##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
  OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
 Commission File Number 1-10272
 ARCHSTONE-SMITH OPERATING TRUST
 (Exact name of registrant as specified in its charter)
 Maryland
(State or other jurisdiction of
incorporation or organization)
    
    74-6056896
(I.R.S. 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)
 (Former name, former address and former fiscal year,
if changed since last report)
  þ o
 þ o




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Table of Contents
 PageItem
    
    Description
    
    NumberPART I1.
    
    Financial StatementsCondensed Consolidated Balance Sheets  June 30, 2005 (unaudited) and December 31, 2004
    
    
    3Condensed Consolidated Statements of Earnings  Three and Six months ended June 30, 2005 and 2004 (unaudited)
    
    
    4Condensed Consolidated Statement of Unitholders Equity, Other Common Unitholders Interest and Comprehensive Income/(Loss)  Six months ended June 30, 2005 (unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows  Six months ended June 30, 2005 and 2004 (unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    7Report of Independent Registered Public Accounting Firm
    
    
    202.
    

Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    213.
    

Quantitative and Qualitative Disclosures About Market Risk
    
    
    334.
    

Controls and Procedures
    
    
    33PART II1.
    
    Legal Proceedings
    
    
    342.
    

Changes
in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
    
    
    346.
    
    Exhibits
    
    
    34Computation of Ratio of Earnings to Fixed ChargesComputation of Ratio of Earnings to Combined Fixed ChargesIndependent Registered Public Accounting Firm Awareness LetterCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive Officer - Section 906Certification of Chief Financial Officer - Section 906
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Archstone-Smith Operating Trust
 
 Condensed Consolidated Balance Sheets
 (In thousands, except unit data)
 June 30,
    
    
    December 31,ASSETS
    
    2005
    
    
    2004(Unaudited)Real estate
    
    $
    8,872,304
    
    
    $
    8,842,611Real estate  held for sale
    
    
    400,766
    
    
    
    378,427Less accumulated depreciation
    
    
    841,539
    
    
    
    763,5428,431,531
    
    
    
    8,457,496Investments in and advances to unconsolidated entities
    
    
    124,598
    
    
    
    111,481Net investments
    
    
    8,556,129
    
    
    
    8,568,977Cash and cash equivalents
    
    
    12,765
    
    
    
    203,255Restricted cash in tax-deferred exchange escrow
    
    
    124,041
    
    
    
    120,095Other assets
    
    
    254,391
    
    
    
    173,717Total assets
    
    $
    8,947,326
    
    
    $
    9,066,044LIABILITIES AND UNITHOLDERS EQUITYLiabilities:Unsecured credit facilities
    
    $
    
    
    
    $
    19,000Long-Term Unsecured Debt
    
    
    2,379,209
    
    
    
    2,099,132Mortgages payable
    
    
    1,742,872
    
    
    
    2,013,730Mortgages payable  held for sale
    
    
    17,649
    
    
    
    17,775Accounts payable, accrued expenses and other liabilities
    
    
    283,503
    
    
    
    325,131Total liabilities
    
    
    4,423,233
    
    
    
    4,474,768Minority interest
    
    
    
    
    
    
    2,050Other common unitholders interest, at redemption value (A-1 Common Units:24,036,384 in 2005 and 23,117,498 in 2004)
    
    
    928,285
    
    
    
    885,400Unitholders equity:Perpetual Preferred Units
    
    
    50,000
    
    
    
    69,522Common unitholders equity (A-2 Common Units: 199,304,169 in 2005 and
199,577,459 in 2004)
    
    
    3,551,211
    
    
    
    3,638,729Accumulated other comprehensive earnings (loss)
    
    
    (5,403
    )
    
    
    (4,425
    )Total unitholders equity
    
    
    3,595,808
    
    
    
    3,703,826Total liabilities and unitholders equity
    
    $
    8,947,326
    
    
    $
    9,066,044
  3




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##### Table of Contents



Archstone-Smith Operating Trust
 
 Condensed Consolidated Statements of Earnings
 (In thousands, except per unit amounts)
(Unaudited
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:Rental revenues
    
    $
    226,375
    
    
    $
    198,911
    
    
    $
    446,291
    
    
    $
    389,526Other income
    
    
    6,848
    
    
    
    5,209
    
    
    
    11,975
    
    
    
    8,906233,223
    
    
    
    204,120
    
    
    
    458,266
    
    
    
    398,432Expenses:Rental expenses
    
    
    56,700
    
    
    
    49,454
    
    
    
    115,261
    
    
    
    97,480Real estate taxes
    
    
    22,644
    
    
    
    19,328
    
    
    
    45,280
    
    
    
    38,031Depreciation on real estate investments
    
    
    54,832
    
    
    
    47,419
    
    
    
    108,609
    
    
    
    91,979Interest expense
    
    
    46,330
    
    
    
    37,724
    
    
    
    93,826
    
    
    
    74,265General and administrative expenses
    
    
    13,755
    
    
    
    12,092
    
    
    
    28,044
    
    
    
    24,525Other expenses
    
    
    7,390
    
    
    
    900
    
    
    
    28,472
    
    
    
    2,124201,651
    
    
    
    166,917
    
    
    
    419,492
    
    
    
    328,404Earnings from operations
    
    
    31,572
    
    
    
    37,203
    
    
    
    38,774
    
    
    
    70,028Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    352Equity in earnings/(loss) from unconsolidated entities
    
    
    5,794
    
    
    
    7,354
    
    
    
    16,911
    
    
    
    12,630Other non-operating income
    
    
    4,778
    
    
    
    9,951
    
    
    
    28,783
    
    
    
    20,461Earnings before discontinued operations
    
    
    42,144
    
    
    
    54,508
    
    
    
    84,468
    
    
    
    103,471Earnings from discontinued apartment communities
    
    
    20,190
    
    
    
    36,563
    
    
    
    51,708
    
    
    
    101,562Net earnings
    
    
    62,334
    
    
    
    91,071
    
    
    
    136,176
    
    
    
    205,033Preferred Unit distributions
    
    
    (958
    )
    
    
    (4,459
    )
    
    
    (2,656
    )
    
    
    (8,906
    )Net earnings attributable to Common Units  Basic
    
    $
    61,376
    
    
    $
    86,612
    
    
    $
    133,520
    
    
    $
    196,127Weighted average Common Units outstanding  Basic
    
    
    223,093
    
    
    
    219,845
    
    
    
    223,719
    
    
    
    219,962Weighted average Common Units outstanding  Diluted
    
    
    224,199
    
    
    
    220,791
    
    
    
    224,757
    
    
    
    223,481Earnings per Common Unit  Basic:Earnings before discontinued operations
    
    $
    0.19
    
    
    $
    0.23
    
    
    $
    0.37
    
    
    $
    0.43Discontinued operations, net
    
    
    0.09
    
    
    
    0.16
    
    
    
    0.23
    
    
    
    0.46Net earnings
    
    $
    0.28
    
    
    $
    0.39
    
    
    $
    0.60
    
    
    $
    0.89Earnings per Common Unit  Diluted:Earnings before discontinued operations
    
    $
    0.18
    
    
    $
    0.23
    
    
    $
    0.36
    
    
    $
    0.43Discontinued operations, net
    
    
    0.09
    
    
    
    0.16
    
    
    
    0.23
    
    
    
    0.46Net earnings
    
    $
    0.27
    
    
    $
    0.39
    
    
    $
    0.59
    
    
    $
    0.89Distributions paid per Common Unit
    
    $
    0.4325
    
    
    $
    0.43
    
    
    $
    0.8650
    
    
    $
    0.86
  4




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Archstone-Smith Operating Trust
 
 Condensed Consolidated Statement of Unitholders Equity,
Other Common Unitholders Interest and Comprehensive Income/(Loss)
 Six Months Ended June 30, 2005
 In thousands)
(Unaudited
 PerpetualPreferredUnitsat
    
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    OtherAggregate
    
    
    Common
    
    
    Other
    
    
    Total
    
    
    CommonLiquidation
    
    
    Unitholders
    
    
    Comprehensive
    
    
    Unitholders
    
    
    UnitholdersPreference
    
    
    Equity
    
    
    Income/(Loss)
    
    
    Equity
    
    

Interest
    
    
    TotalBalances at December 31, 2004.
    
    $
    69,522
    
    
    $
    3,638,729
    
    
    $
    (4,425
    )
    
    $
    3,703,826
    
    
    $
    885,400
    
    
    $
    4,589,226Comprehensive income:Net earnings
    
    
    
    
    
    
    121,058
    
    
    
    
    
    
    
    121,058
    
    
    
    15,118
    
    
    
    136,176Change in fair value of
cash flow hedges
    
    
    
    
    
    
    
    
    
    
    411
    
    
    
    411
    
    
    
    
    
    
    
    411Change in fair value of
marketable securities
    
    
    
    
    
    
    
    
    
    
    (1,389
    )
    
    
    (1,389
    )
    
    
    
    
    
    
    (1,389
    )Comprehensive income
attributable to Common Units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135,198Preferred Unit distributions
    
    
    
    
    
    
    (2,656
    )
    
    
    
    
    
    
    (2,656
    )
    
    
    
    
    
    
    (2,656
    )Common Unit distributions
    
    
    
    
    
    
    (173,413
    )
    
    
    
    
    
    
    (173,413
    )
    
    
    (20,360
    )
    
    
    (193,773
    )A-1 Common Units converted
into A-2 Common Units
    
    
    
    
    
    
    3,129
    
    
    
    
    
    
    
    3,129
    
    
    
    (3,129
    )
    
    
    Common Unit repurchases
    
    
    
    
    
    
    (56,495
    )
    
    
    
    
    
    
    (56,495
    )
    
    
    
    
    
    
    (56,495
    )Preferred Unit repurchases
    
    
    (19,522
    )
    
    
    
    
    
    
    
    
    
    
    (19,522
    )
    
    
    
    
    
    
    (19,522
    )Issuance of A-1 Common Units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,660
    
    
    
    41,660Issuance of A-2 Common Units
under Compensation Plans
    
    
    
    
    
    
    31,855
    
    
    
    
    
    
    
    31,855
    
    
    
    
    
    
    
    31,855Adjustment to redemption value
    
    
    
    
    
    
    (9,596
    )
    
    
    
    
    
    
    (9,596
    )
    
    
    9,596
    
    
    
    Other, net
    
    
    
    
    
    
    (1,400
    )
    
    
    
    
    
    
    (1,400
    )
    
    
    
    
    
    
    (1,400
    )Balances at June 30, 2005
    
    $
    50,000
    
    
    $
    3,551,211
    
    
    $
    (5,403
    )
    
    $
    3,595,808
    
    
    $
    928,285
    
    
    $
    4,524,093
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##### Table of Contents



Archstone-Smith Operating Trust
 
 Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited
 Six Months EndedJune 30,2005
    
    
    2004Operating activities:Net earnings
    
    $
    136,176
    
    
    $
    205,033Adjustments to reconcile net earnings to net cash flow provided by operating activities:Depreciation and amortization
    
    
    114,390
    
    
    
    111,640Gains on dispositions of depreciated real estate, net
    
    
    (60,262
    )
    
    
    (93,482
    )Gains on sale of marketable equity securities and property management business
    
    
    (27,948
    )
    
    
    (20,461
    )Minority interest
    
    
    
    
    
    
    (352
    )Equity in earnings/(loss) from unconsolidated entities
    
    
    (16,911
    )
    
    
    (12,630
    )Change in other assets
    
    
    1,288
    
    
    
    (8,682
    )Change in accounts payable, accrued expenses and other liabilities
    
    
    (8,231
    )
    
    
    (16,488
    )Other, net
    
    
    (4,399
    )
    
    
    (4,826
    )Net cash flow provided by operating activities
    
    
    134,103
    
    
    
    159,752Investing activities:Real estate investments, net
    
    
    (457,763
    )
    
    
    (581,739
    )Change in investments in unconsolidated entities, net
    
    
    8,312
    
    
    
    26,958Proceeds from dispositions, net of closing costs
    
    
    465,099
    
    
    
    272,339Change in restricted cash
    
    
    (3,946
    )
    
    
    163,368Change in notes receivable, net
    
    
    (73,408
    )
    
    
    123Other, net
    
    
    14,844
    
    
    
    83,436Net cash flow used in investing activities
    
    
    (46,862
    )
    
    
    (35,515
    )Financing activities:Payments on Long-Term Unsecured Debt
    
    
    (18,750
    )
    
    
    (40,450
    )Proceeds from Long-Term Unsecured Debt
    
    
    296,034
    
    
    
    Proceeds/Repayments from unsecured credit facilities, net
    
    
    (19,000
    )
    
    
    206,843Principal prepayment of mortgages payable, including prepayment penalties
    
    
    (263,456
    )
    
    
    (56,468
    )Regularly scheduled principal payments on mortgages payable
    
    
    (5,321
    )
    
    
    (6,396
    )Proceeds from mortgage notes payable
    
    
    655
    
    
    
    32,003Proceeds from Common Units issued under employee stock options
    
    
    20,556
    
    
    
    29,129Repurchase of Common Units
    
    
    (56,495
    )
    
    
    (85,441
    )Repurchase of Series E and G Perpetual Preferred Units
    
    
    (19,522
    )
    
    
    Cash distributions paid on Common Units
    
    
    (214,935
    )
    
    
    (191,160
    )Cash distributions paid on Preferred Units
    
    
    (2,656
    )
    
    
    (8,906
    )Other, net
    
    
    5,159
    
    
    
    (682
    )Net cash flow used in financing activities
    
    
    (277,731
    )
    
    
    (121,528
    )Net change in cash and cash equivalents
    
    
    (190,490
    )
    
    
    2,709Cash and cash equivalents at beginning of period
    
    
    203,255
    
    
    
    5,230Cash and cash equivalents at end of period
    
    $
    12,765
    
    
    $
    7,939Significant non-cash investing and financing activities:A-1 Common Units issued in exchange for real estate
    
    $
    41,660
    
    
    $
    10,788A-1 Common Units converted to A-2 Common Units
    
    
    3,129
    
    
    
    34,064Assumption of mortgages payable upon purchase of apartment communities
    
    
    
    
    
    
    74,900A-2 Common Units issued in exchange for real estate
    
    
    
    
    
    
    4,502
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Archstone-Smith Operating Trust
 
 Notes to Condensed Consolidated Financial Statements
 June 30, 2005 and 2004
(Unaudited)
 (1) Description of the Business and Summary of Significant Accounting Policies
 Business
  Interim Financial Reporting
   Use of Estimates
  Loss Contingencies
 Accounting
for Contingencies.
 Legal Fees
  7




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Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 Marketable Securities and Other Investments
  Real Estate Depreciation
  Income Taxes
   Preferred Unit Redemptions
 The Effect on the Calculation of Earnings per Share for the Redemption or Induced
Conversion of Preferred Stock
 8




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Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 Stock-Based Compensation
 Accounting for Stock-Based Compensation, Accounting for Stock Issued to Employees,
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net earnings attributable to Common Units  Basic
    
    $
    61,376
    
    
    $
    86,612
    
    
    $
    133,520
    
    
    $
    196,127Add: Stock-based employee compensation expense included
in reported net earnings
    
    
    219
    
    
    
    71
    
    
    
    448
    
    
    
    146Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards
    
    
    (360
    )
    
    
    (504
    )
    
    
    (790
    )
    
    
    (996
    )Pro forma net earnings attributable to Common Units  Basic
    
    $
    61,235
    
    
    $
    86,179
    
    
    $
    133,178
    
    
    $
    195,277Net earnings per Common Unit:Basic  as reported
    
    $
    0.28
    
    
    $
    0.39
    
    
    $
    0.60
    
    
    $
    0.89Basic  pro forma
    
    $
    0.28
    
    
    $
    0.39
    
    
    $
    0.60
    
    
    $
    0.89Diluted  as reported
    
    $
    0.27
    
    
    $
    0.39
    
    
    $
    0.59
    
    
    $
    0.89Diluted  pro forma
    
    $
    0.27
    
    
    $
    0.39
    
    
    $
    0.59
    
    
    $
    0.88Weighted average risk-free interest rate
    
    
    3.77
    %
    
    
    3.48
    %
    
    
    3.77
    %
    
    
    3.48
    %Weighted average Distribution yield
    
    
    5.63
    %
    
    
    6.92
    %
    
    
    5.63
    %
    
    
    6.92
    %Weighted average volatility
    
    
    21.97
    %
    
    
    15.33
    %
    
    
    21.97
    %
    
    
    15.33
    %Weighted average expected option life
    
    5.0 years
    
    5.0 years
    
    5.0 years
    
    5.0 years
 Comprehensive Income
  9




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Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
  NetUnrealizedGains on
    
    
    
    
    
    
    Accumulated OtherMarketable
    
    
        Cash Flow
    
    
    ComprehensiveSecurities
    
    
    Hedges
    
    

Income/(Loss)Balance at December 31, 2004
    
    $
    1,398
    
    
    $
    (5,823
    )
    
    $
    (4,425
    )Change in fair value of cash flow hedges
    
    
    
    
    
    
    2,270
    
    
    
    2,270Fair value of long-term debt hedge
    
    
    
    
    
    
    (1,859
    )
    
    
    (1,859
    )Mark to market for marketable equity securities
    
    
    690
    
    
    
    
    
    
    
    690Reclassification adjustments for realized net gains
    
    
    (2,079
    )
    
    
    
    
    
    
    (2,079
    )Balance at June 30, 2005
    
    $
    9
    
    
    $
    (5,412
    )
    
    $
    (5,403
    )
 Per Unit Data
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Reconciliation of numerator between basic and diluted net earnings per Common Unit (1):Net earnings attributable to Common Units  Basic
    
    $
    61,376
    
    
    $
    86,612
    
    
    $
    133,520
    
    
    $
    196,127Distributions on Convertible Preferred Units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,208Net earnings attributable to Common Units  Diluted
    
    $
    61,376
    
    
    $
    86,612
    
    
    $
    133,520
    
    
    $
    198,335Reconciliation of denominator between basic and diluted net earnings per Common Unit (1):Weighted average number of Common Units
outstanding  Basic
    
    
    223,093
    
    
    
    219,845
    
    
    
    223,719
    
    
    
    219,962Assumed
conversion of Convertible Preferred Units into
Common Units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,583Assumed exercise of options
    
    
    1,106
    
    
    
    946
    
    
    
    1,038
    
    
    
    936Weighted average number of Common Units
outstanding  Diluted
    
    
    224,199
    
    
    
    220,791
    
    
    
    224,757
    
    
    
    223,481
 
 (1)
    
    Excludes the impact of potentially dilutive equity securities during periods in which they are anti-dilutive. New Accounting Pronouncements
  10




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Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
  (2) Real Estate
 Investments in Real Estate
  June 30, 2005
    
    
    December 31, 2004Investment
    
    
    Units(1)
    
    
    Investment
    
    
    Units(1)Operating Trust Apartment Communities:Operating communities
    
    $
    8,097,273
    
    
    
    57,730
    
    
    $
    8,018,658
    
    
    
    58,486Communities under construction
    
    
    537,345
    
    
    
    3,282
    
    
    
    499,239
    
    
    
    3,237Development communities In Planning
    
    
    22,360
    
    
    
    585
    
    
    
    51,822
    
    
    
    1,251Total Operating Trust apartment
communities
    
    
    8,656,978
    
    
    
    61,597
    
    
    
    8,569,719
    
    
    
    62,974Ameriton apartment communities (2)
    
    
    533,189
    
    
    
    7,200
    
    
    
    581,910
    
    
    
    6,791Other real estate assets(3)
    
    
    82,903
    
    
    
    
    
    
    
    69,409
    
    
    
    Total real estate
    
    $
    9,273,070
    
    
    
    68,797
    
    
    $
    9,221,038
    
    
    
    69,765
 
 (1)
    
    Unit information is based on managements estimates and has not been reviewed by our
Independent Registered Public Accounting Firm.(2)
    
    Ameritons investment as of June 30, 2005 and December 31, 2004 for development communities
Under Control was $0.8 million, 253 units and $1.5 million, 593 units, respectively, and are
reflected in the Other assets caption of our Condensed Consolidated Balance Sheets.(3)
    
    Includes land that is not In Planning and other real estate assets.  Balance at December 31, 2004
    
    $
    9,221,038Acquisition-related expenditures
    
    
    286,311Redevelopment expenditures
    
    
    23,465Recurring capital expenditures
    
    
    16,676Development expenditures, excluding land acquisitions
    
    
    152,895Dispositions
    
    
    (435,284
    )Net apartment community activity
    
    
    44,063Change in other real estate assets
    
    
    7,969Balance at June 30, 2005
    
    $
    9,273,070
  11




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 (3) Discontinued Operations
    Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Rental revenues
    
    $
    12,322
    
    
    $
    47,506
    
    
    $
    27,261
    
    
    $
    95,786Rental expenses
    
    
    (4,046
    )
    
    
    (15,454
    )
    
    
    (9,351
    )
    
    
    (31,256
    )Real estate taxes
    
    
    (1,264
    )
    
    
    (5,921
    )
    
    
    (2,523
    )
    
    
    (12,034
    )Depreciation on real estate investments
    
    
    (1,699
    )
    
    
    (7,119
    )
    
    
    (4,896
    )
    
    
    (16,330
    )Interest expense (1)
    
    
    (3,681
    )
    
    
    (13,057
    )
    
    
    (7,536
    )
    
    
    (26,688
    )Estimated income taxes (Ameriton properties)
    
    
    (1,453
    )
    
    
    (166
    )
    
    
    (6,120
    )
    
    
    (278
    )Debt extinguishment costs related to dispositions
    
    
    (331
    )
    
    
    (212
    )
    
    
    (5,389
    )
    
    
    (1,120
    )Gains on disposition of taxable REIT subsidiary real estateinvestments, net
    
    
    6,937
    
    
    
    1,817
    
    
    
    20,703
    
    
    
    14,513Gains on dispositions of REIT real estate investments, net.
    
    
    13,405
    
    
    
    29,169
    
    
    
    39,559
    
    
    
    78,969Earnings from discontinued apartment communities
    
    $
    20,190
    
    
    $
    36,563
    
    
    $
    51,708
    
    
    $
    101,562
 
 (1)
    
    The portion of interest expense included in discontinued operations that is allocated to
properties based on the companys leverage ratio was $3.3 million and $9.5 million for the
three months ended June 30, 2005 and 2004, and $6.0 million and $19.4 million for the six
months ended June 30, 2005 and 2004, respectively.  12




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 (4) Investments in and Advances to Unconsolidated Entities
 Real Estate Joint Ventures
   June 30,
    
    
    December 31,2005
    
    
    2004Assets:Real estate
    
    $
    1,118,018
    
    
    $
    1,115,563Other assets
    
    
    189,962
    
    
    
    52,394Total assets
    
    $
    1,307,980
    
    
    $
    1,167,957Liabilities and owners equity:Inter-company debt payable to the Operating Trust
    
    $
    3,125
    
    
    $
    4,124Mortgages payable(1)
    
    
    903,774
    
    
    
    777,924Other liabilities
    
    
    30,971
    
    
    
    24,254Total liabilities
    
    
    937,870
    
    
    
    806,302Owners equity
    
    
    370,110
    
    
    
    361,655Total liabilities and owners equity
    
    $
    1,307,980
    
    
    $
    1,167,957
 
 (1)
    
    We guarantee $190.5 million of the outstanding debt balance as of June 30, 2005 and
are committed to guarantee another $93.5 million upon funding of additional debt.  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Operating Trust Joint VenturesRevenues
    
    $
    32,863
    
    
    $
    35,424
    
    
    $
    66,152
    
    
    $
    70,836Net Earnings(1)
    
    
    11,244
    
    
    
    916
    
    
    
    26,732
    
    
    
    10,098Ameriton Joint VenturesRevenues
    
    $
    1,174
    
    
    $
    1,697
    
    
    $
    2,263
    
    
    $
    3,320Net Earnings(2)
    
    
    4,816
    
    
    
    7,417
    
    
    
    11,934
    
    
    
    7,160TotalRevenues
    
    $
    34,037
    
    
    $
    37,121
    
    
    $
    68,415
    
    
    $
    74,156Net Earnings
    
    $
    16,060
    
    
    $
    8,333
    
    
    $
    38,666
    
    
    $
    17,258
 
 (1)
    
    Includes gains associated with the disposition of our Joint Ventures of $4.6 million
during the three months ended June 30, 2005, none for the same period ended 2004, and $22.0
million and $8.0 million for the six months ended June 30, 2005 and 2004 respectively.(2)
    
    Includes Ameritons share of pre-tax gains associated with the disposition of real
estate joint ventures. These gains aggregated $5.0 million and $3.8 million during the
three months ended June 30, 2005 and 2004, and $12.9 million and $7.0 million for the six
months ended June 30, 2005 and 2004, respectively. 13




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 (5) Mezzanine Notes Receivable
  (6) Borrowings
 Unsecured Credit Facilities
  As of and for the
    
    
    As of and for theSix Months
    
    
    Year EndedEnded
    
    
    December 31,June 30, 2005
    
    
    2004Total unsecured revolving credit facility
    
    $
    600,000
    
    
    $
    600,000Borrowings outstanding at end of period
    
    
    
    
    
    
    19,000Outstanding letters of credit under this facility
    
    
    5,329
    
    
    
    13,983Weighted average daily borrowings
    
    
    63,486
    
    
    
    81,317Maximum borrowings outstanding during the period.
    
    
    141,000
    
    
    
    375,000Weighted average daily nominal interest rate
    
    
    3.06
    %
    
    
    1.58
    %Weighted average daily effective interest rate
    
    
    3.14
    %
    
    
    2.62
    %
  Long-Term Unsecured Debt
  Effective
    
    
    
    
    
    
    Balance at
    
    
    AverageCoupon
    
    
    Interest
    
    
    Balance at
    
    
    December 31,
    
    
    RemainingType of Debt
    
    Rate(1)
    
    
    Rate(2)
    
    
    June 30, 2005
    
    
    2004
    
    
    Life (Years)Long-term unsecured senior notes
    
    
    6.08
    %
    
    
    6.25
    %
    
    $
    2,300,707
    
    
    $
    2,019,607
    
    
    
    5.5Unsecured tax-exempt bonds
    
    
    2.88
    %
    
    
    3.14
    %
    
    
    78,502
    
    
    
    79,525
    
    
    
    18.1Total/average
    
    
    5.97
    %
    
    
    6.15
    %
    
    $
    2,379,209
    
    
    $
    2,099,132
    
    
    
    5.9
 
 (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. 14




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
  Mortgages payable
  Outstanding Balance at(1)EffectiveInterestJune 30, 2005
    
    
    December 31, 2004
    
    
    Rate(2)Secured floating rate debt:Tax-exempt debt
    
    $
    495,381
    
    
    $
    508,923
    
    
    
    2.7
    %Construction loans
    
    
    
    
    
    
    40,868
    
    
    
    N/AConventional mortgages
    
    
    21,705
    
    
    
    21,705
    
    
    
    3.5
    %Total Floating
    
    
    517,086
    
    
    
    571,496
    
    
    
    2.7
    %Secured fixed rate debt:Conventional mortgages
    
    
    1,223,510
    
    
    
    1,439,558
    
    
    
    6.3
    %Other secured debt
    
    
    19,925
    
    
    
    20,451
    
    
    
    5.0
    %Total Fixed
    
    
    1,243,435
    
    
    
    1,460,009
    
    
    
    6.3
    %Total debt outstanding at end of period
    
    $
    1,760,521
    
    
    $
    2,031,505
    
    
    
    5.2
    %
 
 (1)
    
    Includes the unamortized fair market value adjustment recorded in connection with the Smith
Merger of $41.1 million and $48.4 million at June 30, 2005 and December 31, 2004,
respectively. This amount is being amortized into interest expense over the life of the
underlying debt.(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.  Balance at December 31, 2004
    
    $
    2,031,505Regularly scheduled principal amortization
    
    
    (5,321
    )Prepayments, final maturities and other(1)
    
    
    (266,318
    )Proceeds from mortgage notes payable
    
    
    655Balance at June 30, 2005
    
    $
    1,760,521
 
 (1)
    
    We incurred $23.2 million of debt extinguishment costs in connection with these mortgage prepayments. 15




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 Other
   (7) Distributions to Unitholders
  Quarterly
    
    
    AnnualizedCash Distributions
    
    
    Cash DistributionsPer Unit
    
    
    Per UnitCommon Units and A-1 Units
    
    $
    0.4325
    
    
    $
    1.73Series E Preferred Units (1)
    
    
    
    
    
    
    0.1977Series G Preferred Units (2)
    
    
    
    
    
    
    0.3714Series I Perpetual Preferred Units (3)
    
    
    1,915
    
    
    
    7,660
 
 (1)
    
    200,000 Series E Preferred Units were redeemed in February 2005.(2)
    
    600,000 Series G Preferred Units were redeemed in March 2005.(3)
    
    Series I Preferred Units have a par value of $100,000 per unit. (8) Segment Data
  16




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Reportable apartment communities segment revenues:Same-Store:Garden communities
    
    $
    115,394
    
    
    $
    112,118
    
    
    $
    227,969
    
    
    $
    222,330High-rise properties
    
    
    76,711
    
    
    
    74,577
    
    
    
    144,673
    
    
    
    140,275Non Same-Store:Garden communities
    
    
    17,008
    
    
    
    6,233
    
    
    
    32,532
    
    
    
    11,040High-rise properties
    
    
    10,236
    
    
    
    1,380
    
    
    
    28,069
    
    
    
    8,463Ameriton(1)
    
    
    6,169
    
    
    
    3,735
    
    
    
    11,622
    
    
    
    5,882Other non-reportable operating segment revenues
    
    
    857
    
    
    
    868
    
    
    
    1,426
    
    
    
    1,536Total segment and consolidated rental revenues
    
    $
    226,375
    
    
    $
    198,911
    
    
    $
    446,291
    
    
    $
    389,526
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Reportable apartment communities segment NOI:Same-Store:Garden communities
    
    $
    76,828
    
    
    $
    74,868
    
    
    $
    150,534
    
    
    $
    147,699High-rise properties
    
    
    49,319
    
    
    
    48,434
    
    
    
    90,477
    
    
    
    90,336Non Same-Store:Garden communities
    
    
    11,126
    
    
    
    3,429
    
    
    
    20,776
    
    
    
    6,402High-rise properties
    
    
    5,813
    
    
    
    813
    
    
    
    17,072
    
    
    
    5,531Ameriton(1)
    
    
    3,161
    
    
    
    1,787
    
    
    
    5,648
    
    
    
    2,727Other non-reportable operating segment NOI
    
    
    784
    
    
    
    798
    
    
    
    1,243
    
    
    
    1,320Total segment NOI
    
    
    147,031
    
    
    
    130,129
    
    
    
    285,750
    
    
    
    254,015Reconciling items:Other income
    
    
    6,848
    
    
    
    5,209
    
    
    
    11,975
    
    
    
    8,906Depreciation on real estate investments
    
    
    (54,832
    )
    
    
    (47,419
    )
    
    
    (108,609
    )
    
    
    (91,979
    )Interest expense
    
    
    (46,330
    )
    
    
    (37,724
    )
    
    
    (93,826
    )
    
    
    (74,265
    )General and administrative expenses
    
    
    (13,755
    )
    
    
    (12,092
    )
    
    
    (28,044
    )
    
    
    (24,525
    )Other expenses
    
    
    (7,390
    )
    
    
    (900
    )
    
    
    (28,472
    )
    
    
    (2,124
    )Consolidated earnings from operations
    
    $
    31,572
    
    
    $
    37,203
    
    
    $
    38,774
    
    
    $
    70,028
 (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 the six months ended June 30, 2005 and 2004, pre-tax gains
from the disposition of Ameriton real estate were $20.7 million and $5.4 million,
respectively. Additionally, Ameriton had gains of $12.9 million and $7.0 million during
the six months ended June 30, 2005 and 2004, respectively from the sale of unconsolidated
joint venture assets. These gains are classified within income from unconsolidated
entities. Ameriton assets are excluded from our Same-Store population 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.
 17




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 June 30,
    
    
    December 31,2005
    
    
    2004Reportable operating communities segment assets:Same-Store:Garden communities
    
    $
    3,123,171
    
    
    $
    3,186,395High-rise properties
    
    
    2,516,184
    
    
    
    2,534,774Non Same-Store:Garden communities
    
    
    1,150,619
    
    
    
    1,053,259High-rise properties
    
    
    833,547
    
    
    
    869,379Ameriton
    
    
    403,038
    
    
    
    483,712Other non-reportable operating segment assets
    
    
    76,268
    
    
    
    69,942Total segment assets
    
    
    8,102,827
    
    
    
    8,197,461Real estate held for sale, net
    
    
    328,704
    
    
    
    260,035Total segment assets
    
    
    8,431,531
    
    
    
    8,457,496Reconciling items:Investment in and advances to unconsolidated
entities
    
    
    124,598
    
    
    
    111,481Cash and cash equivalents
    
    
    12,765
    
    
    
    203,255Restricted cash in tax-deferred exchange escrow
    
    
    124,041
    
    
    
    120,095Other assets
    
    
    254,391
    
    
    
    173,717Consolidated total assets
    
    $
    8,947,326
    
    
    $
    9,066,044
  (9) Litigation and Contingencies
     18




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 (10) Derivatives and Hedging Activities
      (11) Subsequent Events
    19




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
 20




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following information should be read in conjunction with Archstone-Smith Operating Trusts
2004 Form 10-K as well as the financial statements and notes included in Item 1 of this report.
 Forward-Looking Statements
 Certain statements in this Form 10-Q 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 can develop, acquire or dispose of
apartment communities. Capital and credit market conditions, which affect our cost of capital,
also influence operating results. See the Archstone-Smith Operating Trusts 2004 Form 10-K Item
1. Business for a more complete discussion of risk factors that could impact our future financial
performance.
 The Company
  Results of Operations
 Executive Summary
    21




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##### Table of Contents



Quarter-to-Date Earnings Analysis
  
    
    A $10.7 million decrease in gains from the sale of operating communities, which
includes gains from the sale of assets by Ameriton for the three months ended June 30,
2005 as compared to the same period in 2004;
    
    A $4.5 million charge related to the settlement of the Fair Housing Act (FHA) and
American with Disabilities Act (ADA) lawsuit and other litigation costs;
    
    A $3.3 million gain from the disposition of our property management business during
the three months ended June 30, 2004;
    
    The recognition of $7.4 million related to the sale of Consolidated Engineering
Services (CES), including contingent proceeds associated with the expiration of
certain indemnifications and collection and recognition of the settlement of an ongoing
CES lawsuit during the three months ended June 30, 2004;
    
    A $2.3 million decrease in gains related to the sale of marketable equity
securities; and,
    
    The loss of rental revenues and a corresponding decrease in operating expenses due
to $435.3 million and $1.5 billion in total REIT and Ameriton dispositions in the first
six months of 2005 and the twelve months ended December 31, 2004, respectively.
  
    
    The accrual of $2.5 million for anticipated insurance recoveries during the three
months ended June 30, 2005 related to 2004 hurricane damage in South Florida;
 22




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##### Table of Contents




    
    A $1.7 million gain on the sale of land for the three months ended June 30, 2005;
    
    Increased revenues partially offset by a corresponding increase in operating
expenses associated with $286.3 million and $1.1 billion in REIT and Ameriton operating
asset acquisitions in the first six months of 2005 and the twelve months ended December
31, 2004, respectively;
    
    Increased income from the continued lease-up of new development projects;
    
    A 2.2% increase in Same-Store NOI during the second quarter of 2005 as compared to 2004; and,
    
    A $2.2 million reduction in Preferred Unit distributions due to the redemption of
Series D Preferred Units in August 2004, the conversion of Series K Preferred Units in
September 2004 and the early conversion of Series L Preferred Units in December 2004.
These conversions and the redemption also eliminated the impact of the related
Preferred Unit distributions on our fixed charge coverage ratio.
 Year-to-Date Earnings Analysis
  
    
    A $33.2 million decrease in gains from the sale of operating communities, which
includes gains from the sale of assets by Ameriton for the six months ended June 30,
2005 as compared to the same period in 2004;
    
    A $23.2 million expense for early extinguishment of debt related to the payoff of
$221.9 million of mortgages during the six months ended June 30, 2005, $5.4 million of
which related to asset dispositions. The elimination of these mortgages will reduce
future interest expense;
    
    A $6.5 million charge related to the settlement of the Fair Housing Act (FHA) and
American with Disabilities Act (ADA) lawsuit and other litigation costs;
    
    A $3.3 million gain from the disposition of our property management business during
the six months ended June 30, 2004;
    
    The recognition of $8.0 million related to the sale of Consolidated Engineering
Services (CES) including contingent proceeds associated with the expiration of
certain indemnifications and collection and recognition of the settlement of an ongoing
CES lawsuit during the six months ended June 30, 2004; and,
    
    The loss of rental revenues and a corresponding decrease in rental expenses due to
$435.3 million and $1.5 billion in total REIT and Ameriton dispositions in the first
six months of 2005 and the twelve months ended December 31, 2004, respectively.
  
    
    The accrual of $2.5 million for anticipated insurance recoveries during the six
months ended June 30, 2005 related to 2004 hurricane damage in South Florida;
    
    A $3.1 million gain on the sale of land for the six months ended June 30, 2005;
    
    Increased revenues partially offset by a corresponding increase in operating
expenses associated with $286.3 million and $1.1 billion in REIT and Ameriton operating
asset acquisitions in the first six months of 2005 and the twelve months ended December
31, 2004, respectively;
    
    Increased income from the continued lease-up of new development projects;
    
    A 1.2% increase in Same-Store NOI during the six months ended June 30, 2005 as
compared to 2004;
    
    A $4.3 million increase in income from unconsolidated entities due to higher gains
on the disposition of joint venture properties during the six months ended June 30,
2005 compared to the same period in 2004;
    
    A $25.9 million gain on the sale of our Rent.com investment to eBay and $2.1 million
gains on the sale of marketable equity securities during the six months ended June 30,
2005, compared to a $17.0 million gain on the sale of marketable equity securities
during the same period in 2004; and,
    
    A $4.4 million reduction in Preferred Unit distribution due to the redemption of
Series D Preferred Units in August 2004, the conversion of Series K Preferred Units in
September 2004 and the early conversion of Series L Preferred Units in December 2004.
These conversions and the redemption also eliminated the impact of the related
Preferred Unit distribution on our fixed charge coverage ratio.
 23




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##### Table of Contents



Apartment Community Operations
  Three months ended June 30,
    
    
    Six months ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net operating income
    
    $
    147,031
    
    
    $
    130,129
    
    
    $
    285,750
    
    
    $
    254,015Other income
    
    
    6,848
    
    
    
    5,209
    
    
    
    11,975
    
    
    
    8,906Depreciation of real estate investments
    
    
    (54,832
    )
    
    
    (47,419
    )
    
    
    (108,609
    )
    
    
    (91,979
    )Interest expense
    
    
    (46,330
    )
    
    
    (37,724
    )
    
    
    (93,826
    )
    
    
    (74,265
    )General and administrative expenses
    
    
    (13,755
    )
    
    
    (12,092
    )
    
    
    (28,044
    )
    
    
    (24,525
    )Other expense
    
    
    (7,390
    )
    
    
    (900
    )
    
    
    (28,472
    )
    
    
    (2,124
    )Earnings from operations
    
    $
    31,572
    
    
    $
    37,203
    
    
    $
    38,774
    
    
    $
    70,028
  Three months ended June 30,
    
    
    Six months ended June 30,2005
    
    
    2004
    
    
    Variance
    
    
    2005
    
    
    2004
    
    
    VarianceRental revenues:Garden communities
    
    $
    132,402
    
    
    $
    118,351
    
    
    $
    14,051
    
    
    $
    260,501
    
    
    $
    233,370
    
    
    $
    27,131High-rise properties
    
    
    86,947
    
    
    
    75,957
    
    
    
    10,990
    
    
    
    172,742
    
    
    
    148,738
    
    
    
    24,004Ameriton
    
    
    6,169
    
    
    
    3,735
    
    
    
    2,434
    
    
    
    11,622
    
    
    
    5,882
    
    
    
    5,740Non-multifamily
    
    
    857
    
    
    
    868
    
    
    
    (11
    )
    
    
    1,426
    
    
    
    1,536
    
    
    
    (110
    )Total revenues
    
    
    226,375
    
    
    
    198,911
    
    
    
    27,464
    
    
    
    446,291
    
    
    
    389,526
    
    
    
    56,765Operating expenses (rental expenses and
real estate taxes):Garden communities
    
    
    44,448
    
    
    
    40,054
    
    
    
    (4,394
    )
    
    
    89,191
    
    
    
    79,269
    
    
    
    (9,922
    )High-rise properties
    
    
    31,815
    
    
    
    26,710
    
    
    
    (5,105
    )
    
    
    65,193
    
    
    
    52,871
    
    
    
    (12,322
    )Ameriton
    
    
    3,008
    
    
    
    1,948
    
    
    
    (1,060
    )
    
    
    5,974
    
    
    
    3,155
    
    
    
    (2,819
    )Non-multifamily
    
    
    73
    
    
    
    70
    
    
    
    (3
    )
    
    
    183
    
    
    
    216
    
    
    
    33Total operating expenses
    
    
    79,344
    
    
    
    68,782
    
    
    
    (10,562
    )
    
    
    160,541
    
    
    
    135,511
    
    
    
    (25,030
    )Net operating income:Garden communities
    
    
    87,954
    
    
    
    78,297
    
    
    
    9,657
    
    
    
    171,310
    
    
    
    154,101
    
    
    
    17,209High-rise properties
    
    
    55,132
    
    
    
    49,247
    
    
    
    5,885
    
    
    
    107,549
    
    
    
    95,867
    
    
    
    11,682Ameriton
    
    
    3,161
    
    
    
    1,787
    
    
    
    1,374
    
    
    
    5,648
    
    
    
    2,727
    
    
    
    2,921Non-multifamily
    
    
    784
    
    
    
    798
    
    
    
    (14
    )
    
    
    1,243
    
    
    
    1,320
    
    
    
    (77
    )Total net operating income
    
    
    147,031
    
    
    
    130,129
    
    
    
    16,902
    
    
    
    285,750
    
    
    
    254,015
    
    
    
    31,735NOI classified as discontinued operations
    
    
    7,012
    
    
    
    26,131
    
    
    
    (19,119
    )
    
    
    15,387
    
    
    
    52,496
    
    
    
    (37,109
    )NOI including discontinued operations
    
    $
    154,043
    
    
    $
    156,260
    
    
    $
    (2,217
    )
    
    $
    301,137
    
    
    $
    306,511
    
    
    $
    (5,374
    )Margin (NOI/rental revenues):Garden communities
    
    
    66.4
    %
    
    
    66.2
    %
    
    
    0.2
    %
    
    
    65.8
    %
    
    
    66.0
    %
    
    
    (0.2
    %)High-rise properties
    
    
    63.4
    %
    
    
    64.8
    %
    
    
    (1.4
    %)
    
    
    62.3
    %
    
    
    64.5
    %
    
    
    (2.2
    %)Average occupancy during period (1):Garden communities
    
    
    95.4
    %
    
    
    94.8
    %
    
    
    0.6
    %
    
    
    94.8
    %
    
    
    95.1
    %
    
    
    (0.3
    %)High-rise properties
    
    
    94.5
    %
    
    
    95.1
    %
    
    
    (0.6
    %)
    
    
    94.4
    %
    
    
    95.1
    %
    
    
    (0.7
    %)
 
 (1)
    
    Does not include occupancy at Ameriton properties. 24




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##### Table of Contents



Same-Store
    
    
    Same-StoreRevenue
    
    
    Expense
    
    
    Same-StoreGrowth/(Decline)
    
    
    Growth/(Decline)
    
    
    NOI Growth/(Decline)Q2 2005 vs. Q2 2004Garden
    
    
    2.9
    %
    
    
    3.7
    %
    
    
    2.5
    %High-Rise
    
    
    2.8
    %
    
    
    4.8
    %
    
    
    1.7
    %Total
    
    
    2.9
    %
    
    
    4.2
    %
    
    
    2.2
    %YTD 2005 vs. YTD 2004Garden
    
    
    2.6
    %
    
    
    3.9
    %
    
    
    1.9
    %High-Rise
    
    
    3.1
    %
    
    
    8.4
    %
    
    
    0.1
    %Total
    
    
    2.8
    %
    
    
    5.7
    %
    
    
    1.2
    %
 Quarter-to-date NOI Analysis
      25




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##### Table of Contents



Year-to-date NOI Analysis
      Other Income
   Depreciation Expense
   26




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##### Table of Contents



Interest Expense
   General and Administrative Expenses
  Other Expenses
   Income from Unconsolidated Entities
   Other Non-Operating Income
   27




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##### Table of Contents



Preferred Unit Distributions
  Discontinued Operations
    Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Rental revenues
    
    $
    12,322
    
    
    $
    47,506
    
    
    $
    27,261
    
    
    $
    95,786Rental expenses
    
    
    (4,046
    )
    
    
    (15,454
    )
    
    
    (9,351
    )
    
    
    (31,256
    )Real estate taxes
    
    
    (1,264
    )
    
    
    (5,921
    )
    
    
    (2,523
    )
    
    
    (12,034
    )Depreciation on real estate investments
    
    
    (1,699
    )
    
    
    (7,119
    )
    
    
    (4,896
    )
    
    
    (16,330
    )Interest expense (1)
    
    
    (3,681
    )
    
    
    (13,057
    )
    
    
    (7,536
    )
    
    
    (26,688
    )Estimated income taxes (Ameriton properties)
    
    
    (1,453
    )
    
    
    (166
    )
    
    
    (6,120
    )
    
    
    (278
    )Debt extinguishment costs related to dispositions
    
    
    (331
    )
    
    
    (212
    )
    
    
    (5,389
    )
    
    
    (1,120
    )Gains on disposition of taxable REIT subsidiary real estate
investments, net
    
    
    6,937
    
    
    
    1,817
    
    
    
    20,703
    
    
    
    14,513Gains on dispositions of REIT real estate investments, net
    
    
    13,405
    
    
    
    29,169
    
    
    
    39,559
    
    
    
    78,969Earnings from discontinued apartment communities
    
    $
    20,190
    
    
    $
    36,563
    
    
    $
    51,708
    
    
    $
    101,562
 
 (1)
    
    The portion of interest expense included in discontinued operations that is allocated to
properties based on the companys leverage ratio was $3.3 million and $9.5 million for the
three months ended June 30, 2005 and 2004, and $6.0 million and $19.4 million for the six
months ended June 30, 2005 and 2004, respectively.  28




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##### Table of Contents



Liquidity and Capital Resources
  Operating Activities
  Investing and Financing Activities
    
    
    Issued $41.7 and $10.8 million of A-1 Common Units as partial consideration for
acquired properties during the six months ended June 30, 2005 and 2004, respectively;
    
    Issued $4.5 million of Common Units as partial consideration for real estate during
the first quarter of 2004;
    
    Redeemed $3.1 million and $34.1 million A-1 Common Units for A-2 Common Units during
the six months ended June 30, 2005 and 2004, respectively; and,
    
    Assumed mortgage debt of $74.9 million during the first quarter of 2004.
 Scheduled Debt Maturities and Interest Payment Requirements
   29




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##### Table of Contents



Unitholder Distribution Requirements
  Planned Investments
  Planned InvestmentsUnits
    
    
    Discretionary
    
    
    CommittedCommunities under redevelopment
    
    
    634
    
    
    $
    3,851
    
    
    $
    22,128Communities under construction
    
    
    4,651
    
    
    
    
    
    
    
    540,877Communities In Planning and owned
    
    
    3,646
    
    
    
    548,159
    
    
    
    Communities In Planning and Under Control
    
    
    253
    
    
    
    25,027
    
    
    
    Community acquisitions under contract
    
    
    874
    
    
    
    327,100
    
    
    
    Total
    
    
    10,058
    
    
    $
    904,137
    
    
    $
    563,005
    Funding Sources
 .
  30




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##### Table of Contents



Other Contingencies and Hedging Activities
     Critical Accounting Policies
  Internal Cost Capitalization
  Valuation of Real Estate
  31




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##### Table of Contents



Capital Expenditures and Depreciable Lives
   Pursuit Costs
  Off Balance Sheet Arrangements
  32




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##### Table of Contents



Contractual Commitments
  
    
    We issued $300 million and $200 million in long-term unsecured ten-year senior notes
with a coupon rate of 5.25% and an effective interest rate of 5.4% and 5.26% from its shelf
registration statement during May and July of 2005, respectively.
    
    We redeemed $200 million of long-term unsecured ten-year senior notes with a coupon rate
of 8.2% and an effective interest rate of 8.4% during July of 2005.
    
    We guaranteed $175.0 million of the outstanding mortgage debt during July, 2005 and are
committed to guarantee another $93.5 million upon funding of additional debt in connection
with one of our unconsolidated joint ventures.
    
    During the second quarter of 2005, we entered into a full and final settlement in the
United States District Court for the District of Maryland with three national disability
organizations and agreed to make capital improvements in a number of our communities in
order to make them fully compliant with the Fair Housing Act (FHA) and Americans with
Disabilities Act (ADA). The amount of the capital expenditures required to remediate the
communities named in the settlement is not quantifiable at the present time. These
expenditures will generally be capitalized as they are incurred. The settlement agreement
approved by the court allows us to remediate the designated communities over the next three
years.
    
    Please reference Planned Investmentsfor a summary of amounts committed for investing
activities.
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
  33




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Equal Rights Center, et al. v. Archstone-Smith Trust, et al.,
   
 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
  Total Numberof Units
    
    
    MaximumPurchased as
    
    
    Approximate DollarNumber of
    
    
    Average
    
    
    Part of Publicly
    
    
    Value That MayUnits
    
    
    Price Paid
    
    
    Announced
    
    
    Yet Be PurchasedPeriod
    
    Purchased
    
    
    per Unit
    
    
    Plan
    
    
    Under the Plan4/1/05  4/30/05
    
    
    35,242
    
    
    $
    35.87
    
    
    
    
    
    
    $
    5/1/05  5/31/05
    
    
    32,500
    
    
    
    36.82
    
    
    
    
    
    
    
    6/1/05  6/30/05
    
    
    39,391
    
    
    
    38.02
    
    
    
    
    
    
    
    Total
    
    
    107,133
    
    
    
    
    
    
    
    
 
 Item 6. Exhibits
 (a)
    
    Exhibits:
 12.1
    
    Computation of Ratio of Earnings to Fixed Charges12.2
    
    Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Unit Distributions15.1
    
    Independent Registered Public Accounting Firm Awareness Letter31.1
    
    Certification of Chief Executive Officer31.2
    
    Certification of Chief Financial Officer32.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
 34




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##### Table of Contents



SIGNATURES
  ARCHSTONE-SMITH OPERATING TRUSTBY:
    
    /s/ R. SCOT SELLERSR. Scot SellersChief Executive OfficerBY:
    
    /s/ CHARLES E. MUELLER, JR.Charles E. Mueller, Jr.Chief Financial Officer
(Principal Financial Officer)BY:
    
    /s/ MARK A. SCHUMACHERMark A. SchumacherSenior Vice-President and Chief Accounting Officer(Principal Accounting Officer)Date: August 5, 2005
 35




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Description12.1
    
    Computation of Ratio of Earnings to Fixed Charges12.2
    
    Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Unit Distributions15.1
    
    Independent Registered Public Accounting Firm Awareness Letter31.1
    
    Certification of Chief Executive Officer31.2
    
    Certification of Chief Financial Officer32.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 36