assets owned by our unconsolidated
investees are secured by the underlying properties.
Occasionally, the investees and/or Archstone-Smith are required
to guarantee the mortgages along with all other venture
partners. As of December 31, 2004, we have not been
required to perform under any guarantees provided to our joint
ventures.



|    |           
|--- | ----------
|(5) | Borrowings



| |                            
| | ---------------------------
| | Unsecured Credit Facilities

In December 2004, we restructured our unsecured
revolving credit facility provided by a group of financial
institutions led by JPMorgan Chase Bank. The primary
modifications were extending the maturity, reducing the pricing
and lowering the capitalization rate used to value the operating
portfolio. The $600 million facility matures in December
2007 and has a one-year extension feature, exercisable at our
option. The facility bears interest at the greater of prime or
the federal funds rate plus 0.50%, or at our option, LIBOR plus
0.50%. The spread over LIBOR can vary from LIBOR plus 0.425% to
LIBOR plus 1.25% based upon the rating of our Long-Term
Unsecured Debt. The facility contains an accordion feature that
allows us

71



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

to expand the commitment up to $900 million
at any time during the life of the facility, subject to lenders
providing additional commitments. Under the agreement, we pay a
facility fee of 0.15% of the commitment, which can vary from
0.125% to 0.200% based upon the ratings of our Long-Term
Unsecured Debt.

The following table summarizes our revolving
credit facility borrowings under our line of credit (in
thousands, except for percentages):

|                                                  |  |              |         |      |  |   |         |  
|------------------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                                  |  |             
|                                                  |  | Years Ended 
|                                                  |  | December 31,
|                                                  |  |             
|                                                  |  | 2004         |         | 2003
|                                                  |  |              |         |     
|Total unsecured revolving credit facility         |  | $            | 600,000 |      |  | $ | 600,000 |  
|Borrowings outstanding at December 31             |  | $            | 19,000  |      |  | $ | 97,000  |  
|Outstanding letters of credit under this facility |  | $            | 13,983  |      |  | $ | 1,050   |  
|Weighted average daily borrowings                 |  | $            | 81,317  |      |  | $ | 231,354 |  
|Maximum borrowings outstanding during the period  |  | $            | 375,000 |      |  | $ | 511,500 |  
|Weighted average daily nominal interest rate      |  |              | 1.58    | %    |  |   | 1.95    | %
|Weighted average daily effective interest rate    |  |              | 2.62    | %    |  |   | 2.55    | %

We also have a short-term unsecured borrowing
agreement with JPMorgan Chase Bank, which provides for maximum
borrowings of $100 million. The borrowings under the
agreement bear interest at an overnight rate agreed to at the
time of borrowing and ranged from 1.60% to 2.55% during 2004.
There were no borrowings outstanding under the agreement at
December 31, 2004 and $6.8 million of borrowings
outstanding under this agreement at December 31, 2003.



| |                         
| | ------------------------
| | Long-Term Unsecured Debt

In April 2004, the Operating Trust filed a shelf
registration statement on Form S-3 to register an
additional $450 million in unsecured debt securities. This
registration statement was declared effective in April 2004.
During August 2004, the Operating Trust issued $300 million
in long-term unsecured ten-year notes with net proceeds of
$297.1 and a coupon rate of 5.6% and an effective interest rate
of 5.8% from its shelf registration statement. The proceeds were
used to repay outstanding balances on the Operating Trusts
unsecured credit facilities. The notes were issued pursuant to a
supplemental indenture with modified debt covenants, which are
specific to these notes. The primary change pertains to the
leverage covenant, which limits total debt to 65% of the market
value of total assets as defined, using a capitalization rate of
7.5% to value stabilized operating assets. As of
December 31, 2004, the Operating Trust had
$700 million available in shelf registered debt securities
which can be issued subject to our ability to affect offerings
on satisfactory terms based on prevailing market conditions.

In March 2003, the Operating Trust filed a shelf
registration statement on Form S-3 to register an
additional $335 million in unsecured debt securities.
During June 2003, we issued $250 million of long-term
unsecured senior notes due in June 2008 for net proceeds of
$247.2 million. These notes bear interest at a coupon rate
of 3.0% annually, with an effective interest rate of 3.2%. The
net proceeds were used to repay outstanding balances on our
unsecured credit facilities.

72



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

A summary of our Long-Term Unsecured Debt
outstanding at December 31, 2004 and 2003 follows (dollar
amounts in thousands):

|                                 |               |                |     |                  |   |              |     |              |   |                |           |           |  |   |           |           |  |  |      |     | 
|-------------------------------- | ------------- | -------------- | --- | ---------------- | - | ------------ | --- | ------------ | - | -------------- | --------- | --------- |  | - | --------- | --------- |  |  | ---- | --- | 
|                                 |               |                |     |                  |   | Balance at   |     | Balance at   |   | Average       
|                                 |               |                |     | Effective        |   | December 31, |     | December 31, |   | Remaining Life
|Type of Debt                     |               | Coupon Rate(1) |     | Interest Rate(2) |   | 2004         |     | 2003         |   | (Years)       
|                                 |               |                |     |                  |   |              |     |              |   |               
|Long-term unsecured senior notes |               |                | 6.2 | %                |   |              | 6.4 | %            |   | $              | 2,019,607 |           |  | $ | 1,771,167 |           |  |  | 5.3  |    
|Unsecured tax-exempt bonds       |               |                | 1.8 | %                |   |              | 2.1 | %            |   |                | 79,525    |           |  |   | 100,798   |           |  |  | 18.6 |    
|                                 |               |                |     |                  |   |              |     |              |   |                |           |           |  |   |           |           |  |  |      |    
|                                 | Total/average |                |     | 6.1              | % |              |     | 6.2          | % |                | $         | 2,099,132 |  |   | $         | 1,871,965 |  |  |      | 5.8 | 
|                                 |               |                |     |                  |   |              |     |              |   |                |           |           |  |   |           |           |  |  |      |    



---



|    |                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents a fixed rate for the long-term
    unsecured notes and a variable rate for the unsecured tax-exempt
    bonds.      
|   
|(2) | Includes the effect of fair value hedges, loan
    cost amortization and other ongoing fees and expenses, where
    applicable.

The $2.1 billion of Long-Term Unsecured Debt
generally have semi-annual interest payments and either
amortizing annual principal payments or balloon payments due at
maturity. The unsecured tax-exempt bonds require semi-annual
payments and are due upon maturity with $22.4 million
maturing in 2008 and $57.1 million maturing in 2029. The
notes are redeemable at our option, in whole or in part, and the
unsecured tax-exempt bonds are redeemable at our option upon
sale of the related property. The redemption price is generally
equal to the sum of the principal amount of the notes being
redeemed plus accrued interest through the redemption date plus
a standard make-whole premium, if any.



| |                  
| | -----------------
| | Mortgages Payable

Our mortgages payable generally feature either
monthly interest and principal payments or monthly interest-only
payments with balloon payments due at maturity (see 
Scheduled Debt Maturities). A summary of mortgages
payable outstanding for the years ending December 31, 2004
and 2003 follows (dollar amounts in thousands):

|                            |                        |                                         |   |                   |           |                  |   |           |           |  |  |     |     |  
|--------------------------- | ---------------------- | --------------------------------------- | - | ----------------- | --------- | ---------------- | - | --------- | --------- |  |  | --- | --- | -
|                            |                        |                                         |   |                  
|                            |                        | Outstanding Balance at(1)               |   |                  
|                            |                        |                                         |   | Effective        
|                            |                        | December 31, 2004                       |   | December 31, 2003 |           | Interest Rate(2)
|                            |                        |                                         |   |                   |           |                 
|Secured floating rate debt: |                        |                                         |   |                   |           |                  |   |           |           |  |  |    
|                            | Tax-exempt debt        |                                         | $ | 508,923           |           |                  | $ | 317,351   |           |  |  | 2.0 | %  
|                            | Construction loans     |                                         |   | 40,868            |           |                  |   | 56,129    |           |  |  | 4.4 | %  
|                            | Conventional mortgages |                                         |   | 21,705            |           |                  |   | 21,705    |           |  |  | 3.0 | %  
|                            |                        |                                         |   |                   |           |                  |   |           |           |  |  |    
|                            |                        | Total floating                          |   |                   | 571,496   |                  |   |           | 395,185   |  |  |     | 2.2 | %
|Secured fixed rate debt:    |                        |                                         |   |                   |           |                  |   |           |           |  |  |    
|                            | Conventional mortgages |                                         |   | 1,439,558         |           |                  |   | 1,511,277 |           |  |  | 6.5 | %  
|                            | Other secured debt     |                                         |   | 20,451            |           |                  |   | 21,163    |           |  |  | 3.6 | %  
|                            |                        |                                         |   |                   |           |                  |   |           |           |  |  |    
|                            |                        | Total fixed                             |   |                   | 1,460,009 |                  |   |           | 1,532,440 |  |  |     | 6.4 | %
|                            |                        |                                         |   |                   |           |                  |   |           |           |  |  |    
|                            |                        | Total debt outstanding at end of period |   | $                 | 2,031,505 |                  |   | $         | 1,927,625 |  |  |     | 5.2 | %
|                            |                        |                                         |   |                   |           |                  |   |           |           |  |  |    



---



|    |                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes a net fair market value adjustment
    recorded in connection with the Smith Merger of
    $48.4 million and $58.5 million at December 31,
    2004 and 2003, respectively. This amount is amortized into
    interest expense over the life of the underlying debt.

73



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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Includes the effect of fair value hedges, credit
    enhancement fees, the amortization of fair market value purchase
    adjustment, and other related costs, where applicable.

The change in mortgages payable during 2004 and
2003 consisted of the following (in thousands):

|                       |                                                           |      |           |          |   |   |           |          |  
|---------------------- | --------------------------------------------------------- | ---- | --------- | -------- | - | - | --------- | -------- | -
|                       |                                                           | 2004 |           | 2003    
|                       |                                                           |      |           |         
|Balance at January 1   |                                                           | $    | 1,927,625 |          |   | $ | 2,179,997 |         
|                       | Issuance of new mortgages                                 |      |           | 51,656   |   |   |           | 76,017   |  
|                       | Mortgage assumptions related to property
    acquisitions |      |           | 113,585  |   |   |           | 55,362   |  
|                       | Proceeds from construction loans                          |      |           | 118,000  |   |   |           |         |  
|                       | Regularly scheduled principal amortization                |      |           | (11,512  | ) |   |           | (11,934  | )
|                       | Prepayments, final maturities and other                   |      |           | (167,849 | ) |   |           | (371,817 | )
|                       |                                                           |      |           |          |   |   |           |         
|Balance at December 31 |                                                           | $    | 2,031,505 |          |   | $ | 1,927,625 |         
|                       |                                                           |      |           |          |   |   |           |         



| |                          
| | -------------------------
| | Scheduled Debt Maturities

Approximate principal payments due during each of
the next five calendar years and thereafter, are as follows (in
thousands):

|              |       |                          |         |                   |  |              |         |            |  |       |         |         |  |   |         |           |  |   |           |           | 
|------------- | ----- | ------------------------ | ------- | ----------------- |  | ------------ | ------- | ---------- |  | ----- | ------- | ------- |  | - | ------- | --------- |  | - | --------- | --------- | 
|              |       |                          |         |                   |  |             
|              |       | Long Term Unsecured Debt |         | Mortgages Payable |  |             
|              |       |                          |         |                   |  |             
|              |       | Regularly                |         |                   |  | Regularly    |         |            |  |      
|              |       | Scheduled                |         | Final             |  | Scheduled    |         | Final      |  |      
|              |       | Principal                |         | Maturities        |  | Principal    |         | Maturities |  |      
|              |       | Amortization             |         | and Other         |  | Amortization |         | and Other  |  | Total
|              |       |                          |         |                   |  |              |         |            |  |      
|2005          |       | $                        | 31,250  |                   |  | $            | 220,000 |            |  | $     | 11,804  |         |  | $ | 50,689  |           |  | $ | 313,743   |          
|2006          |       |                          | 31,250  |                   |  |              | 20,000  |            |  |       | 10,752  |         |  |   | 233,451 |           |  |   | 295,453   |          
|2007          |       |                          | 31,250  |                   |  |              | 355,000 |            |  |       | 11,352  |         |  |   | 144,920 |           |  |   | 542,522   |          
|2008          |       |                          | 31,250  |                   |  |              | 302,412 |            |  |       | 12,660  |         |  |   | 110,290 |           |  |   | 456,612   |          
|2009          |       |                          | 51,250  |                   |  |              | 31,027  |            |  |       | 10,272  |         |  |   | 362,070 |           |  |   | 454,619   |          
|Thereafter(1) |       |                          | 346,250 |                   |  |              | 648,193 |            |  |       | 245,045 |         |  |   | 828,200 |           |  |   | 2,067,688 |          
|              |       |                          |         |                   |  |              |         |            |  |       |         |         |  |   |         |           |  |   |           |          
|              | Total |                          | $       | 522,500           |  |              | $       | 1,576,632  |  |       | $       | 301,885 |  |   | $       | 1,729,620 |  |   | $         | 4,130,637 | 
|              |       |                          |         |                   |  |              |         |            |  |       |         |         |  |   |         |           |  |   |           |          



---



|    |                                                                                             
|--- | --------------------------------------------------------------------------------------------
|(1) | The average annual principal payments due from
    2010 to 2024 are $117.9 million per year.



| |      
| | -----
| | Other

The book value of total assets pledged as
collateral for mortgage loans and other obligations at both
December 31, 2004 and 2003 is $3.8 billion. Our debt
instruments generally contain covenants common to the type of
facility or borrowing, including financial covenants
establishing minimum debt service coverage ratios and maximum
leverage ratios. We were in compliance with all financial
covenants pertaining to our debt instruments at
December 31, 2004. See Note 10 for a summary of
derivative financial instruments used in connection with our
debt instruments.



|    |                              
|--- | -----------------------------
|(6) | Distributions to Shareholders

To maintain our status as a REIT, we are
generally required to distribute at least 90% of our taxable
income. The payment of distributions is subject to the
discretion of the Board and is dependent upon our strategy,
financial condition and operating results. At its December 2004
Board meeting, the Board announced an anticipated increase in
the annual distribution from $1.72 to $1.73 per Common Share.

74



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The following table summarizes the cash dividends
paid per share on Common Shares and Preferred Shares during
2004, 2003 and 2002:

|                               |  |      |          |      |  |      |          |  |  |   |          | 
|------------------------------ |  | ---- | -------- | ---- |  | ---- | -------- |  |  | - | -------- | 
|                               |  | 2004 |          | 2003 |  | 2002
|                               |  |      |          |      |  |     
|Common Shares and A-1 Units(1) |  | $    | 2.72     |      |  | $    | 1.71     |  |  | $ | 1.70     | 
|Series A Preferred Shares(2)   |  |      |         |      |  |      | 2.11     |  |  |   | 2.29     | 
|Series C Preferred Shares(3)   |  |      |         |      |  |      |         |  |  |   | 1.38     | 
|Series D Preferred Shares(4)   |  |      | 1.31     |      |  |      | 2.19     |  |  |   | 2.19     | 
|Series H Preferred Shares(5)   |  |      |         |      |  |      | 1.27     |  |  |   | 3.36     | 
|Series I Preferred Shares(6)   |  |      | 7,660.00 |      |  |      | 7,660.00 |  |  |   | 7,660.00 | 
|Series J Preferred Shares(7)   |  |      |         |      |  |      |         |  |  |   | 1.71     | 
|Series K Preferred Shares(8)   |  |      | 2.55     |      |  |      | 3.38     |  |  |   | 3.36     | 
|Series L Preferred Shares(9)   |  |      | 3.40     |      |  |      | 3.38     |  |  |   | 3.36     | 



---



|    |                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes a $1.00 per share special dividend
    issued to our Common Shareholders in December 2004.                                                                                                                                  
|   
|(2) | The Series A Preferred Shares were called
    for redemption during the fourth quarter of 2003; of the
    2.9 million Preferred Shares outstanding, 2.8 million
    were converted to Common Shares and the remaining were redeemed.
|   
|(3) | The Series C Preferred Shares were redeemed
    at liquidation value, plus accrued and unpaid distributions, in
    August 2002.                                                                                                     
|   
|(4) | The Series D Preferred Shares were redeemed
    in August 2004.                                                                                                                                                                      
|   
|(5) | The Series H Preferred Shares were converted
    into Common Shares in May 2003.                                                                                                                                                     
|   
|(6) | The Series I Preferred Shares have a par
    value of $100,000.                                                                                                                                                                      
|   
|(7) | The Series J Preferred Shares were converted
    into Common Shares in July 2002.                                                                                                                                                    
|   
|(8) | The Series K Preferred Shares were converted
    into Common Shares in September 2004.                                                                                                                                               
|   
|(9) | The Series L Preferred Shares were converted
    to Common Shares in December 2004.                                                                                                                                                  



|    |                     
|--- | --------------------
|(7) | Shareholders Equity



| |                              
| | -----------------------------
| | Shares of Beneficial Interest

Our Declaration of Trust authorizes us to issue
450,000,000 shares with a par value of $0.01 per share. Our
Declaration of Trust allows us to issue Common Shares, Preferred
Shares and such other shares of beneficial interest as the Board
may create and authorize from time to time. The Board may
classify or reclassify any unissued shares from time to time by
setting or changing the preferences, conversion rights, voting
powers, restrictions, limitations as to distributions,
qualifications of terms or conditions of redemption.



| |                                               
| | ----------------------------------------------
| | Preferred Share Redemption and
    Conversions

The Series A Preferred Shares were called
for redemption during 2003. Of the 2.9 million
Series A Preferred Shares outstanding, 2.8 million
were converted to Common Shares and the remaining were redeemed.
During May 2003, the Series H Preferred Shares were
converted into Common Shares. In August 2004, the series D
Preferred Shares were redeemed at liquidation value plus
distributions for a total of $47.6 million. The
Series K Preferred Shares were converted to Common Shares
in September 2004 and the Series L Preferred Shares were
converted to Common Shares in December 2004.

75



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                                          
| | -----------------------------------------
| | Common Share Repurchase and
    Issuances

During 2004, we repurchased and retired 3,516,700
Common Shares for an average price of $27.93 per share. In 2003,
we repurchased 614,100 Common Shares for an average price of
$21.38 per share. During 2004, we issued 156,000 Common Shares
in exchange for real estate.



| |                 
| | ----------------
| | Preferred Shares

A summary of our Convertible Preferred Shares
outstanding at December 31, 2004 and 2003, including their
significant rights, preferences, and privileges follows (amounts
in thousands):

|                                                                                                                            |  |            |          |            |  |             |       |               |  |              |       |      |  |   |      |  |  |   |   |  |  |   |        | 
|--------------------------------------------------------------------------------------------------------------------------- |  | ---------- | -------- | ---------- |  | ----------- | ----- | ------------- |  | ------------ | ----- | ---- |  | - | ---- |  |  | - | - |  |  | - | ------ | 
|                                                                                                                            |  |            |          |            |  |             |       |               |  |             
|                                                                                                                            |  |            |          |            |  |             |       | Annual        |  | December 31,
|                                                                                                                            |  | Redemption |          | Conversion |  | Liquidation |       | Dividend Rate |  |             
|Description                                                                                                                 |  | Date       |          | Ratio      |  | value       |       | Per Share     |  | 2004         |       | 2003
|                                                                                                                            |  |            |          |            |  |             |       |               |  |              |       |     
|Series K Preferred Shares; 0 shares
    issued and outstanding at December 31, 2004 and 666,667 at
    December 31, 2003(1) |  |            | 9/20/04  |            |  |             | 1.975 |               |  |              | 37.50 |      |  | $ | 3.38 |  |  | $ |  |  |  | $ | 25,000 | 
|Series L Preferred Shares; 0 shares
    issued and outstanding at December 31, 2004 and 641,026 at
    December 31, 2003(2) |  |            | 12/21/04 |            |  |             | 1.975 |               |  |              | 39.00 |      |  |   | 3.38 |  |  |   |  |  |  |   | 25,000 | 
|                                                                                                                            |  |            |          |            |  |             |       |               |  |              |       |      |  |   |      |  |  |   |   |  |  |   |        | 
|                                                                                                                            |  |            |          |            |  |             |       |               |  |              |       |      |  |   |      |  |  | $ |  |  |  | $ | 50,000 | 
|                                                                                                                            |  |            |          |            |  |             |       |               |  |              |       |      |  |   |      |  |  |   |   |  |  |   |        | 



---



|    |                                                                                       
|--- | --------------------------------------------------------------------------------------
|(1) | The Series K Preferred Shares were converted
    into Common Shares in September 2004.
|   
|(2) | The Series L Preferred Shares were converted
    into Common Shares in December 2004. 

A summary of our Perpetual Preferred Shares
outstanding at December 31, 2004 and 2003, including their
significant rights, preferences, and privileges follows (amounts
in thousands):

|                                                                                                                                |  |            |          |             |  |               |         |              |  |      |       |  |  |   |        |  |  |   |        | 
|------------------------------------------------------------------------------------------------------------------------------- |  | ---------- | -------- | ----------- |  | ------------- | ------- | ------------ |  | ---- | ----- |  |  | - | ------ |  |  | - | ------ | 
|                                                                                                                                |  |            |          |             |  |               |         |             
|                                                                                                                                |  |            |          |             |  | Annual        |         | December 31,
|                                                                                                                                |  | Redemption |          | Liquidation |  | Dividend Rate |         |             
|Description                                                                                                                     |  | Date(1)    |          | Value       |  | Per Share     |         | 2004         |  | 2003
|                                                                                                                                |  |            |          |             |  |               |         |              |  |     
|Series D Preferred Shares; 0 and 1,957,606
    shares issued and outstanding at December 31, 2004 and
    2003, respectively(1) |  |            | 08/06/04 |             |  |               | 25.00   |              |  | $    | 2.19  |  |  | $ |       |  |  | $ | 48,940 | 
|Series I Preferred Shares; 500 shares issued
    and outstanding at December 31, 2004 and 2003,
    respectively(2)             |  |            | 02/01/28 |             |  |               | 100,000 |              |  |      | 7,660 |  |  |   | 50,000 |  |  |   | 50,000 | 
|                                                                                                                                |  |            |          |             |  |               |         |              |  |      |       |  |  |   |        |  |  |   |        | 
|                                                                                                                                |  |            |          |             |  |               |         |              |  |      |       |  |  | $ | 50,000 |  |  | $ | 98,940 | 
|                                                                                                                                |  |            |          |             |  |               |         |              |  |      |       |  |  |   |        |  |  |   |        | 



---



|    |                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Series D Preferred Shares were redeemed
    in August 2004.                                                                                                                                                                                             
|   
|(2) | Series I Preferred Shares may be redeemed
    for cash at our option, in whole or in part, at a redemption
    price equal to the liquidation price per share, plus accrued and
    unpaid dividends, if any, on or after the redemption date
    indicated.

The holders of our Preferred Shares do not have
preemptive rights over the holders of Common Shares, but do have
limited voting rights under certain circumstances. The Preferred
Shares have no stated maturity,

76



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

are not subject to any sinking fund requirements
and we are not obligated to redeem or retire the shares. Holders
of the Preferred Shares are entitled to receive cumulative
preferential cash distributions, when and as declared and
authorized by the Board, out of funds legally available for the
payment of distributions. All Preferred Share distributions are
cumulative from date of original issue and all series of
Preferred Shares rank equally as to distributions and
liquidation proceeds. All dividends due and payable on Preferred
Shares have been accrued and paid as of the end of each fiscal
year.

If six quarterly dividends payable (whether or
not consecutive) on any series or class of Preferred Shares that
are of equal rank with respect to dividends and any distribution
of assets, shall not be paid in full, the number of Independent
Trustees shall be increased by two and the holders of all such
Preferred Shares voting as a class regardless of series or
class, shall be entitled to elect the two additional Independent
Trustees. Whenever all dividends in arrears have been paid, the
right to elect the two additional Independent Trustees shall
cease and the terms of such Independent Trustees shall terminate.



| |                                                  
| | -------------------------------------------------
| | Dividend Reinvestment and Share Purchase
    Plan

Our Dividend Reinvestment and Share Purchase Plan
was designed and implemented to increase ownership in the
company by private investors. Under the plan, holders of Common
Shares and A-1 Common Units have the ability to automatically
reinvest their cash dividends to purchase additional Common
Shares. In October 2003, we announced that shares issued
under the Dividend Reinvestment and Share Purchase Plan would be
acquired through open market purchases or in negotiated
transactions with third parties pursuant to the automatic
reinvestment of dividends or pursuant to optional cash payments
under the plan. As a result, Common Shares acquired by investors
under the plan are not currently entitled to a discount.



| |                                                        
| | -------------------------------------------------------
| | Ownership Restrictions and Significant
    Shareholders

Our governing documents restrict beneficial
ownership of our outstanding shares by a single person, or
persons acting as a group, to 9.8% of the Common Shares and 25%
of each series of Preferred Shares. For us to qualify as a REIT
under the Internal Revenue Code of 1986, as amended, not more
than 50% in value of our outstanding capital shares may be owned
by five or fewer individuals at any time during the last half of
our taxable year. The provision permits five persons to acquire
up to a maximum of 9.8% each of the Common Shares, or an
aggregate of 49% of the outstanding Common Shares.

Common Shares owned by a person or group of
persons in excess of the 9.8% limit are subject to redemption.
The provision does not apply where a majority of the Board, in
its sole and absolute discretion, waives such limit after
determining that our eligibility to qualify as a REIT for
federal income tax purposes will not be jeopardized or the
disqualification as a REIT is advantageous to shareholders.

(8)     Minority
Interest

Minority interest consists of the following at
December 31, 2004 and 2003 (in thousands):

|                          |       |      |         |         |  |   |         |         | 
|------------------------- | ----- | ---- | ------- | ------- |  | - | ------- | ------- | 
|                          |       | 2004 |         | 2003   
|                          |       |      |         |        
|A-1 Common Units          |       | $    | 476,526 |         |  | $ | 519,726 |        
|Perpetual Preferred Units |       |      | 19,522  |         |  |   | 61,180  |        
|Other minority interests  |       |      | 2,050   |         |  |   | 11,510  |        
|                          |       |      |         |         |  |   |         |        
|                          | Total |      | $       | 498,098 |  |   | $       | 592,416 | 
|                          |       |      |         |         |  |   |         |        

77



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The changes in the Minority Interest balance are
as follows:

|                  |                                      |                         |         |         |   |   |         |         |  
|----------------- | ------------------------------------ | ----------------------- | ------- | ------- | - | - | ------- | ------- | -
|                  |                                      |                        
|                  |                                      | Balance at December 31,
|                  |                                      |                        
|                  |                                      | 2004                    |         | 2003   
|                  |                                      |                         |         |        
|Beginning Balance |                                      | $                       | 592,416 |         |   | $ | 547,909 |        
|                  | A-1 Common Unit Conversions          |                         |         | (47,925 | ) |   |         | (25,534 | )
|                  | A-1 Common Unit Redemptions          |                         |         | (2,346  | ) |   |         |        |  
|                  | Unitholders share of net earnings    |                         |         | 69,821  |   |   |         | 60,534  |  
|                  | Common Units issued for real estate  |                         |         | 10,788  |   |   |         | 47,575  |  
|                  | Series E & F Redemptions             |                         |         | (42,712 | ) |   |         |        |  
|                  | A-1 Common Unitholders distributions |                         |         | (64,437 | ) |   |         | (38,180 | )
|                  | A-1 revaluation and other            |                         |         | (17,507 | ) |   |         | 112     |  
|                  |                                      |                         |         |         |   |   |         |        
|Ending Balance    |                                      | $                       | 498,098 |         |   | $ | 592,416 |        
|                  |                                      |                         |         |         |   |   |         |        



| |                 
| | ----------------
| | A-1 Common Units

As of December 31, 2004 and
December 31, 2003, we owned an 89.1% and 88.5% majority
interest in the Operating Trust, respectively. In connection
with the Smith Merger, the Operating Trust issued approximately
25.5 million A-1 Common Units to former Smith Partnership
unitholders. These units are redeemable at the option of the A-1
Common Unitholders. The Operating Trust has the option of
redeeming the A-1 Common Units with cash or with Common Shares.
The A-1 Common Units are entitled to the same dividend as Common
Shares. The A-1 Common Unitholders aggregate minority
interest in the Operating Trust was approximately 10.9% and
11.5% at December 31, 2004 and 2003, respectively. During
2004 and 2003 we redeemed 2,392,234 and 1,276,692 Class A-1
Common Units for Common Shares, respectively. During 2004 and
2003, we issued 374,921 and 1,955,908 Common Units in exchange
for real estate, respectively.



| |              
| | -------------
| | Series M Unit

In December of 2004, the Operating Trust issued
one Series M Preferred Unit in exchange for cash. This unit
is redeemable at the option of the Unit Holder and/or the
Operating Trust under certain circumstances. If the Operating
Trust is required to redeem the Series M Preferred Unit,
the redemption price will be paid in cash. If the holder of the
Series M Preferred Unit requests redemption of the
Series M Preferred Unit, the Operating Trust has the option
of redeeming the Series M Preferred Unit with cash or with
Common Shares. The redemption value under such circumstances is
based on the performance of the related real estate asset, as
outlined in the contribution agreement. The Series M
Preferred Unit is entitled to a dividend equivalent to the same
dividend paid on 263 Common Shares. The holder of the
Series M Preferred Unit does not have preemptive rights
over the holders of Common Shares and does not have any voting
right except as required by law. The Series M Preferred
Unit has no stated maturity and is not subject to any sinking
fund requirements.



| |                          
| | -------------------------
| | Perpetual Preferred Units

At various dates, consolidated subsidiaries of
Archstone-Smith issued Perpetual Preferred Units to limited
partners in exchange for cash. Unless redeemed, the units are
convertible into a specified series of

78



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Archstone-Smith non-convertible perpetual
preferred shares after certain dates. Following is a summary of
outstanding Perpetual Preferred Units as of December 31,
2004 and 2003 (amounts in thousands):

|                                                                                                                                            |  |            |          |             |  |          |       |              |  |      |      |  |  |   |        |  |  |   |        | 
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- | -------- | ----------- |  | -------- | ----- | ------------ |  | ---- | ---- |  |  | - | ------ |  |  | - | ------ | 
|                                                                                                                                            |  |            |          |             |  | Annual   |       |             
|                                                                                                                                            |  |            |          |             |  | Dividend |       | December 31,
|                                                                                                                                            |  | Redemption |          | Liquidation |  | Rate per |       |             
|Description                                                                                                                                 |  | Date(1)    |          | Value       |  | Share    |       | 2004         |  | 2003
|                                                                                                                                            |  |            |          |             |  |          |       |              |  |     
|Series E Perpetual Preferred Units; 200,000
    Units issued and outstanding at December 31, 2004 and
    1,120,000 at December 31, 2003(2) |  |            | 02/04/05 |             |  | $        | 25.00 |              |  | $    | 2.09 |  |  | $ | 4,929  |  |  | $ | 27,123 | 
|Series F Perpetual Preferred Units;
    0 Units issued and outstanding at December 31, 2004
    and 800,000 at December 31, 2003(3)         |  |            | 09/27/04 |             |  |          | 25.00 |              |  |      | 2.03 |  |  |   |       |  |  |   | 19,464 | 
|Series G Perpetual Preferred Units; 600,000
    Units issued and outstanding at December 31, 2004 and 2003                                  |  |            | 03/03/05 |             |  |          | 25.00 |              |  |      | 2.16 |  |  |   | 14,593 |  |  |   | 14,593 | 
|                                                                                                                                            |  |            |          |             |  |          |       |              |  |      |      |  |  |   |        |  |  |   |        | 
|                                                                                                                                            |  |            |          |             |  |          |       |              |  |      |      |  |  | $ | 19,522 |  |  | $ | 61,180 | 
|                                                                                                                                            |  |            |          |             |  |          |       |              |  |      |      |  |  |   |        |  |  |   |        | 



---



|    |                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The shares are redeemable, at our option, in
    whole or in part, at the liquidation preference plus unpaid
    dividends on or after the dates indicated here.
|   
|(2) | In August and November 2004, 520,000 and 400,000
    Series E Perpetual Preferred Units were redeemed at
    liquidation value plus accrued dividends.          
|   
|(3) | In September 2004, the Series F Perpetual
    Preferred Units were redeemed at liquidation value plus accrued
    dividends.                                    

(9)     Benefit
Plans

Our long-term incentive plan was approved in
1997, and was modified in connection with the Smith Merger.
There have been five types of awards under the plan:
(i) options with a DEU feature (only awarded prior to
2000); (ii) options without the DEU feature (generally
awarded after 1999); (iii) restricted Common Share unit
awards with a DEU feature; (iv) employee share purchase
program with matching options without the DEU feature, granted
only in 1997 and 1998; and (v) Common Shares issued to
certain named executives under our Special Long-Term Incentive
Plan.

No more than 20 million share or option
awards in the aggregate may be granted under the plan and no
individual may be awarded more than 1.0 million share or
option awards in any one-year period. The plan has a 10-year
term. As of December 31, 2004, Archstone-Smith had
approximately 8,232,000 shares available for future grants.
Beginning in 2004, the Board voted to eliminate regular option
awards to officers with the title of Senior Vice President or
above.



| |                                      
| | -------------------------------------
| | Share Options and Trustee
    Options

The exercise price of each employee option
granted is equal to the fair market value at the close of
business on the day immediately preceding the date of grant. The
options awarded through mid-2001 generally vest at a rate of 25%
per year; options granted after mid-2001 generally vest at the
rate of 33 1/3% a year.

Archstone-Smith has authorized 400,000 Common
Units for issuance to their Independent Trustees under the
equity plan for Independent Trustees. The exercise price of
outside trustee options is equal to the average of the high and
low prices on the date of grant. All options granted to
Independent Trustees before 1999 have been exercised or
cancelled. The options issued to Independent Trustees between
1999 and 2001

79



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

have a DEU feature, a 10-year term and vest over
a four-year period. Beginning in 2002 options are no longer
issued to Independent Trustees.

During 1997, as part of the employee share
purchase plan, certain officers and other employees purchased
Common Shares of Archstone-Smith. The company financed 95% of
the total purchase price by issuing notes representing
approximately $17.1 million. Loans made to employees in
connection with the employee share purchase plan are recourse
loans and the associated receivable is recorded as a reduction
of shareholders/unitholders equity. As of
December 31, 2004, the aggregate outstanding balances on
these notes were approximately $917,000.

A summary of all options outstanding at
December 31, 2004 follows:

|                                                                   |       |           |           |                 |  |         |              |                  |  |                  |       |       |  |  |           |  |  |  |            |  | 
|------------------------------------------------------------------ | ----- | --------- | --------- | --------------- |  | ------- | ------------ | ---------------- |  | ---------------- | ----- | ----- |  |  | --------- |  |  |  | ---------- |  | 
|                                                                   |       |           |           |                 |  |         |              |                 
|                                                                   |       |           |           | Exercise Prices |  |         |              | Weighted-Average
|                                                                   |       | Number of |           |                 |  |         |              | Remaining       
|                                                                   |       | Options   |           | Range           |  | Average |              | Expiration Date  |  | Contractual Life
|                                                                   |       |           |           |                 |  |         |              |                  |  |                 
|Matching options under the 1997 employee unit
    purchase program |       |           | 72,086    |                 |  | $       | 21.49-$21.86 |                  |  | $                | 21.50 |       |  |  | 2007      |  |  |  | 2.69 years | 
|Options with DEUs                                                  |       |           | 862,569   |                 |  |         | 19.00- 22.66 |                  |  |                  | 20.48 |       |  |  | 2007-2009 |  |  |  | 4.07 years | 
|Options without DEUs                                               |       |           | 2,818,401 |                 |  |         | 21.34- 29.33 |                  |  |                  | 24.45 |       |  |  | 2007-2014 |  |  |  | 7.47 years | 
|Independent Trustees                                               |       |           | 61,250    |                 |  |         | 22.56- 23.95 |                  |  |                  | 23.14 |       |  |  | 2009-2011 |  |  |  | 5.51 years | 
|Exchanged options                                                  |       |           | 66,920    |                 |  |         | 14.68- 22.58 |                  |  |                  | 19.93 |       |  |  | 2007-2011 |  |  |  | 5.47 years | 
|                                                                   |       |           |           |                 |  |         |              |                  |  |                  |       |       |  |  |           |  |  |  |            | 
|                                                                   | Total |           |           | 3,881,226       |  |         | $            | 14.68-$29.33     |  |                  | $     | 23.41 |  |  |           |  |  |  |            |  | 
|                                                                   |       |           |           |                 |  |         |              |                  |  |                  |       |       |  |  |           |  |  |  |            | 

A summary of the status of Archstone-Smiths
option plans as of December 31, 2004, 2003 and 2002, and
changes during the years ended on those dates is presented below:

|                                      |           |           |           |                  |   |             |       |       |  |  |           |  | 
|------------------------------------- | --------- | --------- | --------- | ---------------- | - | ----------- | ----- | ----- |  |  | --------- |  | 
|                                      |           |           |           |                  |   | Number of  
|                                      |           | Number of |           | Weighted Average |   | Options    
|                                      |           | Options   |           | Exercise Price   |   | Exercisable
|                                      |           |           |           |                  |   |            
|Balance/ Average at December 31, 2001 |           |           | 8,107,628 |                  |   | $           | 21,33 |       |  |  | 5,131,390 | 
|                                      |           |           |           |                  |   |             |       |       |  |  |           | 
|                                      | Granted   |           |           | 2,680,143        |   |             |       | 24.15 |  |  |           |  | 
|                                      | Exercised |           |           | (1,210,890       | ) |             |       | 26.28 |  |  |           |  | 
|                                      | Forfeited |           |           | (340,519         | ) |             |       | 23.94 |  |  |           |  | 
|                                      |           |           |           |                  |   |             |       |       |  |  |           | 
|Balance/ Average at December 31, 2002 |           |           | 9,236,362 |                  |   | $           | 22.44 |       |  |  | 5,314,210 | 
|                                      |           |           |           |                  |   |             |       |       |  |  |           | 
|                                      | Granted   |           |           | 15,823           |   |             |       | 22.42 |  |  |           |  | 
|                                      | Exercised |           |           | (2,101,605       | ) |             |       | 19.58 |  |  |           |  | 
|                                      | Forfeited |           |           | (762,838         | ) |             |       | 24.38 |  |  |           |  | 
|                                      |           |           |           |                  |   |             |       |       |  |  |           | 
|Balance/Average at December 31, 2003  |           |           | 6,387,742 |                  |   | $           | 23.15 |       |  |  | 4,546,725 | 
|                                      |           |           |           |                  |   |             |       |       |  |  |           | 
|                                      | Granted   |           |           | 647,825          |   |             |       | 26.83 |  |  |           |  | 
|                                      | Exercised |           |           | (3,002,193       | ) |             |       | 22.85 |  |  |           |  | 
|                                      | Forfeited |           |           | (152,148         | ) |             |       | 25.45 |  |  |           |  | 
|                                      |           |           |           |                  |   |             |       |       |  |  |           | 
|Balance/Average at December 31, 2004  |           |           | 3,881,226 |                  |   | $           | 23.41 |       |  |  | 2,891,895 | 
|                                      |           |           |           |                  |   |             |       |       |  |  |           | 



| |                             
| | ----------------------------
| | Restricted Share Unit Awards

Restricted Share Unit awards are granted at the
market value of the underlying Common Shares on the date of
grant. To compute the total compensation expense to be
recognized, the fair value of each share on the grant date is
multiplied by the number of shares granted. We then recognize
this stock-based employee

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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

compensation expense over the vesting period,
which ranges from two to four years. The total expense
recognized in connection with these awards, including the DEUs
for the years ending December 31, 2004, December 31,
2003 and December 31, 2002 was $5.7 million,
$5.6 million, and $4.6 million, respectively.

All RSU grants have a DEU feature. During 2004,
2003 and 2002 Archstone-Smith awarded 299,682, 0 and 341,048
RSUs, respectively, to certain employees under the long-term
incentive plan, of which 50,763 have been forfeited prior to
vesting. A total of 14,504 RSUs with a DEU feature were awarded
to trustees under the equity plan for Independent Trustees, none
of which has been forfeited. Each RSU provides the holder with
one Common Share upon settlement. The RSUs and related DEU
feature vest at 25%-33.33% per year over a three or four-year
period. We recognize the value of the awards and the related
DEUs as compensation expense over the vesting period.



| |                          
| | -------------------------
| | Dividend Equivalent Units

Under the modified long-term incentive plan,
participants who are awarded RSUs may be credited with DEUs
equal to the amount of dividends paid on Common Shares with
respect to such awards. The DEUs are awarded annually at the end
of each year and vest under substantially the same terms as the
underlying share options or RSUs.

DEUs credited in relation to options are
calculated by taking the average number of options held at each
record date and multiplying by the difference between the
average annual dividend yield on Common Shares and the average
dividend yield for the Standard & Poors 500 Stock
Index. DEUs credited in relation to RSUs are calculated by
taking the average number of RSUs held at each record date and
multiplying by the average annual dividend yield on Common
Shares. DEUs credited in relation to existing DEUs are
calculated by taking the number of DEUs at December 31 and
multiplying by the average annual dividend yield on Common
Shares.

As of December 31, 2004, there were
approximately 280,778 DEUs outstanding awarded to 86 holders of
options and RSUs. The outstanding DEUs were valued at
$10.8 million on December 31, 2004 based upon market
price of the Common Shares on that date. We recognize the value
of the DEUs awarded as compensation expense over the vesting
period. The matching options granted in connection with the 1997
employee purchase program and all of the employee options
granted after 1999 (including the converted Smith Residential
options) do not have a DEU feature.



| |                                                            
| | -----------------------------------------------------------
| | 401(k) Plan and Nonqualified Deferred
    Compensation Plan

In December 1997, the Archstone-Smith Board
established a 401(k) plan and a nonqualified savings plan, both
of which became effective on January 1, 1998. The 401(k)
plan provides for matching employer contributions of fifty cents
for every dollar contributed by the employee, up to 6% of the
employees annual contribution. Contributions by employees
to the 401(k) plan are subject to federal limitations of $12,000
during 2004. The matching employer contributions are made in
Common Shares, which vest between years of service at 20% per
year. The Smith Residential nonqualified deferred compensation
plan and the Independent Trustees deferred fee plan were merged
into our existing nonqualified savings plan to form a new
on-going nonqualified deferred compensation plan on
January 1, 2002. Generally, the deferred compensation plan
permits only deferrals of compensation by eligible employees and
non-employee trustees. No employer contributions are currently
being made to that plan. Amounts deferred under the deferred
compensation plan are invested among a variety of investments as
directed by the participants, and are generally deferred until
termination of employment or service as a trustee.

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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                                              
| | ---------------------------------------------
| | Deferral of Fees by Non-Employee
    Trustees

Pursuant to the terms of the nonqualified
deferred compensation plan, each non-employee member of our
Board has the opportunity to defer receipt of all or a portion
of the service fees they otherwise would have been paid in cash.
If a participant elects to have their fees deferred, the fees
accrue in the form of phantom shares equal to the number of
Common Shares that could have been purchased on the date the fee
was credited. Dividends are calculated on the phantom shares and
additional phantom shares are credited. Distribution of phantom
shares may be deferred to a later date. Upon settlement, phantom
shares convert into Common Shares on a 1-to-1 basis.
Alternatively, the Trustee can elect to have his or her fees
deferred and invested in one or more of the investment funds
that are otherwise available under the deferred compensation
plan. Upon settlement such investments are paid out in cash.



| |                                     
| | ------------------------------------
| | Special Long-Term Incentive
    Plan

During December 2001, the Executive Compensation
Committee approved a Special Long-Term Incentive Plan whereby
certain named executive officers would be eligible to earn a
number of Common Shares equal to the number of performance units
that vest at the end of a three-year performance period from
January 1, 2001 to December 31, 2004. The number of
performance units that could vest ranged from zero to 100%
depending upon our annual compounded total shareholder return at
the end of the three-year performance period and our annual
compounded total shareholder return compared to the NAREIT
Apartment Index based on percentile rankings. We accounted for
the Special Long-Term Incentive Plan as a variable plan as the
number of shares to be ultimately issued was not known until the
end of the performance period. Estimates of the ultimate
compensation costs were recorded to expense on a quarterly basis
over the performance period and adjusted as necessary.

At the end of the three-year performance period,
the number of performance units that vested were exchanged for
an equal number of Common Shares. All performance units that did
not vest at the end of the three-year performance period were
cancelled. As a result of Archstone-Smiths actual
performance over this period, 205,600 Common Shares were issued
to these named executive officers during the first quarter of
2005.

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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|     |                                                 
|---- | ------------------------------------------------
|(10) | Financial Instruments and Hedging
    Activities



| |                                        
| | ---------------------------------------
| | Fair Value of Financial
    Instruments

At December 31, 2004 and 2003, the fair
values of cash and cash equivalents, restricted cash held in a
tax-deferred exchange escrow accounts, receivables and accounts
payable approximated their carrying values because of the
short-term nature of these instruments. The estimated fair
values of other financial instruments subject to fair value
disclosures were determined based on available market
information and valuation methodologies believed to be
appropriate for these purposes. Considerable judgment and a high
degree of subjectivity are involved in developing these
estimates and, therefore, are not necessarily indicative of the
actual amounts that we could realize upon disposition. The
following table summarizes these financial instruments (in
thousands):

|                         |                             |                              |   |                              |  |          |   |            |  |  |   |           |  |  |   |           | 
|------------------------ | --------------------------- | ---------------------------- | - | ---------------------------- |  | -------- | - | ---------- |  |  | - | --------- |  |  | - | --------- | 
|                         |                             |                              |   |                             
|                         |                             | Balance at December 31, 2004 |   | Balance at December 31, 2003
|                         |                             |                              |   |                             
|                         |                             | Carrying                     |   | Estimated                    |  | Carrying |   | Estimated 
|                         |                             | Amounts                      |   | Fair Value                   |  | Amounts  |   | Fair Value
|                         |                             |                              |   |                              |  |          |   |           
|Borrowings:              |                             |                              |   |                              |  |          |   |            |  |  |   |           |  |  |   |          
|                         | Unsecured credit facilities |                              | $ | 19,000                       |  |          | $ | 19,000     |  |  | $ | 103,790   |  |  | $ | 103,790   | 
|                         | Long-Term Unsecured Debt    |                              |   | 2,099,132                    |  |          |   | 2,262,778  |  |  |   | 1,871,695 |  |  |   | 2,043,289 | 
|                         | Mortgages payable           |                              |   | 2,031,505                    |  |          |   | 2,093,436  |  |  |   | 1,927,625 |  |  |   | 2,032,872 | 
|Interest rate contracts: |                             |                              |   |                              |  |          |   |            |  |  |   |           |  |  |   |          
|                         | Interest rate swaps         |                              | $ | 10,209                       |  |          | $ | 10,209     |  |  | $ | 2,765     |  |  | $ | 2,765     | 
|                         | Interest rate caps          |                              |   |                             |  |          |   |           |  |  |   |          |  |  |   |          | 
|Forward Contracts:       |                             |                              |   |                              |  |          |   |            |  |  |   |           |  |  |   |          
|                         | Forward sales agreements    |                              | $ |                             |  |          | $ |           |  |  | $ | 250       |  |  | $ | 250       | 

All publicly traded equity securities are
classified as available for sale securities and
carried at fair value, with unrealized gains and losses reported
as a separate component of shareholders equity. As of
December 31, 2004 and 2003, our investments in publicly
traded equity securities included in other assets were
$19.0 million and $144.7 million, respectively.
Private investments, for which we do not have the ability to
exercise significant influence, are accounted for at cost.
Declines in the value of public and private investments that
management determines are other than temporary, are recorded as
a provision for possible loss on investments. Our evaluation of
the carrying value of these investments is primarily based upon
a regular review of market valuations (if available), each
companys operating performance and assumptions underlying
cash flow forecasts. In addition, management considers events
and circumstances that may signal the impairment of an
investment.



| |                                     
| | ------------------------------------
| | Interest Rate Hedging
    Activities

We are exposed to the impact of interest rate
changes and will occasionally utilize interest rate swaps and
interest rate caps as hedges with the objective of lowering our
overall borrowing costs. These derivatives are designated as
either cash flow or fair value hedges. We do not use these
derivatives for trading or other speculative purposes. Further,
as a matter of policy, we only enter into contracts with major
financial institutions based upon their credit ratings and other
factors. When viewed in conjunction with the underlying and
offsetting exposure that the derivatives are designed to hedge,
we have not, nor do we expect to sustain a material loss from
the use of these hedging instruments.

We formally assess, both at inception of the
hedge and on an ongoing basis, whether each derivative is highly
effective in offsetting changes in fair values or cash flows of
the hedged item. We measure hedge effectiveness by comparing the
changes in the fair value or cash flows of the derivative
instrument with the changes in the fair value or cash flows of
the hedged item. We assess effectiveness of purchased interest
rate

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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

caps based on overall changes in the fair value
of the caps. If a derivative ceases to be a highly effective
hedge, we discontinue hedge accounting prospectively.

To determine the fair values of derivative and
other financial instruments, we use a variety of methods and
assumptions that are based on market value conditions and risks
existing at each balance sheet date. These methods and
assumptions include standard market conventions and techniques
such as discounted cash flow analysis, option pricing models,
replacement cost and termination cost. All methods of assessing
fair value result in a general approximation of value, and
therefore, are not necessarily indicative of the actual amounts
that we could realize upon disposition.

During the years ended December 31, 2004,
2003 and 2002 we recorded an increase/ (decrease) to interest
expense of $33,000, $101,000 and $(312,000), for hedge
ineffectiveness caused by a difference between the interest rate
index on a portion of our outstanding variable rate debt and the
underlying index of the associated interest rate swap. We pursue
hedging strategies that we expect will result in the lowest
overall borrowing costs and least degree of earnings volatility
possible under the new accounting standards.

The following table summarizes the notional
amount, carrying value and estimated fair value of our
derivative financial instruments used to hedge interest rates,
as of December 31, 2004 (dollar amounts in thousands). The
notional amount represents the aggregate amount of a particular
security that is currently hedged at one time, but does not
represent exposure to credit, interest rate or market risks.

|                   |                            |                         |              |            |         |                |  |           |           |           |   |        |        |       | 
|------------------ | -------------------------- | ----------------------- | ------------ | ---------- | ------- | -------------- |  | --------- | --------- | --------- | - | ------ | ------ | ----- | 
|                   |                            |                         |              |            |         | Carrying and  
|                   |                            | Notional                |              | Maturity   |         | Estimated Fair
|                   |                            | Amount                  |              | Date Range |         | Value         
|                   |                            |                         |              |            |         |               
|Cash flow hedges:  |                            |                         |              |            |         |                |  |           |           |           |   |       
|                   | Interest rate caps         |                         | $            | 109,008    |         |                |  | 2005-2007 |           |           | $ | 8      |       
|                   | Interest rate swaps        |                         |              | 150,000    |         |                |  | 2006      |           |           |   | (3,556 | )     
|                   |                            |                         |              |            |         |                |  |           |           |           |   |       
|                   |                            | Total cash flow hedges  |              | $          | 259,008 |                |  |           | 2005-2007 |           |   | $      | (3,548 | )    
|                   |                            |                         |              |            |         |                |  |           |           |           |   |       
|Fair value hedges: |                            |                         |              |            |         |                |  |           |           |           |   |       
|                   | Interest rate swaps        |                         | $            | 75,055     |         |                |  | 2008      |           |           | $ | 4,470  |       
|                   | Total rate of return swaps |                         |              | 77,006     |         |                |  | 2006-2007 |           |           |   | 8,593  |       
|                   |                            |                         |              |            |         |                |  |           |           |           |   |       
|                   |                            | Total fair value hedges |              | $          | 152,061 |                |  |           | 2005-2008 |           |   | $      | 13,063 |      
|                   |                            |                         |              |            |         |                |  |           |           |           |   |       
|                   |                            |                         | Total hedges |            | $       | 411,069        |  |           |           | 2005-2008 |   |        | $      | 9,515 | 
|                   |                            |                         |              |            |         |                |  |           |           |           |   |       

During 2004, we entered into interest rate swap
transactions to mitigate the risk of changes in the
interest-related cash outflows on a forecasted issuance of
long-term unsecured debt. At inception, these swap transactions
had an aggregate notional amount of $144 million and a fair
value of zero. The long-term unsecured debt these swap
transactions related to was issued in August 2004. The hedge was
terminated when the debt was issued. The fair value of the cash
flow hedge upon termination was a liability of approximately
$2.5 million. This amount was deferred in accumulated other
comprehensive income and will be reclassified out of accumulated
other comprehensive income as additional interest expense as the
hedged forecasted interest payments occur.



| |                                         
| | ----------------------------------------
| | Equity Securities Hedging
    Activities

We are exposed to price risk associated with
changes in the fair value of certain equity securities. During
2003, Archstone-Smith entered into forward sale agreements with
an aggregate notional amount, which represents the fair value of
the underlying marketable securities, of approximately
$128.5 million and an aggregate fair value of the forward
sale agreements of approximately $486,000, to protect against a
reduction in the fair value of these securities. We designated
this forward sale as a fair value hedge.

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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

During 2004, we settled all of the forward sales
agreements for approximately 2.8 million shares, and sold
308,200 shares of marketable securities which were not subject
to forward sales agreements, resulting in an aggregate gain of
approximately $24.9 million. The total net proceeds from
the sale were $143.0 million, with the marketable
securities basis determined using the average costs of the
securities. The fair value of forward sales agreements at
December 31, 2004 and 2003 was $0 and $250,462,
respectively.



|     |                                  
|---- | ---------------------------------
|(11) | Selected Quarterly Financial Data

Selected quarterly financial data (in thousands,
except per share amounts) for 2004 and 2003 is summarized below.
The sum of the quarterly earnings per Common Share amounts may
not equal the annual earnings per Common Share amounts due
primarily to changes in the number of Common Shares outstanding
from quarter to quarter.

|      |                                                           |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |         |        | 
|----- | --------------------------------------------------------- | ------------------------------------------ | - | ---------- | ----- | ------- | - | -------- | ----- | -------- | - | ------- | ----- |  | - | ------- | ----- |  | - | ------- | ------ | 
|      |                                                           |                                            |   |           
|      |                                                           | (Unaudited)                                |   |           
|      |                                                           | Three Months Ended                         |   |           
|      |                                                           |                                            |   | Year Ended
|      |                                                           | 3-31(1)                                    |   | 6-30(1)    |       | 9-30(1) |   | 12-31(1) |       | 12-31(1)
|      |                                                           |                                            |   |            |       |         |   |          |       |         
|2004: |                                                           |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|      | Total revenues                                            |                                            | $ | 204,859    |       |         | $ | 215,013  |       |          | $ | 222,484 |       |  | $ | 230,973 |       |  | $ | 873,329 |       
|      |                                                           |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|      | Earnings from operations                                  |                                            |   | 37,325     |       |         |   | 38,826   |       |          |   | 28,814  |       |  |   | 26,832  |       |  |   | 131,797 |       
|      | Income from unconsolidated entities                       |                                            |   | 5,276      |       |         |   | 7,354    |       |          |   | 5,485   |       |  |   | (213    | )     |  |   | 17,902  |       
|      | Other non-operating income                                |                                            |   | 10,510     |       |         |   | 9,951    |       |          |   | 7,701   |       |  |   |        |       |  |   | 28,162  |       
|      | Less minority interest:                                   |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |         |       
|      |                                                           | Perpetual preferred units                  |   |            | 1,316 |         |   |          | 1,316 |          |   |         | 2,045 |  |   |         | 685   |  |   |         | 5,362  | 
|      |                                                           | Convertible operating partnership units(2) |   |            | 5,262 |         |   |          | 5,783 |          |   |         | 3,971 |  |   |         | 2,534 |  |   |         | 17,181 | 
|      | Plus net earnings from discontinued operations(2)         |                                            |   | 53,569     |       |         |   | 31,030   |       |          |   | 105,126 |       |  |   | 198,890 |       |  |   | 387,024 |       
|      | Less Preferred Share dividends                            |                                            |   | 3,131      |       |         |   | 3,143    |       |          |   | 3,661   |       |  |   | 957     |       |  |   | 10,892  |       
|      |                                                           |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|      | Net earnings attributable to Common
    Shares  Basic(2) |                                            | $ | 96,971     |       |         | $ | 76,919   |       |          | $ | 137,449 |       |  | $ | 221,333 |       |  | $ | 531,450 |       
|      |                                                           |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|      | Net earnings per Common Share:(2)                         |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |         |       
|      |                                                           | Basic                                      |   | $          | 0.50  |         |   | $        | 0.39  |          |   | $       | 0.70  |  |   | $       | 1.12  |  |   | $       | 2.71   | 
|      |                                                           |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|      |                                                           | Diluted                                    |   | $          | 0.49  |         |   | $        | 0.39  |          |   | $       | 0.70  |  |   | $       | 1.11  |  |   | $       | 2.69   | 
|      |                                                           |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        

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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|      |                                                           |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |         |        | 
|----- | --------------------------------------------------------- | ------------------------------------------ | - | ---------- | ----- | ------- | - | -------- | ----- | -------- | - | ------- | ----- |  | - | ------- | ----- |  | - | ------- | ------ | 
|      |                                                           |                                            |   |           
|      |                                                           | (Unaudited)                                |   |           
|      |                                                           | Three Months Ended                         |   |           
|      |                                                           |                                            |   | Year Ended
|      |                                                           | 3-31(1)                                    |   | 6-30(1)    |       | 9-30(1) |   | 12-31(1) |       | 12-31(1)
|      |                                                           |                                            |   |            |       |         |   |          |       |         
|2003: |                                                           |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|      | Total revenues                                            |                                            | $ | 193,362    |       |         | $ | 194,443  |       |          | $ | 196,683 |       |  | $ | 199,184 |       |  | $ | 783,672 |       
|      |                                                           |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|      | Earnings from operations                                  |                                            |   | 33,889     |       |         |   | 16,330   |       |          |   | 33,811  |       |  |   | 32,902  |       |  |   | 116,932 |       
|      | Income from unconsolidated entities                       |                                            |   | 455        |       |         |   | (1,161   | )     |          |   | 1,714   |       |  |   | 4,737   |       |  |   | 5,745   |       
|      | Less minority interest:                                   |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |         |       
|      |                                                           | Perpetual preferred units                  |   |            | 1,316 |         |   |          | 1,316 |          |   |         | 1,316 |  |   |         | 1,208 |  |   |         | 5,156  | 
|      |                                                           | Convertible operating partnership units(2) |   |            | 3,132 |         |   |          | 898   |          |   |         | 3,650 |  |   |         | 3,819 |  |   |         | 11,420 | 
|      | Plus net earnings from discontinued operations(2)         |                                            |   | 55,621     |       |         |   | 52,217   |       |          |   | 125,869 |       |  |   | 94,316  |       |  |   | 327,556 |       
|      | Less Preferred Share dividends                            |                                            |   | 7,042      |       |         |   | 5,935    |       |          |   | 4,812   |       |  |   | 3,208   |       |  |   | 20,997  |       
|      |                                                           |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|      | Net earnings attributable to Common
    Shares  Basic(2) |                                            | $ | 78,475     |       |         | $ | 59,237   |       |          | $ | 151,616 |       |  | $ | 123,720 |       |  | $ | 412,660 |       
|      |                                                           |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|      | Net earnings per Common Share:(2)                         |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |         |       
|      |                                                           | Basic                                      |   | $          | 0.43  |         |   | $        | 0.32  |          |   | $       | 0.80  |  |   | $       | 0.64  |  |   | $       | 2.20   | 
|      |                                                           |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        
|      |                                                           | Diluted                                    |   | $          | 0.43  |         |   | $        | 0.32  |          |   | $       | 0.79  |  |   | $       | 0.63  |  |   | $       | 2.18   | 
|      |                                                           |                                            |   |            |       |         |   |          |       |          |   |         |       |  |   |         |       |  |   |        



---



|    |                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Net earnings from discontinued operations have
    been reclassified for all periods presented.                                                         
|   
|(2) | Due to the quarterly pro-rata calculation of
    minority interest, the sum of the quarterly per share amounts do
    not equal the year-to-date totals.



|     |             
|---- | ------------
|(12) | Segment Data

We define our garden communities and high-rise
properties each as individual operating segments. We have
determined that each of our garden communities and each of our
high-rise properties have similar economic characteristics and
also meet the other GAAP criteria, which permit the garden
communities and high-rise properties to be aggregated into two
reportable segments. Additionally, we have defined the activity
from Ameriton as an individual operating segment as its primary
focus is the opportunistic acquisition, development and eventual
disposition of real estate with a short term investment horizon.
NOI is defined as rental revenues less rental expenses and
real estate taxes. We rely on NOI for purposes of making
decisions about resource allocations and assessing segment
performance. We also believe NOI is a valuable means of
comparing year-to-year property performance.

86



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Following are reconciliations, which exclude the
amounts classified as discontinued operations, of each
reportable segments (i) revenues to consolidated
revenues; (ii) NOI to consolidated earnings from
operations; and (iii) assets to consolidated assets, for
the periods indicated (in thousands):

|                                                   |                 |                          |                                         |      |         |         |       |   |         |         |       |   |         |         | 
|-------------------------------------------------- | --------------- | ------------------------ | --------------------------------------- | ---- | ------- | ------- | ----- | - | ------- | ------- | ----- | - | ------- | ------- | 
|                                                   |                 |                         
|                                                   |                 | Years Ended December 31,
|                                                   |                 |                         
|                                                   |                 | 2004                     |                                         | 2003 |         | 2002   
|                                                   |                 |                          |                                         |      |         |        
|Reportable apartment communities segment revenues: |                 |                          |                                         |      |         |         |       |   |         |         |       |  
|                                                   | Same-Store:     |                          |                                         |      |         |         |       |   |         |         |       |   |        
|                                                   |                 | Garden communities       |                                         | $    | 421,196 |         |       | $ | 421,259 |         |       | $ | 429,556 |        
|                                                   |                 | High-rise properties     |                                         |      | 255,279 |         |       |   | 254,151 |         |       |   | 253,229 |        
|                                                   | Non Same-Store: |                          |                                         |      |         |         |       |   |         |         |       |   |        
|                                                   |                 | Garden communities       |                                         |      | 105,075 |         |       |   | 44,109  |         |       |   | 28,982  |        
|                                                   |                 | High-rise properties     |                                         |      | 47,794  |         |       |   | 30,489  |         |       |   | 20,265  |        
|                                                   |                 | Ameriton(1)              |                                         |      | 21,501  |         |       |   | 11,053  |         |       |   | 7,742   |        
|Other non-reportable operating segment revenues    |                 |                          | 3,276                                   |      |         |         | 3,277 |   |         |         | 5,103 |  
|                                                   |                 |                          |                                         |      |         |         |       |   |         |         |       |  
|                                                   |                 |                          | Total segment and consolidated revenues |      | $       | 854,121 |       |   | $       | 764,338 |       |   | $       | 744,877 | 
|                                                   |                 |                          |                                         |      |         |         |       |   |         |         |       |  

|                                              |                 |                                         |                                       |      |          |         |       |   |          |         |       |   |          |         | 
|--------------------------------------------- | --------------- | --------------------------------------- | ------------------------------------- | ---- | -------- | ------- | ----- | - | -------- | ------- | ----- | - | -------- | ------- | 
|                                              |                 |                                        
|                                              |                 | Years Ended December 31,               
|                                              |                 |                                        
|                                              |                 | 2004                                    |                                       | 2003 |          | 2002   
|                                              |                 |                                         |                                       |      |          |        
|Reportable apartment communities segment NOI: |                 |                                         |                                       |      |          |         |       |   |          |         |       |  
|                                              | Same-Store:     |                                         |                                       |      |          |         |       |   |          |         |       |   |         
|                                              |                 | Garden communities                      |                                       | $    | 278,638  |         |       | $ | 284,819  |         |       | $ | 290,709  |        
|                                              |                 | High-rise properties                    |                                       |      | 161,066  |         |       |   | 161,922  |         |       |   | 159,890  |        
|                                              | Non Same-Store: |                                         |                                       |      |          |         |       |   |          |         |       |   |         
|                                              |                 | Garden communities                      |                                       |      | 66,573   |         |       |   | 30,271   |         |       |   | 17,756   |        
|                                              |                 | High-rise properties                    |                                       |      | 33,129   |         |       |   | 21,150   |         |       |   | 13,332   |        
|                                              |                 | Ameriton(1)                             |                                       |      | 10,259   |         |       |   | 6,133    |         |       |   | 3,904    |        
|Other non-reportable operating segment NOI    |                 |                                         | 2,807                                 |      |          |         | 2,614 |   |          |         | 3,744 |  
|                                              |                 |                                         |                                       |      |          |         |       |   |          |         |       |  
|                                              |                 |                                         | Total segment NOI                     |      |          | 552,472 |       |   |          | 506,909 |       |   |          | 489,335 | 
|                                              |                 |                                         |                                       |      |          |         |       |   |          |         |       |  
|Reconciling items:                            |                 |                                         |                                       |      |          |         |       |   |          |         |       |  
|                                              |                 | Other income                            |                                       |      | 19,208   |         |       |   | 19,334   |         |       |   | 9,462    |        
|                                              |                 | Depreciation on real estate investments |                                       |      | (203,183 | )       |       |   | (162,723 | )       |       |   | (148,588 | )      
|                                              |                 | Interest expense                        |                                       |      | (175,249 | )       |       |   | (160,871 | )       |       |   | (149,538 | )      
|                                              |                 | General and administrative expenses     |                                       |      | (55,479  | )       |       |   | (49,838  | )       |       |   | (45,710  | )      
|                                              |                 | Other expenses                          |                                       |      | (5,972   | )       |       |   | (35,879  | )       |       |   | (17,014  | )      
|                                              |                 |                                         |                                       |      |          |         |       |   |          |         |       |  
|                                              |                 |                                         | Consolidated earnings from operations |      | $        | 131,797 |       |   | $        | 116,932 |       |   | $        | 137,947 | 
|                                              |                 |                                         |                                       |      |          |         |       |   |          |         |       |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | While rental revenue and NOI are the primary
    measures we use to evaluate the performance of our assets,
    management also utilizes gains from the disposition of real
    estate when evaluating the performance of Ameriton as its
    primary focus is the opportunistic acquisition, development and
    eventual disposition of real estate with a short term investment
    horizon. During 2004, 2003 and 2002, pre-tax gains from the
    disposition of Ameriton real estate were $65.1 million,
    $42.7 million and $30.7 million, respectively. These
    gains are classified within discontinued operations. Ameriton
    assets are excluded from our Same-Store population as they are
    acquired or developed to achieve short-term opportunistic gains,

87



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | and therefore, the average holding period is
    typically much shorter than the holding period of assets
    operated by the REIT.

|                                                 |                 |                                                           |                           |                      |           |           |           |   |           |           |           | 
|------------------------------------------------ | --------------- | --------------------------------------------------------- | ------------------------- | -------------------- | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                                 |                 |                                                          
|                                                 |                 | Year Ended December 31,                                  
|                                                 |                 |                                                          
|                                                 |                 | 2004                                                      |                           | 2003                
|                                                 |                 |                                                           |                           |                     
|Reportable operating communities segment assets: |                 |                                                           |                           |                      |           |           |           |  
|                                                 | Same-Store:     |                                                           |                           |                      |           |           |           |   |          
|                                                 |                 | Garden communities                                        |                           | $                    | 3,021,343 |           |           | $ | 3,080,488 |          
|                                                 |                 | High-rise properties                                      |                           |                      | 2,521,725 |           |           |   | 2,547,861 |          
|                                                 | Non Same-Store: |                                                           |                           |                      |           |           |           |   |          
|                                                 |                 | Garden communities                                        |                           |                      | 1,602,955 |           |           |   | 1,224,675 |          
|                                                 |                 | High-rise properties                                      |                           |                      | 548,956   |           |           |   | 817,129   |          
|                                                 |                 | Ameriton                                                  |                           |                      | 434,946   |           |           |   | 472,743   |          
|Other non-reportable operating segment assets    |                 |                                                           | 82,537                    |                      |           |           | 57,960    |  
|                                                 |                 |                                                           |                           |                      |           |           |           |  
|                                                 |                 |                                                           | Total segment assets      |                      |           | 8,212,462 |           |   |           | 8,200,856 |          
|                                                 |                 |                                                           | Real estate held for sale |                      |           | 245,034   |           |   |           | 149,342   |          
|                                                 |                 |                                                           |                           |                      |           |           |           |  
|                                                 |                 |                                                           |                           | Total segment assets |           |           | 8,457,496 |   |           |           | 8,350,198 | 
|                                                 |                 |                                                           |                           |                      |           |           |           |  
|Reconciling items:                               |                 |                                                           |                           |                      |           |           |           |  
|                                                 |                 | Investment in and advances to unconsolidated
    entities |                           |                      | 111,481   |           |           |   | 86,367    |          
|                                                 |                 | Cash and cash equivalents                                 |                           |                      | 203,255   |           |           |   | 5,230     |          
|                                                 |                 | Restricted cash in tax-deferred exchange escrow           |                           |                      | 120,095   |           |           |   | 180,920   |          
|                                                 |                 | Other assets                                              |                           |                      | 173,717   |           |           |   | 298,980   |          
|                                                 |                 |                                                           |                           |                      |           |           |           |  
|                                                 |                 |                                                           | Consolidated total assets |                      | $         | 9,066,044 |           |   | $         | 8,921,695 |          
|                                                 |                 |                                                           |                           |                      |           |           |           |  

Total capital expenditures for garden communities
included in continuing operations were $48.8 million and
$31.9 million for the years ended December 31, 2004
and 2003, respectively. Total capital expenditures for high-rise
properties included in continuing operations were
$34.5 million and $30.2 million for the years ended
December 31, 2004 and 2003, respectively. Total capital
expenditures for Ameriton properties included in continuing
operations were $1.0 million and $1.9 million for the
years ended December 31, 2004 and 2003, respectively.



|     |             
|---- | ------------
|(13) | Income Taxes

Substantially all of our income is derived
through the Operating Trust. The Operating Trust has elected to
be treated as a partnership for federal income tax purposes.
Accordingly, the Operating Trusts income is not subject to
federal income taxes. We have elected to be taxed as a REIT
under the Internal Revenue Code. To qualify as a REIT, we must
meet a number of organizational and operational requirements,
including a requirement that we currently distribute at least
90% of our taxable income. As a REIT, we are generally not
subject to corporate level federal income taxes on net income we
distribute to our shareholders. Accordingly, no provision for
income taxes is included in the accompanying Consolidated
Statements of Earnings. If we fail to qualify as a REIT in any
taxable year, then we will be subject to federal income taxes at
regular corporate rates. Even as a REIT, we may be subject to
certain state, local and REIT specific federal taxes on our
income and property.

88



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The following table reconciles net earnings to
taxable income subject to dividend distribution requirement for
the years ended December 31 (in thousands):

|                         |                                        |                                                                 |         |          |         |      |         |          |         |   |         |         |         | 
|------------------------ | -------------------------------------- | --------------------------------------------------------------- | ------- | -------- | ------- | ---- | ------- | -------- | ------- | - | ------- | ------- | ------- | 
|                         |                                        |                                                                
|                         |                                        | For the Year Ended December 31,                                
|                         |                                        |                                                                
|                         |                                        | 2004                                                            |         | 2003     |         | 2002
|                         |                                        |                                                                 |         |          |         |     
|                         |                                        | (estimated)                                                     |         |          |         |     
|GAAP net earnings        |                                        | $                                                               | 542,342 |          |         | $    | 433,657 |          |         | $ | 314,815 |        
|Book to tax differences: |                                        |                                                                 |         |          |         |      |         |          |         |   |         |        
|                         | Gain on sale of CES(1)                 |                                                                 |         |         |         |      |         |         |         |   |         | (38,234 | )      
|                         | Forward contracts                      |                                                                 |         | (20,067  | )       |      |         | 20,067   |         |   |         |        |        
|                         | Depreciation and amortization(2)       |                                                                 |         | 1,058    |         |      |         | (6,118   | )       |   |         | (35,472 | )      
|                         | Gain or loss from capital transactions |                                                                 |         | (37,173  | )       |      |         | (93,698  | )       |   |         | (11,919 | )      
|                         | Reserves                               |                                                                 |         | 2,846    |         |      |         | 7,554    |         |   |         | 15,183  |        
|                         | Other, net                             |                                                                 |         | (12,966  | )       |      |         | (4,594   | )       |   |         | 10,530  |        
|                         |                                        |                                                                 |         |          |         |      |         |          |         |   |         |        
|Taxable income           |                                        |                                                                 | 476,040 |          |         |      | 356,868 |          |         |   | 254,903 |        
|                         | Less: capital gains recognized         |                                                                 |         | (299,302 | )       |      |         | (181,639 | )       |   |         | (75,018 | )      
|                         |                                        |                                                                 |         |          |         |      |         |          |         |   |         |        
|                         |                                        | Taxable income subject to dividend distribution
    requirement |         | $        | 176,738 |      |         | $        | 175,229 |   |         | $       | 179,885 | 
|                         |                                        |                                                                 |         |          |         |      |         |          |         |   |         |        



---



|    |                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In December 2002, CES was sold to a third party.
    See Note 4 for details.                                                                                                                                                                                                                                                                                                                  
|   
|(2) | We use accelerated depreciable lives for tax
    purposes. This change resulted in higher depreciation expense on
    newly acquired assets for tax purposes relative to GAAP. This
    was partially offset by the Smith Merger in 2001 as GAAP
    depreciation expense for the Smith assets was based on fair
    value and tax depreciation was based on a lower historical tax
    basis.

The following table provides a reconciliation
between cash dividends paid and dividends deduction (in
thousands):

|                                    |                                                |                                 |         |         |         |      |         |        |         |   |         |         |         | 
|----------------------------------- | ---------------------------------------------- | ------------------------------- | ------- | ------- | ------- | ---- | ------- | ------ | ------- | - | ------- | ------- | ------- | 
|                                    |                                                |                                
|                                    |                                                | For the Year Ended December 31,
|                                    |                                                |                                
|                                    |                                                | 2004                            |         | 2003    |         | 2002
|                                    |                                                |                                 |         |         |         |     
|                                    |                                                | (estimated)                     |         |         |         |     
|Taxable component of dividends paid |                                                | $                               | 545,586 |         |         | $    | 340,819 |        |         | $ | 334,315 |        
|                                    | Plus: dividends designated from following year |                                 |         |        |         |      |         | 16,048 |         |   |         |        |        
|                                    | Less: dividends designated to prior year       |                                 |         | (16,048 | )       |      |         |       |         |   |         | (17,682 | )      
|                                    |                                                |                                 |         |         |         |      |         |        |         |   |         |        
|                                    |                                                | Dividends paid deduction(1)     |         | $       | 529,538 |      |         | $      | 356,867 |   |         | $       | 316,633 | 
|                                    |                                                |                                 |         |         |         |      |         |        |         |   |         |        



---



|    |                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes a special dividend of $221 million
    paid in December 2004, and reflects distribution of all ordinary
    income and capital gains.

The following table summarizes the taxability of
our dividends for the past three years:

|                 |  |                                 |      |      |  |      |      |  |  |  |      | 
|---------------- |  | ------------------------------- | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|                 |  |                                
|                 |  | For the Year Ended December 31,
|                 |  |                                
|                 |  | 2004                            |      | 2003 |  | 2002
|                 |  |                                 |      |      |  |     
|Ordinary income  |  |                                 | 46%  |      |  |      | 45%  |  |  |  | 78%  | 
|Capital gains(1) |  |                                 | 54%  |      |  |      | 55%  |  |  |  | 22%  | 
|                 |  |                                 |      |      |  |      |      |  |  |  |      | 
|                 |  |                                 | 100% |      |  |      | 100% |  |  |  | 100% | 
|                 |  |                                 |      |      |  |      |      |  |  |  |      | 



---



|    |                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------
|(1) | Includes 22.8%, 34.7% and 6.2% of unrecaptured
    section 1250 gains in 2004, 2003, and 2002, respectively.

89



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##### Table of Contents



ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

As a taxable REIT subsidiary, Ameriton is subject
to state and federal income taxes. Income tax expense consists
of the following for the years ended December 31, 2004,
2003, and 2002 which is included in either other expense or
discontinued operations (in thousands):

|                             |  |                                 |        |      |  |      |        |   |  |   |        | 
|---------------------------- |  | ------------------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | 
|                             |  |                                
|                             |  | For the Year Ended December 31,
|                             |  |                                
|                             |  | 2004                            |        | 2003 |  | 2002
|                             |  |                                 |        |      |  |     
|Income tax expense (benefit) |  |                                 |        |      |  |      |        |   |  |   |        | 
|Current                      |  | $                               | 20,119 |      |  | $    | 16,645 |   |  | $ | 11,046 | 
|Deferred                     |  |                                 | (1,314 | )    |  |      | (873   | ) |  |   | 1,375  | 
|                             |  |                                 |        |      |  |      |        |   |  |   |        | 
|Total expense                |  |                                 | 18,805 |      |  |      | 15,772 |   |  |   | 12,421 | 
|                             |  |                                 |        |      |  |      |        |   |  |   |        | 

Income tax expense differed from the amounts
computed by applying the U.S. federal income tax rate of 35% to
pretax income as a result of the following for the years ended
December 31, 2004, 2003, and 2002 (in thousands):

|                                                                  |  |                                 |        |      |  |      |        |  |  |   |        | 
|----------------------------------------------------------------- |  | ------------------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                                                  |  |                                
|                                                                  |  | For the Year Ended December 31,
|                                                                  |  |                                
|                                                                  |  | 2004                            |        | 2003 |  | 2002
|                                                                  |  |                                 |        |      |  |     
|Computed expected tax expense                                     |  | $                               | 17,801 |      |  | $    | 15,016 |  |  | $ | 11,238 | 
|Increase in income taxes resulting from state
    taxes and other |  |                                 | 1,004  |      |  |      | 756    |  |  |   | 1,183  | 
|                                                                  |  |                                 |        |      |  |      |        |  |  |   |        | 
|Income tax expense                                                |  |                                 | 18,805 |      |  |      | 15,772 |  |  |   | 12,421 | 
|                                                                  |  |                                 |        |      |  |      |        |  |  |   |        | 

Deferred income taxes reflect the estimated net
tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting
purposes and the corresponding amounts for income tax purposes.
Ameritons deferred tax assets and liabilities at
December 31, 2004 and 2003 are presented below (in
thousands).

|                          |                                                   |                                    |   |       |       |  |   |       |       |  
|------------------------- | ------------------------------------------------- | ---------------------------------- | - | ----- | ----- |  | - | ----- | ----- | -
|                          |                                                   |                                   
|                          |                                                   | Year Ended December 31,           
|                          |                                                   |                                   
|                          |                                                   | 2004                               |   | 2003 
|                          |                                                   |                                    |   |      
|Deferred tax assets:      |                                                   |                                    |   |       |       |  |   |      
|                          | Earnings from unconsolidated real estate entities |                                    | $ |      |       |  | $ | 476   |      
|                          | Deferred compensation                             |                                    |   | 2,920 |       |  |   | 22    |      
|                          | Reserves                                          |                                    |   | 378   |       |  |   | 524   |      
|                          | Other                                             |                                    |   | 125   |       |  |   | 88    |      
|                          |                                                   |                                    |   |       |       |  |   |      
|                          |                                                   | Deferred tax assets                |   |       | 3,423 |  |   |       | 1,110 |  
|Deferred tax liabilities: |                                                   |                                    |   |       |       |  |   |      
|                          | Real estate, principally due to depreciation      |                                    |   | 351   |       |  |   | 1,516 |      
|                          | Earnings from unconsolidated real estate entities |                                    |   | 2,164 |       |  |   |      |      
|                          |                                                   |                                    |   |       |       |  |   |      
|                          |                                                   | Deferred tax liabilities           |   |       | 2,515 |  |   |       | 1,516 |  
|                          |                                                   | Net deferred tax asset (liability) |   | $     | 908   |  |   | $     | (406  | )
|                          |                                                   |                                    |   |       |       |  |   |      



|     |                              
|---- | -----------------------------
|(14) | Commitments and Contingencies



| |            
| | -----------
| | Commitments

At December 31, 2004 we had eight
non-cancelable ground leases for certain apartment communities
and buildings that expire between 2042 and 2095. Each ground
lease generally provides for a fixed annual rental payment plus
additional rental payments based on the properties
operating results. Additionally, we lease certain office space
under non-cancelable operating leases with fixed annual rental
payments.

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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The future minimum lease payments payable under
non-cancelable leases are as follows at December 31, 2004
(in thousands):

|                       |       |   |         |         | 
|---------------------- | ----- | - | ------- | ------- | 
|2005                   |       | $ | 4,117   |        
|2006                   |       |   | 4,128   |        
|2007                   |       |   | 4,167   |        
|2008                   |       |   | 4,179   |        
|2009                   |       |   | 4,220   |        
|Thereafter (2010-2095) |       |   | 344,095 |        
|                       |       |   |         |        
|                       | Total |   | $       | 364,906 | 
|                       |       |   |         |        

See Note 2 for real estate related
commitments.



| |                                    
| | -----------------------------------
| | Guarantees and
    Indemnifications

We have extended performance bond guarantees
relating to contracts entered into by SMC, which are customary
to the type of business in which these entities engage. As of
December 31, 2004, $1.3 million of these performance
bond guarantees were still outstanding, based upon information
provided by these companies. Archstone-Smith, our subsidiaries
and investees have not been required to perform on these
guarantees, nor do we anticipate being required to perform on
such guarantees. Since we believe that our risk of loss under
these contingencies is remote, no accrual for potential loss has
been made in the accompanying financial statements. There are
recourse provisions available to us to recover any potential
future payments from the new owners of SMC.

Investee third-party debt consists principally of
mortgage notes payable. Generally, mortgages on real estate
assets owned by our unconsolidated investees are secured by the
underlying properties. We generally do not guarantee third party
debt incurred by our unconsolidated investees; however, the
investees and/or Archstone-Smith are occasionally required to
guarantee the mortgages along with all other venture partners.
As of December 31, 2004 we have not been required to
perform under any guarantees provided to our joint ventures.

As part of the Smith Merger, we are required to
indemnify the former Smith Partnership unitholders for any
personal income tax expense resulting from the sale of high-rise
properties identified in the shareholders agreement
between Archstone-Smith, the Operating Trust, Robert H. Smith
and Robert P. Kogod until October 31, 2021.



| |                             
| | ----------------------------
| | Litigation and Contingencies

We are subject to various claims in connection
with moisture infiltration and resulting mold issues at certain
high-rise properties in Southeast Florida. These claims
generally allege that water infiltration and resulting mold
contamination resulted in the claimants having personal injuries
and/or property damage. Although certain of these claims
continue to be at various stages of litigation, with respect to
the majority of these claims, we have either settled the claims
and/or we have been dismissed from the lawsuits that had been
filed. With respect to the lawsuits that have not been resolved,
we continue to defend these claims in the normal course of
litigation.

We have recorded accruals for moisture
infiltration and resulting mold issues. These accruals represent
managements best estimate of the probable and reasonably
estimable costs and are based, in part, on the settlements
reached with the various claimants, estimates obtained from
third-party contractors and actual costs incurred to date. It is
possible that these estimates could increase or decrease as
additional information becomes available.

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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

We are aggressively pursuing recovery of a
significant portion of these costs from our insurance carriers.
We are in litigation with our insurance providers, and therefore
we have not recorded an estimate for future insurance recoveries
associated with moisture infiltration and resulting mold. In
addition, we will continue to pursue potential recoveries from
third parties whom we believe bear responsibility for a
considerable portion of the costs we have incurred. We cannot
make assurances that we will obtain these recoveries or that our
ultimate liability associated with these claims will not be
material to our results of operations.

During 2004, we incurred estimated losses
associated with multiple hurricanes in Florida. As a result of
this damage, we recorded a loss contingency of approximately
$5.5 million associated with both wholly owned and
unconsolidated apartment communities. This charge is offset by a
$750,000 receivable for anticipated insurance recoveries. These
estimates represent managements best estimate of the
probable and reasonably estimable costs and are based on the
most current information available from our insurance adjustors.

During December 2004, a lawsuit was filed against
us that alleges various violations of the Fair Housing Act and
the Americans with Disabilities Act at 112 properties currently
or formerly owned by the Company. The plaintiffs are seeking
injunctive relief, in the form of retrofitting apartments and
public accommodations to comply with the Fair Housing Act and
the Americans with Disabilities Act; unspecified monetary
damages for the diversion of the plaintiffs resources to
address fair housing violations, punitive damages and
attorneys fees. We are in the process of evaluating the
claims asserted in this litigation. Due to the preliminary
nature of the litigation, it is not possible to predict or
determine the outcome of the legal proceeding, nor is it
reasonably possible to estimate the amount of loss, if any, that
would be associated with an adverse decision.

We are a party to various other claims and
routine litigation arising in the ordinary course of business.
We do not believe that the results of any such claims or
litigation, individually or in the aggregate, will have a
material adverse effect on our business, financial position or
results of operations.



|     |                                   
|---- | ----------------------------------
|(15) | Supplemental Cash Flow Information

Significant non-cash investing and financing
activities for the years ended December 31, 2004, 2003 and
2002 consisted of the following:



| |   |                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Issued $10.8, $47.6 and $8.7 million of A-1
    Common Units as partial consideration for properties acquired
    during 2004, 2003 and 2002, respectively;                                                                        
|
| |  | Issued $4.5 million of Common Shares as
    partial consideration for real estate during 2004.                                                                                                                                     
|
| |  | Holders of Series K Preferred Shares and
    Series L Preferred Shares converted $25.0 million each
    of their shares into Common Shares during 2004;                                                                            
|
| |  | Holders of Series H Preferred Shares
    converted $71.5 million of their shares into Common Shares
    during 2003;                                                                                                               
|
| |  | Redeemed $47.9 million, $25.5 million
    and $41.7 million A-1 Common Units for Common Shares during
    2004, 2003 and 2002, respectively;                                                                                       
|
| |  | Holders of Series J Preferred Shares
    converted $25 million of their shares into Common Shares
    during 2002;                                                                                                                 
|
| |  | Recorded an accrual related to moisture
    infiltration and resulting mold remediation for
    $36.1 million and $11.3 million at one of our
    high-rise properties in Southeast Florida during 2003 and 2002,
    respectively;
|
| |  | Assumed mortgage debt of $113.6 million,
    $55.4 million and $195.6 million during 2004, 2003 and
    2002, respectively, in connection with the acquisition of
    apartment communities;                                       

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ARCHSTONE-SMITH TRUST


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Holders of Series A Preferred Shares
    converted $71.9 million and $5.7 million of their
    shares into Common Shares during 2003 and 2002, respectively.



|     |                           
|---- | --------------------------
|(16) | Related Party Transactions

Ameriton paid approximately $3.2 million and
$1.5 million to certain officers and employees of
Archstone-Smith related to realized returns on investments sold
during 2004 and 2003, respectively, none of which were made to
members of Ameritons board. Four members of
Ameritons board (James H. Polk, III, John C.
Schweitzer, R. Scot Sellers and Charles E. Mueller,
Jr.) are Trustees of Archstone-Smith or executive officers of
the Operating Trust.

During 1997, as part of the employee share
purchase plan, certain officers and other employees purchased
Common Shares of Archstone-Smith. Archstone-Smith financed 95%
of the total purchase price by issuing notes representing
approximately $17.1 million. As of December 31, 2004,
the aggregate outstanding balances on these notes were
approximately $917,000.

ArchstoneSmith has the following business
relationships with business entities or family members of Board
of Trustee member Robert H. Smith:

Mr. Smith owns a residence within a
condominium in Crystal City, where Archstone-Smith staffs the
property with doormen, maintenance, and administrative staff.
Archstone-Smith is contractually reimbursed by the condominium
association for payroll and benefits costs, and receives a
contractual monthly management fee of $848 for other
Archstone-Smith management oversight. ASN does not have an
ownership interest in this property. Archstone-Smith billed
$175,368 during 2004 for expenses incurred and management fees
for this property.

Mr. Smith and Mr. Kogod have a 0.33%
and 4.36% ownership interest, respectively, in a partnership
which owns two apartment communities in Washington D.C.
Archstone-Smith receives a contractual management fee of 4.5% of
revenues to employ the property maintenance and administrative
staff, manage the property, and perform all accounting
functions. Archstone-Smith does not have an ownership interest
in this property. We billed $941,301 during the twelve months
ended December 31, 2004, for expenses incurred and
management fees for this property.

Mr. Smiths daughter is employed as a
Vice President in Marketing at a salary and bonus of
approximately $109,000 and received option grants with a face
value of $237,000 as compensation during 2004. She has been
employed by the Company and its predecessor Charles E.
Smith Residential Realty since September 1980.



|     |                  
|---- | -----------------
|(17) | Subsequent Events

During February 2005, we redeemed our remaining
200,000 Series E Perpetual Preferred Units at liquidation
value plus accrued dividends.

During February 2005, we sold our investment in
Viva Group, Inc. (d/b/a Rent.com) to eBay Inc. for approximately
$27.5 million. This amount is net of $3.9 million paid
to exercise certain Viva Group, Inc. warrants. Of this amount,
approximately $1.6 million was deposited in an escrow account to
secure eBays rights to certain indemnifications associated
with the transaction. This amount will be paid to us in August
2006 less amounts, if any, available to eBay in respect to
indemnification claims.

93



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##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

ON SUPPLEMENTARY INFORMATION


The Board of Trustees

Archstone-Smith Trust:


We have audited and reported separately herein on
the consolidated balance sheets of Archstone-Smith Trust and
subsidiaries as of December 31, 2004 and 2003, and the
related consolidated statements of earnings, shareholders
equity and comprehensive income (loss), and cash flows for each
of the years in the three-year period ended December 31,
2004.

Our audits were made for the purpose of forming
an opinion on the consolidated financial statements of
Archstone-Smith Trust and subsidiaries taken as a whole. The
supplementary information included in Schedules III and IV
is presented for purposes of additional analysis and is not a
required part of the consolidated financial statements. Such
information has been subjected to the auditing procedures
applied in the audits of the consolidated financial statements
and, in our opinion, is fairly stated in all material respects
in relation to the consolidated financial statements taken as a
whole.

Effective July 1, 2003, Archstone-Smith
Trust adopted FASB Interpretation No. 46, Consolidation
of Variable Interest Entities (revised). As a result, the
accompanying consolidated financial statements, referred to
above, have been restated to reflect the consolidated financial
position and results of operations of Archstone-Smith Trust and
certain previously unconsolidated entities in accordance with
U.S. generally accepted accounting principles.



| |             
| | ------------
| | /s/ KPMG LLP

Denver, Colorado

February 28, 2005


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ARCHSTONE-SMITH TRUST





SCHEDULE III

REAL ESTATE AND ACCUMULATED
DEPRECIATION

December 31,
2004

(Dollar amounts in
thousands)

|                                                                   |                                    |       |        |         |  |                       |           |              |  |                       |           |         |  |              |           |           |  |              |           |              |  |          |           |         |  |  |           |           |  |  |           |           |  |  |          |          |   |  |  |           |  |  |  |           | 
|------------------------------------------------------------------ | ---------------------------------- | ----- | ------ | ------- |  | --------------------- | --------- | ------------ |  | --------------------- | --------- | ------- |  | ------------ | --------- | --------- |  | ------------ | --------- | ------------ |  | -------- | --------- | ------- |  |  | --------- | --------- |  |  | --------- | --------- |  |  | -------- | -------- | - |  |  | --------- |  |  |  | --------- | 
|                                                                   |                                    |       |        |         |  |                       |           |              |  |                       |           |         |  |              |           |          
|                                                                   |                                    |       |        |         |  | Initial Cost to       |           |              |  | Gross Amount at Which |           |         |  |              |           |          
|                                                                   |                                    |       |        |         |  | Archstone-Smith Trust |           | Costs        |  | Carried at Year End   |           |         |  |              |           |          
|                                                                   |                                    |       |        |         |  |                       |           | Capitalized  |  |                       |           |         |  |              |           |          
|                                                                   |                                    |       |        | Encum-  |  |                       |           | Buildings &  |  | Subsequent to         |           |         |  | Buildings &  |           |           |  | Accumulated  |           | Construction |  | Year    
|                                                                   |                                    | Units |        | brances |  | Land                  |           | Improvements |  | Acquisition           |           | Land    |  | Improvements |           | Totals    |  | Depreciation |           | Year         |  | Acquired
|                                                                   |                                    |       |        |         |  |                       |           |              |  |                       |           |         |  |              |           |           |  |              |           |              |  |         
|Apartment Communities:                                             |                                    |       |        |         |  |                       |           |              |  |                       |           |         |  |              |           |           |  |              |           |              |  |          |           |         |  |  |           |           |  |  |           |           |  |  |          |          |   |  |  |           |  |  |  |          
|Garden Communities:                                                |                                    |       |        |         |  |                       |           |              |  |                       |           |         |  |              |           |           |  |              |           |              |  |          |           |         |  |  |           |           |  |  |           |           |  |  |          |          |   |  |  |           |  |  |  |          
|                                                                   | Atlanta, Georgia                   |       |        | 2,459   |  |                       |           | 43,157       |  |                       |           | 26,308  |  |              |           | 149,077   |  |              |           | 28,439       |  |          |           | 35,674  |  |  |           | 168,150   |  |  |           | 203,824   |  |  |          | (43,525  | ) |  |  | 1978-1999 |  |  |  | 1998-2001 | 
|                                                                   | Austin, Texas                      |       |        | 1,446   |  |                       |           | 10,980       |  |                       |           | 6,828   |  |              |           | 26,791    |  |              |           | 55,626       |  |          |           | 15,312  |  |  |           | 73,933    |  |  |           | 89,245    |  |  |          | (13,624  | ) |  |  | 1979-1996 |  |  |  | 1993      | 
|                                                                   | Boston, Massachusetts              |       |        | 1,338   |  |                       |           | 163,035      |  |                       |           | 68,664  |  |              |           | 49,330    |  |              |           | 129,726      |  |          |           | 36,349  |  |  |           | 211,371   |  |  |           | 247,720   |  |  |          | (25,672  | ) |  |  | 1975-2002 |  |  |  | 1999-2002 | 
|                                                                   | Chicago, Illinois                  |       |        | 1,313   |  |                       |           | 41,022       |  |                       |           | 85,603  |  |              |           | 50,545    |  |              |           | 8,827        |  |          |           | 26,723  |  |  |           | 118,252   |  |  |           | 144,975   |  |  |          | (21,201  | ) |  |  | 1968-1988 |  |  |  | 1999-2001 | 
|                                                                   | Dallas, Texas                      |       |        | 1,364   |  |                       |           |             |  |                       |           | 9,906   |  |              |           | 52,375    |  |              |           | 19,556       |  |          |           | 11,150  |  |  |           | 70,687    |  |  |           | 81,837    |  |  |          | (13,212  | ) |  |  | 1983-2000 |  |  |  | 1993-2004 | 
|                                                                   | Denver, Colorado                   |       |        | 2,299   |  |                       |           | 8,500        |  |                       |           | 22,646  |  |              |           | 78,313    |  |              |           | 103,328      |  |          |           | 25,024  |  |  |           | 179,263   |  |  |           | 204,287   |  |  |          | (25,143  | ) |  |  | 1981-2002 |  |  |  | 1992-2004 | 
|                                                                   | Houston, Texas                     |       |        | 1,783   |  |                       |           | 33,233       |  |                       |           | 16,393  |  |              |           | 32,786    |  |              |           | 68,643       |  |          |           | 11,205  |  |  |           | 106,617   |  |  |           | 117,822   |  |  |          | (18,227  | ) |  |  | 1972-2003 |  |  |  | 1994-2004 | 
|                                                                   | Inland Empire, California          |       |        | 1,594   |  |                       |           | 16,659       |  |                       |           | 12,663  |  |              |           | 71,771    |  |              |           | 13,810       |  |          |           | 14,464  |  |  |           | 83,780    |  |  |           | 98,244    |  |  |          | (19,900  | ) |  |  | 1980-1990 |  |  |  | 1995-2004 | 
|                                                                   | Long Island, New York              |       |        | 396     |  |                       |           | 78,000       |  |                       |           |        |  |              |           |          |  |              |           | 58,462       |  |          |           |        |  |  |           | 58,462    |  |  |           | 58,462    |  |  |          |         |   |  |  | 2003-2004 |  |  |  | 2001      | 
|                                                                   | Los Angeles, California            |       |        | 5,476   |  |                       |           | 100,532      |  |                       |           | 243,986 |  |              |           | 348,589   |  |              |           | 404,613      |  |          |           | 195,963 |  |  |           | 801,225   |  |  |           | 997,188   |  |  |          | (28,427  | ) |  |  | 1973-2004 |  |  |  | 1998-2004 | 
|                                                                   | Orange County, California          |       |        | 1,647   |  |                       |           | 30,690       |  |                       |           | 25,612  |  |              |           | 46,134    |  |              |           | 109,318      |  |          |           | 26,379  |  |  |           | 154,685   |  |  |           | 181,064   |  |  |          | (27,389  | ) |  |  | 1986-2002 |  |  |  | 1996-1999 | 
|                                                                   | Orlando, Florida                   |       |        | 312     |  |                       |           |             |  |                       |           | 3,110   |  |              |           | 17,620    |  |              |           | 976          |  |          |           | 3,740   |  |  |           | 17,966    |  |  |           | 21,706    |  |  |          | (4,614   | ) |  |  | 1988      |  |  |  | 1998      | 
|                                                                   | Phoenix, Arizona                   |       |        | 876     |  |                       |           |             |  |                       |           | 7,202   |  |              |           | 93        |  |              |           | 46,585       |  |          |           | 8,476   |  |  |           | 45,404    |  |  |           | 53,880    |  |  |          | (11,052  | ) |  |  | 1980-2001 |  |  |  | 1993-1997 | 
|                                                                   | Portland, Oregon                   |       |        | 228     |  |                       |           |             |  |                       |           | 851     |  |              |           |          |  |              |           | 12,906       |  |          |           | 3,256   |  |  |           | 10,501    |  |  |           | 13,757    |  |  |          | (3,093   | ) |  |  | 1985-1998 |  |  |  | 1995-1996 | 
|                                                                   | Raleigh, North Carolina            |       |        | 1,324   |  |                       |           | 13,588       |  |                       |           | 13,499  |  |              |           | 76,490    |  |              |           | 7,771        |  |          |           | 14,871  |  |  |           | 82,889    |  |  |           | 97,760    |  |  |          | (22,590  | ) |  |  | 1985-1999 |  |  |  | 1998      | 
|                                                                   | San Diego, California              |       |        | 3,406   |  |                       |           | 90,036       |  |                       |           | 51,413  |  |              |           | 115,328   |  |              |           | 242,192      |  |          |           | 57,345  |  |  |           | 351,588   |  |  |           | 408,933   |  |  |          | (40,798  | ) |  |  | 1985-2001 |  |  |  | 1996-1998 | 
|                                                                   | San Francisco, California          |       |        | 5,100   |  |                       |           | 82,376       |  |                       |           | 175,641 |  |              |           | 267,152   |  |              |           | 255,726      |  |          |           | 128,346 |  |  |           | 570,173   |  |  |           | 698,519   |  |  |          | (91,028  | ) |  |  | 1965-2002 |  |  |  | 1995-2000 | 
|                                                                   | Seattle, Washington                |       |        | 3,208   |  |                       |           | 60,528       |  |                       |           | 49,491  |  |              |           | 132,368   |  |              |           | 105,549      |  |          |           | 58,307  |  |  |           | 229,101   |  |  |           | 287,408   |  |  |          | (43,601  | ) |  |  | 1986-2002 |  |  |  | 1995-2004 | 
|                                                                   | Southeast, Florida                 |       |        | 3,342   |  |                       |           | 10,758       |  |                       |           | 95,286  |  |              |           | 273,155   |  |              |           | 42,343       |  |          |           | 100,171 |  |  |           | 310,613   |  |  |           | 410,784   |  |  |          | (14,797  | ) |  |  | 1986-2004 |  |  |  | 1998-2004 | 
|                                                                   | Stamford, Connecticut              |       |        | 160     |  |                       |           |             |  |                       |           | 5,775   |  |              |           | 1,225     |  |              |           | 29,487       |  |          |           | 6,312   |  |  |           | 30,175    |  |  |           | 36,487    |  |  |          | (1,927   | ) |  |  | 2000-2002 |  |  |  | 2000      | 
|                                                                   | Ventura County, California         |       |        | 716     |  |                       |           |             |  |                       |           | 12,095  |  |              |           | 31,024    |  |              |           | 37,323       |  |          |           | 12,474  |  |  |           | 67,968    |  |  |           | 80,442    |  |  |          | (5,816   | ) |  |  | 1985-2002 |  |  |  | 1997-2004 | 
|                                                                   | Washington, D.C. Metropolitan Area |       |        | 8,847   |  |                       |           | 186,093      |  |                       |           | 236,228 |  |              |           | 506,050   |  |              |           | 399,149      |  |          |           | 205,543 |  |  |           | 935,884   |  |  |           | 1,141,427 |  |  |          | (78,232  | ) |  |  | 1941-2002 |  |  |  | 1998-2002 | 
|                                                                   | West Coast, Florida                |       |        | 746     |  |                       |           |             |  |                       |           | 5,430   |  |              |           | 30,766    |  |              |           | 8,177        |  |          |           | 5,783   |  |  |           | 38,590    |  |  |           | 44,373    |  |  |          | (9,787   | ) |  |  | 1982-1988 |  |  |  | 1998      | 
|                                                                   |                                    |       |        |         |  |                       |           |              |  |                       |           |         |  |              |           |           |  |              |           |              |  |          |           |         |  |  |           |           |  |  |           |           |  |  |          |          |   |  |  |           |  |  |  |          
|Garden Communities Total                                           |                                    |       | 49,380 |         |  |                       | 969,187   |              |  |                       | 1,174,630 |         |  |              | 2,356,982 |           |  |              | 2,188,532 |              |  |          | 1,002,867 |         |  |  | 4,717,277 |           |  |  | 5,720,144 |           |  |  | (563,655 | )        |   |  |  |           |  |  |  |          
|                                                                   |                                    |       |        |         |  |                       |           |              |  |                       |           |         |  |              |           |           |  |              |           |              |  |          |           |         |  |  |           |           |  |  |           |           |  |  |          |          |   |  |  |           |  |  |  |          
|High-Rise Properties:                                              |                                    |       |        |         |  |                       |           |              |  |                       |           |         |  |              |           |           |  |              |           |              |  |          |           |         |  |  |           |           |  |  |           |           |  |  |          |          |   |  |  |           |  |  |  |          
|                                                                   | Boston, Massachusetts              |       |        | 1,113   |  |                       |           | 60,692       |  |                       |           | 41,345  |  |              |           | 121,881   |  |              |           | 72,647       |  |          |           | 41,730  |  |  |           | 194,143   |  |  |           | 235,873   |  |  |          | (12,610  | ) |  |  | 1986-1998 |  |  |  | 2001      | 
|                                                                   | Chicago, Illinois                  |       |        | 3,025   |  |                       |           | 130,142      |  |                       |           | 118,828 |  |              |           | 373,044   |  |              |           | 24,884       |  |          |           | 80,003  |  |  |           | 436,753   |  |  |           | 516,756   |  |  |          | (39,546  | ) |  |  | 1969-2002 |  |  |  | 2001      | 
|                                                                   | Southeast Florida                  |       |        | 240     |  |                       |           | 17,775       |  |                       |           |        |  |              |           | 26,515    |  |              |           | 1,474        |  |          |           | 189     |  |  |           | 27,800    |  |  |           | 27,989    |  |  |          | (2,574   | ) |  |  | 1964-2000 |  |  |  | 2001      | 
|                                                                   | NYC Metropolitan Area              |       |        | 1,062   |  |                       |           | 197,302      |  |                       |           | 84,522  |  |              |           | 181,256   |  |              |           | 194,404      |  |          |           | 149,452 |  |  |           | 310,730   |  |  |           | 460,182   |  |  |          | (12,849  | ) |  |  | 2000-2002 |  |  |  | 2002-2004 | 
|                                                                   | Washington, D.C. Metropolitan Area |       |        | 11,399  |  |                       |           | 656,403      |  |                       |           | 511,659 |  |              |           | 1,191,546 |  |              |           | 370,099      |  |          |           | 551,025 |  |  |           | 1,522,279 |  |  |           | 2,073,304 |  |  |          | (125,927 | ) |  |  | 1923-2003 |  |  |  | 2001-2004 | 
|                                                                   |                                    |       |        |         |  |                       |           |              |  |                       |           |         |  |              |           |           |  |              |           |              |  |          |           |         |  |  |           |           |  |  |           |           |  |  |          |          |   |  |  |           |  |  |  |          
|High-Rise Properties Total                                         |                                    |       | 16,839 |         |  |                       | 1,062,314 |              |  |                       | 756,354   |         |  |              | 1,894,242 |           |  |              | 663,508   |              |  |          | 822,399   |         |  |  | 2,491,705 |           |  |  | 3,314,104 |           |  |  | (193,506 | )        |   |  |  |           |  |  |  |          
|                                                                   |                                    |       |        |         |  |                       |           |              |  |                       |           |         |  |              |           |           |  |              |           |              |  |          |           |         |  |  |           |           |  |  |           |           |  |  |          |          |   |  |  |           |  |  |  |          
|Total Apartment Communities 
    Operating and Under Construction |                                    |       | 66,219 |         |  |                       | 2,031,501 |              |  |                       | 1,930,984 |         |  |              | 4,251,224 |           |  |              | 2,852,040 |              |  |          | 1,825,266 |         |  |  | 7,208,982 |           |  |  | 9,034,248 |           |  |  | (757,161 | )        |   |  |  |           |  |  |  |          
|                                                                   |                                    |       |        |         |  |                       |           |              |  |                       |           |         |  |              |           |           |  |              |           |              |  |          |           |         |  |  |           |           |  |  |           |           |  |  |          |          |   |  |  |           |  |  |  |          
|Other:                                                             |                                    |       |        |         |  |                       |           |              |  |                       |           |         |  |              |           |           |  |              |           |              |  |          |           |         |  |  |           |           |  |  |           |           |  |  |          |          |   |  |  |           |  |  |  |          
|Development communities In Planning and Owned                      |                                    |       | 2,953  |         |  |                       |           |              |  |                       |           |         |  |              |           |           |  |              |           |              |  |          |           |         |  |  |           |           |  |  | 136,593   |           |  |  |          |          |   |  |  |           |  |  |  |          
|Hotel, retail and other assets                                     |                                    |       |        |         |  |                       |           |              |  |                       |           |         |  |              |           |           |  |              |           |              |  |          |           |         |  |  |           |           |  |  | 50,197    |           |  |  | (6,381   | )        |   |  |  |           |  |  |  |          
|                                                                   |                                    |       |        |         |  |                       |           |              |  |                       |           |         |  |              |           |           |  |              |           |              |  |          |           |         |  |  |           |           |  |  |           |           |  |  |          |          |   |  |  |           |  |  |  |          
|Total real estate assets                                           |                                    |       | 69,172 |         |  |                       |           |              |  |                       |           |         |  |              |           |           |  |              |           |              |  |          |           |         |  |  |           |           |  |  | 9,221,038 |           |  |  | (763,542 | )        |   |  |  |           |  |  |  |          
|                                                                   |                                    |       |        |         |  |                       |           |              |  |                       |           |         |  |              |           |           |  |              |           |              |  |          |           |         |  |  |           |           |  |  |           |           |  |  |          |          |   |  |  |           |  |  |  |          

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SCHEDULE III

The following is a reconciliation of the carrying
amount and related accumulated depreciation of
Archstone-Smiths investment in real estate, at cost (in
thousands):

|                                 |                                                              |                         |           |            |   |      |           |            |   |   |           |          |  
|-------------------------------- | ------------------------------------------------------------ | ----------------------- | --------- | ---------- | - | ---- | --------- | ---------- | - | - | --------- | -------- | -
|                                 |                                                              |                        
|                                 |                                                              | Year Ended December 31,
|                                 |                                                              |                        
|Carrying Amounts                 |                                                              | 2004                    |           | 2003       |   | 2002
|                                 |                                                              |                         |           |            |   |     
|Balance at January 1             |                                                              | $                       | 8,999,180 |            |   | $    | 9,297,735 |            |   | $ | 8,612,213 |         
|                                 |                                                              |                         |           |            |   |      |           |            |   |   |           |         
|Apartment communities:           |                                                              |                         |           |            |   |      |           |            |   |   |           |         
|                                 | Apartment properties acquired in the Smith Merger            |                         |           |           |   |      |           |           |   |   |           | 31,877   |  
|                                 | Acquisition-related expenditures                             |                         |           | 1,080,639  |   |      |           | 573,768    |   |   |           | 539,652  |  
|                                 | Redevelopment expenditures                                   |                         |           | 40,999     |   |      |           | 69,649     |   |   |           | 152,428  |  
|                                 | Recurring capital expenditures                               |                         |           | 50,147     |   |      |           | 48,960     |   |   |           | 40,683   |  
|                                 | Development expenditures, excluding land
    acquisitions    |                         |           | 333,782    |   |      |           | 91,430     |   |   |           | 247,044  |  
|                                 | Acquisition and improvement of land for
    development      |                         |           | 175,470    |   |      |           | 125,581    |   |   |           | 107,727  |  
|                                 | Dispositions                                                 |                         |           | (1,460,046 | ) |      |           | (1,209,956 | ) |   |           | (439,847 | )
|                                 | Provision for possible loss on investments                   |                         |           |           |   |      |           | (3,714     | ) |   |           | (2,611   | )
|                                 |                                                              |                         |           |            |   |      |           |            |   |   |           |         
|Net apartment community activity |                                                              | $                       | 220,991   |            |   | $    | (304,282  | )          |   | $ | 676,953   |         
|                                 |                                                              |                         |           |            |   |      |           |            |   |   |           |         
|Other:                           |                                                              |                         |           |            |   |      |           |            |   |   |           |         
|                                 | Disposition of retail asset acquired in the Smith
    Merger |                         |           |           |   |      |           |           |   |   |           | (5,990   | )
|                                 | Change in other real estate assets                           |                         |           | 867        |   |      |           | 5,727      |   |   |           | 14,559   |  
|                                 |                                                              |                         |           |            |   |      |           |            |   |   |           |         
|Net other activity               |                                                              |                         | 867       |            |   |      | 5,727     |            |   |   | 8,569     |         
|                                 |                                                              |                         |           |            |   |      |           |            |   |   |           |         
|Balance at December 31           |                                                              | $                       | 9,221,038 |            |   | $    | 8,999,180 |            |   | $ | 9,297,735 |         
|                                 |                                                              |                         |           |            |   |      |           |            |   |   |           |         

|                                                         |  |                         |         |      |  |      |          |   |  |   |         |  
|-------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                                         |  |                        
|                                                         |  | Year Ended December 31,
|                                                         |  |                        
|Accumulated Depreciation                                 |  | 2004                    |         | 2003 |  | 2002
|                                                         |  |                         |         |      |  |     
|Balance at January 1                                     |  | $                       | 648,982 |      |  | $    | 578,855  |   |  | $ | 412,894 |  
|Depreciation for the year(1)                             |  |                         | 203,639 |      |  |      | 200,356  |   |  |   | 206,625 |  
|Accumulated depreciation on real estate
    dispositions |  |                         | (89,079 | )    |  |      | (130,229 | ) |  |   | (40,563 | )
|Other                                                    |  |                         |        |      |  |      |         |   |  |   | (101    | )
|                                                         |  |                         |         |      |  |      |          |   |  |   |         |  
|Balance at December 31                                   |  | $                       | 763,542 |      |  | $    | 648,982  |   |  | $ | 578,855 |  
|                                                         |  |                         |         |      |  |      |          |   |  |   |         |  



---



|    |                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Depreciation is net of $16.4 million and
    $3.0 million for our intangible asset related to the value
    of leases in place for real estate assets acquired in 2004 and
    2003, respectively.

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Schedule IV

Archstone-Smith Trust

Mortgage Loans on Real Estate


12/31/04

(Dollar amounts in thousands)


|                            |  |                |  |          |     |         |  |             |            |              |  |           |     |              |  |                  |             |  |  |   |       |  |  |   |       |  |  |  |   | 
|--------------------------- |  | -------------- |  | -------- | --- | ------- |  | ----------- | ---------- | ------------ |  | --------- | --- | ------------ |  | ---------------- | ----------- |  |  | - | ----- |  |  | - | ----- |  |  |  | - | 
|                            |  |                |  |          |     |         |  |             |            |              |  |           |     |              |  | Principal amount
|                            |  |                |  |          |     |         |  |             |            |              |  |           |     |              |  | of loans subject
|                            |  |                |  |          |     | Final   |  | Periodic    |            |              |  |           |     | Carrying     |  | to delinquent   
|                            |  |                |  | Maturity |     | payment |  |             |            | Face amount  |  | amount of |     | principal or
|Description                 |  | Interest Rate  |  | Date     |     | term    |  | Prior liens |            | of mortgages |  | mortgages |     | interest    
|                            |  |                |  |          |     |         |  |             |            |              |  |           |     |             
|                            |  |                |  |          |     |         |  |             |            |              |  |           |     |              |  |                 
|                            |  |                |  |          |     |         |  |             |            |              |  |           |     |              |  |                 
|Mezzanine Construction Loan |  | Condominium CA |  |          | 18% |         |  |             | 11/28/2006 |              |  |           | (1) |              |  |                  | Senior Loan |  |  | $ | 9,900 |  |  | $ | 8,729 |  |  |  |  | 

|                       |                          |      |       |       |  |   |   |   | 
|---------------------- | ------------------------ | ---- | ----- | ----- |  | - | - | - | 
|                       |                          | 2004 |       | 2003 
|                       |                          |      |       |      
|Balance at January 1   |                          |      |      |       |  |   |  |  
|                       | New Mortgage Loans       |      | $     | 8,650 |  |   | $ |  | 
|                       | Other(2)                 |      |       | 79    |  |   |   |  | 
|                       | Collections of Principal |      |       |      |  |   |   |  | 
|                       |                          |      |       |       |  |   |   |  
|Balance at December 31 |                          | $    | 8,729 |       |  | $ |  |  
|                       |                          |      |       |       |  |   |   |  



---



|    |                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Outstanding principal plus accrued and unpaid
    interest is due on the maturity date. Partial prepayment is
    required to the extent the borrower receives proceeds from the
    sale of constructed units in accordance with contracted terms.
|   
|(2) | A portion of the accrued interest amount is added
    to the principal amount on a monthly basis.                                                                                                                                                  

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ARCHSTONE-SMITH TRUST



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                      
| | ---------------------
| | ARCHSTONE-SMITH TRUST



| |     |                    
| | --- | -------------------
| | By: | /s/ R. SCOT SELLERS

| |                          
| | -------------------------
| |                          
| | R. Scot Sellers          
| | Chairman of the Board and
| | Chief Executive Officer  

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the date indicated:

|                                                   |  |                                                                                              |  |                   |  | 
|-------------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | ----------------- |  | 
|                                                   |  |                                                                                              |  |                  
|Signature                                          |  | Title                                                                                        |  | Date             
|                                                   |  |                                                                                              |  |                  
|                                                  
|/s/ R. SCOT SELLERSR. Scot Sellers                 |  | Chairman of the Board, Chief Executive Officer
    and Trustee (principal executive officer) |  | February 28, 2005
|                                                  
|/s/ CHARLES E. MUELLER, JR.Charles E. Mueller, Jr. |  | Executive Vice President and Chief Financial
    Officer (principal financial officer)       |  | February 28, 2005
|                                                  
|/s/ MARK A. SCHUMACHERMark A. Schumacher           |  | Senior Vice President and Chief Accounting
    Officer (principal accounting officer)        |  | February 28, 2005
|                                                  
|/s/ JAMES A. CARDWELLJames A. Cardwell             |  | Trustee                                                                                      |  | February 28, 2005
|                                                  
|/s/ ERNEST A. GERARDI, JR.Ernest A. Gerardi, Jr.   |  | Trustee                                                                                      |  | February 28, 2005
|                                                  
|/s/ NED S. HOLMESNed S. Holmes                     |  | Trustee                                                                                      |  | February 28, 2005
|                                                  
|/s/ ROBERT P. KOGODRobert P. Kogod                 |  | Trustee                                                                                      |  | February 28, 2005
|                                                  
|/s/ JAMES H. POLK IIIJames H. Polk III             |  | Trustee                                                                                      |  | February 28, 2005
|                                                  
|/s/ JOHN M. RICHMANJohn M. Richman                 |  | Trustee                                                                                      |  | February 28, 2005
|                                                  
|/s/ JOHN C. SCHWEITZERJohn C. Schweitzer           |  | Trustee                                                                                      |  | February 28, 2005

98



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|                                   |  |         |  |                   |  | 
|---------------------------------- |  | ------- |  | ----------------- |  | 
|                                   |  |         |  |                  
|Signature                          |  | Title   |  | Date             
|                                   |  |         |  |                  
|                                  
|/s/ ROBERT H. SMITHRobert H. Smith |  | Trustee |  | February 28, 2005
|                                  
|/s/ RUTH ANN GILLISRuth Ann Gillis |  | Trustee |  | February 28, 2005

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INDEX TO EXHIBITS

Certain of the following documents are filed
herewith. Certain other of the following documents have been
previously filed with the Securities and Exchange Commission
and, pursuant to Rule 12b-32, are incorporated herein by
reference:

|       |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------ | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    | Description
|       |    |            
|       | 3  | .1          |  | Amended and Restated Declaration of Trust of
    Archstone-Smith Trust (incorporated by reference to
    Exhibit 4.1 to the Archstone-Smith Trusts Current
    Report of Form 8-K filed with the SEC on November 1, 2001)                                                                                                                                                                                                                                                                                                    
|      
|       | 3  | .2          |  | Amended and Restated Bylaws of Archstone-Smith
    Trust (incorporated by reference to Exhibit 4.2 to the
    Archstone-Smith Trusts Current Report on Form 8-K filed
    with the SEC on November 1, 2001)                                                                                                                                                                                                                                                                                                                  
|      
|       | 4  | .1          |  | Indenture, dated as of February 1, 1994,
    between Archstone-Smith Operating Trust (formerly Archstone
    Communities Trust) and Morgan Guaranty Trust Company of New
    York, as Trustee relating to Archstone-Smith Operating
    Trusts (formerly Archstone Communities Trust) unsecured
    senior debt securities (incorporated by reference to
    Exhibit 4.2 to Archstone-Smith Operating Trusts
    (formerly Archstone Communities Trust) Annual Report on Form
    10-K for the year ended December 31, 1993)
|      
|       | 4  | .2          |  | First Supplemental Indenture, dated
    February 2, 1994, among Archstone-Smith Operating Trust
    (formerly Archstone Communities Trust), Morgan Guaranty Trust
    Company of New York and State Street Bank and Trust Company, as
    successor Trustee (incorporated by reference to Exhibit 4.3
    to Archstone-Smith Operating Trusts (formerly Archstone
    Communities Trust) Current Report on Form 8-K dated
    July 19, 1994)                                                                                 
|      
|       | 4  | .3          |  | Indenture, dated as of August 14, 1997,
    between Security Capital Atlantic Incorporated and State Street
    Bank and Trust Company, as Trustee (incorporated by reference to
    Exhibit 4.8 to Security Capital Atlantic
    Incorporateds Registration Statement on Form S-11
    (File No. 333-30747))                                                                                                                                                                                                                
|      
|       | 4  | .5          |  | Form of Archstone-Smith Trust common share
    ownership certificate (incorporated by reference to
    Exhibit 3.3 to Archstone-Smith Trusts Registration
    Statement on Form S-4 (File No. 333-63734))                                                                                                                                                                                                                                                                                                                    
|      
|       | 4  | .10         |  | Form of Archstone-Smith Trust share certificate
    for Series I Preferred Shares (incorporated by reference to
    Exhibit 3.8 to Archstone-Smith Trusts Registration
    Statement on Form S-4 (File No. 333-63734))                                                                                                                                                                                                                                                                                                       
|      
|       | 10 | .1          |  | Amended and Restated Declaration of Trust of
    Archstone-Smith Operating Trust (incorporated by reference to
    Exhibit 4.3 to the Archstone-Smith Trusts Current
    Report on Form 8-K filed with the SEC on November 1, 2001)                                                                                                                                                                                                                                                                                          
|      
|       | 10 | .2          |  | Amended and Restated Bylaws of Archstone-Smith
    Operating Trust (incorporated by reference to Exhibit 4.4
    to the Archstone-Smith Trusts Current Report on Form 8-K
    filed with the SEC on November 1, 2001)                                                                                                                                                                                                                                                                                                        
|      
|       | 10 | .3          |  | Articles Supplementary for Series E
    Cumulative Redeemable Preferred Units of Beneficial Interest of
    Archstone-Smith Operating Trust (incorporated by reference to
    Exhibit 10.1 of Archstone-Smiths Quarterly Report on
    Form 10-Q for the Quarter Ended September 30, 2002)                                                                                                                                                                                                                                   
|      
|       | 10 | .4          |  | Articles Supplementary for Series F
    Cumulative Redeemable Preferred Units of Beneficial Interest of
    Archstone-Smith Operating Trust (incorporated by reference to
    Exhibit 10.2 of Archstone-Smiths Quarterly Report on
    Form 10-Q for the Quarter Ended September 30, 2002)                                                                                                                                                                                                                                   
|      
|       | 10 | .5          |  | Articles Supplementary for Series G
    Cumulative Redeemable Preferred Units of Beneficial Interest of
    Archstone-Smith Operating Trust (incorporated by reference to
    Exhibit 10.3 of Archstone-Smiths Quarterly Report on
    Form 10-Q for the Quarter Ended September 30, 2002)                                                                                                                                                                                                                                   
|      
|       | 10 | .6          |  | Articles Supplementary for Series M
    Preferred Unit of Beneficial Interest of Archstone-Smith
    Operating Trust (incorporated by reference to Exhibit 3.1
    to the Archstone-Smith Trusts Current Report on Form 8-K
    filed with the SEC on December 16, 2004)                                                                                                                                                                                                                                                     
|      
|       | 10 | .7          |  | Amendment to 1996 Share Option Plan for
    Independent Trustees (incorporated by reference to
    Exhibit 4.6 to Archstone Communities Trusts
    Registration Statement on Form S-8 (File
    No. 333-60815))                                                                                                                                                                                                                                                                                                              

100



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INDEX TO EXHIBITS 
(Continued)


|       |    |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------ | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    | Description
|       |    |            
|      
|       | 10 | .8          |  | Archstone-Smith Trust 2001 Long-Term Incentive
    Plan (incorporated by reference to Exhibit 10.14 to
    Archstone-Smith Trusts Registration Statement on
    Form S-4 (File No. 333-63734))                                                                                                                                                                                                                                     
|      
|       | 10 | .9          |  | Archstone-Smith Deferred Compensation Plan
    (incorporated by reference to Exhibit 10.5 to
    Archstone-Smiths Annual Report on Form 10-K for the year
    ended December 31, 2001)                                                                                                                                                                                                                                             
|      
|       | 10 | .10         |  | Amendment to Archstone-Smith Trust 2001 Long-Term
    Incentive Plan (incorporated by reference to Exhibit 10.1
    of Archstone-Smith Trusts Annual Report on Form 10-Q for
    the Quarter Ended June 30, 2004)                                                                                                                                                                                                                  
|      
|       | 10 | .11         |  | Form of Non-Qualified Share Option Agreement for
    Archstone-Smith Trust 2001 Long-Term Incentive Plan
    (incorporated by reference to Exhibit 10.1 of
    Archstone-Smith Trusts Annual Report on Form 10-Q for the
    Quarter Ended September 30, 2004)                                                                                                                                                                     
|      
|       | 10 | .12         |  | Form of Restricted Share Unit Agreement for
    Archstone-Smith Trust 2001 Long-Term Incentive Plan
    (incorporated by reference to Exhibit 10.1 of
    Archstone-Smith Trusts Annual Report on Form 10-Q for the
    Quarter Ended September 30, 2004)                                                                                                                                                                          
|      
|       | 10 | .13         |  | Form of Restricted Share Unit Agreement for
    Archstone-Smith Trust Equity Plan for Outside Trustees
    (incorporated by reference to Exhibit 10.1 of
    Archstone-Smith Trusts Annual Report on Form 10-Q for the
    Quarter Ended September 30, 2004)                                                                                                                                                                       
|      
|       | 10 | .14         |  | Form of Indemnification Agreement entered into
    between Archstone-Smith Trust and each of its officers and
    Trustees (incorporated by reference to Exhibit 10.6 to
    Archstone-Smith Trusts Annual Report on From 10K for the
    year ended December 31, 2003)                                                                                                                                                            
|      
|       | 10 | .15         |  | Form of Change in Control Agreement between
    Archstone-Smith Trust and certain of its officers (incorporated
    by reference to Exhibit 10.7 to Archstone-Smiths
    Annual Report on Form 10-K for the year ended December 31,
    2002)                                                                                                                                                                                      
|      
|       | 10 | .16         |  | Amended and Restated Credit Agreement, dated as
    of December 13, 2004, by and among Archstone-Smith
    Operating Trust, as borrower, and Archstone-Smith Trust as
    parent, and J.P. Morgan Chase Bank, as administrative
    agent, and Bank of America, N.A., and Wells Fargo Bank, N.A., as
    syndication agents, and Suntrust Bank and Commerzbank A.G., New
    York and Grand Cayman Branches, as documentation agents
|      
|       | 10 | .17         |  | Archstone Dividend Reinvestment and Share
    Purchase Plan (incorporated by reference to the prospectus
    contained in Archstone-Smith Trusts Registration Statement
    on Form S-3 (No. 333-44639-01))                                                                                                                                                                                                                        
|      
|       | 10 | .18         |  | Shareholders Agreement, dated as of
    October 31, 2001, by and among Archstone-Smith Trust,
    Archstone-Smith Operating Trust, Robert H. Smith and Robert P.
    Kogod (incorporated by reference to Exhibit 10.1 to
    Archstone-Smith Trusts Current Report on Form 8-K filed
    with the SEC on November 1, 2001)                                                                                                        
|      
|       | 10 | .19         |  | Noncompetition Agreement by and among Charles E.
    Smith Residential Realty, Inc., Charles E. Smith Residential
    Realty L.P. and Robert P. Kogod and Robert H. Smith
    (incorporated by reference to Exhibit 10.1 of Charles E.
    Smith Residential Realty, Inc.s Annual Report on Form 10-K
    for the year ended December 31, 1994)                                                                                    
|      
|       | 10 | .20         |  | Registration Rights and Lock-up Agreement
    (incorporated by reference to Exhibit 10.2 of Charles E.
    Smith Residential Realty, Inc.s Annual Report on Form 10-K
    for the year ended December 31, 1994)                                                                                                                                                                                                                    
|      
|       | 10 | .21         |  | License Agreement between Charles E. Smith
    Management, Inc. and Charles E. Smith Residential Realty, Inc.
    (incorporated by reference to Exhibit 10.35 of Charles E.
    Smith Residential Realty, Inc.s Annual Report on Form 10-K
    for the year ended December 31, 1994)                                                                                                                                               
|      
|       | 10 | .22         |  | License Agreement between Charles E. Smith
    Management, Inc. and Charles E. Smith Residential Realty L.P.
    (incorporated by reference to Exhibit 10.36 of Charles E.
    Smith Residential Realty, Inc.s Annual Report on Form 10-K
    for the year ended December 31, 1994)                                                                                                                                                
|      
|       | 12 | .1          |  | Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                                                                                                   
|      
|       | 12 | .2          |  | Computation of Ratio of Earnings to Combined
    Fixed Charges and Preferred Share Dividends                                                                                                                                                                                                                                                                                                                                        

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##### Table of Contents



INDEX TO EXHIBITS 
(Continued)


|       |    |             |  |                                                                                                                                                                                                                        
|------ | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    | Description
|       |    |            
|      
|       | 15 | .1          |  | Consent of Independent Registered Public
    Accounting Firm                                                                                                                                                           
|      
|       | 21 |             |  | Subsidiaries of Archstone-Smith                                                                                                                                                                                        
|      
|       | 31 | .1          |  | Certification of Chief Executive Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                 
|      
|       | 31 | .2          |  | Certification of Chief Financial Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                 
|      
|       | 32 | .1          |  | Certification of Chief Executive Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                 
|      
|       | 32 | .2          |  | Certification of Chief Financial Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                 
|      
|       | 99 | .1          |  | Corporate Governance Guidelines (incorporated by
    reference to Exhibit 99.1 of Archstone-Smiths
    Quarterly Report on Form 10-Q for the Quarter Ended
    September 30, 2003)                                    
|      
|       | 99 | .3          |  | Audit Committee Charter (incorporated by
    reference to Exhibit 99.3 of Archstone-Smiths
    Quarterly Report on Form 10-Q for the Quarter Ended
    September 30, 2003)                                            
|      
|       | 99 | .4          |  | Management Development and Executive Compensation
    Committee Charter (incorporated by reference to
    Exhibit 99.4 of Archstone-Smiths Quarterly Report on
    Form 10-Q for the Quarter Ended September 30, 2003)
|      
|       | 99 | .5          |  | Nominating and Corporate Governance Committee
    Charter (incorporated by reference to Exhibit 99.5 of
    Archstone-Smiths Quarterly Report on Form 10-Q for the
    Quarter Ended September 30, 2003)              

102