##### 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 June 30, 2006
 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
(State or other jurisdiction of
incorporation or organization)
    
    90-0042860
(I.R.S. employer identification no.)
 9200 E Panorama Circle, Suite 400
Englewood, Colorado 80112
(Address of principal executive offices and zip code)
 (303) 708-5959
(Registrants telephone number, including area code)
 (Former name, former address and former fiscal year,
if changed since last report)
  þ o
  þ o o
  o þ




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##### Table of Contents



Table of Contents
  
 PageItem
    
    Description
    
    NumberPART 11.
    
    Financial StatementsCondensed Consolidated Balance Sheets  June 30, 2006 (unaudited) and December 31, 2005
    
    
    3Condensed Consolidated Statements of Earnings  Three and Six Months Ended June 30, 2006 and 2005 (unaudited)
    
    
    4Condensed Consolidated Statement of Unitholders Equity, Other Common Unitholders Interest and Comprehensive Income (Loss) Six months Ended June 30, 2006 (unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows  Six months Ended June 30, 2006 and 2005 (unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    7Independent Registered Public Accounting Firm Review Report
    
    
    222.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    233.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    354.
    
    Controls and Procedures
    
    
    35PART II1.
    
    Legal Proceedings
    
    
    361A.
    
    Risk Factors
    
    
    362.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    363.
    
    Defaults Upon Senior Securities
    
    
    364.
    
    Submission of Matters to a Vote of Security Holders
    
    
    365.
    
    Other Events
    
    
    366.
    
    Exhibit Index
    
    
    36Computation of Ratio of Earnings to Fixed ChargesComputation of Ratio of Earnings to Combined Fixed ChargesIndependent Registered Public Accounting Firm Awareness LetterCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
 2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Archstone-Smith Operating Trust
 
 Condensed Consolidated Balance Sheets
 (In thousands, except Unit data)
 June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)ASSETSReal estate
    
    $
    11,741,695
    
    
    $
    11,338,506Real estate  held-for-sale
    
    
    20,992
    
    
    
    20,758Less accumulated depreciation
    
    
    887,558
    
    
    
    836,69310,875,129
    
    
    
    10,522,571Investments in and advances to unconsolidated entities
    
    
    193,036
    
    
    
    132,728Net investments
    
    
    11,068,165
    
    
    
    10,655,299Cash and cash equivalents
    
    
    21,665
    
    
    
    13,638Restricted cash in tax-deferred exchange escrow
    
    
    284,879
    
    
    
    495,274Other assets
    
    
    401,931
    
    
    
    302,967Total assets
    
    $
    11,776,640
    
    
    $
    11,467,178LIABILITIES AND UNITHOLDERS EQUITYLiabilities:Unsecured credit facilities
    
    $
    109,218
    
    
    $
    394,578Long-term unsecured debt
    
    
    2,825,365
    
    
    
    2,545,119Mortgages payable
    
    
    2,503,373
    
    
    
    2,383,473Mortgages payable  held-for-sale
    
    
    10,094
    
    
    
    10,179Accounts payable
    
    
    54,233
    
    
    
    53,366Accrued expenses and other liabilities
    
    
    298,148
    
    
    
    311,673Total liabilities
    
    
    5,800,431
    
    
    
    5,698,388Other common unitholders interest, at redemption
value (A-1 Common Units: 33,404,103 in 2006 and
33,910,022 in 2005)
    
    
    1,699,267
    
    
    
    1,420,491Unitholders equity:Convertible Preferred Units
    
    
    3⁄4
    
    
    
    3⁄4Perpetual Preferred Units
    
    
    50,000
    
    
    
    50,000Common unitholders equity (A-2 Common Units:214,847,502 units in 2006 and 212,413,939 units in
2005)
    
    
    4,208,206
    
    
    
    4,300,019Accumulated other comprehensive income (loss)
    
    
    18,736
    
    
    
    (1,720
    )Total unitholders equity
    
    
    4,276,942
    
    
    
    4,348,299Total liabilities and unitholders equity
    
    $
    11,776,640
    
    
    $
    11,467,178
  3




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##### Table of Contents



Archstone-Smith Operating Trust
 
 Condensed Consolidated Statements of Earnings
 (In thousands, except per unit amounts)
(Unaudited
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Rental revenues
    
    $
    280,083
    
    
    $
    197,554
    
    
    $
    543,963
    
    
    $
    389,346Other income
    
    
    13,585
    
    
    
    6,848
    
    
    
    29,801
    
    
    
    11,975293,668
    
    
    
    204,402
    
    
    
    573,764
    
    
    
    401,321Expenses:Rental expenses
    
    
    61,741
    
    
    
    47,456
    
    
    
    121,404
    
    
    
    96,629Real estate taxes
    
    
    26,609
    
    
    
    18,379
    
    
    
    52,373
    
    
    
    36,786Depreciation on real estate investments
    
    
    72,171
    
    
    
    47,441
    
    
    
    138,139
    
    
    
    94,078Interest expense
    
    
    61,029
    
    
    
    39,348
    
    
    
    118,831
    
    
    
    79,904General and administrative expenses
    
    
    15,912
    
    
    
    13,755
    
    
    
    31,297
    
    
    
    28,044Other expenses
    
    
    22
    
    
    
    8,451
    
    
    
    11,295
    
    
    
    31,564237,484
    
    
    
    174,830
    
    
    
    473,339
    
    
    
    367,005Earnings from operations
    
    
    56,184
    
    
    
    29,572
    
    
    
    100,425
    
    
    
    34,316Equity in earnings from unconsolidated entities
    
    
    10,518
    
    
    
    5,794
    
    
    
    29,396
    
    
    
    16,911Other non-operating income
    
    
    243
    
    
    
    4,778
    
    
    
    419
    
    
    
    28,783Net earnings before discontinued operations
    
    
    66,945
    
    
    
    40,144
    
    
    
    130,240
    
    
    
    80,010Net earnings from discontinued apartment communities
    
    
    125,809
    
    
    
    22,190
    
    
    
    206,406
    
    
    
    56,166Net earnings
    
    
    192,754
    
    
    
    62,334
    
    
    
    336,646
    
    
    
    136,176Preferred unit distributions
    
    
    957
    
    
    
    958
    
    
    
    1,915
    
    
    
    2,656Net earnings attributable to Common Units  Basic
    
    $
    191,797
    
    
    $
    61,376
    
    
    $
    334,731
    
    
    $
    133,520Weighted average Common Units outstanding:Basic
    
    
    248,079
    
    
    
    223,093
    
    
    
    247,572
    
    
    
    223,719Diluted
    
    
    248,934
    
    
    
    224,199
    
    
    
    248,409
    
    
    
    224,757Earnings per Common Unit  Basic:Earnings before discontinued operations
    
    $
    0.26
    
    
    $
    0.18
    
    
    $
    0.52
    
    
    $
    0.35Discontinued operations, net
    
    
    0.51
    
    
    
    0.10
    
    
    
    0.83
    
    
    
    0.25Net earnings
    
    $
    0.77
    
    
    $
    0.28
    
    
    $
    1.35
    
    
    $
    0.60Earnings per Common Unit  Diluted:Earnings before discontinued operations
    
    $
    0.26
    
    
    $
    0.17
    
    
    $
    0.52
    
    
    $
    0.34Discontinued operations, net
    
    
    0.51
    
    
    
    0.10
    
    
    
    0.83
    
    
    
    0.25Net earnings
    
    $
    0.77
    
    
    $
    0.27
    
    
    $
    1.35
    
    
    $
    0.59Distributions paid per Common Unit
    
    $
    0.4350
    
    
    $
    0.4325
    
    
    $
    0.8700
    
    
    $
    0.8650
  4




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Archstone-Smith Operating Trust
 
 Condensed Consolidated Statement of Unitholders Equity,
Other Common Unitholders Interest and Comprehensive Income (Loss)
 Six Months Ended June 30, 2006
 In thousands)
(Unaudited
 PerpetualPreferred
    
    
    
    
    
    
    AccumulatedUnits at
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    OtherAggregate
    
    
    Common
    
    
    Comprehensive
    
    
    Total
    
    
    CommonLiquidation
    
    
    Unitholders
    
    
    Income
    
    
    Unitholders
    
    
    UnitholdersPreference
    
    
    Equity
    
    
    (Loss)
    
    
    Equity
    
    
    Interest
    
    
    TotalBalances at December 31, 2005
    
    $
    50,000
    
    
    $
    4,300,019
    
    
    $
    (1,720
    )
    
    $
    4,348,299
    
    
    $
    1,420,491
    
    
    $
    5,768,790Comprehensive income:Net earnings
    
    
    
    
    
    
    291,232
    
    
    
    
    
    
    
    291,232
    
    
    
    45,414
    
    
    
    336,646Change in fair value of cash flow
hedges
    
    
    
    
    
    
    
    
    
    
    17,341
    
    
    
    17,341
    
    
    
    
    
    
    
    17,341Change in fair value of marketable
securities
    
    
    
    
    
    
    
    
    
    
    966
    
    
    
    966
    
    
    
    
    
    
    
    966Foreign currency exchange translation
    
    
    
    
    
    
    
    
    
    
    2,149
    
    
    
    2,149
    
    
    
    
    
    
    
    2,149Comprehensive income attributable to
Common Units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    357,102Preferred Unit distribution
    
    
    
    
    
    
    (1,915
    )
    
    
    
    
    
    
    (1,915
    )
    
    
    
    
    
    
    (1,915
    )Common Unit distributions
    
    
    
    
    
    
    (186,553
    )
    
    
    
    
    
    
    (186,553
    )
    
    
    (29,062
    )
    
    
    (215,615
    )A-1 Common Units converted into A-2 Common
Units
    
    
    
    
    
    
    27,484
    
    
    
    
    
    
    
    27,484
    
    
    
    (27,484
    )
    
    
    Exercise of Options
    
    
    
    
    
    
    27,350
    
    
    
    
    
    
    
    27,350
    
    
    
    
    
    
    
    27,350Issuance of A-1 Common Units under
Compensation Plans
    
    
    
    
    
    
    4,008
    
    
    
    
    
    
    
    4,008
    
    
    
    
    
    
    
    4,008Issuance of Common Units under
Dividend Reinvestment Plans
    
    
    
    
    
    
    7,994
    
    
    
    
    
    
    
    7,994
    
    
    
    
    
    
    
    7,994Issuance of A-1 Common Units in
exchange for real estate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,371
    
    
    
    28,371Adjustment to redemption value
    
    
    
    
    
    
    (261,537
    )
    
    
    
    
    
    
    (261,537
    )
    
    
    261,537
    
    
    
    Other, net
    
    
    
    
    
    
    124
    
    
    
    
    
    
    
    124
    
    
    
    
    
    
    
    124Balances at June 30, 2006
    
    $
    50,000
    
    
    $
    4,208,206
    
    
    $
    18,736
    
    
    $
    4,276,942
    
    
    $
    1,699,267
    
    
    $
    5,976,209
  5




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##### Table of Contents



Archstone-Smith Operating Trust
 
 Condensed Consolidated Statements of Cash Flows
 (In thousands)
(Unaudited
 Six Months EndedJune 30,2006
    
    

    2005Operating activities:Net earnings
    
    $
    336,646
    
    
    $
    136,176Adjustments to reconcile net earnings to net cash flow provided by operating activities:Depreciation and amortization
    
    
    149,324
    
    
    
    117,035Gains on dispositions of depreciated real estate
    
    
    (229,631
    )
    
    
    (61,854
    )Gains on sale of marketable equity securities
    
    
    
    
    
    
    (27,948
    )Provision for possible loss on investments
    
    
    4,328
    
    
    
    Undistributed equity in earnings from unconsolidated entities
    
    
    4,827
    
    
    
    7,226Interest accrued on Mezzanine loans
    
    
    (4,560
    )
    
    
    (1,553
    )Change in other assets
    
    
    (19,904
    )
    
    
    5,254Change in accounts payable, accrued expenses and other liabilities
    
    
    (13,229
    )
    
    
    (8,231
    )Other, net
    
    
    12,882
    
    
    
    (1,254
    )Net cash flow provided by operating activities
    
    
    240,683
    
    
    
    164,851Investing activities:Real estate investments
    
    
    (899,325
    )
    
    
    (457,763
    )Change in investments in unconsolidated entities, net
    
    
    (65,135
    )
    
    
    (15,825
    )Proceeds from dispositions
    
    
    972,899
    
    
    
    466,691Change in restricted cash
    
    
    210,395
    
    
    
    (3,946
    )Change in notes receivable, net
    
    
    (83,468
    )
    
    
    (73,408
    )Other, net
    
    
    (12,282
    )
    
    
    13,252Net cash flow provided by (used in) investing activities
    
    
    123,084
    
    
    
    (70,999
    )Financing activities:Proceeds from Long-Term Unsecured Debt, net
    
    
    296,946
    
    
    
    296,034Payments on Long-Term Unsecured Debt
    
    
    (18,750
    )
    
    
    (18,750
    )Proceeds from (payments on) unsecured credit facilities, net
    
    
    (285,360
    )
    
    
    (19,000
    )Principal repayment of mortgages payable, including prepayment penalties
    
    
    (154,904
    )
    
    
    (263,456
    )Regularly scheduled principal payments on mortgages payable
    
    
    (6,388
    )
    
    
    (5,321
    )Proceeds from mortgage notes payable
    
    
    
    
    
    
    655Proceeds from Common Units issued under DRIP and employee stock options
    
    
    35,344
    
    
    
    20,556Repurchase of Common Units and Preferred Units
    
    
    
    
    
    
    (56,495
    )Repurchase of Series E and F Perpetual Preferred Units
    
    
    
    
    
    
    (19,522
    )Cash dividends paid on Common Units
    
    
    (215,615
    )
    
    
    (214,935
    )Cash dividends paid on Preferred Units
    
    
    (1,915
    )
    
    
    (2,656
    )Other, net
    
    
    (5,098
    )
    
    
    (1,452
    )Net cash flow used in financing activities
    
    
    (355,740
    )
    
    
    (284,342
    )Net change in cash and cash equivalents
    
    
    8,027
    
    
    
    (190,490
    )Cash and cash equivalents at beginning of period
    
    
    13,638
    
    
    
    203,255Cash and cash equivalents at end of period
    
    $
    21,665
    
    
    $
    12,765Significant non-cash investing and financing activities:A-1 Common Units issued in exchange for real estate
    
    $
    28,371
    
    
    $
    41,660A-1 Common Units converted to A-2 Common Units
    
    
    27,484
    
    
    
    3,129Assumption of mortgages payable upon purchase of apartment communities
    
    
    290,693
    
    
    
    
 
  6




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Archstone-Smith Operating Trust
 
 Notes to Condensed Consolidated Financial Statements
 June 30, 2006 and 2005
(Unaudited)
 (1) Description of the Business and Summary of Significant Accounting Policies
 Business
  Interim Financial Reporting
   Use of Estimates
  Marketable Securities and Other Investments
  7




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##### Table of Contents



Real Estate and Depreciation
  Insurance Recoveries
  Legal Fees
  Foreign Currency Translation
  Derivative Financial Instruments
 Amendment of
Statement 133 on Derivative Instruments and Hedging Activities.
 8




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 Income Taxes
   Comprehensive Income
   NetUnrealized
    
    
    
    
    
    
    
    
    
    
    AccumulatedGains on
    
    
    
    
    
    
    Foreign
    
    
    OtherMarketable
    
    
    Cash Flow
    
    
    Currency
    
    
    ComprehensiveSecurities
    
    
    Hedges
    
    
    Translation
    
    
    Income (Loss)Balance at December 31, 2005
    
    $
    184
    
    
    $
    (1,612
    )
    
    $
    (292
    )
    
    $
    (1,720
    )Change in fair value of cash flow hedges
    
    
    
    
    
    
    269
    
    
    
    
    
    
    
    269Change in fair value of long-term debt hedges
    
    
    
    
    
    
    17,072
    
    
    
    
    
    
    
    17,072Foreign currency translation and other
    
    
    
    
    
    
    
    
    
    
    2,149
    
    
    
    2,149Mark to market for marketable equity
securities
    
    
    966
    
    
    
    
    
    
    
    
    
    
    
    966Balance at June 30, 2006
    
    $
    1,150
    
    
    $
    15,729
    
    
    $
    1,857
    
    
    $
    18,736
 Per Unit Data
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net earnings attributable to Common Units  Basic and Diluted
    
    $
    191,797
    
    
    $
    61,376
    
    
    $
    334,731
    
    
    $
    133,520Weighted average number of Common Unitsoutstanding  Basic
    
    
    248,079
    
    
    
    223,093
    
    
    
    247,572
    
    
    
    223,719Assumed exercise of options
    
    
    855
    
    
    
    1,106
    
    
    
    837
    
    
    
    1,038Weighted average number of Common Unitsoutstanding  Diluted
    
    
    248,934
    
    
    
    224,199
    
    
    
    248,409
    
    
    
    224,757
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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 New Accounting Pronouncements
 Determining Whether a
General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain Rights
 Determining the
Variability to Be Considered in Applying FASB Interpretation No. 46(R). Consolidation
of Variable Interest Entities.
 Share-Based
Payment.
 (2) Real Estate
 Investments in Real Estate
  June 30,
    
    
    December 31,2006
    
    
    2005Investment
    
    
    InvestmentOperating Trust Apartment Communities:Operating communities
    
    $
    10,607,668
    
    
    $
    10,011,372Communities under construction
    
    
    571,686
    
    
    
    575,631Development communities In Planning(1)
    
    
    72,517
    
    
    
    24,365Total Operating Trust apartment communities
    
    
    11,251,871
    
    
    
    10,611,368Ameriton(1)
    
    
    455,605
    
    
    
    692,269Other real estate assets(2)
    
    
    55,211
    
    
    
    55,627Total real estate
    
    $
    11,762,687
    
    
    $
    11,359,264
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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 
 (1)
    
    In Planning is defined as those parcels of land owned or Under Control, which are in the
development planning process, upon which construction is expected subsequent to the completion
of the entitlement and building permit processes. Under Control is the term we use to identify
land parcels which we do not own, yet have an exclusive right to purchase through contingent
contract or letter of intent during a contractually agreed upon time period, subject to
approval of contingencies during the due diligence and entitlement processes. Our investment
as of June 30, 2006 and December 31, 2005 for development communities In Planning  Under
Control was $9.7 million and $145,000, respectively, and is reflected in the Other assets
caption of our Condensed Consolidated Balance Sheets.
 (2)
    
    Includes land that is not In Planning and other real estate assets.
  Balance at December 31, 2005
    
    $
    11,359,264Acquisition-related expenditures
    
    
    896,044Redevelopment expenditures
    
    
    26,677Recurring capital expenditures
    
    
    17,339Development expenditures, including initial acquisition costs
    
    
    171,968Acquisition of land for development
    
    
    114,004Dispositions
    
    
    (834,436
    )Provision for possible loss on investment
    
    
    (4,328
    )Change in estimated hurricane retirements
    
    
    4,496Other
    
    
    4,500Net apartment community activity
    
    
    396,264Change in other real estate assets
    
    
    7,159Balance at June 30, 2006
    
    $
    11,762,687
  (3) Discontinued Operations
   11




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Rental revenues
    
    $
    10,050
    
    
    $
    41,143
    
    
    $
    31,408
    
    
    $
    84,206Rental expenses
    
    
    (4,128
    )
    
    
    (13,290
    )
    
    
    (11,809
    )
    
    
    (27,983
    )Real estate taxes
    
    
    (1,299
    )
    
    
    (5,529
    )
    
    
    (4,692
    )
    
    
    (11,017
    )Depreciation on real estate investments
    
    
    (1,108
    )
    
    
    (9,090
    )
    
    
    (4,714
    )
    
    
    (19,427
    )Interest expense(1)
    
    
    (3,057
    )
    
    
    (10,663
    )
    
    
    (7,006
    )
    
    
    (21,458
    )Estimated income taxes (Ameriton properties)
    
    
    (11,862
    )
    
    
    (392
    )
    
    
    (11,364
    )
    
    
    (3,028
    )Provision for possible loss on real estate investment
    
    
    (2,128
    )
    
    
    
    
    
    
    (4,328
    )
    
    
    Debt extinguishment costs related to dispositions
    
    
    (5,900
    )
    
    
    (331
    )
    
    
    (6,764
    )
    
    
    (5,389
    )Gains from the disposition of Ameriton real estate investments, net
    
    
    35,931
    
    
    
    7,599
    
    
    
    50,655
    
    
    
    21,657Internal
Disposition Costs  Ameriton transactions(2)
    
    
    (2,021
    )
    
    
    (662
    )
    
    
    (3,129
    )
    
    
    (954
    )Gains from the disposition of REIT real estate investments, net
    
    
    111,509
    
    
    
    13,633
    
    
    
    178,976
    
    
    
    40,197Internal Disposition Costs  REIT transactions(2)
    
    
    (178
    )
    
    
    (228
    )
    
    
    (827
    )
    
    
    (638
    )Earnings from discontinued apartment communities
    
    $
    125,809
    
    
    $
    22,190
    
    
    $
    206,406
    
    
    $
    56,166
 
 (1)
    
    The portion of interest expense included in discontinued operations that is allocated
to properties based on the companys leverage ratio was $1.7 million and $8.0 million for
the three months ended June 30, 2006 and 2005, and $3.6 million and $15.5 million for the
six months ended June 30, 2006 and 2005, respectively.(2)
    
    Represents the direct and incremental compensation and related costs associated with
the employees dedicated to our significant disposition activity.
 (4) Investments in and Advances to Unconsolidated Entities
 Real Estate Joint Ventures
  12




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
  June 30,
    
    
    December 31,2006
    
    
    2005Assets:Real estate
    
    $
    1,265,397
    
    
    $
    1,142,921Other assets
    
    
    177,558
    
    
    
    244,557Total assets
    
    $
    1,442,955
    
    
    $
    1,387,478Liabilities and owners equity:Inter-company debt payable to Operating Trust
    
    $
    218
    
    
    $
    2,324Mortgages payable(1)
    
    
    855,670
    
    
    
    894,300Other liabilities
    
    
    200,882
    
    
    
    120,898Total liabilities
    
    
    1,056,770
    
    
    
    1,017,522Owners equity
    
    
    386,185
    
    
    
    369,956Total liabilities and owners equity
    
    $
    1,442,955
    
    
    $
    1,387,478
 
 (1)
    
    The Operating Trust guarantees $194.3 million of the outstanding debt balance as of
June 30, 2006 and is committed to guarantee another $93.5 million upon funding of
additional debt.
  Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Operating Trust Joint VenturesRevenues
    
    $
    32,964
    
    
    $
    32,863
    
    
    $
    63,972
    
    
    $
    66,152Net Earnings(1)
    
    
    29,857
    
    
    
    11,244
    
    
    
    32,036
    
    
    
    26,732Ameriton Joint VenturesRevenues
    
    $
    82
    
    
    $
    1,174
    
    
    $
    223
    
    
    $
    2,263Net Earnings(2)
    
    
    (41
    )
    
    
    4,816
    
    
    
    18,321
    
    
    
    11,934TotalRevenues
    
    $
    33,046
    
    
    $
    34,037
    
    
    $
    64,195
    
    
    $
    68,415Net Earnings
    
    $
    29,816
    
    
    $
    16,060
    
    
    $
    50,357
    
    
    $
    38,666
 
 (1)
    
    Includes gains associated with the disposition of Operating Trust Joint Venture assets
of $27.8 million and $4.6 million for the three months ended June 30, 2006 and 2005, and
$27.8 million and $22.0 million for the six months ended June 30, 2006 and 2005,
respectively.(2)
    
    Includes Ameritons share of pre-tax gains associated with the disposition of real
estate joint ventures assets. These gains totaled $0.08 million and $5.0 million for the
three months ended June 30, 2006 and 2005, and $19.7 million and $12.9 million for the six
months ended June 30, 2006 and 2005, respectively.
  13




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 (5) Mortgage Notes Receivable
  Balance at December 31, 2005
    
    $
    74,396Funding of additional mortgages
    
    
    84,806Accrued interest
    
    
    4,560Balance at June 30, 2006
    
    $
    163,762
  (6) Borrowings
 Unsecured Credit Facilities
   As of and for the
    
    As of and for theSix Months Ended
    
    Year EndedJune 30, 2006
    
    December 31, 2005Total unsecured revolving credit facility
    
    $
    600,000
    
    
    $
    600,000Borrowings outstanding at end of period
    
    
    99,000
    
    
    
    360,000Outstanding letters of credit under this facility
    
    
    24,819
    
    
    
    37,813Weighted average daily borrowings
    
    
    151,569
    
    
    
    183,434Maximum borrowings outstanding during the period
    
    
    360,000
    
    
    
    580,000Weighted average daily nominal interest rate
    
    
    4.93
    %
    
    
    3.95
    %Weighted average daily effective interest rate
    
    
    5.64
    %
    
    
    4.25
    %
  14




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 Long-Term Unsecured Debt
  Effective
    
    
    
    
    
    
    
    
    
    
    AverageCoupon
    
    
    Interest
    
    
    Balance at
    
    
    Balance at
    
    
    RemainingType of Debt
    
    Rate(1)
    
    
    Rate(1) (2)
    
    
    June 30, 2006
    
    
    December 31, 2005
    
    
    Life (Years)Long-term unsecured senior notes
    
    
    5.75
    %
    
    
    5.90
    %
    
    $
    2,749,142
    
    
    $
    2,468,047
    
    
    
    5.9Unsecured tax-exempt bonds
    
    
    3.91
    %
    
    
    4.15
    %
    
    
    76,223
    
    
    
    77,072
    
    
    
    17.1Total/Weighted average
    
    
    5.70
    %
    
    
    5.85
    %
    
    $
    2,825,365
    
    
    $
    2,545,119
    
    
    
    6.2
 
 (1)
    
    Represents a fixed rate for the long-term unsecured notes and a variable rate for the
unsecured tax-exempt bonds.(2)
    
    Includes the effect of fair value hedges, loan cost amortization and other ongoing fees and
expenses, where applicable.
  Mortgages payable
  Outstanding Balance at(1)Effective InterestJune 30, 2006
    
    
    December 31, 2005
    
    
    Rate(2)Secured floating rate debt:Tax-exempt debt
    
    $
    1,021,047
    
    
    $
    839,318
    
    
    
    4.5
    %Conventional mortgages
    
    
    73,903
    
    
    
    54,455
    
    
    
    5.4
    %Total Floating
    
    
    1,094,950
    
    
    
    893,773
    
    
    
    4.5
    %Secured fixed rate debt:Tax-exempt debt
    
    
    3,000
    
    
    
    
    
    
    
    6.4
    %Conventional mortgages
    
    
    1,396,299
    
    
    
    1,480,170
    
    
    
    6.1
    %Other secured debt
    
    
    19,218
    
    
    
    19,709
    
    
    
    4.0
    %Total Fixed
    
    
    1,418,517
    
    
    
    1,499,879
    
    
    
    6.1
    %Total mortgages payable
    
    $
    2,513,467
    
    
    $
    2,393,652
    
    
    
    5.4
    %
 
 (1)
    
    Includes the unamortized fair market value adjustment associated with assumption of fixed
rate mortgages in connection with real estate acquisitions. The unamortized balance aggregated
$50.5 million and $63.5 million at June 30, 2006 and December 31, 2005 respectively, and is
being amortized into interest expense over the life of the underlying debt.(2)
    
    Includes the effect of fair value hedges, credit enhancement fees, the amortization of fair
market value purchase adjustment, and other related costs, where applicable.
 15




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
  Balance at December 31, 2005
    
    $
    2,393,652Mortgage assumptions related to property acquisitions
    
    
    290,693Regularly scheduled principal amortization
    
    
    (6,388
    )Prepayments, final maturities and other
    
    
    (164,490
    )Balance at June 30, 2006
    
    $
    2,513,467
 Other
   (7) Distributions to Unitholders
  Quarterly
    
    AnnualizedCash
    
    CashDistribution
    
    DistributionPer Unit
    
    Per UnitCommon Units
    
    $
    0.435
    
    
    $
    1.74Series I Perpetual Preferred Units(1)
    
    
    1,915
    
    
    
    7,660
 
 (1)
    
    Series I Preferred Units have a par value of $100,000 per unit.
 (8) Benefit Plans and Implementation of SFAS 123R
 Share-Based Payment. Accounting for Stock-Based Compensation, Accounting for Stock Issued to Employees.
  16




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
    Option Awards
    
    RSU AwardsWeighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average GrantOptions
    
    Exercise Price
    
    Units
    
    PriceBalance, December 31, 2005
    
    
    2,702,026
    
    
    $
    24.94
    
    
    
    948,735
    
    
    $
    27.77Granted
    
    
    424,523
    
    
    
    45.58
    
    
    
    226,666
    
    
    
    45.58Exercised/Settled
    
    
    942,485
    
    
    
    23.28
    
    
    
    35,905
    
    
    
    24.56Forfeited
    
    
    21,895
    
    
    
    34.29
    
    
    
    4,712
    
    
    
    31.84Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, March 31, 2006
    
    
    2,162,169
    
    
    $
    29.56
    
    
    
    1,134,784
    
    
    $
    31.42Granted
    
    
    1,048
    
    
    
    47.70
    
    
    
    18,193
    
    
    
    47.70Exercised/Settled
    
    
    89,307
    
    
    
    24.35
    
    
    
    23,129
    
    
    
    25.16Forfeited
    
    
    18,633
    
    
    
    34.49
    
    
    
    12,048
    
    
    
    35.00Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, June 30, 2006
    
    
    2,055,277
    
    
    $
    29.80
    
    
    
    1,117,800
    
    
    $
    31.76
  Options
  17




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
  Restricted Share Units
   Special Long Term Incentive Plan
  Summary
  (9) Segment Data
   18




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Reportable apartment communities segment revenues:Same-Store:Garden communities
    
    $
    118,451
    
    
    $
    111,356
    
    
    $
    228,275
    
    
    $
    215,115High-rise properties
    
    
    76,127
    
    
    
    71,114
    
    
    
    147,795
    
    
    
    139,557Non Same-Store and other:Garden communities
    
    
    45,457
    
    
    
    3,445
    
    
    
    93,271
    
    
    
    10,592High-rise communities
    
    
    31,741
    
    
    
    9,160
    
    
    
    59,053
    
    
    
    19,785Ameriton communities(1)
    
    
    2,560
    
    
    
    1,622
    
    
    
    5,056
    
    
    
    2,872Other non-reportable operating segment revenues
    
    
    5,747
    
    
    
    857
    
    
    
    10,513
    
    
    
    1,425Total segment and consolidated rental revenues
    
    $
    280,083
    
    
    $
    197,554
    
    
    $
    543,963
    
    
    $
    389,346
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Reportable apartment communities segment NOI:Same-Store:Garden communities
    
    $
    82,589
    
    
    $
    75,685
    
    
    $
    158,258
    
    
    $
    145,105High-rise communities
    
    
    52,771
    
    
    
    47,152
    
    
    
    101,062
    
    
    
    91,015Non Same-Store and other:Garden communities
    
    
    29,829
    
    
    
    2,200
    
    
    
    61,535
    
    
    
    6,429High-rise communities
    
    
    21,964
    
    
    
    5,139
    
    
    
    40,167
    
    
    
    10,942Ameriton communities(1)
    
    
    1,387
    
    
    
    759
    
    
    
    2,534
    
    
    
    1,197Other non-reportable operating segment NOI
    
    
    3,193
    
    
    
    784
    
    
    
    6,630
    
    
    
    1,243Total segment NOI
    
    
    191,733
    
    
    
    131,719
    
    
    
    370,186
    
    
    
    255,931Reconciling items:Other income
    
    
    13,585
    
    
    
    6,848
    
    
    
    29,801
    
    
    
    11,975Depreciation on real estate investments
    
    
    (72,171
    )
    
    
    (47,441
    )
    
    
    (138,139
    )
    
    
    (94,078
    )Interest expense
    
    
    (61,029
    )
    
    
    (39,348
    )
    
    
    (118,831
    )
    
    
    (79,904
    )General and administrative expenses
    
    
    (15,912
    )
    
    
    (13,755
    )
    
    
    (31,297
    )
    
    
    (28,044
    )Other expenses
    
    
    (22
    )
    
    
    (8,451
    )
    
    
    (11,295
    )
    
    
    (31,564
    )Consolidated earnings from operations
    
    $
    56,184
    
    
    $
    29,572
    
    
    $
    100,425
    
    
    $
    34,316
 
 (1)
    
    While rental revenue and NOI are the primary measures we use to evaluate the
performance of our assets, management also utilizes gains from the disposition of real
estate when evaluating the performance of Ameriton as its primary focus is the
opportunistic acquisition, development and eventual disposition of real estate with a short
term investment horizon. Pre-tax gains from the disposition of Ameriton operating assets
were $33.9 million and $6.9 million for the three months ended June 30, 2006 and 2005, and
$47.5 million and $20.7 million for the six months ended June 30, 2006 and 2005,
respectively. These gains are classified within discontinued operations. Additionally,
Ameriton had gains from the sale of unconsolidated joint venture assets that are classified
within income from unconsolidated entities and gains from land sales that are classified
within other income. Ameriton assets are excluded from our Same-Store population as they
are acquired or developed to achieve short-term opportunistic gains, and therefore, the
average holding period is typically much shorter than the holding period of assets operated
by the REIT.
 19




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 June 30,
    
    
    December 31,2006
    
    
    2005Reportable operating communities segment
assets, net:Same-Store:Garden communities
    
    $
    3,102,241
    
    
    $
    3,125,160High-rise communities
    
    
    2,593,539
    
    
    
    2,613,651Non Same-Store, Under Development and other:Garden communities
    
    
    2,587,504
    
    
    
    2,584,358High-rise communities
    
    
    1,944,142
    
    
    
    1,411,984Ameriton communities
    
    
    332,026
    
    
    
    569,678ADA Settlement Accrual
    
    
    37,523
    
    
    
    47,198Other non-reportable operating segment assets
    
    
    257,674
    
    
    
    151,539Total segment assets
    
    
    10,854,649
    
    
    
    10,503,568Real estate held-for-sale
    
    
    20,480
    
    
    
    19,003Total segment assets
    
    
    10,875,129
    
    
    
    10,522,571Reconciling items:Investment in and advances to unconsolidated
entities
    
    
    193,036
    
    
    
    132,728Cash and cash equivalents
    
    
    21,665
    
    
    
    13,638Restricted cash in tax-deferred exchange escrow
    
    
    284,879
    
    
    
    495,274Other assets
    
    
    401,931
    
    
    
    302,967Consolidated total assets
    
    $
    11,776,640
    
    
    $
    11,467,178
  (10) Litigation and Contingencies
  (11) Subsequent Events
   
 20




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
  21




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
 22




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following information should be read in conjunction with Archstone-Smith Operating Trusts
2005 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 2005 Form 10-K , Item 1.
Business, for a more complete discussion of risk factors that could impact our future financial
performance.
 The Company
  Results of Operations
 Executive Summary
  
    
    NOI increased significantly due primarily to substantial net acquisition activity,
including the Oakwood transaction, and an increase of 10.2% in NOI for our same-store
communities that were operating as of April 1, 2005.
    
    Other income was higher due primarily to (i) higher interest income attributable to
our growing mezzanine loan financing activities (ii) a favorable net change in our
estimates related to hurricane Wilma damage and the corresponding insurance recoveries
which aggregated $2.8 million and (iii) $1.4 million associated with insurance
recoveries related to moisture infiltration and resulting mold litigation at previously
owned communities in Southeast Florida.
    
    The higher depreciation and interest expense was due to the increase in the size of
the real estate portfolio and the related financing activities, respectively. Rising
interest rates also influenced the increase in interest expense.
    
    Other expense was higher in 2006 due principally to higher Ameriton income taxes and
higher debt extinguishment costs in connection with dispositions and an impairment
charge related to a non-core asset, partially offset by a charge in 2005 related to the
settlement of the FHA/ADA lawsuit.
    
    Income from unconsolidated entities was higher for the quarter ended June 30, 2006
due to more income from community dispositions and related venture liquidations.
 23




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##### Table of Contents




    
    Non-operating income for the quarter ended June 30, 2006 was lower due to the gain
on sale of our Rent.com investment and marketable securities in 2005.
    
    The increase in net earnings from discontinued operations was driven principally by
higher gains from the disposition of real estate in 2006.
  
    
    NOI increased significantly due primarily to substantial net acquisition activity,
including the Oakwood transaction, and an increase of 9.8% in NOI for our same-store
communities that were operating as of January 1, 2005.
    
    Other income was higher due primarily to (i) $8.5 million associated with insurance
recoveries related to moisture infiltration and resulting mold litigation at previously
owned communities in Southeast Florida (ii) higher interest income attributable to our
growing mezzanine loan financing activities and (iii) a favorable net change in our
estimates related to hurricane Wilma damage and the corresponding insurance recoveries
which aggregated $2.8 million.
    
    The higher depreciation and interest expense was due to the increase in size of the real
estate portfolio and the related financing activities, respectively. Rising interest rates
also influenced the increase in interest expense.
    
    Other expense was lower due primarily to higher debt extinguishment costs and the
settlement of the FHA/ADA lawsuit in 2005, partially offset by higher Ameriton income taxes
associated with disposition gains and aggregate impairments of $4.3 million on a non-core
asset in 2006.
    
    Income from unconsolidated entities was higher for the six months ended June 30, 2006
due to more income from community dispositions and related venture liquidations.
    
    Non-operating income was lower in 2006 due to the gain on the sale of our Rent.com
investment and marketable securities in 2005.
    
    The increase in net earnings from discontinued operations was driven principally by
higher gains from the disposition of real estate in 2006.
 Reconciliation of Quantitative Summary to Consolidated Statements of Earnings
  Three Months Ended June 30, 2006
    
    
    Three Months Ended June 30, 2005Continuing
    
    
    Discontinued
    
    
    
    
    
    
    Continuing
    
    
    DiscontinuedOperations
    
    
    Operations
    
    
    Total
    
    
    Operations
    
    
    Operations
    
    
    TotalRental revenue
    
    $
    280,083
    
    
    $
    10,050
    
    
    $
    290,133
    
    
    $
    197,554
    
    
    $
    41,143
    
    
    $
    238,697Other income
    
    
    13,585
    
    
    
    
    
    
    
    13,585
    
    
    
    6,848
    
    
    
    
    
    
    
    6,848Property operating
expenses (rental
expenses and real
estate taxes)
    
    
    88,350
    
    
    
    5,427
    
    
    
    93,777
    
    
    
    65,835
    
    
    
    18,819
    
    
    
    84,654Depreciation on
real estate
investments
    
    
    72,171
    
    
    
    1,108
    
    
    
    73,279
    
    
    
    47,441
    
    
    
    9,090
    
    
    
    56,531Interest expense
    
    
    61,029
    
    
    
    3,057
    
    
    
    64,086
    
    
    
    39,348
    
    
    
    10,663
    
    
    
    50,011General and
administrative
expenses
    
    
    15,912
    
    
    
    
    
    
    
    15,912
    
    
    
    13,755
    
    
    
    
    
    
    
    13,755Other expense
    
    
    22
    
    
    
    19,890
    
    
    
    19,912
    
    
    
    8,451
    
    
    
    723
    
    
    
    9,174Income from
unconsolidated
entities
    
    
    10,518
    
    
    
    
    
    
    
    10,518
    
    
    
    5,794
    
    
    
    
    
    
    
    5,794Other non-operating
income
    
    
    243
    
    
    
    
    
    
    
    243
    
    
    
    4,778
    
    
    
    
    
    
    
    4,778Gains, net of
disposition costs
    
    
    
    
    
    
    145,241
    
    
    
    145,241
    
    
    
    
    
    
    
    20,342
    
    
    
    20,342Net earnings
    
    $
    66,945
    
    
    $
    125,809
    
    
    $
    192,754
    
    
    $
    40,144
    
    
    $
    22,190
    
    
    $
    62,334
 24




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##### Table of Contents



Six Months Ended June 30, 2006
    
    
    Six Months Ended June 30, 2005Continuing
    
    
    Discontinued
    
    
    
    
    
    
    Continuing
    
    
    DiscontinuedOperations
    
    
    Operations
    
    
    Total
    
    
    Operations
    
    
    Operations
    
    
    TotalRental revenue
    
    $
    543,963
    
    
    $
    31,408
    
    
    $
    575,371
    
    
    $
    389,346
    
    
    $
    84,206
    
    
    $
    473,552Other income
    
    
    29,801
    
    
    
    
    
    
    
    29,801
    
    
    
    11,975
    
    
    
    
    
    
    
    11,975Property operating expenses (rental
expenses and real estate taxes)
    
    
    173,777
    
    
    
    16,501
    
    
    
    190,278
    
    
    
    133,415
    
    
    
    39,000
    
    
    
    172,415Depreciation on real estate investments
    
    
    138,139
    
    
    
    4,714
    
    
    
    142,853
    
    
    
    94,078
    
    
    
    19,427
    
    
    
    113,505Interest expense
    
    
    118,831
    
    
    
    7,006
    
    
    
    125,837
    
    
    
    79,904
    
    
    
    21,458
    
    
    
    101,362General and administrative expenses
    
    
    31,297
    
    
    
    
    
    
    
    31,297
    
    
    
    28,044
    
    
    
    
    
    
    
    28,044Other expense
    
    
    11,295
    
    
    
    22,456
    
    
    
    33,751
    
    
    
    31,564
    
    
    
    8,417
    
    
    
    39,981Income from unconsolidated entities
    
    
    29,396
    
    
    
    
    
    
    
    29,396
    
    
    
    16,911
    
    
    
    
    
    
    
    16,911Other non-operating income
    
    
    419
    
    
    
    
    
    
    
    419
    
    
    
    28,783
    
    
    
    
    
    
    
    28,783Gains, net of disposition costs
    
    
    
    
    
    
    225,675
    
    
    
    225,675
    
    
    
    
    
    
    
    60,262
    
    
    
    60,262Net earnings
    
    $
    130,240
    
    
    $
    206,406
    
    
    $
    336,646
    
    
    $
    80,010
    
    
    $
    56,166
    
    
    $
    136,176
 Quantitative Summary
 including
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    Variance
    
    
    2006
    
    
    2005
    
    
    VarianceRental revenues:Same-Store(1)
    
    $
    194,578
    
    
    $
    182,470
    
    
    $
    12,108
    
    
    $
    376,070
    
    
    $
    354,671
    
    
    $
    21,399Non Same-Store and other
    
    
    83,855
    
    
    
    46,643
    
    
    
    37,212
    
    
    
    175,122
    
    
    
    99,162
    
    
    
    75,960Ameriton
    
    
    5,953
    
    
    
    8,726
    
    
    
    (2,773
    )
    
    
    13,666
    
    
    
    18,294
    
    
    
    (4,628
    )Non-multifamily and
international
    
    
    5,747
    
    
    
    858
    
    
    
    4,889
    
    
    
    10,513
    
    
    
    1,425
    
    
    
    9,088Total rental revenues
    
    
    290,133
    
    
    
    238,697
    
    
    
    51,436
    
    
    
    575,371
    
    
    
    473,552
    
    
    
    101,819Property operating expenses
(rental expenses and real
estate taxes):Same-Store(1)
    
    
    59,218
    
    
    
    59,633
    
    
    
    415
    
    
    
    116,750
    
    
    
    118,551
    
    
    
    1,801Non Same-Store and other
    
    
    28,902
    
    
    
    20,620
    
    
    
    (8,282
    )
    
    
    62,613
    
    
    
    44,794
    
    
    
    (17,819
    )Ameriton
    
    
    3,104
    
    
    
    4,327
    
    
    
    1,223
    
    
    
    7,031
    
    
    
    8,887
    
    
    
    1,856Non-multifamily and
international
    
    
    2,553
    
    
    
    74
    
    
    
    (2,479
    )
    
    
    3,884
    
    
    
    183
    
    
    
    (3,701
    )Total property operating
expenses
    
    
    93,777
    
    
    
    84,654
    
    
    
    (9,123
    )
    
    
    190,278
    
    
    
    172,415
    
    
    
    (17,863
    )
 25




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##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    Variance
    
    
    2006
    
    
    2005
    
    
    VarianceNet operating income
(rental revenues less
property operating
expenses)
    
    
    196,356
    
    
    
    154,043
    
    
    
    42,313
    
    
    
    385,093
    
    
    
    301,137
    
    
    
    83,956Margin(NOI/rental revenues):
    
    
    67.7
    %
    
    
    64.5
    %
    
    
    3.2
    %
    
    
    66.9
    %
    
    
    63.6
    %
    
    
    3.3
    %Average occupancy during
period:(2)
    
    
    94.8
    %
    
    
    95.1
    %
    
    
    (0.3
    %)
    
    
    94.8
    %
    
    
    94.7
    %
    
    
    0.1
    %Other income
    
    
    13,585
    
    
    
    6,848
    
    
    
    6,737
    
    
    
    29,801
    
    
    
    11,975
    
    
    
    17,826Depreciation of real estate
investments
    
    
    73,279
    
    
    
    56,531
    
    
    
    (16,748
    )
    
    
    142,853
    
    
    
    113,505
    
    
    
    (29,348
    )Interest expense
    
    
    77,623
    
    
    
    59,274
    
    
    
    (18,349
    )
    
    
    152,145
    
    
    
    118,844
    
    
    
    (33,301
    )Capitalized interest
    
    
    13,537
    
    
    
    9,263
    
    
    
    4,274
    
    
    
    26,308
    
    
    
    17,482
    
    
    
    8,826Net interest expense
    
    
    64,086
    
    
    
    50,011
    
    
    
    (14,075
    )
    
    
    125,837
    
    
    
    101,362
    
    
    
    (24,475
    )General and administrative
expenses
    
    
    15,912
    
    
    
    13,755
    
    
    
    (2,157
    )
    
    
    31,297
    
    
    
    28,044
    
    
    
    (3,253
    )Other expense
    
    
    19,912
    
    
    
    9,174
    
    
    
    (10,738
    )
    
    
    33,751
    
    
    
    39,981
    
    
    
    6,230Earnings from continuing
and discontinued
operations
    
    
    36,752
    
    
    
    31,420
    
    
    
    5,332
    
    
    
    81,156
    
    
    
    30,220
    
    
    
    50,936Equity in earnings from
unconsolidated entities
    
    
    10,518
    
    
    
    5,794
    
    
    
    4,724
    
    
    
    29,396
    
    
    
    16,911
    
    
    
    12,485Other non-operating income
    
    
    243
    
    
    
    4,778
    
    
    
    (4,535
    )
    
    
    419
    
    
    
    28,783
    
    
    
    (28,364
    )Gains on disposition of
real estate investments,
net of disposition costs
Taxable
subsidiaries
    
    
    33,910
    
    
    
    6,937
    
    
    
    26,973
    
    
    
    47,526
    
    
    
    20,703
    
    
    
    26,823REIT
    
    
    111,331
    
    
    
    13,405
    
    
    
    97,926
    
    
    
    178,149
    
    
    
    39,559
    
    
    
    138,590Net earnings
    
    $
    192,754
    
    
    $
    62,334
    
    
    $
    130,420
    
    
    $
    336,646
    
    
    $
    136,176
    
    
    $
    200,470
 
 (1)
    
    Reflects revenues and operating expenses for Same-Store communities that were owned on
June 30, 2006 and fully operating during both of the comparison periods.(2)
    
    Does not include occupancy associated with properties owned by Ameriton, located in
Germany or operated under the Oakwood Master Leases. Property-level operating results
  Same-Store Analysis
  Same-Store ExpenseSame-Store Revenue Growth
    
    Growth/(Decline)
    
    Same-Store NOI GrowthQ2 2006 vs.
    
    YTD 2006 vs.
    
    Q2 2006 vs.
    YTD 2006 vs.
    
    Q2 2006 vs.
    YTD 2006 vs.Q2 2005
    
    YTD 2005
    
    Q2 2005
    YTD 2005
    
    
    Q2 2005
    YTD 2005Garden
    
    
    6.4
    %
    
    
    6.1
    %
    
    
    0.5
    %
    
    
    0.0
    %
    
    
    9.1
    %
    
    
    9.1
    %High-Rise
    
    
    7.1
    %
    
    
    5.9
    %
    
    
    (2.5
    %)
    
    
    (3.7
    %)
    
    
    11.9
    %
    
    
    11.0
    %Total
    
    
    6.6
    %
    
    
    6.0
    %
    
    
    (0.7
    %)
    
    
    (1.5
    %)
    
    
    10.2
    %
    
    
    9.8
    %
 26




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##### Table of Contents



Non Same-Store and Other Analysis
    Ameriton
  Non Multi-family and International
  Other Income
   27




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##### Table of Contents



Depreciation Expense
  Interest Expense
  Other Expenses
   General and Administrative Expenses
  Equity in Income from Unconsolidated Entities
  Other Non-Operating Income
  Gains on Real Estate Dispositions
  28




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##### Table of Contents



Discontinued Operations Analysis
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Rental revenues
    
    $
    10,050
    
    
    $
    41,143
    
    
    $
    31,408
    
    
    $
    84,206Rental expenses
    
    
    (4,128
    )
    
    
    (13,290
    )
    
    
    (11,809
    )
    
    
    (27,983
    )Real estate taxes
    
    
    (1,299
    )
    
    
    (5,529
    )
    
    
    (4,692
    )
    
    
    (11,017
    )Depreciation on real estate investments
    
    
    (1,108
    )
    
    
    (9,090
    )
    
    
    (4,714
    )
    
    
    (19,427
    )Interest expense(1)
    
    
    (3,057
    )
    
    
    (10,663
    )
    
    
    (7,006
    )
    
    
    (21,458
    )Income taxes from taxable REIT subsidiaries
    
    
    (11,862
    )
    
    
    (392
    )
    
    
    (11,364
    )
    
    
    (3,028
    )Provision for possible loss on real estate investment
    
    
    (2,128
    )
    
    
    
    
    
    
    (4,328
    )
    
    
    Debt extinguishment costs related to dispositions
    
    
    (5,900
    )
    
    
    (331
    )
    
    
    (6,764
    )
    
    
    (5,389
    )Gains on disposition of real estate investments, net
of disposition costs:Taxable subsidiaries
    
    
    33,910
    
    
    
    6,937
    
    
    
    47,526
    
    
    
    20,703REIT
    
    
    111,331
    
    
    
    13,405
    
    
    
    178,149
    
    
    
    39,559Total discontinued operations
    
    $
    125,809
    
    
    $
    22,190
    
    
    $
    206,406
    
    
    $
    56,166Number of communities sold during the period
    
    
    16
    
    
    
    4
    
    
    
    23
    
    
    
    9Number of sold communities included in discontinued
operations NOI
    
    
    16
    
    
    
    47
    
    
    
    22
    
    
    
    51Number of communities classified as held-for-sale
and included in discontinued operations NOI as of
June 30, 2006
    
    
    2
    
    
    
    0
    
    
    
    2
    
    
    
    0
 
 (1)
    
    The portion of interest expense included in discontinued operations that is allocated to
properties based on the companys leverage ratio was $1.7 million and $8.0 million for the
three months ended June 30, 2006 and 2005, and $3.6 million and $15.5 million for the six
months ended June 30, 2006 and 2005, respectively  Liquidity and Capital Resources
  29




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##### Table of Contents



Scheduled Debt Maturities and Interest Payment Requirements
    Unitholder Distribution Requirements
  Planned Investments
  Planned InvestmentsDiscretionary
    
    
    CommittedCommunities under redevelopment
    
    $
    3,024
    
    
    $
    8,543Communities under construction
    
    
    
    
    
    
    388,732Communities In Planning and owned
    
    
    1,313,719
    
    
    
    Communities In Planning and Under Control
    
    
    507,484
    
    
    
    Community acquisitions under contract
    
    
    490,300
    
    
    
    FHA/ADA Settlement Capital Accrual
    
    
    
    
    
    
    37,523Total
    
    $
    2,314,527
    
    
    $
    434,798
   30




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##### Table of Contents



Funding Sources
  Subsequent Events Which Will Impact Liquidity and Capital Resources
   
  Other Contingencies
   31




---



##### Table of Contents



Critical Accounting Policies
  Internal Cost Capitalization
  Valuation of Real Estate
 Accounting for Impairment or Disposal of
Long-Lived Assets
  32




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##### Table of Contents



Capital Expenditures and Depreciable Lives
   Pursuit Costs
  Consolidation vs. Equity Method of Accounting for Ventures
 Consolidation of Variable Interest Entities Determining Whether a General Partner, or the
General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited
Partners Have Certain Rights
 Off Balance Sheet Arrangements
   33




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##### Table of Contents



Contractual Commitments
  
    
    Please refer to Scheduled Debt Maturities and Interest Payment Requirements and
Planned Investments for further discussion of significant contractual commitments.
    
    Please refer to Subsequent Events above for discussion of contractual commitments
related to our recent convertible debt offering and acquisition of DeWAG.
 34




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Hedging Activities
   Foreign Currency Hedging Activities
  
 Energy Contract Hedging Activities
   
 Item 4. Controls and Procedures
  35




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Events
  
 Item 6. Exhibit Index
  36




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##### Table of Contents



SIGNATURES
  ARCHSTONE-SMITH OPERATING TRUSTBY:
    /s/ R. SCOT SELLERSR. Scot SellersChief Executive OfficerBY:
    /s/ CHARLES E. MUELLER, JR.Charles E. Mueller, Jr.Chief Financial Officer
(Principal Financial Officer)BY:
    /s/ MARK A. SCHUMACHERMark A. SchumacherSenior Vice-President and Chief Accounting Officer(Principal Accounting Officer)  37




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##### Table of Contents



Item 6. Exhibits
 3.1
    
    Amended and Restated Declaration of Trust of Archstone-Smith Trust (incorporated by reference to
Exhibit 3.1 to Archstone-Smith Trusts Current Report of Form 8-K filed with the SEC on June 2,
2006)3.3
    
    Restated Bylaws of Archstone-Smith Trust (incorporated by reference to Exhibit 3.2 to the
Archstone-Smith Trusts Current Report on Form 8-K filed with the SEC on June 2, 2006)10.1
    
    Amended and Restated Declaration of Trust of Archstone-Smith Operating Trust (incorporated by
reference to Exhibit 4.1 to the Archstone-Smith Trusts Current Report on Form 8-K filed with the
SEC on June 2, 2006)10.2
    
    Bylaws of Archstone-Smith Operating Trust (incorporated by reference to Exhibit 4.2 to the
Archstone-Smith Trusts Current Report on Form 8-K filed with the SEC on June 2, 2006)12.1
    
    Computation of Ratio of Earnings to Fixed Charges12.2
    
    Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Unit Distributions15.1
    
    Independent Registered Public Accounting Firm Awareness Letter31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 38