##### 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, 2003                                           
|  
|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

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

At October 31, 2003, there were
approximately 17,777,695 Class A-1 Common Units outstanding
held by non-affiliates.



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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, OTHER COMMON UNITHOLDERS INTEREST AND COMPREHENSIVE INCOME
|                                                 |                                                                                               | 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 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                      
|INDEX TO EXHIBITS                               
|EX-12.1 Computation of Ratio of Earnings        
|EX-12.2 Computation of Ratio of Earnings        
|EX-15.1 Letter from KPMG LLP                    
|EX-31.1 Certification of Chief Executive Officer
|EX-31.2 Certification of Chief Financial Officer
|EX-32.1 Certification of Chief Executive Officer
|EX-32.2 Certification of Chief Financial Officer



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##### Table of Contents



TABLE OF CONTENTS

|        |    |             |  |                                                                                                                                                                                     |  |  |    | 
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|        |    |             |  | Page                                                                                                                                                                               
|Item    |    | Description |  | Number                                                                                                                                                                             
|        |    |             |  |                                                                                                                                                                                    
|PART 1 
|        | 1. |             |  | Financial Statements                                                                                                                                                                |  |  |    | 
|        |    |             |  | Condensed Consolidated Balance
    Sheets  September 30, 2003
    (unaudited) and December 31, 2002                                                                                |  |  | 3  | 
|        |    |             |  | Condensed Consolidated Statements of
    Earnings  Three and nine months ended
    September 30, 2003 and 2002 (unaudited)                                                         |  |  | 4  | 
|        |    |             |  | Condensed Consolidated Statement of
    Unitholders Equity, Other Common Unitholders
    Interest and Comprehensive Income  Nine months
    ended September 30, 2003 (unaudited) |  |  | 5  | 
|        |    |             |  | Condensed Consolidated Statements of Cash
    Flows  Nine months ended September 30, 2003
    and 2002 (unaudited)                                                                 |  |  | 6  | 
|        |    |             |  | Notes to Condensed Consolidated Financial
    Statements (unaudited)                                                                                                                |  |  | 7  | 
|        |    |             |  | Independent Accountants Review Report                                                                                                                                              |  |  | 18 | 
|        | 2. |             |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                                                                           |  |  | 19 | 
|        | 3. |             |  | Quantitative and Qualitative Disclosures About
    Market Risk                                                                                                                      |  |  | 29 | 
|        | 4. |             |  | Controls and Procedures                                                                                                                                                             |  |  | 30 | 
|PART II
|        | 1. |             |  | Legal Proceedings                                                                                                                                                                   |  |  | 30 | 
|        | 6. |             |  | Exhibits and Reports on Form 8-K                                                                                                                                                    |  |  | 31 | 

2



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##### Table of Contents






PART I  FINANCIAL
INFORMATION






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

ARCHSTONE-SMITH OPERATING TRUST






CONDENSED CONSOLIDATED BALANCE
SHEETS


|                                                                               |                                                                                                            |                              |           |              |           |   |           |           |           | 
|------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------- | ---------------------------- | --------- | ------------ | --------- | - | --------- | --------- | --------- | 
|                                                                               |                                                                                                            | September 30,                |           | December 31,
|                                                                               |                                                                                                            | 2003                         |           | 2002        
|                                                                               |                                                                                                            |                              |           |             
|                                                                               |                                                                                                            | (Unaudited)                  |           |             
|                                                                               |                                                                                                            |                             
|                                                                               |                                                                                                            | (In thousands,              
|                                                                               |                                                                                                            | except unit data)           
|ASSETS                                                                        
|Real estate                                                                    |                                                                                                            | $                            | 8,373,693 |              |           | $ | 7,713,562 |          
|Real estate  held for sale                                                    |                                                                                                            |                              | 523,319   |              |           |   | 1,584,173 |          
|Less accumulated depreciation                                                  |                                                                                                            |                              | 630,813   |              |           |   | 578,855   |          
|                                                                               |                                                                                                            |                              |           |              |           |   |           |          
|                                                                               |                                                                                                            |                              | 8,266,199 |              |           |   | 8,718,880 |          
|Investments in and advances to unconsolidated
    entities                     |                                                                                                            |                              | 97,054    |              |           |   | 116,594   |          
|                                                                               |                                                                                                            |                              |           |              |           |   |           |          
|                                                                               |                                                                                                            | Net investments              |           |              | 8,363,253 |   |           |           | 8,835,474 | 
|Cash and cash equivalents                                                      |                                                                                                            |                              | 35,196    |              |           |   | 12,846    |          
|Restricted cash in tax-deferred exchange escrow                                |                                                                                                            |                              | 84,232    |              |           |   |          |          
|Other assets                                                                   |                                                                                                            |                              | 302,176   |              |           |   | 247,706   |          
|                                                                               |                                                                                                            |                              |           |              |           |   |           |          
|                                                                               |                                                                                                            | Total assets                 |           | $            | 8,784,857 |   |           | $         | 9,096,026 | 
|                                                                               |                                                                                                            |                              |           |              |           |   |           |          
|                                                                              
|LIABILITIES AND EQUITY                                                        
|Liabilities:                                                                   |                                                                                                            |                              |           |              |           |   |           |          
|                                                                               | Unsecured credit facilities                                                                                |                              | $         | 2,000        |           |   | $         | 365,578   |          
|                                                                               | Long-Term Unsecured Debt                                                                                   |                              |           | 1,869,199    |           |   |           | 1,776,103 |          
|                                                                               | Mortgages payable                                                                                          |                              |           | 1,900,209    |           |   |           | 1,854,318 |          
|                                                                               | Mortgages payable  held for sale                                                                          |                              |           | 56,553       |           |   |           | 325,679   |          
|                                                                               | Distributions payable                                                                                      |                              |           | 1,593        |           |   |           | 91,616    |          
|                                                                               | Accounts payable, accrued expenses and other
    liabilities                                               |                              |           | 287,908      |           |   |           | 301,393   |          
|                                                                               |                                                                                                            |                              |           |              |           |   |           |          
|                                                                               |                                                                                                            | Total liabilities            |           |              | 4,117,462 |   |           |           | 4,714,687 | 
|                                                                               |                                                                                                            |                              |           |              |           |   |           |          
|Minority interest                                                              |                                                                                                            |                              | 11,510    |              |           |   | 2,600     |          
|                                                                               |                                                                                                            |                              |           |              |           |   |           |          
|Other common unitholders interest, at
    redemption value (A-1 Common Units: |                                                                                                            |                              |           |              |           |   |           |          
|                                                                               | 24,896,737 in 2003 and 24,621,853 in 2002)                                                                 |                              |           | 656,784      |           |   |           | 579,678   |          
|                                                                               |                                                                                                            |                              |           |              |           |   |           |          
|Unitholders equity:                                                           |                                                                                                            |                              |           |              |           |   |           |          
|                                                                               | Convertible Preferred Units                                                                                |                              |           | 122,648      |           |   |           | 194,671   |          
|                                                                               | Perpetual Preferred Units                                                                                  |                              |           | 160,120      |           |   |           | 160,550   |          
|                                                                               | Common unitholders equity (A-2 Common
    Units: 190,561,070 units in 2003 and 180,705,795 units in 2002) |                              |           | 3,704,083    |           |   |           | 3,456,179 |          
|                                                                               | Accumulated other comprehensive earnings (loss)                                                            |                              |           | 12,250       |           |   |           | (12,339   | )        
|                                                                               |                                                                                                            |                              |           |              |           |   |           |          
|                                                                               |                                                                                                            | Total unitholders equity    |           |              | 3,999,101 |   |           |           | 3,799,061 | 
|                                                                               |                                                                                                            |                              |           |              |           |   |           |          
|                                                                               |                                                                                                            | Total liabilities and equity |           | $            | 8,784,857 |   |           | $         | 9,096,026 | 
|                                                                               |                                                                                                            |                              |           |              |           |   |           |          

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

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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,    
|                                                        |                                                                |                                         |         |                  
|                                                        |                                                                | 2003                                    |         | 2002              |  | 2003 |         | 2002   
|                                                        |                                                                |                                         |         |                   |  |      |         |        
|                                                        |                                                                |                                        
|                                                        |                                                                | (In thousands, except per unit amounts)
|                                                        |                                                                | (Unaudited)                            
|Revenues:                                               |                                                                |                                         |         |                   |  |      |         |         |  |   |         |         |  |   |         |        
|                                                        | Rental revenues                                                |                                         | $       | 222,565           |  |      | $       | 216,860 |  |   | $       | 655,418 |  |   | $       | 638,542 | 
|                                                        | Income from unconsolidated entities                            |                                         |         | 1,714             |  |      |         | 3,748   |  |   |         | 1,008   |  |   |         | 15,429  | 
|                                                        | Other income                                                   |                                         |         | 3,833             |  |      |         | 1,506   |  |   |         | 14,690  |  |   |         | 4,760   | 
|                                                        |                                                                |                                         |         |                   |  |      |         |         |  |   |         |         |  |   |         |        
|                                                        |                                                                |                                         | 228,112 |                   |  |      | 222,114 |         |  |   | 671,116 |         |  |   | 658,731 |        
|                                                        |                                                                |                                         |         |                   |  |      |         |         |  |   |         |         |  |   |         |        
|Expenses:                                               |                                                                |                                         |         |                   |  |      |         |         |  |   |         |         |  |   |         |        
|                                                        | Rental expenses                                                |                                         |         | 60,326            |  |      |         | 59,847  |  |   |         | 172,718 |  |   |         | 166,338 | 
|                                                        | Real estate taxes                                              |                                         |         | 21,119            |  |      |         | 18,445  |  |   |         | 61,171  |  |   |         | 57,132  | 
|                                                        | Depreciation on real estate investments                        |                                         |         | 47,795            |  |      |         | 42,633  |  |   |         | 137,478 |  |   |         | 123,740 | 
|                                                        | Interest expense                                               |                                         |         | 46,659            |  |      |         | 39,884  |  |   |         | 138,050 |  |   |         | 121,653 | 
|                                                        | General and administrative expenses                            |                                         |         | 12,558            |  |      |         | 11,737  |  |   |         | 38,200  |  |   |         | 33,072  | 
|                                                        | Other expenses                                                 |                                         |         | 10,443            |  |      |         | 12,740  |  |   |         | 39,983  |  |   |         | 18,169  | 
|                                                        |                                                                |                                         |         |                   |  |      |         |         |  |   |         |         |  |   |         |        
|                                                        |                                                                |                                         | 198,900 |                   |  |      | 185,286 |         |  |   | 587,600 |         |  |   | 520,104 |        
|                                                        |                                                                |                                         |         |                   |  |      |         |         |  |   |         |         |  |   |         |        
|Earnings from operations                                |                                                                |                                         | 29,212  |                   |  |      | 36,828  |         |  |   | 83,516  |         |  |   | 138,627 |        
|                                                        | Plus: gains on dispositions of real estate
    investments     |                                         |         |                  |  |      |         | 3,500   |  |   |         |        |  |   |         | 28,044  | 
|                                                        | Less: minority interest                                        |                                         |         | 10                |  |      |         | 1,319   |  |   |         | 17      |  |   |         | 5,205   | 
|                                                        |                                                                |                                         |         |                   |  |      |         |         |  |   |         |         |  |   |         |        
|Net earnings before discontinued operations             |                                                                |                                         | 29,202  |                   |  |      | 39,009  |         |  |   | 83,499  |         |  |   | 161,466 |        
|                                                        | Plus: net earnings from discontinued apartment
    communities |                                         |         | 148,505           |  |      |         | 32,221  |  |   |         | 266,472 |  |   |         | 70,842  | 
|                                                        |                                                                |                                         |         |                   |  |      |         |         |  |   |         |         |  |   |         |        
|Net earnings                                            |                                                                |                                         | 177,707 |                   |  |      | 71,230  |         |  |   | 349,971 |         |  |   | 232,308 |        
|                                                        | Less: Preferred Unit distributions                             |                                         |         | 6,128             |  |      |         | 8,510   |  |   |         | 21,737  |  |   |         | 25,950  | 
|                                                        |                                                                |                                         |         |                   |  |      |         |         |  |   |         |         |  |   |         |        
|Net earnings attributable to Common
    Units  Basic   |                                                                | $                                       | 171,579 |                   |  | $    | 62,720  |         |  | $ | 328,234 |         |  | $ | 206,358 |        
|                                                        |                                                                |                                         |         |                   |  |      |         |         |  |   |         |         |  |   |         |        
|Weighted average Common Units
    outstanding  Basic   |                                                                |                                         | 214,195 |                   |  |      | 204,057 |         |  |   | 210,431 |         |  |   | 201,930 |        
|                                                        |                                                                |                                         |         |                   |  |      |         |         |  |   |         |         |  |   |         |        
|Weighted average Common Units
    outstanding  Diluted |                                                                |                                         | 221,519 |                   |  |      | 205,025 |         |  |   | 219,968 |         |  |   | 203,162 |        
|                                                        |                                                                |                                         |         |                   |  |      |         |         |  |   |         |         |  |   |         |        
|Earnings per Common Unit  Basic:                       |                                                                |                                         |         |                   |  |      |         |         |  |   |         |         |  |   |         |        
|                                                        | Net earnings before discontinued operations                    |                                         | $       | 0.11              |  |      | $       | 0.15    |  |   | $       | 0.29    |  |   | $       | 0.67    | 
|                                                        | Discontinued operations, net                                   |                                         |         | 0.69              |  |      |         | 0.16    |  |   |         | 1.27    |  |   |         | 0.35    | 
|                                                        |                                                                |                                         |         |                   |  |      |         |         |  |   |         |         |  |   |         |        
|                                                        | Net earnings                                                   |                                         | $       | 0.80              |  |      | $       | 0.31    |  |   | $       | 1.56    |  |   | $       | 1.02    | 
|                                                        |                                                                |                                         |         |                   |  |      |         |         |  |   |         |         |  |   |         |        
|Earnings per Common Unit  Diluted:                     |                                                                |                                         |         |                   |  |      |         |         |  |   |         |         |  |   |         |        
|                                                        | Net earnings before discontinued operations                    |                                         | $       | 0.11              |  |      | $       | 0.15    |  |   | $       | 0.29    |  |   | $       | 0.67    | 
|                                                        | Discontinued operations, net                                   |                                         |         | 0.68              |  |      |         | 0.16    |  |   |         | 1.26    |  |   |         | 0.35    | 
|                                                        |                                                                |                                         |         |                   |  |      |         |         |  |   |         |         |  |   |         |        
|                                                        | Net earnings                                                   |                                         | $       | 0.79              |  |      | $       | 0.31    |  |   | $       | 1.55    |  |   | $       | 1.02    | 
|                                                        |                                                                |                                         |         |                   |  |      |         |         |  |   |         |         |  |   |         |        
|Distributions paid per Common Unit                      |                                                                | $                                       | 0.4275  |                   |  | $    | 0.4250  |         |  | $ | 1.2825  |         |  | $ | 1.2750  |        
|                                                        |                                                                |                                         |         |                   |  |      |         |         |  |   |         |         |  |   |         |        

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

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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST






CONDENSED CONSOLIDATED STATEMENT OF
UNITHOLDERS EQUITY,


OTHER COMMON UNITHOLDERS INTEREST AND
COMPREHENSIVE INCOME


Nine Months Ended September 30,
2003


|                                                  |                                               |                |         |             |  |              |         |                 |  |              |           |              |   |       |         |        |  |   |           |          |   |   |         |         |   |   |           |          |  
|------------------------------------------------- | --------------------------------------------- | -------------- | ------- | ----------- |  | ------------ | ------- | --------------- |  | ------------ | --------- | ------------ | - | ----- | ------- | ------ |  | - | --------- | -------- | - | - | ------- | ------- | - | - | --------- | -------- | -
|                                                  |                                               | Convertible    |         | Perpetual   |  |              |         |                 |  |              |           |              |   |      
|                                                  |                                               | Preferred      |         | Preferred   |  |              |         |                 |  |              |           |              |   |      
|                                                  |                                               | Units at       |         | Units at    |  |              |         | Accumulated     |  |              |           | Other        |   |      
|                                                  |                                               | Aggregate      |         | Aggregate   |  | Common       |         | Other           |  | Total        |           | Common       |   |      
|                                                  |                                               | Liquidation    |         | Liquidation |  | Unitholders |         | Comprehensive   |  | Unitholders |           | Unitholders |   |      
|                                                  |                                               | Preference     |         | Preference  |  | Equity       |         | Earnings/(Loss) |  | Equity       |           | Interest     |   | Total
|                                                  |                                               |                |         |             |  |              |         |                 |  |              |           |              |   |      
|                                                  |                                               |               
|                                                  |                                               | (In thousands)
|                                                  |                                               | (Unaudited)   
|Balances at December 31, 2002                     |                                               | $              | 194,671 |             |  | $            | 160,550 |                 |  | $            | 3,456,179 |              |   | $     | (12,339 | )      |  | $ | 3,799,061 |          |   | $ | 579,678 |         |   | $ | 4,378,739 |         
|Comprehensive income:                             |                                               |                |         |             |  |              |         |                 |  |              |           |              |   |       |         |        |  |   |           |          |   |   |         |         |   |   |           |         
|                                                  | Net earnings                                  |                |         |            |  |              |         |                |  |              |           | 306,801      |   |       |         |       |  |   |           | 306,801  |   |   |         | 43,170  |   |   |           | 349,971  |  
|                                                  | Preferred Unit distributions                  |                |         |            |  |              |         |                |  |              |           | (21,737      | ) |       |         |       |  |   |           | (21,737  | ) |   |         |        |   |   |           | (21,737  | )
|                                                  | Change in fair value of cash flow hedges      |                |         |            |  |              |         |                |  |              |           |             |   |       |         | 1,475  |  |   |           | 1,475    |   |   |         |        |   |   |           | 1,475    |  
|                                                  | Change in fair value of marketable securities |                |         |            |  |              |         |                |  |              |           |             |   |       |         | 23,114 |  |   |           | 23,114   |   |   |         |        |   |   |           | 23,114   |  
|                                                  |                                               |                |         |             |  |              |         |                 |  |              |           |              |   |       |         |        |  |   |           |          |   |   |         |         |   |   |           |         
|Comprehensive income attributable to Common Units |                                               |                |         |             |  |              |         |                 |  |              |           |              |   |       |         |        |  |   |           |          |   |   |         |         |   |   | 352,823   |         
|                                                  |                                               |                |         |             |  |              |         |                 |  |              |           |              |   |       |         |        |  |   |           |          |   |   |         |         |   |   |           |         
|                                                  | Common Unit distributions                     |                |         |            |  |              |         |                |  |              |           | (162,136     | ) |       |         |       |  |   |           | (162,136 | ) |   |         | (21,306 | ) |   |           | (183,442 | )
|A-1 Common Units converted into A-2 Common Units  |                                               |                |        |             |  |              |        |                 |  |              | 22,913    |              |   |       |        |        |  |   | 22,913    |          |   |   | (22,913 | )       |   |   |          |         
|Conversion of Preferred Units into Common Units   |                                               |                | (72,023 | )           |  |              |        |                 |  |              | 72,023    |              |   |       |        |        |  |   |          |          |   |   |        |         |   |   |          |         
|Common Unit repurchases                           |                                               |                |        |             |  |              |        |                 |  |              | (13,163   | )            |   |       |        |        |  |   | (13,163   | )        |   |   |        |         |   |   | (13,163   | )       
|Preferred Unit repurchases                        |                                               |                |        |             |  |              | (430    | )               |  |              | (30       | )            |   |       |        |        |  |   | (460      | )        |   |   |        |         |   |   | (460      | )       
|Proceeds from Dividend Reinvestment Plan (DRIP)   |                                               |                |        |             |  |              |        |                 |  |              | 48,536    |              |   |       |        |        |  |   | 48,536    |          |   |   |        |         |   |   | 48,536    |         
|Issuance of A-1 Common Units                      |                                               |                |        |             |  |              |        |                 |  |              |          |              |   |       |        |        |  |   |          |          |   |   | 33,355  |         |   |   | 33,355    |         
|Adjustment to redemption value                    |                                               |                |        |             |  |              |        |                 |  |              | (44,800   | )            |   |       |         |        |  |   | (44,800   | )        |   |   | 44,800  |         |   |   |          |         
|Other, net                                        |                                               |                |        |             |  |              |        |                 |  |              | 39,497    |              |   |       |        |        |  |   | 39,497    |          |   |   |         |         |   |   | 39,497    |         
|                                                  |                                               |                |         |             |  |              |         |                 |  |              |           |              |   |       |         |        |  |   |           |          |   |   |         |         |   |   |           |         
|Balances at September 30, 2003                    |                                               | $              | 122,648 |             |  | $            | 160,120 |                 |  | $            | 3,704,083 |              |   | $     | 12,250  |        |  | $ | 3,999,101 |          |   | $ | 656,784 |         |   | $ | 4,655,885 |         
|                                                  |                                               |                |         |             |  |              |         |                 |  |              |           |              |   |       |         |        |  |   |           |          |   |   |         |         |   |   |           |         

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






CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                             |                                                                                              |                                                              |        |           |          |   |        |          |          |  
|------------------------------------------------------------ | -------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ------ | --------- | -------- | - | ------ | -------- | -------- | -
|                                                             |                                                                                              |                                                             
|                                                             |                                                                                              | Nine Months Ended                                           
|                                                             |                                                                                              | September 30,                                               
|                                                             |                                                                                              |                                                             
|                                                             |                                                                                              | 2003                                                         |        | 2002     
|                                                             |                                                                                              |                                                              |        |          
|                                                             |                                                                                              |                                                             
|                                                             |                                                                                              | (In thousands)                                              
|                                                             |                                                                                              | (Unaudited)                                                 
|Operating activities:                                        |                                                                                              |                                                              |        |           |          |   |        |         
|                                                             | Net earnings                                                                                 |                                                              | $      | 349,971   |          |   | $      | 232,308  |         
|                                                             | Adjustments to reconcile net earnings to net cash
    flow provided by operating activities: |                                                              |        |           |          |   |        |          |         
|                                                             |                                                                                              | Depreciation and amortization                                |        |           | 148,162  |   |        |          | 147,577  |  
|                                                             |                                                                                              | Gains on dispositions of depreciated real estate,
    net    |        |           | (243,718 | ) |        |          | (68,801  | )
|                                                             |                                                                                              | Provision for possible loss on real estate
    investments   |        |           | 3,714    |   |        |          |         |  
|                                                             |                                                                                              | Minority interest                                            |        |           | 17       |   |        |          | 5,205    |  
|                                                             | Change in other assets                                                                       |                                                              |        | 7,972     |          |   |        | (37,525  | )       
|                                                             | Change in accounts payable, accrued expenses and
    other liabilities                       |                                                              |        | (19,413   | )        |   |        | 39,997   |         
|                                                             | Other, net                                                                                   |                                                              |        | 4,030     |          |   |        | (2,097   | )       
|                                                             |                                                                                              |                                                              |        |           |          |   |        |         
|                                                             |                                                                                              | Net cash flow provided by operating activities               |        |           | 250,735  |   |        |          | 316,664  |  
|                                                             |                                                                                              |                                                              |        |           |          |   |        |         
|Investing activities:                                        |                                                                                              |                                                              |        |           |          |   |        |         
|                                                             | Real estate investments                                                                      |                                                              |        | (623,713  | )        |   |        | (616,606 | )       
|                                                             | Change in investments in and advances to
    unconsolidated entities, net                    |                                                              |        | 19,540    |          |   |        | (8,705   | )       
|                                                             | Proceeds from dispositions, net of closing costs                                             |                                                              |        | 1,217,461 |          |   |        | 246,012  |         
|                                                             | Change in tax-deferred exchange escrow                                                       |                                                              |        | (84,232   | )        |   |        | 79,200   |         
|                                                             | Other, net                                                                                   |                                                              |        | (47,061   | )        |   |        | (17,420  | )       
|                                                             |                                                                                              |                                                              |        |           |          |   |        |         
|                                                             |                                                                                              | Net cash flow provided by (used in) investing
    activities |        |           | 481,995  |   |        |          | (317,519 | )
|                                                             |                                                                                              |                                                              |        |           |          |   |        |         
|Financing activities:                                        |                                                                                              |                                                              |        |           |          |   |        |         
|                                                             | Proceeds from Long-Term Unsecured Debt, net of
    issuance costs                            |                                                              |        | 247,225   |          |   |        | 495,879  |         
|                                                             | Payments on Long-Term Unsecured Debt                                                         |                                                              |        | (151,250  | )        |   |        | (27,500  | )       
|                                                             | Principal prepayment of mortgages payable,
    including prepayment penalties                |                                                              |        | (263,442  | )        |   |        | (454,000 | )       
|                                                             | Regularly scheduled principal payments on
    mortgages payable                              |                                                              |        | (8,993    | )        |   |        | (8,112   | )       
|                                                             | Proceeds from mortgage notes payable                                                         |                                                              |        | 52,299    |          |   |        | 178,408  |         
|                                                             | Payments on/proceeds from unsecured credit
    facilities, net                               |                                                              |        | (363,578  | )        |   |        | 120,761  |         
|                                                             | Proceeds from Common Units issued under DRIP and
    employee stock options                  |                                                              |        | 87,885    |          |   |        | 54,933   |         
|                                                             | Repurchase of Common Units and Preferred Units                                               |                                                              |        | (13,624   | )        |   |        | (49,300  | )       
|                                                             | Redemption of perpetual preferred units                                                      |                                                              |        |          |          |   |        | (12,000  | )       
|                                                             | Cash distributions paid on Common Units                                                      |                                                              |        | (271,128  | )        |   |        | (256,966 | )       
|                                                             | Cash distributions paid on Preferred Units                                                   |                                                              |        | (23,955   | )        |   |        | (26,011  | )       
|                                                             | Cash distributions paid to minority interests                                                |                                                              |        |          |          |   |        | (5,166   | )       
|                                                             | Other, net                                                                                   |                                                              |        | (1,819    | )        |   |        | 2,382    |         
|                                                             |                                                                                              |                                                              |        |           |          |   |        |         
|                                                             |                                                                                              | Net cash flow (used in) provided by financing
    activities |        |           | (710,380 | ) |        |          | 13,308   |  
|                                                             |                                                                                              |                                                              |        |           |          |   |        |         
|Net change in cash and cash equivalents                      |                                                                                              |                                                              | 22,350 |           |          |   | 12,453 |         
|Cash and cash equivalents at beginning of period             |                                                                                              |                                                              | 12,846 |           |          |   | 7,027  |         
|                                                             |                                                                                              |                                                              |        |           |          |   |        |         
|Cash and cash equivalents at end of period                   |                                                                                              | $                                                            | 35,196 |           |          | $ | 19,480 |         
|                                                             |                                                                                              |                                                              |        |           |          |   |        |         
|Significant non-cash investing and financing
    activities: |                                                                                              |                                                              |        |           |          |   |        |         
|                                                             | A-1 Common Units issued in exchange for land                                                 |                                                              |        | 33,355    |          |   |        |         |         
|                                                             | Conversion of Series H Preferred Units into
    Common Units                                 |                                                              |        | 71,500    |          |   |        |         |         
|                                                             | A-1 Common Units converted to A-2 Common Units                                               |                                                              |        | 22,913    |          |   |        | 41,478   |         
|                                                             | Conversion of Series A Preferred Units into
    Common Units                                 |                                                              |        |          |          |   |        | 5,460    |         
|                                                             | Conversion of Series J Preferred Units into
    Common Units                                 |                                                              |        |          |          |   |        | 25,000   |         
|                                                             | Assumption of mortgages payable upon purchase of
    apartment communities                   |                                                              |        |          |          |   |        | 205,542  |         
|                                                             | B Common Units issued in exchange for real estate                                            |                                                              |        |          |          |   |        | 8,730    |         

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

6



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST






NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS


September 30, 2003 and 2002


(Unaudited)




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



| |         
| | --------
| | 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 own approximately 88.4% of the Operating
Trusts outstanding Common Units and the remaining 11.6%
were owned by minority interest holders. As used herein,
we, our and the company
refers to the Operating Trust and Archstone-Smith, collectively,
except where the context otherwise requires.



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

In October 2001, Archstone Communities Trust
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. 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. See Note 2 in our Annual Report on Form 10-K
(2002 Form 10-K) for a more complete
description of the reorganization and the Smith Merger.



| |                            
| | ---------------------------
| | 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 management
believes that the disclosures presented are adequate for interim
reporting, these interim financial statements should be read in
conjunction with the financial statements and notes included in
Archstone-Smith Operating Trusts 2002 Form 10-K. See
the glossary in our 2002 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 three and nine months ended
September 30, 2003 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.



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

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

7



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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



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

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



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

As of September 30, 2003, the company has
one stock-based employee compensation plan. Effective
January 1, 2003, the company adopted the fair value
recognition provision of FASB Statement No. 123,
Accounting for Stock-Based Compensation,prospectively to all employee awards granted, modified or
settled after January 1, 2003, which results in expensing
of options. There were no significant employee awards granted
during the nine months ended September 30, 2003. For
employee awards granted prior to January 1, 2003, the company
accounted for this plan under the recognition and measurement
provisions of APB Opinion No. 25, Accounting for
Stock Issued to Employees,and related
Interpretations. With respect to options granted under the plan
prior to January 1, 2003, no stock-based employee
compensation expense is reflected in the accompanying condensed
consolidated statements of earnings, as all options granted
under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. The
following table illustrates the effect on net earnings and
earnings per share if the fair value based method had been
applied to all outstanding and unvested awards in each period
(dollar amounts in thousands, except per share amounts):

|                                                                                                                    |                       |                    |           |                   |  |      |           |      |  |   |           |      |  |   |           |      | 
|------------------------------------------------------------------------------------------------------------------- | --------------------- | ------------------ | --------- | ----------------- |  | ---- | --------- | ---- |  | - | --------- | ---- |  | - | --------- | ---- | 
|                                                                                                                    |                       |                    |           |                  
|                                                                                                                    |                       | Three Months Ended |           | Nine Months Ended
|                                                                                                                    |                       | September 30,      |           | September 30,    
|                                                                                                                    |                       |                    |           |                  
|                                                                                                                    |                       | 2003               |           | 2002              |  | 2003 |           | 2002
|                                                                                                                    |                       |                    |           |                   |  |      |           |     
|Net earnings attributable to Common
    Units  Basic                                                               |                       | $                  | 171,579   |                   |  | $    | 62,720    |      |  | $ | 328,234   |      |  | $ | 206,358   |     
|Add: Stock-based employee compensation expense
    included in reported net earnings                                |                       |                    |          |                   |  |      |          |      |  |   |          |      |  |   |          |     
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards |                       |                    | (429      | )                 |  |      | (514      | )    |  |   | (1,394    | )    |  |   | (1,584    | )   
|                                                                                                                    |                       |                    |           |                   |  |      |           |      |  |   |           |      |  |   |           |     
|Pro forma net earnings attributable to Common
    Units  Basic                                                     |                       | $                  | 171,150   |                   |  | $    | 62,206    |      |  | $ | 326,840   |      |  | $ | 204,774   |     
|                                                                                                                    |                       |                    |           |                   |  |      |           |      |  |   |           |      |  |   |           |     
|Net earnings per Common Unit:                                                                                       |                       |                    |           |                   |  |      |           |      |  |   |           |      |  |   |           |     
|                                                                                                                    | Basic  as reported   |                    | $         | 0.80              |  |      | $         | 0.31 |  |   | $         | 1.56 |  |   | $         | 1.02 | 
|                                                                                                                    |                       |                    |           |                   |  |      |           |      |  |   |           |      |  |   |           |     
|                                                                                                                    | Basic  pro forma     |                    | $         | 0.80              |  |      | $         | 0.30 |  |   | $         | 1.55 |  |   | $         | 1.01 | 
|                                                                                                                    |                       |                    |           |                   |  |      |           |      |  |   |           |      |  |   |           |     
|                                                                                                                    | Diluted  as reported |                    | $         | 0.79              |  |      | $         | 0.31 |  |   | $         | 1.55 |  |   | $         | 1.02 | 
|                                                                                                                    |                       |                    |           |                   |  |      |           |      |  |   |           |      |  |   |           |     
|                                                                                                                    | Diluted  pro forma   |                    | $         | 0.79              |  |      | $         | 0.30 |  |   | $         | 1.54 |  |   | $         | 1.01 | 
|                                                                                                                    |                       |                    |           |                   |  |      |           |      |  |   |           |      |  |   |           |     
|Weighted average risk-free interest rate                                                                            |                       |                    | 3.54      | %                 |  |      | 4.06      | %    |  |   | 3.54      | %    |  |   | 4.06      | %   
|Weighted average dividend yield                                                                                     |                       |                    | 6.74      | %                 |  |      | 6.79      | %    |  |   | 6.74      | %    |  |   | 6.79      | %   
|Weighted average volatility                                                                                         |                       |                    | 19.58     | %                 |  |      | 15.67     | %    |  |   | 19.58     | %    |  |   | 15.67     | %   
|Weighted average expected option life                                                                               |                       |                    | 5.0 years |                   |  |      | 5.0 years |      |  |   | 5.0 years |      |  |   | 5.0 years |     

8



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

We adopted FASB Interpretation No. 46,
Consolidation of Variable Interest Entities,in July 2003. This Interpretation clarifies the application
of Accounting Research Bulletin No. 51,
Consolidated Financial Statements,and
requires us to consolidate the results of variable interest
entities in which we have a majority variable interest. Due to
the adoption of this Interpretation, we have consolidated the
results of our subsidiary, Ameriton Properties Incorporated
(Ameriton), for all periods presented.

In April 2003, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 149,
Amendment of Statement 133 on Derivative Instruments
and Hedging Activities. We adopted this Statement for
contracts or hedging relationships entered into or modified
after June 30, 2003. Its purpose is to provide more
consistent application and clarification of SFAS 133. The
adoption of SFAS 149 did not have a material impact on our
financial position, net earnings or cash flows.

In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This
Statement is effective for financial instruments entered into or
modified after May 31, 2003, with the exception of the
application to non-controlling (minority) interests in
finite-life entities, which has been deferred indefinitely. The
Statement requires that certain financial instruments, formerly
presented as equity, be classified as liabilities. The adoption
of SFAS 150 did not have a material impact on our financial
position, net earnings or cash flows.



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

Certain 2002 amounts have been reclassified to
conform to the 2003 presentation.



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

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

|                                                                                             |                                              |                                                                         |         |                   |       |      |         |      |     |   |         |        |       |   |         |   |       | 
|-------------------------------------------------------------------------------------------- | -------------------------------------------- | ----------------------------------------------------------------------- | ------- | ----------------- | ----- | ---- | ------- | ---- | --- | - | ------- | ------ | ----- | - | ------- | - | ----- | 
|                                                                                             |                                              |                                                                         |         |                  
|                                                                                             |                                              | Three Months Ended                                                      |         | Nine Months Ended
|                                                                                             |                                              | September 30,                                                           |         | September 30,    
|                                                                                             |                                              |                                                                         |         |                  
|                                                                                             |                                              | 2003                                                                    |         | 2002              |       | 2003 |         | 2002
|                                                                                             |                                              |                                                                         |         |                   |       |      |         |     
|Reconciliation of numerator between basic and
    diluted net earnings per Common Unit(1):   |                                              |                                                                         |         |                   |       |      |         |      |     |   |         |        |       |   |         |  
|Net earnings attributable to Common
    Units  Basic                                        |                                              | $                                                                       | 171,579 |                   |       | $    | 62,720  |      |     | $ | 328,234 |        |       | $ | 206,358 |  
|                                                                                             | Distributions on Convertible Preferred Units |                                                                         |         | 2,782             |       |      |         |     |     |   |         | 11,692 |       |   |         |  |      
|                                                                                             |                                              |                                                                         |         |                   |       |      |         |      |     |   |         |        |       |   |         |  
|Net earnings attributable to Common
    Units  Diluted                                      |                                              | $                                                                       | 174,361 |                   |       | $    | 62,720  |      |     | $ | 339,926 |        |       | $ | 206,358 |  
|                                                                                             |                                              |                                                                         |         |                   |       |      |         |      |     |   |         |        |       |   |         |  
|Reconciliation of denominator between basic and
    diluted net earnings per Common Unit(1): |                                              |                                                                         |         |                   |       |      |         |      |     |   |         |        |       |   |         |  
|Weighted average number of Common Units
    outstanding  Basic                              |                                              |                                                                         | 214,195 |                   |       |      | 204,057 |      |     |   | 210,431 |        |       |   | 201,930 |  
|                                                                                             |                                              | Assumed conversion of Convertible Preferred Units
    into Common Units |         |                   | 6,517 |      |         |      |    |   |         |        | 9,155 |   |         |   |      | 
|                                                                                             |                                              | Assumed exercise of options                                             |         |                   | 807   |      |         |      | 968 |   |         |        | 382   |   |         |   | 1,232 | 
|                                                                                             |                                              |                                                                         |         |                   |       |      |         |      |     |   |         |        |       |   |         |  
|Weighted average number of Common Units
    outstanding  Diluted                            |                                              |                                                                         | 221,519 |                   |       |      | 205,025 |      |     |   | 219,968 |        |       |   | 203,162 |  
|                                                                                             |                                              |                                                                         |         |                   |       |      |         |      |     |   |         |        |       |   |         |  



---



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

9



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(2)     Real
Estate



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

Investments in real estate (at cost including
held for sale) were as follows (dollar amounts in thousands):

|                                       |                                      |                    |                                           |                                             |         |            |           |          |       |       |         |           |        |        |           |        |       |       |        | 
|-------------------------------------- | ------------------------------------ | ------------------ | ----------------------------------------- | ------------------------------------------- | ------- | ---------- | --------- | -------- | ----- | ----- | ------- | --------- | ------ | ------ | --------- | ------ | ----- | ----- | ------ | 
|                                       |                                      |                    |                                           |                                            
|                                       |                                      | September 30, 2003 |                                           | December 31, 2002                          
|                                       |                                      |                    |                                           |                                            
|                                       |                                      | Investment         |                                           | Units(1)                                    |         | Investment |           | Units(1)
|                                       |                                      |                    |                                           |                                             |         |            |           |         
|Archstone-Smith apartment communities: |                                      |                    |                                           |                                             |         |            |           |          |       |       |         |           |        |        |           |       
|                                       | Operating communities                |                    | $                                         | 7,986,229                                   |         |            |           | 64,700   |       |       | $       | 8,380,779 |        |        |           | 75,693 |      
|                                       | Communities under construction       |                    |                                           | 175,161                                     |         |            |           | 1,355    |       |       |         | 328,390   |        |        |           | 2,295  |      
|                                       | Development communities In Planning: |                    |                                           |                                             |         |            |           |          |       |       |         |           |        |        |           |        |      
|                                       |                                      | Owned              |                                           |                                             | 156,303 |            |           |          | 3,765 |       |         |           | 89,501 |        |           |        | 2,870 |      
|                                       |                                      | Under control(2)   |                                           |                                             |        |            |           |          | 112   |       |         |           |       |        |           |        | 428   |      
|                                       |                                      |                    |                                           |                                             |         |            |           |          |       |       |         |           |        |        |           |       
|                                       |                                      |                    | Total development communities In Planning |                                             |         | 156,303    |           |          |       | 3,877 |         |           |        | 89,501 |           |        |       | 3,298 |       
|                                       |                                      |                    |                                           |                                             |         |            |           |          |       |       |         |           |        |        |           |       
|                                       |                                      |                    |                                           | Total Archstone-Smith apartment communities |         |            | 8,317,693 |          |       |       | 69,932  |           |        |        | 8,798,670 |        |       |       | 81,286 | 
|                                       |                                      |                    |                                           |                                             |         |            |           |          |       |       |         |           |        |        |           |       
|Land                                   |                                      |                    | 9,784                                     |                                             |         |            |           |          |       |       | 9,835   |           |        |        |           |       
|Other                                  |                                      |                    | 45,122                                    |                                             |         |            |           |          |       |       | 30,480  |           |        |        |           |       
|Ameriton apartment communities         |                                      |                    | 524,413                                   |                                             |         |            | 6,361     |          |       |       | 458,750 |           |        |        | 6,262     |       
|                                       |                                      |                    |                                           |                                             |         |            |           |          |       |       |         |           |        |        |           |       
|                                       |                                      |                    |                                           | Total real estate                           |         | $          | 8,897,012 |          |       |       | 76,293  |           |        | $      | 9,297,735 |        |       |       | 87,548 | 
|                                       |                                      |                    |                                           |                                             |         |            |           |          |       |       |         |           |        |        |           |       



---



|    |                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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, 2003 and
    December 31, 2002 for developments Under Control was
    $1.0 million and $3.0 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, 2002  |                                                            | $ | 9,297,735 |           
|                              | Acquisition-related expenditures                           |   |           | 381,212    |  
|                              | Redevelopment expenditures                                 |   |           | 52,195     |  
|                              | Recurring capital expenditures                             |   |           | 26,903     |  
|                              | Development expenditures, excluding land
    acquisitions  |   |           | 140,559    |  
|                              | Dispositions                                               |   |           | (1,057,003 | )
|                              | Provision for possible loss on real estate
    investments |   |           | (3,714     | )
|                              | Net Ameriton investment activity                           |   |           | 59,125     |  
|                              |                                                            |   |           |           
|Balance at September 30, 2003 |                                                            | $ | 8,897,012 |           
|                              |                                                            |   |           |           

At September 30, 2003, we had unfunded
contractual commitments related to real estate investment
activities aggregating approximately $340.2 million, of
which $321.9 million related to communities under
construction.

10



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(3)     Discontinued
Operations

Consistent with our capital recycling program, we
had 17 operating apartment communities, representing 5,098
units, classified as held for sale under the provisions of
SFAS 144, at September 30, 2003. Accordingly, we have
classified the operating earnings from these 17 properties
within discontinued operations for the three and nine months
ended September 30, 2003 and 2002. During the nine months
ended September 30, 2003, we sold 44 operating
communities. The operating results of these 44 communities
and the related gain/loss on sale are also included in
discontinued operations for both 2003 and 2002. Lastly,
discontinued operations for the three and nine months ended
September 30, 2002, include the net operating results of
12 operating communities and one retail property which were
sold during 2002. Four of the apartment communities that were
sold during 2002 were held for sale at December 31, 2001,
and therefore gains and related operating income for these
dispositions are not classified as discontinued operations in
accordance with SFAS 144. The following is a summary of net
earnings from discontinued operations (in thousands):

|                                                                          |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------- |  | ------------------ | ------- | ----------------- |  | ---- | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                          |  |                    |         |                  
|                                                                          |  | Three Months Ended |         | Nine Months Ended
|                                                                          |  | September 30,      |         | September 30,    
|                                                                          |  |                    |         |                  
|                                                                          |  | 2003               |         | 2002              |  | 2003 |         | 2002
|                                                                          |  |                    |         |                   |  |      |         |     
|Rental revenues                                                           |  | $                  | 25,015  |                   |  | $    | 59,489  |      |  | $ | 116,486 |   |  | $ | 176,726 |  
|Rental expenses                                                           |  |                    | (8,946  | )                 |  |      | (19,645 | )    |  |   | (38,480 | ) |  |   | (53,555 | )
|Real estate taxes                                                         |  |                    | (2,735  | )                 |  |      | (5,669  | )    |  |   | (11,581 | ) |  |   | (17,909 | )
|Depreciation on real estate investments                                   |  |                    | (1,586  | )                 |  |      | (10,097 | )    |  |   | (13,888 | ) |  |   | (29,416 | )
|Interest expense(1)                                                       |  |                    | (5,777  | )                 |  |      | (15,096 | )    |  |   | (26,069 | ) |  |   | (45,761 | )
|Provision for possible loss on real estate
    investments                |  |                    |        |                   |  |      |        |      |  |   | (3,714  | ) |  |   |        |  
|Ameriton gains on dispositions of real estate
    investments, net        |  |                    | 23,641  |                   |  |      | 19,573  |      |  |   | 31,260  |   |  |   | 20,417  |  
|Archstone-Smith gains on dispositions of real
    estate investments, net |  |                    | 118,893 |                   |  |      | 3,666   |      |  |   | 212,458 |   |  |   | 20,340  |  
|                                                                          |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         |  
|Net earnings from discontinued apartment
    communities                  |  | $                  | 148,505 |                   |  | $    | 32,221  |      |  | $ | 266,472 |   |  | $ | 70,842  |  
|                                                                          |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The portion of interest expense included in
    discontinued operations that is allocated to properties based on
    the companys leverage ratio was $5.4 million and
    $10.4 million for the three months ended September 30,
    2003 and 2002 and $21.3 million and $31.5 million for
    the nine months ended September 30, 2003 and 2002,
    respectively.



|    |                                                      
|--- | -----------------------------------------------------
|(4) | Consolidation of Ameriton Properties
    Incorporated

We adopted FASB Interpretation No. 46,
Consolidation of Variable Interest Entities during
the third quarter of 2003. As a result of this adoption, we have
consolidated the results of Ameriton for all periods presented.
We previously accounted for Ameriton using the equity method.

In addition, we acquired our chief executive
officers voting interest in Ameriton during the third
quarter of 2003 for approximately $72,000. As of
September 30, 2003, we own 100% of the economic interest in
Ameriton.



|    |                                                           
|--- | ----------------------------------------------------------
|(5) | Investments in and Advances to Unconsolidated
    Entities

We have investments in entities that we account
for using the equity method. At September 30, 2003, the
investment balance consists of $47.6 million in our joint
ventures and $49.4 million in Ameriton joint ventures.

11



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At December 31, 2002, the investment balance
consists of $54.9 million in our joint ventures and
$61.7 million in Ameriton joint ventures.

Sale of Smith
Management Construction, Inc.

Smith Management Construction, Inc. (SMC) is
a service business that we acquired in the Smith Merger during
2001. We sold SMC during February 2003 to members of SMCs
senior management. Prior to the sale, we reported SMC as an
unconsolidated entity in our financial statements. We received
two notes receivable totaling $5.8 million and bearing an
interest rate of 7.0% as consideration for the sale. The first
note for $3.5 million has principal payments that begin in
October 2003 with payment in full by February 2008. The second
note for $2.3 million was fully repaid along with all
accrued interest due during May 2003. For accounting purposes,
we will not recognize the divestiture until our responsibilities
for certain performance guarantees, which pertain to ongoing
construction projects at the time of sale, expire. Principal and
interest payments received prior to the recognition of this
transaction as a divestiture will be recorded as a reduction to
our investment basis, which is included in other assets in the
accompanying condensed consolidated balance sheets.



|    |           
|--- | ----------
|(6) | 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, 2003 |         | December 31, 2002
|                                                  |  |                    |         |                  
|Total unsecured revolving credit facility         |  | $                  | 700,000 |                   |  | $ | 700,000 |  
|Borrowings outstanding at end of period           |  |                    |        |                   |  |   | 348,500 |  
|Outstanding letters of credit under this facility |  |                    | 35,749  |                   |  |   | 11,890  |  
|Weighted average daily borrowings                 |  |                    | 297,537 |                   |  |   | 248,398 |  
|Maximum borrowings outstanding during the period  |  |                    | 511,500 |                   |  |   | 465,000 |  
|Weighted average daily nominal interest rate      |  |                    | 1.99    | %                 |  |   | 2.26    | %
|Weighted average daily effective interest rate    |  |                    | 2.77    | %                 |  |   | 3.08    | %

See Footnote 12, Subsequent Events, for
information on the renewal of our unsecured revolving credit
facility.

We also have a short-term unsecured borrowing
agreement with JPMorgan Chase Bank, which provides for maximum
borrowings of $100 million. The agreement bears interest at
an overnight rate that ranged from 1.65% to 1.95% during the
nine months ended September 30, 2003. At September 30,
2003 and December 31, 2002, there were $2.0 million
and $17.1 million of borrowings outstanding under this
agreement, respectively.

12



---



##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Long-Term
Unsecured Debt

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

|                                 |               |         |      |           |   |               |      |              |   |              |           |           |  |   |           |           |  |  |      |     | 
|-------------------------------- | ------------- | ------- | ---- | --------- | - | ------------- | ---- | ------------ | - | ------------ | --------- | --------- |  | - | --------- | --------- |  |  | ---- | --- | 
|                                 |               |         |      | Effective |   | Balance at    |      | Balance at   |   | Average     
|                                 |               | Coupon  |      | Interest  |   | September 30, |      | December 31, |   | Remaining   
|Type of Debt                     |               | Rate(1) |      | Rate(2)   |   | 2003          |      | 2002         |   | Life (Years)
|                                 |               |         |      |           |   |               |      |              |   |             
|Long-term unsecured senior notes |               |         | 6.36 | %         |   |               | 6.48 | %            |   | $            | 1,791,245 |           |  | $ | 1,692,727 |           |  |  | 5.6  |    
|Unsecured tax-exempt bonds       |               |         | 1.77 | %         |   |               | 2.00 | %            |   |              | 77,954    |           |  |   | 83,376    |           |  |  | 25.7 |    
|                                 |               |         |      |           |   |               |      |              |   |              |           |           |  |   |           |           |  |  |      |    
|                                 | Total/average |         |      | 6.16      | % |               |      | 6.29         | % |              | $         | 1,869,199 |  |   | $         | 1,776,103 |  |  |      | 6.4 | 
|                                 |               |         |      |           |   |               |      |              |   |              |           |           |  |   |           |           |  |  |      |    



---



|    |                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 including debt on assets held
for sale (dollar amounts in thousands):

|                                |                             |           |      |                         |   |              |           |           |  |   |           |           | 
|------------------------------- | --------------------------- | --------- | ---- | ----------------------- | - | ------------ | --------- | --------- |  | - | --------- | --------- | 
|                                |                             |           |      |                        
|                                |                             |           |      | Principal Balance(2) at
|                                |                             | Effective |      |                        
|                                |                             | Interest  |      | September 30,           |   | December 31,
|Type of Mortgage                |                             | Rate(1)   |      | 2003                    |   | 2002        
|                                |                             |           |      |                         |   |             
|Conventional fixed rate         |                             |           | 6.45 | %                       |   | $            | 1,547,653 |           |  | $ | 1,595,114 |          
|Conventional floating rate      |                             |           | 2.52 | %                       |   |              | 35,330    |           |  |   | 130,146   |          
|Tax-exempt fixed rate           |                             |           |     |                         |   |              |          |           |  |   | 7,035     |          
|Tax-exempt floating rate        |                             |           | 1.88 | %                       |   |              | 294,861   |           |  |   | 337,353   |          
|Floating rate construction loan |                             |           | 3.74 | %                       |   |              | 57,749    |           |  |   | 87,499    |          
|Other                           |                             |           | 5.29 | %                       |   |              | 21,169    |           |  |   | 22,850    |          
|                                |                             |           |      |                         |   |              |           |           |  |   |           |          
|                                | Total/average mortgage debt |           |      | 5.60                    | % |              | $         | 1,956,762 |  |   | $         | 2,179,997 | 
|                                |                             |           |      |                         |   |              |           |           |  |   |           |          



---



|    |                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes the effect of fair value hedges, credit
    enhancement fees, the amortization of fair market value purchase
    adjustment, and other related costs, where applicable as of
    September 30, 2003.
|   
|(2) | Includes net fair market value adjustment
    recorded in connection with the Smith Merger of
    $61.2 million and $69.7 million at September 30,
    2003 and December 31, 2002, respectively.             

The change in mortgages payable, including
properties classified as held for sale, during the nine months
ended September 30, 2003 consisted of the following (in
thousands):

|                              |                                            |   |           |          |  
|----------------------------- | ------------------------------------------ | - | --------- | -------- | -
|Balance at December 31, 2002  |                                            | $ | 2,179,997 |         
|                              | Regularly scheduled principal amortization |   |           | (8,993   | )
|                              | Prepayments, final maturities and other    |   |           | (266,541 | )
|                              | Proceeds from mortgage notes payable       |   |           | 52,299   |  
|                              |                                            |   |           |         
|Balance at September 30, 2003 |                                            | $ | 1,956,762 |         
|                              |                                            |   |           |         

13



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 nine months ended September 30, 2003.

For the nine months ended September 30, 2003
and 2002, the total interest paid on all outstanding debt was
$175.3 million and $182.2 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, 2003 and 2002 was $18.5 million and
$24.6 million, respectively.

(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, 2003 and the annualized distributions we
expect to pay for 2003:

|                                        |  |                   |        |                   |  |   |       | 
|--------------------------------------- |  | ----------------- | ------ | ----------------- |  | - | ----- | 
|                                        |  | Quarterly         |        | Annualized       
|                                        |  | Cash Distribution |        | Cash Distribution
|                                        |  | Per Unit          |        | Per Unit         
|                                        |  |                   |        |                  
|Common Units and A-1 Units              |  | $                 | 0.4275 |                   |  | $ | 1.71  | 
|Series A Convertible Preferred Units(1) |  |                   | 0.5750 |                   |  |   | 2.12  | 
|Series D Preferred Units                |  |                   | 0.5475 |                   |  |   | 2.19  | 
|Series E Preferred Units                |  |                   | 0.5225 |                   |  |   | 2.09  | 
|Series F Preferred Units                |  |                   | 0.5075 |                   |  |   | 2.03  | 
|Series G Preferred Units                |  |                   | 0.5400 |                   |  |   | 2.16  | 
|Series H Preferred Units(2)             |  |                   | 0.8450 |                   |  |   | 1.27  | 
|Series I Preferred Units(3)             |  |                   | 1,915  |                   |  |   | 7,660 | 
|Series K Preferred Units                |  |                   | 0.8450 |                   |  |   | 3.38  | 
|Series L Preferred Units                |  |                   | 0.8450 |                   |  |   | 3.38  | 



---



|    |                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------
|(1) | In October 2003, we called the Series A
    Convertible Preferred Units for redemption in the fourth quarter
    of 2003.
|   
|(2) | The Series H Preferred Units were converted
    into Common Shares on May 15, 2003.                                      
|   
|(3) | Series I Preferred Units have a par value of
    $100,000 per share.                                                     



|    |             
|--- | ------------
|(8) | Segment Data

We define our garden communities and high-rise
properties each as individual operating segments. We have
determined that each of our garden communities and each of our
high-rise properties have similar economic characteristics and
also meet the other GAAP criteria, which permit the garden
communities and high-rise properties to be aggregated into two
reportable segments. Net Operating Income (NOI) is defined as
rental revenues less rental expenses and real estate taxes. We
rely on NOI for purposes of making decisions about resource
allocations and assessing segment performance. We also believe
NOI is a valuable means of comparing year-to-year property
performance.

14



---



##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                   |                                         |                                         |       |                   |         |      |       |         |         |  |        |          |         |  |        |          |         | 
|-------------------------------------------------- | --------------------------------------- | --------------------------------------- | ----- | ----------------- | ------- | ---- | ----- | ------- | ------- |  | ------ | -------- | ------- |  | ------ | -------- | ------- | 
|                                                   |                                         |                                         |       |                  
|                                                   |                                         | Three Months Ended                      |       | Nine Months Ended
|                                                   |                                         | September 30,                           |       | September 30,    
|                                                   |                                         |                                         |       |                  
|                                                   |                                         | 2003                                    |       | 2002              |         | 2003 |       | 2002   
|                                                   |                                         |                                         |       |                   |         |      |       |        
|Reportable apartment communities segment revenues: |                                         |                                         |       |                   |         |      |       |         |         |  |        |          |         |  |        |         
|                                                   | Garden communities                      |                                         | $     | 135,682           |         |      | $     | 129,716 |         |  | $      | 397,130  |         |  | $      | 385,839  |        
|                                                   | High-rise properties                    |                                         |       | 85,916            |         |      |       | 85,296  |         |  |        | 255,856  |         |  |        | 247,811  |        
|Other non-reportable operating segment revenues    |                                         |                                         | 6,514 |                   |         |      | 7,102 |         |         |  | 18,130 |          |         |  | 25,081 |         
|                                                   |                                         |                                         |       |                   |         |      |       |         |         |  |        |          |         |  |        |         
|                                                   |                                         | Total segment and consolidated revenues |       | $                 | 228,112 |      |       | $       | 222,114 |  |        | $        | 671,116 |  |        | $        | 658,731 | 
|                                                   |                                         |                                         |       |                   |         |      |       |         |         |  |        |          |         |  |        |         
|Reportable apartment communities segment NOI:      |                                         |                                         |       |                   |         |      |       |         |         |  |        |          |         |  |        |         
|                                                   | Garden communities                      |                                         | $     | 89,741            |         |      | $     | 85,291  |         |  | $      | 265,293  |         |  | $      | 260,093  |        
|                                                   | High-rise properties                    |                                         |       | 50,552            |         |      |       | 52,262  |         |  |        | 154,202  |         |  |        | 152,609  |        
|Other non-reportable operating segment NOI         |                                         |                                         | 827   |                   |         |      | 1,015 |         |         |  | 2,034  |          |         |  | 2,370  |         
|                                                   |                                         |                                         |       |                   |         |      |       |         |         |  |        |          |         |  |        |         
|                                                   |                                         | Total segment and consolidated NOI      |       |                   | 141,120 |      |       |         | 138,568 |  |        |          | 421,529 |  |        |          | 415,072 | 
|                                                   |                                         |                                         |       |                   |         |      |       |         |         |  |        |          |         |  |        |         
|Reconciling items:                                 |                                         |                                         |       |                   |         |      |       |         |         |  |        |          |         |  |        |         
|                                                   | Income from unconsolidated entities     |                                         |       | 1,714             |         |      |       | 3,748   |         |  |        | 1,008    |         |  |        | 15,429   |        
|                                                   | Other income                            |                                         |       | 3,833             |         |      |       | 1,506   |         |  |        | 14,690   |         |  |        | 4,760    |        
|                                                   | Depreciation on real estate investments |                                         |       | (47,795           | )       |      |       | (42,633 | )       |  |        | (137,478 | )       |  |        | (123,740 | )      
|                                                   | Interest expense                        |                                         |       | (46,659           | )       |      |       | (39,884 | )       |  |        | (138,050 | )       |  |        | (121,653 | )      
|                                                   | General and administrative expenses     |                                         |       | (12,558           | )       |      |       | (11,737 | )       |  |        | (38,200  | )       |  |        | (33,072  | )      
|                                                   | Other expenses                          |                                         |       | (10,443           | )       |      |       | (12,740 | )       |  |        | (39,983  | )       |  |        | (18,169  | )      
|                                                   |                                         |                                         |       |                   |         |      |       |         |         |  |        |          |         |  |        |         
|                                                   |                                         | Consolidated earnings from operations   |       | $                 | 29,212  |      |       | $       | 36,828  |  |        | $        | 83,516  |  |        | $        | 138,627 | 
|                                                   |                                         |                                         |       |                   |         |      |       |         |         |  |        |          |         |  |        |         

|                                                 |                                                           |                           |        |              |           |  |        |           |           | 
|------------------------------------------------ | --------------------------------------------------------- | ------------------------- | ------ | ------------ | --------- |  | ------ | --------- | --------- | 
|                                                 |                                                           | September 30,             |        | December 31,
|                                                 |                                                           | 2003                      |        | 2002        
|                                                 |                                                           |                           |        |             
|Reportable operating communities segment assets: |                                                           |                           |        |              |           |  |        |          
|                                                 | Garden communities                                        |                           | $      | 4,766,127    |           |  | $      | 5,177,665 |          
|                                                 | High-rise properties                                      |                           |        | 3,445,166    |           |  |        | 3,500,900 |          
|Other non-reportable operating segment assets    |                                                           |                           | 54,906 |              |           |  | 40,315 |          
|                                                 |                                                           |                           |        |              |           |  |        |          
|                                                 |                                                           | Total segment assets      |        |              | 8,266,199 |  |        |           | 8,718,880 | 
|                                                 |                                                           |                           |        |              |           |  |        |          
|Reconciling items:                               |                                                           |                           |        |              |           |  |        |          
|                                                 | Investment in and advances to unconsolidated
    entities |                           |        | 97,054       |           |  |        | 116,594   |          
|                                                 | Cash and cash equivalents                                 |                           |        | 35,196       |           |  |        | 12,846    |          
|                                                 | Restricted cash in tax deferred exchange escrow           |                           |        | 84,232       |           |  |        |          |          
|                                                 | Other assets                                              |                           |        | 302,176      |           |  |        | 247,706   |          
|                                                 |                                                           |                           |        |              |           |  |        |          
|                                                 |                                                           | Consolidated total assets |        | $            | 8,784,857 |  |        | $         | 9,096,026 | 
|                                                 |                                                           |                           |        |              |           |  |        |          

Total capital expenditures for garden communities
were $9.9 million and $24.2 million for the three and
nine months ended September 30, 2003, and $17.8 million and
$44.9 million for the same periods in 2002, respectively.
Total capital expenditures for high-rise properties were
$18.8 million and $56.4 million for the three

15



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

and nine months ended September 30, 2003,
and $49.7 million and $115.1 million for the same periods
in 2002, respectively.

(9)     Sale of
Archstone Management Services

During May 2003, the Operating Trust sold
Archstone Management Services, our third-party management
business. The transaction includes management contracts for 32
communities comprising 10,665 units. The $6.5 million sales
price will be paid in three installments based on the retention
of the contracts acquired. Since the ultimate sales proceeds are
contingent upon the retention of management contracts existing
at the time of the sale, the gain is being deferred. We will
recognize the gain from this sale when the required retention
period expires in the second quarter of 2004.

(10)     Litigation
and Contingencies

During 2002 and the first quarter of 2003, we
accrued or incurred a liability for approximately
$32.3 million relating to moisture infiltration and
resulting mold issues at Harbour House, a high-rise property in
Southeast Florida that became subject to litigation in the third
quarter of 2002. Of this amount, approximately
$12.8 million represents amounts expensed for the estimated
cost of repairing or replacing residents property,
temporary resident relocation expenses and incurred legal fees.
The remaining $19.5 million represents costs capitalized in
accordance with GAAP pertaining to remediation and capital
improvements to the building.

We expensed an additional $25.0 million
during the three months ended June 30, 2003. This expense
includes estimated and incurred legal fees associated with known
and anticipated costs for our counsel and plaintiffs
counsel, as well as estimated settlement costs based upon the
current status of discussions, additional resident property
repair and replacement costs and temporary resident relocation
expenses. Of this amount, approximately $1.0 million represents
legal fees incurred during the three months ended June 30,
2003 and the remaining amount, which we anticipate incurring
over the next year, was accrued as a liability as of
June 30, 2003. The estimated settlement accrual is
inclusive of all pending legal claims at this property other
than for those individuals who have or may subsequently opt out
of the settlement and pursue individual claims. Additionally, we
increased our accrual estimate for capitalized costs associated
with remediation and capital improvements by $5.0 million
during the second quarter of 2003. As of September 30,
2003, total cash payments related to moisture infiltration and
mold remediation at this property were $38.6 million, of
which $22.2 represents capitalized expenditures.

The accrual represents managements best
estimate of the probable and reasonably estimable costs and is
based, in part, on estimates obtained from third-party
contractors and actual costs incurred to date. It is possible
that these estimates could increase or decrease as better
information becomes available. It is also possible that current
settlement discussions will not be successful or will not be
approved by the court, requiring further court proceedings and
potential legal fees and damages not contemplated in our current
accrual. It is not possible to predict the likelihood of claims
by individuals who subsequently opt out of the settlement, nor
is it reasonably possible to estimate the amount of any
potential loss related to these claims.

We are aggressively pursuing recovery of a
significant portion of these costs from our insurance carriers.
We are still in discussions with our insurance providers and
therefore no estimate for recovery has been recorded. In
addition, we are continuing to pursue potential recoveries from
third parties who we believe bear responsibility for a
considerable portion of the costs we have incurred. However, we
cannot make assurances that we will obtain these recoveries or
that our ultimate liability associated with these claims will
not be material to our results of operations.

We are also party to alleged moisture
infiltration and resulting mold lawsuits at two other Southeast
Florida high-rise properties. We believe these suits are without
merit and intend to vigorously contest the claims asserted in
this litigation. Nonetheless, we are in ongoing discussions with
the attorneys representing plaintiffs in certain

16



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

of these matters in an effort to understand
whether there is a rational settlement option that could result
in expediting the resolution of the subject claims. No assurance
can be given that these lawsuits, if adversely determined, will
not have a material adverse effect on the company. We have not
accrued for renovation and equipment upgrades at these
properties, as these costs are part of our previously existing
and ongoing plans and not a result of the legal claims.
Accordingly, we will capitalize or expense costs associated with
these issues as they are incurred, in accordance with GAAP.

(11)     Derivatives
and Hedging Activities

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

We formally assess, both at inception of the
hedge and on an ongoing basis, whether each derivative is highly
effective in offsetting changes in fair values or cash flows of
the hedged item. We measure hedge effectiveness by comparing the
changes in the fair value or cash flows of the derivative
instrument with the changes in the fair value or cash flows of
the hedged item. We exclude the hedging instruments time
value component when assessing hedge effectiveness. If it is
determined that a derivative is not highly effective as a hedge
or if a derivative ceases to be a highly effective hedge, we
will discontinue hedge accounting prospectively.

To determine the fair values of derivative and
other financial instruments, we use a variety of methods and
assumptions that are based on market value conditions and risks
existing at each balance sheet date. These methods and
assumptions include standard market conventions and techniques
such as discounted cash flow analysis, option pricing models,
replacement cost and termination cost. All methods of assessing
fair value result in a general approximation of value, and
therefore, are not necessarily indicative of the actual amounts
that we could realize upon disposition. During the three months
ended September 30, 2003, we entered into a forward sale
agreement with a notional amount, which represents the fair
value of the underlying marketable securities, of approximately
$46.8 million. The fair value of the forward sale agreement
was approximately $112,000. Subsequent to September 30,
2003, we entered into two additional forward sale agreements
with a notional amount of approximately $81.7 million and a
fair value of approximately $374,000. These forward sale
agreements will result in 2004 gains of approximately $22.2
million.

(12)     Subsequent
Events

In October 2003, we completed the renewal of our
unsecured revolving credit facility. The new facility has total
capacity of $600 million, with an accordion feature that
allows the company to expand the commitment up to $900 million
at any time during the life of the facility, subject to lenders
providing additional commitments. Based on our current rating,
the facility carries an interest rate of LIBOR plus 0.60% on
outstanding borrowings, plus an annual facility fee of 0.15% of
the commitment. The term of the facility is three years, with a
one-year extension option available at our discretion.

On October 31, 2003, we announced the
redemption of our Series A Preferred Units on
December 1, 2003. Those Series A Preferred Units that
are not converted into Common Units will be redeemed at a price
of $25.00 per share, plus $0.39026 in accrued and unpaid
distributions, for an aggregate redemption price of $25.39026
per unit. At September 30, 2003, there were
2.9 million Series A Preferred Units outstanding,
which could be converted into 3.9 million Common Units.

17



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##### Table of Contents






INDEPENDENT ACCOUNTANTS REVIEW
REPORT

The Trustee and Unitholders

Archstone-Smith Operating Trust:


We have reviewed the accompanying condensed
consolidated balance sheet of Archstone-Smith Operating Trust
and subsidiaries as of September 30, 2003, and the related
condensed consolidated statements of earnings for the three and
nine month periods ended September 30, 2003 and 2002, the
condensed consolidated statement of unitholders equity,
other common unitholders interest and comprehensive income
for the nine month period ended September 30, 2003 and the
condensed consolidated statements of cash flows for the nine
month periods ended September 30, 2003 and 2002. 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 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, 2002, and the related
consolidated statements of earnings, unitholders equity,
other common unitholders interest and comprehensive
income, and cash flows for the year then ended (not presented
herein); and in our report dated January 24, 2003, except
as to Note 18, which is as of February 12, 2003, 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, 2002 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from
which it has been derived.



| |         
| | --------
| | KPMG LLP

Denver, Colorado

October 17, 2003


18



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following information should be read in
conjunction with Archstone-Smith Operating Trusts 2002
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
Archstone-Smith Operating Trusts 2002 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 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 88.4% of our Common Units.

Results of Operations



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

The $108.9 million increase in basic net
earnings attributable to Common Units for the three months ended
September 30, 2003 as compared to the same period in 2002,
is primarily attributable to significantly higher gains due to
an increase in disposition activity during the three months
ended September 30, 2003.

This increase was partially offset by:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A 0.8% decrease in NOI from our Same-Store
    portfolio, driven by revenue decline of 1.9% for the three
    months ended September 30, 2003, as compared to the same
    periods in 2002 (the Same-Store population excludes all Ameriton
    communities) (see Note 8 in our financial statements in this
    Quarterly Report for a definition and reconciliation of NOI to
    Earnings from Operations); and
|
| |  | The loss of NOI due to $1.1 billion and
    $407.6 million of Archstone-Smith apartment community
    dispositions in the first nine months of 2003 and all of 2002,
    respectively.                                                                                                                                                                                                                            

The $121.9 million increase in basic net
earnings attributable to Common Units for the nine months ended
September 30, 2003, as compared to the same period in 2002,
is primarily attributable to higher gains due to increased
disposition activity during the nine months ended
September 30, 2003.

19



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##### Table of Contents



This increase was partially offset by:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A 1.7% decrease in NOI in our Same-Store
    portfolio, driven by revenue decline of 1.7% for the nine months
    ended September 30, 2003, as compared to the same period in
    2002;                                                                                                                                                                                                                                                                                                                                                            
|
| |  | A $25.0 million expense, recorded during the
    second quarter of 2003, relating to moisture infiltration and
    resulting mold issues at Harbour House, a Southeast Florida
    high-rise property, for estimated and incurred legal fees
    associated with known and anticipated costs for our counsel and
    plaintiffs counsel, as well as estimated settlement costs
    based upon the current status of discussions, additional
    resident property repair and replacement costs and temporary
    resident relocation expenses; and
|
| |  | A $14.4 million decrease in income from
    unconsolidated entities primarily due to a decrease in gains
    from Ameriton joint venture dispositions and the loss of
    earnings associated with the sale of Consolidated Engineering
    Services (CES) and SMC.                                                                                                                                                                                                                                                                              



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

At September 30, 2003, investments in
operating apartment communities comprised over 99% of our total
real estate portfolio, based on NOI. The following table
summarizes the performance of our 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,    
|                                                                               |  |                    |         |                  
|                                                                               |  | 2003               |         | 2002              |  | 2003 |         | 2002
|                                                                               |  |                    |         |                   |  |      |         |     
|Rental revenues                                                                |  | $                  | 135,682 |                   |  | $    | 129,716 |      |  | $ | 397,130 |   |  | $ | 385,839 |  
|Property operating expenses                                                    |  |                    | 45,941  |                   |  |      | 44,425  |      |  |   | 131,837 |   |  |   | 125,746 |  
|                                                                               |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         |  
|NOI                                                                            |  | $                  | 89,741  |                   |  | $    | 85,291  |      |  | $ | 265,293 |   |  | $ | 260,093 |  
|                                                                               |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         |  
|Operating margin (rental revenues less operating
    expenses/rental revenues) |  |                    | 66.1    | %                 |  |      | 65.8    | %    |  |   | 66.8    | % |  |   | 67.4    | %
|                                                                               |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         |  
|Average occupancy during period                                                |  |                    | 95.6    | %                 |  |      | 95.7    | %    |  |   | 95.0    | % |  |   | 95.0    | %
|                                                                               |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         |  
|Average number of operating units                                              |  |                    | 47,596  |                   |  |      | 58,181  |      |  |   | 52,455  |   |  |   | 58,128  |  
|                                                                               |  |                    |         |                   |  |      |         |      |  |   |         |   |  |   |         |  

High-Rise Properties

|                                                                               |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------ |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                               |  |                    |        |                  
|                                                                               |  | Three Months Ended |        | Nine Months Ended
|                                                                               |  | September 30,      |        | September 30,    
|                                                                               |  |                    |        |                  
|                                                                               |  | 2003               |        | 2002              |  | 2003 |        | 2002
|                                                                               |  |                    |        |                   |  |      |        |     
|Rental revenues                                                                |  | $                  | 85,916 |                   |  | $    | 85,296 |      |  | $ | 255,856 |   |  | $ | 247,811 |  
|Property operating expenses                                                    |  |                    | 35,364 |                   |  |      | 33,034 |      |  |   | 101,654 |   |  |   | 95,202  |  
|                                                                               |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|NOI                                                                            |  | $                  | 50,552 |                   |  | $    | 52,262 |      |  | $ | 154,202 |   |  | $ | 152,609 |  
|                                                                               |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|Operating margin (rental revenues less operating
    expenses/rental revenues) |  |                    | 58.8   | %                 |  |      | 61.3   | %    |  |   | 60.3    | % |  |   | 61.6    | %
|                                                                               |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|Average occupancy during period                                                |  |                    | 93.2   | %                 |  |      | 93.8   | %    |  |   | 92.8    | % |  |   | 94.3    | %
|                                                                               |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  
|Average number of operating units                                              |  |                    | 20,800 |                   |  |      | 22,000 |      |  |   | 21,036  |   |  |   | 21,650  |  
|                                                                               |  |                    |        |                   |  |      |        |      |  |   |         |   |  |   |         |  

20



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##### Table of Contents



NOI for the entire apartment portfolio, including
amounts reported in discontinued operations, decreased
$18.3 million or 10.6%, and $32.4 million or 6.2% for
the three and nine months ended September 30, 2003,
respectively, compared to the same period in 2002 primarily due
to:



| |   |                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The loss of NOI due to $1.1 billion and
    $407.6 million of our apartment community dispositions in
    the first nine months of 2003 and all of 2002, respectively; and
|
| |  | Slightly negative revenue growth in our
    Same-Store portfolio during 2003 as compared to 2002.                                                                         

These decreases were partially offset by slightly
lower rental expenses during the three and nine months ended
September 30, 2003, as compared to the same periods in
2002. Rental expenses for the three and nine months ended
September 30, 2003 were positively impacted by a decrease
in real estate taxes, lower utility costs, and a reduction in
our marketing costs.

The following table reflects revenue, expense and
NOI growth for Same-Store communities that were fully operating
during the three and nine months ended September 30 for
each respective comparison period (the Same-Store population
excludes all Ameriton communities):

|                                |  |            |       |            |  |                |       |   |  |  |       |  
|------------------------------- |  | ---------- | ----- | ---------- |  | -------------- | ----- | - |  |  | ----- | -
|                                |  | Same-Store |       | Same-Store |  | Same-Store Net
|                                |  | Revenue    |       | Expense    |  | Operating     
|                                |  | Decline    |       | Decline    |  | Income Decline
|                                |  |            |       |            |  |               
|Three months ended September 30 |  |            | (1.9% | )          |  |                | (3.9% | ) |  |  | (0.8% | )
|Nine months ended September 30  |  |            | (1.7% | )          |  |                | (1.5% | ) |  |  | (1.7% | )

Based on our reported Same-Store revenue and NOI
results, our strongest core markets during the period were the
greater Washington D.C. metropolitan area and Southern
California (which collectively represent 55% of our NOI), both
of which produced positive revenue growth in the three months
ended September 30, 2003. Core markets that continue to
experience the greatest challenges in NOI growth include the San
Francisco Bay area, Chicago and Seattle.

Same-Store results represent 160 and 154
apartment communities that were fully operational during the
entire three and nine months ended September 30, 2003 and
2002, respectively. This excludes 19 and 25 apartment
communities, for the three months and nine months ended
September 30, 2002, respectively, which were not eligible
for inclusion due to (i) recent acquisition or development,
(ii) major redevelopment, or (iii) a significant
number of non-operational units (due to fires, floods, etc.).
Same-Store also excludes Ameriton communities due to their
short-term holding periods. The following is a reconciliation of
Same-Store NOI to Earnings from Operations (in thousands):

|                                                                                                        |                          |                    |         |                   |  |      |         |         |  |   |          |         |  |   |          |         | 
|------------------------------------------------------------------------------------------------------- | ------------------------ | ------------------ | ------- | ----------------- |  | ---- | ------- | ------- |  | - | -------- | ------- |  | - | -------- | ------- | 
|                                                                                                        |                          |                    |         |                  
|                                                                                                        |                          | Three Months Ended |         | Nine Months Ended
|                                                                                                        |                          | September 30,      |         | September 30,    
|                                                                                                        |                          |                    |         |                  
|                                                                                                        |                          | 2003               |         | 2002              |  | 2003 |         | 2002   
|                                                                                                        |                          |                    |         |                   |  |      |         |        
|Same-Store NOI                                                                                          |                          | $                  | 131,617 |                   |  | $    | 132,714 |         |  | $ | 377,047  |         |  | $ | 383,744  |        
|Non-Same Store NOI, including Ameriton properties
    which are not included in discontinued operations |                          |                    | 22,837  |                   |  |      | 40,029  |         |  |   | 110,907  |         |  |   | 136,590  |        
|NOI classified as discontinued
    operations  communities sold                                        |                          |                    | (4,605  | )                 |  |      | (25,270 | )       |  |   | (38,510  | )       |  |   | (39,997  | )      
|NOI classified as discontinued
    operations  communities held for sale                               |                          |                    | (8,729  | )                 |  |      | (8,905  | )       |  |   | (27,915  | )       |  |   | (65,265  | )      
|                                                                                                        |                          |                    |         |                   |  |      |         |         |  |   |          |         |  |   |          |        
|                                                                                                        | Net Operating Income     |                    |         | 141,120           |  |      |         | 138,568 |  |   |          | 421,529 |  |   |          | 415,072 | 
|Income from unconsolidated entities                                                                     |                          |                    | 1,714   |                   |  |      | 3,748   |         |  |   | 1,008    |         |  |   | 15,429   |        
|Other income                                                                                            |                          |                    | 3,833   |                   |  |      | 1,506   |         |  |   | 14,690   |         |  |   | 4,760    |        
|Depreciation on real estate investments                                                                 |                          |                    | (47,795 | )                 |  |      | (42,633 | )       |  |   | (137,478 | )       |  |   | (123,740 | )      
|Interest expense                                                                                        |                          |                    | (46,659 | )                 |  |      | (39,884 | )       |  |   | (138,050 | )       |  |   | (121,653 | )      
|General and administrative expenses                                                                     |                          |                    | (12,558 | )                 |  |      | (11,737 | )       |  |   | (38,200  | )       |  |   | (33,072  | )      
|Other expense                                                                                           |                          |                    | (10,443 | )                 |  |      | (12,740 | )       |  |   | (39,983  | )       |  |   | (18,169  | )      
|                                                                                                        |                          |                    |         |                   |  |      |         |         |  |   |          |         |  |   |          |        
|                                                                                                        | Earnings from operations |                    | $       | 29,212            |  |      | $       | 36,828  |  |   | $        | 83,516  |  |   | $        | 138,627 | 
|                                                                                                        |                          |                    |         |                   |  |      |         |         |  |   |          |         |  |   |          |        

21



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##### Table of Contents





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

Income from unconsolidated entities decreased
$2.0 million and $14.4 million, respectively, for the three
and nine months ended September 30, 2003 as compared to
same periods in 2002 primarily due to a decrease in the gains
from Ameriton joint ventures dispositions during 2003 and the
loss of earnings associated with the sale of CES and SMC.



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

Other income increased $2.3 million and
$9.9 million, respectively, for the three and nine months
ended September 30, 2003 as compared to the same periods in
2002, principally as a result of a collection of contingent
proceeds related to indemnification of certain CES accounts
receivable over 120 days and dividend income on stock
investments.



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

The $3.4 million and $1.8 million
decrease in depreciation expense, including amounts classified
as discontinued operations, during the three and nine months
ended September 30, 2003, respectively, as compared to the
same periods in 2002 is principally attributable to an increase
in disposition activity and the cessation of depreciation
expense on assets classified as held for sale during 2003. These
decreases were partially offset by the amortization of the
intangible value of lease agreements obtained in connection with
apartment community acquisitions.



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

Interest expense decreased $2.5 million and
$3.3 million, including amounts classified as discontinued
operations, during the three and nine months ended
September 30, 2003, respectively, as compared to the same
periods in 2002. The decreases are primarily due to lower debt
balances, a reduction in interest rates on floating rate debt
and debt refinancings, and the repayment of Long-Term Unsecured
Debt with proceeds from our unsecured credit facilities, which
were at lower interest rates during the period.



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

The $0.8 million increase in general and
administrative expenses for the three months ended
September 30, 2003 as compared to the same period in 2002
is primarily due to higher legal costs. The $5.1 million
increase in general and administrative expenses for the nine
months ended September 30, 2003, respectively, as compared
to the same period in 2002 relates primarily to additional
severance costs and legal fees incurred during the nine months
ended September 30, 2003, increased depreciation of
capitalized costs associated with our new revenue management
program called Lease Rent OptionsTM, and our new
on-site property management software.



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

The $2.3 million decrease in other expense
for the three months ended September 30, 2003, as compared
to the same period in 2002 is primarily due to lower moisture
infiltration and resulting mold related expenses during the
third quarter of 2003 partially offset by higher Ameriton income
tax expense.

The $21.8 million increase in other expenses
for the nine months ended September 30, 2003, as compared
to the same period in 2002 is principally due to a
$25.0 million expense recorded during the second quarter of
2003 for estimated and incurred legal fees, estimated settlement
costs based upon the current status of discussions, additional
resident property repair and replacement costs and temporary
resident relocation expenses associated with moisture
infiltration and resulting mold issues at Harbour House, a
Southeast Florida high-rise property that became subject to
litigation in the third quarter of 2002.



| |                                               
| | ----------------------------------------------
| | Provision for Possible Loss on
    Investments

During the first quarter of 2003 we recognized a
$3.7 million provision for possible loss on investments due
to an impairment and related write-down to the estimated fair
value of three real estate investments held for sale,

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which is included in net earnings from
discontinued operations during the nine months ended
September 30, 2003. No provision was recognized for the
three or nine months ended September 30, 2002.




| |                                                        
| | -------------------------------------------------------
| | Minority Interests and Preferred Unit
    Distributions

Minority interest decreased $1.3 million and
$5.2 million, for the three and nine months ended
September 30, 2003, respectively, as compared to the same
periods in 2002 primarily due to the conversion of DownREIT
Perpetual Preferred Units into Operating Trust Perpetual
Preferred Units in August 2002.

The $2.4 million and $4.2 million
decrease in Preferred Unit distributions for the three and nine
months ended September 30, 2003, respectively, is primarily
the result of the conversion of Series H Preferred Units
into Common Units in May 2003, the redemption of the
Series C Preferred Units in August 002, the conversion
of Series J Preferred Units into Common Units in
July 2002, and the lower distributions earned on
Series A Preferred Units resulting from periodic
conversions by unitholders into Common Units, partially offset
by $1.3 million and $3.9 million in distributions on
Series E, F and G Preferred Units for the three and nine
months ended September 30, 2003. We expect our Preferred
Share distributions to further decrease as a result of the
pending redemption of our Series A Preferred Units.



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

During the three and nine months ended
September 30, 2003, the Operating Trust disposed of 20 and
40 apartment communities, representing net proceeds of
$520.8 million and $1.1 billion, respectively. Net
gains of $118.9 million and $212.5 million were
recorded for the three and nine months ended September 30, 2003,
respectively. As part of our capital recycling program, we
anticipate our total disposition volume for 2003 to be
approximately $1.3 billion to $1.4 billion.

During the three and nine months ended September,
Ameriton disposed of three and four apartment communities,
representing net proceeds of $114.6 million and
$149.9 million, respectively. Net gains of
$23.6 million and $31.2 million were recorded for the three
and nine months ended September 30, 2003, respectively.



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

For properties accounted for as discontinued
operations, the results of operations for properties sold during
the period or designated as held for sale at the end of the
period are required to be classified as discontinued operations.
The property-specific components of net earnings that are
classified as discontinued operations include 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 properties held for sale.

Consistent with our capital recycling program, we
had 17 operating apartment communities, representing 5,098
units, classified as held for sale under the provisions of
SFAS 144, at September 30, 2003. Accordingly, we have
classified the operating earnings from these 17 properties
within discontinued operations for the three and nine months
ended September 30, 2003 and 2002. During the nine months
ended September 30, 2003, we sold 44 operating
communities. The operating results of these 44 communities
and the related gain/loss on sale are also included in
discontinued operations for both 2003 and 2002. Lastly,
discontinued operations for the three and nine months ended
September 30, 2002, include the net operating results of
12 operating communities and one retail property which were
sold during 2002. Four of the apartment communities that were
sold during 2002 were held for sale at December 31, 2001,
and therefore gains and related operating income for these
dispositions are not classified as discontinued operations in
accordance with SFAS 144.

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 2003 and

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anticipated requirements thereafter. See
Archstone-Smith Operating Trusts condensed consolidated
statements of cash flows for a summary of operating, investing
and financing activities for the nine months ended
September 30, 2003 and 2002.




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

Net cash flow provided by operating activities
decreased $65.9 million for the nine months ended
September 30, 2003 as compared to the same period of 2002.
This is principally due to a reduction in accrued expenses
associated with payments during the quarter, lower Same-Store
NOI and lost NOI resulting from disposition activity. 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,
2003, cash flows provided by investing activities increased
$799.5 million as compared to the same period in 2002. The
increase is principally the result of a $971.4 million
increase in the net proceeds on dispositions of apartment
communities and a $28.2 million increase in cash flows from
our investments in and advances to our unconsolidated investees.
These increases were partially offset by a $163.4 million
reduction in cash flows from restricted cash in tax-deferred
exchange escrows and increased investments in marketable
securities as compared to the same period in the prior year.

Cash flows used in financing activities increased
by $723.7 million for the nine months ended
September 30, 2003 as compared to the same period in 2002.
The increase is principally the result of an increase of
payments on Long-Term Unsecured Debt of $123.8 million, a
decrease in proceeds from long-term unsecured debt of
$248.7 million and a reduction in unsecured credit
facilities of $484.3 million, partially offset by a
reduction in prepayments of mortgages of $190.6 million.

Included above in the cash flows from financing
activities are the payments of $271.1 million and
$24.0 million in distributions to Common Units and
Preferred Units, respectively, during the nine months ended
September 30, 2003.

Our most significant non-cash investing and
financing activities during the nine months ended
September 30, 2003 and 2002 included: (i) the
conversion of Series H Preferred Units into Common Units in
2003, (ii) the issuance of A-1 Common Units in
exchange for land in 2003, (iii) the conversion of A-1
Common Units to A-2 Common Units in both 2003 and 2002,
(iv) the conversion of Series A and Series J Preferred
Shares into Common Shares in 2002, (v) the issuance of B
Common Units in exchange for real estate in 2002, and
(vi) the assumption of mortgages payable upon the purchase
of apartment communities in 2002.



| |                                                                
| | ---------------------------------------------------------------
| | 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 issues and refinancing risk. As of
September 30, 2003, we have approximately
$25.6 million of long-term debt maturing during the
remainder of 2003, $109.2 million maturing during 2004 and
$326.4 million maturing during 2005.

We currently have $700 million in total
borrowing capacity under our unsecured credit facilities, with
$11.5 million outstanding and $688.5 million of
available capacity at October 31, 2003. Our unsecured
credit facilities, Long-Term Unsecured Debt and mortgages
payable had effective interest rates of 4.01%, 6.29% and 5.60%,
respectively, as of September 30, 2003. These rates give
effect to the impact of interest rate swaps and caps, as
applicable.

We were in compliance will all financial
covenants pertaining to our debt instruments during the period
ended September 30, 2003.

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

Based on anticipated distribution levels for 2003
and the number of units and units outstanding as of
September 30, 2003, we anticipate that we will pay
distributions of $392.4 million in the aggregate during
2003. This amount represents distributions 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, 2003, including amounts for
Ameriton (dollar amounts in thousands). The amounts labeled
Discretionary represent future investments that we
plan to make, although there is not a contractual commitment to
do so. The amounts labeled Committed represent the
approximate amount that we are contractually committed to fund
for properties under construction.

|                                         |       |       |       |                     |  |           |         |           |  |   |         |         | 
|---------------------------------------- | ----- | ----- | ----- | ------------------- |  | --------- | ------- | --------- |  | - | ------- | ------- | 
|                                         |       |       |       |                    
|                                         |       |       |       | Planned Investments
|                                         |       |       |       |                    
|                                         |       | Units |       | Discretionary       |  | Committed
|                                         |       |       |       |                     |  |          
|Properties under redevelopment(1)        |       |       | 5,531 |                     |  | $         | 23,276  |           |  | $ | 18,287  |        
|Properties under construction            |       |       | 4,274 |                     |  |           |        |           |  |   | 321,933 |        
|Properties In Planning and owned         |       |       | 4,510 |                     |  |           | 841,616 |           |  |   |        |        
|Properties In Planning and Under Control |       |       | 112   |                     |  |           | 9,172   |           |  |   |        |        
|Property acquisitions under contract     |       |       | 1,847 |                     |  |           | 237,802 |           |  |   |        |        
|                                         |       |       |       |                     |  |           |         |           |  |   |         |        
|                                         | Total |       |       | 16,274              |  |           | $       | 1,111,866 |  |   | $       | 340,220 | 
|                                         |       |       |       |                     |  |           |         |           |  |   |         |        



---



|    |                                                                                   
|--- | ----------------------------------------------------------------------------------
|(1) | Includes planned investments at six 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, as well
as 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
2003 and 2004. We expect to start construction on approximately
$200 million to $275 million, based on Total Expected
Investment, of communities that are currently classified as In
Planning during the remainder of 2003, excluding Ameriton. No
assurances can be given that communities the Operating Trust
does not currently own will be acquired or that planned
developments will actually occur. In addition, actual costs
incurred could be greater or less than our current estimates.



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

We anticipate financing our planned investment
and operating needs primarily with cash flow from operating
activities, disposition proceeds from our capital recycling
program and borrowings under our unsecured credit facilities,
prior to arranging long-term financing. We anticipate that net
cash flow from operating activities and proceeds from our
unsecured credit facilities or dispositions during 2003 will be
sufficient to fund debt principal payments and anticipated
distribution requirements. To fund planned investment
activities, we had $688.5 million in available capacity on
our unsecured credit facilities, $198.2 million in
tax-deferred exchange escrow and $50.8 million of cash on
hand at October 31, 2003. In addition, during 2003, we
expect to complete the dispositions of $1.3 billion to
$1.4 billion of operating communities. During 2004, we will
receive approximately $128 million from the settlement of
certain forward sale agreements.

At September 30, 2003, Archstone-Smith and
the Operating Trust had approximately $1.1 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

We are exposed to the impact of interest rate
changes and will occasionally utilize interest rate swaps and
interest rate caps as hedges with the objective of lowering our
overall borrowing costs. These derivatives are

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designated as either cash flow or fair value
hedges. We are also exposed to price risk associated with
changes in the fair value of certain equity securities. We have
entered into forward sale agreements to protect against a
reduction in the fair value of these securities. We have
designated this forward sale as a fair value hedge. We do not
use these derivatives for trading or other speculative purposes.
Further, as a matter of policy, we only enter into contracts
with major financial institutions based upon their credit
ratings and other factors. When viewed in conjunction with the
underlying and offsetting exposure that the derivatives are
designed to hedge, we have not, nor do we expect to sustain a
material loss from the use of these hedging instruments.


We formally assess, both at inception of the
hedge and on an ongoing basis, whether each derivative is highly
effective in offsetting changes in fair values or cash flows of
the hedged item. We measure hedge effectiveness by comparing the
changes in the fair value or cash flows of the derivative
instrument with the changes in the fair value or cash flows of
the hedged item. We exclude the hedging instruments time
value component when assessing hedge effectiveness. If it is
determined that a derivative is not highly effective as a hedge
or if a derivative ceases to be a highly effective hedge, we
will discontinue hedge accounting prospectively.

To determine the fair values of derivative and
other financial instruments, we use a variety of methods and
assumptions that are based on market value conditions and risks
existing at each balance sheet date. These methods and
assumptions include standard market conventions and techniques
such as discounted cash flow analysis, option pricing models,
replacement cost and termination cost. All methods of assessing
fair value result in a general approximation of value, and
therefore, are not necessarily indicative of the actual amounts
that we could realize upon disposition. During the three months
ended September 30, 2003, we entered into a forward sale
agreement with a notional amount, which represents the fair
value of the underlying marketable securities, of approximately
$46.8 million. The fair value of the forward sale agreement
was approximately $112,000. Subsequent to September 30,
2003, we entered into two additional forward sale agreements
with a notional amount of approximately $81.7 million and a
fair value of approximately $374,000. These forward sale
agreements will result in 2004 gains of approximately
$22.2 million.

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. There
has been an increasing number of lawsuits in our industry
against owners and managers of apartment communities relating to
moisture infiltration and resulting mold. Whenever we receive a
resident complaint concerning moisture infiltration,
condensation or mold problems and/or become aware that an air
quality concern exists, we implement corrective measures in
accordance with guidelines and protocols we have developed with
the assistance of indoor air quality experts. We are working
proactively with all of our residents to resolve all moisture
infiltration and mold-related issues. However, we can make no
assurance that additional material legal claims relating to
moisture infiltration and the presence of, or exposure to, mold
will not arise in the future.

The terms of our property and general liability
policies after June 30, 2002, may exclude certain
mold-related claims. Should an uninsured loss arise against the
company, we may be required to use our own funds to resolve the
issue, including litigation 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
management has discussed the development and selection of all of
these critical accounting policies with our audit committee, and
the audit committee has reviewed the disclosure relating to
these policies. Our critical accounting policies relate
principally to the following key areas:



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

We have an investment organization and
infrastructure that supports the due diligence, land
acquisition, development and redevelopment of apartment
communities. Consistent with GAAP, all direct and indirect
costs, including interest and real estate taxes, incurred during
construction relating to these activities, are capitalized.
Included in these costs is managements estimate for the
portion of internal costs that are incremental and deemed
directly or indirectly related to such development activities.
Because the estimation of capitalizable internal costs

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requires managements judgment, we believe
internal cost capitalization is a critical accounting
estimate. If future accounting rules limit our ability to
capitalize internal costs or if our development activity
decreased significantly without a proportionate decrease in
internal costs, there could be an increase in our operating
expenses.




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

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

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

The apartment industry uses capitalization rates
as the primary measure of fair value. Specifically, annual NOI
for a community is divided by an estimated capitalization rate
to determine the fair value of the community. Determining the
appropriate capitalization rate requires significant judgment
and is typically based on the prevailing rate for the market or
submarket. Further, capitalization rates can fluctuate up or
down due to a variety of factors in the overall economy or
within local markets. If the actual capitalization rate for a
community is significantly different from our estimated rate,
the impairment evaluation for an individual asset could be
materially affected. Historically we have had limited and
infrequent impairment charges, and the majority of our apartment
community sales have produced gains. We evaluate a real estate
asset for potential impairment when events or changes in
circumstances indicate that its carrying amount may not be
recoverable.



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

We incur costs relating to redevelopment
initiatives, revenue enhancing and expense reducing capital
expenditures, and recurring capital expenditures that are
capitalized as part of our real estate. These amounts are
capitalized and depreciated over estimated useful lives
determined by management. Determining whether expenditures meet
the criteria for capitalization and the assignment of
depreciable lives requires our management to exercise
significant judgment and is therefore considered a
critical accounting estimate.



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

Accounting for correction of moisture
infiltration and mold remediation costs is considered a
critical accounting estimate because significant
judgment is required by management to determine when to record a
liability, how much should be accrued as a liability and whether
such costs meet the criteria for capitalization.

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

There are considerable uncertainties that affect
our ability to estimate the ultimate cost of correction and
remediation efforts. These uncertainties include, but are not
limited to, assessing the exact nature and extent of the issues,
the extent of required remediation efforts and the varying costs
of alternative strategies for addressing the issues. Any accrual
represents managements best estimate of the probable and
reasonably estimable costs

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and is based, in part, on estimates obtained from
third-party environmental contractors and actual costs incurred
to date. It is possible that these estimates could increase or
decrease as better information becomes available.


We accrue for litigation settlement costs when a
loss contingency is both probable and the amount of loss can be
reasonably estimated. Estimating the likelihood and amount of a
loss contingency requires significant judgment by management and
is therefore considered a critical accounting
estimate. We base these estimates on the best information
available as of the end of the period, which includes, but is
not limited to, estimates obtained from third-party contractors
as well as actual costs incurred to date. It is possible that
these estimates could increase or decrease as better information
becomes available. We generally recognize legal expenses as
incurred; however, if such fees are related to the accrual for a
known legal settlement, we accrue for the related incurred and
anticipated legal fees at the same time we accrue the cost of
settlement.

Off Balance Sheet Arrangements

Investments in entities that are not controlled
through majority voting interest are not consolidated and are
reported as investments in unconsolidated entities. Our
investments in unconsolidated entities consists of a
$97.1 million investment in real estate joint ventures.

CES is a service business that we acquired during
the Smith Merger in 2001 and prior to its sale had been reported
as an unconsolidated entity in our financial statements. CES
provides engineering services for commercial and residential
real estate across the country. On December 19, 2002, CES
was sold to a third party for $178 million in cash. We
recorded a $35.4 million net gain on the sale of the
business or $0.16 per share on a fully diluted basis.
Approximately $6.7 million in contingent proceeds related
to indemnification of accounts receivable over 120 days was
excluded from the gain. We have recognized $5.1 million of
these contingent proceeds during the nine months ended
September 30, 2003, since this amount of the indemnified
accounts receivable was collected.

As a condition of sale, we agreed to indemnify
the buyer for certain representations and warranties contained
in the sale contract. The indemnifications terminate on
June 30, 2004, and while we do not believe it is probable
that the indemnities will reach the maximum amount, the related
liability is limited to a maximum exposure of $44.5 million
with exceptions including third party claims, insurance,
arbitration, environmental issues and collection of specified
accounts receivable, each of which is without deduction or
limitation. There are no recourse provisions available to us to
recover any potential future payments from third parties.

SMC is a service business that we acquired in the
Smith Merger during 2001. We sold SMC during February 2003 to
former members of SMCs senior management. Prior to the
sale, we reported SMC as an unconsolidated entity in our
financial statements. We received two notes receivable totaling
$5.8 million and bearing an interest rate of 7.0% as
consideration for the sale. The first note for $3.5 million
had principal payments that begin in October 2003 with payment
in full by February 2008. The second note for $2.3 million
was fully repaid along with all accrued interest due during May
2003. For accounting purposes, we will not recognize the
divestiture until our responsibilities for certain performance
guarantees, which pertain to ongoing construction projects at
the time of sale, expire. Principal and interest payments
received prior to the recognition of this transaction as a
divestiture will be recorded as a reduction to our investment
basis, which is included in other assets in the accompanying
condensed consolidated balance sheets.

Prior to their sale, we extended approximately
$54.7 million in performance bond guarantees relating to
contracts entered into by CES and SMC, which are customary to
the type of business in which these entities engage. As of
September 30, 2003 $7.4 million of these performance
bond guarantees were still outstanding. The Operating Trust, our
subsidiaries and investees have not been required to perform on
these guarantees, nor do we anticipate being required to perform
on such guarantees. We also will not extend any such performance
bond guarantees in the future due to the sale of both CES and
SMC. Since we believe that our risk of loss under these
contingencies is remote, no accrual for potential loss has been
made in the accompanying financial statements. There are
recourse provisions available to us to recover any potential
future payments from the new owners of CES and SMC.

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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 (amounts in millions):

|                                           |       |      |       |          |  |          |       |                |  |       |       |       |  |   |         |         |  |   |         |         | 
|------------------------------------------ | ----- | ---- | ----- | -------- |  | -------- | ----- | -------------- |  | ----- | ----- | ----- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                           |       |      |       | 2004 and |  | 2006 and |       |                |  |      
|                                           |       | 2003 |       | 2005     |  | 2007     |       | 2008 thru 2095 |  | Total
|                                           |       |      |       |          |  |          |       |                |  |      
|Scheduled long-term debt maturities        |       | $    | 25.6  |          |  | $        | 435.6 |                |  | $     | 885.2 |       |  | $ | 2,479.6 |         |  | $ | 3,826.0 |        
|Unsecured credit facilities(1)             |       |      | 2.0   |          |  |          |      |                |  |       |      |       |  |   |        |         |  |   | 2.0     |        
|Development and redevelopment expenditures |       |      | 340.2 |          |  |          |      |                |  |       |      |       |  |   |        |         |  |   | 340.2   |        
|Performance bond guarantees(2)             |       |      | 14.9  |          |  |          | 22.3  |                |  |       |      |       |  |   |        |         |  |   | 37.2    |        
|Lease commitments and other(3)             |       |      | 19.8  |          |  |          | 13.8  |                |  |       | 9.8   |       |  |   | 194.8   |         |  |   | 238.2   |        
|                                           |       |      |       |          |  |          |       |                |  |       |       |       |  |   |         |         |  |   |         |        
|                                           | Total |      | $     | 402.5    |  |          | $     | 471.7          |  |       | $     | 895.0 |  |   | $       | 2,674.4 |  |   | $       | 4,443.6 | 
|                                           |       |      |       |          |  |          |       |                |  |       |       |       |  |   |         |         |  |   |         |        



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In October 2003, we completed the renewal of our
    unsecured revolving line of credit. The new facility has a total
    capacity of $600 million and a three-year term, with a
    one-year extension option available at our discretion.                                                                                                                                                                                                                                                                                                                                                                        
|   
|(2) | The Operating Trust, our subsidiaries and
    investees have not been required to perform on these guarantees,
    nor do we anticipate being required to perform on such
    guarantees. Since we believe that our risk of loss under these
    contingencies is remote, no accrual for potential loss has been
    made in the accompanying financial statements. We are still
    obligated for performance bond guarantees for CES and SMC
    subsequent to their sale, but there are recourse provisions
    available to us to recover any potential future payments from
    the new owners of CES and SMC.
|   
|(3) | Lease commitments relate principally to ground
    lease payments as of December 31, 2002. There have been no
    material changes since that date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                

New Accounting Pronouncements

We adopted FASB Interpretation No. 46,
Consolidation of Variable Interest Entities,in July 2003. This Interpretation clarifies the application
of Accounting Research Bulletin No. 51,
Consolidated Financial Statements,and
requires that we consolidate the results of variable interest
entities in which we have a majority variable interest. Due to
the adoption of this Interpretation, we have consolidated the
results of Ameriton for all periods presented.

In April 2003, the FASB issued Statement of
Financial Accounting Standards (SFAS) No. 149,
Amendment of Statement 133 on Derivative Instruments
and Hedging Activities. We adopted this Statement for
contracts or hedging relationships entered into or modified
after June 30, 2003. Its purpose is to provide more
consistent application and clarification of SFAS 133. The
adoption of SFAS 149 did not have will have a material
impact on our financial position, net earnings or cash flows.

In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities
and Equity. This Statement is effective for financial
instruments entered into or modified after May 31, 2003,
with the exception of the application to non-controlling
(minority) interests in finite-life entities, which has
been deferred indefinitely. The Statement requires that certain
financial instruments, formerly presented as equity, be
classified as liabilities. The adoption of SFAS 150 did not
have a material impact on our financial position, net earnings
or cash flows.






|        |                                                               
|------- | --------------------------------------------------------------
|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

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do not utilize these derivative financial
instruments for speculative purposes. To assist us in evaluating
our interest rate risk and counter-party credit risk, we use the
services of third party consultants.


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. If current 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, 2002. See
Item 7a in our 2002 Form 10-K for detailed information
about the qualitative and quantitative disclosures about our
market risk.






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

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)
as of September 30, 2003. 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.




PART II  OTHER
INFORMATION






|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

We are subject to two class action claims in
connection with moisture infiltration and resulting mold issues
at Harbour House, a high-rise property in Southeast Florida.
These claims are, Henriques, et al. v. Archstone-Smith
Operating Trust, et al., filed on August 27, 2002 (the
Henriques Claim) and Santos, et. al. v.
Archstone-Smith Operating Trust et. al., filed on
February 13, 2003, in the Circuit Court of the Eleventh
Judicial Circuit in and for Miami-Dade County, Florida, on
behalf of the class of residents of one of our Southeast Florida
properties. The case alleges that mold contamination at the
property caused by faulty air-conditioning resulted in both
personal injuries to the plaintiffs and damage to their
property. Plaintiffs seek both injunctive relief and unspecified
monetary and punitive damages. We are currently in settlement
discussions with the plaintiffs in this matter. Based on the
status of these discussions, we have recorded a liability for
estimated legal fees associated with known and anticipated costs
for our counsel and plaintiffs counsel, as well as
estimated settlement costs. See Managements Discussion and
Analysis of Financial Conditions and Results of Operations in
this Form 10-Q for further discussion regarding this
accrual. No assurances can be given that the settlement
discussion will be successful or that the court will approve the
settlement.

In addition, a claim, Michel, et al, v.
Archstone-Smith Operating Trust, et al., was filed on
May 9, 2003, and another claim, Semidey, et al, v.
Archstone-Smith Operating Trust et. al., was filed on
June 9, 2003, in the Circuit Court of the Eleventh Judicial
Circuit in and for Miami-Dade County, Florida, on behalf of the
class of residents at two of our Southeast Florida properties.
The plaintiffs in these cases make substantially the same
allegations as those made in the Henriques Claim and seek both
injunctive relief and unspecified monetary and punitive damages.
We believe these suits are without merit and intend to
vigorously contest the claims asserted in this litigation.
Nonetheless, we are in ongoing discussions with the attorneys
representing plaintiffs in certain of these matters in an effort
to understand whether there is a rational settlement option that
could result in expediting the resolution of the subject claims.
No assurances can be given that these lawsuits, if adversely
determined, will not have a material adverse effect on the
company.

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

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|        |                                     
|------- | ------------------------------------
|Item 6. | Exhibits and Reports on
    Form 8-K

(a) Exhibits:

| |    |    |  |                                                                                                       
| | -- | -- |  | ------------------------------------------------------------------------------------------------------
| | 12 | .1 |  | Computation of Ratio of Earnings to Fixed Charges                                                     
| | 12 | .2 |  | Computation of Ratio of Earnings to Combined
    Fixed Charges and Preferred Unit Distributions       
| | 15 | .1 |  | Letter from KPMG LLP
    dated          ,
    2003, regarding unaudited financial information         
| | 31 | .1 |  | Certification of Chief Executive Officer                                                              
| | 31 | .2 |  | Certification of Chief Financial Officer                                                              
| | 32 | .1 |  | Certification of Chief Executive Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002
| | 32 | .2 |  | Certification of Chief Financial Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K:

None

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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        
| | 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                  
| | Controller and Senior Vice President
| | (Principal Accounting Officer)      

Date: November 12, 2003

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INDEX TO EXHIBITS

|        |    |             |  |                                                                                                       
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 12 | .1          |  | Computation of Ratio of Earnings to Fixed Charges                                                     
|        | 12 | .2          |  | Computation of Ratio of Earnings to Combined
    Fixed Charges and Preferred Unit Distributions       
|        | 15 | .1          |  | Letter from KPMG LLP dated November 12,
    2003, regarding unaudited financial information           
|        | 31 | .1          |  | Certification of Chief Executive Officer                                                              
|        | 31 | .2          |  | Certification of Chief Financial Officer                                                              
|        | 32 | .1          |  | Certification of Chief Executive Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002
|        | 32 | .2          |  | Certification of Chief Financial Officer pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002

33