##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto.
 Commission File Number 1-10272
 ARCHSTONE-SMITH OPERATING TRUST
 (Exact name of registrant as specified in its charter)
 Maryland
    
    90-0042860(State or other jurisdiction of
    
    (I.R.S. employerincorporation or organization)
    
    identification no.)
 9200 E Panorama Circle, Suite 400
Englewood, Colorado 80112
(Address of principal executive offices and zip code)
 (303) 708-5959
(Registrants telephone number, including area code)
 (Former name, former address and former fiscal year,
if changed since last report)
  þ o
  þ o o
  o þ
 non-affiliates




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##### 



Table of Contents
 PageItem
    
    Description
    
    NumberPART 1  Financial Information1.
    
    Financial StatementsCondensed Consolidated Balance Sheets  September 30, 2006 (unaudited) and December 31, 2005
    
    
    3Condensed Consolidated Statements of Earnings  Three and Nine Months Ended September 30, 2006 and 2005 (unaudited)
    
    
    4Condensed Consolidated Statement of Unitholders Equity, Other Common Unitholders Interest and Comprehensive Income (Loss) Nine months Ended September 30, 2006 (unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows  Nine months Ended September 30, 2006 and 2005 (unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    7Independent Registered Public Accounting Firm Review Report
    
    
    242.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    253.
    
    Quantitative and
Qualitative Disclosures about Market Risk
    
    
    354.
    
    Controls and Procedures
    
    
    36PART II  Other Information1.
    
    Legal Proceedings
    
    
    371A.
    
    Risk Factors
    
    
    372.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    373.
    
    Defaults Upon Senior Securities
    
    
    374.
    
    Submission of Matters to a Vote of Security Holders
    
    
    375.
    
    Other Information
    
    
    376.
    
    Exhibits
    
    
    37Computation of Ratio of Earnings to Fixed ChargesComputation of Ratio of Earnings to Combined Fixed Charges and Preferred Unit DistributionsIndependent Registered Public Accounting Firm Awareness LetterCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Archstone-Smith Operating Trust
 
 Condensed Consolidated Balance Sheets
 (In thousands, except unit data)
 September 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)ASSETSReal estate
    
    $
    13,105,946
    
    
    $
    11,226,114Real estate  held-for-sale
    
    
    135,939
    
    
    
    133,150Less accumulated depreciation
    
    
    934,658
    
    
    
    836,69312,307,227
    
    
    
    10,522,571Investments in and advances to unconsolidated entities
    
    
    212,884
    
    
    
    132,728Net investments
    
    
    12,520,111
    
    
    
    10,655,299Cash and cash equivalents
    
    
    52,080
    
    
    
    13,638Restricted cash in tax-deferred exchange escrow
    
    
    54,579
    
    
    
    495,274Other assets
    
    
    480,561
    
    
    
    302,967Total assets
    
    $
    13,107,331
    
    
    $
    11,467,178LIABILITIES AND UNITHOLDERS EQUITYLiabilities:Unsecured credit facilities
    
    $
    25,714
    
    
    $
    394,578Term loan
 international
    
    
    272,792
    
    
    
    Long-term unsecured debt
    
    
    3,388,156
    
    
    
    2,545,119Mortgages payable
    
    
    2,794,204
    
    
    
    2,310,277Mortgages
payable  held-for-sale
    
    
    83,375
    
    
    
    83,375Accounts payable
    
    
    75,124
    
    
    
    53,366Accrued expenses and other liabilities
    
    
    416,637
    
    
    
    311,673Total liabilities
    
    
    7,056,002
    
    
    
    5,698,388Other common unitholders interest, at redemption
value (A-1 Common Units: 30,784,610 in 2006 and
33,910,022 in 2005)
    
    
    1,675,914
    
    
    
    1,420,491Unitholders equity:Perpetual Preferred Units
    
    
    50,000
    
    
    
    50,000Common unitholders equity (218,758,589 units in
2006 and 212,413,939 units in 2005)
    
    
    4,332,448
    
    
    
    4,300,019Accumulated other comprehensive income (loss)
    
    
    (7,033
    )
    
    
    (1,720
    )Total unitholders equity
    
    
    4,375,415
    
    
    
    4,348,299Total liabilities and unitholders equity
    
    $
    13,107,331
    
    
    $
    11,467,178
  3




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##### Table of Contents



Archstone-Smith Operating Trust
 
 Condensed Consolidated Statements of Earnings
 (In thousands, except per unit amounts)
 (Unaudited
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Rental revenues
    
    $
    299,366
    
    
    $
    222,744
    
    
    $
    828,065
    
    
    $
    604,105Other income
    
    
    27,299
    
    
    
    25,840
    
    
    
    57,100
    
    
    
    37,815326,665
    
    
    
    248,584
    
    
    
    885,165
    
    
    
    641,920Expenses:Rental expenses
    
    
    75,665
    
    
    
    51,707
    
    
    
    191,611
    
    
    
    145,805Real estate taxes
    
    
    25,748
    
    
    
    20,037
    
    
    
    76,806
    
    
    
    56,208Depreciation on real estate investments
    
    
    68,708
    
    
    
    53,916
    
    
    
    203,073
    
    
    
    146,605Interest expense
    
    
    72,751
    
    
    
    46,680
    
    
    
    186,833
    
    
    
    123,946General and administrative expenses
    
    
    18,497
    
    
    
    13,600
    
    
    
    49,794
    
    
    
    41,644Other expenses
    
    
    1,986
    
    
    
    5,538
    
    
    
    14,046
    
    
    
    37,047263,355
    
    
    
    191,478
    
    
    
    722,163
    
    
    
    551,255Earnings from operations
    
    
    63,310
    
    
    
    57,106
    
    
    
    163,002
    
    
    
    90,665Equity in earnings from unconsolidated entities
    
    
    2,088
    
    
    
    1,839
    
    
    
    31,484
    
    
    
    18,750Other non-operating income
    
    
    1,718
    
    
    
    72
    
    
    
    2,137
    
    
    
    28,855Net earnings before discontinued operations
    
    
    67,116
    
    
    
    59,017
    
    
    
    196,623
    
    
    
    138,270Net earnings from discontinued apartment communities
    
    
    82,995
    
    
    
    129,046
    
    
    
    290,134
    
    
    
    185,969Net earnings
    
    
    150,111
    
    
    
    188,063
    
    
    
    486,757
    
    
    
    324,239Preferred unit distributions
    
    
    (957
    )
    
    
    (958
    )
    
    
    (2,872
    )
    
    
    (3,614
    )Net earnings
attributable to Common Units  Basic
    
    $
    149,154
    
    
    $
    187,105
    
    
    $
    483,885
    
    
    $
    320,625Weighted average Common Units outstanding:Basic
    
    
    248,695
    
    
    
    232,794
    
    
    
    247,950
    
    
    
    226,778Diluted
    
    
    249,643
    
    
    
    233,996
    
    
    
    248,810
    
    
    
    227,803Earnings per
Common Unit  Basic:Earnings before discontinued operations
    
    $
    0.27
    
    
    $
    0.25
    
    
    $
    0.78
    
    
    $
    0.59Discontinued operations, net
    
    
    0.33
    
    
    
    0.55
    
    
    
    1.17
    
    
    
    0.82Net earnings
    
    $
    0.60
    
    
    $
    0.80
    
    
    $
    1.95
    
    
    $
    1.41Earnings per
Common Unit  Diluted:Earnings before discontinued operations
    
    $
    0.27
    
    
    $
    0.25
    
    
    $
    0.78
    
    
    $
    0.59Discontinued operations, net
    
    
    0.33
    
    
    
    0.55
    
    
    
    1.16
    
    
    
    0.82Net earnings
    
    $
    0.60
    
    
    $
    0.80
    
    
    $
    1.94
    
    
    $
    1.41Distributions paid per Common Unit
    
    $
    0.435
    
    
    $
    0.4325
    
    
    $
    1.305
    
    
    $
    1.2975
  4




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##### Table of Contents



Archstone-Smith Operating Trust
 Condensed Consolidated Statement of Unitholders Equity,
 
 Other Common Unitholders Interest and Comprehensive Income (Loss)
 Nine Months Ended September 30, 2006
 In thousands)
(Unaudited
 PerpetualPreferredUnits at
    
    
    
    
    
    
    AccumulatedAggregate
    
    
    Common
    
    
    Other
    
    
    
    
    
    
    Other CommonLiquidation
    
    
    Unitholders
    
    
    Comprehensive
    
    
    Total Unitholders
    
    
    UnitholdersPreference
    
    
    Equity
    
    
    Income (Loss)
    
    
    Equity
    
    
    Interest
    
    
    TotalBalances at December 31, 2005
    
    $
    50,000
    
    
    $
    4,300,019
    
    
    $
    (1,720
    )
    
    $
    4,348,299
    
    
    $
    1,420,491
    
    
    $
    5,768,790Comprehensive income:Net earnings
    
    
    
    
    
    
    422,541
    
    
    
    
    
    
    
    422,541
    
    
    
    64,216
    
    
    
    486,757Change in fair value of hedges
    
    
    
    
    
    
    
    
    
    
    (8,525
    )
    
    
    (8,525
    )
    
    
    
    
    
    
    (8,525
    )Change in fair value of
marketable securities
    
    
    
    
    
    
    
    
    
    
    1,415
    
    
    
    1,415
    
    
    
    
    
    
    
    1,415Foreign currency exchange
translation
    
    
    
    
    
    
    
    
    
    
    1,797
    
    
    
    1,797
    
    
    
    
    
    
    
    1,797Comprehensive income
attributable to Common Units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    481,444Preferred Unit distribution
    
    
    
    
    
    
    (2,872
    )
    
    
    
    
    
    
    (2,872
    )
    
    
    
    
    
    
    (2,872
    )Common Unit distributions
    
    
    
    
    
    
    (281,755
    )
    
    
    
    
    
    
    (281,755
    )
    
    
    (42,289
    )
    
    
    (324,044
    )A-1 Common
Units converted into A-2 Common Units
    
    
    
    
    
    
    107,758
    
    
    
    
    
    
    
    107,758
    
    
    
    (107,758
    )
    
    
    Exercise of Options
    
    
    
    
    
    
    29,441
    
    
    
    
    
    
    
    29,441
    
    
    
    
    
    
    
    29,441Accrual of equity-classified
awards under Compensation Plans
    
    
    
    
    
    
    5,670
    
    
    
    
    
    
    
    5,670
    
    
    
    
    
    
    
    5,670Issuance of A-1 Common Units
under Dividend Reinvestment Plans
    
    
    
    
    
    
    17,472
    
    
    
    
    
    
    
    17,472
    
    
    
    
    
    
    
    17,472Issuance of A-1 Common Units in
exchange for real estate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81,412
    
    
    
    81,412Adjustment to redemption value
    
    
    
    
    
    
    (259,842
    )
    
    
    
    
    
    
    (259,842
    )
    
    
    259,842
    
    
    
    Other, net
    
    
    
    
    
    
    (5,984
    )
    
    
    
    
    
    
    (5,984
    )
    
    
    
    
    
    
    (5,984
    )Balances at September 30, 2006
    
    $
    50,000
    
    
    $
    4,332,448
    
    
    $
    (7,033
    )
    
    $
    4,375,415
    
    
    $
    1,675,914
    
    
    $
    6,051,329
  5




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##### Table of Contents



Archstone-Smith Operating Trust
 
 Condensed Consolidated Statements of Cash Flows
 (In thousands)
(Unaudited
 Nine Months EndedSeptember 30,2006
    
    
    2005Operating activities:Net earnings
    
    $
    486,757
    
    
    $
    324,239Adjustments to reconcile net earnings to net cash flow provided by operating activities:Depreciation and amortization
    
    
    222,360
    
    
    
    181,087Gains on dispositions of depreciated real estate
    
    
    (314,246
    )
    
    
    (196,549
    )Gains on sale of marketable equity securities
    
    
    
    
    
    
    (27,948
    )Change in
swap value  DeWAG hedges
    
    
    1,407
    
    
    
    Provision for possible loss on investments
    
    
    4,328
    
    
    
    Undistributed equity in earnings from unconsolidated entities
    
    
    3,610
    
    
    
    (18,750
    )Interest accrued on Mezzanine loans
    
    
    (7,814
    )
    
    
    (3,308
    )Change in other assets
    
    
    14,757
    
    
    
    (29,022
    )Change in accounts payable, accrued expenses and other liabilities
    
    
    22,854
    
    
    
    22,721Other, net
    
    
    (6,733
    )
    
    
    (602
    )Net cash flow provided by operating activities
    
    
    427,280
    
    
    
    251,868Investing activities:Real estate investments
    
    
    (1,826,663
    )
    
    
    (1,599,629
    )Purchase of DeWAG net of cash acquired of $20,364
    
    
    (252,428
    )
    
    
    Change in investments in unconsolidated entities, net
    
    
    (67,523
    )
    
    
    23,488Proceeds from dispositions
    
    
    1,190,054
    
    
    
    812,206Change in restricted cash
    
    
    440,695
    
    
    
    55,515Change in notes receivable, net
    
    
    (83,592
    )
    
    
    (41,826
    )Other, net
    
    
    7,679
    
    
    
    (1,735
    )Net cash flow used in investing activities
    
    
    (591,778
    )
    
    
    (751,981
    )Financing activities:Proceeds from Long-Term Unsecured Debt, net
    
    
    859,385
    
    
    
    495,724Payments on Long-Term Unsecured Debt
    
    
    (31,250
    )
    
    
    (231,250
    )Proceeds from (payments on) unsecured credit facilities, net
    
    
    (368,864
    )
    
    
    187,007Principal repayment of mortgages payable, including prepayment penalties
    
    
    (220,410
    )
    
    
    (263,457
    )Regularly scheduled principal payments on mortgages payable
    
    
    (11,723
    )
    
    
    (9,392
    )Proceeds from term loan to fund DeWAG investment
    
    
    272,792
    
    
    
    Proceeds from mortgage notes payable
    
    
    
    
    
    
    655Proceeds from Issuance of Common Units, net
    
    
    
    
    
    
    491,440Proceeds from Common Units issued under DRIP and employee stock options
    
    
    46,913
    
    
    
    33,275Repurchase of Common Units and Preferred Units
    
    
    
    
    
    
    (56,495
    )Repurchase of Series E and F Perpetual Preferred Units
    
    
    
    
    
    
    (19,522
    )Cash distributions paid on Common Units
    
    
    (324,044
    )
    
    
    (312,568
    )Cash distributions paid on Preferred Units
    
    
    (2,872
    )
    
    
    (2,873
    )Other, net
    
    
    (16,987
    )
    
    
    (2,368
    )Net cash flow provided by financing activities
    
    
    202,940
    
    
    
    310,176Net change in cash and cash equivalents
    
    
    38,442
    
    
    
    (189,937
    )Cash and cash equivalents at beginning of period
    
    
    13,638
    
    
    
    203,255Cash and cash equivalents at end of period
    
    $
    52,080
    
    
    $
    13,318Significant non-cash investing and financing activities:A-1 Common Units issued in exchange for real estate
    
    $
    81,412
    
    
    $
    400,749N-1 and N-2 Convertible Redeemable Units issued in exchange for real estate
    
    
    
    
    
    
    250A-1 Common Units converted to A-2 Common Units
    
    
    107,758
    
    
    
    5,547Assumption of mortgages payable upon purchase of apartment communities
    
    
    728,484
    
    
    
    654,727
   6




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##### Table of Contents



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




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
  Goodwill and Other Intangibles
  Insurance Recoveries
  Legal Fees
  Foreign Currency Translation
  Derivative Financial Instruments
 Amendment of
Statement 133 on Derivative Instruments and Hedging Activities. 
 8




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
  Income Taxes
   Comprehensive Income
   Net Unrealized
    
    
    
    
    
    
    
    
    
    
    AccumulatedGains on
    
    
    
    
    
    
    Foreign
    
    
    OtherMarketable
    
    
    Cash Flow
    
    
    Currency
    
    
    ComprehensiveSecurities
    
    
    Hedges
    
    
    Translation
    
    
    Income (Loss)Balance at December 31, 2005
    
    $
    184
    
    
    $
    (1,612
    )
    
    $
    (292
    )
    
    $
    (1,720
    )Change in fair value of hedges
    
    
    
    
    
    
    (8,525
    )
    
    
    
    
    
    
    (8,525
    )Foreign currency exchange
translation and other
    
    
    
    
    
    
    
    
    
    
    1,797
    
    
    
    1,797Mark to market for marketable
equity securities
    
    
    1,415
    
    
    
    
    
    
    
    
    
    
    
    1,415Balance at September 30, 2006
    
    $
    1,599
    
    
    $
    (10,137
    )
    
    $
    1,505
    
    
    $
    (7,033
    )
 Per Unit Data
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net earnings attributable to Common Units  Basic and Diluted
    
    $
    149,154
    
    
    $
    187,105
    
    
    $
    483,885
    
    
    $
    320,625Weighted average number of Common UnitsOutstanding  Basic
    
    
    248,695
    
    
    
    232,794
    
    
    
    247,950
    
    
    
    226,778Assumed exercise of options
    
    
    948
    
    
    
    1,202
    
    
    
    860
    
    
    
    1,025Weighted average number of Common UnitsOutstanding  Diluted
    
    
    249,643
    
    
    
    233,996
    
    
    
    248,810
    
    
    
    227,803
 9




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 New Accounting Pronouncements
 Determining Whether a
General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain Rights
 Determining the
Variability to Be Considered in Applying FASB Interpretation No. 46(R). Consolidation
of Variable Interest Entities.
 Accounting for Uncertainty in
Income Taxes  An Interpretation of FASB Statement No. 109.
 ,
Financial Statements  Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements.
 Share-Based
Payment.
 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
  September 30,
    
    
    December 31,2006
    
    
    2005Investment
    
    
    InvestmentOperating Trust Apartment Communities:Operating communities
    
    $
    11,163,224
    
    
    $
    9,966,915Communities under construction
    
    
    683,330
    
    
    
    575,631Development communities In Planning(1)
    
    
    72,948
    
    
    
    24,365Total Operating Trust apartment communities
    
    
    11,919,502
    
    
    
    10,566,911Ameriton(1)
    
    
    503,887
    
    
    
    692,269International and other real estate assets(2)
    
    
    818,496
    
    
    
    100,084Total real estate
    
    $
    13,241,885
    
    
    $
    11,359,264
 
    Balance at December 31, 2005
    
    $
    11,359,264Acquisition-related expenditures (including DeWAG)
    
    
    2,313,142Redevelopment expenditures
    
    
    38,937Recurring capital expenditures
    
    
    32,677Development expenditures, including initial acquisition costs
    
    
    270,514Acquisition of land for development
    
    
    193,451Dispositions
    
    
    (981,345
    )Provision for possible loss on investment
    
    
    (4,328
    )Change in estimated hurricane retirements
    
    
    4,496Other
    
    
    6,875Net apartment community activity
    
    
    1,874,419Change in other real estate assets
    
    
    8,202Balance at September 30, 2006
    
    $
    13,241,885
  11




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 (3) DeWAG Acquisition
   Real estate
    
    $
    646,285Other assets
    
    
    67,722Intangible assets
    
    
    30,958Goodwill
    
    
    34,490Total assets
    
    $
    779,455Mortgages payable
    
    $
    407,933Other liabilities
    
    
    10,759Deferred tax liability
    
    
    69,327Intangible liabilities
    
    
    20,514Total liabilities
    
    
    508,533Net assets acquired
    
    $
    270,922
  WeightedGross
    
    
    
    
    
    
    AverageCarrying
    
    
    Accumulated
    
    
    Useful LifeAmount
    
    
    Amortization
    
    
    (in years)Non-compete agreements
    
    $
    18,776
    
    
    $
    (1,174
    )
    
    
    4In-place leases
    
    
    12,182
    
    
    
    (761
    )
    
    
    4Total intangible assets
    
    $
    30,958
    
    
    $
    (1,935
    )Below-market leases
    
    $
    20,514
    
    
    $
    (1,282
    )
    
    
    4Total intangible liabilities
    
    $
    20,514
    
    
    $
    (1,282
    )
 12




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 Estimated net amortization for the year ended2006
    
    $
    1,3052007
    
    $
    2,6112008
    
    $
    2,6112009
    
    $
    2,6112010
    
    $
    1,306
  (4) Discontinued Operations
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Rental revenues
    
    $
    7,169
    
    
    $
    41,766
    
    
    $
    53,841
    
    
    $
    133,957Rental expenses
    
    
    (3,351
    )
    
    
    (14,064
    )
    
    
    (20,618
    )
    
    
    (44,578
    )Real estate taxes
    
    
    (436
    )
    
    
    (5,584
    )
    
    
    (6,443
    )
    
    
    (17,216
    )Depreciation on real estate investments
    
    
    (951
    )
    
    
    (7,321
    )
    
    
    (9,439
    )
    
    
    (28,137
    )Interest expense(1)
    
    
    (1,289
    )
    
    
    (10,143
    )
    
    
    (13,044
    )
    
    
    (34,239
    )Estimated income taxes (Ameriton properties)
    
    
    (1,256
    )
    
    
    (9,990
    )
    
    
    (11,855
    )
    
    
    (13,206
    )Provision for possible loss on real estate investment
    
    
    
    
    
    
    
    
    
    
    (4,328
    )
    
    
    Debt extinguishment costs related to dispositions
    
    
    (825
    )
    
    
    (8
    )
    
    
    (7,589
    )
    
    
    (5,264
    )Gains from the disposition of Ameriton real estate investments, net
    
    
    4,631
    
    
    
    39,940
    
    
    
    55,286
    
    
    
    61,597Internal Disposition Costs  Ameriton transactions(2)
    
    
    (414
    )
    
    
    (93
    )
    
    
    (3,543
    )
    
    
    (1,047
    )Gains from
the disposition of Operating Trust real estate investments, net
    
    
    79,984
    
    
    
    94,755
    
    
    
    258,960
    
    
    
    134,952Internal Disposition Costs  Operating Trust transactions(2)
    
    
    (267
    )
    
    
    (212
    )
    
    
    (1,094
    )
    
    
    (850
    )Earnings from discontinued apartment communities
    
    $
    82,995
    
    
    $
    129,046
    
    
    $
    290,134
    
    
    $
    185,969
 
 (1)
    
    The portion of interest expense included in discontinued operations that is allocated
to properties based on the companys leverage ratio was $0.3 million and $7.4 million for
the three months ended September 30, 2006 and 2005, and $6.7 million and $24.9 million for
the nine months ended September 30, 2006 and 2005, respectively.(2)
    
    Represents the direct and incremental compensation and related costs associated with
the employees dedicated to our significant disposition activity. 13




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 Accounting for the Impairment or Disposal of Long-Lived Assets
 (5) Investments in and Advances to Unconsolidated Entities
 Real Estate Joint Ventures
   September 30,
    
    
    December 31,2006
    
    
    2005Assets:Real estate
    
    $
    1,372,103
    
    
    $
    1,142,921Other assets
    
    
    249,006
    
    
    
    244,557Total assets
    
    $
    1,621,109
    
    
    $
    1,387,478Liabilities and owners equity:Inter-company debt payable to Operating Trust
    
    $
    273
    
    
    $
    2,324Mortgages payable(1)
    
    
    999,438
    
    
    
    894,300Other liabilities
    
    
    202,907
    
    
    
    120,898Total liabilities
    
    
    1,202,618
    
    
    
    1,017,522Owners equity
    
    
    418,491
    
    
    
    369,956Total liabilities and owners equity
    
    $
    1,621,109
    
    
    $
    1,387,478
 
 (1)
    
    The Operating Trust guarantees $289.2 million of the outstanding debt balance as of
September 30, 2006.  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Operating Trust Joint Ventures
Revenues
    
    $
    35,662
    
    
    $
    30,723
    
    
    $
    99,634
    
    
    $
    96,875Net Earnings(1)
    
    
    8,225
    
    
    
    9,547
    
    
    
    40,261
    
    
    
    36,279Ameriton Joint Ventures
Revenues
    
    $
    53
    
    
    $
    793
    
    
    $
    276
    
    
    $
    3,056Net Earnings(2)
    
    
    (136
    )
    
    
    (595
    )
    
    
    18,185
    
    
    
    11,339Total Revenues
    
    $
    35,715
    
    
    $
    31,516
    
    
    $
    99,910
    
    
    $
    99,931Net Earnings
    
    $
    8,089
    
    
    $
    8,952
    
    
    $
    58,446
    
    
    $
    47,618
 
 (1)
    
    Includes gains associated with the disposition of Operating Trust Joint Venture
assets of $9.3 million and $9.5 million for the three months ended September 30, 2006 and
2005, and $37.1 million and $31.5 million for the nine months ended September 30, 2006 and
2005, respectively.(2)
    
    Includes Ameritons share of pre-tax gains associated with the disposition of real
estate joint venture assets. There were no gains for the three months ended September 30,
2006 and the gains were $0.3 14




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
   (6) Mortgage and Other Notes Receivable
  Balance at December 31, 2005
    
    $
    74,396Funding of additional notes
    
    
    85,077Accrued interest
    
    
    7,814Balance at September 30, 2006
    
    $
    167,287
  (7) Borrowings
 Unsecured Credit Facilities
   As of and for theNine Months
    
    As of and for theEnded
    
    Year EndedSeptember 30,
    
    December 31,2006
    
    2005Total unsecured revolving credit facility
    
    $
    600,000
    
    
    $
    600,000Borrowings outstanding at end of period
    
    
    21,000
    
    
    
    360,000Outstanding letters of credit under this facility
    
    
    44,945
    
    
    
    37,813Weighted average daily borrowings
    
    
    36,541
    
    
    
    183,434Maximum borrowings outstanding during the period
    
    
    360,000
    
    
    
    580,000Weighted average daily nominal interest rate
    
    
    5.47
    %
    
    
    3.95
    %Weighted average daily effective interest rate
    
    
    5.68
    %
    
    
    4.25
    %
  15




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
  Term Loan  International
  Long-Term Unsecured Debt
  Effective
    
    
    
    
    
    
    
    
    
    
    AverageCoupon
    
    
    Interest
    
    
    Balance at
    
    
    Balance at
    
    
    RemainingType
of Debt
    
    Rate(1)
    
    
    Rate(1) (2)
    
    
    September 30, 2006
    
    
    December 31, 2005
    
    
    Life (Years)Long-term unsecured
senior notes
    
    
    5.44
    %
    
    
    5.60
    %
    
    $
    3,311,565
    
    
    $
    2,468,047
    
    
    
    11.46Unsecured tax-exempt bonds
    
    
    4.01
    %
    
    
    4.25
    %
    
    
    76,591
    
    
    
    77,072
    
    
    
    16.85Total/Weighted average
    
    
    5.40
    %
    
    
    5.57
    %
    
    $
    3,388,156
    
    
    $
    2,545,119
    
    
    
    11.58
 
 (1)
    
    Represents a fixed rate for the long-term unsecured notes and a variable rate for the
unsecured tax-exempt bonds.(2)
    
    Includes the effect of fair value hedges, loan cost amortization and other ongoing fees and
expenses, where applicable.
   16




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 Mortgages payable
   Outstanding Balance at(1)Effective InterestSeptember 30, 2006
    
    
    December 31, 2005
    
    
    Rate(2)Secured floating rate debt:Tax-exempt debt
    
    $
    1,010,466
    
    
    $
    839,318
    
    
    
    4.7
    %Conventional mortgages
    
    
    184,703
    
    
    
    54,455
    
    
    
    5.5
    %Total Floating
    
    
    1,195,169
    
    
    
    893,773
    
    
    
    4.8
    %Secured fixed rate debt:Tax-exempt debt
    
    
    3,086
    
    
    
    
    
    
    
    6.3
    %Conventional mortgages
    
    
    1,660,350
    
    
    
    1,480,170
    
    
    
    6.0
    %Other secured debt
    
    
    18,974
    
    
    
    19,709
    
    
    
    4.1
    %Total Fixed
    
    
    1,682,410
    
    
    
    1,499,879
    
    
    
    6.0
    %Total mortgages payable
    
    $
    2,877,579
    
    
    $
    2,393,652
    
    
    
    5.52
    %
 
 (1)
    
    Includes the unamortized fair market value adjustment associated with assumption of fixed
rate mortgages in connection with real estate acquisitions. The unamortized balance
aggregated $47.0 million and $63.5 million at September 30, 2006 and December 31, 2005
respectively, and is being amortized into interest expense over the life of the underlying
debt.(2)
    
    Includes the effect of fair value hedges, credit enhancement fees, the amortization of fair
market value purchase adjustment, and other related costs, where applicable.
  Balance at December 31, 2005
    
    $
    2,393,652Mortgage assumptions related to property acquisitions
    
    
    728,484Regularly scheduled principal amortization
    
    
    (11,723
    )Prepayments, final maturities and other
    
    
    (232,834
    )Balance at September 30, 2006
    
    $
    2,877,579
 Other
   17




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 (8) Distributions to Unitholders
  Quarterly
    
    
    AnnualizedCash
    
    
    CashDistribution
    
    
    DistributionPer Unit
    
    
    Per UnitCommon Units and A-1 Units
    
    $
    0.435
    
    
    $
    1.74Series I Perpetual Preferred Units(1)
    
    
    1,915
    
    
    
    7,660
 
 (1)
    
    Series I Preferred Units have a par value of $100,000 per unit. (9) Benefit Plans and Implementation of SFAS 123R
 Share-Based Payment. Accounting for Stock-Based Compensation, Accounting for Stock Issued to Employees.
    18




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
  Option Awards
    
    RSU AwardsWeighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average GrantOptions
    
    Exercise Price
    
    Units
    
    PriceBalance, December 31, 2005
    
    
    2,702,026
    
    
    $
    24.94
    
    
    
    948,735
    
    
    $
    27.77Granted
    
    
    424,523
    
    
    
    45.58
    
    
    
    226,666
    
    
    
    45.58Exercised/Settled
    
    
    942,485
    
    
    
    23.28
    
    
    
    35,905
    
    
    
    24.56Forfeited
    
    
    21,895
    
    
    
    34.29
    
    
    
    4,712
    
    
    
    31.84Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, March 31, 2006
    
    
    2,162,169
    
    
    $
    29.56
    
    
    
    1,134,784
    
    
    $
    31.42Granted
    
    
    1,048
    
    
    
    47.70
    
    
    
    18,193
    
    
    
    47.70Exercised/Settled
    
    
    89,307
    
    
    
    24.35
    
    
    
    23,129
    
    
    
    25.16Forfeited
    
    
    18,633
    
    
    
    34.49
    
    
    
    12,048
    
    
    
    35.00Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, June 30, 2006
    
    
    2,055,277
    
    
    $
    29.80
    
    
    
    1,117,800
    
    
    $
    31.76Granted
    
    
    1,406
    
    
    
    53.36
    
    
    
    1,315
    
    
    
    54.52Exercised/Settled
    
    
    69,231
    
    
    
    27.82
    
    
    
    10,673
    
    
    
    19.16Forfeited
    
    
    4,598
    
    
    
    43.85
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, September 30, 2006
    
    
    1,982,854
    
    
    $
    29.87
    
    
    
    1,108,442
    
    
    $
    31.80
  Options
   19




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
  Restricted Share Units
   Special Long Term Incentive Plan
  Summary
  (10) Segment Data
   20




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Reportable apartment communities segment revenues:Same-Store:Garden communities
    
    $
    119,798
    
    
    $
    111,457
    
    
    $
    338,297
    
    
    $
    317,532High-rise properties
    
    
    76,863
    
    
    
    71,729
    
    
    
    220,857
    
    
    
    207,707Non Same-Store and other:Garden communities
    
    
    45,810
    
    
    
    19,599
    
    
    
    137,067
    
    
    
    36,718High-rise communities
    
    
    36,398
    
    
    
    15,527
    
    
    
    96,594
    
    
    
    33,418Ameriton communities(1)
    
    
    2,958
    
    
    
    1,564
    
    
    
    7,199
    
    
    
    4,435International and other non-reportable operating
segment revenues
    
    
    17,539
    
    
    
    2,868
    
    
    
    28,051
    
    
    
    4,295Total segment and consolidated rental revenues
    
    $
    299,366
    
    
    $
    222,744
    
    
    $
    828,065
    
    
    $
    604,105
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Reportable apartment communities segment NOI:Same-Store:Garden communities
    
    $
    80,814
    
    
    $
    76,826
    
    
    $
    232,862
    
    
    $
    216,317High-rise communities
    
    
    51,675
    
    
    
    48,260
    
    
    
    150,524
    
    
    
    137,102Non Same-Store and other:Garden communities
    
    
    29,622
    
    
    
    13,468
    
    
    
    91,073
    
    
    
    23,583High-rise communities
    
    
    22,913
    
    
    
    9,788
    
    
    
    63,672
    
    
    
    19,993Ameriton communities(1)
    
    
    1,487
    
    
    
    546
    
    
    
    3,446
    
    
    
    1,742International and other non-reportable operating
segment NOI
    
    
    11,442
    
    
    
    2,112
    
    
    
    18,071
    
    
    
    3,355Total segment NOI
    
    
    197,953
    
    
    
    151,000
    
    
    
    559,648
    
    
    
    402,092Reconciling items:Other income
    
    
    27,299
    
    
    
    25,840
    
    
    
    57,100
    
    
    
    37,815Depreciation on real estate investments
    
    
    (68,708
    )
    
    
    (53,916
    )
    
    
    (203,073
    )
    
    
    (146,605
    )Interest expense
    
    
    (72,751
    )
    
    
    (46,680
    )
    
    
    (186,833
    )
    
    
    (123,946
    )General and administrative expenses
    
    
    (18,497
    )
    
    
    (13,600
    )
    
    
    (49,794
    )
    
    
    (41,644
    )Other expenses
    
    
    (1,986
    )
    
    
    (5,538
    )
    
    
    (14,046
    )
    
    
    (37,047
    )Consolidated earnings from operations
    
    $
    63,310
    
    
    $
    57,106
    
    
    $
    163,002
    
    
    $
    90,665
 
 (1)
    
    While rental revenue and NOI are the primary measures we use to evaluate the
performance of our assets, management also utilizes gains from the disposition of real
estate when evaluating the performance of Ameriton as its primary focus is the
opportunistic acquisition, development and eventual disposition of real estate with a short
term investment horizon. Pre-tax gains from the disposition of Ameriton operating assets
were $4.2 million and $39.8 million for the three months ended September 30, 2006 and 2005,
and $51.7 million and $60.6 million for the nine months ended September 30, 2006 and 2005,
respectively. These gains are classified within discontinued operations. Additionally,
Ameriton had gains from the sale of unconsolidated joint venture assets that are classified
within income from unconsolidated entities and gains from land sales that are classified
within other income. Ameriton assets are excluded from our Same-Store population as they
are acquired or developed to achieve short-term opportunistic gains, and therefore, the
average holding period is typically much shorter than the holding period of assets operated
by the Operating Trust. 21




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 September 30,
    
    
    December 31,2006
    
    
    2005Reportable operating communities segment assets, net:Same-Store:Garden communities
    
    $
    3,034,848
    
    
    $
    3,067,033High-rise communities
    
    
    2,542,689
    
    
    
    2,572,512Non Same-Store, Under Development and other:Garden communities
    
    
    2,866,398
    
    
    
    2,570,585High-rise communities
    
    
    2,408,715
    
    
    
    1,419,177Ameriton communities
    
    
    407,967
    
    
    
    599,404ADA settlement accrual
    
    
    35,439
    
    
    
    47,198International and other non-reportable operating
segment assets
    
    
    883,784
    
    
    
    121,812Total segment assets
    
    
    12,179,840
    
    
    
    10,397,721Real estate held-for-sale
    
    
    127,387
    
    
    
    124,850Total segment assets
    
    
    12,307,227
    
    
    
    10,522,571Reconciling items:Investment in and advances to unconsolidated entities
    
    
    212,884
    
    
    
    132,728Cash and cash equivalents
    
    
    52,080
    
    
    
    13,638Restricted cash in tax-deferred exchange escrow
    
    
    54,579
    
    
    
    495,274Other assets
    
    
    480,561
    
    
    
    302,967Consolidated total assets
    
    $
    13,107,331
    
    
    $
    11,467,178
  (11) Litigation and Contingencies
   22




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
    23




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
 24




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following information should be read in conjunction with Archstone-Smith Operating Trusts
2005 Form 10-K as well as the financial statements and notes included in Item 1 of this report.
 Forward-Looking Statements
 Certain statements in this Form 10-Q that are not historical facts are forward-looking
statements as that term is defined under the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on our current expectations, beliefs, assumptions,
estimates and projections about the industry and markets in which we operate. Words such as
expects, anticipates, intends, plans, believes, seeks, estimates and variations of
such words and similar expressions are intended to identify such forward-looking statements.
Information concerning expected investment balances, expected funding sources, planned investments,
forecasted dates and revenue and expense growth assumptions are examples of forward-looking
statements. These statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions, which are difficult to predict and many of which are beyond our
control. Therefore, actual outcomes and results may differ materially from what is expressed,
forecasted or implied in such forward-looking statements. We undertake no obligation to update
publicly any forward-looking statements, whether as a result of new information, future events or
otherwise, except as required by applicable law.
 Our operating results depend primarily on income from apartment communities, which is
substantially influenced by supply and demand for apartment units, operating expense levels,
property level operations and the pace and price at which we can develop, acquire or dispose of
apartment communities. Capital and credit market conditions, which affect our cost of capital,
also influence operating results. See Archstone-Smith Operating Trusts 2005 Form 10-K , Item 1.
Business, for a more complete discussion of risk factors that could impact our future financial
performance.
 The Company
  Results of Operations
 Executive Summary
  
    
    NOI increased significantly due primarily to net acquisition activity, including the
Oakwood and DeWAG transactions and an increase of 5.9% in NOI for our Same-Store
communities.
    
    Other income was higher due primarily to higher interest income attributable to our
mezzanine loan financing activities and increased cash balances that resulted primarily
from our convertible debt issuance and 1031 exchange disposition transactions, as well
as an $11.0 million gain on the sale of Ameriton land, which were partially offset by
$21.3 million in insurance recoveries in 2005.
    
    The higher depreciation and interest expense was due to the increase in the size of
the real estate portfolio and the related financing activities, respectively. Rising
interest rates also influenced the increase in interest expense.
    
    General and administrative expenses increased principally as a result of our
international expansion.
    
    Other expenses were lower in 2006 due principally to a $4.6 million litigation
charge recorded in 2005.
    
    Non-operating income for the quarter ended September 30, 2006 was higher due to the
receipt of contingent proceeds related to the prior sale of our Rent.com investment in
2005.
    
    The decrease in net earnings from discontinued operations was driven principally by
lower gains as a result of fewer asset sales from the disposition of real estate in
2006.
 25




---



##### Table of Contents




    
    NOI increased significantly due primarily to net acquisition activity, including the
Oakwood and DeWAG transactions, and an increase of 8.5% in NOI for our Same-Store
communities.
    
    Other income was higher in 2006 due primarily to (i) higher gains on the sale of land
(ii) higher interest income attributable to our mezzanine loan financing activities as well
as higher cash balances resulting primarily from our convertible debt offering in July and
1031 exchange disposition transactions, partially offset by (iii) higher moisture
infiltration-related insurance recoveries in 2005.
    
    The higher depreciation and interest expense was due to the increase in size of the real
estate portfolio and the related financing activities, respectively. Rising interest rates
also influenced the increase in interest expense.
    
    General and administrative expenses increased principally as a result of our
international expansion.
    
    Other expenses were lower due primarily to higher debt extinguishment costs and the
settlement of the FHA/ADA lawsuit in 2005, partially offset by aggregate impairments of
$4.3 million on a non-core asset in 2006.
    
    Income from unconsolidated entities was higher for the nine months ended September 30,
2006 due to more income from community dispositions and related venture liquidations.
    
    Non-operating income was lower in 2006 due to higher gains on the sale of our Rent.com
investment and marketable securities in 2005.
    
    The increase in net earnings from discontinued operations was driven principally by
greater gains as a result of more asset sales from the disposition of real estate partially
offset by reduced net operating income in 2006 as a result of dispositions.
 Reconciliation of Quantitative Summary to Consolidated Statements of Earnings
  Three Months Ended September 30, 2006
    
    
    Three Months Ended September 30, 2005Continuing
    
    
    Discontinued
    
    
    
    
    
    
    Continuing
    
    
    DiscontinuedOperations
    
    
    Operations
    
    
    Total
    
    
    Operations
    
    
    Operations
    
    
    TotalRental revenue
    
    $
    299,366
    
    
    $
    7,169
    
    
    $
    306,535
    
    
    $
    222,744
    
    
    $
    41,766
    
    
    $
    264,510Other income
    
    
    27,299
    
    
    
    
    
    
    
    27,299
    
    
    
    25,840
    
    
    
    
    
    
    
    25,840Property operating
expenses (rental
expenses and real
estate taxes)
    
    
    (101,413
    )
    
    
    (3,787
    )
    
    
    (105,200
    )
    
    
    (71,744
    )
    
    
    (19,648
    )
    
    
    (91,392
    )Depreciation on
real estate
investments
    
    
    (68,708
    )
    
    
    (951
    )
    
    
    (69,659
    )
    
    
    (53,916
    )
    
    
    (7,321
    )
    
    
    (61,237
    )Interest expense
    
    
    (72,751
    )
    
    
    (1,289
    )
    
    
    (74,040
    )
    
    
    (46,680
    )
    
    
    (10,143
    )
    
    
    (56,823
    )General and
administrative
expenses
    
    
    (18,497
    )
    
    
    
    
    
    
    (18,497
    )
    
    
    (13,600
    )
    
    
    
    
    
    
    (13,600
    )Other expense
    
    
    (1,986
    )
    
    
    (2,081
    )
    
    
    (4,067
    )
    
    
    (5,538
    )
    
    
    (9,998
    )
    
    
    (15,536
    )Income from
unconsolidated
entities
    
    
    2,088
    
    
    
    
    
    
    
    2,088
    
    
    
    1,839
    
    
    
    
    
    
    
    1,839Other non-operating
income
    
    
    1,718
    
    
    
    
    
    
    
    1,718
    
    
    
    72
    
    
    
    
    
    
    
    72Gains, net of
disposition costs
    
    
    
    
    
    
    83,934
    
    
    
    83,934
    
    
    
    
    
    
    
    134,390
    
    
    
    134,390Net earnings
    
    $
    67,116
    
    
    $
    82,995
    
    
    $
    150,111
    
    
    $
    59,017
    
    
    $
    129,046
    
    
    $
    188,063
 26




---



##### Table of Contents



Nine Months Ended September 30, 2006
    
    

Nine Months Ended September 30, 2005Continuing
    
    
    Discontinued
    
    
    
    
    
    
    Continuing
    
    
    DiscontinuedOperations
    
    
    Operations
    
    
    Total
    
    
    Operations
    
    
    Operations
    
    
    TotalRental revenue
    
    $
    828,065
    
    
    $
    53,841
    
    
    $
    881,906
    
    
    $
    604,105
    
    
    $
    133,957
    
    
    $
    738,062Other income
    
    
    57,100
    
    
    
    
    
    
    
    57,100
    
    
    
    37,815
    
    
    
    
    
    
    
    37,815Property operating
expenses (rental
expenses and real
estate taxes)
    
    
    (268,417
    )
    
    
    (27,061
    )
    
    
    (295,478
    )
    
    
    (202,013
    )
    
    
    (61,794
    )
    
    
    (263,807
    )Depreciation on
real estate
investments
    
    
    (203,073
    )
    
    
    (9,439
    )
    
    
    (212,512
    )
    
    
    (146,605
    )
    
    
    (28,137
    )
    
    
    (174,742
    )Interest expense
    
    
    (186,833
    )
    
    
    (13,044
    )
    
    
    (199,877
    )
    
    
    (123,946
    )
    
    
    (34,239
    )
    
    
    (158,185
    )General and
administrative
expenses
    
    
    (49,794
    )
    
    
    
    
    
    
    (49,794
    )
    
    
    (41,644
    )
    
    
    
    
    
    
    (41,644
    )Other expense
    
    
    (14,046
    )
    
    
    (23,772
    )
    
    
    (37,818
    )
    
    
    (37,047
    )
    
    
    (18,470
    )
    
    
    (55,517
    )Income from
unconsolidated
entities
    
    
    31,484
    
    
    
    
    
    
    
    31,484
    
    
    
    18,750
    
    
    
    
    
    
    
    18,750Other non-operating
income
    
    
    2,137
    
    
    
    
    
    
    
    2,137
    
    
    
    28,855
    
    
    
    
    
    
    
    28,855Gains, net of
disposition costs
    
    
    
    
    
    
    309,609
    
    
    
    309,609
    
    
    
    
    
    
    
    194,652
    
    
    
    194,652Net earnings
    
    $
    196,623
    
    
    $
    290,134
    
    
    $
    486,757
    
    
    $
    138,270
    
    
    $
    185,969
    
    
    $
    324,239
 Quantitative Summary
 including
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    Variance
    
    
    2006
    
    
    2005
    
    
    VarianceRental revenues:Same-Store(1)
    
    $
    198,609
    
    
    $
    185,017
    
    
    $
    13,592
    
    
    $
    564,825
    
    
    $
    530,612
    
    
    $
    34,213Non Same-Store and other
    
    
    87,094
    
    
    
    69,572
    
    
    
    17,522
    
    
    
    272,071
    
    
    
    177,808
    
    
    
    94,263Ameriton
    
    
    3,293
    
    
    
    7,053
    
    
    
    (3,760
    )
    
    
    16,959
    
    
    
    25,346
    
    
    
    (8,387
    )Non-multifamily
    
    
    2,848
    
    
    
    2,868
    
    
    
    (20
    )
    
    
    9,378
    
    
    
    4,296
    
    
    
    5,082International
    
    
    14,691
    
    
    
    
    
    
    
    14,691
    
    
    
    18,673
    
    
    
    
    
    
    
    18,673Total rental revenues
    
    
    306,535
    
    
    
    264,510
    
    
    
    42,025
    
    
    
    881,906
    
    
    
    738,062
    
    
    
    143,844Property operating expenses
(rental expenses and real
estate taxes):Same-Store(1)
    
    
    65,047
    
    
    
    58,907
    
    
    
    (6,140
    )
    
    
    178,323
    
    
    
    174,242
    
    
    
    (4,081
    )Non Same-Store and other
    
    
    32,415
    
    
    
    27,762
    
    
    
    (4,653
    )
    
    
    98,503
    
    
    
    75,771
    
    
    
    (22,732
    )Ameriton
    
    
    1,641
    
    
    
    3,966
    
    
    
    2,325
    
    
    
    8,672
    
    
    
    12,853
    
    
    
    4,181Non-multifamily
    
    
    1,243
    
    
    
    757
    
    
    
    (486
    )
    
    
    2,845
    
    
    
    941
    
    
    
    (1,904
    )International
    
    
    4,854
    
    
    
    
    
    
    
    (4,854
    )
    
    
    7,135
    
    
    
    
    
    
    
    (7,135
    )Total property operating
expenses
    
    
    105,200
    
    
    
    91,392
    
    
    
    (13,808
    )
    
    
    295,478
    
    
    
    263,807
    
    
    
    (31,671
    )Net operating income
(rental revenues less property
operating expenses)
    
    
    201,335
    
    
    
    173,118
    
    
    
    28,217
    
    
    
    586,428
    
    
    
    474,255
    
    
    
    112,173
 27




---



##### Table of Contents



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2006
    
    
    2005
    
    
    Variance
    
    
    2006
    
    
    2005
    
    
    VarianceMargin(NOI/rental revenues):
    
    
    65.7
    %
    
    
    65.4
    %
    
    
    .3
    %
    
    
    66.5
    %
    
    
    64.3
    %
    
    
    2.2
    %Average occupancy during
period:(2)
    
    
    95.0
    %
    
    
    95.2
    %
    
    
    (0.2
    %)
    
    
    94.9
    %
    
    
    94.6
    %
    
    
    0.3
    %Other income
    
    
    27,299
    
    
    
    25,840
    
    
    
    1,459
    
    
    
    57,100
    
    
    
    37,815
    
    
    
    19,285Depreciation of real estate
investments
    
    
    69,659
    
    
    
    61,237
    
    
    
    (8,422
    )
    
    
    212,512
    
    
    
    174,742
    
    
    
    (37,770
    )Interest expense
    
    
    87,370
    
    
    
    66,685
    
    
    
    (20,685
    )
    
    
    239,515
    
    
    
    185,529
    
    
    
    (53,986
    )Capitalized interest
    
    
    13,330
    
    
    
    9,862
    
    
    
    3,468
    
    
    
    39,638
    
    
    
    27,344
    
    
    
    12,294Net interest expense
    
    
    74,040
    
    
    
    56,823
    
    
    
    (17,217
    )
    
    
    199,877
    
    
    
    158,185
    
    
    
    (41,692
    )General and administrative
expenses
    
    
    18,497
    
    
    
    13,600
    
    
    
    (4,897
    )
    
    
    49,794
    
    
    
    41,644
    
    
    
    (8,150
    )Other expense
    
    
    4,067
    
    
    
    15,536
    
    
    
    11,469
    
    
    
    37,818
    
    
    
    55,517
    
    
    
    17,699Earnings from continuing and
discontinued operations
    
    
    62,371
    
    
    
    51,762
    
    
    
    10,609
    
    
    
    143,527
    
    
    
    81,982
    
    
    
    61,545Equity in earnings from
unconsolidated entities
    
    
    2,088
    
    
    
    1,839
    
    
    
    249
    
    
    
    31,484
    
    
    
    18,750
    
    
    
    12,734Other non-operating income
    
    
    1,718
    
    
    
    72
    
    
    
    1,646
    
    
    
    2,137
    
    
    
    28,855
    
    
    
    (26,718
    )Gains on disposition of real
estate investments, net of
disposition costsTaxable subsidiaries
    
    
    4,217
    
    
    
    39,847
    
    
    
    (35,630
    )
    
    
    51,743
    
    
    
    60,550
    
    
    
    (8,807
    )REIT
    
    
    79,717
    
    
    
    94,543
    
    
    
    (14,826
    )
    
    
    257,866
    
    
    
    134,102
    
    
    
    123,764Net earnings
    
    $
    150,111
    
    
    $
    188,063
    
    
    $
    (37,952
    )
    
    $
    486,757
    
    
    $
    324,239
    
    
    $
    162,518
 
 (1)
    
    Reflects revenues and operating expenses for Same-Store communities that were owned on
September 30, 2006 and fully operating during both of the comparison periods.(2)
    
    Does not include occupancy associated with properties owned by Ameriton, located in
Germany or operated under the Oakwood Master Leases. Property-level operating results
  Same-Store Analysis
  Same-Store ExpenseSame-Store Revenue Growth
    
    Growth/(Decline)
    
    Same-Store NOI GrowthQ3 2006 vs.
    
    YTD 2006 vs.
    
    Q3 2006 vs.
    
    YTD 2006 vs.
    
    Q3 2006 vs.
    
    YTD 2006 vs.Q3 2005
    
    YTD 2005
    
    Q3 2005
    
    YTD 2005
    
    Q3 2005
    
    YTD 2005Garden
    
    
    7.5
    %
    
    
    6.5
    %
    
    
    12.6
    %
    
    
    4.1
    %
    
    
    5.2
    %
    
    
    7.7
    %High-Rise
    
    
    7.2
    %
    
    
    6.3
    %
    
    
    7.3
    %
    
    
    (.2
    )%
    
    
    7.1
    %
    
    
    9.7
    %Total
    
    
    7.3
    %
    
    
    6.4
    %
    
    
    10.4
    %
    
    
    2.3
    %
    
    
    5.9
    %
    
    
    8.5
    %
  28




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##### Table of Contents



Non Same-Store and Other Analysis
    Ameriton
  International
  Other Income
  29




---



##### Table of Contents



Depreciation Expense
  Interest Expense
  Other Expenses
   General and Administrative Expenses
  Equity in Earnings from Unconsolidated Entities
  Other Non-Operating Income
  Gains on Real Estate Dispositions
  Discontinued Operations Analysis
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Rental revenues
    
    $
    7,169
    
    
    $
    41,766
    
    
    $
    53,841
    
    
    $
    133,957Rental expenses
    
    
    (3,351
    )
    
    
    (14,064
    )
    
    
    (20,618
    )
    
    
    (44,578
    )Real estate taxes
    
    
    (436
    )
    
    
    (5,584
    )
    
    
    (6,443
    )
    
    
    (17,216
    )Depreciation on real estate investments
    
    
    (951
    )
    
    
    (7,321
    )
    
    
    (9,439
    )
    
    
    (28,137
    )Interest expense(1)
    
    
    (1,289
    )
    
    
    (10,143
    )
    
    
    (13,044
    )
    
    
    (34,239
    )Income taxes from taxable REIT subsidiaries
    
    
    (1,256
    )
    
    
    (9,990
    )
    
    
    (11,855
    )
    
    
    (13,206
    )
 30




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Provision for possible loss on real estate investment
    
    
    
    
    
    
    
    
    
    
    (4,328
    )
    
    
    Debt extinguishment costs related to dispositions
    
    
    (825
    )
    
    
    (8
    )
    
    
    (7,589
    )
    
    
    (5,264
    )Gains on disposition of real estate investments, net
of disposition costs:Taxable subsidiaries
    
    
    4,217
    
    
    
    39,847
    
    
    
    51,743
    
    
    
    60,550REIT
    
    
    79,717
    
    
    
    94,543
    
    
    
    257,866
    
    
    
    134,102Total discontinued operations
    
    $
    82,995
    
    
    $
    129,046
    
    
    $
    290,134
    
    
    $
    185,969Number of communities sold during the period
    
    
    5
    
    
    
    7
    
    
    
    28
    
    
    
    16Number of sold communities included in discontinued
operations NOI
    
    
    5
    
    
    
    50
    
    
    
    27
    
    
    
    56Number of communities classified as held-for-sale
and included in discontinued operations NOI
as of September 30, 2006
    
    
    4
    
    
    
    2
    
    
    
    4
    
    
    
    2
 
 (1)
    
    The portion of interest expense included in discontinued operations that is allocated to
properties based on the companys leverage ratio was $0.3 million and $7.4 million for the
three months ended September 30, 2006 and 2005, and $6.7 million and $24.9 million for the
nine months ended September 30, 2006 and 2005, respectively.  Liquidity and Capital Resources
  Scheduled Debt Maturities and Interest Payment Requirements
    31




---



##### Table of Contents



Unitholder Distribution Requirements
  Planned Investments
  Planned InvestmentsDiscretionary
    
    
    CommittedCommunities under redevelopment
    
    $
    2,698
    
    
    $
    3,476Communities under construction
    
    
    
    
    
    
    549,130Communities In Planning and owned
    
    
    1,226,448
    
    
    
    Communities In Planning and Under Control
    
    
    332,289
    
    
    
    Community acquisitions under contract
    
    
    285,900
    
    
    
    FHA/ADA settlement capital accrual
    
    
    
    
    
    
    35,439Total
    
    $
    1,847,335
    
    
    $
    588,045
   Funding Sources
  Other Contingencies
  32




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##### Table of Contents



Critical Accounting Policies
  Internal Cost Capitalization
  Valuation of Real Estate
 Accounting for Impairment or Disposal of
Long-Lived Assets
 33




---



##### Table of Contents



Capital Expenditures and Depreciable Lives
   Pursuit Costs
  Consolidation vs. Equity Method of Accounting for Ventures
 Consolidation of Variable Interest Entities Determining Whether a General Partner, or the
General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited
Partners Have Certain Rights
 34




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##### Table of Contents



Off Balance Sheet Arrangements
   Contractual Commitments
  
    
    Please refer to Scheduled Debt Maturities and Interest Payment Requirements and
Planned Investments above for further discussion of significant contractual commitments.
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Interest Rate Hedging Activities
   Foreign Currency Hedging Activities
  
 Energy Contract Hedging Activities
   35




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##### Table of Contents



Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  Changes in Internal Controls over Financial Reporting
  36




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
  37




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##### Table of Contents



SIGNATURES
  ARCHSTONE-SMITH TRUSTBY:
    
    /s/ R. SCOT SELLERSR. Scot SellersChairman andChief Executive OfficerBY:
    
    /s/ CHARLES E. MUELLER, JR.Charles E. Mueller, Jr.Chief Financial Officer(Principal Financial Officer)BY:
    
    /s/ MARK A. SCHUMACHERMark A. SchumacherSenior Vice-President and Chief Accounting Officer(Principal Accounting Officer)
  38




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##### Table of Contents



Item 6. Exhibits
 3.1
    
    Amended and Restated Declaration of Trust of Archstone-Smith Trust (incorporated by reference to
Exhibit 3.1 to Archstone-Smith Trusts Current Report of Form 8-K filed with the SEC on June 2,
2006)3.3
    
    Restated Bylaws of Archstone-Smith Trust (incorporated by reference to Exhibit 3.2 to the
Archstone-Smith Trusts Current Report on Form 8-K filed with the SEC on June 2, 2006)10.1
    
    Amended and Restated Declaration of Trust of Archstone-Smith Operating Trust (incorporated by
reference to Exhibit 4.1 to the Archstone-Smith Trusts Current Report on Form 8-K filed with the
SEC on June 2, 2006)10.2
    
    Bylaws of Archstone-Smith Operating Trust (incorporated by reference to Exhibit 4.2 to the
Archstone-Smith Trusts Current Report on Form 8-K filed with the SEC on June 2, 2006)12.1
    
    Computation of Ratio of Earnings to Fixed Charges12.2
    
    Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Unit Distributions15.1
    
    Independent Registered Public Accounting Firm Awareness Letter31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 39