##### 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 
|  
|   |  | For the quarterly period ended
    September 30, 2002                                           
|  
|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 1-10272

Archstone-Smith Operating Trust

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Maryland                                                           |  | 74-6056896                              
|(State or other jurisdiction of
    incorporation or organization) |  | (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)


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 for the past
90 days.     Yes þ          No o

At November 4, 2002, there were
approximately 24,642,545 Class A-1 common units held by
non-affiliates of the Registrants Common Units outstanding.



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TABLE OF CONTENTS



|                                                                                               |                                                                                               |  |  |  |  |  |  | 
|---------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I -- FINANCIAL INFORMATION                                                               
|                                                                                               | Item 1. Financial Statements                                                                 
|CONDENSED CONSOLIDATED BALANCE SHEETS                                                         
|CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS                                                 
|CONDENSED CONSOLIDATED STATEMENT OF UNITHOLDERS EQUITY AND OTHER COMMON UNITHOLDERS INTEREST
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                               
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                          
|INDEPENDENT ACCOUNTANTS REVIEW REPORT                                                        
|                                                                                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                                                               | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                                                                               | Item 4. Controls and Procedures                                                              
|PART II -- OTHER INFORMATION                                                                  
|                                                                                               | Item 1. Legal Proceedings                                                                    
|                                                                                               | Item 2. Changes in Securities and Use of Proceeds                                            
|                                                                                               | Item 6. Exhibits and Reports on Form 8-K                                                     
|EXHIBIT INDEX                                                                                 
|EX-12.1 Computation of Ratio of Earnings                                                      
|EX-12.2 Computation of Ratio of Earnings                                                      
|EX-15.1 Letter from KPMG LLP                                                                  
|EX-99.1 Certification of Chief Executive Officer                                              
|EX-99.2 Certification of Chief Financial Officer                                              



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##### Table of Contents



TABLE OF CONTENTS

|        |    |             |  |                                                                                                                                                               |  |  |    | 
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|        |    |             |  | Page                                                                                                                                                         
|Item    |    | Description |  | Number                                                                                                                                                       
|        |    |             |  |                                                                                                                                                              
|PART I 
|        | 1. |             |  | Financial Statements                                                                                                                                          |  |  |    | 
|        |    |             |  | Condensed Consolidated Balance Sheets 
    September 30, 2002 (unaudited) and December 31, 2001                                                              |  |  | 2  | 
|        |    |             |  | Condensed Consolidated Statements of
    Earnings  Three and nine months ended
    September 30, 2002 and 2001 (unaudited)                                   |  |  | 3  | 
|        |    |             |  | Condensed Consolidated Statement of
    Unitholders Equity and Other Common Unitholders
    Interest  Nine months ended September 30, 2002
    (unaudited) |  |  | 4  | 
|        |    |             |  | Condensed Consolidated Statements of Cash
    Flows  Nine months ended September 30, 2002 and
    2001 (unaudited)                                           |  |  | 5  | 
|        |    |             |  | Notes to Condensed Consolidated Financial
    Statements (unaudited)                                                                                          |  |  | 6  | 
|        |    |             |  | Independent Accountants Review Report                                                                                                                        |  |  | 16 | 
|        | 2. |             |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                                                     |  |  | 17 | 
|        | 3. |             |  | Quantitative and Qualitative Disclosures About
    Market Risk                                                                                                |  |  | 25 | 
|        | 4. |             |  | Controls and Procedures                                                                                                                                       |  |  | 25 | 
|PART II
|        | 1. |             |  | Legal Proceedings                                                                                                                                             |  |  | 25 | 
|        | 2. |             |  | Changes in Securities & Use of Proceeds                                                                                                                       |  |  | 25 | 
|        | 6. |             |  | Exhibits and Reports on Form 8-K                                                                                                                              |  |  | 26 | 

1



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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)


|                                                                                                                              |                                                              |               |                              |              |           |           |           |           |           |           | 
|----------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ------------- | ---------------------------- | ------------ | --------- | --------- | --------- | --------- | --------- | --------- | 
|                                                                                                                              |                                                              | September 30, |                              | December 31,
|                                                                                                                              |                                                              | 2002          |                              | 2001        
|                                                                                                                              |                                                              |               |                              |             
|                                                                                                                              |                                                              | (Unaudited)   |                              |             
|ASSETS                                                                                                                       
|Real estate                                                                                                                   |                                                              | $             | 8,792,411                    |              |           | $         | 8,276,004 |          
|Less accumulated depreciation                                                                                                 |                                                              |               | 537,059                      |              |           |           | 406,784   |          
|                                                                                                                              |                                                              |               |                              |              |           |           |           |          
|                                                                                                                              |                                                              |               | 8,255,352                    |              |           |           | 7,869,220 |          
|Investments in and advances to unconsolidated
    entities                                                                    |                                                              |               | 517,779                      |              |           |           | 437,365   |          
|                                                                                                                              |                                                              |               |                              |              |           |           |           |          
|                                                                                                                              |                                                              |               | Net investments              |              |           | 8,773,131 |           |           |           | 8,306,585 | 
|Cash and cash equivalents                                                                                                     |                                                              |               | 19,480                       |              |           |           | 7,027     |          
|Restricted cash in tax-deferred exchange escrow                                                                               |                                                              |               | 41,221                       |              |           |           | 120,421   |          
|Other assets                                                                                                                  |                                                              |               | 154,301                      |              |           |           | 115,882   |          
|                                                                                                                              |                                                              |               |                              |              |           |           |           |          
|                                                                                                                              |                                                              | Total assets  |                              | $            | 8,988,133 |           |           | $         | 8,549,915 |          
|                                                                                                                              |                                                              |               |                              |              |           |           |           |          
|LIABILITIES AND EQUITY                                                                                                       
|Liabilities:                                                                                                                  |                                                              |               |                              |              |           |           |           |          
|                                                                                                                              | Unsecured credit facilities                                  |               | $                            | 309,350      |           |           | $         | 188,589   |          
|                                                                                                                              | Long-term unsecured debt                                     |               |                              | 1,811,719    |           |           |           | 1,333,890 |          
|                                                                                                                              | Mortgages payable                                            |               |                              | 2,166,432    |           |           |           | 2,330,533 |          
|                                                                                                                              | Distributions payable                                        |               |                              | 3,793        |           |           |           | 89,326    |          
|                                                                                                                              | Accounts payable, accrued expenses and other
    liabilities |               |                              | 268,734      |           |           |           | 212,030   |          
|                                                                                                                              |                                                              |               |                              |              |           |           |           |          
|                                                                                                                              |                                                              |               | Total liabilities            |              |           | 4,560,028 |           |           |           | 4,154,368 | 
|                                                                                                                              |                                                              |               |                              |              |           |           |           |          
|Minority interest                                                                                                             |                                                              |               | 2,600                        |              |           |           | 94,527    |          
|                                                                                                                              |                                                              |               |                              |              |           |           |           |          
|Other common unitholders interest, at
    redemption value (A-1 Common Units: 24,708,599 in 2002 and
    25,456,336 in 2001) |                                                              |               | 590,041                      |              |           |           | 669,502   |          
|                                                                                                                              |                                                              |               |                              |              |           |           |           |          
|Unitholders equity:                                                                                                          |                                                              |               |                              |              |           |           |           |          
|                                                                                                                              | Convertible Preferred Units                                  |               |                              | 194,891      |           |           |           | 225,351   |          
|                                                                                                                              | Perpetual Preferred Units                                    |               |                              | 160,643      |           |           |           | 148,763   |          
|                                                                                                                              | Common unitholders equity (A-2 Common units:                |               |                              |              |           |           |           |           |          
|                                                                                                                              | 180,707,734 units in 2002 and
    174,516,970 units in 2001) |               |                              | 3,496,530    |           |           |           | 3,267,363 |          
|                                                                                                                              | Accumulated other comprehensive loss                         |               |                              | (12,977      | )         |           |           | (5,517    | )        
|                                                                                                                              | Employee share purchase notes                                |               |                              | (3,623       | )         |           |           | (4,442    | )        
|                                                                                                                              |                                                              |               |                              |              |           |           |           |          
|                                                                                                                              |                                                              |               | Total unitholders equity    |              |           | 3,835,464 |           |           |           | 3,631,518 | 
|                                                                                                                              |                                                              |               |                              |              |           |           |           |          
|                                                                                                                              |                                                              |               | Total liabilities and equity |              | $         | 8,988,133 |           |           | $         | 8,549,915 | 
|                                                                                                                              |                                                              |               |                              |              |           |           |           |          

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

2



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST




CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS

|                                                                        |                                                                         |                                         |         |                   |  |      |         |         |  |   |         |         |   |   |         |         | 
|----------------------------------------------------------------------- | ----------------------------------------------------------------------- | --------------------------------------- | ------- | ----------------- |  | ---- | ------- | ------- |  | - | ------- | ------- | - | - | ------- | ------- | 
|                                                                        |                                                                         |                                         |         |                  
|                                                                        |                                                                         | Three Months Ended                      |         | Nine Months Ended
|                                                                        |                                                                         | September 30,                           |         | September 30,    
|                                                                        |                                                                         |                                         |         |                  
|                                                                        |                                                                         | 2002                                    |         | 2001              |  | 2002 |         | 2001   
|                                                                        |                                                                         |                                         |         |                   |  |      |         |        
|                                                                        |                                                                         |                                        
|                                                                        |                                                                         | (In thousands, except per unit amounts)
|                                                                        |                                                                         | (Unaudited)                            
|Revenues:                                                               |                                                                         |                                         |         |                   |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                        | Rental revenue                                                          |                                         | $       | 256,553           |  |      | $       | 146,603 |  |   | $       | 758,032 |   |   | $       | 461,928 | 
|                                                                        | Income from unconsolidated entities                                     |                                         |         | 16,295            |  |      |         | 6,992   |  |   |         | 28,885  |   |   |         | 8,740   | 
|                                                                        | Other income                                                            |                                         |         | 2,104             |  |      |         | 3,965   |  |   |         | 5,112   |   |   |         | 10,710  | 
|                                                                        |                                                                         |                                         |         |                   |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                        |                                                                         |                                         | 274,952 |                   |  |      | 157,560 |         |  |   | 792,029 |         |   |   | 481,378 |        
|                                                                        |                                                                         |                                         |         |                   |  |      |         |         |  |   |         |         |   |   |         |        
|Expenses:                                                               |                                                                         |                                         |         |                   |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                        | Rental expenses                                                         |                                         |         | 71,722            |  |      |         | 37,341  |  |   |         | 200,672 |   |   |         | 109,343 | 
|                                                                        | Real estate taxes                                                       |                                         |         | 22,216            |  |      |         | 11,631  |  |   |         | 69,288  |   |   |         | 39,330  | 
|                                                                        | Depreciation on real estate investments                                 |                                         |         | 49,717            |  |      |         | 28,190  |  |   |         | 144,282 |   |   |         | 87,606  | 
|                                                                        | Interest expense                                                        |                                         |         | 50,432            |  |      |         | 30,577  |  |   |         | 145,814 |   |   |         | 94,995  | 
|                                                                        | General and administrative expenses                                     |                                         |         | 10,972            |  |      |         | 6,689   |  |   |         | 31,257  |   |   |         | 18,495  | 
|                                                                        | Provision for possible loss on investments                              |                                         |         |                  |  |      |         | 2,410   |  |   |         |        |   |   |         | 12,319  | 
|                                                                        | Other expenses                                                          |                                         |         | 5,845             |  |      |         | 2,525   |  |   |         | 8,361   |   |   |         | 3,557   | 
|                                                                        |                                                                         |                                         |         |                   |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                        |                                                                         |                                         | 210,904 |                   |  |      | 119,363 |         |  |   | 599,674 |         |   |   | 365,645 |        
|                                                                        |                                                                         |                                         |         |                   |  |      |         |         |  |   |         |         |   |   |         |        
|Earnings from operations                                                |                                                                         |                                         | 64,048  |                   |  |      | 38,197  |         |  |   | 192,355 |         |   |   | 115,733 |        
|                                                                        | Less: Minority interest                                                 |                                         |         | 1,292             |  |      |         | 1,957   |  |   |         | 5,166   |   |   |         | 5,869   | 
|                                                                        | Plus: Gain on dispositions of real estate
    investments, net          |                                         |         | 3,500             |  |      |         | 9,767   |  |   |         | 28,044  |   |   |         | 80,288  | 
|                                                                        |                                                                         |                                         |         |                   |  |      |         |         |  |   |         |         |   |   |         |        
|Net earnings before discontinued operations and
    extraordinary items |                                                                         |                                         | 66,256  |                   |  |      | 46,007  |         |  |   | 215,233 |         |   |   | 190,152 |        
|                                                                        | Plus: Earnings from discontinued operations, net                        |                                         |         | 5,719             |  |      |         | 1,361   |  |   |         | 28,193  |   |   |         | 4,247   | 
|                                                                        | Less: Extraordinary items  loss on
    early extinguishments of debt   |                                         |         | 745               |  |      |         |        |  |   |         | 11,118  |   |   |         |        | 
|                                                                        |                                                                         |                                         |         |                   |  |      |         |         |  |   |         |         |   |   |         |        
|Net earnings                                                            |                                                                         |                                         | 71,230  |                   |  |      | 47,368  |         |  |   | 232,308 |         |   |   | 194,399 |        
|                                                                        | Less: Preferred Unit distributions                                      |                                         |         | 8,225             |  |      |         | 3,913   |  |   |         | 25,665  |   |   |         | 15,124  | 
|                                                                        |                                                                         |                                         |         |                   |  |      |         |         |  |   |         |         |   |   |         |        
|Net earnings attributable to Common
    Units  Basic                   |                                                                         | $                                       | 63,005  |                   |  | $    | 43,455  |         |  | $ | 206,643 |         |   | $ | 179,275 |        
|                                                                        |                                                                         |                                         |         |                   |  |      |         |         |  |   |         |         |   |   |         |        
|Weighted average Common Units
    outstanding  Basic                   |                                                                         |                                         | 204,057 |                   |  |      | 121,446 |         |  |   | 201,930 |         |   |   | 121,527 |        
|                                                                        |                                                                         |                                         |         |                   |  |      |         |         |  |   |         |         |   |   |         |        
|Weighted average Common Units
    outstanding  Diluted                 |                                                                         |                                         | 205,025 |                   |  |      | 122,032 |         |  |   | 203,162 |         |   |   | 127,279 |        
|                                                                        |                                                                         |                                         |         |                   |  |      |         |         |  |   |         |         |   |   |         |        
|Net earnings per Common Unit  Basic:                                   |                                                                         |                                         |         |                   |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                        | Net earnings before discontinued operations and
    extraordinary items |                                         | $       | .28               |  |      | $       | .35     |  |   | $       | .94     |   |   | $       | 1.44    | 
|                                                                        | Discontinued operations, net                                            |                                         | $       | .03               |  |      | $       | .01     |  |   | $       | .14     |   |   | $       | .04     | 
|                                                                        | Extraordinary items                                                     |                                         | $       |                  |  |      | $       |        |  |   | $       | (.06    | ) |   | $       |        | 
|                                                                        |                                                                         |                                         |         |                   |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                        | Net earnings                                                            |                                         | $       | .31               |  |      | $       | .36     |  |   | $       | 1.02    |   |   | $       | 1.48    | 
|                                                                        |                                                                         |                                         |         |                   |  |      |         |         |  |   |         |         |   |   |         |        
|Net earnings per Common Unit  Diluted:                                 |                                                                         |                                         |         |                   |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                        | Net earnings before discontinued operations and
    extraordinary items |                                         | $       | .28               |  |      | $       | .35     |  |   | $       | .93     |   |   | $       | 1.43    | 
|                                                                        | Discontinued operations, net                                            |                                         | $       | .03               |  |      | $       | .01     |  |   | $       | .14     |   |   | $       | .03     | 
|                                                                        | Extraordinary items                                                     |                                         | $       |                  |  |      | $       |        |  |   | $       | (.05    | ) |   | $       |        | 
|                                                                        |                                                                         |                                         |         |                   |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                        | Net earnings                                                            |                                         | $       | .31               |  |      | $       | .36     |  |   | $       | 1.02    |   |   | $       | 1.46    | 
|                                                                        |                                                                         |                                         |         |                   |  |      |         |         |  |   |         |         |   |   |         |        
|Distributions paid per Common Unit                                      |                                                                         | $                                       | 0.425   |                   |  | $    | 0.410   |         |  | $ | 1.275   |         |   | $ | 1.230   |        
|                                                                        |                                                                         |                                         |         |                   |  |      |         |         |  |   |         |         |   |   |         |        

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

3



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST






CONDENSED CONSOLIDATED STATEMENT OF
UNITHOLDERS EQUITY


AND OTHER COMMON UNITHOLDERS
INTEREST


Nine Months Ended September 30,
2002


|                               |                                                              |                |         |             |   |              |         |               |  |          |           |              |   |              |         |        |   |   |        |     |  |   |           |          |   |   |         |         |   |   |           |          |  
|------------------------------ | ------------------------------------------------------------ | -------------- | ------- | ----------- | - | ------------ | ------- | ------------- |  | -------- | --------- | ------------ | - | ------------ | ------- | ------ | - | - | ------ | --- |  | - | --------- | -------- | - | - | ------- | ------- | - | - | --------- | -------- | -
|                               |                                                              | Convertible    |         | Perpetual   |   |              |         |               |  |          |           |              |   |              |         |       
|                               |                                                              | Preferred      |         | Preferred   |   |              |         |               |  |          |           |              |   |              |         |       
|                               |                                                              | Units at       |         | Units at    |   |              |         | Accumulated   |  | Employee |           |              |   | Other        |         |       
|                               |                                                              | Aggregate      |         | Aggregate   |   | Common       |         | Other         |  | Share    |           | Total        |   | Common       |         |       
|                               |                                                              | Liquidation    |         | Liquidation |   | Unitholders |         | Comprehensive |  | Purchase |           | Unitholders |   | Unitholders |         |       
|                               |                                                              | Preference     |         | Preference  |   | Equity       |         | Loss          |  | Notes    |           | Equity       |   | Interest     |         | Total 
|                               |                                                              |                |         |             |   |              |         |               |  |          |           |              |   |              |         |       
|                               |                                                              |               
|                               |                                                              | (In thousands)
|                               |                                                              |               
|                               |                                                              | (Unaudited)   
|Balances at December 31, 2001  |                                                              | $              | 225,351 |             |   | $            | 148,763 |               |  | $        | 3,267,363 |              |   | $            | (5,517  | )      |   | $ | (4,442 | )   |  | $ | 3,631,518 |          |   | $ | 669,502 |         |   | $ | 4,301,020 |         
|                               | Comprehensive earnings:                                      |                |         |             |   |              |         |               |  |          |           |              |   |              |         |        |   |   |        |     |  |   |           |          |   |   |         |         |   |   |           |          |  
|                               | Net earnings                                                 |                |         |            |   |              |         |              |  |          |           | 206,047      |   |              |         |       |   |   |        |    |  |   |           | 206,047  |   |   |         | 26,261  |   |   |           | 232,308  |  
|                               | Preferred Unit distribution                                  |                |         |            |   |              |         |              |  |          |           | (25,665      | ) |              |         |       |   |   |        |    |  |   |           | (25,665  | ) |   |         |        |   |   |           | (25,665  | )
|                               | Change in fair value of cash flow hedges                     |                |         |            |   |              |         |              |  |          |           |             |   |              |         | (7,247 | ) |   |        |    |  |   |           | (7,247   | ) |   |         |         |   |   |           | (7,247   | )
|                               | Unrealized holding loss on available-for-sale
    securities |                |         |            |   |              |         |              |  |          |           |             |   |              |         | (213   | ) |   |        |    |  |   |           | (213     | ) |   |         |         |   |   |           | (213     | )
|                               |                                                              |                |         |             |   |              |         |               |  |          |           |              |   |              |         |        |   |   |        |     |  |   |           |          |   |   |         |         |   |   |           |         
|                               | Comprehensive earnings attributable to Common
    Units      |                |         |             |   |              |         |               |  |          |           |              |   |              |         |        |   |   |        |     |  |   |           |          |   |   |         |         |   |   |           | 199,183  |  
|                               |                                                              |                |         |             |   |              |         |               |  |          |           |              |   |              |         |        |   |   |        |     |  |   |           |          |   |   |         |         |   |   |           |         
|                               | Common Unit distributions                                    |                |         |            |   |              |         |              |  |          |           | (151,767     | ) |              |         |       |   |   |        |    |  |   |           | (151,767 | ) |   |         | (20,783 | ) |   |           | (172,550 | )
|                               | Proceeds from Dividend Reinvestment Plan (DRIP)              |                |         |            |   |              |         |              |  |          |           | 31,236       |   |              |         |       |   |   |        |    |  |   |           | 31,236   |   |   |         |        |   |   |           | 31,236   |  
|                               | Other, net                                                   |                |         | (30,460     | ) |              |         | 11,880        |  |          |           | 169,316      |   |              |         |       |   |   |        | 819 |  |   |           | 151,555  |   |   |         | (84,939 | ) |   |           | 66,616   |  
|                               |                                                              |                |         |             |   |              |         |               |  |          |           |              |   |              |         |        |   |   |        |     |  |   |           |          |   |   |         |         |   |   |           |         
|Balances at September 30, 2002 |                                                              | $              | 194,891 |             |   | $            | 160,643 |               |  | $        | 3,496,530 |              |   | $            | (12,977 | )      |   | $ | (3,623 | )   |  | $ | 3,835,464 |          |   | $ | 590,041 |         |   | $ | 4,425,505 |         
|                               |                                                              |                |         |             |   |              |         |               |  |          |           |              |   |              |         |        |   |   |        |     |  |   |           |          |   |   |         |         |   |   |           |         

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

4



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST






CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                             |                                                                                                                                                         |                                                                 |        |          |          |   |        |          |          |  
|------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ------ | -------- | -------- | - | ------ | -------- | -------- | -
|                                                             |                                                                                                                                                         |                                                                
|                                                             |                                                                                                                                                         | Nine Months Ended                                              
|                                                             |                                                                                                                                                         | September 30,                                                  
|                                                             |                                                                                                                                                         |                                                                
|                                                             |                                                                                                                                                         | 2002                                                            |        | 2001    
|                                                             |                                                                                                                                                         |                                                                 |        |         
|                                                             |                                                                                                                                                         |                                                                
|                                                             |                                                                                                                                                         | (In thousands)                                                 
|                                                             |                                                                                                                                                         |                                                                
|                                                             |                                                                                                                                                         | (Unaudited)                                                    
|Operating activities:                                        |                                                                                                                                                         |                                                                 |        |          |          |   |        |         
|                                                             | Net earnings before discontinued operations and
    extraordinary items                                                                                 |                                                                 | $      | 215,233  |          |   | $      | 190,152  |         
|                                                             | Adjustments to reconcile net earnings before
    discontinued operations and extraordinary items to net cash flow
    provided by operating activities: |                                                                 |        |          |          |   |        |          |         
|                                                             |                                                                                                                                                         | Depreciation and amortization                                   |        |          | 152,669  |   |        |          | 96,416   |  
|                                                             |                                                                                                                                                         | Earnings from discontinued operations, net                      |        |          | 28,193   |   |        |          | 4,247    |  
|                                                             |                                                                                                                                                         | Extraordinary items  loss on early
    extinguishments of debt |        |          | (11,118  | ) |        |          |         |  
|                                                             |                                                                                                                                                         | Gains on dispositions of real estate investments,
    net       |        |          | (48,384  | ) |        |          | (80,288  | )
|                                                             |                                                                                                                                                         | Provision for possible loss on investments                      |        |          |         |   |        |          | 12,319   |  
|                                                             |                                                                                                                                                         | Minority interest                                               |        |          | 5,166    |   |        |          | 5,869    |  
|                                                             | Change in other assets                                                                                                                                  |                                                                 |        | (29,671  | )        |   |        | 3,224    |         
|                                                             | Change in accounts payable, accrued expenses and
    other liabilities                                                                                  |                                                                 |        | 37,857   |          |   |        | (3,674   | )       
|                                                             | Other, net                                                                                                                                              |                                                                 |        | (11,088  | )        |   |        | (13,389  | )       
|                                                             |                                                                                                                                                         |                                                                 |        |          |          |   |        |         
|                                                             |                                                                                                                                                         | Net cash flow provided by operating activities                  |        |          | 338,857  |   |        |          | 214,876  |  
|                                                             |                                                                                                                                                         |                                                                 |        |          |          |   |        |         
|Investing activities:                                        |                                                                                                                                                         |                                                                 |        |          |          |   |        |         
|                                                             | Real estate investments                                                                                                                                 |                                                                 |        | (414,039 | )        |   |        | (344,795 | )       
|                                                             | Change in investments in and advances to
    unconsolidated entities, net                                                                               |                                                                 |        | (79,592  | )        |   |        | 26,109   |         
|                                                             | Proceeds from dispositions, net of closing costs                                                                                                        |                                                                 |        | 168,033  |          |   |        | 900,684  |         
|                                                             | Advances on notes receivable, net                                                                                                                       |                                                                 |        |         |          |   |        | (103,400 | )       
|                                                             | Change in tax-deferred exchange escrow                                                                                                                  |                                                                 |        | 79,200   |          |   |        | (121,927 | )       
|                                                             | Other, net                                                                                                                                              |                                                                 |        | (15,768  | )        |   |        | (8,044   | )       
|                                                             |                                                                                                                                                         |                                                                 |        |          |          |   |        |         
|                                                             |                                                                                                                                                         | Net cash flow provided by (used in) investing
    activities    |        |          | (262,166 | ) |        |          | 348,627  |  
|                                                             |                                                                                                                                                         |                                                                 |        |          |          |   |        |         
|Financing activities:                                        |                                                                                                                                                         |                                                                 |        |          |          |   |        |         
|                                                             | Proceeds from long term unsecured debt, net of
    issuance costs                                                                                       |                                                                 |        | 495,879  |          |   |        |         |         
|                                                             | Payments on long term unsecured debt                                                                                                                    |                                                                 |        | (27,500  | )        |   |        | (12,500  | )       
|                                                             | Principal prepayment of mortgages payable                                                                                                               |                                                                 |        | (353,410 | )        |   |        | (28,808  | )       
|                                                             | Regularly scheduled principal payments on
    mortgages payable                                                                                         |                                                                 |        | (7,865   | )        |   |        | (3,399   | )       
|                                                             | Proceeds from (payments on) unsecured credit
    facilities, net                                                                                        |                                                                 |        | 120,761  |          |   |        | (193,719 | )       
|                                                             | Proceeds from Common Units issued under DRIP and
    employee stock options                                                                             |                                                                 |        | 54,933   |          |   |        | 22,077   |         
|                                                             | Repurchase of Common Units and Preferred Units                                                                                                          |                                                                 |        | (49,300  | )        |   |        | (50,587  | )       
|                                                             | Redemption of Perpetual Preferred Units                                                                                                                 |                                                                 |        | (12,000  | )        |   |        | (104,670 | )       
|                                                             | Cash distributions paid on Common Units                                                                                                                 |                                                                 |        | (256,966 | )        |   |        | (149,535 | )       
|                                                             | Cash distributions paid on Preferred Units                                                                                                              |                                                                 |        | (26,011  | )        |   |        | (15,126  | )       
|                                                             | Cash distributions paid to minority interests                                                                                                           |                                                                 |        | (5,166   | )        |   |        | (5,869   | )       
|                                                             | Other, net                                                                                                                                              |                                                                 |        | 2,407    |          |   |        | 3,464    |         
|                                                             |                                                                                                                                                         |                                                                 |        |          |          |   |        |         
|                                                             |                                                                                                                                                         | Net cash flow used in financing activities                      |        |          | (64,238  | ) |        |          | (538,672 | )
|                                                             |                                                                                                                                                         |                                                                 |        |          |          |   |        |         
|Net change in cash and cash equivalents                      |                                                                                                                                                         |                                                                 | 12,453 |          |          |   | 24,831 |         
|Cash and cash equivalents at beginning of period             |                                                                                                                                                         |                                                                 | 7,027  |          |          |   | 9,077  |         
|                                                             |                                                                                                                                                         |                                                                 |        |          |          |   |        |         
|Cash and cash equivalents at end of period                   |                                                                                                                                                         | $                                                               | 19,480 |          |          | $ | 33,908 |         
|                                                             |                                                                                                                                                         |                                                                 |        |          |          |   |        |         
|Significant non-cash investing and financing
    activities: |                                                                                                                                                         |                                                                 |        |          |          |   |        |         
|                                                             | Assumption of mortgages payable upon purchase of
    apartment communities                                                                              |                                                                 | $      | 205,542  |          |   | $      | 70,589   |         
|                                                             | Apartment communities exchanged for ownership
    interest in a joint venture                                                                           |                                                                 |        |         |          |   |        | 113,623  |         
|                                                             | A-1 Common Units redeemed for Common Shares                                                                                                             |                                                                 |        | 41,748   |          |   |        |         |         
|                                                             | Conversion of Series A Preferred Units into
    Common Units                                                                                            |                                                                 |        | 5,460    |          |   |        | 3,295    |         
|                                                             | Conversion of Series J Preferred Units into
    Common Units                                                                                            |                                                                 |        | 25,000   |          |   |        |         |         
|                                                             | Transfer of mortgage payable to a joint venture
    upon disposition of apartment communities                                                           |                                                                 |        |         |          |   |        | 17,321   |         
|                                                             | Accrual for estimated water infiltration and mold
    remediation at one property                                                                       |                                                                 |        | 17,283   |          |   |        |         |         
|                                                             | B Common Units issued for real estate                                                                                                                   |                                                                 |        | 8,730    |          |   |        |         |         

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

5



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST






NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS


September 30, 2002 and 2001


(Unaudited)


(1) Description of the Business and
Summary of Significant Accounting Policies



| |             
| | ------------
| | Smith Merger

In October 2001, Archstone Communities Trust
(Archstone) converted into an UPREIT structure,
changed its name to Archstone-Smith Operating Trust (the
Operating Trust) and became a wholly owned
subsidiary of Archstone-Smith Trust
(Archstone-Smith). Through a series of transactions,
Archstone-Smith and Archstone merged with Charles E. Smith
Residential Realty, Inc. and Charles E. Smith Residential
Realty, L.P., respectively. Archstone-Smith is the successor
registrant to Archstone. The Smith Merger was structured as a
tax-free merger and was accounted for using the purchase method
of accounting. While the allocation of purchase price is subject
to revision in accordance with GAAP during the twelve month
period following the closing of the Smith Merger, management
does not anticipate that the revisions to the initial purchase
price allocation will be material and will finalize any such
revisions during the fourth quarter of 2002. See Note 1 in
our 2001 Annual Report on Form 10-K (2001
Form 10-K) for a more complete description of the
reorganization and the Smith Merger.



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

We are structured as an UPREIT under which
substantially all property ownership and business operations are
conducted through the Operating Trust. Archstone-Smith is our
sole trustee and owns approximately 88.0% of the Operating
Trust. As used herein, we, our and the
company refers to the Operating Trust and
Archstone-Smith, collectively, except where the context
otherwise requires.



| |                            
| | ---------------------------
| | Interim Financial Reporting

The accompanying condensed consolidated financial
statements of the Operating Trust are unaudited and certain
information and footnote disclosures normally included in
financial statements have been omitted. While our management
believes the disclosures presented are adequate for interim
reporting, these interim financial statements should be read in
conjunction with the consolidated financial statements and notes
included in our 2001 Form 10-K. See the glossary in our
2001 Form 10-K for all defined terms not defined herein.

In the opinion of management, the accompanying
unaudited financial statements contain all adjustments necessary
for a fair presentation of the Operating Trusts financial
statements for the interim periods presented. The results of
operations for the nine months ended September 30, 2002 and
2001 are not necessarily indicative of the results to be
expected for the entire year.



| |                 
| | ----------------
| | 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 those 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

In October 2001, the FASB issued SFAS 144,
Accounting for Impairment or Disposal of Long-Lived
Assets which became effective on January 1, 2002. For
properties accounted for under SFAS 144, 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

6



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

components of net earnings that are classified as
discontinued operations include net operating income,
depreciation expense 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 to
unconsolidated entities are not included in discontinued
operations. Properties sold by unconsolidated entities are not
included in discontinued operations and related gains or losses
are reported as a component of income from unconsolidated
entities.



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

We generally lease our apartment units under
operating leases with terms of one year or less. Rental revenue
is recognized evenly over the lease term. Rent concessions are
recognized as an offset to revenues collected over the term of
the underlying lease.

Gains on sales of real estate are recorded when
the recognition criteria set forth by GAAP have been met.



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

Moisture infiltration and mold remediation costs
are recorded when claims have been asserted, assessments and
remedial efforts are probable and the cost related to such
remediation efforts can be reasonably estimated. These
remediation costs are capitalized only to the extent they meet
the criteria set forth in GAAP.



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

In April 2002, the FASB issued SFAS 145
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. We are required to adopt SFAS 145 on
January 1, 2003. SFAS 145 significantly limits the
treatment of losses associated with early extinguishment of debt
as an extraordinary item. SFAS 145 also impacts certain
sale-leaseback transactions. Upon adoption, we do not believe
early extinguishments will continue to qualify for extraordinary
item treatment and do not anticipate that the adoption of
SFAS 145 will have a material impact on our financial
position, net earnings or cash flows.

In July 2002, the FASB issued SFAS 146
Accounting for Costs Associated with Exit or Disposal
Activities. We are required to adopt SFAS 146 on
January 1, 2003. SFAS 146 requires that expenses
associated with restructuring charges be accrued as liabilities
in the period in which the liability is incurred. We do not
anticipate the adoption of SFAS 146 will have a material
impact on our financial position, net earnings or cash flows.

7



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



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

Certain 2001 amounts have been reclassified to
conform to the 2002 presentation.



| |              
| | -------------
| | Per Unit Data

Following is a reconciliation of basic earnings
attributable to Common Units to diluted earnings attributable to
Common Units for the periods indicated (in thousands):

|                                                                                             |                                                                         |                    |         |                   |  |      |         |      |  |   |         |       |  |   |         |       | 
|-------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ------------------ | ------- | ----------------- |  | ---- | ------- | ---- |  | - | ------- | ----- |  | - | ------- | ----- | 
|                                                                                             |                                                                         |                    |         |                  
|                                                                                             |                                                                         | Three Months Ended |         | Nine Months Ended
|                                                                                             |                                                                         | September 30,      |         | September 30,    
|                                                                                             |                                                                         |                    |         |                  
|                                                                                             |                                                                         | 2002               |         | 2001              |  | 2002 |         | 2001
|                                                                                             |                                                                         |                    |         |                   |  |      |         |     
|Reconciliation of numerator between basic and
    diluted net earnings per Common Unit(1):   |                                                                         |                    |         |                   |  |      |         |      |  |   |         |       |  |   |         |      
|Net earnings attributable to Common
    Units  Basic                                        |                                                                         | $                  | 63,005  |                   |  | $    | 43,455  |      |  | $ | 206,643 |       |  | $ | 179,275 |      
|                                                                                             | Distributions on Convertible Preferred Units                            |                    |         |                  |  |      |         |     |  |   |         |      |  |   |         | 5,316 | 
|                                                                                             | Minority interest  convertible
    operating partnership units         |                    |         |                  |  |      |         |     |  |   |         |      |  |   |         | 1,167 | 
|                                                                                             |                                                                         |                    |         |                   |  |      |         |      |  |   |         |       |  |   |         |      
|Net earnings attributable to Common
    Units  Diluted                                      |                                                                         | $                  | 63,005  |                   |  | $    | 43,455  |      |  | $ | 206,643 |       |  | $ | 185,758 |      
|                                                                                             |                                                                         |                    |         |                   |  |      |         |      |  |   |         |       |  |   |         |      
|Reconciliation of denominator between basic and
    diluted net earnings per Common Unit(1): |                                                                         |                    |         |                   |  |      |         |      |  |   |         |       |  |   |         |      
|Weighted average number of Common Units
    outstanding  Basic                              |                                                                         |                    | 204,057 |                   |  |      | 121,446 |      |  |   | 201,930 |       |  |   | 121,527 |      
|                                                                                             | Assumed conversion of Convertible Preferred Units
    into Common Units |                    |         |                  |  |      |         |     |  |   |         |      |  |   |         | 4,336 | 
|                                                                                             | Assumed conversion of convertible operating
    partnership units       |                    |         |                  |  |      |         |     |  |   |         |      |  |   |         | 949   | 
|                                                                                             | Assumed exercise of options                                             |                    |         | 968               |  |      |         | 586  |  |   |         | 1,232 |  |   |         | 467   | 
|                                                                                             |                                                                         |                    |         |                   |  |      |         |      |  |   |         |       |  |   |         |      
|Weighted average number of Common Units
    outstanding  Diluted                            |                                                                         |                    | 205,025 |                   |  |      | 122,032 |      |  |   | 203,162 |       |  |   | 127,279 |      
|                                                                                             |                                                                         |                    |         |                   |  |      |         |      |  |   |         |       |  |   |         |      



---



|    |                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------
|(1) | Excludes the impact of potentially dilutive
    equity securities during periods in which they are anti-dilutive.

(2) Real Estate



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

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

|                        |                                      |                    |                                           |                             |         |            |           |          |       |       |        |           |        |        |           |        |       |       |        | 
|----------------------- | ------------------------------------ | ------------------ | ----------------------------------------- | --------------------------- | ------- | ---------- | --------- | -------- | ----- | ----- | ------ | --------- | ------ | ------ | --------- | ------ | ----- | ----- | ------ | 
|                        |                                      |                    |                                           |                            
|                        |                                      | September 30, 2002 |                                           | December 31, 2001          
|                        |                                      |                    |                                           |                            
|                        |                                      | Investment         |                                           | Units(1)                    |         | Investment |           | Units(1)
|                        |                                      |                    |                                           |                             |         |            |           |         
|                        |                                      |                    |                                           |                             |         |           
|                        |                                      | (Unaudited)        |                                           |                             |         |           
|Apartment communities:  |                                      |                    |                                           |                             |         |            |           |          |       |       |        |           |        |        |           |       
|                        | Operating communities                |                    | $                                         | 8,345,172                   |         |            |           | 77,372   |       |       | $      | 7,809,444 |        |        |           | 77,170 |      
|                        | Communities under construction       |                    |                                           | 293,370                     |         |            |           | 2,117    |       |       |        | 358,367   |        |        |           | 2,812  |      
|                        | Development communities In Planning: |                    |                                           |                             |         |            |           |          |       |       |        |           |        |        |           |        |      
|                        |                                      | Owned              |                                           |                             | 120,727 |            |           |          | 3,561 |       |        |           | 76,611 |        |           |        | 1,402 |      
|                        |                                      | Under control(2)   |                                           |                             |        |            |           |          | 428   |       |        |           |       |        |           |        | 991   |      
|                        |                                      |                    |                                           |                             |         |            |           |          |       |       |        |           |        |        |           |       
|                        |                                      |                    | Total development communities In Planning |                             |         | 120,727    |           |          |       | 3,989 |        |           |        | 76,611 |           |        |       | 2,393 |       
|                        |                                      |                    |                                           |                             |         |            |           |          |       |       |        |           |        |        |           |       
|                        |                                      |                    |                                           | Total apartment communities |         |            | 8,759,269 |          |       |       | 83,478 |           |        |        | 8,244,422 |        |       |       | 82,375 | 
|                        |                                      |                    |                                           |                             |         |            |           |          |       |       |        |           |        |        |           |       
|Retail, hotel and other |                                      |                    | 33,142                                    |                             |         |            |           |          |       |       | 31,582 |           |        |        |           |       
|                        |                                      |                    |                                           |                             |         |            |           |          |       |       |        |           |        |        |           |       
|                        |                                      |                    |                                           | Total real estate           |         | $          | 8,792,411 |          |       |       |        |           |        | $      | 8,276,004 |        |       |       |        | 
|                        |                                      |                    |                                           |                             |         |            |           |          |       |       |        |           |        |        |           |       

8



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



---



|    |                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Unit information is based on managements
    estimates and has not been audited or reviewed by our
    independent auditors.                                                                                                      
|   
|(2) | Our investment as of September 30, 2002 and
    December 31, 2001 for developments Under Control was
    $2.0 million and $4.9 million, respectively, and is
    reflected on the other assets caption of our Balance
    Sheets.

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

|                              |                                                           |   |           |          |  
|----------------------------- | --------------------------------------------------------- | - | --------- | -------- | -
|Balance at December 31, 2001  |                                                           | $ | 8,276,004 |         
|                              | Community acquisitions                                    |   |           | 333,319  |  
|                              | Acquisition-related capital expenditures                  |   |           | 9,063    |  
|                              | Redevelopment capital expenditures                        |   |           | 135,560  |  
|                              | Recurring capital expenditures                            |   |           | 23,741   |  
|                              | Development expenditures, excluding land
    acquisitions |   |           | 152,248  |  
|                              | Dispositions                                              |   |           | (137,524 | )
|                              |                                                           |   |           |         
|Balance at September 30, 2002 |                                                           | $ | 8,792,411 |         
|                              |                                                           |   |           |         

At September 30, 2002, we had unfunded
contractual commitments related to real estate investment
activities aggregating approximately $149.5 million, of
which $126.6 million related to communities under
construction.

(3) Discontinued Operations

At September 30, 2002, we had seven
operating apartment communities classified as held for sale
under the provisions of SFAS 144. Accordingly, the net
earnings for these properties are classified as earnings from
discontinued operations. The following is a summary of net
earnings from discontinued operations (in thousands):

|                                                         |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |        |  
|-------------------------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                                         |  |                    |        |                  
|                                                         |  | Three Months Ended |        | Nine Months Ended
|                                                         |  | September 30,      |        | September 30,    
|                                                         |  |                    |        |                  
|                                                         |  | 2002               |        | 2001              |  | 2002 |        | 2001
|                                                         |  |                    |        |                   |  |      |        |     
|Rental revenues                                          |  | $                  | 10,689 |                   |  | $    | 6,114  |      |  | $ | 34,359  |   |  | $ | 18,131 |  
|Rental expenses                                          |  |                    | (4,451 | )                 |  |      | (1,827 | )    |  |   | (12,301 | ) |  |   | (5,122 | )
|Real estate taxes                                        |  |                    | (806   | )                 |  |      | (551   | )    |  |   | (2,998  | ) |  |   | (1,650 | )
|Depreciation on real estate investments                  |  |                    | (1,050 | )                 |  |      | (1,048 | )    |  |   | (3,968  | ) |  |   | (3,127 | )
|Interest expense(1)                                      |  |                    | (2,329 | )                 |  |      | (1,327 | )    |  |   | (7,239  | ) |  |   | (3,985 | )
|Gain on dispositions of real estate investments,
    net |  |                    | 3,666  |                   |  |      |       |      |  |   | 20,340  |   |  |   |       |  
|                                                         |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |        |  
|                                                         |  | $                  | 5,719  |                   |  | $    | 1,361  |      |  | $ | 28,193  |   |  | $ | 4,247  |  
|                                                         |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |        |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The portion of interest expense included in
    discontinued operations that is allocated to properties based on
    the companys leverage ratio was $1.2 million and
    $1.3 million for the three months ended September 30,
    2002 and 2001 and $3.9 million and $4.0 million for
    the nine months ended September 30, 2002 and 2001,
    respectively.

Assets classified as held for sale, pursuant to
SFAS 144 at September 30, 2002, had aggregate carrying
value of $232.9 million with $64.9 million of secured
debt. The estimated proceeds less anticipated costs to sell for
each asset were greater than the net book value and therefore no
provision for possible loss was recorded.

9



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

We sold one and three operating communities
during the three and nine months ended September 30, 2002,
respectively, that were not classified as held for sale at
December 31, 2001 and therefore are accounted for under
SFAS 144. Accordingly, the gains on sale are included in
discontinued operations. Additionally, we sold five operating
communities during the nine months ended September 30,
2002, which were held for sale at December 31, 2001 or sold
to unconsolidated entities and therefore, not classified as
discontinued operations.

(4) Investments in and Advances to
Unconsolidated Entities

We have investments in entities that we account
for using the equity method. Following is a summary of these
investments (in thousands):

|                                              |  |               |         |              |  |   |         | 
|--------------------------------------------- |  | ------------- | ------- | ------------ |  | - | ------- | 
|                                              |  | September 30, |         | December 31,
|                                              |  | 2002          |         | 2001        
|                                              |  |               |         |             
|Ameriton Properties Incorporated (Ameriton)   |  | $             | 333,165 |              |  | $ | 244,654 | 
|Consolidated Engineering Services, Inc. (CES) |  |               | 132,455 |              |  |   | 133,878 | 
|Smith Management Construction (SMC)           |  |               | 934     |              |  |   | 1,894   | 
|Real estate joint ventures                    |  |               | 51,225  |              |  |   | 56,939  | 
|                                              |  |               |         |              |  |   |         | 
|                                              |  | $             | 517,779 |              |  | $ | 437,365 | 
|                                              |  |               |         |              |  |   |         | 

We have a $10 million committed unsecured
credit facility with Ameriton to facilitate working capital
advances, with $6.7 million available at September 30,
2002. We also have an uncommitted unsecured credit facility with
Ameriton, with $35.7 million of available capacity at
September 30, 2002. Advances to Ameriton under this
uncommitted facility are made solely at our discretion.

We have an uncommitted unsecured credit facility
with CES, with $64.0 million of available capacity at
September 30, 2002. Advances to CES under this facility are
made solely at our discretion.

(5) Borrowings



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

The following table summarizes our
$700 million unsecured revolving credit facility borrowings
(in thousands, except for percentages):

|                                                  |  |                   |         |                   |  |   |         |  
|------------------------------------------------- |  | ----------------- | ------- | ----------------- |  | - | ------- | -
|                                                  |  | As of and for the |         | As of and for the
|                                                  |  | Nine Months Ended |         | Year Ended       
|                                                  |  | September 30,     |         | December 31,     
|                                                  |  | 2002              |         | 2001             
|                                                  |  |                   |         |                  
|Total unsecured revolving credit facility         |  | $                 | 700,000 |                   |  | $ | 700,000 |  
|Borrowings outstanding at end of period           |  |                   | 301,500 |                   |  |   | 173,000 |  
|Weighted average daily borrowings                 |  |                   | 220,166 |                   |  |   | 52,575  |  
|Maximum borrowings outstanding during the period  |  |                   | 465,000 |                   |  |   | 250,000 |  
|Weighted average daily nominal interest rate      |  |                   | 2.30    | %                 |  |   | 5.31    | %
|Weighted average daily effective interest rate(1) |  |                   | 3.29    | %                 |  |   | 9.76    | %



---



|    |                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The higher effective interest rate during 2001
    was due to the amortization of fixed credit facility fees over
    the relatively low average outstanding balance during the year.

We also have a short-term unsecured borrowing
agreement, which provides for maximum borrowings of
$100 million. The agreement bears interest at an overnight
rate that ranged from 2.44% to 2.87% during the

10



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

nine months ended September 30, 2002. At
September 30, 2002 and December 31, 2001, there were
$7.9 million and $15.6 million of borrowings
outstanding under this agreement, respectively.



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

During February 2002, we issued $200 million
of long-term unsecured senior notes due in February 2012 for net
proceeds of $198.6 million. These notes bear interest at a
coupon rate of 6.5% annually, with an effective interest rate of
6.6%. The net proceeds were used to repay outstanding balances
on our unsecured credit facilities.

During August 2002, we issued $300 million
of long-term unsecured senior notes due in August 2007 for net
proceeds of $297.3 million. These notes bear interest at a
coupon rate of 5.0% annually, with an effective interest rate of
5.2%. The net proceeds were used to repay outstanding balances
on our unsecured credit facilities.

Following is a summary of our Long-Term Unsecured
Debt (dollar amounts in thousands):

|                                 |               |         |      |           |   |               |      |              |   |              |           |           |  |   |           |           |  |  |      |     | 
|-------------------------------- | ------------- | ------- | ---- | --------- | - | ------------- | ---- | ------------ | - | ------------ | --------- | --------- |  | - | --------- | --------- |  |  | ---- | --- | 
|                                 |               |         |      | Effective |   | Balances at   |      | Balances at  |   | Average     
|                                 |               | Coupon  |      | Interest  |   | September 30, |      | December 31, |   | Remaining   
|Type of Debt                     |               | Rate(1) |      | Rate(2)   |   | 2002          |      | 2001         |   | Life (Years)
|                                 |               |         |      |           |   |               |      |              |   |             
|Long-term unsecured senior notes |               |         | 6.97 | %         |   |               | 7.11 | %            |   | $            | 1,727,804 |           |  | $ | 1,255,537 |           |  |  | 6.0  |    
|Unsecured tax-exempt bonds       |               |         | 1.96 | %         |   |               | 2.19 | %            |   |              | 83,915    |           |  |   | 78,353    |           |  |  | 26.7 |    
|                                 |               |         |      |           |   |               |      |              |   |              |           |           |  |   |           |           |  |  |      |    
|                                 | Total/average |         |      | 6.74      | % |               |      | 6.88         | % |              | $         | 1,811,719 |  |   | $         | 1,333,890 |  |  |      | 6.9 | 
|                                 |               |         |      |           |   |               |      |              |   |              |           |           |  |   |           |           |  |  |      |    



---



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



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

Our mortgages payable generally feature either
monthly interest and principal payments or monthly interest-only
payments with balloon payments due at maturity. Following is a
summary of our mortgages payable (dollar amounts in thousands):

|                                   |               |           |      |                         |   |              |           |           |  |   |           |           | 
|---------------------------------- | ------------- | --------- | ---- | ----------------------- | - | ------------ | --------- | --------- |  | - | --------- | --------- | 
|                                   |               |           |      |                        
|                                   |               |           |      | Principal Balance(2) at
|                                   |               | Effective |      |                        
|                                   |               | Interest  |      | September 30,           |   | December 31,
|Type of Mortgage                   |               | Rate(1)   |      | 2002                    |   | 2001        
|                                   |               |           |      |                         |   |             
|Fannie Mae secured debt            |               |           | 6.49 | %                       |   | $            | 551,610   |           |  | $ | 661,764   |          
|Freddie Mac secured line of credit |               |           |     |                         |   |              |          |           |  |   | 163,768   |          
|Conventional fixed rate            |               |           | 6.62 | %                       |   |              | 1,259,329 |           |  |   | 1,266,569 |          
|Tax-exempt fixed rate              |               |           | 7.26 | %                       |   |              | 7,074     |           |  |   | 7,216     |          
|Tax-exempt floating rate           |               |           | 2.31 | %                       |   |              | 325,530   |           |  |   | 207,716   |          
|Other                              |               |           | 5.17 | %                       |   |              | 22,889    |           |  |   | 23,500    |          
|                                   |               |           |      |                         |   |              |           |           |  |   |           |          
|                                   | Total/average |           |      | 5.92                    | % |              | $         | 2,166,432 |  |   | $         | 2,330,533 | 
|                                   |               |           |      |                         |   |              |           |           |  |   |           |          



---



|    |                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes the effect of interest rate hedges,
    credit enhancement fees, the amortization of fair market value
    purchase adjustment, and other related costs, where applicable
    as of September 30, 2002.
|   
|(2) | Includes net fair market value adjustment
    recorded in connection with Smith Merger of $75.0 million
    and $83.5 million at September 30, 2002 and
    December 31, 2001, respectively.                    

11



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The change in mortgages payable during the nine
months ended September 30, 2002 consisted of the following
(in thousands):

|                              |                                                           |   |           |          |  
|----------------------------- | --------------------------------------------------------- | - | --------- | -------- | -
|Balance at December 31, 2001  |                                                           | $ | 2,330,533 |         
|                              | Regularly scheduled principal amortization                |   |           | (7,865   | )
|                              | Mortgage assumptions related to property
    acquisitions |   |           | 205,542  |  
|                              | Prepayments, final maturities and other                   |   |           | (361,778 | )
|                              |                                                           |   |           |         
|Balance at September 30, 2002 |                                                           | $ | 2,166,432 |         
|                              |                                                           |   |           |         

We repaid or refinanced an aggregate
$363.4 million in mortgages payable during the nine months
ended September 30, 2002 in order to release the mortgages,
free up $678.9 million of previously encumbered assets and
increase our unencumbered asset pool. Due to the costs
associated with early retirement of this debt, we recorded an
extraordinary item of $11.1 million for the nine months
ended September 30, 2002.



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

Our debt instruments generally contain certain
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
during the period ended September 30, 2002.

For the nine months ended September 30, 2002
and 2001, the total interest paid on all outstanding debt was
$176.2 million and $121.9 million, respectively. We
capitalize interest incurred during the construction period as
part of the cost of apartment communities under development.
Interest capitalized during the nine months ended
September 30, 2002 and 2001 was $17.1 million and
$15.1 million, respectively.

(6) Minority Interest

Minority interest consists of the following at
September 30, 2002 and December 31, 2001 (in
thousands):

|                          |  |               |       |              |  |   |        | 
|------------------------- |  | ------------- | ----- | ------------ |  | - | ------ | 
|                          |  | September 30, |       | December 31,
|                          |  | 2002          |       | 2001        
|                          |  |               |       |             
|Perpetual Preferred Units |  | $             |      |              |  | $ | 73,180 | 
|DownREIT OP Units         |  |               |      |              |  |   | 18,747 | 
|Other minority interests  |  |               | 2,600 |              |  |   | 2,600  | 
|                          |  |               |       |              |  |   |        | 
|                          |  | $             | 2,600 |              |  | $ | 94,527 | 
|                          |  |               |       |              |  |   |        | 



| |                      
| | ---------------------
| | Operating Trust Units

As of September 30, 2002 and
December 31, 2001, Archstone-Smith owned an 88.0% and 87.3%
majority interest in the Operating Trust, respectively. During
the nine months ended September 30, 2002, 2,013,892
Class A-1 Common Units were redeemed for Archstone-Smith
Common Shares. In April 2002, we issued 339,727 Class B
Common Units of beneficial interest (B Common Units)
as partial consideration for a community acquisition. In April
2002, Archstone-Smith issued 149,319 unregistered Common Units
in exchange for 149,319 B Common Units previously issued.

In August 2002, we converted 870,523 of DownREIT
operating units into A-1 Common Units in connection with the
merger with our DownREIT Operating Partnerships. Also in August
2002, 3,000,000 DownREIT Perpetual Preferred Units were
converted into Operating Trust Perpetual Preferred Units.

12



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

(7) Distributions to
Unitholders

The following table summarizes the quarterly cash
distributions paid per unit on Common and Preferred Units during
the three months ended March 31, June 30 and
September 30, 2002 and the annualized distributions we
expect to pay for 2002:

|                                     |  |                    |          |                    |  |   |          | 
|------------------------------------ |  | ------------------ | -------- | ------------------ |  | - | -------- | 
|                                     |  | Quarterly          |          | Annualized        
|                                     |  | Cash Distributions |          | Cash Distributions
|                                     |  | Per Unit           |          | Per Unit          
|                                     |  |                    |          |                   
|Common Units                         |  | $                  | 0.425    |                    |  | $ | 1.70     | 
|Series A Convertible Preferred Units |  | $                  | 0.572    |                    |  | $ | 2.29     | 
|Series C Preferred Units(1)          |  | $                  | 0.539    |                    |  | $ | 1.38     | 
|Series D Preferred Units             |  | $                  | 0.547    |                    |  | $ | 2.19     | 
|Series H Preferred Units             |  | $                  | 0.839    |                    |  | $ | 3.36     | 
|Series I Preferred Units             |  | $                  | 1,915.00 |                    |  | $ | 7,660.00 | 
|Series J Preferred Units(2)          |  | $                  | 0.839    |                    |  | $ | 1.80     | 
|Series K Preferred Units             |  | $                  | 0.839    |                    |  | $ | 3.36     | 
|Series L Preferred Units             |  | $                  | 0.839    |                    |  | $ | 3.36     | 



---



|    |                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|(1) | The Series C Preferred Units were redeemed
    at liquidation value, plus accrued and unpaid distributions, on
    August 20, 2002.
|   
|(2) | The Series J Preferred Units were converted
    into Common Units on July 13, 2002.                                                

(8) Segment Data

We define our garden communities and high-rise
properties 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 criteria, which permit the garden communities and
high-rise properties to be aggregated into two reportable
segments. We rely primarily on NOI for purposes of making
decisions about allocation of resources and assessing segment
performance.

Following are reconciliations 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):

|                                                   |                                         |                    |        |                   |  |      |        |         |  |  |        |         |  |  |        |         | 
|-------------------------------------------------- | --------------------------------------- | ------------------ | ------ | ----------------- |  | ---- | ------ | ------- |  |  | ------ | ------- |  |  | ------ | ------- | 
|                                                   |                                         |                    |        |                  
|                                                   |                                         | Three Months Ended |        | Nine Months Ended
|                                                   |                                         | September 30,      |        | September 30,    
|                                                   |                                         |                    |        |                  
|                                                   |                                         | 2002               |        | 2001              |  | 2002 |        | 2001   
|                                                   |                                         |                    |        |                   |  |      |        |        
|Reportable apartment communities segment revenues: |                                         |                    |        |                   |  |      |        |         |  |  |        |         |  |  |        |        
|                                                   | Garden communities                      |                    | $      | 158,504           |  |      | $      | 145,336 |  |  | $      | 472,590 |  |  | $      | 458,683 | 
|                                                   | High-rise properties                    |                    |        | 96,961            |  |      |        |        |  |  |        | 282,956 |  |  |        |        | 
|Other non-reportable operating segment revenues    |                                         |                    | 19,487 |                   |  |      | 12,224 |         |  |  | 36,483 |         |  |  | 22,695 |        
|                                                   |                                         |                    |        |                   |  |      |        |         |  |  |        |         |  |  |        |        
|                                                   | Total segment and consolidated revenues |                    | $      | 274,952           |  |      | $      | 157,560 |  |  | $      | 792,029 |  |  | $      | 481,378 | 
|                                                   |                                         |                    |        |                   |  |      |        |         |  |  |        |         |  |  |        |        

13



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                              |                                            |                                       |       |                   |        |      |       |         |        |  |       |          |         |  |       |         |         | 
|--------------------------------------------- | ------------------------------------------ | ------------------------------------- | ----- | ----------------- | ------ | ---- | ----- | ------- | ------ |  | ----- | -------- | ------- |  | ----- | ------- | ------- | 
|                                              |                                            |                                       |       |                  
|                                              |                                            | Three Months Ended                    |       | Nine Months Ended
|                                              |                                            | September 30,                         |       | September 30,    
|                                              |                                            |                                       |       |                  
|                                              |                                            | 2002                                  |       | 2001              |        | 2002 |       | 2001   
|                                              |                                            |                                       |       |                   |        |      |       |        
|Reportable apartment communities segment NOI: |                                            |                                       |       |                   |        |      |       |         |        |  |       |          |         |  |       |        
|                                              | Garden communities                         |                                       | $     | 103,831           |        |      | $     | 96,452  |        |  | $     | 316,428  |         |  | $     | 310,274 |        
|                                              | High-rise properties                       |                                       |       | 57,770            |        |      |       |        |        |  |       | 169,274  |         |  |       |        |        
|Other non-reportable operating segment NOI    |                                            |                                       | 1,014 |                   |        |      | 1,179 |         |        |  | 2,370 |          |         |  | 2,981 |        
|                                              |                                            |                                       |       |                   |        |      |       |         |        |  |       |          |         |  |       |        
|                                              | Total segment NOI                          |                                       |       | 162,615           |        |      |       | 97,631  |        |  |       | 488,072  |         |  |       | 313,255 |        
|                                              |                                            |                                       |       |                   |        |      |       |         |        |  |       |          |         |  |       |        
|Reconciling items:                            |                                            |                                       |       |                   |        |      |       |         |        |  |       |          |         |  |       |        
|                                              | Income from unconsolidated entities        |                                       |       | 16,295            |        |      |       | 6,992   |        |  |       | 28,885   |         |  |       | 8,740   |        
|                                              | Other income                               |                                       |       | 2,104             |        |      |       | 3,965   |        |  |       | 5,112    |         |  |       | 10,710  |        
|                                              | Depreciation on real estate investments    |                                       |       | (49,717           | )      |      |       | (28,190 | )      |  |       | (144,282 | )       |  |       | (87,606 | )      
|                                              | Interest expense                           |                                       |       | (50,432           | )      |      |       | (30,577 | )      |  |       | (145,814 | )       |  |       | (94,995 | )      
|                                              | General and administrative expenses        |                                       |       | (10,972           | )      |      |       | (6,689  | )      |  |       | (31,257  | )       |  |       | (18,495 | )      
|                                              | Provision for possible loss on investments |                                       |       |                  |        |      |       | (2,410  | )      |  |       |         |         |  |       | (12,319 | )      
|                                              | Other expenses                             |                                       |       | (5,845            | )      |      |       | (2,525  | )      |  |       | (8,361   | )       |  |       | (3,557  | )      
|                                              |                                            |                                       |       |                   |        |      |       |         |        |  |       |          |         |  |       |        
|                                              |                                            | Consolidated earnings from operations |       | $                 | 64,048 |      |       | $       | 38,197 |  |       | $        | 192,355 |  |       | $       | 115,733 | 
|                                              |                                            |                                       |       |                   |        |      |       |         |        |  |       |          |         |  |       |        

|                                                  |                                                                     |               |        |              |  |  |        |           | 
|------------------------------------------------- | ------------------------------------------------------------------- | ------------- | ------ | ------------ |  |  | ------ | --------- | 
|                                                  |                                                                     | September 30, |        | December 31,
|                                                  |                                                                     | 2002          |        | 2001        
|                                                  |                                                                     |               |        |             
|Reportable operating communities segments assets: |                                                                     |               |        |              |  |  |        |          
|                                                  | Garden communities                                                  |               | $      | 4,663,760    |  |  | $      | 4,649,564 | 
|                                                  | High-rise properties                                                |               |        | 3,558,450    |  |  |        | 3,188,074 | 
|Other non-reportable operating segment assets     |                                                                     |               | 33,142 |              |  |  | 31,582 |          
|                                                  |                                                                     |               |        |              |  |  |        |          
|                                                  | Total segment assets                                                |               |        | 8,255,352    |  |  |        | 7,869,220 | 
|                                                  |                                                                     |               |        |              |  |  |        |          
|Reconciling items:                                |                                                                     |               |        |              |  |  |        |          
|                                                  | Investments in and advances to unconsolidated
    entities entities |               |        | 517,779      |  |  |        | 437,365   | 
|                                                  | Cash and cash equivalents                                           |               |        | 19,480       |  |  |        | 7,027     | 
|                                                  | Restricted cash in tax deferred exchange escrow                     |               |        | 41,221       |  |  |        | 120,421   | 
|                                                  | Other assets                                                        |               |        | 154,301      |  |  |        | 115,882   | 
|                                                  |                                                                     |               |        |              |  |  |        |          
|                                                  | Consolidated total assets                                           |               | $      | 8,988,133    |  |  | $      | 8,549,915 | 
|                                                  |                                                                     |               |        |              |  |  |        |          

(9) Litigation and
Contingencies

As of September 30, 2002, we have incurred
and accrued a liability for approximately $18.1 million
relating to moisture infiltration and mold issues at one of our
high-rise properties in Southeast Florida. Of this amount,
approximately $5.6 million represents amounts expensed
during the third quarter of 2002 for the estimated cost of
repairing or replacing residents property and incurred
legal fees. The remaining $12.5 million represents costs
capitalized in accordance with GAAP pertaining to remediation
and capital improvements to the building.

We are early in the process of addressing this
issue, and there are still considerable uncertainties which
affect our ability to estimate the ultimate cost of remediation
efforts. These uncertainties include the exact nature and extent
of the issues, the extent of required remediation efforts and
varying costs of alternative

14



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

strategies for addressing the issues. The accrual
represents managements best estimate of the probable and
reasonably estimable costs. It is possible that these estimates
could increase or decrease as better information becomes
available.

The company is also subject to litigation in
connection with these issues. We intend to vigorously contest
the claims asserted in the litigation. Due to the preliminary
nature of the litigation, it is not possible to predict or
determine the outcome of the legal actions nor is it reasonably
possible to estimate the amount of loss associated with an
adverse decision.

We believe it is reasonably possible that a
portion of our legal and remediation costs will be recovered
from insurance carriers, and we are investigating other
potential recoveries. As of September 30, 2002, no
estimated recovery has been recorded as we have no basis for
making such an estimate at this time.

(10) Subsequent Event

On November 12, 2002, we announced our
intention to issue approximately $100 million of long-term
unsecured senior notes. When issued, the notes will have a
five-year maturity and are expected to have an effective
interest rate of under 5.0%. This offering is expected to price
on November 14 and fund on November 19, 2002. We will
use the proceeds to repay outstanding balances on our unsecured
credit facilities.

15



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##### Table of Contents






INDEPENDENT ACCOUNTANTS REVIEW
REPORT

The Trustee

of Archstone-Smith Operating Trust:


We have reviewed the accompanying condensed
consolidated balance sheet of Archstone-Smith Operating Trust
(formerly known as Archstone Communities Trust) as of
September 30, 2002, and the related condensed consolidated
statements of earnings for the three and nine months ended
September 30, 2002 and 2001, the condensed consolidated
statement of unitholders equity and other
unitholders interests for the nine months ended
September 30, 2002 and the condensed consolidated
statements of cash flows for the nine months ended
September 30, 2002 and 2001. These condensed consolidated
financial statements are the responsibility of Archstone-Smith
Operating Trusts management.

We conducted our review in accordance with
standards established by the American Institute of Certified
Public Accountants. A review of interim financial information
consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in
scope than an audit conducted in accordance with auditing
standards generally accepted in the United States of America,
the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do
not express such an opinion.

Based on our review, we are not aware of any
material modifications that should be made to the condensed
consolidated financial statements referred to above for them to
be in conformity with accounting principles generally accepted
in the United States of America.

We have previously audited, in accordance with
auditing standards generally accepted in the United States of
America, the consolidated balance sheet of Archstone-Smith
Operating Trust as of December 31, 2001, and the related
consolidated statements of earnings, unitholders equity,
and other common unitholders interests and cash flows for
the year then ended (not presented herein); and in our report
dated February 6, 2002, except as to Note 17, which is
as of February 15, 2002, we expressed an unqualified
opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 2001 is
fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.



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

Chicago, Illinois

October 18, 2002


except as to Note 10,


which is as of November 12, 2002


16



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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 our 2001 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 our
2001 Form 10-K Item 1. Business for a more
complete discussion of risk factors that could impact our future
financial performance.

The Company

We are engaged primarily in the acquisition,
development, management and operation of apartment communities
throughout the United States. The company is structured as an
UPREIT, under which substantially all property ownership and
business operations are conducted through the Operating Trust
and our subsidiaries and affiliates. Archstone-Smith is our sole
trustee and owns approximately 88.0% of our Common Units.

Results of Operations



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

Basic net earnings attributable to Common Units
increased 45.0% and 15.3% for the three and nine months ended
September 30, 2002, respectively, as compared to the same
periods in 2001. These increases are primarily attributable to:



| |   |                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An increase in overall NOI due to the acquisition
    of properties in the Smith Merger;                                                           
|
| |  | Increased NOI due to the acquisition of operating
    communities and the continued lease-up and stabilization of
    development communities; and,
|
| |  | Increased income from Ameriton, our real estate
    joint ventures, as well as unconsolidated entities acquired in
    the Smith Merger.           

These increases were partially offset by:



| |   |                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The loss of NOI in the three and nine months
    ended September 30, 2002 due to the $1.2 billion of
    apartment community dispositions in 2001 (including joint
    venture transactions) and $164.0 million of dispositions in
    2002;

17



---



##### Table of Contents





| |   |                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Same-Store NOI decline of 4.3% and 1.9% during
    the three and nine months ended September 30, 2002,
    respectively as compared to the same periods in 2001;                     
|
| |  | Higher depreciation, interest and general and
    administrative expenses due principally to the Smith Merger;                                                                       
|
| |  | Lower gains on disposition of real estate
    investments due to the lower volume of dispositions in 2002;                                                                           
|
| |  | One-time merger-related costs of
    $1.4 million incurred during the first quarter of 2002;                                                                                         
|
| |  | A charge of $5.6 million relating to
    moisture infiltration and mold issues at one of our high-rise
    properties in Southeast Florida during the third quarter of
    2002; and,
|
| |  | Higher extraordinary items in 2002 from losses on
    early extinguishment of debt.                                                                                                  

Our strongest core markets in revenue growth
during the current periods include Southern California,
Southeast Florida and the Greater Washington, D.C.
Metropolitan Area. The San Francisco Bay Area, Seattle and
Chicago continue to present the greatest challenges in revenue
growth.



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

The following tables summarize the performance of
our garden and high-rise apartments for each period (in
thousands, except for units and percentages):

Garden Communities

|                                       |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         |  
|-------------------------------------- |  | ------------------ | ------- | ----------------- |  | ---- | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                       |  |                    |         |                  
|                                       |  | Three Months Ended |         | Nine Months Ended
|                                       |  | September 30,      |         | September 30,    
|                                       |  |                    |         |                  
|                                       |  | 2002               |         | 2001              |  | 2002 |         | 2001
|                                       |  |                    |         |                   |  |      |         |     
|Rental revenues                        |  | $                  | 158,504 |                   |  | $    | 145,336 |      |  | $ | 472,590 |   |  | $ | 458,683 |  
|Property operating expenses            |  |                    | 54,673  |                   |  |      | 48,884  |      |  |   | 156,162 |   |  |   | 148,409 |  
|                                       |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         |  
|Net Operating Income                   |  | $                  | 103,831 |                   |  | $    | 96,452  |      |  | $ | 316,428 |   |  | $ | 310,274 |  
|                                       |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         |  
|Operating margin (NOI/rental revenues) |  |                    | 65.5    | %                 |  |      | 66.4    | %    |  |   | 67.0    | % |  |   | 67.6    | %
|                                       |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         |  
|Average occupancy during period        |  |                    | 95.7    | %                 |  |      | 94.9    | %    |  |   | 95.1    | % |  |   | 95.0    | %
|                                       |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         |  
|Average number of operating units      |  |                    | 55,325  |                   |  |      | 50,443  |      |  |   | 55,643  |   |  |   | 54,022  |  
|                                       |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         |  

High-Rise Properties(1)

|                                       |  |                    |        |                   |  |      |     |      |  |   |         |   |  |  |     | 
|-------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | --- | ---- |  | - | ------- | - |  |  | --- | 
|                                       |  |                    |        |                  
|                                       |  | Three Months Ended |        | Nine Months Ended
|                                       |  | September 30,      |        | September 30,    
|                                       |  |                    |        |                  
|                                       |  | 2002               |        | 2001              |  | 2002 |     | 2001
|                                       |  |                    |        |                   |  |      |     |     
|Rental revenues                        |  | $                  | 96,961 |                   |  |      | n/a |      |  | $ | 282,956 |   |  |  | n/a | 
|Property operating expenses            |  |                    | 39,191 |                   |  |      | n/a |      |  |   | 113,682 |   |  |  | n/a | 
|                                       |  |                    |        |                   |  |      |     |      |  |   |         |   |  |  |     | 
|Net Operating Income                   |  | $                  | 57,770 |                   |  |      | n/a |      |  | $ | 169,274 |   |  |  | n/a | 
|                                       |  |                    |        |                   |  |      |     |      |  |   |         |   |  |  |     | 
|Operating margin (NOI/rental revenues) |  |                    | 59.6   | %                 |  |      | n/a |      |  |   | 59.8    | % |  |  | n/a | 
|                                       |  |                    |        |                   |  |      |     |      |  |   |         |   |  |  |     | 
|Average occupancy during period        |  |                    | 93.8   | %                 |  |      | n/a |      |  |   | 94.3    | % |  |  | n/a | 
|                                       |  |                    |        |                   |  |      |     |      |  |   |         |   |  |  |     | 
|Average number of operating units      |  |                    | 22,000 |                   |  |      | n/a |      |  |   | 21,650  |   |  |  | n/a | 
|                                       |  |                    |        |                   |  |      |     |      |  |   |         |   |  |  |     | 



---



|    |                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | High-rise properties were acquired in the Smith
    Merger on October 31, 2001. As a result, they are not
    included in our results of operations for periods presented in
    2001.

18



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##### Table of Contents



NOI for the entire apartment portfolio increased
for the three and nine months ended September 30, 2002
compared to the same period in 2001. This increase in NOI
results principally from the inclusion of the NOI from
properties acquired in the Smith Merger in our consolidated
results of operations.

NOI for our garden communities increased
$7.4 million and $6.2 million, for the three and nine
months ended September 30, 2002, respectively, primarily
due to:



| |   |                                                                                              
| | - | ---------------------------------------------------------------------------------------------
| |  | The inclusion of NOI from the 13 garden
    communities acquired in the Smith Merger;        
|
| |  | The successful lease-up and stabilization of five
    apartment communities during 2002; and,
|
| |  | The acquisition of four apartment communities
    during 2002.                               

These increases were partially offset by:



| |   |                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The loss of garden community NOI due to
    dispositions of operating communities in 2001 and 2002; and                                                                                                                                                                 
|
| |  | Same-Store NOI declining during the three and
    nine months ended September 30, 2002, as compared to prior
    year, which is principally attributable to declining Same-Store
    revenue combined with increases in property taxes, insurance and
    utility costs.

The following table reflects revenue, expense and
NOI growth for Same-Store communities (representing
57,370 units) that were fully operating during the nine
months ended September 30 for each respective comparison
period:

|        |           |                    |  |                    |     |                    |  |     |     |   |  |      |      |   
|------- | --------- | ------------------ |  | ------------------ | --- | ------------------ |  | --- | --- | - |  | ---- | ---- | --
|        |           | Same-Store         |  | Same-Store         |     |                   
|        |           | Revenue            |  | Expense            |     | Same-Store NOI    
|        |           | Growth/(Reduction) |  | Growth/(Reduction) |     | Growth/(Reduction)
|        |           |                    |  |                    |     |                   
|2002(1) |           |                    |  |                    |     |                    |  |     |     |   |  |     
|        | Garden    |                    |  | (1.0               | )%  |                    |  | 3.5 | %   |   |  | (3.0 | )%  
|        | High-Rise |                    |  | 2.5                | %   |                    |  | 6.1 | %   |   |  | 0.6  | %   
|        |           | Total              |  |                    | 0.1 | %                  |  |     | 4.3 | % |  |      | (1.9 | )%
|2001    |           |                    |  |                    |     |                    |  |     |     |   |  |     
|        | Garden    |                    |  | 6.1                | %   |                    |  | 5.1 | %   |   |  | 6.6  | %   
|        | High-Rise |                    |  | n/a                |     |                    |  | n/a |     |   |  | n/a  |     
|        |           | Total              |  |                    | 6.1 | %                  |  |     | 5.1 | % |  |      | 6.6  | % 



---



|    |                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Same-Store includes results for assets acquired
    in the Smith Merger for the nine months ended September 30,
    2001 and has been adjusted for items that result in lack of
    comparability.

The 4.3% and 1.9% decline in Same-Store NOI for
the three and nine months ended September 30, 2002 as
compared to the same periods in the prior year are primarily due
to a continued deterioration experienced in the broader economy.
The NOI decline resulted from both lower revenues and higher
expenses which negatively impacted our overall operating margins.



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

Income from unconsolidated entities increased for
the three and nine months ended September 30, 2002 as
compared to same periods in 2001 primarily due to:



| |   |                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Higher earnings contributions by Ameriton which
    increased by approximately $5.0 million and
    $8.8 million for the three and nine months ended
    September 30, 2002, respectively, principally due to higher
    gains from the sales of operating communities;
|
| |  | The $3.4 million and $7.7 million in
    income from CES and SMC, both acquired in the Smith Merger, for
    the three and nine months ended September 30, 2002,
    respectively; and,                                                                                

19



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##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The $0.9 million and $3.6 million
    increase in our share of the income from real estate joint
    ventures for the three and nine months ended September 30,
    2002, respectively. These increases are primarily due to the
    formation timing of three operating community joint ventures
    during 2001 and three joint ventures acquired in the Smith
    Merger.



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

Other income decreased for the three and nine
months ended September 30, 2002 as compared to the same
periods in 2001, principally from lower interest income caused
by lower cash account balances because of reduced disposition
activity, coupled with lower interest rates.



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

The increase in depreciation expense for the
three and nine months ended September 30, 2002 as compared
to the same period in 2001 is primarily attributable to the
additional depreciation expense associated with the properties
acquired in the Smith Merger. This increase was partially offset
by a reduction in depreciation expense associated with our
significant garden community disposition volume during 2001 and
2002.



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

The increase in net interest expense for the
three and nine months ended September 30, 2002 as compared
to 2001 is primarily attributable to the incremental debt
assumed in the Smith Merger. This increase is partially offset
by a lower average cost of variable rate debt during 2002 as
compared to recent years.



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

The increase in general and administrative
expenses for the three and nine months ended September 30,
2002 as compared to the same period in 2001 relates primarily to
the incremental overhead incurred in connection with the Smith
Merger. In addition, the amortization of capitalized costs
associated with our new revenue management program called Lease
Rent OptimizerTM, which began in December 2001,
increased expenses in 2002.



| |                             
| | ----------------------------
| | Preferred Unit Distributions

Preferred Unit distributions increased for the
three and nine months ended September 30, 2002 as compared
to the same period in the prior year due to the Preferred Units
that were issued in connection with the Smith Merger.



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

In October 2001, the FASB issued SFAS 144,
Accounting for Impairment or Disposal of Long-Lived
Assets which became effective on January 1, 2002. For
properties accounted for under SFAS 144, 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 net operating income, depreciation expense
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),
as well as the net gain or loss on the eventual disposal of held
for sale properties.

We had seven operating apartment communities
classified as held for sale under SFAS 144 at
September 30, 2002. We also sold one and three properties
during the three and nine months ended September 30, 2002,
respectively. The results of operations and the gains on the
sale of these properties are included in discontinued
operations. Additionally, we sold five operating properties
during the nine-month

20



---



##### Table of Contents



period that were either held for sale at
December 31, 2001 or sold to unconsolidated entities and
therefore, are not included in discontinued operations in
accordance with SFAS 144.




| |                                     
| | ------------------------------------
| | Impact of Disposition
    Activities

We disposed of one and seven apartment
communities during the three and nine months ended
September 30, 2002, respectively. These dispositions
represented gross proceeds of $24.6 million and
$164.0 million for the three and nine months ended
September 30, 2002, respectively. In addition, we disposed
of one retail property during the three months ended
September 30, 2002, with gross proceeds of
$12.5 million. Aggregate net gains, included in gain on
disposition of real estate and discontinued operations, of
$7.2 million and $48.4 million were recorded for the
three and nine months ended September 30, 2002,
respectively.

Our total anticipated disposition volume for all
of 2002 is expected to be approximately $300 to
$500 million.

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. We believe our liquidity
and financial condition are sufficient to meet all of our cash
flow needs during 2002 and for the foreseeable future. See our
Statements of Cash Flows for a summary of operating, investing
and financing activities for the nine months ended
September 30, 2002 and 2001.



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

Net cash flow provided by operating activities
increased $124.0 million, for the nine months ended
September 30, 2002 as compared to the same period in 2001.
This increase is principally due to an increase in earnings from
operations due to the Smith Merger, which was partially offset
by lost NOI from the significant 2001 disposition activity and
lower Same-Store NOI. See Results of Operations for
a more complete discussion of the factors impacting our
operating performance.



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

For the nine months ended September 30,
2002, cash flows provided by investing activities decreased
$610.8 million as compared to the same period in 2001. The
decrease is the result of a $732.7 million reduction in the
proceeds on disposition of apartment communities, a
$69.2 million increase in investments in real estate and a
$105.9 million increase in advances to unconsolidated
investees when comparing 2002 with 2001. This was partially
offset by an increase in cash flows from restricted cash in
tax-deferred exchange escrows and other investing activities.

Cash flows used in financing activities decreased
by $474.4 million for the nine months ended
September 30, 2002 as compared to the same period in 2001.
The decrease is primarily attributable to the issuance of
$500 million in senior unsecured notes during 2002 and the
$314.5 million increase in the net proceeds provided by our
credit facilities used to finance investing activities. These
increases were partially offset by principal prepayments on
mortgages payable that increased $324.6 million and
distributions on Common Units, Preferred Units and minority
interests in the amounts of $257.0 million,
$26.0 million and $5.2 million, respectively.

Our most significant non-cash investing and
financing activities during the nine months ended
September 30, 2002 and 2001 included: (i) the
assumption of mortgages payable upon the purchase of apartment
communities in both 2001 and 2002; (ii) the contribution of
apartment communities and related transfer of a mortgage
liability in exchange for an ownership interest in a joint
venture in 2001; (iii) the redemption of minority interests
for Common Units in both 2001 and 2002; (iv) the conversion
of Preferred Units into Common Units in 2002; and (v) the
accrual of estimated moisture infiltration and mold remediation
costs at one of our high-rise properties in Southeast Florida in
2002.

21



---



##### Table of Contents





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

Our long-term debt is structured to create a
relatively level principal maturity schedule, without
significant repayment obligations in any year, to mitigate
future liquidity and refinancing risk. As of September 30,
2002, we have approximately $76.1 million of long-term debt
maturing during the remainder of 2002, $247.5 million
maturing during 2003 and $104.5 million maturing during
2004.

We currently have $800 million in total
borrowing capacity under our unsecured credit facilities, with
$401.6 million outstanding and $398.4 million of
available capacity at November 12, 2002.
Archstone-Smiths unsecured credit facilities, long-term
unsecured debt and mortgages payable had effective interest
rates of 3.29%, 6.88% and 5.92%, respectively, as of
September 30, 2002. These rates give effect to the impact
of interest rate swaps and caps, as applicable.

We were in compliance with all financial
covenants pertaining to our debt instruments during the nine
months ended September 30, 2002.



| |                                         
| | ----------------------------------------
| | Unitholder Distribution
    Requirements

Based on anticipated distribution levels for 2002
and the number of units outstanding as of September 30,
2002, we anticipate that we will pay distributions of
$95.6 million in the aggregate during the remainder of
2002. This amount represents distributions and dividends on our
Common Units, all Preferred Units and all minority interests.



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

Following is a summary of unfunded planned
investments as of September 30, 2002 (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 and redevelopment.

|                                          |       |       |       |                     |  |           |         |         |  |   |         |         | 
|----------------------------------------- | ----- | ----- | ----- | ------------------- |  | --------- | ------- | ------- |  | - | ------- | ------- | 
|                                          |       |       |       |                    
|                                          |       |       |       | Planned Investments
|                                          |       |       |       |                    
|                                          |       | Units |       | Discretionary       |  | Committed
|                                          |       |       |       |                     |  |          
|Communities under redevelopment(1)        |       |       | 7,341 |                     |  | $         | 45,382  |         |  | $ | 22,889  |        
|Communities under construction            |       |       | 2,117 |                     |  |           |        |         |  |   | 126,593 |        
|Communities In Planning and Owned         |       |       | 3,561 |                     |  |           | 706,285 |         |  |   |        |        
|Communities In Planning and Under Control |       |       | 428   |                     |  |           | 58,548  |         |  |   |        |        
|Community acquisitions under contract     |       |       | 1,116 |                     |  |           | 168,000 |         |  |   |        |        
|                                          |       |       |       |                     |  |           |         |         |  |   |         |        
|                                          | Total |       |       | 14,563              |  |           | $       | 978,215 |  |   | $       | 149,482 | 
|                                          |       |       |       |                     |  |           |         |         |  |   |         |        



---



|    |                                                                                  
|--- | ---------------------------------------------------------------------------------
|(1) | Includes planned investments of
    10 properties undergoing major redevelopment.

In addition to the planned investments noted
above, we expect to make smaller capital investments relating to
planned expenditures on recently acquired communities and on
redevelopment and recurring expenditures to improve and maintain
our more established operating communities.

We anticipate completion of most of the
communities that are currently under construction and the
planned operating community improvements during the remainder of
2002 and 2003. We expect to start construction on a total of
approximately $250 to $300 million, based on Total Expected
Investment, during 2002. No assurances can be given that
communities not currently owned will be acquired or that planned
developments will actually occur. In addition, actual costs
incurred could be greater or less than our current estimates.

22



---



##### Table of Contents





| |                
| | ---------------
| | 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 and borrowings under our unsecured credit facilities,
prior to arranging long-term financing. Consistent with our
performance in 2001, we anticipate that net cash flow from
operating activities during 2002 will be sufficient to fund
anticipated distribution requirements and scheduled debt
principal amortization payments. To fund planned investment
activities, we had $398.4 million in available capacity on
our unsecured credit facilities and $32.1 million of cash
on hand at November 12, 2002. In addition, we expect to
complete a total of $300 to $500 million of operating
community dispositions during 2002.

In February 2002, we issued $200 million in
long-term unsecured ten-year senior notes from our shelf
registration statement. In May 2002, Archstone-Smith filed a
shelf registration statement on Form S-3 to register
$500 million in equity securities, which can be issued in
the form of Common or Preferred Units. In May 2002, we filed a
shelf registration statement on Form S-3 to register an
additional $422.8 million (for a total of
$800 million) in unsecured debt securities. These
registration statements were declared effective in June 2002. In
August 2002, we issued $300 million in long-term unsecured
senior five-year notes from our shelf registration statement.
Archstone-Smith and the Operating Trust collectively have
$1.0 billion available in shelf registered securities which
can be issued subject to our ability to effect offerings on
satisfactory terms based on prevailing market conditions.



| |                                               
| | ----------------------------------------------
| | Other Contingencies and Hedging
    Activities

As of September 30, 2002, we have incurred
and accrued a liability for approximately $18.1 million
relating to moisture infiltration and mold issues at one of our
high-rise properties in Southeast Florida. Of this amount,
approximately $5.6 million represents amounts expensed
during the third quarter of 2002 for the estimated cost of
repairing or replacing residents property and incurred
legal fees. The remaining $12.5 million represents costs
capitalized in accordance with GAAP pertaining to remediation
and capital improvements to the building.

We are early in the process of addressing this
issue, and there are still considerable uncertainties which
affect our ability to estimate the ultimate cost of remediation
efforts. These uncertainties include the exact nature and extent
of the issues, the extent of required remediation efforts and
varying costs of alternative strategies for addressing the
issues. The accrual represents managements best estimate
of the probable and reasonably estimable costs. It is possible
that these estimates could increase or decrease as better
information becomes available.

The company is also subject to litigation in
connection with these issues. We intend to vigorously contest
the claims asserted in the litigation. Due to the preliminary
nature of the litigation, it is not possible to predict or
determine the outcome of the legal actions nor is it reasonably
possible to estimate the amount of loss associated with an
adverse decision.

We believe it is reasonably possible that a
portion of our legal and remediation costs will be recovered
from insurance carriers, and we are investigating other
potential recoveries. As of September 30, 2002, no
estimated recovery has been recorded as we have no basis for
making such an estimate at this time.

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 have been an increasing number of lawsuits against
owners and managers of multifamily properties relating to
moisture infiltration and mold issues. The Company has
implemented guidelines and procedures to address moisture
infiltration and to remediate any resulting mold issues if and
when they arise. The Company believes that these measures will
minimize the potential for any adverse effect on its residents.
Mold-related claims are often excluded from standard insurance
policies. Our property and general liability policies do not
include coverage for mold issues arising after June 30,
2002. Should an uninsured mold-related claim arise against the
Company, we would be required to use our own funds to resolve
the issue, including both remediation and litigation costs.
While mold issues have only resulted in significant claims at
one of our properties to date, we can make no assurance that

23



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##### Table of Contents



liabilities resulting from moisture infiltration
and the presence of or exposure to mold will not have a future
material impact on our financial results.


We are party to various other claims and routine
litigation arising in the ordinary course of business. When
considering the companys insurance coverage and other
aspects of our risk management program, 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.

Our involvement with derivative financial
instruments is limited and we do not use them for trading or
other speculative purposes. We occasionally utilize interest
rate swaps and caps as interest rate hedges to lower our overall
borrowing costs.

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
critical accounting policies are described in our 2001
Form 10-K.

Off Balance Sheet Arrangements

Investments in entities that are not controlled
through a majority voting interest are not consolidated and are
reported as investments in unconsolidated entities. Our
investments in unconsolidated entities include a
$51.2 million investment in real estate joint ventures,
$333.2 million investment in Ameriton, $132.5 million
investment in CES and $0.9 million investment in SMC at
September 30, 2002. In connection with our investments in
Ameriton, we have extended a $10 million committed
unsecured credit facility with $6.7 million of available
capacity at September 30, 2002. Additionally, we have
extended uncommitted unsecured credit facilities with Ameriton
and CES whereby advances are made solely at our discretion.
Ameriton and CES had $35.7 million and $64.0 million
of available capacity as of September 30, 2002,
respectively.

We have extended guarantees of certain
obligations (such as performance bonds), which are customary to
the type of business in which we engage. 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. See
Contractual Commitments for a summary of the
performance bonds we have guaranteed.

Contractual Commitments

The following table summarizes information
contained in Managements Discussion and Analysis of
Financial Condition and Results of Operations and in our
financial statements in this Form 10-Q regarding
contractual commitments at September 30, 2002 (amounts in
millions):

|                                           |       |      |       |          |  |          |       |           |  |       |       |       |  |   |         |         |  |   |         |         | 
|------------------------------------------ | ----- | ---- | ----- | -------- |  | -------- | ----- | --------- |  | ----- | ----- | ----- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                           |       |      |       | 2003     |  | 2005     |       | 2007      |  |      
|                                           |       | 2002 |       | and 2004 |  | and 2006 |       | thru 2083 |  | Total
|                                           |       |      |       |          |  |          |       |           |  |      
|Scheduled long-term debt maturities        |       | $    | 76.1  |          |  | $        | 351.9 |           |  | $     | 667.6 |       |  | $ | 2,882.5 |         |  | $ | 3,978.1 |        
|Unsecured credit facilities                |       |      | 7.9   |          |  |          | 301.5 |           |  |       |      |       |  |   |        |         |  |   | 309.4   |        
|Ameriton credit facility                   |       |      | 3.3   |          |  |          |      |           |  |       |      |       |  |   |        |         |  |   | 3.3     |        
|Development and redevelopment expenditures |       |      | 122.8 |          |  |          |      |           |  |       |      |       |  |   |        |         |  |   | 122.8   |        
|Performance bond guarantees(1)             |       |      | 52.3  |          |  |          | 85.1  |           |  |       |      |       |  |   |        |         |  |   | 137.4   |        
|Lease Commitments(2)                       |       |      | 4.8   |          |  |          | 12.3  |           |  |       | 11.1  |       |  |   | 164.6   |         |  |   | 192.8   |        
|                                           |       |      |       |          |  |          |       |           |  |       |       |       |  |   |         |         |  |   |         |        
|                                           | Total |      | $     | 267.2    |  |          | $     | 750.8     |  |       | $     | 678.7 |  |   | $       | 3,047.1 |  |   | $       | 4,743.8 | 
|                                           |       |      |       |          |  |          |       |           |  |       |       |       |  |   |         |         |  |   |         |        

24



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---



|    |                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 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.
|   
|(2) | Lease commitments relate principally to ground
    lease payments as of December 31, 2001. There have been no
    material changes since that date.                                                                                                                                                                                                            






|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures
    About Market Risk

Our capital structure includes the use of both
fixed and floating rate debt and we are exposed to the impact of
changes in interest rates. We also use interest rate swap and
interest rate cap derivative financial instruments in order to
modify interest rate characteristics of our debt in an effort to
minimize our overall borrowing costs. We do not utilize these
derivative financial instruments for speculative purposes. We
use the services of third party consultants to assist us in
evaluating our interest rate risk and counter-party credit risk.

As a result of our balance sheet management
philosophy, we have managed our debt maturities to create a
relatively level principal maturity schedule, without
significant repayment obligations in any year. Additionally, if
market conditions do not permit us to replace maturing debt at
comparable interest rates, we are not exposed to significant
portfolio level interest rate volatility due to the management
of our maturity schedules. There have been no material changes
to our market risk profile since December 31, 2001. See
Item 7a in our 2001 Form 10-K for detailed information
about the qualitative and quantitative disclosures about our
market risk.






|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

Within the 90-day period prior to the filing of
this report, an evaluation was carried out under the supervision
and with the participation of Archstone-Smith Operating
Trusts 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 Archstone-Smith Operating
Trusts disclosure controls and procedures are, to the best
of their knowledge, effective to ensure that information
required to be disclosed by Archstone-Smith Operating Trust in
reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules
and forms. Subsequent to the date of their evaluation, there
were no significant changes in Archstone-Smith Operating
Trusts internal controls or in other factors that could
significantly affect these controls, including any corrective
actions with regard to significant deficiencies and material
weaknesses.




PART II  OTHER
INFORMATION




Item 1.     Legal
Proceedings

Archstone-Smith is subject to litigation in
connection with moisture infiltration and mold issues at one of
our high-rise properties in Southeast Florida. We intend to
vigorously contest 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 actions nor is
it reasonably possible to estimate the amount of loss associated
with adverse decisions.




Item 2.     Changes
in Securities and Use of Proceeds

We converted 684,931 Series J Perpetual
Preferred Units to common Units in July 2002. In August 2002, We
redeemed 1,965,315 Series C Perpetual Preferred Units
at liquidation value plus accrued dividends. In addition,
75,000,000 Series E, F, and G Perpetual Preferred
Units converted to Operating Trust Perpetual Preferred Units and
870,523 DownREIT Operating Partnership Units converted to
Convertible Operating

25



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##### Table of Contents



Trust Units in August. In September 2002, 480,000
of the Series E Units were redeemed at liquidation value
plus accrued dividends. All such securities were issued in
transactions exempt from registration under Section 4(2)
and the rules thereunder.





Item 6.     Exhibits
and Reports on Form 8-K

(a) Exhibits:

|     |  |                                                                                                                                                                                                                                                                                        
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | 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 Trusts report on
    Form 10-Q for the quarter ended September 30, 2002)
|3.2  |  | 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 Trusts report on
    Form 10-Q for the quarter ended September 30, 2002)
|3.3  |  | 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 Trusts report on
    Form 10-Q for the quarter ended September 30, 2002)
|12.1 |  | Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                      
|12.2 |  | Computation of Ratio of Earnings to Combined
    Fixed Charges and Preferred Unit Dividends                                                                                                                                                                                            
|15.1 |  | Letter from KPMG LLP dated November 13, 2002
    regarding unaudited financial information                                                                                                                                                                                             
|99.1 |  | Certification of Chief Executive Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                 
|99.2 |  | Certification of Chief Financial Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                 

(b) Reports on Form 8-K: The
following report on form 8-K was filed during the quarter of the
period covered by this report.

|     |                 |                |  |                      |        |  |  |                                            
|---- | --------------- | -------------- |  | -------------------- | ------ |  |  | -------------------------------------------
|Date |                 | Items Reported |  | Financial Statements
|     |                 |                |  |                     
|     | August 15, 2002 |                |  |                      | Item 5 |  |  | Preliminary Unaudited Financial Information

26



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##### Table of Contents



SIGNATURES

Pursuant to the requirements 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 OPERATING TRUST



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

| |                                     
| | ------------------------------------
| |                                     
| | R. SCOT SELLERS                     
| | Chairman and Chief Executive Officer



| |     |                            
| | --- | ---------------------------
| | By: | /s/ CHARLES E. MUELLER, JR.

| |                              
| | -----------------------------
| |                              
| | Charles E. Mueller, Jr.      
| | Chief Financial Officer      
| | (Principal Financial Officer)



| |     |                       
| | --- | ----------------------
| | By: | /s/ MARK A. SCHUMACHER

| |                                     
| | ------------------------------------
| |                                     
| | Mark A. Schumacher                  
| | Senior Vice President and Controller
| | (Principal Accounting Officer)      

Date: November 13, 2002

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##### Table of Contents



CERTIFICATIONS

I, R. Scot Sellers, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                                   
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this quarterly report on
    Form 10-Q of Archstone-Smith Operating Trust (the
    registrant).                                                                                                                                                                                                                                 
|
| | 2. | Based on my knowledge, this quarterly report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    quarterly report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this quarterly
    report, fairly present in all material respects the financial
    condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this
    quarterly report;                   
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                              



| |    |                                                                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | Designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this quarterly report is being prepared;



| |    |                                                                                                                                                                                                          
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) | Evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and



| |    |                                                                                                                                                                                
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c) | Presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;



| |    |                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation,
    to the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function);



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | All significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and



| |    |                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) | Any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer
    and I have indicated in this quarterly report whether or
    not there were significant changes in internal controls or in
    other factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.



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

| |                                     
| | ------------------------------------
| |                                     
| | R. Scot Sellers                     
| | Chairman and Chief Executive Officer

Date: November 13, 2002

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##### Table of Contents



CERTIFICATIONS

I, Charles E. Mueller, Jr., certify that:



| |    |                                                                                                                                                                                                                                                                                                                                                   
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this quarterly report on
    Form 10-Q of Archstone-Smith Operating Trust (the
    registrant).                                                                                                                                                                                                                                 
|
| | 2. | Based on my knowledge, this quarterly report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    quarterly report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this quarterly
    report, fairly present in all material respects the financial
    condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this
    quarterly report;                   
|
| | 4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                              



| |    |                                                                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | Designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this quarterly report is being prepared;
|
| | b) | Evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c) | Presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |    |                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation,
    to the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function);



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | All significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and



| |    |                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b) | Any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officer
    and I have indicated in this quarterly report whether or
    not there were significant changes in internal controls or in
    other factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.



| |     |                            
| | --- | ---------------------------
| | By: | /s/ CHARLES E. MUELLER, JR.

| |                              
| | -----------------------------
| |                              
| | Charles E. Mueller, Jr.      
| | Chief Financial Officer      
| | (Principal Financial Officer)

Date: November 13, 2002

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##### Table of Contents






EXHIBIT INDEX

|        |      |             |  |                                                                                                                                                                                                                                                                                        
|------- | ---- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 3.1  |             |  | 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 Trusts report on
    Form 10-Q for the quarter ended September 30, 2002)
|        | 3.2  |             |  | 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 Trusts report on
    Form 10-Q for the quarter ended September 30, 2002)
|        | 3.3  |             |  | 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 Trusts report on
    Form 10-Q for the quarter ended September 30, 2002)
|        | 12.1 |             |  | Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                      
|        | 12.2 |             |  | Computation of Ratio of Earnings to Combined
    Fixed Charges and Preferred Unit Dividends                                                                                                                                                                                            
|        | 15.1 |             |  | Letter from KPMG LLP dated November 13, 2002
    regarding unaudited financial information                                                                                                                                                                                             
|        | 99.1 |             |  | Certification of Chief Executive Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                 
|        | 99.2 |             |  | Certification of Chief Financial Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002