##### 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,
    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 July 31, 2003, there were approximately
17,830,133 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                                       
|EX 12.1 Computation of Ratio of Earnings         
|EX-12.2 Computation 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 CEO Pursuant to Sec. 906
|EX-32.2 Certification of CFO Pursuant to Sec. 906



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##### Table of Contents



TABLE OF CONTENTS

|        |    |             |  |                                                                                                                                                                               |  |  |    | 
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|        |    |             |  | Page                                                                                                                                                                         
|Item    |    | Description |  | Number                                                                                                                                                                       
|        |    |             |  |                                                                                                                                                                              
|PART 1 
|        | 1. |             |  | Financial Statements                                                                                                                                                          |  |  | 3  | 
|        |    |             |  | Condensed Consolidated Balance Sheets 
    June 30, 2003 (unaudited) and December 31, 2002                                                                                   |  |  | 3  | 
|        |    |             |  | Condensed Consolidated Statements of
    Earnings  Three and six months ended June 30,
    2003 and 2002 (unaudited)                                                         |  |  | 4  | 
|        |    |             |  | Condensed Consolidated Statement of
    Unitholders Equity, Other Common Unitholders
    Interest and Comprehensive Income  Six months ended
    June 30, 2003 (unaudited) |  |  | 5  | 
|        |    |             |  | Condensed Consolidated Statements of Cash
    Flows  Six months ended June 30, 2003 and 2002
    (unaudited)                                                                 |  |  | 6  | 
|        |    |             |  | Notes to Condensed Consolidated Financial
    Statements (unaudited)                                                                                                          |  |  | 7  | 
|        |    |             |  | Independent Accountants Review Report                                                                                                                                        |  |  | 20 | 
|        | 2. |             |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                                                                     |  |  | 21 | 
|        | 3. |             |  | Quantitative and Qualitative Disclosures About
    Market Risk                                                                                                                |  |  | 33 | 
|        | 4. |             |  | Controls and Procedures                                                                                                                                                       |  |  | 33 | 
|PART II
|        | 1. |             |  | Legal Proceedings                                                                                                                                                             |  |  | 33 | 
|        | 6. |             |  | Exhibits and Reports on Form 8-K                                                                                                                                              |  |  | 34 | 

2



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##### Table of Contents






PART I  FINANCIAL
INFORMATION






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

ARCHSTONE-SMITH OPERATING TRUST






CONDENSED CONSOLIDATED BALANCE
SHEETS


|                                                                               |                                                                                                                |                              |           |              |           |   |           |           |           | 
|------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------- | ---------------------------- | --------- | ------------ | --------- | - | --------- | --------- | --------- | 
|                                                                               |                                                                                                                | June 30,                     |           | December 31,
|                                                                               |                                                                                                                | 2003                         |           | 2002        
|                                                                               |                                                                                                                |                              |           |             
|                                                                               |                                                                                                                | (Unaudited)                  |           |             
|                                                                               |                                                                                                                |                             
|                                                                               |                                                                                                                | (In thousands,              
|                                                                               |                                                                                                                | except unit data)           
|ASSETS                                                                        
|Real estate                                                                    |                                                                                                                | $                            | 8,564,319 |              |           | $ | 8,838,821 |          
|Less accumulated depreciation                                                  |                                                                                                                |                              | 617,793   |              |           |   | 571,247   |          
|                                                                               |                                                                                                                |                              |           |              |           |   |           |          
|                                                                               |                                                                                                                |                              | 7,946,526 |              |           |   | 8,267,574 |          
|Investments in and advances to unconsolidated
    entities                     |                                                                                                                |                              | 401,012   |              |           |   | 346,946   |          
|                                                                               |                                                                                                                |                              |           |              |           |   |           |          
|                                                                               |                                                                                                                | Net investments              |           |              | 8,347,538 |   |           |           | 8,614,520 | 
|Cash and cash equivalents                                                      |                                                                                                                |                              | 8,926     |              |           |   | 12,846    |          
|Restricted cash in tax-deferred exchange escrow                                |                                                                                                                |                              | 74,140    |              |           |   |          |          
|Other assets                                                                   |                                                                                                                |                              | 275,642   |              |           |   | 227,702   |          
|                                                                               |                                                                                                                |                              |           |              |           |   |           |          
|                                                                               |                                                                                                                | Total assets                 |           | $            | 8,706,246 |   |           | $         | 8,855,068 | 
|                                                                               |                                                                                                                |                              |           |              |           |   |           |          
|                                                                              
|LIABILITIES AND EQUITY                                                        
|Liabilities:                                                                   |                                                                                                                |                              |           |              |           |   |           |          
|                                                                               | Unsecured credit facilities                                                                                    |                              | $         | 123,815      |           |   | $         | 365,578   |          
|                                                                               | Long-Term Unsecured Debt                                                                                       |                              |           | 1,883,017    |           |   |           | 1,776,103 |          
|                                                                               | Mortgages payable                                                                                              |                              |           | 1,907,212    |           |   |           | 1,960,827 |          
|                                                                               | Distributions payable                                                                                          |                              |           | 1,583        |           |   |           | 91,616    |          
|                                                                               | Accounts payable, accrued expenses and other
    liabilities                                                   |                              |           | 268,707      |           |   |           | 279,685   |          
|                                                                               |                                                                                                                |                              |           |              |           |   |           |          
|                                                                               |                                                                                                                | Total liabilities            |           |              | 4,184,334 |   |           |           | 4,473,809 | 
|                                                                               |                                                                                                                |                              |           |              |           |   |           |          
|Minority interest                                                              |                                                                                                                |                              | 2,510     |              |           |   | 2,600     |          
|                                                                               |                                                                                                                |                              |           |              |           |   |           |          
|Other common unitholders interest, at
    redemption value (A-1 Common Units: |                                                                                                                |                              |           |              |           |   |           |          
|                                                                               | 24,932,070 in 2003 and 24,621,853 in 2002)                                                                     |                              |           | 598,370      |           |   |           | 579,598   |          
|                                                                               |                                                                                                                |                              |           |              |           |   |           |          
|Unitholders equity:                                                           |                                                                                                                |                              |           |              |           |   |           |          
|                                                                               | Convertible Preferred Units                                                                                    |                              |           | 123,166      |           |   |           | 194,671   |          
|                                                                               | Perpetual Preferred Units                                                                                      |                              |           | 160,325      |           |   |           | 160,550   |          
|                                                                               | Common unitholders equity (A-2 Common
    Units: 188,489,055 units in 2003 and 180,705,795 units
    in 2002) |                              |           | 3,639,985    |           |   |           | 3,456,179 |          
|                                                                               | Accumulated other comprehensive loss                                                                           |                              |           | (2,444       | )         |   |           | (12,339   | )        
|                                                                               |                                                                                                                |                              |           |              |           |   |           |          
|                                                                               |                                                                                                                | Total unitholders equity    |           |              | 3,921,032 |   |           |           | 3,799,061 | 
|                                                                               |                                                                                                                |                              |           |              |           |   |           |          
|                                                                               |                                                                                                                | Total liabilities and equity |           | $            | 8,706,246 |   |           | $         | 8,855,068 | 
|                                                                               |                                                                                                                |                              |           |              |           |   |           |          

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

3



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST






CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS


|                                                                           |                                                                |                                         |         |                  |  |      |         |         |  |   |         |         |   |   |         |         | 
|-------------------------------------------------------------------------- | -------------------------------------------------------------- | --------------------------------------- | ------- | ---------------- |  | ---- | ------- | ------- |  | - | ------- | ------- | - | - | ------- | ------- | 
|                                                                           |                                                                |                                         |         |                 
|                                                                           |                                                                | Three Months Ended                      |         | Six Months Ended
|                                                                           |                                                                | June 30,                                |         | June 30,        
|                                                                           |                                                                |                                         |         |                 
|                                                                           |                                                                | 2003                                    |         | 2002             |  | 2003 |         | 2002   
|                                                                           |                                                                |                                         |         |                  |  |      |         |        
|                                                                           |                                                                |                                        
|                                                                           |                                                                | (In thousands, except per unit amounts)
|                                                                           |                                                                | (Unaudited)                            
|Revenues:                                                                  |                                                                |                                         |         |                  |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                           | Rental revenues                                                |                                         | $       | 223,640          |  |      | $       | 221,211 |  |   | $       | 444,494 |   |   | $       | 436,348 | 
|                                                                           | Income from unconsolidated entities                            |                                         |         | 293              |  |      |         | 7,814   |  |   |         | 5,643   |   |   |         | 12,590  | 
|                                                                           | Other income                                                   |                                         |         | 4,573            |  |      |         | 1,499   |  |   |         | 11,737  |   |   |         | 3,008   | 
|                                                                           |                                                                |                                         |         |                  |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                           |                                                                |                                         | 228,506 |                  |  |      | 230,524 |         |  |   | 461,874 |         |   |   | 451,946 |        
|                                                                           |                                                                |                                         |         |                  |  |      |         |         |  |   |         |         |   |   |         |        
|Expenses:                                                                  |                                                                |                                         |         |                  |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                           | Rental expenses                                                |                                         |         | 58,555           |  |      |         | 56,544  |  |   |         | 115,675 |   |   |         | 110,643 | 
|                                                                           | Real estate taxes                                              |                                         |         | 19,470           |  |      |         | 20,193  |  |   |         | 41,220  |   |   |         | 40,333  | 
|                                                                           | Depreciation on real estate investments                        |                                         |         | 45,876           |  |      |         | 42,703  |  |   |         | 91,411  |   |   |         | 83,153  | 
|                                                                           | Interest expense                                               |                                         |         | 48,319           |  |      |         | 51,511  |  |   |         | 94,913  |   |   |         | 90,399  | 
|                                                                           | General and administrative expenses                            |                                         |         | 12,586           |  |      |         | 10,400  |  |   |         | 24,768  |   |   |         | 20,285  | 
|                                                                           | Other expenses                                                 |                                         |         | 25,814           |  |      |         | 704     |  |   |         | 27,877  |   |   |         | 2,516   | 
|                                                                           |                                                                |                                         |         |                  |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                           |                                                                |                                         | 210,620 |                  |  |      | 182,055 |         |  |   | 395,864 |         |   |   | 347,329 |        
|                                                                           |                                                                |                                         |         |                  |  |      |         |         |  |   |         |         |   |   |         |        
|Earnings from operations                                                   |                                                                |                                         | 17,886  |                  |  |      | 48,469  |         |  |   | 66,010  |         |   |   | 104,617 |        
|                                                                           | Plus: gains on dispositions of real estate
    investments     |                                         |         |                 |  |      |         | 23,263  |  |   |         |        |   |   |         | 24,544  | 
|                                                                           | Less: minority interest                                        |                                         |         |                 |  |      |         | 1,937   |  |   |         | (90     | ) |   |         | 3,874   | 
|                                                                           |                                                                |                                         |         |                  |  |      |         |         |  |   |         |         |   |   |         |        
|Net earnings before discontinued operations                                |                                                                |                                         | 17,886  |                  |  |      | 69,795  |         |  |   | 66,100  |         |   |   | 125,287 |        
|                                                                           | Plus: net earnings from discontinued apartment
    communities |                                         |         | 56,601           |  |      |         | 24,908  |  |   |         | 106,245 |   |   |         | 35,791  | 
|                                                                           |                                                                |                                         |         |                  |  |      |         |         |  |   |         |         |   |   |         |        
|Net earnings                                                               |                                                                |                                         | 74,487  |                  |  |      | 94,703  |         |  |   | 172,345 |         |   |   | 161,078 |        
|                                                                           | Less: Preferred Unit distributions                             |                                         |         | 7,251            |  |      |         | 8,681   |  |   |         | 15,609  |   |   |         | 17,440  | 
|                                                                           |                                                                |                                         |         |                  |  |      |         |         |  |   |         |         |   |   |         |        
|Net earnings attributable to Common
    Units  Basic                      |                                                                | $                                       | 67,236  |                  |  | $    | 86,022  |         |  | $ | 156,736 |         |   | $ | 143,638 |        
|                                                                           |                                                                |                                         |         |                  |  |      |         |         |  |   |         |         |   |   |         |        
|Weighted average Common Units
    outstanding  Basic                      |                                                                |                                         | 210,133 |                  |  |      | 201,413 |         |  |   | 208,518 |         |   |   | 200,907 |        
|                                                                           |                                                                |                                         |         |                  |  |      |         |         |  |   |         |         |   |   |         |        
|Weighted average Common Units
    outstanding  Diluted                    |                                                                |                                         | 210,730 |                  |  |      | 217,127 |         |  |   | 209,021 |         |   |   | 202,419 |        
|                                                                           |                                                                |                                         |         |                  |  |      |         |         |  |   |         |         |   |   |         |        
|Net earnings before discontinued operations per
    Common Unit  Basic:   |                                                                |                                         |         |                  |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                           | Net earnings before discontinued operations                    |                                         | $       | 0.05             |  |      | $       | 0.31    |  |   | $       | 0.24    |   |   | $       | 0.54    | 
|                                                                           | Discontinued operations, net                                   |                                         |         | 0.27             |  |      |         | 0.12    |  |   |         | 0.51    |   |   |         | 0.17    | 
|                                                                           |                                                                |                                         |         |                  |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                           | Net earnings                                                   |                                         | $       | 0.32             |  |      | $       | 0.43    |  |   | $       | 0.75    |   |   | $       | 0.71    | 
|                                                                           |                                                                |                                         |         |                  |  |      |         |         |  |   |         |         |   |   |         |        
|Net earnings before discontinued operations per
    Common Unit  Diluted: |                                                                |                                         |         |                  |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                           | Net earnings before discontinued operations                    |                                         | $       | 0.05             |  |      | $       | 0.31    |  |   | $       | 0.24    |   |   | $       | 0.54    | 
|                                                                           | Discontinued operations, net                                   |                                         |         | 0.27             |  |      |         | 0.11    |  |   |         | 0.51    |   |   |         | 0.17    | 
|                                                                           |                                                                |                                         |         |                  |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                           | Net earnings                                                   |                                         | $       | 0.32             |  |      | $       | 0.42    |  |   | $       | 0.75    |   |   | $       | 0.71    | 
|                                                                           |                                                                |                                         |         |                  |  |      |         |         |  |   |         |         |   |   |         |        
|Distributions paid per Common Unit                                         |                                                                | $                                       | 0.4275  |                  |  | $    | 0.4250  |         |  | $ | 0.8550  |         |   | $ | 0.8500  |        
|                                                                           |                                                                |                                         |         |                  |  |      |         |         |  |   |         |         |   |   |         |        

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


Six Months Ended June 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 |         |   | $ | 579,598 |         |   | $ | 4,378,659 |        
|Comprehensive income:                             |                                               |                |         |             |  |              |         |                 |  |              |           |              |   |       |         |        |   |   |           |         |   |   |         |         |   |   |           |        
|                                                  | Net earnings                                  |                |         |            |  |              |         |                |  |              |           | 150,744      |   |       |         |       |   |   |           | 150,744 |   |   |         | 21,601  |   |   |           | 172,345 |  
|                                                  | Preferred Unit distributions                  |                |         |            |  |              |         |                |  |              |           | (15,609      | ) |       |         |       |   |   |           | (15,609 | ) |   |         |        |   |   |           | (15,609 | )
|                                                  | Change in fair value of cash flow hedges      |                |         |            |  |              |         |                |  |              |           |             |   |       |         | (562   | ) |   |           | (562    | ) |   |         |        |   |   |           | (562    | )
|                                                  | Change in fair value of marketable securities |                |         |            |  |              |         |                |  |              |           |             |   |       |         | 10,457 |   |   |           | 10,457  |   |   |         |        |   |   |           | 10,457  |  
|                                                  |                                               |                |         |             |  |              |         |                 |  |              |           |              |   |       |         |        |   |   |           |         |   |   |         |         |   |   |           |        
|Comprehensive income attributable to Common Units |                                               |                |         |             |  |              |         |                 |  |              |           |              |   |       |         |        |   |   |           |         |   |   |         |         |   |   | 166,631   |        
|                                                  |                                               |                |         |             |  |              |         |                 |  |              |           |              |   |       |         |        |   |   |           |         |   |   |         |         |   |   |           |        
|                                                  | Common Unit distributions                     |                |         |            |  |              |         |                |  |              |           | (81,012      | ) |       |         |       |   |   |           | (81,012 | ) |   |         | (10,639 | ) |   |           | (91,651 | )
|A-1 Common Units converted into A-2 Common Units  |                                               |                |        |             |  |              |        |                 |  |              | 22,377    |              |   |       |        |        |   |   | 22,377    |         |   |   | (22,377 | )       |   |   |          |        
|Conversion of Preferred Units into Common Units   |                                               |                | (71,505 | )           |  |              |        |                 |  |              | 71,505    |              |   |       |        |        |   |   |          |         |   |   |        |         |   |   |          |        
|Common Unit repurchases                           |                                               |                |        |             |  |              |        |                 |  |              | (13,163   | )            |   |       |        |        |   |   | (13,163   | )       |   |   |        |         |   |   | (13,163   | )      
|Preferred Unit repurchases                        |                                               |                |        |             |  |              | (225    | )               |  |              | (14       | )            |   |       |        |        |   |   | (239      | )       |   |   |        |         |   |   | (239      | )      
|Proceeds from Dividend Reinvestment Plan (DRIP)   |                                               |                |        |             |  |              |        |                 |  |              | 30,950    |              |   |       |        |        |   |   | 30,950    |         |   |   |        |         |   |   | 30,950    |        
|Issuance of A-1 Common Units                      |                                               |                |        |             |  |              |        |                 |  |              |          |              |   |       |        |        |   |   |          |         |   |   | 33,355  |         |   |   | 33,355    |        
|Adjustment to redemption value                    |                                               |                |        |             |  |              |        |                 |  |              | 3,168     |              |   |       |         |        |   |   | 3,168     |         |   |   | (3,168  | )       |   |   |          |        
|Other, net                                        |                                               |                |        |             |  |              |        |                 |  |              | 14,860    |              |   |       |        |        |   |   | 14,860    |         |   |   |        |         |   |   | 14,860    |        
|                                                  |                                               |                |         |             |  |              |         |                 |  |              |           |              |   |       |         |        |   |   |           |         |   |   |         |         |   |   |           |        
|Balances at June 30, 2003                         |                                               | $              | 123,166 |             |  | $            | 160,325 |                 |  | $            | 3,639,985 |              |   | $     | (2,444  | )      |   | $ | 3,921,032 |         |   | $ | 598,370 |         |   | $ | 4,519,402 |        
|                                                  |                                               |                |         |             |  |              |         |                 |  |              |           |              |   |       |         |        |   |   |           |         |   |   |         |         |   |   |           |        

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


|                                                             |                                                                                              |                                                              |        |          |          |   |        |          |          |  
|------------------------------------------------------------ | -------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ------ | -------- | -------- | - | ------ | -------- | -------- | -
|                                                             |                                                                                              |                                                             
|                                                             |                                                                                              | Six Months Ended                                            
|                                                             |                                                                                              | June 30,                                                    
|                                                             |                                                                                              |                                                             
|                                                             |                                                                                              | 2003                                                         |        | 2002    
|                                                             |                                                                                              |                                                              |        |         
|                                                             |                                                                                              |                                                             
|                                                             |                                                                                              | (In thousands)                                              
|                                                             |                                                                                              | (Unaudited)                                                 
|Operating activities:                                        |                                                                                              |                                                              |        |          |          |   |        |         
|                                                             | Net earnings                                                                                 |                                                              | $      | 172,345  |          |   | $      | 161,078  |         
|                                                             | Adjustments to reconcile net earnings to net cash
    flow provided by operating activities: |                                                              |        |          |          |   |        |          |         
|                                                             |                                                                                              | Depreciation and amortization                                |        |          | 96,420   |   |        |          | 94,720   |  
|                                                             |                                                                                              | Gains on dispositions of depreciated real estate,
    net    |        |          | (93,565  | ) |        |          | (41,218  | )
|                                                             |                                                                                              | Provision for possible loss on real estate
    investments   |        |          | 3,714    |   |        |          |         |  
|                                                             |                                                                                              | Minority interest                                            |        |          | (90      | ) |        |          | 3,874    |  
|                                                             | Change in other assets                                                                       |                                                              |        | (5,624   | )        |   |        | (18,316  | )       
|                                                             | Change in accounts payable, accrued expenses and
    other liabilities                       |                                                              |        | (15,917  | )        |   |        | 8,345    |         
|                                                             | Other, net                                                                                   |                                                              |        | 2,953    |          |   |        | 3,285    |         
|                                                             |                                                                                              |                                                              |        |          |          |   |        |         
|                                                             |                                                                                              | Net cash flow provided by operating activities               |        |          | 160,236  |   |        |          | 211,768  |  
|                                                             |                                                                                              |                                                              |        |          |          |   |        |         
|Investing activities:                                        |                                                                                              |                                                              |        |          |          |   |        |         
|                                                             | Real estate investments                                                                      |                                                              |        | (251,156 | )        |   |        | (320,262 | )       
|                                                             | Change in investments in and advances to
    unconsolidated entities, net                    |                                                              |        | 2,220    |          |   |        | (30,732  | )       
|                                                             | Proceeds from dispositions, net of closing costs                                             |                                                              |        | 549,498  |          |   |        | 134,296  |         
|                                                             | Change in tax-deferred exchange escrow                                                       |                                                              |        | (74,140  | )        |   |        | 61,764   |         
|                                                             | Other, net                                                                                   |                                                              |        | (38,024  | )        |   |        | (7,947   | )       
|                                                             |                                                                                              |                                                              |        |          |          |   |        |         
|                                                             |                                                                                              | Net cash flow provided by (used in) investing
    activities |        |          | 188,398  |   |        |          | (162,881 | )
|                                                             |                                                                                              |                                                              |        |          |          |   |        |         
|Financing activities:                                        |                                                                                              |                                                              |        |          |          |   |        |         
|                                                             | Proceeds from Long-Term Unsecured Debt, net of
    issuance costs                            |                                                              |        | 247,225  |          |   |        | 198,570  |         
|                                                             | Payments on Long-Term Unsecured Debt                                                         |                                                              |        | (138,750 | )        |   |        | (12,500  | )       
|                                                             | Principal prepayment of mortgages payable,
    including prepayment penalties                |                                                              |        | (46,027  | )        |   |        | (356,559 | )       
|                                                             | Regularly scheduled principal payments on
    mortgages payable                              |                                                              |        | (5,712   | )        |   |        | (5,150   | )       
|                                                             | Payments on/proceeds from unsecured credit
    facilities, net                               |                                                              |        | (241,763 | )        |   |        | 292,125  |         
|                                                             | Proceeds from Common Units issued under DRIP and
    employee stock options                  |                                                              |        | 44,705   |          |   |        | 18,526   |         
|                                                             | Repurchase of Common Units and Preferred Units                                               |                                                              |        | (13,402  | )        |   |        |         |         
|                                                             | Cash distributions paid on Common Units                                                      |                                                              |        | (179,337 | )        |   |        | (170,776 | )       
|                                                             | Cash distributions paid on Preferred Units                                                   |                                                              |        | (17,837  | )        |   |        | (17,440  | )       
|                                                             | Cash distributions paid to minority interests                                                |                                                              |        |         |          |   |        | (3,874   | )       
|                                                             | Other, net                                                                                   |                                                              |        | (1,656   | )        |   |        | 11,972   |         
|                                                             |                                                                                              |                                                              |        |          |          |   |        |         
|                                                             |                                                                                              | Net cash flow used in financing activities                   |        |          | (352,554 | ) |        |          | (45,106  | )
|                                                             |                                                                                              |                                                              |        |          |          |   |        |         
|Net change in cash and cash equivalents                      |                                                                                              |                                                              | (3,920 | )        |          |   | 3,781  |         
|Cash and cash equivalents at beginning of period             |                                                                                              |                                                              | 12,846 |          |          |   | 7,027  |         
|                                                             |                                                                                              |                                                              |        |          |          |   |        |         
|Cash and cash equivalents at end of period                   |                                                                                              | $                                                            | 8,926  |          |          | $ | 10,808 |         
|                                                             |                                                                                              |                                                              |        |          |          |   |        |         
|Significant non-cash investing and financing
    activities: |                                                                                              |                                                              |        |          |          |   |        |         
|                                                             | Apartment communities in development contributed
    to Ameriton                             |                                                              | $      | 56,026   |          |   | $      |         |         
|                                                             | A-1 Common Units issued in exchange for land                                                 |                                                              |        | 33,355   |          |   |        |         |         
|                                                             | A-1 Common Units converted to Common Units                                                   |                                                              |        | 22,377   |          |   |        | 15,422   |         
|                                                             | Assumption of mortgages payable upon purchase of
    apartment communities                   |                                                              |        |         |          |   |        | 195,637  |         
|                                                             | 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


June 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 owns approximately 88.3% of the Operating
Trusts outstanding Common Units and the remaining 11.7%
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
our 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 six months ended June 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. Moisture infiltration and resulting mold
remediation costs are only capitalized, subject to
recoverability, 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.

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 a
known legal settlement, we accrue for the related incurred and
anticipated legal fees at the same time we accrue the cost of
settlement.



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

As of June 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 six months ended June 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 unit if the fair value based method had been
applied to all outstanding and unvested awards in each period
(dollar amounts in thousands, except per unit amounts):

|                                                                                                                    |                       |                    |           |                  |  |      |           |      |  |   |           |      |  |   |           |      | 
|------------------------------------------------------------------------------------------------------------------- | --------------------- | ------------------ | --------- | ---------------- |  | ---- | --------- | ---- |  | - | --------- | ---- |  | - | --------- | ---- | 
|                                                                                                                    |                       |                    |           |                 
|                                                                                                                    |                       | Three Months Ended |           | Six Months Ended
|                                                                                                                    |                       | June 30,           |           | June 30,        
|                                                                                                                    |                       |                    |           |                 
|                                                                                                                    |                       | 2003               |           | 2002             |  | 2003 |           | 2002
|                                                                                                                    |                       |                    |           |                  |  |      |           |     
|Net earnings attributable to Common
    Units  Basic                                                               |                       | $                  | 67,236    |                  |  | $    | 86,022    |      |  | $ | 156,736   |      |  | $ | 143,638   |     
|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 |                       |                    | (419      | )                |  |      | (534      | )    |  |   | (916      | )    |  |   | (1,056    | )   
|                                                                                                                    |                       |                    |           |                  |  |      |           |      |  |   |           |      |  |   |           |     
|Pro forma net earnings attributable to Common
    Units  Basic                                                     |                       | $                  | 66,817    |                  |  | $    | 85,488    |      |  | $ | 155,820   |      |  | $ | 142,582   |     
|                                                                                                                    |                       |                    |           |                  |  |      |           |      |  |   |           |      |  |   |           |     
|Net earnings per Common Unit:                                                                                       |                       |                    |           |                  |  |      |           |      |  |   |           |      |  |   |           |     
|                                                                                                                    | Basic  as reported   |                    | $         | 0.32             |  |      | $         | 0.43 |  |   | $         | 0.75 |  |   | $         | 0.71 | 
|                                                                                                                    |                       |                    |           |                  |  |      |           |      |  |   |           |      |  |   |           |     
|                                                                                                                    | Basic  pro forma     |                    | $         | 0.32             |  |      | $         | 0.42 |  |   | $         | 0.75 |  |   | $         | 0.71 | 
|                                                                                                                    |                       |                    |           |                  |  |      |           |      |  |   |           |      |  |   |           |     
|                                                                                                                    | Diluted  as reported |                    | $         | 0.32             |  |      | $         | 0.42 |  |   | $         | 0.75 |  |   | $         | 0.71 | 
|                                                                                                                    |                       |                    |           |                  |  |      |           |      |  |   |           |      |  |   |           |     
|                                                                                                                    | Diluted  pro forma   |                    | $         | 0.32             |  |      | $         | 0.42 |  |   | $         | 0.75 |  |   | $         | 0.70 | 
|                                                                                                                    |                       |                    |           |                  |  |      |           |      |  |   |           |      |  |   |           |     
|Weighted average risk-free interest rate                                                                            |                       |                    | 3.54      | %                |  |      | 4.06      | %    |  |   | 3.54      | %    |  |   | 4.06      | %   
|Weighted average distribution 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

In January 2003, the FASB issued Interpretation
No. 46 Consolidation of Variable Interest
Entities. We are required to adopt the Interpretation
for financial statements for the fiscal year or interim period
beginning after June 15, 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. Although we have not yet determined
the total impact of adopting the Interpretation, we expect to
consolidate the results of Ameriton in the third quarter of 2003.

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 are required to adopt 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.
We do not anticipate that the adoption of SFAS 149 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 and
otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. It requires that
certain financial instruments, formerly presented as equity, be
classified as liabilities. We do not anticipate that the
adoption of SFAS 150 will have a material impact on our
financial position, net earnings or cash flows.

9



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                  
| | -----------------
| | 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 |         | Six Months Ended
|                                                                                             |                                                                         | June 30,           |         | June 30,        
|                                                                                             |                                                                         |                    |         |                 
|                                                                                             |                                                                         | 2003               |         | 2002             |  | 2003 |         | 2002  
|                                                                                             |                                                                         |                    |         |                  |  |      |         |       
|Reconciliation of numerator between basic and
    diluted net earnings per Unit(1):          |                                                                         |                    |         |                  |  |      |         |        |  |   |         |     |  |   |         |      
|Net earnings attributable to Common
    Units  Basic                                        |                                                                         | $                  | 67,236  |                  |  | $    | 86,022  |        |  | $ | 156,736 |     |  | $ | 143,638 |      
|                                                                                             | Distributions on Convertible Preferred Units                            |                    |         |                 |  |      |         | 5,581  |  |   |         |    |  |   |         |      | 
|                                                                                             |                                                                         |                    |         |                  |  |      |         |        |  |   |         |     |  |   |         |      
|Net earnings attributable to Common
    Units  Diluted                                      |                                                                         | $                  | 67,236  |                  |  | $    | 91,603  |        |  | $ | 156,736 |     |  | $ | 143,638 |      
|                                                                                             |                                                                         |                    |         |                  |  |      |         |        |  |   |         |     |  |   |         |      
|Reconciliation of denominator between basic and
    diluted net earnings per Common Unit(1): |                                                                         |                    |         |                  |  |      |         |        |  |   |         |     |  |   |         |      
|Weighted average number of Common Units
    outstanding  Basic                              |                                                                         |                    | 210,133 |                  |  |      | 201,413 |        |  |   | 208,518 |     |  |   | 200,907 |      
|                                                                                             | Assumed conversion of Convertible Preferred Units
    into Common Units |                    |         |                 |  |      |         | 14,058 |  |   |         |    |  |   |         |      | 
|                                                                                             | Assumed exercise of options                                             |                    |         | 597              |  |      |         | 1,656  |  |   |         | 503 |  |   |         | 1,512 | 
|                                                                                             |                                                                         |                    |         |                  |  |      |         |        |  |   |         |     |  |   |         |      
|Weighted average number of Common Units
    outstanding  Diluted                            |                                                                         |                    | 210,730 |                  |  |      | 217,127 |        |  |   | 209,021 |     |  |   | 202,419 |      
|                                                                                             |                                                                         |                    |         |                  |  |      |         |        |  |   |         |     |  |   |         |      



---



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

10



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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, were as
follows (dollar amounts in thousands):

|                       |                                      |                  |                                           |                             |         |            |           |          |       |       |        |           |        |        |           |        |       |       |        | 
|---------------------- | ------------------------------------ | ---------------- | ----------------------------------------- | --------------------------- | ------- | ---------- | --------- | -------- | ----- | ----- | ------ | --------- | ------ | ------ | --------- | ------ | ----- | ----- | ------ | 
|                       |                                      |                  |                                           |                            
|                       |                                      | June 30, 2003    |                                           | December 31, 2002          
|                       |                                      |                  |                                           |                            
|                       |                                      | Investment       |                                           | Units(1)                    |         | Investment |           | Units(1)
|                       |                                      |                  |                                           |                             |         |            |           |         
|Apartment Communities: |                                      |                  |                                           |                             |         |            |           |          |       |       |        |           |        |        |           |       
|                       | Operating communities                |                  | $                                         | 8,184,619                   |         |            |           | 68,985   |       |       | $      | 8,380,779 |        |        |           | 75,693 |      
|                       | Communities under construction       |                  |                                           | 209,533                     |         |            |           | 1,748    |       |       |        | 328,390   |        |        |           | 2,295  |      
|                       | Development communities In Planning: |                  |                                           |                             |         |            |           |          |       |       |        |           |        |        |           |        |      
|                       |                                      | Owned            |                                           |                             | 130,024 |            |           |          | 3,099 |       |        |           | 89,501 |        |           |        | 2,870 |      
|                       |                                      | Under control(2) |                                           |                             |        |            |           |          | 428   |       |        |           |       |        |           |        | 428   |      
|                       |                                      |                  |                                           |                             |         |            |           |          |       |       |        |           |        |        |           |       
|                       |                                      |                  | Total development communities In Planning |                             |         | 130,024    |           |          |       | 3,527 |        |           |        | 89,501 |           |        |       | 3,298 |       
|                       |                                      |                  |                                           |                             |         |            |           |          |       |       |        |           |        |        |           |       
|                       |                                      |                  |                                           | Total apartment communities |         |            | 8,524,176 |          |       |       | 74,260 |           |        |        | 8,798,670 |        |       |       | 81,286 | 
|                       |                                      |                  |                                           |                             |         |            |           |          |       |       |        |           |        |        |           |       
|Land                   |                                      |                  | 9,606                                     |                             |         |            |           |          |       |       | 9,671  |           |        |        |           |       
|Other                  |                                      |                  | 30,537                                    |                             |         |            |           |          |       |       | 30,480 |           |        |        |           |       
|                       |                                      |                  |                                           |                             |         |            |           |          |       |       |        |           |        |        |           |       
|                       |                                      |                  |                                           | Total real estate           |         | $          | 8,564,319 |          |       |       |        |           |        | $      | 8,838,821 |        |       |       |        | 
|                       |                                      |                  |                                           |                             |         |            |           |          |       |       |        |           |        |        |           |       



---



|    |                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 June 30, 2003 and
    December 31, 2002 for developments Under Control was
    $3.4 million and $2.7 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 |                        | $                                                          | 8,838,821 | 
|                             | Apartment communities: |                                                            |           |  |         
|                             |                        | Acquisition-related expenditures                           |           |  | 156,255  |  
|                             |                        | Redevelopment expenditures                                 |           |  | 34,725   |  
|                             |                        | Recurring capital expenditures                             |           |  | 16,191   |  
|                             |                        | Development expenditures, excluding land
    acquisitions  |           |  | 85,553   |  
|                             |                        | Dispositions                                               |           |  | (507,486 | )
|                             |                        | Transfers to Ameriton                                      |           |  | (56,026  | )
|                             |                        | Provision for possible loss on real estate
    investments |           |  | (3,714   | )
|                             |                        |                                                            |           | 
|Balance at June 30, 2003     |                        | $                                                          | 8,564,319 | 
|                             |                        |                                                            |           | 

At June 30, 2003, we had unfunded
contractual commitments related to real estate investment
activities aggregating approximately $184.9 million, of
which $167.8 million related to communities under
construction.



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

At June 30, 2003, we had 23 operating
apartment communities classified as held for sale under the
provisions of SFAS 144. Accordingly, we have classified the
operating earnings from these 23 properties

11



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

within discontinued operations for the three and
six months ended June 30, 2003 and 2002. During the six
months ended June 30, 2003, we sold 20 operating
communities. The operating results of these 20 communities
before the sale 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 six months
ended June 30, 2002, include the net operating results of
eight operating communities and one retail property which were
sold during the last three quarters of 2002. All of the
apartment communities sold during the three months ended
March 31, 2002 and two of the properties sold during the
three months ended June 30, 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 |         | Six Months Ended
|                                                           |  | June 30,           |         | June 30,        
|                                                           |  |                    |         |                 
|                                                           |  | 2003               |         | 2002             |  | 2003 |         | 2002
|                                                           |  |                    |         |                  |  |      |         |     
|Rental revenues                                            |  | $                  | 27,236  |                  |  | $    | 43,908  |      |  | $ | 62,206  |   |  | $ | 88,816  |  
|Rental expenses                                            |  |                    | (10,035 | )                |  |      | (13,545 | )    |  |   | (20,487 | ) |  |   | (26,173 | )
|Real estate taxes                                          |  |                    | (1,412  | )                |  |      | (4,401  | )    |  |   | (5,387  | ) |  |   | (8,930  | )
|Depreciation on real estate investments                    |  |                    | (2,089  | )                |  |      | (7,501  | )    |  |   | (6,791  | ) |  |   | (14,330 | )
|Interest expense(1)                                        |  |                    | (5,928  | )                |  |      | (10,227 | )    |  |   | (13,147 | ) |  |   | (20,266 | )
|Provision for possible loss on real estate
    investments |  |                    |        |                  |  |      |        |      |  |   | (3,714  | ) |  |   |        |  
|Gains on dispositions of real estate investments,
    net  |  |                    | 48,829  |                  |  |      | 16,674  |      |  |   | 93,565  |   |  |   | 16,674  |  
|                                                           |  |                    |         |                  |  |      |         |      |  |   |         |   |  |   |         |  
|Net earnings from discontinued apartment
    communities   |  | $                  | 56,601  |                  |  | $    | 24,908  |      |  | $ | 106,245 |   |  | $ | 35,791  |  
|                                                           |  |                    |         |                  |  |      |         |      |  |   |         |   |  |   |         |  



---



|    |                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The portion of interest expense included in
    discontinued operations that is allocated to properties based on
    the companys leverage ratio was $5.1 million and
    $7.1 million for the three months ended June 30, 2003
    and 2002 and $10.7 million and $14.3 million for the
    six months ended June 30, 2003 and 2002, respectively.

Assets classified as held for sale, pursuant to
SFAS 144 at June 30, 2003, had aggregate carrying
value of $514.6 million with $78.6 million of secured
debt. The estimated proceeds less anticipated costs to sell for
three assets were less than the net book value, and therefore a
provision for possible loss of $3.7 million was recorded
during the six months ended June 30, 2003.

12



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



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

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

|                                       |  |          |         |              |  |   |         | 
|-------------------------------------- |  | -------- | ------- | ------------ |  | - | ------- | 
|                                       |  | June 30, |         | December 31,
|                                       |  | 2003     |         | 2002        
|                                       |  |          |         |             
|Ameriton                               |  | $        | 352,823 |              |  | $ | 292,043 | 
|Real estate joint ventures             |  |          | 48,189  |              |  |   | 54,903  | 
|Smith Management Construction (SMC)(1) |  |          |        |              |  |   |        | 
|                                       |  |          |         |              |  |   |         | 
|                                       |  | $        | 401,012 |              |  | $ | 346,946 | 
|                                       |  |          |         |              |  |   |         | 



---



|    |                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | SMC was sold to members of SMCs management
    in February 2003; see details below. Cash distributions exceeded
    investment in and advances to SMC at December 31, 2002;
    therefore, the investment balance was zero.

We have a $10 million committed unsecured
credit facility with Ameriton to facilitate working capital
advances, with $5.8 million available at June 30,
2003. We also have an uncommitted unsecured credit facility with
Ameriton, with $100.1 million of available capacity at
June 30, 2003. Advances to Ameriton under this uncommitted
facility are made solely at our discretion. During the six
months ended June 30, 2003, we contributed two non-core
development communities under construction to Ameriton at their
current cost basis of $56.0 million.



| |                                                
| | -----------------------------------------------
| | 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 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 has principal payments
beginning in August 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.

13



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



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



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

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

|                                                  |  |                   |         |                   |  |   |         |  
|------------------------------------------------- |  | ----------------- | ------- | ----------------- |  | - | ------- | -
|                                                  |  | As of and for the |         | As of and for the
|                                                  |  | Six Months Ended  |         | Year Ended       
|                                                  |  | June 30, 2003     |         | December 31, 2002
|                                                  |  |                   |         |                  
|Total unsecured revolving credit facility         |  | $                 | 700,000 |                   |  | $ | 700,000 |  
|Borrowings outstanding at end of period           |  |                   | 95,000  |                   |  |   | 348,500 |  
|Outstanding letters of credit under this facility |  |                   | 240     |                   |  |   | 11,890  |  
|Weighted average daily borrowings                 |  |                   | 405,622 |                   |  |   | 248,398 |  
|Maximum borrowings outstanding during the period  |  |                   | 511,500 |                   |  |   | 465,000 |  
|Weighted average daily nominal interest rate      |  |                   | 2.01    | %                 |  |   | 2.26    | %
|Weighted average daily effective interest rate    |  |                   | 2.59    | %                 |  |   | 3.08    | %

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 six
months ended June 30, 2003. At June 30, 2003 and
December 31, 2002, there were $28.8 million and
$17.1 million of borrowings outstanding under this
agreement, respectively.



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

During June 2003, the Operating Trust issued
$250 million of long-term unsecured senior notes due in
June 2008 for net proceeds of $247.2 million. These notes
bear interest at a coupon rate of 3.0% annually, with an
effective interest rate of 3.2%. The net proceeds were used to
repay outstanding balances on our unsecured credit facilities.

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

|                                 |               |         |       |           |  |            |       |              |  |              |           |           |  |   |           |           |  |  |      |     | 
|-------------------------------- | ------------- | ------- | ----- | --------- |  | ---------- | ----- | ------------ |  | ------------ | --------- | --------- |  | - | --------- | --------- |  |  | ---- | --- | 
|                                 |               |         |       | Effective |  | Balance at |       | Balance at   |  | Average     
|                                 |               | Coupon  |       | Interest  |  | June 30,   |       | December 31, |  | Remaining   
|Type of Debt                     |               | Rate(1) |       | Rate(2)   |  | 2003       |       | 2002         |  | Life (Years)
|                                 |               |         |       |           |  |            |       |              |  |             
|Long-term unsecured senior notes |               |         | 6.36% |           |  |            | 6.47% |              |  | $            | 1,803,822 |           |  | $ | 1,692,727 |           |  |  | 5.8  |    
|Unsecured tax-exempt bonds       |               |         | 1.89% |           |  |            | 2.13% |              |  |              | 79,195    |           |  |   | 83,376    |           |  |  | 25.9 |    
|                                 |               |         |       |           |  |            |       |              |  |              |           |           |  |   |           |           |  |  |      |    
|                                 | Total/average |         |       | 6.17%     |  |            |       | 6.29%        |  |              | $         | 1,883,017 |  |   | $         | 1,776,103 |  |  |      | 6.7 | 
|                                 |               |         |       |           |  |            |       |              |  |              |           |           |  |   |           |           |  |  |      |    



---



|    |                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

14



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                  
| | -----------------
| | Mortgages payable

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

|                           |                             |           |      |                         |   |              |           |           |  |   |           |           | 
|-------------------------- | --------------------------- | --------- | ---- | ----------------------- | - | ------------ | --------- | --------- |  | - | --------- | --------- | 
|                           |                             |           |      |                        
|                           |                             |           |      | Principal Balance(2) at
|                           |                             | Effective |      |                        
|                           |                             | Interest  |      | June 30,                |   | December 31,
|Type of Mortgage           |                             | Rate(1)   |      | 2003                    |   | 2002        
|                           |                             |           |      |                         |   |             
|Conventional fixed rate    |                             |           | 6.46 | %                       |   | $            | 1,539,686 |           |  | $ | 1,595,114 |          
|Conventional floating rate |                             |           | 2.11 | %                       |   |              | 10,725    |           |  |   | 10,725    |          
|Tax-exempt fixed rate      |                             |           | 7.27 | %                       |   |              | 6,948     |           |  |   | 7,035     |          
|Tax-exempt floating rate   |                             |           | 2.08 | %                       |   |              | 327,465   |           |  |   | 325,103   |          
|Other                      |                             |           | 5.00 | %                       |   |              | 22,388    |           |  |   | 22,850    |          
|                           |                             |           |      |                         |   |              |           |           |  |   |           |          
|                           | Total/average mortgage debt |           |      | 5.67                    | % |              | $         | 1,907,212 |  |   | $         | 1,960,827 | 
|                           |                             |           |      |                         |   |              |           |           |  |   |           |          



---



|    |                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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
    June 30, 2003.
|   
|(2) | Includes net fair market value adjustment
    recorded in connection with the Smith Merger of
    $63.8 million and $69.7 million at June 30, 2003
    and December 31, 2002, respectively.             

The change in mortgages payable during the six
months ended June 30, 2003 consisted of the following (in
thousands):

|                             |                                            |   |           |         |  
|---------------------------- | ------------------------------------------ | - | --------- | ------- | -
|Balance at December 31, 2002 |                                            | $ | 1,960,827 |        
|                             | Regularly scheduled principal amortization |   |           | (5,712  | )
|                             | Prepayments, final maturities and other    |   |           | (47,903 | )
|                             |                                            |   |           |        
|Balance at June 30, 2003     |                                            | $ | 1,907,212 |        
|                             |                                            |   |           |        



| |      
| | -----
| | 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 six months ended June 30, 2003.

For the six months ended June 30, 2003 and
2002, the total interest paid on all outstanding debt was
$93.1 million and $107.6 million, respectively. We
capitalize interest incurred during the construction period as
part of the cost of apartment communities under development.
Interest capitalized during the six months ended June 30,
2003 and 2002 was $8.9 million and $11.9 million,
respectively.

15



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|    |                             
|--- | ----------------------------
|(6) | 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 and June 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 |  |                   | 0.5750 |                   |  |   | 2.30  | 
|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(1)          |  |                   | 0.8450 |                   |  |   | 1.27  | 
|Series I Preferred Units(2)          |  |                   | 1,915  |                   |  |   | 7,660 | 
|Series K Preferred Units             |  |                   | 0.8450 |                   |  |   | 3.38  | 
|Series L Preferred Units             |  |                   | 0.8450 |                   |  |   | 3.38  | 



---



|    |                                                                                   
|--- | ----------------------------------------------------------------------------------
|(1) | The Series H Preferred Units were converted
    into Common Units on May 15, 2003.
|   
|(2) | Series I Preferred Units have a par value of
    $100,000 per unit.               

(7) 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.

16



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##### 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                      |       | Six Months Ended
|                                                   |                                         | June 30,                                |       | June 30,        
|                                                   |                                         |                                         |       |                 
|                                                   |                                         | 2003                                    |       | 2002             |         | 2003 |        | 2002   
|                                                   |                                         |                                         |       |                  |         |      |        |        
|Reportable apartment communities segment revenues: |                                         |                                         |       |                  |         |      |        |         |         |  |        |         |         |  |        |        
|                                                   | Garden communities                      |                                         | $     | 133,506          |         |      | $      | 130,039 |         |  | $      | 266,014 |         |  | $      | 259,045 |        
|                                                   | High-rise properties                    |                                         |       | 89,362           |         |      |        | 90,226  |         |  |        | 177,008 |         |  |        | 175,905 |        
|Other non-reportable operating segment revenues    |                                         |                                         | 5,638 |                  |         |      | 10,259 |         |         |  | 18,852 |         |         |  | 16,996 |        
|                                                   |                                         |                                         |       |                  |         |      |        |         |         |  |        |         |         |  |        |        
|                                                   |                                         | Total segment and consolidated revenues |       | $                | 228,506 |      |        | $       | 230,524 |  |        | $       | 461,874 |  |        | $       | 451,946 | 
|                                                   |                                         |                                         |       |                  |         |      |        |         |         |  |        |         |         |  |        |        
|Reportable apartment communities segment NOI:      |                                         |                                         |       |                  |         |      |        |         |         |  |        |         |         |  |        |        
|                                                   | Garden communities                      |                                         | $     | 90,427           |         |      | $      | 88,660  |         |  | $      | 179,897 |         |  | $      | 176,831 |        
|                                                   | High-rise properties                    |                                         |       | 54,536           |         |      |        | 55,160  |         |  |        | 106,496 |         |  |        | 107,526 |        
|Other non-reportable operating segment NOI         |                                         |                                         | 652   |                  |         |      | 654    |         |         |  | 1,206  |         |         |  | 1,015  |        
|                                                   |                                         |                                         |       |                  |         |      |        |         |         |  |        |         |         |  |        |        
|                                                   |                                         | Total segment and consolidated NOI      |       |                  | 145,615 |      |        |         | 144,474 |  |        |         | 287,599 |  |        |         | 285,372 | 
|                                                   |                                         |                                         |       |                  |         |      |        |         |         |  |        |         |         |  |        |        
|Reconciling items:                                 |                                         |                                         |       |                  |         |      |        |         |         |  |        |         |         |  |        |        
|                                                   | Income from unconsolidated entities     |                                         |       | 293              |         |      |        | 7,814   |         |  |        | 5,643   |         |  |        | 12,590  |        
|                                                   | Other income                            |                                         |       | 4,573            |         |      |        | 1,499   |         |  |        | 11,737  |         |  |        | 3,008   |        
|                                                   | Depreciation on real estate investments |                                         |       | (45,876          | )       |      |        | (42,703 | )       |  |        | (91,411 | )       |  |        | (83,153 | )      
|                                                   | Interest expense                        |                                         |       | (48,319          | )       |      |        | (51,511 | )       |  |        | (94,913 | )       |  |        | (90,399 | )      
|                                                   | General and administrative expenses     |                                         |       | (12,586          | )       |      |        | (10,400 | )       |  |        | (24,768 | )       |  |        | (20,285 | )      
|                                                   | Other expenses                          |                                         |       | (25,814          | )       |      |        | (704    | )       |  |        | (27,877 | )       |  |        | (2,516  | )      
|                                                   |                                         |                                         |       |                  |         |      |        |         |         |  |        |         |         |  |        |        
|                                                   |                                         | Consolidated earnings from operations   |       | $                | 17,886  |      |        | $       | 48,469  |  |        | $       | 66,010  |  |        | $       | 104,617 | 
|                                                   |                                         |                                         |       |                  |         |      |        |         |         |  |        |         |         |  |        |        

|                                                 |                                                           |                           |        |              |           |  |        |           |           | 
|------------------------------------------------ | --------------------------------------------------------- | ------------------------- | ------ | ------------ | --------- |  | ------ | --------- | --------- | 
|                                                 |                                                           | June 30,                  |        | December 31,
|                                                 |                                                           | 2003                      |        | 2002        
|                                                 |                                                           |                           |        |             
|Reportable operating communities segment assets: |                                                           |                           |        |              |           |  |        |          
|                                                 | Garden communities                                        |                           | $      | 4,384,518    |           |  | $      | 4,726,523 |          
|                                                 | High-rise properties                                      |                           |        | 3,521,864    |           |  |        | 3,500,900 |          
|Other non-reportable operating segment assets    |                                                           |                           | 40,144 |              |           |  | 40,151 |          
|                                                 |                                                           |                           |        |              |           |  |        |          
|                                                 |                                                           | Total segment assets      |        |              | 7,946,526 |  |        |           | 8,267,574 | 
|                                                 |                                                           |                           |        |              |           |  |        |          
|Reconciling items:                               |                                                           |                           |        |              |           |  |        |          
|                                                 | Investment in and advances to unconsolidated
    entities |                           |        | 401,012      |           |  |        | 346,946   |          
|                                                 | Cash and cash equivalents                                 |                           |        | 8,926        |           |  |        | 12,846    |          
|                                                 | Restricted cash in tax deferred exchange escrow           |                           |        | 74,140       |           |  |        |          |          
|                                                 | Other assets                                              |                           |        | 275,642      |           |  |        | 227,702   |          
|                                                 |                                                           |                           |        |              |           |  |        |          
|                                                 |                                                           | Consolidated total assets |        | $            | 8,706,246 |  |        | $         | 8,855,068 | 
|                                                 |                                                           |                           |        |              |           |  |        |          

17



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Total capital expenditures for garden communities
were $8.6 million and $13.3 million for the three and
six months ended June 30, 2003, and $11.3 million and
$26.7 million for the same periods in 2002, respectively.
Total capital expenditures for high-rise properties were
$28.5 million and $37.6 million for the three and six
months ended June 30, 2003, and $35.2 million and
$65.4 million for the same periods in 2002, respectively.



|    |                                          
|--- | -----------------------------------------
|(8) | Sale of Archstone Management
    Services

On May 28, 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.



|    |                             
|--- | ----------------------------
|(9) | 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
have increased our accrual estimate for capitalized costs
associated with remediation and capital improvements by
$5.0 million. As of June 30, 2003, total cash payments
related to moisture infiltration and mold remediation at this
property were $34.1 million, of which $20.5 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.

18



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##### Table of Contents



ARCHSTONE-SMITH OPERATING TRUST


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

We are also party to alleged moisture
infiltration and resulting mold lawsuits at two other Southeast
Florida high-rise properties. We believe the suits are without
merit and intend to vigorously contest the claims asserted in
this litigation. Due to the preliminary nature of these suits,
it is not possible to predict or determine the outcome of the
legal actions, nor is it reasonably possible to estimate the
amount of loss should there be adverse decisions. 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 recent legal claims.
Accordingly, we will capitalize or expense costs associated with
these issues as they are incurred, in accordance with GAAP.

19



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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 June 30, 2003, and the related
condensed consolidated statements of earnings for the three and
six month periods ended June 30, 2003 and 2002, the
condensed consolidated statement of unitholders equity,
other common unitholders interest and comprehensive income
for the six month period ended June 30, 2003 and the
condensed consolidated statements of cash flows for the six
month periods ended June 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

July 18, 2003


20



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##### Table of Contents








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

The following information should be read in
conjunction with Archstone-Smith Operating Trusts 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 88.3% of our Common Units.

Results of Operations



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

The $18.8 million decrease in basic net
earnings attributable to Common Units for the three months ended
June 30, 2003, respectively, as compared to the same
periods in 2002, is primarily attributable to:



| |   |                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A 1.2% decrease in NOI from our Same-Store
    portfolio, driven by revenue decline of 1.6% for the three
    months ended June 30, 2003, as compared to the same periods
    in 2002 (see Note 7 in our financial statements in this
    Quarterly Report for a definition and reconciliation of NOI to
    Earnings from Operations);                
|
| |  | The loss of NOI due to $561.1 million and
    $407.6 million of apartment community dispositions in the
    first six months of 2003 and all of 2002, respectively;                                                                                                                                                                                    
|
| |  | A $7.5 million decrease in income from
    unconsolidated entities primarily due to a decrease in gains
    from Ameriton operating community dispositions, the loss of
    earnings associated with the sale of Consolidated Engineering
    Services (CES) and SMC, and decreased Ameriton earnings due
    to the sale of operating communities; and
|
| |  | A $25.0 million expense 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               

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##### Table of Contents



| |  |                                                                                                                                                      
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | upon the current status of discussions,
    additional resident property repair and replacement costs and
    temporary resident relocation expenses.

The decrease is partially offset by:



| |   |                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Higher gains, including gains from discontinued
    operations, due to an increase in disposition activity during
    the three months ended June 30, 2003; and                                                                                                                                                                                                              
|
| |  | A $7.5 million decrease in interest expense,
    including amounts classified as discontinued operations,
    primarily due to 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.

The $13.1 million increase in basic net
earnings attributable to Common Units for the six months ended
June 30, 2003, as compared to the same periods in 2002, is
primarily attributable to higher gains, including gains from
discontinued operations, due to increased disposition activity
during the six months ended June 30, 2003.

This increase was partially offset by:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A 2.5% decrease in NOI in our Same-Store
    portfolio, driven by revenue decline of 1.8% for the six months
    ended June 30, 2003, as compared to the same periods in
    2002;                                                                                                                                                                                                                                                                                                                
|
| |  | A $25.0 million expense 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 $6.9 million decrease in income from
    unconsolidated entities primarily due to a decrease in gains
    from Ameriton operating community dispositions, the loss of
    earnings associated with the sale of CES and SMC, and decreased
    Ameriton earnings due to sale of operating communities.                                                                                                                                                                                           



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

At June 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 |         | Six Months Ended
|                                                                               |  | June 30,           |         | June 30,        
|                                                                               |  |                    |         |                 
|                                                                               |  | 2003               |         | 2002             |  | 2003 |         | 2002
|                                                                               |  |                    |         |                  |  |      |         |     
|Rental revenues                                                                |  | $                  | 133,506 |                  |  | $    | 130,039 |      |  | $ | 266,014 |   |  | $ | 259,045 |  
|Property operating expenses                                                    |  |                    | 43,079  |                  |  |      | 41,379  |      |  |   | 86,117  |   |  |   | 82,214  |  
|                                                                               |  |                    |         |                  |  |      |         |      |  |   |         |   |  |   |         |  
|NOI                                                                            |  | $                  | 90,427  |                  |  | $    | 88,660  |      |  | $ | 179,897 |   |  | $ | 176,831 |  
|                                                                               |  |                    |         |                  |  |      |         |      |  |   |         |   |  |   |         |  
|Operating margin (rental revenues less operating
    expenses/rental revenues) |  |                    | 67.7    | %                |  |      | 68.2    | %    |  |   | 67.6    | % |  |   | 68.3    | %
|                                                                               |  |                    |         |                  |  |      |         |      |  |   |         |   |  |   |         |  
|Average occupancy during period                                                |  |                    | 95.2    | %                |  |      | 96.0    | %    |  |   | 95.2    | % |  |   | 95.6    | %
|                                                                               |  |                    |         |                  |  |      |         |      |  |   |         |   |  |   |         |  
|Average number of operating units                                              |  |                    | 50,794  |                  |  |      | 55,391  |      |  |   | 52,296  |   |  |   | 55,802  |  
|                                                                               |  |                    |         |                  |  |      |         |      |  |   |         |   |  |   |         |  

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High-Rise Properties

|                                                                               |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------ |  | ------------------ | ------ | ---------------- |  | ---- | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                               |  |                    |        |                 
|                                                                               |  | Three Months Ended |        | Six Months Ended
|                                                                               |  | June 30,           |        | June 30,        
|                                                                               |  |                    |        |                 
|                                                                               |  | 2003               |        | 2002             |  | 2003 |        | 2002
|                                                                               |  |                    |        |                  |  |      |        |     
|Rental revenues                                                                |  | $                  | 89,362 |                  |  | $    | 90,226 |      |  | $ | 177,008 |   |  | $ | 175,905 |  
|Property operating expenses                                                    |  |                    | 34,826 |                  |  |      | 35,066 |      |  |   | 70,512  |   |  |   | 68,379  |  
|                                                                               |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |         |  
|NOI                                                                            |  | $                  | 54,536 |                  |  | $    | 55,160 |      |  | $ | 106,496 |   |  | $ | 107,526 |  
|                                                                               |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |         |  
|Operating margin (rental revenues less operating
    expenses/rental revenues) |  |                    | 61.0   | %                |  |      | 61.1   | %    |  |   | 60.2    | % |  |   | 61.1    | %
|                                                                               |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |         |  
|Average occupancy during period                                                |  |                    | 92.4   | %                |  |      | 95.8   | %    |  |   | 92.5    | % |  |   | 95.6    | %
|                                                                               |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |         |  
|Average number of operating units                                              |  |                    | 21,248 |                  |  |      | 21,679 |      |  |   | 21,154  |   |  |   | 21,475  |  
|                                                                               |  |                    |        |                  |  |      |        |      |  |   |         |   |  |   |         |  

NOI for the entire apartment portfolio, including
amounts reported in discontinued operations, decreased
$9.0 million or 5.3%, and $15.2 million or 4.5% for
the three and six months ended June 30, 2003, respectively,
compared to the same period in 2002 primarily due to:



| |   |                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The loss of NOI due to $561.1 million and
    $407.6 million of apartment community dispositions in the
    first six 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 lower
rental expenses during the three and six months ended
June 30, 2003, as compared to the same periods in 2002.
Rental expenses for the three and six months ended June 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 six months ended June 30 for each
respective comparison period:

|                           |  |            |      |            |  |                |      |    |  |  |      |   
|-------------------------- |  | ---------- | ---- | ---------- |  | -------------- | ---- | -- |  |  | ---- | --
|                           |  | Same-Store |      | Same-Store |  | Same-Store Net
|                           |  | Revenue    |      | Expense    |  | Operating     
|                           |  | Decline    |      | Decline    |  | Income Decline
|                           |  |            |      |            |  |               
|Three months ended June 30 |  |            | (1.6 | )%         |  |                | (2.4 | )% |  |  | (1.2 | )%
|Six months ended June 30   |  |            | (1.8 | )%         |  |                | (0.2 | )% |  |  | (2.5 | )%

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, both of which produced positive revenue growth in
the three and six months ended June 30. 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 173 and 171
apartment communities that were fully operational during the
entire three and six months ended June 30, 2003 and 2002,
respectively. This excludes 21 and 23 apartment communities, for
the three months and six months ended June 30, 2002,
respectively, which were not eligible for inclusion due to
(i) recent acquisition or development, (ii) major
redevelopment, or (iii) a significant

23



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##### Table of Contents



number of non-operational units (fires, floods,
etc.). The following is a reconciliation of Same-Store NOI to
Earnings from Operations (in thousands):


|                                                                          |                          |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |         | 
|------------------------------------------------------------------------- | ------------------------ | ------------------ | ------- | ---------------- |  | ---- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                                                          |                          |                    |         |                 
|                                                                          |                          | Three Months Ended |         | Six Months Ended
|                                                                          |                          | June 30,           |         | June 30,        
|                                                                          |                          |                    |         |                 
|                                                                          |                          | 2003               |         | 2002             |  | 2003 |         | 2002   
|                                                                          |                          |                    |         |                  |  |      |         |        
|Same-Store NOI                                                            |                          | $                  | 137,094 |                  |  | $    | 138,820 |         |  | $ | 266,690 |         |  | $ | 273,578 |        
|Non-Same Store NOI                                                        |                          |                    | 24,310  |                  |  |      | 31,616  |         |  |   | 57,241  |         |  |   | 65,507  |        
|NOI classified as discontinued
    operations  communities sold          |                          |                    | (4,626  | )                |  |      | (14,399 | )       |  |   | (13,728 | )       |  |   | (30,422 | )      
|NOI classified as discontinued
    operations  communities held for sale |                          |                    | (11,163 | )                |  |      | (11,563 | )       |  |   | (22,604 | )       |  |   | (23,291 | )      
|                                                                          |                          |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|                                                                          | Net Operating Income     |                    |         | 145,615          |  |      |         | 144,474 |  |   |         | 287,599 |  |   |         | 285,372 | 
|Income from unconsolidated entities                                       |                          |                    | 293     |                  |  |      | 7,814   |         |  |   | 5,643   |         |  |   | 12,590  |        
|Other income                                                              |                          |                    | 4,573   |                  |  |      | 1,499   |         |  |   | 11,737  |         |  |   | 3,008   |        
|Depreciation on real estate investments                                   |                          |                    | (45,876 | )                |  |      | (42,703 | )       |  |   | (91,411 | )       |  |   | (83,153 | )      
|Interest expense                                                          |                          |                    | (48,319 | )                |  |      | (51,511 | )       |  |   | (94,913 | )       |  |   | (90,399 | )      
|General and administrative expenses                                       |                          |                    | (12,586 | )                |  |      | (10,400 | )       |  |   | (24,768 | )       |  |   | (20,285 | )      
|Other expense                                                             |                          |                    | (25,814 | )                |  |      | (704    | )       |  |   | (27,877 | )       |  |   | (2,516  | )      
|                                                                          |                          |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |        
|                                                                          | Earnings from Operations |                    | $       | 17,886           |  |      | $       | 48,469  |  |   | $       | 66,010  |  |   | $       | 104,617 | 
|                                                                          |                          |                    |         |                  |  |      |         |         |  |   |         |         |  |   |         |        



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

Income from unconsolidated entities decreased
$7.5 million and $6.9 million, respectively, for the
three and six months ended June 30, 2003 as compared to
same period in 2002 primarily due to a decrease in the gains
from Ameriton operating community dispositions during 2003, the
loss of earnings associated with the sale of CES and SMC, and
decreased Ameriton earnings due to the sale of operating
communities.



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

Other income increased $3.1 million and
$8.7 million, respectively, for the three and six months
ended June 30, 2003 as compared to the same period in 2002,
principally as a result of a collection of contingent proceeds
related to indemnification of certain CES accounts receivable
over 120 days and other investment income.



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

The $2.2 million decrease in depreciation
expense, including amounts classified as discontinued
operations, during the three months ended June 30, 2003, as
compared to the same period 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. The $0.7 million increase, including amounts
classified as discontinued operations, during the six months
ended June 30, 2003, as compared to the same period in
2002, is due to property acquisitions and construction
completions during late 2002, partially offset by the items
described above.



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

Interest expense decreased $7.5 million and
$2.6 million, including amounts classified as discontinued
operations, during the three and six months ended June 30,
2003, respectively, as compared to the same periods in 2002. The
decreases are primarily due 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.

24



---



##### Table of Contents





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

The $2.2 million and $4.5 million
increase in general and administrative expenses for the three
and six months ended June 30, 2003, respectively, as
compared to the same period in 2002 relates primarily to
$1.2 million in severance costs incurred during the six
months ended June 30, 2003, increased depreciation of
capitalized costs associated with our new revenue management
program called Lease Rent OptionsTM, new on-site
property management software, and a decrease in amounts charged
to Ameriton for development activities.



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

The $25.1 million and $25.4 million
increase in other expenses for the three and six months ended
June 30, 2003, respectively, as compared to the same period
in 2002 is principally due to a $25.0 million expense 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 six months ended June 30, 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, which is included in net earnings from discontinued
operations during the six months ended June 30, 2003. No
provision was recognized for the three or six months ended
June 30, 2002.



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

Minority interest decreased $1.9 million and
$4.0 million, for the three and six months ended
June 30, 2003, respectively, as compared to the same period
in 2002 primarily due to the conversion of DownREIT Perpetual
Preferred Units into Operating Trust Perpetual Preferred Units
in August 2002.

The $1.4 million and $1.8 million
decrease in Preferred Unit distributions for the three and six
months ended June 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 2002, 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 $2.6 million in
distributions on Series E, F and G Preferred Units for
the three and six months ended June 30, 2003, respectively.



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

During the three and six months ended
June 30, 2003, we disposed of 14 and 20 apartment
communities, representing net proceeds of $420.3 million
and $549.8 million, respectively. Net gains of
$48.8 million and $93.6 million were recorded for the
three and six months ended June 30, 2003, respectively. As
part of our capital recycling program, we anticipate our total
disposition volume for 2003 to be approximately
$900 million to $1.2 billion.



| |                        
| | -----------------------
| | 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.

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At June 30, 2003, we had 23 operating
apartment communities classified as held for sale under the
provisions of SFAS 144. Accordingly, we have classified the
operating earnings from these 23 properties within discontinued
operations for the three and six months ended June 30, 2003
and 2002. During the six months ended June 30, 2003, we
sold 20 operating communities. The operating results of these
20 communities before the sale 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
six months ended June 30, 2002, include the net operating
results of eight operating communities and one retail property
which were sold during the last three quarters of 2002. All of
the apartment communities sold during the three months ended
March 31, 2002 and two of the properties sold during the
three months ended June 30, 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 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 six months
ended June 30, 2003 and 2002.



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

Net cash flow provided by operating activities
decreased $51.5 million, for the six months ended
June 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 six months ended June 30, 2003, cash
flows provided by investing activities increased
$351.3 million as compared to the same period in 2002. The
increase is principally the result of a $415.2 million
increase in the net proceeds on dispositions of apartment
communities, a $69.1 million decrease in investments in
real estate and a $33.0 million increase in cash flows from
our investments in and advances to our unconsolidated investees.
These increases were partially offset by a $135.9 million
reduction in cash flows from restricted cash in tax-deferred
exchange escrows and an increase in other investments.

Cash flows used in financing activities increased
by $307.4 million for the six months ended June 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 $126.3 million and a reduction in
unsecured credit facilities of $533.9 million, partially
offset by a reduction in prepayments of mortgages of
$310.5 million and an increase in proceeds from long-term
borrowings of $48.7 million.

Included above in the cash flows from financing
activities are the payments of $179.3 million and
$17.8 million in distributions to Common Units and
Preferred Units, respectively, during the six months ended
June 30, 2003.

Our most significant non-cash investing and
financing activities during the six months ended June 30,
2003 and 2002 included: (i) the contribution of two
non-core development communities under construction to Ameriton
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 Common Units in both 2003 and 2002, and
(iv) the assumption of mortgages payable upon the purchase
of apartment communities in 2002.

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| |                                                                
| | ---------------------------------------------------------------
| | 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
June 30, 2003, we have approximately $43.7 million of
long-term debt maturing during the remainder of 2003,
$102.7 million maturing during 2004 and $276.0 million
maturing during 2005.

We currently have $800 million in total
borrowing capacity under our unsecured credit facilities, with
$200.5 million outstanding and $599.5 million of
available capacity at July 31, 2003. Our unsecured credit
facilities, Long-Term Unsecured Debt and mortgages payable had
effective interest rates of 2.43%, 6.29% and 5.67%,
respectively, as of June 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 June 30, 2003.



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

Based on anticipated distribution levels for 2003
and the number of units outstanding as of June 30, 2003, we
anticipate that we will pay distributions of $392.8 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 June 30, 2003 (dollar amounts in
thousands). The amounts labeled Discretionary
represent future investments that we plan to make, although
there is not a contractual commitment to do so. The amounts
labeled Committed represent the approximate amount
that we are contractually committed to fund for communities
under construction.

|                                          |       |       |       |                     |  |           |         |         |  |   |         |         | 
|----------------------------------------- | ----- | ----- | ----- | ------------------- |  | --------- | ------- | ------- |  | - | ------- | ------- | 
|                                          |       |       |       |                    
|                                          |       |       |       | Planned Investments
|                                          |       |       |       |                    
|                                          |       | Units |       | Discretionary       |  | Committed
|                                          |       |       |       |                     |  |          
|Communities under redevelopment(1)        |       |       | 6,542 |                     |  | $         | 48,092  |         |  | $ | 17,044  |        
|Communities under construction            |       |       | 1,748 |                     |  |           |        |         |  |   | 167,831 |        
|Communities In Planning and owned         |       |       | 3,099 |                     |  |           | 675,803 |         |  |   |        |        
|Communities In Planning and Under Control |       |       | 428   |                     |  |           | 62,512  |         |  |   |        |        
|Community acquisitions under contract     |       |       | 1,417 |                     |  |           | 209,000 |         |  |   |        |        
|                                          |       |       |       |                     |  |           |         |         |  |   |         |        
|                                          | Total |       |       | 13,234              |  |           | $       | 995,407 |  |   | $       | 184,875 | 
|                                          |       |       |       |                     |  |           |         |         |  |   |         |        



---



|    |                                                                                     
|--- | ------------------------------------------------------------------------------------
|(1) | Includes planned investments at seven 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 and expect to start construction on approximately
$175 to $250 million, based on Total Expected Investment,
of communities that are currently classified as In Planning
during the remainder of 2003. 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

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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 $599.5 million in available capacity on
our unsecured credit facilities and $4.5 million of cash on
hand at July 31 2003. In addition, during 2003, we
expect to complete the dispositions of $900 million to
$1.2 billion of operating communities.


At June 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

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
have increased our accrual estimate for capitalized costs
associated with remediation and capital improvements by
$5.0 million. As of June 30, 2003, total cash payments
related to moisture infiltration and mold remediation at this
property were $34.1 million, of which $20.5 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 the lawsuits are
without merit and intend to vigorously contest the claims
asserted in this litigation. Due to the preliminary nature of
these suits, it is not possible to predict or determine the
outcome of the legal actions, nor is it reasonably possible to
estimate the amount of loss should there be adverse decisions.
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

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recent legal claims. Accordingly, we will
capitalize or expense costs associated with these issues as they
are incurred, in accordance with GAAP.


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 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

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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 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 include a
$48.2 million investment in real estate joint ventures and
a $352.8 million investment in Ameriton at June 30,
2003. In connection with our investments in Ameriton, we have
extended a $10 million committed unsecured credit facility
with $5.8 million of available capacity at June 30,
2003. Additionally, we have extended an uncommitted unsecured
credit facility with Ameriton whereby advances are made solely
at our discretion. Ameriton had $100.1 million of available
capacity on this facility at June 30, 2003. Although we
have not yet

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determined the total impact of adopting FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities, we expect to consolidate the
results of Ameriton in the third quarter of 2003.


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 unit on a fully diluted basis.
Excluded from the gain was approximately $6.7 million in
contingent proceeds related to indemnification of accounts
receivable over 120 days. We have recognized
$4.1 million of these contingent proceeds during the six
months ended June 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
has principal payments beginning in August 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
June 30, 2003 $44.2 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     |  | 2006     |       | 2008      |  |      
|                                           |       | 2003 |       | and 2005 |  | and 2007 |       | thru 2095 |  | Total
|                                           |       |      |       |          |  |          |       |           |  |      
|Scheduled long-term debt maturities        |       | $    | 43.7  |          |  | $        | 378.7 |           |  | $     | 861.5 |       |  | $ | 2,506.3 |         |  | $ | 3,790.2 |        
|Unsecured credit facilities(1)             |       |      | 123.8 |          |  |          |      |           |  |       |      |       |  |   |        |         |  |   | 123.8   |        
|Ameriton credit facility                   |       |      | 4.2   |          |  |          |      |           |  |       |      |       |  |   |        |         |  |   | 4.2     |        
|Development and redevelopment expenditures |       |      | 184.9 |          |  |          |      |           |  |       |      |       |  |   |        |         |  |   | 184.9   |        
|Performance bond guarantees(2)             |       |      | 54.4  |          |  |          | 19.5  |           |  |       |      |       |  |   |        |         |  |   | 73.9    |        
|Lease commitments and other(3)             |       |      | 19.8  |          |  |          | 13.8  |           |  |       | 9.8   |       |  |   | 194.8   |         |  |   | 238.2   |        
|                                           |       |      |       |          |  |          |       |           |  |       |       |       |  |   |         |         |  |   |         |        
|                                           | Total |      | $     | 430.8    |  |          | $     | 412.0     |  |       | $     | 871.3 |  |   | $       | 2,701.1 |  |   | $       | 4,415.2 | 
|                                           |       |      |       |          |  |          |       |           |  |       |       |       |  |   |         |         |  |   |         |        



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The $700 million unsecured credit facility
    matures on December 20, 2003, and has a one-year extension
    at our option. We plan to renew and extend the facility for
    three years during 2003, although no assurances can be given
    that we can renew the facility on acceptable terms.                                                                                                                                                                                                                                                                                                                 
|   
|(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

In January 2003, the FASB issued Interpretation
No. 46 Consolidation of Variable Interest
Entities. We are required to adopt the Interpretation
for financial statements for the fiscal year or interim period
beginning after June 15, 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. Although we have not yet determined
the total impact of adopting the Interpretation, we expect to
consolidate the results of Ameriton in the third quarter of 2003.

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 are required to adopt 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.
We do not anticipate that the adoption of SFAS 149 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 and
otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. It requires that
certain financial instruments, formerly presented as equity, be
classified as liabilities. We do not anticipate that the
adoption of SFAS 150 will have a material impact on our
financial position, net earnings or cash flows.

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

Our capital structure includes the use of both
fixed and floating rate debt and we are exposed to the impact of
changes in interest rates. We also use interest rate swap and
interest rate cap derivative financial instruments in order to
modify interest rate characteristics of our debt in an effort to
minimize our overall borrowing costs. We do not utilize these
derivative financial instruments for speculative purposes. 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 June 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 as of June 30, 2003. 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 lawsuits are
without merit and intend to vigorously contest the claims
asserted in this litigation. Due to the preliminary nature of
the litigation, it is not possible to predict or determine the
outcome of the legal actions nor is it reasonably possible to
estimate the amount of loss

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##### Table of Contents



associated with adverse decisions. 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.






|        |                                     
|------- | ------------------------------------
|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 August 7, 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: The
following report on Form 8-K was filed during the period
covered by this report.

On June 9, 2003, the Operating Trust filed a
Form 8-K disclosing two claims filed in the Circuit Court
of the Eleventh Judicial Circuit in and for Miami-Dade County,
Florida, on behalf of classes of residents of two of our
Southeast Florida properties.

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##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.



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



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

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



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

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



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

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

Date: August 7, 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 August 7, 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

36