##### 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, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from ______ to ______.
 Commission File Number 1-10272
 ARCHSTONE-SMITH OPERATING TRUST
 (Exact name of registrant as specified in its charter)
 Maryland
(State or other jurisdiction of
incorporation or organization)
    
    74-6056896
(I.R.S. employer identification no.)
 9200 E Panorama Circle, Suite 400
Englewood, Colorado 80112
(Address of principal executive offices and zip code)
 (303) 708-5959
(Registrants telephone number, including area code)
 (Former name, former address and former fiscal year,
if changed since last report)
  þ o
  þ o
  o þ




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##### Table of Contents



Table of Contents
 PageItem
    
    Description
    
    NumberPART 11.
    
    Financial StatementsCondensed Consolidated Balance Sheets  September 30, 2005 (unaudited) and December 31, 2004
    
    3Condensed Consolidated Statements of Earnings  Three and Nine months ended September 30, 2005 and 2004 (unaudited)
    
    4Condensed Consolidated Statement of Unitholders Equity, Other Common Unitholders Interest and Comprehensive Income/(Loss) - Nine months ended September 30, 2005 (unaudited)
    
    5Condensed
Consolidated Statements of Cash Flows  Nine months ended September 30, 2005 and 2004 (unaudited)
    
    6Notes to Condensed Consolidated Financial Statements (unaudited)
    
    7Independent Registered Public Accounting Firm Review Report
    
    212.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    223.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    354.
    
    Controls and Procedures
    
    35PART II1.
    
    Legal Proceedings
    
    362.
    
    Unregistered sales of Equity Securities and Use of Proceeds
    
    366.
    
    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 Chief Executive OfficerCertification of Chief Financial OfficerCertification 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 31,2005
    
    
    2004(Unaudited)ASSETSReal estate
    
    $
    10,431,341
    
    
    $
    8,482,741Real estate  held for sale
    
    
    755,437
    
    
    
    738,297Less accumulated depreciation
    
    
    (878,592
    )
    
    
    (763,542
    )10,308,186
    
    
    
    8,457,496Investments in and advances to unconsolidated entities
    
    
    121,363
    
    
    
    111,481Net investments
    
    
    10,429,549
    
    
    
    8,568,977Cash and cash equivalents
    
    
    13,318
    
    
    
    203,255Restricted cash in tax-deferred exchange escrow
    
    
    64,580
    
    
    
    120,095Other assets
    
    
    273,184
    
    
    
    173,717Total assets
    
    $
    10,780,631
    
    
    $
    9,066,044LIABILITIES AND UNITHOLDERS EQUITYLiabilities:Unsecured credit facilities
    
    $
    206,007
    
    
    $
    19,000Long-term unsecured debt
    
    
    2,365,613
    
    
    
    2,099,132Mortgages payable
    
    
    2,312,869
    
    
    
    1,931,223Mortgages payable  held for sale
    
    
    99,979
    
    
    
    100,282Accounts payable
    
    
    59,019
    
    
    
    52,052Accrued expenses and other liabilities
    
    
    256,057
    
    
    
    273,079Total liabilities
    
    
    5,299,544
    
    
    
    4,474,768Minority interest
    
    
    
    
    
    
    2,050Other common unitholders interest, at redemption value (A-1 and B Common Units:33,844,704 in 2005 and 23,117,498 in 2004)
    
    
    1,349,388
    
    
    
    885,400Unitholders equity:Perpetual Preferred Units
    
    
    50,000
    
    
    
    69,522Common unitholders equity (A-2 Common Units: 211,981,007 in 2005 and
199,577,459 in 2004)
    
    
    4,083,732
    
    
    
    3,638,729Accumulated other comprehensive income (loss)
    
    
    (2,033
    )
    
    
    (4,425
    )Total unitholders equity
    
    
    4,131,699
    
    
    
    3,703,826Total liabilities and unitholders equity
    
    $
    10,780,631
    
    
    $
    9,066,044
  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 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues:Rental revenues
    
    $
    239,012
    
    
    $
    187,546
    
    
    $
    647,705
    
    
    $
    540,593Other income
    
    
    25,840
    
    
    
    4,930
    
    
    
    37,815
    
    
    
    13,836264,852
    
    
    
    192,476
    
    
    
    685,520
    
    
    
    554,429Expenses:Rental expenses
    
    
    57,646
    
    
    
    49,089
    
    
    
    160,938
    
    
    
    135,019Real estate taxes
    
    
    22,426
    
    
    
    16,289
    
    
    
    62,685
    
    
    
    49,370Depreciation on real estate investments
    
    
    58,262
    
    
    
    44,502
    
    
    
    157,683
    
    
    
    127,297Interest expense
    
    
    51,361
    
    
    
    36,623
    
    
    
    137,653
    
    
    
    103,239General and administrative expenses
    
    
    13,600
    
    
    
    12,898
    
    
    
    41,644
    
    
    
    37,423Other expenses
    
    
    4,148
    
    
    
    5,356
    
    
    
    33,271
    
    
    
    8,772207,443
    
    
    
    164,757
    
    
    
    593,874
    
    
    
    461,120Earnings from operations
    
    
    57,409
    
    
    
    27,719
    
    
    
    91,646
    
    
    
    93,309Minority interest
    
    
    
    
    
    
    108
    
    
    
    
    
    
    
    460Equity in earnings from unconsolidated entities
    
    
    1,839
    
    
    
    5,485
    
    
    
    18,750
    
    
    
    18,115Other non-operating income
    
    
    72
    
    
    
    7,701
    
    
    
    28,855
    
    
    
    28,162Earnings before discontinued operations
    
    
    59,320
    
    
    
    41,013
    
    
    
    139,251
    
    
    
    140,046Earnings from discontinued apartment communities
    
    
    128,743
    
    
    
    118,610
    
    
    
    184,988
    
    
    
    224,610Net earnings
    
    
    188,063
    
    
    
    159,623
    
    
    
    324,239
    
    
    
    364,656Preferred Unit distributions
    
    
    (958
    )
    
    
    (5,706
    )
    
    
    (3,614
    )
    
    
    (14,612
    )Net earnings attributable to Common Units  Basic
    
    $
    187,105
    
    
    $
    153,917
    
    
    $
    320,625
    
    
    $
    350,044Weighted average Common Units outstanding  Basic
    
    
    232,794
    
    
    
    219,234
    
    
    
    226,778
    
    
    
    219,516Weighted average Common Units outstanding  Diluted
    
    
    233,996
    
    
    
    222,791
    
    
    
    227,803
    
    
    
    222,970Earnings per Common Unit  Basic:Earnings before discontinued operations
    
    $
    0.25
    
    
    $
    0.16
    
    
    $
    0.60
    
    
    $
    0.57Discontinued operations, net
    
    
    0.55
    
    
    
    0.54
    
    
    
    0.81
    
    
    
    1.02Net earnings
    
    $
    0.80
    
    
    $
    0.70
    
    
    $
    1.41
    
    
    $
    1.59Earnings per Common Unit  Diluted:Earnings before discontinued operations
    
    $
    0.25
    
    
    $
    0.16
    
    
    $
    0.60
    
    
    $
    0.57Discontinued operations, net
    
    
    0.55
    
    
    
    0.54
    
    
    
    0.81
    
    
    
    1.01Net earnings
    
    $
    0.80
    
    
    $
    0.70
    
    
    $
    1.41
    
    
    $
    1.58Distributions paid per Common Unit
    
    $
    0.4325
    
    
    $
    0.43
    
    
    $
    1.2975
    
    
    $
    1.29
  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, 2005
 In thousands)
(Unaudited
 PerpetualPreferredUnitsat
    
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    OtherAggregate
    
    
    Common
    
    
    Other
    
    
    Total
    
    
    CommonLiquidation
    
    
    Unitholders
    
    
    Comprehensive
    
    
    Unitholders
    
    
    UnitholdersPreference
    
    
    Equity
    
    
    Income/(Loss)
    
    
    Equity
    
    
    Interst
    
    
    TotalBalances at December 31, 2004
    
    $
    69,522
    
    
    $
    3,638,729
    
    
    $
    (4,425
    )
    
    $
    3,703,826
    
    
    $
    885,400
    
    
    $
    4,589,226Comprehensive income:Net earnings
    
    
    
    
    
    
    286,488
    
    
    
    
    
    
    
    286,488
    
    
    
    
    
    
    
    286,488Change in fair value of cash flow hedges
    
    
    
    
    
    
    
    
    
    
    3,766
    
    
    
    3,766
    
    
    
    
    
    
    
    3,766Change in fair value of marketable securities
    
    
    
    
    
    
    
    
    
    
    (1,374
    )
    
    
    (1,374
    )
    
    
    
    
    
    
    (1,374
    )Comprehensive income
attributable to Common Units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    288,880Preferred Unit distributions
    
    
    
    
    
    
    (3,614
    )
    
    
    
    
    
    
    (3,614
    )
    
    
    
    
    
    
    (3,614
    )Common Unit distributions
    
    
    
    
    
    
    (260,147
    )
    
    
    
    
    
    
    (260,147
    )
    
    
    (30,722
    )
    
    
    (290,869
    )A-1 Common Units converted
into 
A-2 Common Units
    
    
    
    
    
    
    5,547
    
    
    
    
    
    
    
    5,547
    
    
    
    (5,547
    )
    
    
    Common Unit repurchases
    
    
    
    
    
    
    (56,495
    )
    
    
    
    
    
    
    (56,495
    )
    
    
    
    
    
    
    (56,495
    )Preferred Unit repurchases
    
    
    (19,522
    )
    
    
    
    
    
    
    
    
    
    
    (19,522
    )
    
    
    
    
    
    
    (19,522
    )Issuance of A-1 Common Units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400,749
    
    
    
    400,749Issuance of A-2 Common Units
    
    
    
    
    
    
    491,440
    
    
    
    
    
    
    
    491,440
    
    
    
    
    
    
    
    491,440Issuance of A-2 Common Units
under Compensation Plans
    
    
    
    
    
    
    46,258
    
    
    
    
    
    
    
    46,258
    
    
    
    
    
    
    
    46,258Adjustment to redemption value
    
    
    
    
    
    
    (99,508
    )
    
    
    
    
    
    
    (99,508
    )
    
    
    99,508
    
    
    
    Other, net
    
    
    
    
    
    
    35,034
    
    
    
    
    
    
    
    35,034
    
    
    
    
    
    
    
    35,034Balances at September 30, 2005
    
    $
    50,000
    
    
    $
    4,083,732
    
    
    $
    (2,033
    )
    
    $
    4,131,699
    
    
    $
    1,349,388
    
    
    $
    5,481,087
  5




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##### Table of Contents



Archstone-Smith Operating Trust
 
 Condensed Consolidated Statements of Cash Flows
 (In thousands)
 (Unaudited)
 Nine Months EndedSeptember 30,2005
    
    
    2004Operating activities:Net earnings
    
    $
    324,239
    
    
    $
    364,656Adjustments to reconcile net earnings to net cash flow provided by operating activities:Depreciation and amortization
    
    
    174,742
    
    
    
    172,172Gains on dispositions of depreciated real estate, net
    
    
    (194,652
    )
    
    
    (226,296
    )Gains on sale of marketable equity securities and property management business
    
    
    (27,948
    )
    
    
    (28,162
    )Minority interest
    
    
    
    
    
    
    (460
    )Equity in earnings/(loss) from unconsolidated entities
    
    
    (18,750
    )
    
    
    (18,115
    )Change in other assets
    
    
    (22,677
    )
    
    
    (586
    )Change in accounts payable, accrued expenses and other liabilities
    
    
    22,721
    
    
    
    13,133Other, net
    
    
    (5,807
    )
    
    
    (6,087
    )Net cash flow provided by operating activities
    
    
    251,868
    
    
    
    270,255Investing activities:Real estate investments
    
    
    (1,599,629
    )
    
    
    (1,164,522
    )Change in investments in unconsolidated entities, net
    
    
    23,488
    
    
    
    16,508Proceeds from dispositions, net of closing costs
    
    
    810,309
    
    
    
    1,163,277Change in restricted cash
    
    
    55,515
    
    
    
    97,563Change in notes receivable, net
    
    
    (41,826
    )
    
    
    217Other, net
    
    
    162
    
    
    
    125,232Net cash flow provided by (used in) investing activities
    
    
    (751,981
    )
    
    
    238,275Financing activities:Payments on Long-Term Unsecured Debt
    
    
    (231,250
    )
    
    
    (52,950
    )Proceeds from Long-Term Unsecured Debt
    
    
    495,724
    
    
    
    297,052Proceeds/Repayments from unsecured credit facilities, net
    
    
    187,007
    
    
    
    (103,790
    )Principal prepayment of mortgages payable, including prepayment penalties
    
    
    (263,457
    )
    
    
    (78,285
    )Regularly scheduled principal payments on mortgages payable
    
    
    (9,392
    )
    
    
    (9,003
    )Proceeds from mortgage notes payable
    
    
    655
    
    
    
    44,241Proceeds from issuance of Common Units
    
    
    491,440
    
    
    
    Proceeds from Common Units issued under employee stock options
    
    
    33,275
    
    
    
    35,795Repurchase of Common Units
    
    
    (56,495
    )
    
    
    (137,442
    )Repurchase of Series E and G Perpetual Preferred Units
    
    
    (19,522
    )
    
    
    (32,090
    )Cash distributions paid on Common Units
    
    
    (311,827
    )
    
    
    (285,311
    )Cash distributions paid on Preferred Units
    
    
    (3,614
    )
    
    
    (12,885
    )Other, net
    
    
    (2,368
    )
    
    
    550Net cash flow provided by (used in) financing activities
    
    
    310,176
    
    
    
    (334,118
    )Net change in cash and cash equivalents
    
    
    (189,937
    )
    
    
    174,412Cash and cash equivalents at beginning of period
    
    
    203,255
    
    
    
    5,230Cash and cash equivalents at end of period
    
    $
    13,318
    
    
    $
    179,642Significant non-cash investing and financing activities:B Common Units issued in exchange for real estate
    
    $
    400,749
    
    
    $
    10,788N-1 and N-2 Convertible Redeemable Units issued in exchange for real estate
    
    
    250
    
    
    
    Conversion of Series K and Series L Preferred Units into A-2 Common Units
    
    
    
    
    
    
    50,000A-2 Common Units issued in exchange for real estate
    
    
    
    
    
    
    4,502A-1 Common Units converted to A-2 Common Units
    
    
    5,547
    
    
    
    46,920Assumption of mortgages payable upon purchase of apartment communities
    
    
    654,727
    
    
    
    113,585
  6




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##### Table of Contents



Archstone-Smith Operating Trust
 
 Notes to Condensed Consolidated Financial Statements
 September 30, 2005 and 2004
(Unaudited)
 (1) Description of the Business and Summary of Significant Accounting Policies
 Business
  Interim Financial Reporting
   Use of Estimates
  Loss Contingencies
 Accounting for Contingencies.
 Legal Fees
  7




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 Marketable Securities and Other Investments
  Real Estate Depreciation
  Income Taxes
   Preferred Unit Redemptions
 The Effect on the Calculation of Earnings per Share for the Redemption or Induced
Conversion of Preferred Stock
 8




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 Stock-Based Compensation
 Accounting for Stock-Based Compensation, Accounting for Stock Issued to Employees,
 Three
Months Ended September 30,
    
    

Nine
Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net earnings attributable to Common Units  Basic
    
    $
    187,105
    
    
    $
    153,917
    
    
    $
    320,625
    
    
    $
    350,044Add: Stock-based employee compensation expense included
in reported net earnings
    
    
    219
    
    
    
    73
    
    
    
    667
    
    
    
    218Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards
    
    
    (364
    )
    
    
    (534
    )
    
    
    (1,140
    )
    
    
    (1,604
    )Pro forma net earnings attributable to Common Units  Basic
    
    $
    186,960
    
    
    $
    153,456
    
    
    $
    320,152
    
    
    $
    348,658Net earnings per Common Unit:Basic  as reported
    
    $
    0.80
    
    
    $
    0.70
    
    
    $
    1.41
    
    
    $
    1.59Basic  pro forma
    
    $
    0.80
    
    
    $
    0.70
    
    
    $
    1.41
    
    
    $
    1.59Diluted  as reported
    
    $
    0.80
    
    
    $
    0.70
    
    
    $
    1.41
    
    
    $
    1.58Diluted  pro forma
    
    $
    0.80
    
    
    $
    0.69
    
    
    $
    1.41
    
    
    $
    1.58
  2005 Option
    
    2004 OptionAssumptions
    
    AssumptionsWeighted average risk-free interest rate
    
    
    3.77
    %
    
    
    3.48
    %Weighted average distribution yield
    
    
    5.63
    %
    
    
    6.92
    %Weighted average volatility
    
    
    21.97
    %
    
    
    15.33
    %Weighted average expected option life
    
    
    5.0 years
    
    
    
    5.0 years
 Comprehensive Income
  9




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
  NetUnrealized
    
    
    
    
    
    
    AccumulatedGains on
    
    
    
    
    
    
    OtherMarketable
    
    
    Cash Flow
    
    
    ComprehensiveSecurities
    
    
    Hedges
    
    
    Income/(Loss)Balance at December 31, 2004
    
    $
    1,398
    
    
    $
    (5,823
    )
    
    $
    (4,425
    )Change in fair value of cash flow hedges
    
    
    
    
    
    
    3,010
    
    
    
    3,010Fair value of long-term debt hedge
    
    
    
    
    
    
    756
    
    
    
    756Mark to market for marketable equity securities
    
    
    705
    
    
    
    
    
    
    
    705Reclassification adjustments for realized net gains
    
    
    (2,079
    )
    
    
    
    
    
    
    (2,079
    )Balance at September 30, 2005
    
    $
    24
    
    
    $
    (2,057
    )
    
    $
    (2,033
    )
 Per Unit Data
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Reconciliation of numerator between basic and diluted
net earnings per Common Unit (1):Net earnings attributable to Common Units  Basic
    
    $
    187,105
    
    
    $
    153,917
    
    
    $
    320,625
    
    
    $
    350,044Distributions on Convertible Preferred Units
    
    
    
    
    
    
    1,061
    
    
    
    
    
    
    
    3,269Net earnings attributable to Common Units  Diluted
    
    $
    187,105
    
    
    $
    154,978
    
    
    $
    320,625
    
    
    $
    353,313Reconciliation of denominator between basic and diluted
net earnings per Common Unit (1):Weighted average number of Common Units
outstanding  Basic
    
    
    232,794
    
    
    
    219,234
    
    
    
    226,778
    
    
    
    219,516Assumed conversion of Convertible Preferred Units into
Common Units
    
    
    
    
    
    
    2,439
    
    
    
    
    
    
    
    2,535Assumed exercise of options
    
    
    1,202
    
    
    
    1,118
    
    
    
    1,025
    
    
    
    919Weighted average number of Common Units
outstanding  Diluted
    
    
    233,996
    
    
    
    222,791
    
    
    
    227,803
    
    
    
    222,970
 
 (1)
    
    Excludes the impact of potentially dilutive equity securities during periods in which
they are anti-dilutive. New Accounting Pronouncements
 Share-Based Payment Accounting for Stock-Based Compensation
 10




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 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
 (2) Real Estate
 Investments in Real Estate
  September 30, 2005
    
    
    December 31, 2004Investment
    
    
    Units(1)
    
    
    Investment
    
    
    Units(1)Operating Trust Apartment Communities:Operating communities
    
    $
    9,998,255
    
    
    
    68,053
    
    
    $
    8,018,658
    
    
    
    58,486Communities under construction
    
    
    516,537
    
    
    
    2,754
    
    
    
    499,239
    
    
    
    3,237Development communities In Planning
    
    
    23,221
    
    
    
    585
    
    
    
    51,822
    
    
    
    1,251Total Operating Trust
apartment communities
    
    
    10,538,013
    
    
    
    71,392
    
    
    
    8,569,719
    
    
    
    62,974Ameriton(2)
    
    
    580,605
    
    
    
    6,784
    
    
    
    581,910
    
    
    
    6,791Other real estate assets(3)
    
    
    68,160
    
    
    
    
    
    
    
    69,409
    
    
    
    Total real estate
    
    $
    11,186,778
    
    
    
    78,176
    
    
    $
    9,221,038
    
    
    
    69,765
 
 (1)
    
    Unit information is based on managements estimates and has not been reviewed by our
Independent Registered Public Accounting Firm.(2)
    
    Ameritons investment as of September 30, 2005 and December 31, 2004 for development
communities Under Control was $1.0 million (336 units) and $1.5 million (593 units),
respectively, and is reflected in the Other assets caption of our Condensed Consolidated
Balance Sheets.(3)
    
    Includes land that is not In Planning and other real estate assets.  Balance at December 31, 2004
    
    $
    9,221,038Acquisition-related expenditures
    
    
    2,262,469Redevelopment expenditures
    
    
    39,815Recurring capital expenditures
    
    
    31,045Development expenditures, excluding land acquisitions
    
    
    247,120Acquisition and improvement of land for development
    
    
    752Dispositions
    
    
    (675,706
    )Net apartment community activity
    
    
    1,905,495Change in other real estate assets
    
    
    60,245Balance at September 30, 2005
    
    $
    11,186,778
  11




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 (3) Oakwood Asset Acquisition
   (4) Discontinued Operations
   12




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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 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Rental revenues
    
    $
    25,498
    
    
    $
    57,235
    
    
    $
    90,357
    
    
    $
    189,500Rental expenses
    
    
    (8,125
    )
    
    
    (20,089
    )
    
    
    (29,445
    )
    
    
    (62,895
    )Real estate taxes
    
    
    (3,195
    )
    
    
    (6,690
    )
    
    
    (10,739
    )
    
    
    (23,674
    )Depreciation on real estate investments
    
    
    (2,975
    )
    
    
    (11,196
    )
    
    
    (17,059
    )
    
    
    (36,710
    )Interest expense (1)
    
    
    (5,462
    )
    
    
    (16,942
    )
    
    
    (20,532
    )
    
    
    (51,279
    )Estimated income taxes (Ameriton properties)
    
    
    (11,388
    )
    
    
    (16,521
    )
    
    
    (16,982
    )
    
    
    (15,507
    )Debt extinguishment costs related to dispositions
    
    
    
    
    
    
    
    
    
    
    (5,264
    )
    
    
    (1,120
    )Gains on disposition of taxable REIT subsidiary real estate
investments, net
    
    
    39,847
    
    
    
    55,417
    
    
    
    60,550
    
    
    
    69,930Gains on dispositions of REIT real estate investments, net
    
    
    94,543
    
    
    
    77,396
    
    
    
    134,102
    
    
    
    156,365Earnings from discontinued apartment communities
    
    $
    128,743
    
    
    $
    118,610
    
    
    $
    184,988
    
    
    $
    224,610
 
 (1)
    
    The portion of interest expense included in discontinued operations that is allocated
to properties based on the companys leverage ratio was $3.9 million and $12.2 million for
the three months ended September 30, 2005 and 2004, and $14.6 million and $36.6 million for
the nine months ended September 30, 2005 and 2004, respectively. (5) Investments in and Advances to Unconsolidated Entities
 Real Estate Joint Ventures
   September 30,
    
    
    December 31,2005
    
    
    2004Assets:Real estate
    
    $
    1,080,305
    
    
    $
    1,115,563Other assets
    
    
    192,334
    
    
    
    52,394Total assets
    
    $
    1,272,639
    
    
    $
    1,167,957Liabilities and owners equity:Inter-company debt payable to the Operating Trust
    
    $
    2,299
    
    
    $
    4,124Mortgages payable(1)
    
    
    881,071
    
    
    
    777,924Other liabilities
    
    
    40,678
    
    
    
    24,254Total liabilities
    
    
    924,048
    
    
    
    806,302Owners equity
    
    
    348,591
    
    
    
    361,655Total liabilities and owners equity
    
    $
    1,272,639
    
    
    $
    1,167,957
 13




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 
 (1)
    
    We guarantee $192.2 million of the outstanding debt balance as of September 30, 2005
and are committed to guarantee another $93.5 million upon funding of additional debt.
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Operating Trust Joint VenturesRevenues
    
    $
    30,723
    
    
    $
    35,424
    
    
    $
    96,875
    
    
    $
    106,260Net Earnings(1)
    
    
    9,547
    
    
    
    22,105
    
    
    
    36,279
    
    
    
    32,203Ameriton Joint VenturesRevenues
    
    $
    793
    
    
    $
    1,214
    
    
    $
    3,056
    
    
    $
    4,534Net Earnings(2)
    
    
    (595
    )
    
    
    (166
    )
    
    
    11,339
    
    
    
    6,994TotalRevenues
    
    $
    31,516
    
    
    $
    36,638
    
    
    $
    99,931
    
    
    $
    110,794Net Earnings
    
    $
    8,952
    
    
    $
    21,939
    
    
    $
    47,618
    
    
    $
    39,197
 
 (1)
    
    Includes gains associated with the disposition of our Joint Ventures assets of $9.5
million and $25.9 million for the three months ended September 30, 2005 and 2004,
respectively, and $31.5 million and $33.9 million for the nine months ended September 30,
2005 and 2004, respectively.(2)
    
    Includes Ameritons share of pre-tax gains associated with the disposition of real
estate joint ventures assets. There were no gains during the three months ended September
30, 2005 and 2004, and $13.2 million and $7.0 million for the nine months ended September
30, 2005 and 2004, respectively. (6) Mezzanine Notes Receivable
  14




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
 (7) Borrowings
 Unsecured Credit Facilities
  As of and for theNine Months
    
    
    As of and for theEnded
    
    
    Year EndedSeptember 30,
    
    
    December 31,2005
    
    
    2004Total unsecured revolving credit facility
    
    $
    600,000
    
    
    $
    600,000Borrowings outstanding at end of period
    
    
    190,000
    
    
    
    19,000Outstanding letters of credit under this facility
    
    
    21,144
    
    
    
    13,983Weighted average daily borrowings
    
    
    159,536
    
    
    
    81,317Maximum borrowings outstanding during the period
    
    
    580,000
    
    
    
    375,000Weighted average daily nominal interest rate
    
    
    3.73
    %
    
    
    1.58
    %Weighted average daily effective interest rate
    
    
    3.76
    %
    
    
    2.62
    %
  Long-Term Unsecured Debt
  Effective
    
    
    Balance at
    
    
    Balance at
    
    
    AverageCoupon
    
    
    Interest
    
    
    September 30,
    
    
    December 31,
    
    
    RemainingType of Debt
    
    Rate(1)
    
    
    Rate(1) (2)
    
    
    2005
    
    
    2004
    
    
    Life (Years)Long-term unsecured senior notes
    
    
    5.81
    %
    
    
    5.97
    %
    
    $
    2,288,125
    
    
    $
    2,019,607
    
    
    
    6.1Unsecured tax-exempt bonds
    
    
    2.88
    %
    
    
    3.14
    %
    
    
    77,488
    
    
    
    79,525
    
    
    
    17.9Total/average
    
    
    5.72
    %
    
    
    5.89
    %
    
    $
    2,365,613
    
    
    $
    2,099,132
    
    
    
    6.5
 
 (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.  15




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
  Mortgages payable
  Outstanding Balance at(1)EffectiveInterestSeptember 30, 2005
    
    
    December 31, 2004
    
    
    Rate(2)Secured floating rate debt:Tax-exempt debt
    
    $
    706,910
    
    
    $
    508,923
    
    
    
    3.2
    %Construction loans
    
    
    
    
    
    
    40,868
    
    
    
    N/AConventional mortgages
    
    
    52,705
    
    
    
    21,705
    
    
    
    3.4
    %Total Floating
    
    
    759,615
    
    
    
    571,496
    
    
    
    3.2
    %Secured fixed rate debt:Conventional mortgages
    
    
    1,633,571
    
    
    
    1,439,558
    
    
    
    6.3
    %Other secured debt
    
    
    19,662
    
    
    
    20,451
    
    
    
    5.0
    %Total Fixed
    
    
    1,653,233
    
    
    
    1,460,009
    
    
    
    6.3
    %Total debt outstanding at end of period
    
    $
    2,412,848
    
    
    $
    2,031,505
    
    
    
    5.2
    %
 
 (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 $67.4 million and $48.4 million at September 30, 2005 and December 31, 2004
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, 2004
    
    $
    2,031,505Mortgage assumptions related to property acquisitions
    
    
    654,727Regularly scheduled principal amortization
    
    
    (9,392
    )Prepayments, final maturities and other(1)
    
    
    (264,647
    )Proceeds from mortgage notes payable
    
    
    655Balance at September 30, 2005
    
    $
    2,412,848
 
 (1)
    
    We incurred $23.3 million of debt extinguishment costs in connection with these mortgage
prepayments. Other
  16




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
  (8) Distributions to Unitholders
  Quarterly
    
    
    AnnualizedCash
    
    
    CashDistributions
    
    
    DistributionsPer Unit
    
    
    Per UnitA-1, A-2 and B Common Units(1)
    
    $
    0.4325
    
    
    $
    1.73Series E Preferred Units (2)
    
    
    
    
    
    
    0.1977Series G Preferred Units (3)
    
    
    
    
    
    
    0.3714Series I Perpetual Preferred Units (4)
    
    
    1,915
    
    
    
    7,660
 
 (1)
    
    B Common Units receive a pro-rated distribution based on the term between the issuance date
and distribution date.(2)
    
    200,000 Series E Preferred Units were redeemed in February 2005.(3)
    
    600,000 Series G Preferred Units were redeemed in March 2005.(4)
    
    Series I Preferred Units have a par value of $100,000 per unit. (9) Segment Data
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Reportable apartment communities segment revenues:Same-Store:Garden communities
    
    $
    103,527
    
    
    $
    99,751
    
    
    $
    299,920
    
    
    $
    290,980High-rise properties
    
    
    72,852
    
    
    
    69,792
    
    
    
    202,102
    
    
    
    195,475Non Same-Store:Garden communities
    
    
    34,275
    
    
    
    10,159
    
    
    
    71,305
    
    
    
    25,861High-rise properties
    
    
    18,890
    
    
    
    2,202
    
    
    
    51,860
    
    
    
    15,219Ameriton(1)
    
    
    8,203
    
    
    
    4,602
    
    
    
    19,825
    
    
    
    10,480Other non-reportable operating segment revenues
    
    
    1,265
    
    
    
    1,040
    
    
    
    2,693
    
    
    
    2,578Total segment and consolidated rental revenues
    
    $
    239,012
    
    
    $
    187,546
    
    
    $
    647,705
    
    
    $
    540,593
 17




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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 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Reportable apartment communities segment NOI:Same-Store:Garden communities
    
    $
    70,573
    
    
    $
    67,155
    
    
    $
    202,023
    
    
    $
    195,695High-rise properties
    
    
    48,505
    
    
    
    45,476
    
    
    
    131,462
    
    
    
    129,100Non Same-Store:Garden communities
    
    
    22,780
    
    
    
    5,870
    
    
    
    46,181
    
    
    
    15,227High-rise properties
    
    
    11,856
    
    
    
    1,087
    
    
    
    32,299
    
    
    
    9,559Ameriton(1)
    
    
    4,053
    
    
    
    1,667
    
    
    
    9,701
    
    
    
    4,390Other non-reportable operating segment NOI
    
    
    1,173
    
    
    
    913
    
    
    
    2,416
    
    
    
    2,233Total segment NOI
    
    
    158,940
    
    
    
    122,168
    
    
    
    424,082
    
    
    
    356,204Reconciling items:Other income
    
    
    25,840
    
    
    
    4,930
    
    
    
    37,815
    
    
    
    13,836Depreciation on real estate investments
    
    
    (58,262
    )
    
    
    (44,502
    )
    
    
    (157,683
    )
    
    
    (127,297
    )Interest expense
    
    
    (51,361
    )
    
    
    (36,623
    )
    
    
    (137,653
    )
    
    
    (103,239
    )General and administrative expenses
    
    
    (13,600
    )
    
    
    (12,898
    )
    
    
    (41,644
    )
    
    
    (37,423
    )Other expenses
    
    
    (4,148
    )
    
    
    (5,356
    )
    
    
    (33,271
    )
    
    
    (8,772
    )Consolidated earnings from operations
    
    $
    57,409
    
    
    $
    27,719
    
    
    $
    91,646
    
    
    $
    93,309
 
 (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. During the nine months ended September 30, 2005 and 2004, pre-tax
gains from the disposition of Ameriton real estate were $60.6 million and $60.8 million,
respectively. Additionally, Ameriton had gains of $13.2 million and $7.0 million during
the nine months ended September 30, 2005 and 2004, respectively from the sale of
unconsolidated joint venture assets. These gains are classified within income from
unconsolidated entities. Ameriton assets are excluded from our Same-Store population as
they are acquired or developed to achieve short-term opportunistic gains, and therefore,
the average holding period is typically much shorter than the holding period of assets
operated by the REIT. September 30,
    
    
    December 31,2005
    
    
    2004Reportable operating communities segment assets:Same-Store:Garden communities
    
    $
    2,780,185
    
    
    $
    2,819,340High-rise properties
    
    
    2,372,832
    
    
    
    2,391,736Non Same-Store:Garden communities
    
    
    2,417,044
    
    
    
    1,136,335High-rise properties
    
    
    1,532,544
    
    
    
    894,794Ameriton
    
    
    490,210
    
    
    
    523,281Other non-reportable operating segment assets
    
    
    92,129
    
    
    
    72,172Total segment assets
    
    
    9,684,944
    
    
    
    7,837,658Real estate held for sale, net
    
    
    623,242
    
    
    
    619,838Total segment assets
    
    
    10,308,186
    
    
    
    8,457,496Reconciling items:Investment in and advances to unconsolidated
entities
    
    
    121,363
    
    
    
    111,481Cash and cash equivalents
    
    
    13,318
    
    
    
    203,255Restricted cash in tax-deferred exchange escrow
    
    
    64,580
    
    
    
    120,095Other assets
    
    
    273,184
    
    
    
    173,717Consolidated total assets
    
    $
    10,780,631
    
    
    $
    9,066,044
 18




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
  (10) Litigation and Contingencies
     (11) Derivatives and Hedging Activities
   19




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##### Table of Contents



Archstone-Smith Operating Trust
 Notes to Condensed Consolidated Financial Statements (Continued)
    (12) Subsequent Events
  20




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
 21




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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
2004 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 the Archstone-Smith Operating Trusts 2004 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
    22




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##### Table of Contents



Quarter-to-Date Earnings Analysis
  
    
    A 5.7% increase in Same-Store NOI during the third quarter of 2005 as compared to 2004;
    
    Increased income from the continued lease-up of new development communities;
    
    Increased revenues partially offset by a corresponding increase in operating
expenses associated with $2.3 billion and $1.1 billion in total REIT and
Ameriton operating asset acquisitions in the first nine months of 2005 and the twelve
months ended December 31, 2004, respectively;
    
    The recognition of $18.7 million of insurance recoveries related to moisture
infiltration and mold litigation settlement costs associated with a previously owned
community in southeast Florida;
    
    The recognition of $2.6 million of insurance reimbursements for costs related to the
FHA and ADA lawsuit, which we settled in the second quarter of 2005;
    
    A $4.9 million expense associated with 2004 damage from hurricanes in Florida
recognized in the third quarter of 2004, including our proportionate share of joint
venture expenses;
    
    A $2.7 million reduction in Preferred Unit distributions due to the redemption of
Series D Preferred Units in August 2004, the conversion of Series K Preferred Units in
September 2004 and the early conversion of Series L Preferred Units in December 2004.
These conversions and the redemption also eliminated the impact of the related
Preferred Unit distributions on our fixed charge coverage ratio; and,
    
    A $8.7 million reduction in real estate gains (net of tax on Ameriton gains) in 2005
as compared to 2004.
  
    
    The loss of rental revenues and a corresponding decrease in operating expenses due
to $675.7 million and $1.5 billion in total REIT and Ameriton dispositions in the first
nine months of 2005 and the twelve months ended December 31, 2004, respectively;
    
    A $5.5 million increase in depreciation due to higher real estate balances and
amortization of the value associated with in-place leases over the lease term on new
acquisitions;
 23




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##### Table of Contents




    
    $4.6 million in legal expenses and litigation settlement costs in the third quarter
of 2005;
    
    $3.6 million lower equity in earnings from unconsolidated entities primarily related
to disposition gains in the third quarter of 2005 as compared to 2004; and,
    
    Non-operating income from the settlement of a forward contract on marketable equity
securities resulting in a gain of $7.7 million in the third quarter of 2004.
 Year-to-Date Earnings Analysis
  
    
    The loss of rental revenues and a corresponding decrease in rental expenses due to
$675.7 million and $1.5 billion in total REIT and Ameriton dispositions in the first
nine months of 2005 and the twelve months ended December 31, 2004, respectively;
    
    Income recognition of $8.0 million related to the sale of Consolidated Engineering
Services (CES) including contingent proceeds associated with the expiration of
certain indemnifications and collection and recognition of the settlement of an ongoing
CES lawsuit during the nine months ended September 30, 2004;
    
    A $10.7 million increase in depreciation due to higher real estate balances and
amortization of the value associated with in-place leases over the lease term on new
acquisitions;
    
    A $4.2 million increase in general and administrative expenses primarily due to
higher employee-related expenses;
    
    A $23.2 million expense for early extinguishment of debt related to the payoff of
$221.9 million of mortgages during the nine months ended September 30, 2005, $5.4
million of which related to asset dispositions. The elimination of these mortgages
will reduce future interest expense;
    
    A $11.1 million charge related to the settlement of the FHA and ADA lawsuit, legal
expenses related to insurance recoveries and other litigation costs;
    
    A $3.3 million gain from the disposition of our property management business during
the nine months ended September 30, 2004; and,
    
    A $25.6 million reduction in real estate gains (net of tax on Ameriton gains) in
2005 as compared to 2004.
  
    
    A 2.8% increase in Same-Store NOI during the nine months ended September 30, 2005 as
compared to 2004;
    
    Increased income from the continued lease-up of new development communities;
    
    Increased revenues partially offset by a corresponding increase in operating
expenses associated with $2.3 billion and $1.1 billion in total REIT and Ameriton
operating asset acquisitions in the first nine months of 2005 and the twelve months
ended December 31, 2004, respectively;
    
    The recognition of $18.7 million of insurance recoveries related to moisture
infiltration and mold litigation settlement costs associated with a previously owned
community in southeast Florida;
    
    The recognition of $2.6 million of insurance reimbursements for costs related to the
FHA and ADA lawsuit, which we settled in the second quarter of 2005;
    
    The accrual of $2.5 million for anticipated insurance recoveries during the nine
months ended September 30, 2005 related to 2004 hurricane damage in South Florida,
including our proportionate share of joint venture recoveries;
    
    A $4.9 million expense associated with damage from hurricanes in Florida recognized
in the third quarter of 2004, including our proportionate share of joint venture
expenses; and,
    
    A $7.1 million reduction in Preferred Unit distributions due to the redemption of
Series D Preferred Units in August 2004, the conversion of Series K Preferred Units in
September 2004 and the early conversion of Series L Preferred Units in December 2004.
These conversions and the redemption also eliminated the impact of the related
Preferred Unit distributions on our fixed charge coverage ratio.
 24




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##### Table of Contents



Apartment Community Operations
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net operating income
    
    $
    158,940
    
    
    $
    122,168
    
    
    $
    424,082
    
    
    $
    356,204Other income
    
    
    25,840
    
    
    
    4,930
    
    
    
    37,815
    
    
    
    13,836Depreciation of real estate investments
    
    
    (58,262
    )
    
    
    (44,502
    )
    
    
    (157,683
    )
    
    
    (127,297
    )Interest expense
    
    
    (51,361
    )
    
    
    (36,623
    )
    
    
    (137,653
    )
    
    
    (103,239
    )General and administrative expenses
    
    
    (13,600
    )
    
    
    (12,898
    )
    
    
    (41,644
    )
    
    
    (37,423
    )Other expense
    
    
    (4,148
    )
    
    
    (5,356
    )
    
    
    (33,271
    )
    
    
    (8,772
    )Earnings from operations
    
    $
    57,409
    
    
    $
    27,719
    
    
    $
    91,646
    
    
    $
    93,309
  Three months ended September 30,
    
    
    Nine months ended September 30,2005
    
    
    2004
    
    
    Variance
    
    
    2005
    
    
    2004
    
    
    VarianceRental revenues:Garden communities
    
    $
    137,802
    
    
    $
    109,910
    
    
    $
    27,892
    
    
    $
    371,225
    
    
    $
    316,841
    
    
    $
    54,384High-rise properties
    
    
    91,742
    
    
    
    71,994
    
    
    
    19,748
    
    
    
    253,962
    
    
    
    210,694
    
    
    
    43,268Ameriton
    
    
    8,203
    
    
    
    4,602
    
    
    
    3,601
    
    
    
    19,825
    
    
    
    10,480
    
    
    
    9,345Non-multifamily
    
    
    1,265
    
    
    
    1,040
    
    
    
    225
    
    
    
    2,693
    
    
    
    2,578
    
    
    
    115Total revenues
    
    
    239,012
    
    
    
    187,546
    
    
    
    51,466
    
    
    
    647,705
    
    
    
    540,593
    
    
    
    107,112Operating expenses (rental expenses and
real estate taxes):Garden communities
    
    
    44,449
    
    
    
    36,885
    
    
    
    (7,564
    )
    
    
    123,021
    
    
    
    105,919
    
    
    
    (17,102
    )High-rise properties
    
    
    31,381
    
    
    
    25,431
    
    
    
    (5,950
    )
    
    
    90,201
    
    
    
    72,035
    
    
    
    (18,166
    )Ameriton
    
    
    4,150
    
    
    
    2,935
    
    
    
    (1,215
    )
    
    
    10,124
    
    
    
    6,090
    
    
    
    (4,034
    )Non-multifamily
    
    
    92
    
    
    
    127
    
    
    
    35
    
    
    
    277
    
    
    
    345
    
    
    
    68Total operating expenses
    
    
    80,072
    
    
    
    65,378
    
    
    
    (14,694
    )
    
    
    223,623
    
    
    
    184,389
    
    
    
    (39,234
    )Net operating income:Garden communities
    
    
    93,353
    
    
    
    73,025
    
    
    
    20,328
    
    
    
    248,204
    
    
    
    210,922
    
    
    
    37,282High-rise properties
    
    
    60,361
    
    
    
    46,563
    
    
    
    13,798
    
    
    
    163,761
    
    
    
    138,659
    
    
    
    25,102Ameriton
    
    
    4,053
    
    
    
    1,667
    
    
    
    2,386
    
    
    
    9,701
    
    
    
    4,390
    
    
    
    5,311Non-multifamily
    
    
    1,173
    
    
    
    913
    
    
    
    260
    
    
    
    2,416
    
    
    
    2,233
    
    
    
    183Total net operating income
    
    
    158,940
    
    
    
    122,168
    
    
    
    36,772
    
    
    
    424,082
    
    
    
    356,204
    
    
    
    67,878NOI classified as discontinued operations
    
    
    14,178
    
    
    
    30,456
    
    
    
    (16,278
    )
    
    
    50,173
    
    
    
    102,931
    
    
    
    (52,758
    )NOI including discontinued operations
    
    $
    173,118
    
    
    $
    152,624
    
    
    $
    20,494
    
    
    $
    474,255
    
    
    $
    459,135
    
    
    $
    15,120
 25




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##### Table of Contents



Three months ended September 30,
    
    
    Nine months ended September 30,2005
    
    
    2004
    
    
    Variance
    
    
    2005
    
    
    2004
    
    
    VarianceMargin (NOI/rental revenues) (1):Garden communities
    
    
    67.7
    %
    
    
    66.4
    %
    
    
    1.3
    %
    
    
    66.9
    %
    
    
    66.6
    %
    
    
    0.3
    %High-rise properties
    
    
    65.8
    %
    
    
    64.7
    %
    
    
    1.1
    %
    
    
    64.5
    %
    
    
    65.8
    %
    
    
    (1.3
    %)Average occupancy during period (2):Garden communities
    
    
    95.6
    %
    
    
    94.5
    %
    
    
    1.1
    %
    
    
    94.9
    %
    
    
    94.9
    %
    
    
    0.0
    %High-rise properties
    
    
    94.1
    %
    
    
    95.1
    %
    
    
    (1.0
    %)
    
    
    93.9
    %
    
    
    95.2
    %
    
    
    (1.3
    %)
 
 (1)
    
    Does not include communities classified as discontinued operations.(2)
    
    Does not include occupancy at Ameriton properties or properties operated under the
master lease agreement with Oakwood.  Same-Store
    
    
    Same-StoreRevenue
    
    
    Expense
    
    
    Same-StoreGrowth
    
    
    Growth
    
    
    NOI GrowthQ3 2005 vs. Q3 2004Garden
    
    
    4.0
    %
    
    
    1.8
    %
    
    
    5.1
    %High-Rise
    
    
    4.4
    %
    
    
    0.3
    %
    
    
    6.8
    %Total
    
    
    4.1
    %
    
    
    1.2
    %
    
    
    5.7
    %YTD 2005 vs. YTD 2004Garden
    
    
    3.1
    %
    
    
    3.1
    %
    
    
    3.1
    %High-Rise
    
    
    3.5
    %
    
    
    5.7
    %
    
    
    2.3
    %Total
    
    
    3.3
    %
    
    
    4.2
    %
    
    
    2.8
    %
 Quarter-to-date NOI Analysis
     26




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##### Table of Contents



Year-to-date NOI Analysis
      Other Income
   27




---



##### Table of Contents



Depreciation Expense
   Interest Expense
   General and Administrative Expenses
  Other Expenses
   Income from Unconsolidated Entities
  28




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##### Table of Contents



Other Non-Operating Income
   Preferred Unit Distributions
  Discontinued Operations
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Rental revenues
    
    $
    25,498
    
    
    $
    57,235
    
    
    $
    90,357
    
    
    $
    189,500Rental expenses
    
    
    (8,125
    )
    
    
    (20,089
    )
    
    
    (29,445
    )
    
    
    (62,895
    )Real estate taxes
    
    
    (3,195
    )
    
    
    (6,690
    )
    
    
    (10,739
    )
    
    
    (23,674
    )Depreciation on real estate investments
    
    
    (2,975
    )
    
    
    (11,196
    )
    
    
    (17,059
    )
    
    
    (36,710
    )Interest expense (1)
    
    
    (5,462
    )
    
    
    (16,942
    )
    
    
    (20,532
    )
    
    
    (51,279
    )Estimated income taxes (Ameriton properties)
    
    
    (11,388
    )
    
    
    (16,521
    )
    
    
    (16,982
    )
    
    
    (15,507
    )Debt extinguishment costs related to dispositions
    
    
    
    
    
    
    
    
    
    
    (5,264
    )
    
    
    (1,120
    )Gains on
disposition of taxable REIT subsidiary real estate investments, net
    
    
    39,847
    
    
    
    55,417
    
    
    
    60,550
    
    
    
    69,930Gains on dispositions of REIT real estate investments, net
    
    
    94,543
    
    
    
    77,396
    
    
    
    134,102
    
    
    
    156,365Earnings from discontinued apartment communities
    
    $
    128,743
    
    
    $
    118,610
    
    
    $
    184,988
    
    
    $
    224,610
 29




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##### Table of Contents



(1)
    
    The portion of interest expense included in discontinued operations that is allocated
to properties based on the companys leverage ratio was $3.9 million and $12.2 million for
the three months ended September 30, 2005 and 2004, and $14.6 million and $36.6 million for
the nine months ended September 30, 2005 and 2004, respectively. Liquidity and Capital Resources
  Operating Activities
 Results of Operations
 Investing and Financing Activities
    
    
    Issued $400.7 million and $10.8 million of B Common Units as partial consideration
for real estate during the nine months ended September 30, 2005 and 2004, respectively;
    
    Issued $4.5 million of A-2 Common Units as partial consideration for real estate
during the first quarter of 2004;
    
    Redeemed $5.5 million and $46.9 million A-1 Common Units for A-2 Common Units during
the nine months ended September 30, 2005 and 2004, respectively;
    
    The conversion of $25.0 million each of Series K and Series L Preferred Units into
A-2 Common Units during 2004,
    
    Assumed mortgage debt of $654.7 million and $113.6 million during the nine months
ended September 30, 2005 and 2004, respectively; and,
    
    Issued $125.0 thousand each of Series N-1 and N-2 Convertible Redeemable Preferred
Units as partial consideration for real estate during the nine months ended September
30, 2005.
 Scheduled Debt Maturities and Interest Payment Requirements
  30




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##### Table of Contents



Unitholder Distribution Requirements
  Planned Investments
  Planned InvestmentsUnits
    
    
    Discretionary
    
    
    CommittedCommunities under redevelopment
    
    
    634
    
    
    $
    3,772
    
    
    $
    24,712Communities under construction
    
    
    4,443
    
    
    
    
    
    
    
    702,616Communities In Planning and owned
    
    
    4,048
    
    
    
    677,613
    
    
    
    Communities In Planning and Under Control
    
    
    336
    
    
    
    43,618
    
    
    
    Community acquisitions under contract
    
    
    5,069
    
    
    
    798,820
    
    
    
    Total
    
    
    14,530
    
    
    $
    1,523,823
    
    
    $
    727,328
   Funding Sources
 .
  31




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##### Table of Contents



Other Contingencies
      Critical Accounting Policies
  Internal Cost Capitalization
  32




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##### Table of Contents



Valuation of Real Estate
    Capital Expenditures and Depreciable Lives
   Pursuit Costs
  33




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##### Table of Contents



Off Balance Sheet Arrangements
 Investments in and Advances to Unconsolidated Entities
 Contractual Commitments
  
    
    We issued $300 million and $200 million in long-term unsecured ten-year senior notes
with a coupon rate of 5.25% and an effective interest rate of 5.4% and 5.26% from its shelf
registration statement during May and July of 2005, respectively.
    
    We redeemed $200 million of long-term unsecured ten-year senior notes with a coupon rate
of 8.2% and an effective interest rate of 8.4% during July of 2005.
    
    We guarantee $192.2 million of outstanding mortgage debt and are committed to guarantee
another $93.5 million upon funding of additional debt in connection with one of our
unconsolidated joint ventures.
    
    During the second quarter of 2005, we entered into a full and final settlement in the
United States District Court for the District of Maryland with three national disability
organizations and agreed to make capital improvements in a number of our communities in
order to make them fully compliant with FHA and ADA. The amount of the capital expenditures
required to remediate the communities named in the settlement is not quantifiable at the
present time. These expenditures will generally be capitalized as they are incurred. The
settlement agreement approved by the court allows us to remediate the designated
communities over the next three years.
    
    Please reference Planned Investmentsfor a summary of amounts committed for investing
activities.
 34




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 4. Controls and Procedures
  35




---



##### Table of Contents



PART
II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total Number
    
    
    Maximumof Units
    
    
    Approximate DollarNumber of
    
    
    Average
    
    
    Purchased as
    
    
    Value That May YetUnits
    
    
    Price Paid
    
    
    Part of Publicly
    
    
    Be Purchased UnderPeriod
    
    Purchased
    
    
    per Unit
    
    
    Announced Plan
    
    
    the Plan7/1/05  7/31/05
    
    
    75,136
    
    
    $
    41.17
    
    
    
    
    
    
    $
    8/1/05  8/31/05
    
    
    79,607
    
    
    
    40.03
    
    
    
    
    
    
    
    9/1/05  9/30/05
    
    
    10,182
    
    
    
    40.25
    
    
    
    
    
    
    
    Total
    
    
    164,925
    
    
    
    
    
    
    
    
 36




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##### Table of Contents



Item 6. Exhibits
  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 Officer31.2
    
    
    Certification of Chief Financial Officer32.1
    
    
    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
 37




---



##### Table of Contents



SIGNATURES
   BY:
    
    /s/ R. SCOT SELLERSR. Scot SellersChief Executive Officer
 BY:
    
    /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



INDEX TO EXHIBITS
 ExhibitsNumber
    
    Description12.1
    
    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 Officer31.2
    
    Certification of Chief Financial Officer32.1
    
    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