10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark One)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2004
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from           to           .

Commission File Number 1-10272

Archstone-Smith Operating Trust

(Exact name of Registrant as Specified in Its Charter)

MARYLAND	74-6056896
(State or other jurisdiction of incorporation or organization)	(IRS 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)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Class A-1 Common Units

(Title of Class)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

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

      Based on the closing price of Archstone-Smith Trust’s Common Shares on June 30, 2004, which are issuable upon the redemption of the A-1 Common Units, the aggregate market value of the Class A-1 Common Units held by non-affiliates of the registrant was approximately $617,614,803.

      At February 14, 2005 there were approximately 21,304,578 Class A-1 and Class B Common Units outstanding held by non-affiliates.

DOCUMENTS INCORPORATED BY REFERENCE

      None.

Table of Contents

	Item	Description	Page
PART I
		Glossary		3
1.		Business		7
		The Company		8
		Officers of the Operating Trust		13
		Employees		14
		Insurance		14
		Risk Factors		15
2.		Properties		19
		Geographic Distribution		19
		Real Estate Portfolio		20
3.		Legal Proceedings		22
4.		Submission of Matters to a Vote of Security Holders		23
PART II
5.		Market for the Registrant’s Common Equity and Related Stockholder Matters		23
6.		Selected Financial Data		26
7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
		Results of Operations		28
		Liquidity and Capital Resources		37
		Litigation and Contingencies		41
		Critical Accounting Policies		41
		Off Balance Sheet Arrangements		43
		Contractual Commitments		44
		Related Party Transactions		45
		New Accounting Pronouncements		45
7A.		Quantitative and Qualitative Disclosures About Market Risk		46
8.		Financial Statements and Supplementary Data		49
9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		50
9A.		Controls and Procedures		50
		Management’s Report on Internal Control Over Financial Reporting		50
		PART III
10.		Trustees and Executive Officers of the Registrant		51
11.		Executive Compensation		51
12.		Security Ownership of Certain Beneficial Owners and Management		51
13.		Certain Relationships and Related Transactions		52
14.		Principal Accounting Fees and Services		52
		PART IV
15.		Exhibits, Financial Statement Schedules		54
Amended and Restated Credit Agreement
Computation of Ratio of Earnings to Fixed Charges
Computation of Ratio of Earnings to Combined Fixed Charges
Consent of Independent Registered Public Accounting Firm
Subsidiaries
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

2

GLOSSARY

      The following abbreviations, acronyms or defined terms used in this document are defined below:

Abbreviation, Acronym or Defined Term	Definition/Description
A-1 Common Unitholders	Holders of A-1 Common Units.
A-1 Common Units	Operating Trust Class A-1 Common Units of beneficial interest, which are redeemable for cash, or at the option of Archstone-Smith, A-2 Common Units. A-1 Common Units are the only common units of the Operating Trust not held by Archstone-Smith and represent a minority interest of 10.9% in the Operating Trust at December 31, 2004.
A-2 Common Units	Class A-2 common units of beneficial interest. Archstone-Smith is the sole holder of A-2 Common Units, which represent approximately an 89.1% interest in the Operating Trust at December 31, 2004.
Ameriton	AMERITON Properties Incorporated, which is a taxable REIT subsidiary that engages in the opportunistic acquisition, development and eventual disposition of real estate with a shorter-term investment horizon.
Annual Report	This Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 2004.
Archstone-Smith	Archstone-Smith Trust, sole holder of the A-2 Common Units and sole trustee.
Board	Collectively, refers to Archstone-Smith’s Board of Trustees or to Archstone-Smith, our sole trustee, unless the context otherwise requires.
Class B Common Units	Operating Trust Common Units of beneficial interest issued in connection with contributions of property between dividend distribution dates; they are entitled to receive a pro-rata distribution with respect to the quarter in which the property is contributed and, after that distribution date, they automatically convert into A-1 Common Units.
Common Share(s)	Archstone-Smith common shares of beneficial interest, par value $0.01 per share.
Common Unit(s)	For periods prior to the Smith Merger and reorganization into an UPREIT, Archstone’s common shares of beneficial interest are referred to as Common Units.
Consolidated Engineering Services or CES	Consolidated Engineering Services, Inc. was a taxable REIT subsidiary in the business of delivering mission critical facilities management services for corporate, government and institutional customers. CES was sold to a third party in December 2002 for $178 million.
Convertible Preferred Units	Collectively, the Series A, H, J, K and L Preferred Units.
Declaration of Trust	The Operating Trust’s Amended and Restated Declaration of Trust as filed with the State of Maryland on October 26, 2001, as amended and supplemented.

3

Abbreviation, Acronym or Defined Term	Definition/Description
DEU	Dividend Equivalent Unit; an amount credited to certain options and RSU’s under Archstone-Smith’s long-term incentive plan.
Distributions	Refers to dividends paid by Archstone on either Archstone common or preferred shares of beneficial interest paid prior to the UPREIT reorganization and Smith Merger. Subsequent to the Smith Merger, refers to distributions paid on Operating Trust Common Units or Preferred Units.
FASB	Financial Accounting Standards Board.
GAAP	Generally accepted accounting principles in the United States.
Independent Trustees	Members of the Board with no employment relationship.
In Planning	Parcels of land owned or Under Control, which are in the development planning process, upon which construction of apartments is expected to commence within 36 months.
IRR	Internal Rate of Return, calculated as the cash rate of return generated over the investment holding period on invested capital.
Lease-Up	The phase during which newly constructed apartment units are being leased for the first time, but prior to the community becoming Stabilized.
LIBOR	London Interbank Offered Rate.
Long-Term Unsecured Debt	Collectively, the Operating Trust’s long-term unsecured senior notes payable and tax-exempt unsecured bonds.
NAREIT	National Association of Real Estate Investment Trusts.
Net Operating Income or NOI	Represents rental revenues less rental expenses and real estate taxes. We rely on NOI for purposes of making decisions about resource allocations and assessing segment performance. We also believe NOI is a valuable means of comparing period-to-period property performance. See a reconciliation of NOI to Earnings from Operations in this Annual Report under the caption Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — “Apartment Community Operations”.
NYSE	New York Stock Exchange.
Operating Trust	Archstone-Smith Operating Trust.
Perpetual Preferred Units	Collectively, the Series B, C, D, I and M Preferred Units. These units are not convertible, but are redeemable at the option of Archstone-Smith after certain future dates.
Preferred Units	Collectively, the Series A, B, C, D, H, I, J, K, L and M Preferred Units.
REIT	Real estate investment trust.
Restricted Share Unit or RSU	A unit representing an interest in one Common Unit, subject to certain vesting provisions, through our long-term incentive plan.

4

Abbreviation, Acronym or Defined Term	Definition/Description
Same-Store	Term used to refer to a group of operating communities that had attained stabilization and were fully operating during the entire time two periods are being compared. Excludes communities which were not eligible for inclusion due to (i) recent acquisition or development, (ii) major redevelopment, or (iii) a significant number of non- operational units (fires, floods, etc.). Also excludes the Ameriton properties due to their short-term holding periods.
Series A Preferred Units	Operating Trust Series A Cumulative Preferred Units of Beneficial Interest, par value $0.01 per unit, which were redeemed in full in November 2003.
Series B Preferred Units	Operating Trust Series B Cumulative Perpetual Preferred Units of Beneficial Interest, par value $0.01 per unit, which were redeemed in full in May 2001.
Series C Preferred Units	Operating Trust Series C Cumulative Perpetual Preferred Units of Beneficial Interest, par value $0.01 per unit, which were redeemed in full in August 2002.
Series D Preferred Units	Operating Trust Series D Cumulative Perpetual Preferred Units of Beneficial Interest, par value $0.01 per unit, which were redeemed in full in August 2004.
Series E Perpetual Preferred Units	8.375% Cumulative Perpetual Preferred Units. 520,000 units were redeemed in August 2004 and 400,000 Units were redeemed in November 2004.
Series F Perpetual Preferred Units	8.125% Cumulative Perpetual Preferred Units, which were redeemed in full in September 2004, redeemable in March 2005.
Series G Perpetual Preferred Units	8.625% Cumulative Perpetual Preferred Units.
Series H Preferred Units	Operating Trust Series H Cumulative Convertible Perpetual Preferred Units of Beneficial Interest, par value $0.01 per unit, which were converted into Common Units in full in May 2003.
Series I Preferred Units	Operating Trust Series I Cumulative Perpetual Preferred Units of Beneficial Interest, par value $100,000 per unit, redeemable in February 2028.
Series J Preferred Units	Operating Trust Series J Cumulative Convertible Perpetual Preferred Units of Beneficial Interest, par value $0.01 per unit, which were converted into Common Units in full in July 2002.
Series K Preferred Units	Operating Trust Series K Cumulative Convertible Perpetual Preferred Units of Beneficial Interest, par value $0.01 per unit, which were converted into Common Units in September 2004.
Series L Preferred Units	Operating Trust Series L Cumulative Convertible Perpetual Preferred Units of Beneficial Interest, par value $0.01 per unit, which were converted into Common Units in December 2004.
Series M Preferred Unit	Operating Trust Series M Preferred Unit of Beneficial Interest, par value $0.01 per unit.
Service Businesses	Collectively, Consolidated Engineering Services and Smith Management Construction. Both of these taxable REIT subsidiaries were acquired in the Smith Merger and subsequently sold by the Operating Trust.

5

Abbreviation, Acronym or Defined Term	Definition/Description
Smith Management Construction or SMC	Smith Management Construction Incorporated was a taxable REIT subsidiary in the business of providing construction management and building maintenance services. SMC was sold to members of its senior management in February 2003.
Smith Merger	The series of merger transactions in October 2001 whereby Archstone-Smith merged with Smith Residential and Archstone Communities Trust merged with Smith Partnership.
Smith Partnership	Charles E. Smith Residential Realty, L.P.
Smith Residential	Charles E. Smith Residential Realty, Inc.
SFAS	Statement of Financial Accounting Standards.
Stabilized or Stabilization	The classification assigned to an apartment community that has achieved 93% occupancy, and for which development, new management and new marketing programs (or development and marketing in the case of a newly developed community) have been completed.
Total Expected Investment	For development communities, represents the total expected investment at completion; for operating communities, represents the total expected investment plus planned capital expenditures.
Trustees	Members of the Board of Trustees of Archstone-Smith.
Under Control	Land parcels we do not own, yet has an exclusive right (through contingent contract or letter of intent) during a contractually agreed upon time period to acquire for the future development of apartment communities, subject to approval of contingencies during the due diligence process.
UPREIT	Umbrella Partnership Real Estate Investment Trust.

6

Forward-Looking Statements

      Certain statements in this Annual Report 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 develop, acquire or dispose of apartment communities. Capital and credit market conditions, which affect our cost of capital, also influence operating results. See “Risk Factors” in Item 1 of this Annual Report for a complete discussion of the various risk factors that could affect our future performance.

PART I

Item 1. Business

      The Operating Trust (the Company) is a recognized leader in apartment investment and operations. We own and operate a portfolio of high-rise and garden-style communities that we believe cannot be replicated by any other public or private apartment company. Our significant concentration of high-rise assets, which represent approximately 35% of our portfolio based on NOI, also makes us unique in the industry. Our investment professionals generally live in their local markets, allowing them to thoroughly research and evaluate potential investments with a focus on the street corner level of detail. We use this information to continually upgrade the quality of our portfolio. As a result, our portfolio is concentrated in many of the most desirable and expensive neighborhoods in the Washington, D.C. metropolitan area, Southern California, the San Francisco Bay area, Chicago, the New York City metropolitan area, Boston, Southeast Florida and Seattle. Through our two customer-facing brands, Archstone and Charles E. Smith, we strive to provide great apartments and great service, all backed by our unconditional Seal of Service^tm guarantees.

      As of December 31, 2004, we owned or had an ownership position in 46 high-rise communities and 189 garden-style communities, representing a total of 235 communities and 81,188 units, including 5,229 units under construction. At year-end, our operating portfolio was concentrated in protected locations in the following core markets, based on NOI (excluding communities owned by Ameriton):

Washington, D.C. Metropolitan Area		39.4	%
Southern California		18.9
San Francisco Bay Area, California		8.2
Chicago, Illinois		6.1
New York City Metropolitan Area		4.9
Boston, Massachusetts		4.7
Southeast Florida		4.7
Seattle, Washington		3.1
Other		10.0
	Total:	100.0	%

7

The Company

      We are engaged primarily in the operation, development, redevelopment, acquisition and long-term ownership of apartment communities in the United States. We are structured as an UPREIT, under which all property ownership and business operations are conducted through the Operating Trust. Archstone-Smith is our sole trustee and owned 89.1% of the Operating Trust at December 31, 2004. Archstone-Smith Common Shares trade on the New York Stock Exchange (NYSE: ASN).

      We strive to create value for our unitholders by:

•  Maximizing the performance of our apartment communities by (i) generating long-term sustainable growth in operating cash flow, (ii) recruiting, training and retaining people who we believe are the best in the apartment business, (iii) strengthening our operating platform, (iv) leveraging the equity of our brands, (v) investing in technology that improves our core business and (vi) solidifying our reputation for innovative, operational leadership;

•  Acquiring, developing and operating apartments in markets characterized by: (i) protected locations with limited land on which to build new housing; (ii) expensive single-family home prices; and (iii) a strong, diversified economic base with good employment growth potential; and

•  The selective sale of apartment communities, which allows us to continually upgrade our portfolio by using proceeds to fund investments with higher anticipated growth prospects in outstanding locations in our eight core markets.

2004 Accomplishments

Attractive Shareholder Returns and Dividends

•  We produced a total unitholder return (TSR) of 48.8% in 2004. The Company’s 2004 TSR exceeded the S&P 500 Index and the National Real Estate Investment Trusts (NAREIT) Apartment Index by 3,791 and 1,407 basis points, respectively.

•  We paid a one-time special distribution of $1.00 per common unit to all common unitholders of record on December 23, 2004. The $1.00 per unit was in addition to the Company’s annual common unit distribution of $1.72 per share in 2004. The special distribution resulted primarily from the fourth quarter sale of approximately $596 million of non-core assets to condominium converters at an average capitalization rate below 4%, which created substantial value for our unitholders.

•  We also increased our 2005 annualized common unit distribution level to $1.73, or $0.4325 per quarter, up from $1.72. This marks our 15th consecutive annual common unit distribution increase and a total increase of 170% since 1991. Our first quarter 2005 common unit distribution paid in February represented our 118th consecutive quarterly payment.

Recognition

•  On December 17, 2004, Archstone-Smith was added to the Standard & Poors 500 Index (S&P 500), which has been a long-term corporate goal.

•  We were recognized as one of America’s Most Admired Companies by Fortune magazine in 2004, ranking as the number-one apartment company on the list.

•  Forbes magazine ranked Archstone-Smith at 956 on the Forbes 2000 List, the magazine’s comprehensive ranking of the world’s largest corporations.

Operations and Investment Highlights

•  The Operating Trust’s Same-Store reported NOI in 2004 is approximately the same as it was in 2001, in spite of our peer group average being down approximately 9% for that same time period.

8

•  We accelerated the implementation of MRI, a web-based, customer-centric property management system that automates virtually all of our daily on-site leasing and reporting tasks. Developed with our input by Intuit Real Estate Solutions (NASDAQ: INTU), MRI allows our site teams to better track customer service requests, manage customer records and execute leases more efficiently — which we believe enhances our customers’ experience with us. MRI is operational in 201 communities as of February 14, 2005, with full portfolio implementation anticipated by mid-2005.

•  We introduced resident-only web sites, which allow customers 24/7 access to us to complete new leases, pay rent online, submit and track service requests, view and update account information and more.

•  In 2004, we acquired $866.2 million of assets, excluding Ameriton, representing 3,753 units, and completed the development of $182.6 million of assets, representing 678 units in our core markets. Approximately 90% of our portfolio is now concentrated in our core markets.

•  We completed the disposition of $1.4 billion of non-core assets, excluding Ameriton, representing 9,430 units, generating GAAP gains of $372.2 million and an average unleveraged internal rate of return (IRR) of 13.8%.

•  Ameriton, our wholly owned subsidiary that utilizes our development, acquisition and operating expertise to capitalize on short-term real estate investment opportunities, completed the sale of $360 million of assets in 2004, generating GAAP pre-tax gains of $65.1 million and an average unleveraged pre-tax IRR of 36.6%.

Customer-focused Operations

      We believe that our long-term cash flow growth is enhanced by the Archstone and Charles E. Smith brands, our efficient operating platform, robust and scalable technology, and continued investment in our associates.

      Powerful brands. An essential component of our strategy is to consistently offer a higher level of service at our apartment communities. Through our Seal of Service,^tm we offer our residents convenience and flexibility all backed by written guarantees. The Seal of Service^tm helps to create customer loyalty and trust, and increase the likelihood of renewals and referrals.

      Core Process Standardization. We believe that we can create a distinct competitive advantage by identifying and implementing the best practices for our most critical processes and standardizing them at each of our communities. To do this, we assembled a Core Process Project (CPP) team to focus on three important customer touch-points: (i) customer inquiries and leasing, (ii) the move-in experience, and (iii) renewal, transfer or move-out. To capture best practices, the CPP team conducts extensive field research with front-line associates to translate proven tactics into scalable tools that ensure consistency in our day-to-day customer interactions.

      In 2004, the CPP team rolled out Leasing Call Excellence, a call-coaching program that dramatically improves our phone interactions with customers. The CPP team began the roll-out of the Move-in Tracker, a system that standardizes the various tasks needed to prepare for new residents — and ensure consistent, defect-free move-ins across our portfolio. We believe that by enhancing our customers’ experiences with us at these critical touch points, we will ultimately increase customer acquisition, retention and referrals.

      Investing in technology. We invest in technology to improve our core operations and make it easier for our customers to do business with us. In 2004, we accelerated the roll-out of MRI, our web-based property management system. As of February 14, 2005, MRI was operational in 201 communities, with a full roll-out expected by mid-2005.

      MRI provides a seamless online interface with our customers via resident-only web sites, allowing customers 24/7 access to us to complete new leases, pay rent online, submit service requests and more. Online rent payment went live in January 2004; by the end of the year, we had collected a total of $11.3 million in online rent payments including approximately $4 million in December 2004 indicating accelerating usage of

9

the product. Since May 2004, when online lease was rolled out, we have executed nearly 200 online leases. These resident web sites — and the online leasing and rent payment functionality — are expected to be fully rolled out across our portfolio by July 2005.

      In addition, MRI’s automated work order solution improves our ability to manage and execute service requests, one of our most important customer relations functions. Equally important, the system gives us the ability to accurately track resident histories to better understand and serve our customers.

      Investing in our associates. A critical component to ensuring the integrity of our brand offering is attracting, training and retaining the best professionals in our industry — and giving them the support and tools to provide an exceptional customer experience.

      Through our Training Community program, new community associates spend two to four days at a designated training community — one that exemplifies excellence in operations and customer service — in their market. New associates are teamed with a Training Ambassador, a community-based associate in a comparable position, to learn our processes first-hand before they begin interacting with customers on their own. Over the past year, we have added full-time Training Ambassadors in our core markets. These full-time Ambassadors are dedicated to training new associates and providing critical one-on-one follow-up after 30 days of employment for additional training support. We believe that this hands-on training better prepares new associates to deliver on our brand promises and create a consistent — and positive — customer experience.

      In addition to the Training Community and Training Ambassador programs, each of our community management and leasing associates receives extensive training in their first year through our Customer-centered Sales Excellence (CCSE) training program. CCSE’s seven training modules cover the various aspects of our sales process and are offered to associates in manageable half-day classes. We are also dedicated to ongoing training for each of our associates.

      In 2004, we expanded The Practice of Leadership, our feedback-based training program, from operations and regional service managers to include corporate managers and non-operations functions, giving them the tools to become better leaders. This three-day program focuses on six leadership practices consistent with our company culture and values that we believe drive our success. This program is complemented by a feedback component, through which direct reports and peers evaluate corporate managers to identify strengths and opportunities for improvement. Community and Service Managers attend a comparable 3-day program, Leading Teams at Archstone-Smith, where they learn — and practice applying ideas, techniques and tools — to enhance their effectiveness as team leaders. Approximately 375 community, service and corporate managers attended the Program in 2004.

Investment Strategy

      Protected markets. We invest our capital in protected markets, where there is a very limited amount of land on which new housing can be developed, which minimizes new competition. In addition to supply constraints, our core markets are characterized by very expensive single-family home prices and a strong, diversified economic base with employment growth potential, which we believe maximizes our ability to maintain occupancy and produce sustainable long-term cash flow growth.

      Capital recycling program. We utilize a successful capital allocation strategy, using the selective sale of non-core assets to redeploy disposition proceeds into investments with higher anticipated long-term growth prospects. We believe that concentrating our portfolio in protected markets improves our growth rate, value creation and long-term business fundamentals.

      Our locally based investment professionals generally live in their local markets, allowing them to thoroughly research and evaluate potential investments at the street corner level of detail. This locally based investment acumen guides our decisions in making investments, allowing us to continually upgrade the quality of our portfolio. As a result, our portfolio is concentrated in many of the most desirable neighborhoods in the Washington, D.C. metropolitan area, Southern California, the San Francisco Bay area, Chicago, the New York City metropolitan area, Boston, Southeast Florida and Seattle.

10

      We believe that one of our most important responsibilities is to consistently make intelligent capital allocation decisions that maximize shareholder value. For example, we took advantage of an extraordinary opportunity to sell $596 million of non-core assets to condominium converters at very attractive sales prices in the fourth quarter of 2004. We believe the sale of these non-strategic assets at very low cap rates demonstrates the tremendous value embedded in our remaining portfolio.

      Development and redevelopment. We believe we create significant value through the development of new apartment communities and the redevelopment of existing operating communities. At December 31, 2004, we had 3,587 units, representing a Total Expected Investment of $952.5 million, of development communities under construction (excluding Ameriton) in markets that include Southern California, downtown Boston, the Washington, D.C. metropolitan area and the New York City metropolitan area.

      In 2004, we completed $182.6 million of new development communities (excluding Ameriton), representing 678 units in markets that include Playa del Rey, Pasadena, and Los Angeles, Calif. During the year, four development properties achieved Stabilization, representing a Total Expected Investment of $191.7 million and adding a total of 786 units to our same-store operating portfolio.

      Ameriton Properties Incorporated. Ameriton is a wholly owned subsidiary of the Operating Trust that utilizes the Company’s development, acquisition and operating expertise to capitalize on short-term real estate investment opportunities. In 2004, Ameriton completed the sale of $360 million of assets it had previously developed or acquired, representing 2,618 units. Since 2000, Ameriton has completed $961 million in dispositions, generating pre-tax GAAP gains of $113 million; the weighted average unleveraged pre-tax IRR on these dispositions was approximately 24.7%. As of December 31, 2004, Ameriton had $400 million, representing 3,009 units, of communities in development and owned or had an ownership position in $372 million of operating communities, representing 4,131 units, that will be opportunistically sold over time.

Conservative Balance Sheet Management

      One of our primary financial objectives is to structure our balance sheet to enhance our financial flexibility in order to have access to capital when others in the industry do not. Archstone-Smith has a significant equity base, with equity market capitalization of $8.6 billion, including the value of the A-1 Common Units, as of December 31, 2004. Our investment-grade debt ratings from Standard & Poor’s (BBB+), Moody’s Investors Service (Baa1) and Fitch, Inc. (BBB+) are indicative of our solid financial position.

      In 2004, we increased our unencumbered asset base to $6.1 billion as of the end of the year. As of February 14, 2005, we had approximately $827 million of liquidity, including cash on hand, restricted cash in escrows and capacity on unsecured credit facilities. We believe this financial flexibility allows us to act more quickly on new investment opportunities as they arise.

      Archstone-Smith repurchased $98.4 million of its common stock in 2004, at prices ranging from $26.79 to $35.50 per share at an average price of $27.93 per share. In the fourth quarter, we paid a $221 million one-time special distribution of $1.00 per share while maintaining our relatively low ratio of total debt-to-undepreciated-book-capitalization of 43.7% at year-end. We also called all of our outstanding Series D Preferred Units and Series F Perpetual Preferred Units as well as a portion of our Series E Perpetual Preferred Units for redemption. Additionally, the Series K and Series L Preferred Units were converted into Common Units during 2004. The redemption and conversion of these Preferred Units strengthens our balance sheet and will have a positive impact on our fixed charge coverage ratio going forward.

      During the fourth quarter of 2004, we opportunistically took advantage of the increased liquidity in the banking market to extend the maturity date of our $600 million unsecured line of credit to December 2007 from October 2006. The syndication of our facility was heavily over-subscribed, as we received over $850 million of commitments from 23 domestic and international financial institutions. We also renegotiated several key terms, such as reducing our pricing by 10 basis points to a LIBOR spread of 50 bps, and lowered the cap rate used to value our operating portfolio. With these modifications, we now enjoy the lowest facility

11

pricing and portfolio cap rate of any REIT to our knowledge, which will directly benefit the Company over the next three years.

      Our long-term debt is structured to create a relatively level principal maturity schedule, without significant repayment obligations in any year. We have only $313.7 million of long-term debt maturing in 2005, representing 2.5% of our total market capitalization. The following summarizes our long-term debt maturity profile for 2005 through 2009, and thereafter, as of December 31, 2004 (dollar amounts in millions):

				% of Total Market
Year		Total		Capitalization(1)
2005		$	313.7		2.5	%
2006			295.5		2.3	%
2007			542.5		4.3	%
2008			456.6		3.6	%
2009			454.6		3.6	%
Thereafter			2,067.7		16.2	%
	Total	$	4,130.6		32.4	%

(1)  Total market capitalization as of December 31, 2004, represents the market capitalization based on the closing share price on the last trading day of the period for publicly traded securities and the liquidation value for private securities as well as the book value of total debt for Archstone-Smith.

      Consistent dividend growth. We paid distributions totaling $2.72 per common unit in 2004, including our annualized quarterly distribution of $1.72 per unit and a one-time special distribution of $1.00 per share. The special distribution resulted from the sale of approximately $596 million of non-core assets to condominium converters at an average combined capitalization rate below 4% in the fourth quarter of 2004. In addition, we announced our anticipated 2005 distribution level of $1.73 per unit, a 170% increase since 1991, the year we began to focus exclusively on apartment communities. With the 2005 increase, we have raised our annual distribution for 15 consecutive years. We have paid 118 consecutive quarterly distributions.

Management

      We have several senior executives who possess the leadership, operational, investment and financial skills and experience to oversee the overall operation of our Company. Several of our senior officers could serve as the principal executive officer and continue our strong performance. Our management team emphasizes active training and organizational development initiatives for associates at all levels of our Company in order to build long-term management depth and facilitate succession planning.

12

Officers of the Operating Trust

Senior Officers of the Operating Trust

      The senior officers of the Operating Trust are:

Name	Title
R. Scot Sellers	Chairman and Chief Executive Officer
J. Lindsay Freeman	Chief Operating Officer
Charles E. Mueller, Jr.	Chief Financial Officer
Alfred G. Neely	Chief Development Officer and President of the High-Rise Division
Dana K. Hamilton	Executive Vice President — National Operations
Caroline Brower	General Counsel and Secretary
Daniel E. Amedro	Senior Vice President and Chief Information Officer
Mark A. Schumacher	Senior Vice President and Chief Accounting Officer

Biographies of Senior Officers

      R. Scot Sellers – 48 — Trustee, Chairman and Chief Executive Officer of the Operating Trust since June 1997, with overall responsibility for the Operating Trust’s strategic direction, investments and operations; Co-Chairman and Chief Investment Officer of the Operating Trust from July 1998 to December 1998. From September 1994 to June 1997, Managing Director of the Operating Trust, where he had overall responsibility for the Operating Trust’s investment strategy and implementation; Senior Vice President of the Operating Trust from May 1994 to September 1994. Mr. Sellers is a member of the Executive Committee and First Vice Chairman of the Board Governors of NAREIT; a member of the Executive Committee of the Board of Directors of the National Multi Housing Council; Director of Christian International Scholarship Foundation; Director of Alliance for Choice in Education.

      J. Lindsay Freeman – 59 — Chief Operating Officer since September 2002, with responsibility for managing all investment and operating activities for the Operating Trust; President-East Division of the Operating Trust from October 2001 to September 2002, with responsibility for all investments and operations of the East Division; from July 1998 to October 2001, Managing Director of the Operating Trust, with responsibility for investments and operations in the East and Central Regions; Managing Director of Security Capital Atlantic Incorporated from December 1997 to July 1998; Senior Vice President of Security Capital Atlantic Incorporated from May 1994 to November 1997; previously, Senior Vice President and Operating Partner of Lincoln Property Company in Atlanta, Georgia, where he was responsible for acquisitions, financing, construction and management of apartment communities within the Atlantic region and oversaw operations of 16,000 apartment units.

      Charles E. Mueller, Jr. – 41 — Chief Financial Officer of the Operating Trust since December 1998, with responsibility for the planning and execution of the Company’s financial strategy and balance sheet management; Mr. Mueller oversees the Company’s accounting/financial reporting, corporate finance, investor relations, corporate and property tax, due diligence and risk management functions. Vice President of the Operating Trust from September 1996 to December 1998; prior thereto, he held various financial positions with Security Capital, where he provided financial services to Security Capital and its affiliates.

      Alfred G. Neely – 59 — Named President of High-Rise Division in February 2005. Chief Development Officer of the Operating Trust since April 2003, with responsibility for the oversight and direction of all the Operating Trust residential development projects; Executive Vice President of the Operating Trust or Charles E. Smith Residential Realty, Inc. from April 1989 to April 2003 with responsibility for oversight and direction of High-Rise residential development projects; Executive Vice President and Managing General Partner of the New Height Group from August 1981 to April 1989 with responsibility for the development and

13

management of 2.5 million square feet of mixed-use property; General Manager of a 1,100-acre mixed-use business park from October 1973 to April 1981 where he managed the development of 3.5 million square feet of corporate user buildings.

      Dana K. Hamilton – 36 — Executive Vice President-National Operations for the Operating Trust since May 2001, with responsibility for corporate services, including human resources, training and development, marketing and corporate communications, and new business development; Senior Vice President of the Operating Trust from December 1998 to May 2001; Vice President from December 1996 to December 1998, with responsibility for new product development and revenue enhancement through portfolio-wide initiatives.

      Caroline Brower – 56 — General Counsel and Secretary of the Operating Trust since September, 1999, with responsibility for legal and corporate governance; from September 1998 to September 1999, President of Ameriton Properties Incorporated; prior thereto, Ms. Brower was a partner of Mayer, Brown & Platt (now Mayer, Brown, Rowe & Maw, LLP) where she practiced transaction and real estate law.

      Daniel E. Amedro – 48 — Chief Information Officer and Senior Vice President of the Operating Trust since January 1999, with primary responsibility for the Company’s information technology functions and initiatives; Chief Information Officer and Vice President from May 1998 to January 1999; from September 1996 to March 1998, Vice President of Information Services for American Medical Response, the largest private ambulance operation in the United States; prior thereto, Vice President of Information Services for Hyatt Hotels and Resorts, where he was responsible for all strategic information systems including Spirit, Hyatt’s worldwide reservation system, which supported over 50,000 users and was recognized as the leading reservations system in the hospitality industry.

      Mark A. Schumacher – 46 — Senior Vice President and Chief Accounting Officer of the Operating Trust since January 2002, with principal responsibility for accounting and financial reporting; prior thereto, Vice President and Corporate Controller of Qwest Communications International from December 2000 to December 2001 where he had principal responsibility for accounting and financial reporting; from April 1991 to December 2000, held various senior and executive level positions in the accounting and financial reporting departments of US West; from April 1984 to April 1991 he held various managerial level positions in the accounting and financial reporting department of US West.

Employees

      We currently employ approximately 2,640 individuals, of whom approximately 2,080 are focused on the site-level operation of our garden communities and high-rise properties. Of the site-level associates, approximately 125 are subject to collective bargaining agreements with four unions in Illinois and New York. The balance are professionals who manage corporate and regional operations, including our investment program, property operations, financial activities and other support functions. We consider our relationship with our employees to be very good.

Insurance

      We carry comprehensive general liability coverage on our owned communities, with limits of liability customary within the industry to insure against liability claims and related defense costs. Similarly, we are insured against the risk of direct physical damage in amounts necessary to reimburse the Company on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period. Our property policies for all operating and development communities include coverage for the perils of flood and earthquake shock with limits and deductibles customary in the industry. We also obtain title insurance policies when acquiring new properties, which insure fee title to our real properties. We currently have coverage for losses incurred in connection with both domestic and foreign terrorist-related activities. The terms of our property and general liability policies may exclude certain mold-related claims or other types of claims based on the specific circumstances and allegations. Should an uninsured loss arise against the Company, we would be required to use our own funds to resolve the issue, including litigation costs.

14

Competition

      There are numerous commercial developers, real estate companies and other owners of real estate that we compete with in seeking land for development, apartment communities for acquisition and disposition and residents for apartment communities. All of our apartment communities are located in developed areas that include other apartment communities. The number of competitive apartment communities in a particular area could have a material adverse effect on our ability to lease units and on the rents charged. In addition, single-family homes and other residential properties provide housing alternatives to residents and potential residents of our apartment communities.

Available Information and Code of Ethics

      Our web site is http://www.archstonesmith.com. We make available free of charge, on or through our web site, our annual, quarterly and current reports, as well as any amendments to these reports, as soon as reasonably practicable after electronically filing these reports with the Securities and Exchange Commission. The reference to our web site does not incorporate by reference the information contained in the web site and such information should not be considered a part of this report. We have adopted a code of ethics and business conduct applicable to our Board and officers and employees, including our principal executive officer, principal financial officer and principal accounting officer or controller. A copy of our code of ethics and business conduct is included as an exhibit to this report and is available through our web site. In addition, copies of the code of ethics and business conduct can be obtained, free of charge, upon written request to Investor Relations, 9200 East Panorama Circle, Suite 400, Englewood, Colorado 80112. Any amendments to or waivers of our code of ethics and business conduct that apply to the principal executive officer, principal financial officer and principal accounting officer or controller and that relate to any matter enumerated in Item 406(b) of Regulation S-K, will be disclosed on our web site.

Risk Factors

      The following factors could affect our future financial performance:

     We have restrictions on the sale of certain properties.

      A sale of any of the properties acquired in the Smith Merger prior to January 1, 2022, could result in increased costs to us in light of the tax-related obligations made to the former Smith Partnership Unitholders. Under the shareholders’ agreement between Archstone-Smith, the Operating Trust, Robert H. Smith and Robert P. Kogod, we are restricted from transferring specified high-rise properties located in the Crystal City area of Arlington, Virginia until October 31, 2016, without the consent of Messrs. Smith and Kogod, which could result in our inability to sell these properties at an opportune time and at increased costs to us. However, we are permitted to transfer these properties in connection with a sale of all of the properties in a single transaction or pursuant to a bona fide mortgage of any or all of such properties in order to secure a loan or other financing.

     We depend on our key personnel.

      Our success depends on our ability to attract and retain the services of executive officers, senior officers and company managers. There is substantial competition for qualified personnel in the real estate industry and the loss of several of our key personnel could have an adverse effect on us.

     Debt financing could adversely affect our performance.

      We are subject to risks associated with debt financing and preferred equity. These risks include the risks that we will not have sufficient cash flow from operations to meet required payments of principal and interest or to pay distributions on our securities at expected rates, that we will be unable to refinance current or future indebtedness, that the terms of any refinancing will not be as favorable as the terms of existing indebtedness, and that we will be unable to make necessary investments in new business initiatives due to lack of available funds. Increases in interest rates could increase interest expense, which would adversely affect net earnings

15

and cash available for payment of obligations. If we are unable to make required payments on indebtedness that is secured by a mortgage on our property, the asset may be transferred to the lender with a consequent loss of income and value to us.

      Additionally, our debt agreements contain customary covenants which, among other things, restrict our ability to incur additional indebtedness and, in certain instances, restrict our ability to engage in material asset sales, mergers, consolidations and acquisitions. These debt agreements also require us to maintain various financial ratios. Failure to comply with these covenants could result in a requirement to repay the indebtedness prior to its maturity, which could have an adverse effect on our operations and ability to make distributions to unitholders.

      Some of our debt instruments bear interest at variable rates. Increases in interest rates would increase our interest expense under these instruments and would increase the cost of refinancing these instruments and issuing new debt. As a result, higher interest rates would adversely affect cash flow and our ability to service our indebtedness.

      We had $4.1 billion in total debt outstanding as of December 31, 2004, of which $2.0 billion was secured by real estate assets and $590.5 million was subject to variable interest rates, including $19.0 million outstanding on our short-term credit facilities.

     Archstone-Smith may not have access to equity capital.

      A prolonged period in which we cannot effectively access the public equity markets may result in heavier reliance on alternative financing sources to undertake new investment activities. These alternative sources of financing may be more costly than raising funds in the public equity markets.

     We could be subject to acts of terrorism.

      Periodically, we receive alerts from government agencies that apartment communities could be the target of both domestic and foreign terrorism. Although we currently have insurance coverage for losses incurred in connection with terrorist-related activities, losses could exceed our coverage limits and have a material adverse affect on our operating results.

     We are subject to risks inherent in ownership of real estate.

      Real estate cash flows and values are affected by a number of factors, including changes in the general economic climate, local, regional or national conditions (such as an oversupply of communities or a reduction in rental demand in a specific area), the quality and philosophy of management, competition from other available properties and the ability to provide adequate property maintenance and insurance and to control operating costs. Real estate cash flows and values are also affected by such factors as government regulations, including zoning, usage and tax laws, interest rate levels, the availability of financing, property tax rates, utility expenses, potential liability under environmental and other laws and changes in environmental and other laws. Although we seek to minimize these risks through our market research and property management capabilities, they cannot be totally eliminated.

     We are subject to risks inherent in real estate development.

      We have developed or commenced development on a substantial number of apartment communities and expect to develop additional apartment communities in the future. Real estate development involves risks in addition to those involved in the ownership and operation of established communities, including the risks that financing, if needed, may not be available on favorable terms, construction may not be completed on schedule, contractors may default, estimates of the costs of developing apartment communities may prove to be inaccurate and communities may not be leased or rented on profitable terms or in the time frame anticipated. Timely construction may be affected by local weather conditions, local moratoria on construction, local or national strikes and local or national shortages in materials, building supplies or energy and fuel for equipment. These risks may cause the development project to fail to perform as expected.

16

     Real estate investments are relatively illiquid and we may not be able to sell properties when appropriate.

      Equity real estate investments are relatively illiquid, which may tend to limit our ability to react promptly to changes in economic or other market conditions. Our ability to dispose of assets in the future will depend on prevailing economic and market conditions.

     Compliance with environmental regulations may be costly.

      We must comply with certain environmental and health and safety laws and regulations related to the ownership, operation, development and acquisition of apartments. Under those laws and regulations, we may be liable for, among other things, the costs of removal or remediation of certain hazardous substances, including asbestos-related liability. Those laws and regulations often impose liability without regard to fault. As part of our due diligence procedures, we have conducted Phase I environmental assessments on each of our communities prior to acquisition; however, we cannot give any assurance that those assessments have revealed all potential liabilities.

     Costs associated with moisture infiltration and resulting mold remediation may be costly.

      As a general matter, concern about indoor exposure to mold has been increasing as such exposure has been alleged to have a variety of adverse effects on health. As a result, there has been a number of lawsuits in our industry against owners and managers of apartment communities relating to moisture infiltration and resulting mold. We have implemented guidelines and procedures to address moisture infiltration and resulting mold issues if and when they arise. We believe that these measures will minimize the potential for any adverse effect on our residents. The terms of our property and general liability policies after June 30, 2002, may exclude certain mold-related claims. Should an uninsured loss arise against the Company, we would be required to use our own funds to resolve the issue, including litigation costs. We can make no assurance that liabilities resulting from moisture infiltration and the presence of or exposure to mold will not have a future material impact on our financial results.

     Changes in laws may result in increased cost.

      We may not be able to pass on increased costs resulting from increases in real estate taxes, income taxes or other governmental requirements, such as the enactment of regulations relating to internal air quality, directly to our residents. Substantial increases in rents, as a result of those increased costs, may affect the ability of a resident to pay rent, causing increased vacancy.

     Archstone-Smith’s failure to qualify as a REIT would have adverse consequences.

      We believe that Archstone-Smith has qualified for taxation as a REIT under the Internal Revenue Code and they plan to continue to meet the requirements for taxation as a REIT. They cannot, however, guarantee that they will continue to qualify in the future as a REIT. They cannot give any assurance that new legislation, regulations, administrative interpretations or court decisions will not significantly change the requirements relating to Archstone-Smith’s qualification. If they fail to qualify as a REIT, we would be subject to federal income tax at regular corporate rates. Also, unless the Internal Revenue Service granted them relief, they would remain disqualified as a REIT for four years following the year in which they failed to qualify. In the event that they failed to qualify as a REIT, they would be required to pay significant income taxes and would have less money available for operations and distributions to unitholders. This would likely have a significant adverse effect on the value of our securities and our ability to raise additional capital. In order to maintain our qualification as a REIT under the Internal Revenue Code, Archstone-Smith’s declaration of trust limits the ownership of our Units by any person or group of related persons to 9.8%, unless special approval is granted by our Board.

     We intend to qualify as a partnership, but we cannot guarantee we will qualify.

      We intend to qualify as a partnership for federal income tax purposes. However, we will be treated as an association taxable as a corporation for federal income tax purposes if we are deemed to be a publicly traded

17

partnership, unless at least 90% of its income is qualifying income as defined in the tax code. Qualifying income for our 90% test generally includes passive income, such as real property rents, dividends and interest. The income requirements applicable to REITs and the definition of qualifying income for purposes of this 90% test are similar in most respects. We believe that we will meet this qualifying income test, but cannot guarantee that we will. If we were to be taxed as a corporation, it will incur substantial tax liabilities, Archstone-Smith would fail to qualify as a REIT for tax purposes and our ability to raise additional capital would be impaired.

     We are subject to losses that may not be covered by insurance.

      There are certain types of losses (such as from war) that may be uninsurable or not economically insurable. Additionally, many of our communities in California are located in the general vicinity of active earthquake fault lines and many of our Southeast Florida assets are in coastal locations and subject to hurricanes. Although we maintain insurance to cover most reasonably likely risks, including earthquakes and hurricanes, if an uninsured loss or a loss in excess of insured limits occurs, we could lose both our invested capital in, and anticipated profits from, one or more communities. We may also be required to continue to repay mortgage indebtedness or other obligations related to such communities. The terms of our property and general liability policies after June 30, 2002, may exclude certain mold-related claims. We can make no assurance that liabilities resulting from moisture infiltration and the presence of or exposure to mold will not have a future material impact on our financial results. Should an uninsured loss arise against the Company, we would be required to use our own funds to resolve the issue, including litigation costs. Any such loss could materially adversely affect our business, financial condition and results of operations.

     We have a concentration of investments in certain markets.

      At December 31, 2004, approximately 39.4% of our apartment communities are located in the Washington, D.C. metropolitan area, based on NOI. Approximately 18.9% of our apartment communities are located in Southern California at December 31, 2004, based on NOI. Southern California is the geographic area comprised of the Los Angeles, the Inland Empire, Orange County, San Diego and Ventura County markets. Additionally, approximately 8.2% of our apartment communities are located in the San Francisco Bay area of California at December 31, 2004, based on NOI. We are, therefore, subject to increased exposure (positive or negative) to economic and other competitive factors specific to protected markets within these geographic areas.

Our business is subject to extensive competition.

      There are numerous commercial developers, real estate companies and other owners of real estate that we compete with in seeking land for development, apartment communities for acquisition and disposition and residents for apartment communities. All of our apartment communities are located in developed areas that include other apartment communities. The number of competitive apartment communities in a particular area could have a material adverse effect on our ability to lease units and on the rents charged. In addition, single-family homes and other residential properties provide housing alternatives to residents and potential residents of our apartment communities.

18

Item 2. Properties

Geographic Distribution

      At December 31, 2004, the geographic distribution for our eight core markets based on NOI, excluding properties owned by Ameriton, was as follows:

Washington, D.C. Metropolitan Area		39.4	%
Southern California		18.9
San Francisco Bay Area, California		8.2
Chicago, Illinois		6.1
New York City Metropolitan Area		4.9
Boston, Massachusetts		4.7
Southeast Florida		4.7
Seattle, Washington		3.1
	Total	90.0	%

      The following table summarizes the geographic distribution at December 31, 2004, 2003 and 2002 based on NOI:

				Total Portfolio(1)(2)
				2004			2003			2002
Core Markets
	Washington, D.C. Metropolitan Area				39.4	%		40.0	%		35.1	%
	Southern California				18.9			15.2			13.2
	San Francisco Bay Area, California				8.2			9.8			9.0
	Chicago, Illinois				6.1			7.6			8.5
	New York City Metropolitan Area				4.9			2.5			2.2
	Boston, Massachusetts				4.7			5.0			5.2
	Southeast Florida				4.7			4.2			6.6
	Seattle, Washington				3.1			3.3			3.4
		Total Core Markets			90.0	%		87.6	%		83.2	%
Non-Core Markets
	Atlanta, Georgia				2.3	%		2.5	%		3.1	%
	Denver, Colorado				1.9			2.2			2.4
	Houston, Texas				1.5			1.4			1.0
	Raleigh, North Carolina				1.1			1.1			1.4
	Other				3.2			5.2			8.9
		Total Non-Core Markets			10.0	%		12.4	%		16.8	%
			Total All Markets		100.0	%		100.0	%		100.0	%

(1)	Based on NOI for the fourth quarter of each calendar year, excluding NOI from communities disposed of during the period. See Item 7 under the caption “Apartment Community Operations” for a discussion on why we believe NOI is a meaningful measure and a reconciliation of NOI to Earnings from Operations.
(2)	Excludes all Ameriton properties.

19

Real Estate Portfolio

      We are a leading multifamily REIT focused on the operation, development, redevelopment, acquisition, management and long-term ownership of apartment communities in protected markets throughout the United States. The following information summarizes our wholly owned real estate portfolio as of December 31, 2004 (dollar amounts in thousands). Additional information on our real estate portfolio is contained in “Schedule III, Real Estate and Accumulated Depreciation” and in our audited financial statements contained in this Annual Report:

								Operating
				Number of		Number of		Trust		Percentage
				Communities		Units		Investment		Leased(1)
OPERATING APARTMENT COMMUNITIES:
Garden Communities:
	Atlanta, Georgia				8		2,459	$	203,824		97.2	%
	Austin, Texas				2		714		34,698		95.5	%
	Boston, Massachusetts				5		1,204		207,428		98.1	%
	Chicago, Illinois				4		1,313		144,975		94.8	%
	Dallas, Texas				4		930		48,537		96.8	%
	Denver, Colorado				6		1,949		167,129		95.8	%
	Houston, Texas				2		1,408		74,894		94.8	%
	Inland Empire, California				4		1,594		98,242		95.2	%
	Los Angeles County, California				14		4,162		810,623		86.9	%
	Orange County, California				7		1,647		181,064		97.7	%
	Orlando, Florida				1		312		21,706		98.7	%
	Phoenix, Arizona				2		876		53,880		96.5	%
	Portland, Oregon				1		228		13,757		95.2	%
	Raleigh, North Carolina				5		1,324		97,760		97.3	%
	San Diego, California				7		2,559		293,040		98.0	%
	San Francisco Bay Area, California				12		4,735		637,703		95.9	%
	Seattle, Washington				7		2,808		236,583		94.9	%
	Southeast Florida				9		3,038		374,569		95.7	%
	Stamford, Connecticut				1		160		36,487		97.5	%
	Washington, D.C. Metropolitan Area				19		8,019		1,026,128		97.7	%
	West Coast Florida				3		746		44,373		97.7	%
	Ventura County, California				1		400		33,175		96.3	%
		Garden Community Subtotal/ Average			124		42,585	$	4,840,575		95.7	%
High-Rise Properties:
	Boston, Massachusetts				3		693	$	178,939		98.3	%
	Chicago, Illinois				5		3,025		516,756		93.8	%
	New York City Metropolitan Area				3		1,062		460,182		97.6	%
	Southeast Florida				1		240		27,989		93.3	%
	Washington, D.C. Metropolitan Area				31		10,881		1,994,217		96.1	%
		High-Rise Subtotal/ Average			43		15,901	$	3,178,083		95.8	%
			Operating Apartment Communities Subtotal/ Average		167		58,486	$	8,018,658		95.7	%

20

									Operating
					Number of		Number of		Trust		Percentage
					Communities		Units		Investment		Leased(1)
APARTMENT COMMUNITIES UNDER CONSTRUCTION:
Garden Communities:
	Boston, Massachusetts					1		134	$	40,292		53.0	%
	Long Island, New York					1		396		58,462		N/A
	Los Angeles County, California					3		1,002		143,989		N/A
	San Diego, California					1		451		73,206		72.1	%
	Ventura County, California					1		316		47,266		38.0	%
		Garden Community Subtotal/ Average				7		2,299	$	363,215		N/A
High-Rise Properties:
	Boston, Massachusetts					1		420	$	56,936		N/A
	Washington, D.C. Metropolitan Area					2		518		79,088		N/A
		High Rise Property Subtotal/ Average				3		938	$	136,024		N/A
			Apartment Communities Under Construction Subtotal/ Average			10		3,237	$	499,239		N/A
APARTMENT COMMUNITIES IN PLANNING AND OWNED(2):
Garden Communities:						2		484	$	16,701
High-Rise Communities:						2		767	$	35,121
		Total Apartment Communities In Planning and Owned Subtotal/ Average				4		1,251	$	51,822
				Total Apartment Communities Owned at December 31, 2004		181		62,974	$	8,569,719
OTHER REAL ESTATE ASSETS(3)								—		69,409
AMERITON PORTFOLIO:
		Operating Apartment Communities				10		3,189		358,431
		Apartment Communities Under Construction				4		1,307		157,918
		Apartment Communities In Planning and Owned and Other				6		1,702		65,561
				Subtotal/ Average		20		6,198		581,910
				Total Real Estate Owned at December 31, 2004		201		69,172	$	9,221,038

(1)	Represents the percentage leased as of December 31, 2004. For communities in Lease-Up, the percentage leased is based on leased units divided by total number of units in the community (completed and under construction) as of December 31, 2004. A “N/ A” indicates markets with communities under construction where Lease-Up has not yet commenced.
(2)	As of December 31, 2004, we had one investment representing 713 units classified as In Planning and Under Control. Our actual investment in these communities was $1.5 million, which is reflected in the “Other assets” caption of our Balance Sheet.
(3)	Includes land that is not In Planning and other real estate assets.

21

Item 3.     Legal Proceedings

      We are subject to the following claims in connection with moisture infiltration and resulting mold issues at previously owned high-rise properties in Southeast Florida.

      Henriques, et al. v. Archstone-Smith Operating Trust, et al., filed on August 27, 2002 (the “Henriques Claim”), in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida, on behalf of a class of residents at Harbour House. We reached a court-approved settlement with the plaintiffs in this matter. The case alleged that water infiltration and resulting mold contamination at the property was caused by faulty air-conditioning and had resulted in both personal injuries to the plaintiffs and damage to their property. Based on the settlement, we have recorded a liability for estimated legal fees associated with known and anticipated costs for our counsel and plaintiffs’ counsel, as well as estimated settlement costs. We are working though the settlement process and finalizing the claims for remaining claimants. Not all plaintiffs accepted the court-approved settlement, and some of these individuals have filed separate lawsuits or retained the rights to file lawsuits at a later date. In the case where separate lawsuits have been filed, we have either reached settlements or are defending these claims in the normal course of litigation. During 2004, we sold this property to an unrelated third party. See Management’s Discussion and Analysis of Financial Conditions and Results of Operations in this Annual Report for further discussion regarding this accrual.

      Santos, et al. v. Archstone-Smith Operating Trust, et al., filed on February 13, 2003, in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida, on behalf of a class of residents at Harbour House. The plaintiffs in this case make substantially the same allegations as those made in the Henriques claim and seek both injunctive relief and unspecified monetary and punitive damages. We have reached individual settlement agreements with a significant portion of the represented claimants and are in discussion with the remaining individuals that are actually represented by opposing counsel. We recorded a liability for estimated legal fees associated with known and anticipated costs for our counsel and plaintiffs’ counsel, as well as estimated settlement costs. During 2004, we sold this property to an unrelated third party. See Management’s Discussion and Analysis of Financial Conditions and Results of Operations in this Annual Report for further discussion regarding this accrual.

      Bercovits et al., v. Archstone-Smith Operating Trust, et al. (formerly known as Semidey, et al., v. Archstone-Smith Operating Trust, et al. and Sullivan, et al., v. Archstone-Smith Operating Trust, et al.) was filed on October 27, 2004, in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida, on behalf of the class of residents at the property. The plaintiffs in this case made substantially the same allegations as those made in the Henriques claim and are seeking both injunctive relief and unspecified monetary and punitive damages. We have reached settlements with the named plaintiffs in the previous cases; however, opposing counsel amended these complaints to name new class representatives. We recorded a liability for estimated legal fees associated with known and anticipated costs for our counsel and plaintiffs’ counsel, as well as estimated settlement costs. We continue to defend the remaining claims in the normal course of litigation. During 2004, we sold this property to an unrelated third party.

      Equal Rights Center, et al. v. Archstone-Smith Trust, et al., was filed on December 20, 2004, in the federal district court in the State of Maryland by three organizations that advocate on behalf of disabled individuals. This case alleges various violations of the Fair Housing Act and the Americans with Disabilities Act at 112 properties currently or formerly owned by the Company. The plaintiffs are seeking injunctive relief, in the form of retrofitting apartments and public accommodations to comply with the Fair Housing Act and the Americans with Disabilities Act, unspecified monetary damages for the diversion of the plaintiffs’ resources to address fair housing violations, punitive damages and attorneys’ fees. We are in the process of evaluating the claims asserted in this litigation. Due to the preliminary nature of the litigation, it is not possible to predict or determine the outcome of the legal proceeding, nor it is reasonably possible to estimate the amount of loss, if any, that would be associated with an adverse decision.

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

22

Item 4. Submission of Matters to a Vote of Security Holders

      None

PART II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters

      There is no established market for the Common Units of the Operating Trust. Archstone-Smith’s Common Shares are listed on the New York Stock Exchange(NYSE: ASN). The following table sets forth the distributions on units made by the Operating Trust during the past three years ended December 31:

			2004		2003		2002
Per Common Unit(1):
	Ordinary income		$	1.24	$	0.77	$	1.33
	Capital gains			1.48		0.94		0.37
		Total	$	2.72	$	1.71	$	1.70

      For federal income tax purposes, the following summaries reflect the taxability of distributions paid on our Preferred Units:

			2004		2003		2002
Per Series A Convertible Preferred Unit(2):
	Ordinary income		$	—	$	0.95	$	1.79
	Capital gains			—		1.16		0.50
		Total	$	—	$	2.11	$	2.29

			2004		2003		2002
Per Series C Preferred Unit(3):
	Ordinary income		$	—	$	—	$	1.08
	Capital gains			—		—		0.30
		Total	$	—	$	—	$	1.38

			2004		2003		2002
Per Series D Preferred Unit(4):
	Ordinary income		$	0.60	$	0.99	$	1.71
	Capital gains			0.71		1.20		0.48
		Total	$	1.31	$	2.19	$	2.19

			2004		2003		2002
Per Series H, K, L Preferred Unit(5):
	Ordinary income		$	1.55	$	1.52	$	2.62
	Capital gains			1.85		1.86		0.74
		Total	$	3.40	$	3.38	$	3.36

23

			2004		2003		2002
Per Series I Preferred Unit(6):
	Ordinary income		$	3,501.00	$	3,447.00	$	5,982.46
	Capital gains			4,159.00		4,213.00		1,677.54
		Total	$	7,660.00	$	7,660.00	$	7,660.00

			2004		2003		2002
Per Series J Preferred Unit(7):
	Ordinary income		$	—	$	—	$	1.34
	Capital gains			—		—		0.37
		Total	$	—	$	—	$	1.71

(1)	Includes a $1.00 per unit special dividend paid to our unitholders of record on December 23, 2004.
(2)	The Series A Preferred Units were redeemed during October 2003.
(3)	The Series C Preferred Units were redeemed in full plus accrued distributions during August 2002.
(4)	The Series D Preferred Units were redeemed in full plus accrued distributions during August 2004.
(5)	The Series H, K and L Preferred Units were converted into Common Units during May 2003, September 2004 and December 2004, respectively. The distribution paid on the Series H, K and L Preferred Units prior to conversion was $1.27 per share, $2.55 per share and $3.40 per share, respectively. The taxability of which is proportionate to the amounts listed in the table above.
(6)	The Series I Preferred Units have a par value of $100,000 per share.
(7)	The Series J Preferred Units were converted into Common Units during July 2002.

      Distributions are paid on a quarterly basis and equal one-fourth of the total annual amount listed above unless otherwise noted. As of February 14, 2004 we had approximately 864 record holders of A-1 Common Units and no beneficial holders of A-1 Common Units.

      Our tax return for the year ended December 31, 2004 has not been filed, and the taxability information for 2004 is based upon the best available data we have. Our tax returns for prior years have not been examined by the Internal Revenue Service and, therefore, the taxability of the distributions may be subject to change.

      In 2004 and 2003 we issued 374,921 and 1,955,908 A-1 Common Units of the Operating Trust as partial consideration for real estate, respectively. All units were issued in transactions exempt from registration under Section 4(2) of the Securities Act of 1933 and the rules thereunder.

24

      The following table summarizes the A-1 Common Units that were repurchased for either cash or A-2 Units:

					Total Number of		Maximum Approximate
					Shares Purchased as		Dollar Value That
	Number of Units		Average Price Paid		Part of Publicly		May Yet Be Purchased
Period	Purchased		per Unit		Announced Plan		Under the Plan
1/1/04 — 1/31/04		536,684	$	29.35		—		—
2/1/04 — 2/29/04		108,729		28.00		—		—
3/1/04 — 3/31/04		10,296		27.35		—		—
4/1/04 — 4/30/04		21,461		28.71		—		—
5/1/04 — 5/31/04		1,015,788		28.55		—		—
6/1/04 — 6/30/04		24,059		29.00		—		—
7/1/04 — 7/31/04		530,791		30.38		—		—
8/1/04 — 8/31/04		2,000		30.11		—		—
9/1/04 — 9/30/04		42,538		31.12		—		—
10/1/04 — 10/31/04		147,313		33.14		—		—
11/1/04 — 11/30/04		15,554		35.92		—		—
12/1/04 — 12/31/04		—		—		—		—
Total		2,455,213				—

25

Item 6. Selected Financial Data

      The following table provides selected financial data relating to our historical financial condition and results of operations as of and for each of the years ending December 31, 2000 to 2004. This data is qualified in its entirety by, and should be read in conjunction with, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes that have been included or incorporated by reference in this Annual Report. Prior years amounts have been restated for amounts classified within discontinued operations. (in thousands, except per unit data):

		Years Ended December 31,
		2004		2003		2002		2001		2000
Operations Summary(1)(2):
Total revenues(3)		$	873,329	$	783,672	$	754,339	$	426,530	$	465,476
Property operating expenses (rental expenses and real estate taxes)			301,649		257,429		255,542		119,968		134,569
Net Operating Income(4)			552,472		506,909		489,335		294,657		299,949
Depreciation on real estate investments			203,183		162,723		148,588		83,961		99,620
Interest expense			175,249		160,871		149,538		63,409		90,860
General and administrative expense			55,479		49,838		45,710		27,434		24,303
Earnings from operations			131,797		116,932		137,947		100,078		101,887
Gains on dispositions of depreciated real estate, net(5)			—		—		35,950		108,748		101,251
Income from unconsolidated entities			17,902		5,745		53,602		10,998		(449	)
Net earnings from discontinued operations(6)			434,302		371,514		134,441		53,572		66,163
Preferred Unit distributions			16,254		26,153		34,309		25,877		25,340
Net earnings attributable to Common Units:
	— Basic		596,369		468,038		322,416		239,697		236,045
	— Diluted		600,124		480,910		322,416		250,917		244,625
Common Share distributions			603,553		365,009		344,590		221,196		201,257
Per Unit Data:
Net earnings attributable to Common Units:
	— Basic	$	2.71	$	2.20	$	1.59	$	1.78	$	1.79
	— Diluted		2.69		2.18		1.58		1.77		1.78
Common Unit cash distributions paid(7)			2.72		1.71		1.70		1.64		1.54
Cash distributions paid per Unit:
	Series A Preferred Unit(8)		—		2.11		2.29		2.21		2.07
	Series B Preferred Unit(9)		—		—		—		0.79		2.25
	Series C Preferred Unit(10)		—		—		1.38		2.16		2.16
	Series D Preferred Unit(11)		1.31		2.19		2.19		2.19		2.19
	Series E Preferred Unit(12)		2.09		2.09		0.70		—		—
	Series F Preferred Unit(12)		1.50		2.03		0.68		—		—
	Series G Preferred Unit(12)		2.16		2.16		0.72		—		—
	Series H, J, K and L Preferred Units(13)		—		3.38		3.36		—		—
	Series I Preferred Unit(13)(14)		7,660.00		7,660.00		7,660.00		—		—
Weighted average Common Units outstanding:
	— Basic		220,053		212,288		202,781		134,589		131,874
	— Diluted		223,187		220,758		203,804		142,090		137,730

26

(1)	Includes Ameriton for all years presented.
(2)	Net earnings from discontinued operations have been reclassified for all years presented.
(3)	Annual revenues inclusive of discontinued operations for 2004, 2003, 2002, 2001 and 2000 were $987 million, $1.0 billion, $1.0 billion, $737 million and $732 million, respectively.
(4)	Defined as rental revenues less rental expenses and real estate taxes. We believe that net earnings attributable to Common Units and NOI are the most relevant measures of our operating performance and allow investors to evaluate our business against our industry peers and against all publicly traded companies as a whole. We rely on NOI for purposes of making decisions about resource allocations and assessing segment performance. We also believe NOI is a valuable means of comparing period-to-period property performance. See Item 7 of this Annual Report under the caption “Apartment Community Operations” for a reconciliation of NOI to Earnings from Operations.
(5)	Gains on the disposition of real estate investments classified as held for sale after January 1, 2002 are included in discontinued operations.
(6)	Represents property-specific components of net earnings and gains/losses on the disposition of real estate classified as held for sale subsequent to January 1, 2002.
(7)	Includes a $1.00 per share special distribution issued to our Common Unitholders in December 2004.
(8)	The Series A Preferred Units were called for redemption during October 2003; of the 2.9 million Preferred Units outstanding, 2.8 million were converted to Common Units and the remaining were redeemed.
(9)	All of the outstanding Series B Preferred Units were redeemed on May 2001. During 2001, cash distributions of $0.79 per share were paid for the period prior to the redemption.

(10)	All of the outstanding Series C Preferred Units were redeemed at liquidation value plus accrued distributions in August 2002.
(11)	All of the outstanding Series D Preferred Units were redeemed at liquidation value plus accrued distributions in August 2004.
(12)	In August 2002, the DownREIT Perpetual Preferred Units were converted into Operating Trust Perpetual Preferred Units. The Company redeemed the Series F Preferred Units in September 2004, 520,000 of the Series E Preferred Units in August 2004 and 400,000 of the Series E Preferred Units in November 2004.
(13)	The Series L Preferred Units were converted into Common Units during December 2004 and the distribution paid during 2004 prior to conversion was $3.40 per share. In September 2004, the Series K Preferred Units were converted into Common Units and the distribution paid during 2004 prior to conversion was $2.55 per share. The Series H Preferred Units were converted into Common Units during May 2003 and the distribution paid during 2003 prior to conversion was $1.27 per share. In July 2002, Series J Preferred Units were converted into Common Units. During the fourth quarter 2001, we paid approximately $5.8 million of distributions on the Series H, I, J, K and L Preferred Units that were declared by Smith Residential prior to the Smith Merger.
(14)	Series I Preferred Units have a par value of $100,000 per share.

27

	Years Ended December 31,
	2004		2003		2002		2001		2000
Financial Position:
Real estate owned, at cost	$	8,958,195	$	8,783,349	$	9,132,183	$	8,565,787	$	5,267,554
Real estate held for sale(1)		262,843		215,831		165,552		46,426		46,046
Investments in and advances to unconsolidated entities		111,481		86,367		116,594		240,719		64,993
Total assets		9,066,044		8,921,695		9,096,026		8,700,722		5,117,459
Unsecured credit facilities		19,000		103,790		365,578		188,589		193,719
Long-Term Unsecured Debt		2,099,132		1,871,965		1,776,103		1,333,890		1,401,262
Total liabilities		4,474,768		4,184,592		4,704,299		4,305,117		2,767,774
Other Common Unitholders’ interest (at redemption value)		885,400		707,924		579,598		669,502		—
Preferred Units		69,522		210,120		355,221		374,114		286,856
Total unitholders’ equity		3,703,826		4,017,669		3,799,141		3,631,518		2,251,606
Number of Common Units outstanding		222,694		220,063		205,328		199,973		122,838

		Years Ended December 31,
		2004			2003			2002			2001			2000
Other Data:
Net cash flows provided by (used in):
	Operating activities	$	369,772		$	343,696		$	392,043		$	332,153		$	322,077
	Investing activities		552,388			428,166			(137,401	)		387,694			71,789
	Financing activities		(724,135	)		(779,478	)		(248,823	)		(721,897	)		(394,861	)

(1)  Previous years have been restated to include assets that were classified as sold or held for sale as of December 31, 2004.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Company

      The Operating Trust is a public equity REIT that is engaged primarily in the operation, development, redevelopment, acquisition, management and long-term ownership of apartment communities throughout the United States. The Company is structured as an UPREIT, with all property ownership and business operations conducted through the Operating Trust and its subsidiaries and affiliates. Archstone-Smith is our sole trustee and owns 89.1% of the Operating Trust’s common units as of December 31, 2004.

Results of Operations

Executive Summary

      We produced diluted net earnings per unit of $2.69 for the year ended December 31, 2004, a 23.4% increase compared with the $2.18 per unit reported for 2003. Our total unitholder return of 48.8% in 2004 exceeded the NAREIT Apartment Index and S&P 500 Index equivalent returns by 1,407 and 3,791 basis points, respectively. We also closed out 2004 on a high note with the announcement that Archstone-Smith was being added to the S&P 500 Index in December.

      Our Same-Store revenues were up 0.2% for the full year in 2004. The increase in Same-Store revenues represents the first time annual Same-Store revenue growth has been positive since 2001. The Washington D.C. metropolitan area, Southern California and Southeast Florida, which collectively represent 63% of the company’s portfolio, produced annual Same-Store revenue growth of 1.9%, 3.0% and 2.4%, respectively. Our

28

most challenging core-markets during 2004 were the San Francisco Bay Area and Chicago, which produced negative revenue growth of 3.6% and 3.3%, respectively. Our Same-Store expenses increased 3.7% and NOI declined 1.6% for the full year in 2004.

      The REIT completed $1.4 billion of non-core asset sales in 2004, including dispositions totaling $616.5 million in the fourth quarter. The 2004 dispositions produced GAAP gains of $372.2 million and an unleveraged internal rate of return of 13.8%. As a result of the significant gains generated by these asset sales, we paid a $1.00 per unit special distribution to unitholders in December 2004. Additionally, Ameriton completed the sale of $360 million of assets producing pre-tax gains of $65.1 million. The REIT acquired $866.2 million of apartment communities in 2004 excluding Ameriton, representing 3,753 units, in markets that include the New York metropolitan area, Los Angeles County, Southeast Florida and the Washington, D.C. metropolitan area. These acquisitions were funded principally with tax-deferred exchange proceeds from asset dispositions.

      The REIT currently has $952.5 million in operating and joint venture properties under construction in markets that include Southern California and the Washington, D.C. metropolitan area, as well as $487.2 million of developments in planning. In addition, Ameriton has $194.8 million of development under construction and $205.6 million in planning. We expect our substantial development pipeline to contribute significantly to our earnings growth rate over the next five years as these projects are completed and stabilized.

Overview

      In conjunction with our capital recycling strategy, rental revenues and rental expenses, including real estate taxes, will fluctuate based upon the timing and volume of dispositions, acquisitions and development lease-ups. Accordingly, our results are not only driven by the performance of our operating portfolio, but also by gains/losses from the disposition of real estate, the corresponding loss of ongoing income from assets sold, and increased income generated from acquisitions and new developments. These factors all contribute to the overall financial performance of the Company.

      Basic net earnings attributable to Common Units increased $128.3 million, or 27.4%, in 2004 as compared to 2003. This increase is primarily attributable to:

•  Increased revenues partially offset by a corresponding increase in operating expenses associated with $1.1 billion and $508.9 million in asset acquisitions, inclusive of Ameriton, that occurred during 2004 and 2003, respectively;

•  Increased income from the continued lease-up of new development projects;

•  A $92.8 million increase in gains from the sale of operating communities, which includes gains from the sale of assets by Ameriton;

•  A $29.9 million decrease in other expenses primarily due to lower moisture infiltration and resulting mold-related expenses recognized during 2004;

•  Non-operating income of $28.2 million, from the sale and settlement of forward contracts on marketable equity securities resulting in a gain of $24.9 million, and the disposition of our property management business, resulting in a $3.3 million gain, during 2004;

•  A $12.2 million increase in income from unconsolidated entities, primarily related to the recognition of $3.2 million of contingent proceeds associated with the expiration of certain indemnifications from the sale of CES, which was sold in 2002, and $13.9 million of gains from the sale of joint venture operating assets during 2004 compared to $7.4 million of gains in 2003; and,

•  A $10.1 million reduction in Preferred Unit distributions due to the conversion of Series A and H Preferred Units during 2003, 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.

29

      These increases were partially offset by:

•  A 3.7% increase in Same-Store expenses during 2004 as compared to 2003 primarily due to increases in personnel costs and real estate taxes at both our garden and high-rise properties (our Same-Store population excludes Ameriton properties, 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);

•  The loss of rental revenues and a corresponding decrease in rental expenses due to $1.8 billion and $1.6 billion in dispositions, including Ameriton, during 2004 and 2003, respectively; and,

•  A $4.7 million charge, net of anticipated insurance recoveries, associated with damage from hurricanes in Florida.

      Basic net earnings attributable to Common Units increased approximately $145.6 million, or 45.2%, in 2003 as compared to 2002. This increase is largely attributable to:

•  Higher gains in 2003 of $353.6 million as compared to $139.6 million during 2002, associated with an increase in the dispositions of depreciated real estate assets;

•  Lower interest expense associated with lower debt extinguishment costs and lower debt balances during 2003 and a reduction in interest rates on floating rate debt and refinanced debt;

•  A reduction in Preferred Unit distributions during 2003 due to the conversion of Series A and Series H Preferred Units into Common Units in 2003 and the conversion of Series J Preferred Units into Common Units and the redemption of Series A Preferred Units during 2002; and

•  Increased rental revenue and corresponding increase in rental expense due to the acquisition of operating communities and the continued lease-up and stabilization of development communities.

      These increases were partially offset by:

•  A decline in rental revenue from our Same-Store portfolio of 1.4% for the twelve months ended December 31, 2003 as compared to the same period in 2002, primarily due to a decline in potential effective rent per unit and a decrease in average occupancy;

•  The loss of rental revenue and a corresponding decrease in rental expense due to $1.6 billion and $602.1 million in dispositions during the twelve months ended December 31, 2003 and 2002, respectively; and

•  An increase of $24.8 million in expenses associated with moisture infiltration and resulting mold during 2003 as compared to 2002.

30

Apartment Community Operations

      We utilize NOI as the primary measure to evaluate the performance of our operating communities. NOI is defined as rental revenues less rental expenses and real estate taxes for each of our operating properties. We rely on NOI for purposes of making decisions about resource allocations and assessing segment performance. We also believe NOI is a valuable means of comparing period-to-period property performance. The following is a reconciliation of NOI to earnings from operations (in thousands):

		Years Ended December 31,
		2004			2003			2002
Net operating income		$	552,472		$	506,909		$	489,335
	Other income		19,208			19,334			9,462
	Depreciation of real estate investments		(203,183	)		(162,723	)		(148,588	)
	Interest expense		(175,249	)		(160,871	)		(149,538	)
	General and administrative expenses		(55,479	)		(49,838	)		(45,710	)
	Other expense		(5,972	)		(35,879	)		(17,014	)
Earnings from operations		$	131,797		$	116,932		$	137,947

      At December 31, 2004, investments in operating apartment communities comprised over 99% of our total real estate portfolio, based on NOI. The following table summarizes the performance of our operating portfolio (in thousands, except for percentages):

		Years Ended December 31,
		2004		2003		2002
Rental revenues:
	Garden communities	$	526,271	$	465,368	$	458,538
	High-rise properties		303,073		284,640		273,494
	Ameriton		21,501		11,053		7,742
	Non-multifamily		3,276		3,277		5,103
	Total revenues		854,121		764,338		744,877
Operating expenses (rental expenses and real estate taxes):
	Garden communities		181,060		150,278		150,073
	High-rise properties		108,879		101,568		100,272
	Ameriton		11,242		4,920		3,838
	Non-multifamily		468		663		1,359
	Total operating expenses		301,649		257,429		255,542
Net operating income:
	Garden communities		345,211		315,090		308,465
	High-rise properties		194,195		183,072		173,222
	Ameriton		10,259		6,133		3,904
	Non-multifamily		2,807		2,614		3,744
	Total net operating income		552,472		506,909		489,335
NOI classified as discontinued operations			61,494		128,664		199,953
NOI including discontinued operations		$	613,966	$	635,573	$	689,288

31

		Years Ended December 31,
		2004			2003			2002
Operating margin (NOI/rental revenues):
	Garden communities		65.6	%		67.7	%		67.3	%
	High-rise properties		64.1	%		64.3	%		63.3	%
Average occupancy during period:
	Garden communities		94.7	%		95.0	%		95.0	%
	High-rise properties		95.2	%		93.2	%		93.8	%

      The following table reflects revenue, expense and NOI growth/(decline) for Same-Store communities that were fully operating during each respective comparison period:

		Same-Store			Same-Store			Same-Store
		Revenue			Expense			NOI
		Growth/			Growth/			Growth/
		(Decline)			(Decline)			(Decline)
2004
	Garden		0.0	%		4.6	%		(2.1	%)
	High-Rise		0.4	%		2.3	%		(0.6	%)
	Total		0.2	%		3.7	%		(1.6	%)
2003
	Garden		(2.4	)%		(2.0	)%		(2.6	%)
	High-Rise		0.3	%		(1.0	)%		1.0	%
	Total		(1.4	)%		(1.6	)%		(1.3	%)

2004 vs. 2003 NOI Analysis

      NOI increased by $45.6 million, or 9.0%, during 2004 as compared to 2003. Of this increase, $30.1 million was produced by our garden communities, $11.1 million by our high-rise portfolio, $4.1 million by Ameriton and the remainder by non-multifamily assets.

      The $30.1 million increase in garden NOI during 2004 as compared to 2003 was primarily attributable to the acquisition of six garden communities for a total of $443.9 million and the ongoing lease-up and stabilization of development communities during 2004. This increase was partially offset by a 2.1% decline in Same-Store NOI primarily due to higher site and regional personnel costs and real estate taxes.

      The $11.1 million increase in high-rise NOI during 2004 compared to 2003 was primarily attributable to the acquisition of two high-rise properties in the New York area and two in the Washington D.C. metropolitan market for a total of $379.0 million during 2004. This increase was partially offset by a 0.6% decline in Same-Store NOI also attributable to higher site and regional personnel costs and real estate taxes.

      The $4.1 million increase in Ameriton NOI during 2004 as compared to 2003 was primarily attributable to the acquisition of 12 Ameriton communities and the ongoing lease-up and stabilization of Ameriton developments during 2004. This increase was partially offset by the loss of NOI from nine Ameriton dispositions during 2004.

      NOI for our entire portfolio, including properties classified within discontinued operations, decreased by $21.6 million, or 3.4%, during 2004 as compared to 2003. This net decrease in NOI was primarily attributable to:

•  The loss of NOI from the disposition of $1.8 billion and $1.6 billion in operating assets, including Ameriton, during 2004 and 2003, respectively;

•  A decline in Same-Store NOI of 2.1% at our garden communities primarily due to 4.6% higher Same-Store expenses in 2004 compared to 2003 resulting from higher property taxes and site and regional personnel costs. Garden rental revenues were flat in 2004, due principally to improvements in the

32

	Washington D.C. metropolitan area and Southern California markets offset by continuing weakness in the Bay Area and Atlanta; and,
•	A decline in Same-Store NOI of 0.6% for our high-rise properties primarily due to increased personnel costs and increased property taxes. These expense increases were partially offset by 0.4% higher revenues due to continued improvements in the Washington D.C. metropolitan market where we have the majority of our high-rise properties offset by ongoing weakness in Chicago.

      This decrease was partially offset by increased NOI from the acquisitions, lease-ups and redevelopments described previously, as well as an increase in NOI associated with assets classified as held-for-sale, some of which related to Ameriton lease-ups during 2003.

2003 vs. 2002 NOI Analysis

      NOI increased by $17.6 million, or 3.6%, during 2003 as compared to 2002. Of this increase, $6.6 million was produced by our garden communities, $9.9 million by our high-rise portfolio and $2.2 million by Ameriton. These increases were partially offset by a decrease in NOI from non-multifamily assets.

      The $6.6 million increase in garden NOI during 2003 as compared to 2002 was primarily attributable to the acquisition of 10 garden communities for a total of $523.5 million and the ongoing lease-up and stabilization of development communities during 2003. This increase was partially offset by a 2.6% decline in Same-Store NOI.

      The $9.9 million increase in high-rise NOI during 2003 as compared to 2002 was primarily attributable to an increase in Same-Store NOI of 1.0% in 2003 compared to 2002.

      The $2.2 million increase in Ameriton NOI during 2003 as compared to 2002 was primarily attributable to the ongoing lease-up and stabilization of Ameriton developments. This increase was partially offset by the loss of NOI from the six Ameriton dispositions in 2003.

      NOI for our entire portfolio, including properties classified within discontinued operations, decreased by $53.7 million, or 7.8%, during 2003 as compared to 2002. This net decrease in NOI was primarily attributable to:

•  The loss of NOI from the disposition of $1.6 billion and $602.1 million in operating assets, including Ameriton, during 2003 and 2002, respectively; and

•  A decline in Same-Store NOI of 2.6% for our garden communities primarily due to a decrease in revenues in the Bay Area, Seattle and Atlanta markets, which were impacted by challenging economic conditions.

      This decrease was partially offset by increased NOI from the acquisitions, lease-ups and redevelopments described previously, as well as an increase of 1.0% in NOI from Same-Store high-rise properties in 2003 as compared to 2002. This Same-Store NOI increase was primarily due to increased Same-Store revenues in the Washington D.C. market, where economic conditions remained strong, partially offset by declining market conditions in Chicago. Additionally, Same-Store expenses declined in 2003 compared to 2002, primarily due to lower cost of utilities and administrative expenses.

Other Income

      There was no significant change in the amount of other income in 2004 as compared to 2003. Notable differences in the composition of other income in 2004 as compared to 2003 were the collection and recognition of $3.1 million related to the settlement of an ongoing CES lawsuit during 2004, a decrease in the collection of indemnified CES accounts receivable over 120 days of $4.4 million during 2004 as compared to 2003, an increase in gains related to the disposition of land of $3.2 million during 2004 as compared to 2003, and $5.7 million of dividend income on stock investments in 2003.

33

      The $9.9 million, or 104.3%, increase in 2003 as compared to 2002 was principally attributable to the collection of $5.3 million of contingent proceeds related to indemnification of certain CES accounts receivable over 120 days and $5.7 million of dividend income on stock investments.

Depreciation Expense

      Depreciation expense increased $40.5 million, or 24.9%, during 2004 as compared to 2003. This increase is primarily due to a greater number of operating assets classified within discontinued operations during the prior year, resulting in a greater depreciation allocation to discontinued operations of $23.8 million in 2003 as compared to 2004.

      Including depreciation expense on properties classified within discontinued operations, depreciation expense increased $16.6 million (comprised of a $40.5 million increase from continuing operations offset by a $23.9 million decrease from discontinued operations), or 8.2%, during 2004 as compared 2003. This increase is principally attributable to the amortization of the intangible value of lease agreements obtained in connection with apartment community acquisitions, which are amortized over the average life of the underlying lease. During 2004 and 2003, amortization of these intangible assets was $16.4 million and $2.9 million, respectively. Depreciation expense also increased due to the disposition of assets with lower depreciable basis at significant gains and the reinvestment of these proceeds into assets with a higher depreciable basis.

      The $14.1 million, or 9.5%, increase in depreciation expense during 2003 as compared to 2002 is attributable to a greater number of operating assets classified within discontinued operations during the prior year. Including depreciation expense on properties reported in discontinued operations, depreciation expense decreased $3.3 million (comprised of a $14.1 million increase from continuing operations offset by a $17.4 million decrease from discontinued operations), or 1.6%, in 2003 as compared to 2002 due principally to increased disposition activity during 2003.

Interest Expense

      Interest expense increased $14.4 million, or 8.9%, during 2004 as compared to 2003. This increase is primarily due to a greater number of operating assets classified within discontinued operations during the prior year, resulting in $17.7 million higher interest allocated to discontinued operations in 2003 as compared to 2004.

      Including interest expense on properties reflected in discontinued operations, interest expense decreased $3.3 million (comprised of a $14.4 million increase from continuing operations offset by a $17.7 million decrease from discontinued operations), or 1.6%, in 2004 as compared 2003. The decrease is primarily the result of a reduction in weighted average debt interest rates and a decrease in the average outstanding mortgage balance during 2004 as compared to 2003, as we paid off secured debt during the year, partially offset by an increase in the average outstanding long-term debt balance in 2004 as compared to 2003.

      The $11.3 million, or 7.6%, increase in interest expense during 2003 as compared to 2002 is attributable to a greater number of operating assets classified within discontinued operations during the prior year. The $30.1 million decrease in interest expense (comprised of a $11.3 million increase from continuing operations offset by a $41.4 million decrease from discontinued operations), or 12.4%, , including interest on properties reported in discontinued operations in 2003 as compared to 2002, is the result of lower debt balances, a reduction in interest rates on floating rate debt and refinanced debt, and the repayment of Long-Term Unsecured Debt with proceeds from our unsecured credit facilities, which were at lower average interest rates during the period.

General and Administrative Expenses

      The $5.6 million, or 11.3%, increase in general and administrative expenses in 2004 as compared to 2003 is due primarily to executive Common Share grants related to the achievement of total shareholder return performance targets associated with a three-year special incentive plan, an increase in audit and consulting fees associated with Sarbanes-Oxley compliance and the impact of the fourth quarter special distribution on

34

DEUs earned on restricted share units and some employee share options. These expenses were partially offset by lower severance costs and payroll expense in 2004 as compared to 2003.

      The $4.1 million, or 9.0%, increase in general and administrative expenses in 2003 as compared to 2002 relates primarily to additional severance costs and legal fees incurred during 2003, as well as increased depreciation of capitalized costs associated with our revenue management system and our new on-site property management software.

Other Expenses

      The $29.9 million, or 83.4%, decrease in other expense during 2004 as compared to 2003 is primarily due to a $29.0 million expense associated with moisture infiltration and resulting mold recorded during 2003. The moisture infiltration costs pertain to estimated and incurred legal fees and estimated settlement costs, additional residential property repair and replacement costs, and temporary resident relocation expenses.

      The $18.9 million, or 110.9%, increase in other expense in 2003 as compared to 2002 is primarily related to an increase in moisture infiltration and resulting mold costs and a $3.5 million increase in Ameriton income taxes. These increases were partially offset by lower merger integration costs associated with the Smith Merger as well as lower pursuit cost write-offs during 2003.

Income from Unconsolidated Entities

      Income from unconsolidated entities increased $12.2 million, or 211.6%, in 2004 as compared to 2003, primarily due to gains from the sale of joint venture operating communities and the recognition of contingent proceeds from the expiration of certain indemnifications related to the sale of CES. This was partially offset by $1.5 million in hurricane losses from damage to unconsolidated Florida communities.

      Income from unconsolidated entities decreased by $47.9 million in 2003 as compared to 2002 primarily due to the gain on sale of CES recognized in December 2002.

Other Non-Operating Income

      Other non-operating income increased by $28.2 million during 2004 as compared to 2003 due to the recognition of $24.9 million in gains from the sale and settlement of marketable securities, and a $3.3 million gain from the sale of our property management business in 2004. We had no non-operating income during 2003 or 2002.

Preferred Unit Distributions

      Preferred Unit distributions decreased by $9.9 million, or 37.9%, during 2004 as compared to 2003. This decrease was primarily due to the conversion of Series H Preferred Units into Common Units in May 2003, the conversion of Series A Preferred Units into Common Units in December 2003, the redemption of our Series D Preferred Units in August 2004, the conversion of Series K Preferred Units into Common Units in September 2004 and the early conversion of Series L Preferred Units into Common Units in December 2004. In August and November 2004, 520,000 and 400,000 Series E Perpetual Preferred Units were redeemed at liquidation value plus accrued dividends. In September 2004, the Series F Perpetual Preferred Units were redeemed at liquidation value plus accrued dividends. These savings were partially offset by the recognition of $1.7 million of issuance costs related to the Series D Preferred Units. The decrease in Preferred Unit distributions due to conversions was offset by an increase in Common Unit distributions.

      Preferred Unit distributions decreased by $8.2 million, or 23.8%, during 2003 as compared to 2002. This decrease was primarily attributable to the conversion of Series A and Series H Preferred Units into Common Units in 2003 and the conversion of Series J Preferred Units into Common Units during 2002, as well as the redemption of the Series C Preferred Units in 2002. The decrease in Preferred Unit distributions due to conversions was offset by an increase in Common Unit distributions.

35

Discontinued Operations

      The results of operations for properties sold during the period or designated as held-for-sale at the end of the period are required to be classified as discontinued operations. The property specific components of net earnings that are classified as discontinued operations include rental revenues, rental expenses, real estate taxes, depreciation expense, income taxes and interest expense (actual interest expense for encumbered properties and a pro-rata allocation of interest expense for any unencumbered property up to our weighted average leverage ratio), as well as the net gain or loss on the disposition of properties.

      Consistent with our capital recycling program, we had five operating apartment communities, representing 1,952 units (unaudited), classified as held for sale under the provisions of SFAS No. 144, at December 31, 2004. Accordingly, we have classified the operating earnings from these five properties within discontinued operations for the years ended December 31, 2004, 2003 and 2002. During the twelve months ended December 31, 2004, we sold 30 REIT and Ameriton operating communities. The operating results of these 30 communities and the related gain/loss on sale are also included in discontinued operations for 2004, 2003 and 2002. During the twelve months ended December 31, 2003, we sold 48 operating communities. The operating results of these 48 communities and the related gain/loss on the sale are also included in discontinued operations for 2003 and 2002. In addition, discontinued operations for the year ended December 31, 2002 includes the net operating results of 12 operating communities and one retail property which were sold during 2002.

      The following is a summary of net earnings from discontinued operations (in thousands):

		Years Ended December 31,
		2004			2003			2002
Rental revenue		$	113,933		$	242,287		$	340,897
Rental expenses			(39,656	)		(85,012	)		(107,088	)
Real estate taxes			(12,783	)		(28,611	)		(33,856	)
Depreciation on real estate investments			(16,806	)		(40,633	)		(58,037	)
Interest expense(1)			(33,503	)		(51,195	)		(92,651	)
Income Taxes from taxable REIT subsidiaries			(21,567	)		(12,206	)		(10,455	)
Provision for possible loss on real estate investment			—			(3,714	)		(2,611	)
Debt extinguishment costs related to dispositions			(1,763	)		(3,002	)		(5,412	)
Gain from the disposition of REIT real estate investments, net			372,217			310,901			72,934
Gain from the dispositions of taxable REIT subsidiary real estate investments, net			74,230			42,699			30,720
	Total discontinued operations	$	434,302		$	371,514		$	134,441

(1)  The portion of interest expense included in discontinued operations that is allocated to properties based on the Company’s leverage ratio was $23.2 million, $32.7 million and $61.2 million for 2004, 2003 and 2002, respectively.

      Gains from the disposition of REIT assets are the result of our capital recycling strategy, which redeploys capital from non-core assets to more desirable locations within our core markets. Gains or losses associated with REIT dispositions can vary significantly from year-to-year given overall real estate market conditions.

      The majority of our gains from taxable REIT subsidiaries were from Ameriton, which is a wholly owned taxable REIT subsidiary that engages in the opportunistic acquisition, development and eventual disposition of real estate with a short-term investment horizon. While Ameriton has established a consistent track record of producing significant gains, which contribute to our overall net earnings, these gains or losses can fluctuate significantly on a year-to-year basis depending on the relative success of this component of our strategy.

36

      Assets held for sale as of December 31, 2004, represented gross real estate of $262.8 million and $215.8 million with mortgages payable of $60.6 million and $61.4 million at December 31, 2004 and 2003, respectively. Additionally, of our investment in real estate and debt balances at December 31, 2003, we disposed of $1.5 billion of real estate and paid off related mortgages of $85.8 million during the twelve months ended December 31, 2004.

Liquidity and Capital Resources

      We are committed to maintaining a strong balance sheet and preserving our financial flexibility, which we believe enhances our ability to capitalize on attractive investment opportunities as they become available. As a result of the significant cash flow generated by our operations, current cash positions, the available capacity under our unsecured credit facilities, gains from the disposition of real estate and ready access to the capital markets by issuing securities under our existing shelf registrations, we believe our liquidity and financial condition are sufficient to meet all of our reasonably anticipated cash flow needs during 2005.

Operating Activities

      Net cash flow provided by operating activities increased $26.1 million, or 7.6%, in 2004 as compared to 2003. This increase was principally due to lower moisture infiltration and resulting mold-related expenses during 2004, lower interest expense due to a reduction in the average debt rates and a reduction in average debt balances during 2004, as well as higher investment income from the sale of marketable equity securities. See Results of Operations for a more complete discussion of the factors impacting our operating performance.

      Our net cash flows provided by operating activities decreased by $48.3 million, or 12.3%, during 2003 as compared to 2002. This decrease was principally due to lower net earnings before gains on the disposition of depreciated real estate, payments related to remediation of moisture infiltration and resulting mold that were accrued in previous years and decreased contributions from unconsolidated entities. See Results of Operations for a more complete discussion of the factors impacting our operating performance.

Investing and Financing Activities

      Net cash flows provided by investing activities increased by $124.2 million, or 29.0%, in 2004 as compared to 2003. This was due primarily to a $158.1 million increase in net proceeds from the disposition of real estate assets during 2004 as compared to the same period of 2003, and proceeds from the sale of marketable securities in 2004 that were acquired in 2003, which is included in “Other, net” in the accompanying Condensed Consolidated Statement of Cash Flows. The increase was partially offset by $122.8 million more spent for acquisitions and development activity during 2004 as compared to 2003. The disposition, acquisition and development amounts above exclude transactions funded by tax-deferred exchange proceeds.

      Net cash flows provided by investing activities increased by approximately $565.6 million in 2003 as compared to 2002. This increase was primary attributable to a $984.1 million increase in proceeds from the disposition of real estate assets and a reduction in cash used to purchase marketable securities during 2003 as compared to 2002. This was partially offset by an increase in the balance of our tax-deferred escrow.

      Net cash flows used in financing activities decreased by $55.3 million, or 7.1%, in 2004 as compared to 2003, due to increased borrowings to finance a net increase in real estate investments during 2004 as compared to the prior year, partially offset by an increase in cash used to repurchase Common and Preferred Units and pay the special distribution in 2004.

      Net cash used in financing activities increased by $530.7 million, or 213.3%, in 2003 as compared to 2002. This is principally due to a $438.8 million net reduction in our unsecured credit facility and a $283.5 million reduction in the total proceeds received from long-term unsecured debt offerings. This increase in cash used in financing activities was partially offset by a $361.7 million reduction in principal payments on mortgages payable.

37

      Significant non-cash investing and financing activities for the years ended December 31, 2004, 2003 and 2002 consisted of the following:

•  Issued $10.8, $47.6 and $8.7 million of A-1 Common Units as partial consideration for properties acquired during 2004, 2003 and 2002, respectively;

•  Issued $4.5 million of A-2 Common Units as partial consideration for real estate during 2004.

•  Holders of Series K Preferred Units and Series L Preferred Units converted $25.0 million each of their units into Common Shares during 2004;

•  Holders of Series H Preferred Units converted $71.5 million of their units into Common Shares during 2003;

•  Redeemed $47.9 million, $25.5 million and $41.7 million A-1 Common Units for Common Shares during 2004, 2003 and 2002, respectively;

•  Holders of Series J Preferred Units converted $25 million of their units into Common Shares during 2002;

•  Recorded an accrual related to moisture infiltration and resulting mold remediation for $36.1 million and $11.3 million at one of our high-rise properties in Southeast Florida during 2003 and 2002, respectively;

•  Assumed mortgage debt of $113.6 million, $55.4 million and $195.6 million during 2004, 2003 and 2002, respectively, in connection with the acquisition of apartment communities;

•  Holders of Series A Preferred Units converted $71.9 million and $5.7 million of their units into Common Shares during 2003 and 2002, respectively.

Scheduled Debt Maturities and Interest Payment Requirements

      We have structured the repayments of our long-term debt to create a relatively level principal maturity schedule and to avoid significant repayment obligations in any year which would impact our financial flexibility. We have $313.7 million in scheduled maturities during 2005, and we have $295.5 million and $542.5 million of long-term debt maturing during 2006 and 2007, respectively. See Note 5 in our audited financial statements in this Annual Report for additional information on scheduled debt maturities.

      In April 2004, we filed a shelf registration statement on Form S-3 to register an additional $450 million in unsecured debt securities. This registration statement was declared effective in April 2004. During August 2004, the Operating Trust issued $300 million in long-term unsecured ten-year notes with net proceeds of $297.1 million and with a coupon rate of 5.6% and an effective interest rate of 5.8% from its shelf registration statement. The proceeds were used to repay outstanding balances on our unsecured credit facilities. The notes were issued pursuant to a supplemental indenture with modified debt covenants, which are specific to these notes. The primary change pertains to the leverage covenant, which limits total debt to 65% of the market value of total assets as defined, using a capitalization rate of 7.5% to value stabilized operating assets. As of December 31, 2004, we had $700 million available in shelf registered debt securities which can be issued subject to our ability to affect offerings on satisfactory terms based on prevailing market conditions.

      In December 2004, we restructured our unsecured revolving credit facility provided by a group of financial institutions led by JPMorgan Chase Bank. The primary modifications were extending the maturity, reducing the pricing and lowering the capitalization rate used to value the operating portfolio. The $600 million facility matures in December 2007 and has a one-year extension feature, exercisable at our option. The facility bears interest at the greater of prime or the federal funds rate plus 0.50%, or at our option, LIBOR plus 0.50%. The spread over LIBOR can vary from LIBOR plus 0.425% to LIBOR plus 1.25% based upon the rating of our Long-Term Unsecured Debt. The facility contains an accordion feature that allows us to expand the commitment up to $900 million at any time during the life of the facility, subject to lenders providing additional commitments. Under the agreement, we pay a facility fee of 0.15% of the commitment, which can vary from 0.125% to 0.200% based upon the ratings of our Long-Term Unsecured Debt.

38

      We also have a short-term unsecured borrowing agreement with JPMorgan Chase Bank, which provides for maximum borrowings of $100 million. The borrowings under the agreement bear interest at an overnight rate agreed to at the time of borrowing and ranged from 1.60% to 2.55% during 2004. There were no borrowings outstanding under the agreement at December 31, 2004 and $6.8 million of borrowings outstanding under this agreement at December 31, 2003.

      We had $61 million outstanding on our unsecured line of credit, $14 million outstanding under letters of credit and an available balance of $625 million on our unsecured credit facilities at February 14, 2004.

      Our unsecured credit facilities, Long-Term Unsecured Debt and mortgages payable had effective weighted average interest rates of 2.62%, 6.23% and 5.24%, respectively, as of December 31, 2004. All of these rates give effect to debt issuance costs, fair value hedges, the amortization of fair market value purchase adjustments and other fees and expenses, as applicable.

      Our debt instruments generally contain covenants common to the type of facility or borrowing, including financial covenants establishing minimum debt service coverage ratios and maximum leverage ratios. We were in compliance with all financial covenants pertaining to our debt instruments as of and for the year ended December 31, 2004.

Unitholder Distribution Requirements

      Based on anticipated distribution levels for 2005 and the number of units outstanding as of December 31, 2004, we anticipate that we will pay the following distributions in 2005 (in thousands, except per share amounts):

			Per Share		Total
Common Unit distributions:
	Common Units(1)		$	1.73	$	345,625
	A-1 Common Unit distributions(1)			1.73		39,993
	Series E Preferred Unit distributions(2)			0.20		40
	Series G Preferred Unit distributions(2)			0.38		228
	Series I Preferred Unit distributions(3)			7,660.00		3,830
		Total dividend/distribution requirements			$	389,716

(1)	Future distributions on Common Units are contingent upon approval by the Archstone-Smith Board of Trustees.
(2)	Distributions are prorated as we plan to redeem the remaining Series E and G Preferred Units in February and March 2005, respectively.
(3)	Series I Preferred Units have a par value of $100,000 per unit.

Unit Repurchase and Redemption Activity

      The following is a summary of our Preferred Unit activity since 2003:

•  In May 2003, the Series H Preferred Units were converted into Common Units.

•  In October 2003, we called the Series A Preferred Units for redemption. Of the 2.9 million Series A Convertible Preferred Units outstanding, 2.8 million were converted to Common Units and the remaining were redeemed for cash and retired.

•  In September 2004, the Series K Preferred Units were converted into Common Units.

•  In August 2004, the Series D Preferred Units were redeemed in full plus accrued distributions.

•  In December 2004, the Series L Preferred Units were converted into Common Units.

39

      In 2004 and 2003 we issued 374,921 and 1,955,908 A-1 Common Units of the Operating Trust as partial consideration for real estate, respectively. All units were issued in transactions exempt from registration under Section 4(2) of the Securities Act of 1933 and the rules thereunder.

Planned Investments

      Following is a summary of planned investments as of December 31, 2004, including amounts for Ameriton (dollar amounts in thousands). The amounts labeled “Discretionary” represent future investments that we plan to make, although there is not a contractual commitment to do so. The amounts labeled “Committed” represent the approximate amount that we are contractually committed to fund for communities under construction in accordance with construction contracts with general contractors.

		Planned Investments
		Units		Discretionary		Committed
Communities under redevelopment			1,535	$	2,756	$	27,485
Communities under construction			4,894		—		458,453
Communities In Planning and owned			2,953		485,889		—
Communities In Planning and Under Control			713		101,349		—
Community acquisitions under contract			348		43,152		—
	Total		10,443	$	633,146	$	485,938

      In addition to the planned investments noted above, we expect to make additional investments relating to planned expenditures on recently acquired communities as well as recurring expenditures to improve and maintain our established operating communities.

      We anticipate completion of most of the communities that are currently under construction and the planned operating community improvements during 2005 and 2006. We expect to start construction on approximately $300-$350 million, based on Total Expected Investment, of new development communities in 2005. We expect to fund the costs of these development projects over a two-to-three year period following the date construction commences. No assurances can be given that communities we do not currently own will be acquired or that planned developments will actually occur. In addition, actual costs incurred could be greater or less than our current estimates.

Funding Sources

      We anticipate financing our planned investment and operating needs primarily with cash flow from operating activities, disposition proceeds from our capital recycling program, existing cash balances and borrowings under our unsecured credit facilities, prior to arranging long-term financing. We anticipate that net cash flow from operating activities and gains on dispositions during 2005 will be sufficient to fund anticipated distribution requirements and debt principal amortization payments. To fund planned investment activities, we had $625 million in available capacity on our unsecured credit facilities, $50 million of cash in tax-deferred exchange escrow and $152 million of cash on hand at February 14, 2005. In addition, we expect to complete the disposition of $400 — $700 million of REIT operating communities during 2005.

      In March 2003, we filed a shelf registration statement on Form S-3 to register an additional $335 million in unsecured debt securities. In June 2003, we issued $250 million in long-term unsecured senior notes due in June 2008 for net proceeds of $247.2 million. These notes bear interest at a coupon rate of 3.0% annually, with an effective interest rate of 3.2%. The net proceeds were used to repay outstanding balances on our unsecured credit facility.

      In April 2004, we filed a shelf registration statement on Form S-3 to register an additional $450 million in unsecured debt securities. This registration statement was declared effective in April 2004. During August 2004, we issued $300 million in long-term unsecured ten-year notes with net proceeds of $297.1 million and with a coupon rate of 5.6% and an effective interest rate of 5.8% from its shelf registration statement. The proceeds were used to repay outstanding balances on our unsecured credit facilities. The notes were issued

40

pursuant to a supplemental indenture with modified debt covenants, which are specific to these notes. The primary change pertains to the leverage covenant, which limits total debt to 65% of the market value of total assets as defined, using a capitalization rate of 7.5% to value stabilized operating assets. As of December 31, 2004, we had $700 million available in shelf registered debt securities which can be issued subject to our ability to affect offerings on satisfactory terms based on prevailing market conditions.

      As of February 14, 2005, Archstone-Smith and the Operating Trust collectively have $1.2 billion available in shelf registered securities which can be issued based on our ability to affect offerings on satisfactory terms based on prevailing market conditions.

Litigation and Contingencies

      We are subject to various claims in connection with moisture infiltration and resulting mold issues at certain high-rise properties in Southeast Florida. These claims generally allege that water infiltration and resulting mold contamination resulted in the claimants having personal injuries and/or property damage. Although certain of these claims continue to be at various stages of litigation, with respect to the majority of these claims, we have either settled the claims and/or we have been dismissed from the lawsuits that had been filed. With respect to the lawsuits that have not been resolved, we continue to defend these claims in the normal course of litigation.

      We have recorded accruals for moisture infiltration and resulting mold issues. These accruals represent management’s best estimate of the probable and reasonably estimable costs and are based, in part, on the settlements reached with the various claimants, estimates obtained from third-party contractors and actual costs incurred to date. It is possible that these estimates could increase or decrease as additional information becomes available.

      We are aggressively pursuing recovery of a significant portion of these costs from our insurance carriers. We are in litigation with our insurance providers, and therefore we have not recorded an estimate for future insurance recoveries associated with moisture infiltration and resulting mold. In addition, we will continue to pursue potential recoveries from third parties whom we believe bear responsibility for a considerable portion of the costs we have incurred. We cannot make assurances that we will obtain these recoveries or that our ultimate liability associated with these claims will not be material to our results of operations.

      During 2004, we incurred estimated losses associated with multiple hurricanes in Florida. As a result of this damage, we recorded a loss contingency of approximately $5.5 million associated with both wholly owned and unconsolidated apartment communities. This charge is offset by a $750,000 receivable for anticipated insurance recoveries. These estimates represent management’s best estimate of the probable and reasonably estimable costs and are based on the most current information available from our insurance adjustors.

      During December 2004, a lawsuit was filed against us that alleges various violations of the Fair Housing Act and the Americans with Disabilities Act at 112 properties currently or formerly owned by the Company. The plaintiffs are seeking injunctive relief, in the form of retrofitting apartments and public accommodations to comply with the Fair Housing Act and the Americans with Disabilities Act; unspecified monetary damages for the diversion of the plaintiffs’ resources to address fair housing violations, punitive damages and attorneys’ fees. We are in the process of evaluating the claims asserted in this litigation. Due to the preliminary nature of the litigation, it is not possible to predict or determine the outcome of the legal proceeding, nor is it reasonably possible to estimate the amount of loss, if any, that would be associated with an adverse decision.

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

Critical Accounting Policies

      We define critical accounting policies as those accounting policies that require our management to exercise their most difficult, subjective and complex judgments. Our management has discussed the development and selection of all of these critical accounting policies with our audit committee, and the audit

41

committee has reviewed the disclosure relating to these policies. Our critical accounting policies relate principally to the following key areas:

Internal Cost Capitalization

      We have an investment organization that is responsible for development and redevelopment of apartment communities. Consistent with GAAP, all direct and certain indirect costs, including interest and real estate taxes, incurred during development and redevelopment activities are capitalized. Interest is capitalized on real estate assets that require a period of time to get them ready for their intended use. The amount of interest capitalized is based upon the average amount of accumulated development expenditures during the reporting period. Included in capitalized costs are management’s estimates of the direct and incremental personnel costs and indirect project costs associated with our development and redevelopment activities. Indirect project costs consist primarily of personnel costs associated with construction administration and development accounting, legal fees, and various office costs that clearly relate to projects under development. Because the estimation of capitalizable internal costs requires management’s judgment, we believe internal cost capitalization is a “critical accounting estimate.”

      If future accounting rules limit our ability to capitalize internal costs or if our development activity decreased significantly without a proportionate decrease in internal costs, there could be an increase in our operating expenses. For example, if hypothetically, we were to reduce our development and land acquisition activity by 25% with no corresponding decrease in internal costs, our net earnings per Common Unit could decrease by approximately 1.0% or approximately $0.026 based on 2004 amounts.

Valuation of Real Estate

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

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

      The apartment industry uses capitalization rates as the primary measure of fair value. Specifically, annual NOI for a community is divided by an estimated capitalization rate to determine the fair value of the community. Determining the appropriate capitalization rate requires significant judgment and is typically based on many factors including the prevailing rate for the market or submarket. Further, capitalization rates can fluctuate up or down due to a variety of factors in the overall economy or within local markets. If the actual capitalization rate for a community is significantly different from our estimated rate, the impairment evaluation for an individual asset could be materially affected. For example, we would value a community with annual NOI of $10 million at $200 million using a 5.0% capitalization rate, whereas that same community would be valued at $166.7 million if the actual capitalization rate were 6.0%. Historically we have had limited and infrequent impairment charges, and the majority of our apartment community sales have produced gains. For example, we have sold approximately $6.8 billion of real estate assets (excluding Ameriton) over the last nine years, which produced $1.2 billion in gains at an unleveraged internal rate of return of approximately 13.0%. We evaluate a real estate asset for potential impairment when events or changes in circumstances indicate that its carrying amount may not be recoverable.

42

Capital Expenditures and Depreciable Lives

      We incur costs relating to redevelopment initiatives, revenue enhancing and expense reducing capital expenditures, and recurring capital expenditures that are capitalized as part of our real estate. These amounts are capitalized and depreciated over estimated useful lives determined by management. We allocate the cost of newly acquired properties between net tangible and identifiable intangible assets. The primary intangible asset associated with an apartment community acquisition is the value of the existing lease agreements. When allocating cost to an acquired property, we first allocate costs to the estimated intangible value of the existing lease agreements and then to the estimated value of the land, building and fixtures assuming the property is vacant. We estimate the intangible value of the lease agreements by determining the lost revenue associated with a hypothetical lease-up. We depreciate the building and fixtures based on the expected useful life of the asset and amortize the intangible value of the lease agreements over the average remaining life of the existing leases.

      Determining whether expenditures meet the criteria for capitalization, the assignment of depreciable lives and determining the appropriate amounts to allocate between tangible and intangible assets for property acquisitions requires our management to exercise significant judgment and is therefore considered a “significant accounting estimate.”

      Total capital expenditures were 1.0% and 1.4% of weighted average gross real estate as of December 31, 2004 and 2003, respectively. Additionally, depreciation expense as a percentage of depreciable real estate was 3.3%, 3.2% and 3.1% or $0.99, $1.04 and $1.16 per Unit for the years ended December 31, 2004, 2003 and 2002, respectively. If the actual weighted average useful life were determined to be one year shorter or longer than management’s current estimate, our annual depreciation expense would increase or decrease approximately 3.3% or $0.03 per Common Unit. See Note 1 in our audited financial statements in this Annual Report for additional detail on depreciable lives.

Pursuit Costs

      We incur costs relating to the potential acquisition of real estate which we refer to as pursuit costs. To the extent that these costs are identifiable with a specific property and would be capitalized if the property were already acquired, the costs are accumulated by project and capitalized in the Other Asset section of the balance sheet. If these conditions are not met, the costs are expensed as incurred. Capitalized costs include but are not limited to earnest money, option fees, environmental reports, traffic reports, surveys, photos, blueprints, direct and incremental personnel costs and legal costs. Upon acquisition, the costs are included in the basis of the acquired property. When it becomes probable that a prospective acquisition will not be acquired, the accumulated costs for the property are charged to other expense on the statement of earnings in the period such a determination is made.

      Because of the inherent judgment involved in evaluating whether a prospective property will ultimately be acquired, we believe capitalizable pursuit costs are a “critical accounting estimate.” If it were determined that a quarter of our prospective acquisitions were deemed improbable as of December 31, 2004, net earnings for the year ended December 31, 2004 would decrease by approximately $0.016 per Common Unit, excluding refundable earnest money.

Off Balance Sheet Arrangements

      Investments in entities that do not qualify as a variable interest entity and are not controlled through majority economic interest are not consolidated and are reported as investments in unconsolidated entities. Our investments in unconsolidated entities at December 31, 2004, consisted of $111.5 million in real estate joint ventures, which generally consist of our percentage ownership in the equity of the joint ventures.

      Consolidated Engineering Services is a service business that we acquired in the Smith Merger in 2001, and prior to its sale had been reported as an unconsolidated entity in our financial statements. CES provides engineering services for commercial and residential real estate across the country. On December 19, 2002, CES was sold to a third party for $178 million in cash. We recorded a $35.4 million net gain on the sale of the

43

business or $0.16 per share on a fully diluted basis. As a condition of sale, we agreed to indemnify the buyer for certain representations and warranties contained in the sale contract. During 2004 we recognized $3.2 million of additional income associated with the expiration of these contingencies. Additionally, approximately $6.7 million in contingent proceeds related to indemnification of accounts receivable over 120 days were excluded from the initial gain. We recognized $0.9 million and $5.3 million of these contingent proceeds during 2004 and 2003, respectively. We also recognized $3.1 million related to settlement of an ongoing CES lawsuit during 2004.

      Smith Management Construction, Inc. (SMC) is a service business that we acquired in the Smith Merger during 2001. We sold SMC during February 2003 to members of SMC’s senior management. Prior to the sale, we reported SMC as an unconsolidated entity in our financial statements. We received two notes receivable totaling $5.8 million and bearing an interest rate of 7.0% as consideration for the sale. The first note for $3.5 million has principal payments that began in October 2003 with payment in full by February 2008. As of December 31, 2004, the outstanding balance on this note receivable was $3.1 million. The second note for $2.3 million was fully repaid along with all accrued interest due during May 2003. During the second quarter of 2004, we recognized the divestiture since our responsibilities under the majority of the outstanding performance guarantees, which pertain to ongoing construction projects at the time of sale, expired.

      As part of the Smith Merger, we are required to indemnify the former Smith Partnership unitholders for any personal income tax expense resulting from the sale of high-rise properties identified in the shareholders’ agreement between Archstone-Smith, the Operating Trust, Robert H. Smith and Robert P. Kogod until October 31, 2021.

Contractual Commitments

      The following table summarizes information contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in our audited financial statements in this Annual Report regarding contractual commitments (amounts in millions):

				2006 and		2008 and		2010 thru
		2005		2007		2009		2096		Total
Scheduled long-term debt maturities		$	313.7	$	838.0	$	911.2	$	2,067.7	$	4,130.6
Unsecured credit facilities(1)			—		19.0		—		—		19.0
Interest on indebtedness			238.6		413.4		311.3		275.9		1,239.2
Development and redevelopment expenditures			380.2		105.7		—		—		485.9
Performance bond guarantees(2)			18.9		0.7		—		2.4		22.0
Lease commitments and other(3)			34.0		18.5		13.3		347.2		413.0
	Total	$	985.4	$	1,395.3	$	1,235.8	$	2,693.2	$	6,309.7

(1)	The $600 million unsecured facility matures December 2007, with a one-year extension option available at our discretion.
(2)	The Operating Trust, our subsidiaries and investees have not been required to perform on these guarantees, nor do we anticipate being required to perform on such guarantees. Since we believe that our risk of loss under these contingencies is remote, no accrual for potential loss has been made in the accompanying financial statements. We are still obligated for certain performance bond guarantees for SMC subsequent to their sale, but there are recourse provisions available to us to recover any potential future payments from the new owners of SMC.
(3)	Lease commitments relate principally to ground lease payments as of December 31, 2004.

44

Related Party Transactions

      Ameriton paid approximately $3.2 million and $1.5 million to certain officers and employees of the Operating Trust related to realized returns on investments sold during 2004 and 2003, respectively, none of which were made to members of Ameriton’s board. Four members of Ameriton’s board (James H. Polk, III, John C. Schweitzer, R. Scot Sellers and Charles E. Mueller, Jr.) are Trustees of Archstone-Smith or executive officers of the Operating Trust.

      During 1997, as part of the employee share purchase plan, certain officers and other employees purchased Common Shares of Archstone-Smith. Archstone-Smith financed 95% of the total purchase price by issuing notes representing approximately $17.1 million. As of December 31, 2004, the aggregate outstanding balances on these notes were approximately $917,000.

      ArchstoneSmith has the following business relationships with business entities or family members of Board of Trustee member Robert H. Smith:

      Mr. Smith owns a residence within a condominium in Crystal City, where Archstone-Smith staffs the property with doormen, maintenance, and administrative staff. Archstone-Smith is contractually reimbursed by the condominium association for payroll and benefits costs, and receives a contractual monthly management fee of $848 for other Archstone-Smith management oversight. ASN does not have an ownership interest in this property. Archstone-Smith billed $175,368 during 2004 for expenses incurred and management fees for this property.

      Mr. Smith and Mr. Kogod have a 0.33% and 4.36% ownership interest, respectively, in a partnership which owns two apartment communities in Washington D.C. Archstone-Smith receives a contractual management fee of 4.5% of revenues to employ the property maintenance and administrative staff, manage the property, and perform all accounting functions. Archstone-Smith does not have an ownership interest in this property. We billed $941,301 during the twelve months ended December 31, 2004, for expenses incurred and management fees for this property.

      Mr. Smith’s daughter is employed as a Vice President in Marketing at a salary and bonus of approximately $109,000 and received option grants with a face value of $237,000 as compensation during 2004. She has been employed by the Company and its predecessor Charles E. Smith Residential Realty since September 1980.

New Accounting Pronouncements

      In November 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 151, “Inventory Costs an amendment of ARB No. 43, Chapter 4”. This Statement is effective for the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material associated with inventory costs incurred during fiscal years beginning after June 15, 2005. The Statement requires that the above-mentioned items be recognized as current-period charges. We do not believe that the adoption of SFAS No. 151 will have a material impact on our financial position, net earnings or cash flows.

      In December 2004, the FASB issued SFAS No. 152, “Accounting for Real Estate Time-Sharing Transactions an amendment of FASB Statements No. 66 and 67”. This Statement amends SFAS No. 66, “Accounting for Sales of Real Estate” to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, “Accounting for Real Estate Time-Sharing Transactions.” This Statement also amends SFAS No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects” to specify that guidance relating to (a) incidental operations (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. This Statement is effective for fiscal years beginning after June 15, 2005. We do not believe that the adoption of SFAS No. 152 will have a material impact on our financial position, net earnings or cash flows.

      In December 2004, the FASB issued SFAS No. 153, “Exchanges of Non-monetary Assets an amendment of APB No. 29”. This Statement amends APB Opinion No. 29, “Accounting for Non-monetary Transactions” to eliminate the exception for non-monetary exchanges of similar productive assets and replaces

45

it with a general exception for exchanges of non-monetary assets that do not have commercial substance. That exception required that some non-monetary exchanges be recorded on a carryover basis versus this Statement, which requires that an entity record a non-monetary exchange at fair value and recognize any gain or loss if the transaction has commercial substance. This Statement is effective for fiscal years beginning after June 15, 2005. We do not believe that the adoption of SFAS No. 153 will have a material impact on our financial position, net earnings or cash flows.

      In December 2004, the FASB issued SFAS No. 123 revised 2004, “Share-Based Payment”. This Statement is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”, and supercedes APB No. 25, “Accounting for Stock Issued to Employees”. The Statement requires companies to recognize in the income statement the grant-date fair value of stock options and other equity based compensation issued to employees. This Statement is effective as of the beginning of the first interim or annual period that commences after June 15, 2005. We do not believe that the adoption of SFAS No. 123 revised 2004 will have a material impact on our financial position, net earnings or cash flows.

      In March 2004, the FASB issued EITF Issue No. 03-6, “Participating Securities and the Two — Class Method under FASB Statement No. 128, Earnings per Share” (EITF No. 03-6). This issue address whether the two-class method requires the presentation of basic and diluted EPS for all participating securities and how a participating security should be defined. The guidance to this issue should be applied to reporting periods beginning after March 31, 2004. Prior period earnings per share amounts presented for comparative purposes should be restated to conform to the guidance in this consensus. The adoption of EITF No. 03-6 had no impact on our financial position, net earnings or cash flows.

      In October 2004, the FASB issued EITF Issue No. 04-8, “The Effect of Contingently Convertible Instruments on Diluted Earnings Per Share” (EITF No. 04-8). This Issue addresses when contingently convertible instruments should be included in diluted earnings per share and should be applied for reporting periods ending after December 15, 2004. The adoption of EITF No. 04-8 had no impact on our financial position, net earnings or cash flows.

      In November 2004, the FASB issued EITF Issue No. 03-13, “Applying the Conditions in Paragraph 42 of FASB Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, in Determining Whether to Report Discontinued Operations” (EITF No. 03-13). This issue assists in the development of a model for evaluating (a) which cash flows are to be considered in determining whether cash flows have been or will be eliminated and (b) what types of continuing involvement constitute significant continuing involvement. The guidance in this issue should be applied to a component of an enterprise that is either disposed of or classified as held for sale in fiscal periods beginning after December 15, 2004. Previously reported operating results related to disposal transactions initiated within an enterprise’s fiscal year that includes the date that this consensus was ratified (November 30, 2004) may be reclassified. The adoption of EITF No. 03-13 had no impact on our financial position, net earnings or cash flows.

      In September 2004, the FASB issued EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (EITF No. 03-1). The guidance in EITF No. 03-1 was effective for other-than-temporary impairment evaluations made in reporting periods beginning after June 15, 2004. However, certain provisions regarding the assessment of whether an impairment is other than temporary have been delayed. Although the disclosure requirements continue to be effective in annual financial statements for fiscal years ending after December 15, 2003, for investments accounted for under SFAS No. 115 and 124. For all other investments addressed by EITF No. 03-1, the disclosures continue to be effective in annual financial statements for fiscal years ending after June 15, 2004. The adoption of EITF No. 03-1 had no impact on our financial position, net earnings or cash flows.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Stock Investments

      We have both public and private investments in equity securities. The publicly traded equity securities are classified as “available for sale securities” and carried at fair value, with unrealized gains and losses

46

reported as a separate component of unitholders’ equity. The private investments, for which we lack the ability to exercise significant influence, are accounted for at cost. Declines in the value of public and private investments that our management determines are other than temporary, are recorded as a provision for possible loss on investments. Our evaluation of the carrying value of these investments is primarily based upon a regular review of market valuations (if available), each company’s operating performance and assumptions underlying cash flow forecasts. In addition, our management considers events and circumstances that may signal the impairment of an investment.

Interest Rate Hedging Activities

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

      We formally assess, both at inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item. We measure hedge effectiveness by comparing the changes in the fair value or cash flows of the derivative instrument with the changes in the fair value or cash flows of the hedged item. We assess effectiveness of purchased interest rate caps based on overall changes in the fair value of the caps. If a derivative ceases to be a highly effective hedge, we discontinue hedge accounting prospectively.

      To determine the fair values of derivative and other financial instruments, we use a variety of methods and assumptions that are based on market value conditions and risks existing at each balance sheet date. These methods and assumptions include standard market conventions and techniques such as discounted cash flow analysis, option pricing models, replacement cost and termination cost. All methods of assessing fair value result in a general approximation of value, and therefore, are not necessarily indicative of the actual amounts that we could realize upon disposition.

      During the years ended December 31, 2004, 2003 and 2002 we recorded an increase/(decrease) to interest expense of $33,000, $101,000 and $(312,000), for hedge ineffectiveness caused by a difference between the interest rate index on a portion of our outstanding variable rate debt and the underlying index of the associated interest rate swap. We pursue hedging strategies that we expect will result in the lowest overall borrowing costs and least degree of earnings volatility possible under the new accounting standards.

47

      The following table summarizes the notional amount, carrying value and estimated fair value of our derivative financial instruments used to hedge interest rates, as of December 31, 2004 (dollar amounts in thousands). The notional amount represents the aggregate amount of a particular security that is currently hedged at one time, but does not represent exposure to credit, interest rate or market risks.

								Carrying and
				Notional		Maturity		Estimated Fair
				Amount		Date Range		Value
Cash flow hedges:
	Interest rate caps			$	109,008		2005-2007	$	8
	Interest rate swaps				150,000		2006		(3,556	)
		Total cash flow hedges		$	259,008		2005-2007	$	(3,548	)
Fair value hedges:
	Interest rate swaps			$	75,055		2008	$	4,470
	Total rate of return swaps				77,006		2006-2007		8,593
		Total fair value hedges		$	152,061		2005-2008	$	13,063
			Total hedges	$	411,069		2005-2008	$	9,515

      During 2004, we entered into interest rate swap transactions to mitigate the risk of changes in the interest-related cash outflows on a forecasted issuance of long-term unsecured debt. At inception, these swap transactions had an aggregate notional amount of $144 million and a fair value of zero. The long-term unsecured debt these swap transactions related to was issued in August 2004. The hedge was terminated when the debt was issued. The fair value of the cash flow hedge upon termination was a liability of approximately $2.5 million. This amount was deferred in accumulated other comprehensive income and will be reclassified out of accumulated other comprehensive income as additional interest expense as the hedged forecasted interest payments occur.

Equity Securities Hedging Activities

      We are exposed to price risk associated with changes in the fair value of certain equity securities. During 2003, we entered into forward sale agreements with an aggregate notional amount, which represents the fair value of the underlying marketable securities, of approximately $128.5 million and an aggregate fair value of the forward sale agreements of approximately $486,000, to protect against a reduction in the fair value of these securities. We designated this forward sale as a fair value hedge.

      During 2004, we settled all of the forward sales agreements for approximately 2.8 million shares, and sold 308,200 shares of marketable securities which were not subject to forward sales agreements, resulting in an aggregate gain of approximately $24.9 million. The total net proceeds from the sale were $143.0 million, with the marketable securities basis determined using the average costs of the securities. The fair value of forward sales agreements at December 31, 2004 and 2003 were $0 and $250,462, respectively.

48

Interest Rate Sensitive Liabilities

      The table below provides information about our liabilities that are sensitive to changes in interest rates as of December 31, 2004. As the table incorporates only those exposures that existed as of December 31, 2004, it does not consider those exposures or positions, which could arise after that date.

      Moreover, because there were no firm commitments to actually sell these instruments at fair value as of December 31, 2004, the information presented herein is an estimate and has limited predictive value. As a result, our ultimate realized gain or loss, if any, will depend on the exposures that arise during future periods, hedging strategies, prevailing interest rates and other market factors existing at the time. The debt classification and interest rates shown below give effect to fair value hedges and other fees or expenses, where applicable (in thousands):

																									Estimated
																						Total			Fair
				2005			2006			2007			2008			2009			Thereafter			Balance			Value(1)
Interest rate sensitive liabilities:
	Unsecured credit facilities:			$	19,000		$	—		$	—		$	—		$	—		$	—		$	19,000		$	19,000
		Average nominal interest rate(2)			2.6	%		—			—			—			—			—			2.6	%		—
	Long-Term Unsecured Debt:
		Fixed rate		$	251,250		$	51,250		$	386,250		$	311,250		$	82,277		$	937,330		$	2,019,607		$	2,183,254
			Average nominal interest rate(2)		8.2	%		7.4	%		5.4	%		4.0	%		7.6	%		6.9	%		6.4	%		—
		Variable rate(3)		$	—		$	—		$	—		$	22,412		$	—		$	57,113		$	79,525		$	79,525
			Average nominal interest rate(2)											2.1	%					2.1	%		2.1	%		—
	Mortgages payable:
		Fixed rate debt		$	18,051		$	240,330		$	122,216		$	119,409		$	368,512		$	591,490		$	1,460,008		$	1,521,939
			Average nominal interest rate(2)		6.1	%		6.0	%		5.6	%		6.2	%		6.8	%		6.6	%		6.4	%		—
		Variable rate debt		$	44,442		$	3,873		$	34,056		$	3,541		$	3,830		$	481,755		$	571,497		$	571,497
			Average nominal interest rate(2)		4.2	%		2.0	%		2.7	%		2.0	%		1.9	%		2.0	%		2.2	%		—

(1)	The estimated fair value for each of the liabilities listed was calculated by discounting the actual principal payment stream at prevailing interest rates (obtained from third party financial institutions) currently available on debt instruments with similar terms and features.
(2)	Reflects the weighted average nominal interest rate on the liabilities outstanding during each period, giving effect to principal payments and final maturities during each period, if any. The nominal rates for variable rate mortgages payable have been held constant during each period presented based on the actual variable rates as of December 31, 2004. The weighted average effective interest rate on the unsecured credit facilities, Long- Term Unsecured Debt and mortgages payable was 2.62%, 6.23% and 5.24%, respectively, as of December 31, 2004.
(3)	Represents unsecured tax-exempt bonds.

Item 8. Financial Statements and Supplementary Data

      Our Balance Sheets as of December 31, 2004 and 2003, and our Statements of Earnings, Unitholders’ Equity, Other Common Unitholders’ Interest and Comprehensive Income and Cash Flows for each of the years in the three-year period ended December 31, 2004, Schedule III — Real Estate and Accumulated Depreciation and Schedule IV — Mortgage Loans on Real Estate, together with the reports of KPMG LLP, registered public accounting firm, are included under Item 15 of this Annual Report and are incorporated herein by reference. Selected quarterly financial data is presented in Note 10 of our audited financial statements in this Annual Report.

49

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      Not applicable.

Item 9A. Controls and Procedures

      An evaluation was carried out under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were, to the best of their knowledge, effective as of December 31, 2004, to ensure that information required to be disclosed in reports that are filed or submitted under the Securities Exchange Act are recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to December 31, 2004, there were no significant changes in the Operating Trust’s disclosure controls or in other factors that could significantly affect these controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

Management’s Report on Internal Control Over Financial Reporting

      Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2004. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Our management has concluded that, as of December 31, 2004, our internal control over financial reporting was effective based on these criteria. Our independent registered public accounting firm, KPMG LLP, has issued an audit report on our assessment of our internal control over financial reporting, which is included herein.

      Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of their inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Archstone-Smith Operating Trust have been detected.

50

PART III

Item 10. Trustees and Executive Officers of the Registrant

      Archstone-Smith is our sole trustee and is responsible for the oversight and management of the Operating Trust. All of the property ownership and business operations of Archstone-Smith are conducted through the Operating Trust. For information regarding our senior officers, see “Item 1. Business — Officers of the Operating Trust.” For information regarding our Code of Ethics, see “Item 1. Business — Available Information and Code of Ethics”. Information regarding the trustees of Archstone-Smith will be contained in Archstone-Smith’s definitive proxy statement relating to the 2005 Annual Meeting of Shareholders to be held on                     , 2005 (the “Archstone-Smith Proxy Statement”), which is incorporated herein by reference. Please see the Archstone-Smith Proxy Statement for further information.

      Section 16(a) of the Securities Exchange Act of 1934 requires the Operating Trust to report whether or not, based on its review of reports to the SEC filed by beneficial owners of more than 10% of any class of equity securities registered under Section 12 of the Securities Act of 1933 any such required reports were not filed or were filed untimely.

Item 11. Executive Compensation

      Our sole trustee is responsible for the oversight and management of the Operating Trust and performs the day-to-day management of the Operating Trust through its officers. No compensation is paid to Archstone-Smith for acting as trustee. Each officer of our sole trustee holds the same officer position with the Operating Trust and is compensated for his or her service to Archstone-Smith and the Operating Trust, considered as a single enterprise. Information concerning the compensation of the executive officers of Archstone-Smith will be contained in the Archstone-Smith Proxy Statement, which is incorporated herein by reference. Please see the Archstone-Smith Proxy Statement for further information.

Item 12. Security Ownership of Certain Beneficial Owners and Management

      Archstone-Smith owns all of the outstanding voting securities of the Operating Trust. The following table sets forth information as of February 13, 2004, regarding beneficial ownership of A-1 Common Units by each person known by us to be beneficial owners of more than 5% of the A-1 Common Units, by each of Archstone-Smith’s trustees, by each of Archstone-Smith’s five most highly compensated executive officers and by all of Archstone-Smith’s trustees and executive officers as a group. Each person named in the table has sole voting and investment power with respect to all A-1 Common Units shown as beneficially owned by such person, except as otherwise set forth in the notes to the table. The address of each person listed below is c/o Archstone-Smith Trust, 9200 E. Panorama Circle, Suite 400, Englewood, Colorado 80112.

	Number of A-1
	Common Units			Percentage of All
Name of Beneficial Owner	Beneficially Owned			A-1 Common Units
Robert P. Kogod		2,522,094	(1)		10.9	%
R. Scot Sellers		—			—
Robert H. Smith		2,607,801	(1)		11.3	%
J. Lindsay Freeman		—			—
Dana K. Hamilton		—			—
Charles E. Mueller, Jr.		—			—
James D. Rosenberg		—			—
All Operating Trust trustees and executive officers as a group (7 persons)(2)		2,800,127	(1)		12.4	%

(1)  Includes for each of Messrs. Smith and Kogod beneficial ownership of Common Shares which are issuable upon conversion of Class A-1 Common Units as follows: Mr. Smith, 2,418,655 and Mr. Kogod, 2,398,510. Mr. Smith has shared voting and shared dispositive power with respect to 2,418,655 of such

51

Class A-1 Common Units. Of the 2,418,655 Class A-1 Common Units for which Mr. Smith shares voting power and dispositive power, 88,887 are owned by Mr. Smith’s spouse and 2,329,768 are owned by CESM, Inc., of which Mr. Smith is a director and the vice president, secretary and treasurer. Mr. Kogod has shared voting and shared dispositive power with respect to 2,398,510 of such Class A-1 Common Units. Of the 2,398,510 Class A-1 Common Units for which Mr. Kogod shares voting power and dispositive power, 68,742 are owned by Mr. Kogod’s spouse and 2,329,768 are owned by Charles E. Smith Management, Inc., of which Mr. Kogod is a director and the president. The Class A-1 Common Units that are owned by CESM, Inc. are reported twice, once as beneficially owned by Mr. Smith and again as beneficially owned by Mr. Kogod, but are only counted once in the calculation of beneficial ownership of our Trustees and executive officers as a group.

(2)

Archstone-Smith is the sole trustee of the Operating Trust and owned 89.1% of the Operating Trust via A-2 Common Units as of December 31, 2004.

Item 13. Certain Relationships and Related Transactions

      All of the property ownership and business operations of Archstone-Smith are conducted through the Operating Trust. In the normal course of business, because of our structure as an UPREIT, Archstone-Smith conducts all of its operations through the Operating Partnership and, as a result, engages in a significant number of transactions with and on behalf of the Operating Trust. Information concerning certain relationships and related transactions between the Operating Trust and its trustees, executive officers, holders of more than 10% of its Common Shares and related persons, will be contained in the Archstone-Smith Proxy Statement, which is incorporated herein by reference. Please see the Archstone-Smith Proxy Statement for further information.

Item 14. Principal Accounting Fees and Services

PROPOSAL 3 — RATIFICATION OF RELATIONSHIP WITH PUBLIC ACCOUNTANTS

      Subject to shareholder ratification, the Audit Committee has selected KPMG LLP, certified public accountants, to serve as the auditors of the Operating Trust’s books and records for the coming year. KPMG LLP has served as our auditors since 1980. A representative of KPMG LLP is expected to be present at the annual meeting, and will be given an opportunity to make a statement if that representative desires to do so and will be available to respond to appropriate questions.

      The fees billed by KPMG LLP in 2003 and 2004 for services provided to the Operating Trust were as follows:

	For the Years Ended
	December 31,
	2004		2003
Audit Fees(1)	$	1,597,000	$	888,750
Audit-Related Fees(2)		202,500		186,800
Tax Fees(3)		219,650		281,949
All Other Fees(4)		—		—
TOTAL	$	2,019,150	$	1,357,499

(1)  “Audit Fees” are the aggregate fees billed by KPMG LLP for professional services rendered for the audit of the Operating Trust’s annual financial statements for the years ended December 31, 2004 and December 31, 2003 and the reviews of the financial statements included in the Operating Trust’s quarterly reports on Form 10-Q during 2004 and 2003. “Audit Fees” also includes amounts billed for registration statements filed in 2003 and 2004 and related comfort letters and consent. These fees include fees billed in connection with KPMG LLP’s analysis of the effectiveness of our internal controls.

52

(2)	“Audit-related fees” include fees billed for assurance and related services that are reasonably related to the performance of the audit and not included in the “audit fees” described above, including audits of joint ventures and unconsolidated and consolidated subsidiaries.
(3)	“Tax Fees” are fees billed by KPMG LLP in either 2004 or 2003 for tax services, including tax compliance, tax advice or tax planning.
(4)	“All Other Fees” are fees billed by KPMG LLP in 2004 or 2003 that are not included in the above classifications.

Pre-Approval Process

      All services provided by KPMG LLP in 2004 were, and all services to be provided by KPMG LLP in 2005 will be, permissible under applicable laws and regulations and have been, and will continue to be, pre-approved by the Audit Committee. In accordance with applicable law, the Operating Trust is required to disclose the non-audit services approved by the Audit Committee performed by KPMG LLP. Non-audit services are defined as services other than those provided in connection with an audit or a review of the financial statements of a company. The Audit Committee approved the engagement of KPMG LLP for non-audit services, consisting of certain specified tax-related services during 2004 and 2005, provided that the fees for tax compliance services did not exceed $200,000 and non-compliance tax services did not exceed $400,000 in the aggregate or $100,000 for any one service.

53

PART IV

Item 15. Exhibits, Financial Statement Schedules

      The following documents are filed as part of this report:

      (a) Financial Statements and Schedule:

                1.     Financial Statements

See Index to Financial Statements and Schedule on page 55 of this report, which is incorporated herein by reference.

                2.     Financial Statement Schedule:

See Schedule III on page 97 of this report, which is incorporated herein by reference.

See Schedule IV on page 99 of this report, which is incorporated herein by reference.

All other schedules have been omitted since the required information is presented in the financial statements and the related notes or is not applicable.

                3.     Exhibits

See Index to Exhibits on page 101 of this report, which is incorporated herein by reference.

           (b) Exhibits:

The Exhibits required by Item 601 of Registration S-K are listed in the Index to Exhibits on page 101 of this Annual Report, which is incorporated herein by reference.

54

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

	Page
Reports of Independent Registered Public Accounting Firm		56
Consolidated Balance Sheets as of December 31, 2004 and 2003		58
Consolidated Statements of Earnings for the years ended December 31, 2004, 2003 and 2002		59
Consolidated Statements of Unitholders’ Equity, Other Common Unitholders’ Interest and Comprehensive Income(Loss) for the years ended December 31, 2004, 2003 and 2002		60
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002		61
Notes to Consolidated Financial Statements		62
Independent Auditors’ Report on Financial Statement Schedule		96
Schedule III — Real Estate and Accumulated Depreciation as of December 31, 2004		97
Schedule IV — Mortgage Loans on Real Estate as of December 31, 2004		99
Signatures		100
Index to Exhibits		101

55

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Trustee and Unitholders

Archstone-Smith Operating Trust:

      We have audited the accompanying consolidated balance sheets of Archstone-Smith Operating Trust and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of earnings, unitholders’ equity, other common unitholders’ interest and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2004. These consolidated financial statements are the responsibility of Archstone-Smith Operating Trust’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Archstone-Smith Operating Trust and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

      Effective July 1, 2003, Archstone-Smith Operating Trust adopted FASB Interpretation No. 46, Consolidation of Variable Interest Entities (revised). As a result, the accompanying consolidated financial statements, referred to above, have been restated to reflect the consolidated financial position and results of operations of Archstone-Smith Operating Trust and certain previously unconsolidated entities in accordance with U.S. generally accepted accounting principles.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Archstone-Smith Operating Trust’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February  28, 2005, expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

Denver, Colorado

February 28, 2005

56

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Trustee and Unitholders

Archstone-Smith Operating Trust:

      We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting appearing under Item 9A, that Archstone-Smith Operating Trust maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Archstone Smith Operating Trust’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of Archstone-Smith Operating Trust’s internal control over financial reporting based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      In our opinion, management’s assessment that Archstone-Smith Operating Trust maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, Archstone-Smith Operating Trust maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Archstone-Smith Operating Trust and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of earnings, unitholders’ equity, other common unitholders’ interest and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2004, and our report dated February 28, 2005, expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Denver, Colorado

February 28, 2005

57

ARCHSTONE-SMITH OPERATING TRUST

CONSOLIDATED BALANCE SHEETS

(In thousands, except unit data)

			December 31,
			2004			2003
ASSETS
Real estate			$	8,958,195		$	8,783,349
Real estate — held for sale				262,843			215,831
Less accumulated depreciation				763,542			648,982
				8,457,496			8,350,198
Investments in and advances to unconsolidated entities				111,481			86,367
		Net investments		8,568,977			8,436,565
Cash and cash equivalents				203,255			5,230
Restricted cash in tax-deferred exchange escrow				120,095			180,920
Other assets				173,717			298,980
		Total assets	$	9,066,044		$	8,921,695
LIABILITIES AND UNITHOLDERS’ EQUITY
Liabilities:
	Unsecured credit facilities		$	19,000		$	103,790
	Long-Term Unsecured Debt			2,099,132			1,871,965
	Mortgages payable			1,970,889			1,866,252
	Mortgages payable — held for sale			60,616			61,373
	Accounts payable			52,052			27,086
	Accrued expenses and other liabilities			273,079			254,126
		Total liabilities		4,474,768			4,184,592
Minority interest				2,050			11,510
Other common unitholders’ interest, at redemption value (A-1 Common Units: 23,117,498 in 2004 and 25,301,069 in 2003)				885,400			707,924
Unitholders’ equity:
	Convertible Preferred Units			—			50,000
	Perpetual Preferred Units			69,522			160,120
	Common unitholders’ equity (A-2 Common Units: 199,577,459 units in 2004 and 194,762,263 units in 2003)			3,638,729			3,793,314
	Accumulated other comprehensive earnings (loss)			(4,425	)		14,235
		Total unitholders’ equity		3,703,826			4,017,669
		Total liabilities and unitholders’ equity	$	9,066,044		$	8,921,695

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

58

ARCHSTONE-SMITH OPERATING TRUST

CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share amounts)

		Years Ended December 31,
		2004			2003			2002
Revenues:
	Rental revenues	$	854,121		$	764,338		$	744,877
	Other income		19,208			19,334			9,462
			873,329			783,672			754,339
Expenses:
	Rental expenses		219,717			189,691			189,099
	Real estate taxes		81,932			67,738			66,443
	Depreciation on real estate investments		203,183			162,723			148,588
	Interest expense		175,249			160,871			149,538
	General and administrative expenses		55,479			49,838			45,710
	Other expenses		5,972			35,879			17,014
			741,532			666,740			616,392
Earnings from operations			131,797			116,932			137,947
	Minority interest		460			—			(5,215	)
	Gains on dispositions of depreciated real estate, net		—			—			35,950
	Income from unconsolidated entities		17,902			5,745			53,602
	Other non-operating income		28,162			—			—
Net earnings before discontinued operations			178,321			122,677			222,284
	Net earnings from discontinued operations		434,302			371,514			134,441
Net earnings			612,623			494,191			356,725
	Preferred Unit Distributions		(16,254	)		(26,153	)		(34,309	)
Net earnings attributable to Common Units — Basic		$	596,369		$	468,038		$	322,416
Weighted average Common Units outstanding:
	Basic		220,053			212,288			202,781
	Diluted		223,187			220,758			203,804
Net earnings per Common Unit — Basic:
	Net earnings before discontinued operations	$	0.74		$	0.45		$	0.93
	Discontinued operations, net		1.97			1.75			0.66
	Net earnings	$	2.71		$	2.20		$	1.59
Net earnings per Common Unit — Diluted:
	Net earnings before discontinued operations	$	0.73		$	0.44		$	0.92
	Discontinued operations, net		1.96			1.74			0.66
	Net earnings	$	2.69		$	2.18		$	1.58
Distributions paid per Common Unit		$	2.72		$	1.71		$	1.70

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

59

ARCHSTONE-SMITH OPERATING TRUST

CONSOLIDATED STATEMENTS OF UNITHOLDERS’ EQUITY, OTHER COMMON

UNITHOLDERS’ INTEREST AND COMPREHENSIVE INCOME

Years Ended December 31, 2004, 2003 and 2002

(In thousands)

			Convertible			Perpetual
			Preferred			Preferred						Accumulated
			Units at			Units at						Other						Other
			Aggregate			Aggregate			Common			Comprehensive			Total			Common
			Liquidation			Liquidation			Unitholder’s			Earnings			Unitholders’			Unitholders’
			Preference			Preference			Equity			(Loss)			Equity			Interest			Total
Balances at December 31, 2002			$	225,351		$	148,763		$	3,263,035		$	(5,517	)	$	3,631,632		$	669,388		$	4,301,020
	Comprehensive income:
		Net earnings		—			—			314,815			—			314,815			41,910			356,725
		Change in fair value of cash flow hedges		—			—			—			(7,554	)		(7,554	)		—			(7,554	)
		Change in fair value of marketable securities		—			—			—			732			732			—			732
	Comprehensive income attributable to Common Units																					349,903
	Preferred Unit distribution			—			—			(34,309	)		—			(34,309	)		—			(34,309	)
	UPREIT Preferred Unit distribution			—			—			1,839			—			1,839			(1,839	)		—
	Common Unit distributions			—			—			(306,189	)		—			(306,189	)		(41,782	)		(347,971	)
	A-1 Common Units converted into A-2 Common Units			—			—			41,723			—			41,723			(41,723	)		—
	Conversion of Preferred Units into Common Units			(30,680	)		—			30,680			—			—			—			—
	Conversion of DownREIT Perpetual Preferred Units			—			73,180			—			—			73,180			—			73,180
	Common Unit repurchases			—			—			(15,362	)		—			(15,362	)		—			(15,362	)
	Preferred Unit repurchases			—			(49,393	)		(11	)		—			(49,404	)		—			(49,404	)
	Proceeds from Distribution Reinvestment Plan (DRIP)			—			—			45,471			—			45,471			—			45,471
	Adjustment to redemption value			—			—			67,499			—			67,499			(67,499	)		—
	Other, net			—			(12,000	)		47,068			—			35,068			21,143			56,211
Balances at December 31, 2003				194,671			160,550			3,456,259			(12,339	)		3,799,141			579,598			4,378,739
	Comprehensive income:
		Net earnings		—			—			433,657			—			433,657			60,534			494,191
		Change in fair value of cash flow hedges		—			—			—			3,439			3,439			—			3,439
		Change in fair value of marketable securities		—			—			—			23,135			23,135			—			23,135
	Comprehensive income attributable to Common Units																					520,765
	Preferred Unit distribution			—			—			(26,153	)		—			(26,153	)		—			(26,153	)
	UPREIT Preferred Unit Distribution			—			—			5,156			—			5,156			(5,156	)		—
	Common Unit distributions			—			—			(245,460	)		—			(245,460	)		(31,575	)		(277,035	)
	A-1 Common Units converted into A-2 Common Units			—			—			25,534			—			25,534			(25,534	)		—
	Conversion of Preferred Units into Common Units			(143,416	)		—			143,416			—			—			—			—
	Common Unit repurchases			—			—			(13,163	)		—			(13,163	)		—			(13,163	)
	Preferred Unit repurchases			(1,255	)		(430	)		(196	)		—			(1,881	)		—			(1,881	)
	Exercise of Options			—			—			43,420			—			43,420			—			43,420
	Proceeds from Distribution Reinvestment Plan (DRIP)			—			—			48,126			—			48,126			—			48,126
	Issuance of A-1 Common Units			—			—			—			—			—-			47,575			47,575
	Adjustment to redemption value			—			—			(112,337	)		—			(112,337	)		112,337			—
	Other, net						—			35,055			—			35,055			(29,855	)		5,200
Balances at December 31, 2003			$	50,000		$	160,120		$	3,793,314		$	14,235		$	4,017,669		$	707,924		$	4,725,593
	Comprehensive income:
		Net earnings		—			—			542,342			—			542,342			70,281			612,623
		Change in fair value of cash flow hedges		—			—			—			3,750			3,750			—			3,750
		Change in fair value of marketable securities		—			—			—			(22,410	)		(22,410	)		—			(22,410	)
	Comprehensive income attributable to Common Units																					593,963
	Preferred Unit distribution			—			—			(16,254	)		—			(16,254	)		1,726			(14,528	)
	Common Unit distributions			—			—			(539,116	)		—			(539,116	)		(64,437	)		(603,553	)
	A-1 Common Units converted into A-2 Common Units			—			—			47,949			—			47,949			(47,949	)		—
	A-2 Common Unit repurchases			—			—			(95,668	)		—			(95,668	)		—			(95,668	)
	Conversion of Preferred Units into Common Units			(50,000	)		—			50,000			—			—			—			—
	Preferred Unit repurchases			—			(90,598	)		—			—			(90,598	)		—			(90,598	)
	Exercise of Options			—			—			61,467			—			61,467			—			61,467
	Issuance of A-1 Common Units in exchange for real estate			—			—			—			—			—			10,788			10,788
	Issuance of A-2 Common Units in exchange for real estate			—			—			4,502			—			4,502			—			4,502
	Adjustment to redemption value			—			—			(207,067	)		—			(207,067	)		207,067			—
	Other, net			—			—			(2,740	)		—			(2,740	)		—			(2,740	)
Balances at December 31, 2004			$	—		$	69,522		$	3,638,729		$	(4,425	)	$	3,703,826		$	885,400		$	4,589,226

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

60

ARCHSTONE-SMITH OPERATING TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

			Years Ended December 31,
			2004			2003			2002
Operating activities:
	Net earnings		$	612,623		$	494,191		$	356,725
	Adjustments to reconcile net earnings to net cash flow provided by operating activities:
		Depreciation and amortization		227,000			210,427			212,178
		Gains on dispositions of depreciated real estate, net		(446,447	)		(353,600	)		(139,604	)
		Gains on the sale of marketable equity securities and property management business		(28,162	)		—			—
		Provisions for possible loss on investments		—			3,714			2,611
		Minority interest		(460	)		—			4,871
		Income from unconsolidated entities		(17,902	)		(5,745	)		(53,602	)
	Change in other assets			526			19,441			(25,597	)
	Change in accounts payable, accrued expenses and other liabilities			32,113			(18,583	)		40,462
	Other, net			(9,519	)		(6,149	)		(6,001	)
		Net cash flow provided by operating activities		369,772			343,696			392,043
Investing activities:
	Real estate investments			(1,423,549	)		(932,777	)		(910,544	)
	Change in investments in and advances to unconsolidated entities, net			2,473			35,972			177,727
	Proceeds from dispositions, net of closing costs			1,816,272			1,563,556			579,451
	Change in tax-deferred exchange escrow			60,825			(180,920	)		120,421
	Other, net			96,367			(57,665	)		(104,456	)
		Net cash flow provided by (used in) investing activities		552,388			428,166			(137,401	)
Financing activities:
	Proceeds from Long-Term Unsecured Debt			297,052			247,225			530,774
	Payments on Long-Term Unsecured Debt			(72,950	)		(171,250	)		(97,500	)
	Principal prepayment of mortgages payable, including prepayment penalties			(159,558	)		(343,368	)		(705,103	)
	Regularly scheduled principal payments on mortgages payable			(11,512	)		(11,934	)		(11,761	)
	Proceeds from mortgage notes payable			51,656			76,017			247,797
	Proceeds from (payments on) unsecured credit facilities, net			(84,790	)		(261,788	)		176,989
	Proceeds from Common Units issued under DRIP and employee stock options			61,467			91,546			69,772
	Repurchase of Common Units and Preferred Units			(146,954	)		(15,044	)		(64,776	)
	Repurchase of Series E and F Perpetual Preferred Units			(42,712	)		—			—
	Redemption of Perpetual Preferred Units			—			—			(12,000	)
	Cash distributions paid on Common Units			(603,553	)		(365,009	)		(344,590	)
	Cash distributions paid on Preferred Units			(14,527	)		(28,371	)		(34,351	)
	Cash distributions paid to minority interests			—			—			(5,165	)
	Other, net			2,246			2,498			1,091
		Net cash flow used in financing activities		(724,135	)		(779,478	)		(248,823	)
Net change in cash and cash equivalents				198,025			(7,616	)		5,819
Cash and cash equivalents at beginning of period				5,230			12,846			7,027
Cash and cash equivalents at end of period			$	203,255		$	5,230		$	12,846

See Note 15 for supplemental information on non-cash investing and financing activities.

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

61

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2004, 2003 and 2002

(The glossary included in this Annual Report is hereby incorporated by reference)

(1) Description of Business and Summary of Significant Accounting Policies

Business

      Archstone-Smith is structured as an UPREIT under which all property ownership and business operations are conducted through the Operating Trust. Archstone-Smith is our are the sole trustee and owns approximately 89.1% of our outstanding common units. As used herein, “we”, “our” and the “company” refers to the Operating Trust and Archstone-Smith, collectively, except where the context otherwise requires. Archstone-Smith is an equity REIT organized under the laws of the State of Maryland. We focus on creating value for our shareholders by acquiring, developing and operating apartments in markets characterized by very expensive single-family home prices and a strong, limited land on which to build new housing, diversified economic base and employment growth potential.

Principles of Consolidation

      The accounts of the Operating Trust and its controlled subsidiaries are consolidated in the accompanying financial statements. All significant inter-company accounts and transactions have been eliminated. We use the equity method to account for investments that do not qualify as variable interest entities or where we do not own a majority of the economic interest, but have the ability to exercise significant influence over the operating and financial policies of the investee. For an investee accounted for under the equity method, our share of net earnings or losses of the investee is reflected in income as earned and distributions are credited against the investment as received.

      We adopted FASB Interpretation No. 46 “Consolidation of Variable Interest Entities” (revised) on July 1, 2003. As a result, the accompanying consolidated financial statements have been restated to reflect the consolidated financial position and results of operations of Archstone-Smith Trust and certain previously unconsolidated entities in accordance with accounting principles generally accepted in the United States of America. We previously accounted for Ameriton using the equity method.

Use of Estimates

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported in the financial statements and the related notes. Actual results could differ from management’s estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period they are determined to be necessary.

Discontinued Operations

      For properties accounted for under SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets,” the results of operations for properties sold during the period or classified as held for sale at the end of the current period are required to be classified as discontinued operations in the current and prior periods. The property-specific components of net earnings that are classified as discontinued operations include rental revenue, rental expense, real estate tax, depreciation expense and interest expense (actual interest expense for encumbered properties and a pro-rata allocation of interest expense for any unencumbered portion up to our weighted average leverage ratio). The net gain or loss on the eventual disposal of the held for sale properties is also required to be classified as discontinued operations. Properties sold by our unconsolidated entities are not included in discontinued operations and related gains or losses are reported as a component of income from unconsolidated entities.

62

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cash and Cash Equivalents

      Cash and cash equivalents consist of cash on hand, demand deposits with financial institutions and short-term, highly liquid investments. We consider all highly liquid instruments with maturities when purchased of three months or less to be cash equivalents.

Restricted Cash in Tax-Deferred Exchange and Bond Escrow

      Disposition proceeds are set aside and designated to fund future tax-deferred exchanges of qualifying real estate investments. If these proceeds are not redeployed to qualifying real estate investments within 180 days, these funds are redesignated as cash and cash equivalents. Additionally, cash held in escrow to fund future developments costs and cash held as security deposits are classified as restricted cash.

Marketable Securities and Other Investments

      All publicly traded equity securities are classified as “available for sale” and carried at fair value, with unrealized gains and losses reported as a separate component of unitholders’ equity. Private investments, for which we do not have the ability to exercise significant influence, are accounted for at cost. Declines in the value of public and private investments that management determines are other than temporary are recorded as a provision for loss on investments.

Real Estate and Depreciation

      Real estate, other than properties held for sale, is carried at depreciated cost. Long-lived assets designated as being held for sale are reported at the lower of their carrying amount or estimated fair value less cost to sell, and thereafter are no longer depreciated.

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

      In accordance with SFAS No. 144, long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

      We have an investment organization that is responsible for development and redevelopment of apartment communities. Consistent with GAAP, all direct and certain indirect costs, including interest and real estate taxes, incurred during development and redevelopment activities are capitalized. Interest is capitalized on real estate assets that require a period of time to get them ready for their intended use. The amount of interest capitalized is based upon the average amount of accumulated development expenditures during the reporting period. Included in capitalized costs are management’s estimates of the direct and incremental personnel costs

63

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and indirect project costs associated with our development and redevelopment activities. Indirect project costs consist primarily of personnel costs associated with construction administration and development accounting, legal fees, and various office costs that clearly relate to projects under development.

      Depreciation is computed over the expected useful lives of depreciable property on a straight-line basis as follows:

Buildings and related land improvements	15-40 years
Furniture, fixtures, equipment and other	5-10 years
Intangible value of lease agreements	6-12 months

Interest

      During 2004, 2003 and 2002, the total interest paid in cash on all outstanding debt was $229.6 million, $244.8 million and $269.8 million, respectively.

      We capitalize interest during the construction period as part of the cost of apartment communities under development. Interest capitalized during 2004, 2003 and 2002 aggregated $23.6 million, $26.9 million and $32.4 million, respectively.

Cost of Raising Capital

      Costs incurred in connection with the issuance of equity securities are deducted from unitholders’ equity. Costs incurred in connection with the issuance or renewal of debt are subject to the provisions of EITF 96-19. Accordingly, if the terms of the renewed or modified debt instrument are deemed to be substantially different (i.e., a 10 percent or more difference in the present value of the remaining cash flows), all unamortized loan costs associated with the extinguished debt are charged against earnings during the current period; otherwise, costs are capitalized as other assets and amortized into interest expense over the term of the related loan or the renewal period. The balance of any unamortized loan costs associated with old debt is expensed upon replacement with new debt. We utilize the straight-line method to amortize debt issuance costs as it approximates the effective interest method required under SFAS No. 91. Amortization of loan costs included in interest expense for 2004, 2003 and 2002 was $4.4 million, $4.5 million and $5.0 million, respectively.

Moisture Infiltration and Mold Remediation Costs

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

Interest Rate Contracts/ Forward Sales Contracts

      We utilize derivative financial instruments to manage our interest rate risk and exposure to changes in the fair value of certain investments in equity securities. We designate these financial instruments as hedges of specific liabilities or anticipated transactions. During 2003, we adopted SFAS No. 149 “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. Under SFAS No. 149, the resulting assets and liabilities associated with derivative financial instruments are carried on our financial statements at estimated fair value at the end of each reporting period. The changes in the fair value of a fair value hedge and the fair value of the items hedged are recorded in earnings for each reporting period. The change in the fair

64

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

value of effective cash flow hedges are carried on our financial statements as a component of accumulated other comprehensive income (loss). If effective, fair value hedges have no impact on our current earnings.

Revenue and Gain Recognition

      We generally lease our apartment units under operating leases with terms of one year or less. Rental income related to leases is recognized on an accrual basis when due from residents in accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 104, “Revenue Recognition” and Statement of Financial Accounting Standards SFAS No. 13, “Accounting for Leases.” Rent concessions are recognized as an offset to revenues collected over the term of the underlying lease. We use the full accrual method of profit recognition in accordance with SFAS No. 66 to record gains on sales of real estate. Accordingly, we evaluate the related GAAP requirements in determining the profit to be recognized at the date of each sale transaction (i.e., the profit is determinable and the earnings process is complete).

Rental Expenses

      Rental expenses shown on the accompanying Statements of Earnings include costs associated with on-site and property management personnel, utilities (net of utility reimbursements from residents), repairs and maintenance, property insurance, marketing, landscaping and other on-site and related administrative costs.

Legal Fees

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

Stock-Based Compensation

      As of December 31, 2004, the Company has one stock-based employee compensation plan. Effective January 1, 2003, the Company adopted the fair value recognition provision of SFAS No. 123, “Accounting for Stock-Based Compensation,” prospectively to all employee awards granted, modified or settled after January 1, 2003, which results in expensing of options. During 2004, we granted approximately 300,000 Restricted Share Units and 648,000 stock options. No significant employee awards were granted during 2003. For employee awards granted prior to January 1, 2003, the Company accounted for this plan under the recognition and measurement provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. With respect to options granted under the plan prior to January 1, 2003, no stock-based employee compensation expense is reflected in the accompanying condensed consolidated statements of earnings, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net earnings and

65

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period (dollar amounts in thousands, except per share amounts):

		Years Ended December 31,
		2004			2003			2002
Net earnings attributable to Common Units — Basic		$	596,369		$	468,038		$	322,416
Add: Stock-based employee compensation expense included in reported net earnings			297			—			—
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards			(2,059	)		(1,982	)		(2,094	)
Pro forma net earnings attributable to Common Units —
	Basic	$	594,607		$	466,056		$	320,322
Net earnings per Common Unit:
	Basic — as reported	$	2.71		$	2.20		$	1.59
	Basic — pro forma	$	2.70		$	2.20		$	1.58
	Diluted — as reported	$	2.69		$	2.18		$	1.58
	Diluted — pro forma	$	2.68		$	2.17		$	1.57

      The following is a table of the assumptions used to value options for the respective grant year using the Black-Scholes model:

	2004			2003			2002
Weighted average risk-free interest rate		3.77	%		3.48	%		3.54	%
Weighted average dividend yield		5.63	%		6.92	%		6.74	%
Weighted average volatility		21.97	%		15.33	%		19.58	%
Weighted average expected option life		5.0  years			5.0  years			5.0  years

Income Taxes

      We have made an election to be taxed as a partnership under the Internal Revenue Code of 1986, as amended, and we believe we qualify as a partnership and have made all required distributions of our taxable income. See Note 13 for more information on income taxes.

      Income taxes for our taxable REIT subsidiaries are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date.

Comprehensive Income

      Comprehensive income, which is defined as net earnings and all other non-owner changes in equity, is displayed in the accompanying Statements of Unitholders’ Equity, Other Common Unitholders’ Interest and Comprehensive Income (Loss). Other comprehensive income (loss) reflects unrealized holding gains and losses on the available-for-sale investments and changes in the fair value of effective cash flow hedges as described above (see — Interest Rate Contracts/ Forward Sale Contracts).

66

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Our accumulated other comprehensive income (loss) for the year ended December 31, 2004 was as follows (in thousands):

	Net
	Unrealized						Accumulated
	Gains on						Other
	Marketable			Cash Flow			Comprehensive
	Securities			Hedges			Earnings/(Loss)
Balance at December 31, 2003	$	23,808		$	(9,573	)	$	14,235
Change in fair value of cash flow hedges		—			6,098			6,098
Change in fair value of long-term debt hedges		—			(2,348	)		(2,348	)
Mark to market for marketable equity securities		1,372			—			1,372
Reclassification adjustments for realized net gains		(23,782	)		—			(23,782	)
Balance at December 31, 2004	$	1,398		$	(5,823	)	$	(4,425	)

Per Unit Data

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

		Years Ended December 31,
		2004		2003		2002
Reconciliation of numerator between basic and diluted net earnings per Common Unit(1):
Net earnings attributable to Common Units — Basic		$	596,369	$	468,038	$	322,416
	Distributions on Convertible Preferred Units		3,755		12,872		—
Net earnings attributable to Common Units — Diluted(2)		$	600,124	$	480,910	$	322,416
Reconciliation of denominator between basic and diluted net earnings per Common Unit(1):
Weighted average number of Common Units outstanding — Basic			220,053		212,288		202,781
	Assumed conversion of Preferred Units into Common Units		2,182		7,972		—
	Incremental options and warrants		952		498		1,023
Weighted average number of Common Units outstanding — Diluted			223,187		220,758		203,804

(1)  Excludes the impact of 13.1 million convertible equity securities during 2002 as they were anti-dilutive.

Market Concentration Risk

      At December 31, 2004, approximately 39.4% of our apartment communities are located in the Washington, D.C. metropolitan area, based on NOI. Approximately 18.9% of our apartment communities are located in Southern California at December 31, 2004, based on NOI. Southern California is the geographic area comprised of the Los Angeles County, the Inland Empire, Orange County, San Diego and Ventura County markets. Additionally, approximately 8.2% of our apartment communities are located in the San Francisco Bay area of California at December 31, 2004, based on NOI. We are, therefore, subject to increased exposure (positive or negative) to economic and other competitive factors specific to protected markets within these geographic areas.

67

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Preferred Share Redemptions

      When redeeming Preferred Units, we recognize share issuance costs as a charge to earnings in accordance with Financial Accounting Standards Board (“FASB”) — Emerging Issues Task Force (“EITF”) Topic D-42, “The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock.” In July 2003, the Securities and Exchange Commission (“SEC”) staff issued a clarification of the SEC’s position on the application of FASB-EITF Topic D-42. The SEC staff’s position, as clarified, is that in applying Topic D-42, the carrying value of preferred Units that are redeemed should be reduced by the amount of original issuance costs, regardless of where in unitholders’ equity those costs are reflected.

Reclassifications

      Certain prior year amounts have been reclassified to conform to the current presentation.

New Accounting Pronouncements

      In November 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 151, “Inventory Costs an amendment of ARB No. 43, Chapter 4”. This Statement is effective for the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material associated with inventory costs incurred during fiscal years beginning after June 15, 2005. The Statement requires that the above-mentioned items be recognized as current-period charges. We do not believe that the adoption of SFAS No. 151 will have a material impact on our financial position, net earnings or cash flows.

      In December, 2004, the FASB issued SFAS No. 152, “Accounting for Real Estate Time-Sharing Transactions an amendment of FASB Statements No. 66 and 67”. This Statement amends SFAS No. 66, “Accounting for Sales of Real Estate” to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, “Accounting for Real Estate Time-Sharing Transactions.” This Statement also amends SFAS No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects” to specify that guidance relating to (a) incidental operations (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. This Statement is effective for fiscal years beginning after June 15, 2005. We do not believe that the adoption of SFAS No. 152 will have a material impact on our financial position, net earnings or cash flows.

      In December 2004, the FASB issued SFAS No. 153, “Exchanges of Non-monetary Assets an amendment of APB No. 29”. This Statement amends APB Opinion No. 29, “Accounting for Non-monetary Transactions” to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. That exception required that some non-monetary exchanges be recorded on a carryover basis versus this Statement, which requires that an entity record a non-monetary exchange at fair value and recognize any gain or loss if the transaction has commercial substance. This Statement is effective for fiscal years beginning after June 15, 2005. We do not believe that the adoption of SFAS No. 153 will have a material impact on our financial position, net earnings or cash flows.

      In December 2004, the FASB issued SFAS No. 123 revised 2004, “Share-Based Payment”. This Statement is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”, and supercedes APB No. 25, “Accounting for Stock Issued to Employees”. The Statement requires companies to recognize in the income statement the grant-date fair value of stock options and other equity based compensation issued to employees. This Statement is effective as of the beginning of the first interim or annual period that commences after June 15, 2005. We do not believe that the adoption of SFAS N. 123 revised 2004 will have a material impact on our financial position, net earnings and cash flows.

68

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      In March 2004, the FASB issued EITF Issue No. 03-6, “Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share” (EITF No. 03-6). This issue address whether the two-class method requires the presentation of basic and diluted EPS for all participating securities and how a participating security should be defined. The guidance to this issue should be applied to reporting periods beginning after March 31, 2004. Prior period earnings per share amounts presented for comparative purposes should be restated to conform to the guidance in this consensus. The adoption of EITF No. 03-6 had no impact on our financial position, net earnings or cash flows.

      In October 2004, the FASB issued EITF Issue No. 04-8, “The Effect of Contingently Convertible Instruments on Diluted Earnings Per Share” (EITF No. 04-8). This Issue addresses when contingently convertible instruments should be included in diluted earnings per share and should be applied for reporting periods ending after December 15, 2004. The adoption of EITF No. 04-8 had no impact on our financial position, net earnings or cash flows.

      In November 2004, the FASB issued EITF Issue No. 03-13, “Applying the Conditions in Paragraph 42 of FASB Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, in Determining Whether to Report Discontinued Operations” (EITF No. 03-13). This issue assists in the development of a model for evaluating (a) which cash flows are to be considered in determining whether cash flows have been or will be eliminated and (b) what types of continuing involvement constitute significant continuing involvement. The guidance in this issue should be applied to a component of an enterprise that is either disposed of or classified as held for sale in fiscal periods beginning after December 15, 2004. Previously reported operating results related to disposal transactions initiated within an enterprise’s fiscal year that includes the date that this consensus was ratified (November 30, 2004) may be reclassified. The adoption of EITF No. 03-13 had no impact on our financial position, net earnings or cash flows.

      In September 2004, the FASB issued EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (EITF No. 03-1). The guidance in EITF No. 03-1 was effective for other-than-temporary impairment evaluations made in reporting periods beginning after June 15, 2004. However, certain provisions regarding the assessment of whether an impairment is other than temporary have been delayed. Although the disclosure requirements continue to be effective in annual financial statements for fiscal years ending after December 15, 2003, for investments accounted for under SFAS No. 115 and 124. For all other investments addressed by EITF No. 03-1, the disclosures continue to be effective in annual financial statements for fiscal years ending after June 15, 2004. The adoption of EITF No. 03-1 had no impact on our financial position, net earnings or cash flows.

69

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(2)     Real Estate

Investments in Real Estate

      Investments in real estate, at cost, were as follows (dollar amounts in thousands):

			December 31,
			2004				2003
			Investment		Units(1)		Investment		Units(1)
Operating Trust apartment communities:
	Operating communities		$	8,018,658		58,486	$	8,067,075		63,848
	Communities under construction			499,239		3,237		301,634		2,607
	Development communities In Planning:
		Owned		51,822		1,251		95,911		2,633
		Under control(2)		—		593		—		112
	Total development communities In Planning			51,822		1,844		95,911		2,745
	Total Operating Trust apartment communities			8,569,719		63,567		8,464,620		69,200
	Ameriton apartment communities			581,910		6,198		494,338		5,646
	Other			69,409				40,222
		Total real estate	$	9,221,038		69,765	$	8,999,180		74,846

(1)	Unit information is based on management’s estimates and has not been audited or reviewed by our independent auditors.
(2)	Our investment as of December 31, 2004 and December 31, 2003 for development communities Under Control was $1.5 million and $1.1 million, respectively, and are reflected in the “Other assets” caption of our Consolidated Balance Sheets.

Capital Expenditures

      In conjunction with the underwriting of each acquisition of an operating community, we prepare acquisition budgets that encompass the incremental capital needed to achieve our investment objectives. These expenditures, combined with the initial purchase price and related closing costs, are capitalized and classified as “acquisition-related” capital expenditures, as incurred.

      As part of our operating strategy, we periodically evaluate each community’s physical condition relative to established business objectives and the community’s competitive position in its market. In conducting these evaluations, we consider our return on investment in relation to our long-term cost of capital as well as our research and analysis of competitive market factors. Based on these factors, we make decisions on incremental capital expenditures, which are classified as either “redevelopment” or “recurring”.

      The redevelopment category includes: (i) redevelopment initiatives, which are intended to reposition the community in the marketplace and include items such as significant upgrades to the interiors, exteriors, landscaping and amenities; (ii) revenue-enhancing expenditures, which include investments that are expected to produce incremental community revenues, such as building garages, carports and storage facilities or gating a community; and (iii) expense-reducing expenditures, which include items such as water submetering systems and xeriscaping that reduce future operating costs.

      Recurring capital expenditures consist of significant expenditures for items having a useful life in excess of one year, which are incurred to maintain a community’s long-term physical condition at a level

70

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

commensurate with our stringent operating standards. Examples of recurring capital expenditures include roof replacements, certain make-ready expenditures, parking lot resurfacing and exterior painting.

      The change in investments in real estate, at cost, consisted of the following (in thousands):

			Years Ended December 31,
			2004			2003
Balance at January 1			$	8,999,180		$	9,297,735
	Acquisition-related expenditures			1,080,639			573,768
	Redevelopment expenditures			40,999			69,649
	Recurring capital expenditures			50,147			48,960
	Development expenditures, excluding land acquisitions			333,782			91,430
	Acquisition and improvement of land for development			175,470			125,581
	Dispositions			(1,460,046	)		(1,209,956	)
	Provision for possible loss on investments			—			(3,714	)
		Net apartment community activity		220,991			(304,282	)
	Change in other real estate assets			867			5,727
Balance at December 31			$	9,221,038		$	8,999,180

      At December 31, 2004, we had unfunded contractual commitments of $485.9 million related to communities under construction and under redevelopment.

(3)     Discontinued Operations

      The results of operations for properties sold during the period or designated as held-for-sale at the end of the period are required to be classified as discontinued operations. The property specific components of net earnings that are classified as discontinued operations include rental revenues, rental expenses, real estate taxes, depreciation expense, income taxes and interest expense (actual interest expense for encumbered properties and a pro-rata allocation of interest expense for any unencumbered property up to our weighted average leverage ratio), as well as the net gain or loss on the disposition of properties.

      Consistent with our capital recycling program, we had five operating apartment communities, representing 1,952 units (unaudited), classified as held for sale under the provisions of SFAS No. 144, at December 31, 2004. Accordingly, we have classified the operating earnings from these five properties within discontinued operations for the years ended December 31, 2004, 2003 and 2002. During the twelve months ended December 31, 2004, we sold 30 REIT and Ameriton operating communities. The operating results of these 30 communities and the related gain/ loss on sale are also included in discontinued operations for 2004, 2003 and 2002. During the twelve months ended December 31, 2003, we sold 48 operating communities. The operating results of these 48 communities and the related gain/ loss on the sale are also included in discontinued operations for 2003 and 2002. In addition, discontinued operations for the year ended December 31, 2002 includes the net operating results of 12 operating communities and one retail property which were sold during 2002.

71

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following is a summary of net earnings from discontinued operations (in thousands):

		Years Ended December 31,
		2004			2003			2002
Rental revenue		$	113,933		$	242,287		$	340,897
Rental expenses			(39,656	)		(85,012	)		(107,088	)
Real estate taxes			(12,783	)		(28,611	)		(33,856	)
Depreciation on real estate investments			(16,806	)		(40,633	)		(58,037	)
Interest expense(1)			(33,503	)		(51,195	)		(92,651	)
Income taxes from taxable REIT subsidiaries			(21,567	)		(12,206	)		(10,455	)
Provision for possible loss on real estate investment			—			(3,714	)		(2,611	)
Debt extinguishment costs related to dispositions			(1,763	)		(3,002	)		(5,412	)
Gain from the disposition of REIT real estate investments, net			372,217			310,901			72,934
Gain from the dispositions of taxable REIT subsidiary real estate investments, net			74,230			42,699			30,720
	Total discontinued operations	$	434,302		$	371,514		$	134,441

(1)  The portion of interest expense included in discontinued operations that is allocated to properties based on the Company’s leverage ratio was $23.2 million, $32.7 million and $61.2 million for 2004, 2003 and 2002, respectively.

      Assets held for sale as of December 31, 2004, represented gross real estate of $262.8 million and $215.8 million with mortgages payable of $60.6 million and $61.4 million at December 31, 2004 and 2003, respectively. Additionally, of our investment in real estate and debt balances at December 31, 2003, we disposed of $1.5 billion of real estate and paid off related mortgages of $85.8 million during the twelve months ended December 31, 2004.

(4)     Investments in and Advances to Unconsolidated Entities

Sale of Consolidated Engineering Services

      Consolidated Engineering Services is a service business that we acquired in the Smith Merger in 2001, and prior to its sale had been reported as an unconsolidated entity in our financial statements. CES provides engineering services for commercial and residential real estate across the country. On December 19, 2002, CES was sold to a third party for $178 million in cash. We recorded a $35.4 million net gain on the sale of the business or $0.16 per share on a fully diluted basis. As a condition of sale, we agreed to indemnify the buyer for certain representations and warranties contained in the sale contract. During 2004 we recognized $3.2 million of additional income associated with the expiration of these contingencies. Additionally, approximately $6.7 million in contingent proceeds related to indemnification of accounts receivable over 120 days were excluded from the initial gain. We recognized $0.9 million and $5.3 million of these contingent proceeds during 2004 and 2003, respectively. We also recognized $3.1 million related to settlement of an ongoing CES lawsuit during 2004.

Sale of Smith Management Construction, Inc.

      Smith Management Construction, Inc. is a service business that we acquired in the Smith Merger during 2001. We sold SMC during February 2003 to members of SMC’s senior management. Prior to the sale, we reported SMC as an unconsolidated entity in our financial statements. We received two notes receivable

72

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

totaling $5.8 million and bearing an interest rate of 7.0% as consideration for the sale. The first note for $3.5 million has principal payments that began in October 2003 with payment in full by February 2008. As of December 31, 2003, the outstanding balance on this note receivable was $3.1 million. The second note for $2.3 million was fully repaid along with all accrued interest due during May 2003. During the second quarter of 2004, we recognized the divestiture since our responsibilities under the majority of the outstanding performance guarantees, which pertain to ongoing construction projects at the time of sale, expired.

Archstone Management Services

      During May 2003, we sold Archstone Management Services, our third-party management business. The transaction included management contracts for 32 communities comprising 10,665 units. The $6.5 million sales price was paid in three installments based on the retention of the contracts acquired. During the second quarter of 2004, all contingencies related to the sale expired and we recognized a gain of $3.3 million.

Real Estate Joint Ventures

      At December 31, 2004, we had investments in 14 Operating Trust real estate joint ventures. Our ownership percentage of economic interests range from 20% to 89%. The voting interest for major decisions is split 50/ 50 between ourselves and the venture partners. At December 31, 2004, Ameriton had six real estate joint ventures in which the venture partners are the development/ managing members. Voting on major investment decisions are split 50/ 50 and our venture partners handle all day-to-day operational decisions. Economic interest in the ventures varies depending upon the ultimate return of the venture. The Operating Trust and Ameriton joint ventures do not qualify as variable interest entities as neither partner is deemed to substantially benefit from the joint venture. Accordingly, we utilize the guidance provided by SOP 78-9 “Accounting for Investments in Real Estate Ventures” when determining the basis of accounting for these ventures. Because we do not control the voting interest of these joint ventures, we account for these entities using the equity method. In the aggregate, these ventures own 15,671 apartment units. At December 31, 2004, the investment balance consists of $74.1 million in Operating Trust joint ventures and $37.4 million in Ameriton joint ventures. At December 31, 2003, the investment balance consists of $42.9 million in Operating Trust joint ventures and $43.5 million in Ameriton joint ventures.

73

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Summary Financial Information

      Combined summary balance sheet data for our investments in unconsolidated entities presented on a stand-alone basis follows (in thousands):

			2004		2003
Assets:
	Real estate		$	1,115,563	$	1,283,904
	Other assets			52,394		29,577
		Total assets	$	1,167,957	$	1,313,481
Liabilities and owners’ equity:
	Inter-company debt payable to Operating Trust		$	4,124	$	2,779
	Mortgages payable			777,924		913,142
	Other liabilities			24,254		20,804
		Total liabilities		806,302		936,725
	Owners’ equity			361,655		376,756
		Total liabilities and owners’ equity	$	1,167,957	$	1,313,481

      Selected summary results of operations for our unconsolidated investees presented on a stand-alone basis follows (in thousands):

		2004			2003			2002
Operating Trust Joint Ventures(1)
	Revenues	$	140,390		$	145,567		$	145,061
	Net Earnings		29,559			7,726			16,118
Ameriton Joint Ventures
	Revenues	$	5,950		$	11,549		$	9,977
	Net Earnings		(713	)		(4,569	)		(1,716	)
Service Businesses
	Revenues	$	—		$	—		$	432,193
	Net Earnings		—			—			5,227
Total
	Revenues	$	146,340		$	157,116		$	587,231
	Net Earnings	$	28,846		$	3,157		$	19,629

(1)  Includes $32.4 million, $0 and $2.6 million of gains associated with the disposition of Joint Ventures during 2004, 2003 and 2002, respectively.

      Our income from unconsolidated entities differs from the stand-alone net earnings from the investees presented above due to various accounting adjustments made in accordance with GAAP. Examples of these differences include: (i) only recording our proportionate share of net earnings in the unconsolidated investees; (ii) the impact of certain eliminating inter-company transactions; (iii) timing differences in income recognition due to deferral of gains on contribution of properties to joint ventures; and (iv) a gain on the sale of CES, as previously discussed. Additionally, we have incurred certain joint venture formation costs at the Operating Trust level which we account for as outside basis as these costs are not reflected on the stand-alone

74

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

financial statements of the joint venture. These amounts are reflected on our consolidated financial statements and are amortized over the life of the underlying assets.

      We generally do not guarantee third party debt incurred by our unconsolidated investees. Investee third-party debt consists principally of mortgage notes payable. Generally, mortgages on real estate assets owned by our unconsolidated investees are secured by the underlying properties. We generally do not guarantee third party debt incurred by our unconsolidated investees; however, the investees and/or Archstone-Smith are occasionally required to guarantee the mortgages along with all other venture partners. As of December 31, 2004, we have not been required to perform under any guarantees provided to our joint ventures.

(5) Borrowings

Unsecured Credit Facilities

      In December 2004, we restructured our unsecured revolving credit facility provided by a group of financial institutions led by JPMorgan Chase Bank. The primary modifications were extending the maturity, reducing the pricing and lowering thee capitalization rate used to value the operating portfolio. The $600 million facility matures in December 2007 and has a one-year extension feature, exercisable at our option. The facility bears interest at the greater of prime or the federal funds rate plus 0.50%, or at our option, LIBOR plus 0.50%. The spread over LIBOR can vary from LIBOR plus 0.425% to LIBOR plus 1.25% based upon the rating of our Long-Term Unsecured Debt. The facility contains an accordion feature that allows us to expand the commitment up to $900 million at any time during the life of the facility, subject to lenders providing additional commitments. Under the agreement, we pay a facility fee of 0.15% of the commitment, which can vary from 0.125% to 0.200% based upon the ratings of our Long-Term Unsecured Debt.

      The following table summarizes our revolving credit facility borrowings under our line of credit (in thousands, except for percentages):

	Years Ended
	December 31,
	2004			2003
Total unsecured revolving credit facility	$	600,000		$	600,000
Borrowings outstanding at December 31	$	19,000		$	97,000
Outstanding letters of credit under this facility	$	13,983		$	1,050
Weighted average daily borrowings	$	81,317		$	231,354
Maximum borrowings outstanding during the period	$	375,000		$	511,500
Weighted average daily nominal interest rate		1.58	%		1.95	%
Weighted average daily effective interest rate		2.62	%		2.55	%

      We also have a short-term unsecured borrowing agreement with JPMorgan Chase Bank, which provides for maximum borrowings of $100 million. The borrowings under the agreement bear interest at an overnight rate agreed to at the time of borrowing and ranged from 1.60% to 2.55% during 2004. There were no borrowings outstanding under the agreement at December 31, 2004 and $6.8 million of borrowings outstanding under this agreement at December 31, 2003.

Long-Term Unsecured Debt

      In April 2004, we filed a shelf registration statement on Form S-3 to register an additional $450 million in unsecured debt securities. This registration statement was declared effective in April 2004. During August 2004, the Operating Trust issued $300 million in long-term unsecured ten-year notes with net proceeds of $297.1 and a coupon rate of 5.6% and an effective interest rate of 5.8% from its shelf registration statement. The proceeds were used to repay outstanding balances on the Operating Trust’s unsecured credit facilities.

75

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The notes were issued pursuant to a supplemental indenture with modified debt covenants, which are specific to these notes. The primary change pertains to the leverage covenant, which limits total debt to 65% of the market value of total assets as defined, using a capitalization rate of 7.5% to value stabilized operating assets. As of December 31, 2004, the Operating Trust had $700 million available in shelf registered debt securities which can be issued subject to our ability to affect offerings on satisfactory terms based on prevailing market conditions.

      In March 2003, we filed a shelf registration statement on Form S-3 to register an additional $335 million in unsecured debt securities. During June 2003, we issued $250 million of long-term unsecured senior notes due in June 2008 for net proceeds of $247.2 million. These notes bear interest at a coupon rate of 3.0% annually, with an effective interest rate of 3.2%. The net proceeds were used to repay outstanding balances on our unsecured credit facilities.

      A summary of our Long-Term Unsecured Debt outstanding at December 31, 2004 and 2003 follows (dollar amounts in thousands):

					Effective			Balance at		Balance at		Average
		Coupon			Interest			December 31,		December 31,		Remaining Life
Type of Debt		Rate(1)			Rate(2)			2004		2003		(Years)
Long-term unsecured senior notes			6.2	%		6.4	%	$	2,019,607	$	1,771,167		5.3
Unsecured tax-exempt bonds			1.8	%		2.1	%		79,525		100,798		18.6
	Total/average		6.1	%		6.2	%	$	2,099,132	$	1,871,965		5.8

(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.

      The $2.1 billion of Long-Term Unsecured Debt generally have semi-annual interest payments and either amortizing annual principal payments or balloon payments due at maturity. The unsecured tax-exempt bonds require semi-annual payments and are due upon maturity with $22.4 million maturing in 2008 and $57.1 million maturing in 2029. The notes are redeemable at our option, in whole or in part, and the unsecured tax-exempt bonds are redeemable at our option upon sale of the related property. The redemption price is generally equal to the sum of the principal amount of the notes being redeemed plus accrued interest through the redemption date plus a standard make-whole premium, if any.

Mortgages Payable

      Our mortgages payable generally feature either monthly interest and principal payments or monthly interest-only payments with balloon payments due at maturity (see — Scheduled Debt Maturities). A

76

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

summary of mortgages payable outstanding for the years ending December 31, 2004 and 2003 follows (dollar amounts in thousands):

				Outstanding Balance at(1)
								Effective
				December 31,		December 31,		Interest
				2004		2003		Rate(2)
Secured floating rate debt:
	Tax-exempt debt			$	508,923	$	317,351		2.0	%
	Construction loans				40,868		56,129		4.4	%
	Conventional mortgages				21,705		21,705		3.0	%
			Total Floating		571,496		395,185		2.2	%
Secured fixed rate debt:
	Conventional mortgages				1,439,558		1,511,277		6.5	%
	Other secured debt				20,451		21,163		3.6	%
			Total Fixed		1,460,009		1,532,440		6.4	%
		Total debt outstanding at end of period		$	2,031,505	$	1,927,625		5.2	%

(1)	Includes a net fair market value adjustment recorded in connection with the Smith Merger of $48.4 million and $58.5 million at December 31, 2004 and 2003, respectively. This amount is 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.

      The change in mortgages payable during 2004 and 2003 consisted of the following (in thousands):

		2004			2003
Balance at January 1		$	1,927,625		$	2,179,997
	Issuance of new mortgages		51,656			76,017
	Mortgage assumptions related to property acquisitions		113,585			55,362
	Proceeds from construction loans		118,000			—
	Regularly scheduled principal amortization		(11,512	)		(11,934	)
	Prepayments, final maturities and other		(167,849	)		(371,817	)
Balance at December 31		$	2,031,505		$	1,927,625

77

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Scheduled Debt Maturities

      Approximate principal payments due during each of the next five calendar years and thereafter, are as follows (in thousands):

		Long Term Unsecured Debt				Mortgages Payable
		Regularly				Regularly
		Scheduled		Final		Scheduled		Final
		Principal		Maturities		Principal		Maturities
		Amortization		and Other		Amortization		and Other		Total
2005		$	31,250	$	220,000	$	11,804	$	50,689	$	313,743
2006			31,250		20,000		10,752		233,451		295,453
2007			31,250		355,000		11,352		144,920		542,522
2008			31,250		302,412		12,660		110,290		456,612
2009			51,250		31,027		10,272		362,070		454,619
Thereafter(1)			346,250		648,193		245,045		828,200		2,067,688
	Total	$	522,500	$	1,576,632	$	301,885	$	1,729,620	$	4,130,637

(1)  The average annual principal payments due from 2010 to 2024 are $117.9 million per year.

Other

      The book value of total assets pledged as collateral for mortgage loans and other obligations at both December 31, 2004 and 2003 is $3.8 billion. Our debt instruments generally contain covenants common to the type of facility or borrowing, including financial covenants establishing minimum debt service coverage ratios and maximum leverage ratios. We were in compliance with all financial covenants pertaining to our debt instruments at December 31, 2004. See Note 10 for a summary of derivative financial instruments used in connection with our debt instruments.

(6) Distributions to Unitholders

      The payment of distributions is subject to the discretion of the Board and is dependent upon our strategy, financial condition and operating results. At its December 2004 Board meeting, the Board announced an anticipated increase in the annual distribution from $1.72 to $1.73 per Common Unit.

78

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table summarizes the cash distributions paid per share on Common Units and Preferred Units during 2004, 2003 and 2002:

	2004		2003		2002
Common Units and A-1 Units(1)	$	2.72	$	1.71	$	1.70
Series A Preferred Units(2)		—		2.11		2.29
Series C Preferred Units(3)		—		—		1.38
Series D Preferred Units(4)		1.31		2.19		2.19
Series E Preferred Units(5)		2.09		2.09		0.70
Series F Preferred Units(5)		1.50		2.03		0.68
Series G Preferred Units(5)		2.16		2.16		0.72
Series H Preferred Units(6)		—		1.27		3.36
Series I Preferred Units(7)		7,660.00		7,660.00		7,660.00
Series J Preferred Units(8)		—		—		1.71
Series K Preferred Units(9)		2.55		3.38		3.36
Series L Preferred Units(10)		3.40		3.38		3.36

(1)	Includes a $1.00 per unit special distribution issued to our Common Unitholders in December 2004.
(2)	The Series A Preferred Units were called for redemption during the fourth quarter of 2003; of the 2.9 million Preferred Units outstanding, 2.8 million were converted to Common Units and the remaining were redeemed.
(3)	The Series C Preferred Units were redeemed at liquidation value, plus accrued and unpaid distributions, in August 2002.
(4)	The Series D Preferred Units were redeemed in August 2004.
(5)	In August 2002, the DownREIT Perpetual Preferred Units were converted into Operating Trust Perpetual Preferred Units. The Company redeemed the Series F Preferred Units in September 2004, 520,000 of the Series E Preferred Units in August 2004 and 400,000 of the Series E Preferred Units in November 2004.
(6)	The Series H Preferred Units were converted into Common Units in May 2003.
(7)	The Series I Preferred Units have a par value of $100,000.
(8)	The Series J Preferred Units were converted into Common Units in July 2002.
(9)	The Series K Preferred Units were converted into Common Units in September 2004.

(10)  The Series L Preferred Units were converted to Common Units in December 2004.

(7) Unitholders’ Equity

A-1 Common Units

      In connection with the Smith Merger, we issued approximately 25.5 million A-1 Common Units to former Smith Partnership Unitholders. These units are redeemable at the option of the A-1 Common Unitholders. The Operating Trust must redeem the A-1 Common Units with cash or Archstone-Smith has the option to redeem the A-1 Common Units with Common Shares. The A-1 Common Unitholders’ aggregate interest in the Operating Trust was approximately 10.9% at December 31, 2004.

      During 2004 and 2003, Archstone-Smith issued 374,921 and 1,955,908 Common Units in exchange for real estate. In 2002, Archstone-Smith issued 339,727 Class B Common Units as partial consideration for a real estate acquisition. In April 2002, Archstone-Smith issued 149,319 unregistered Common Shares in

79

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

exchange for 149,319 Class B Common Units previously issued. In August 2002, we converted 870,523 of DownREIT operating units into A-1 Common Units in connection with the merger with our DownREIT Operating Partnerships.

Units of Beneficial Interest

      Our Declaration of Trust authorizes us to issue 450,000,000 Units with a par value of $0.01 per unit. Our Declaration of Trust allows us to issue Common Units, Preferred Units and such other Units of beneficial interest as the Board may create and authorize from time to time. The Board may classify or reclassify any unissued units from time to time by setting or changing the preferences, conversion rights, voting powers, restrictions, limitations as to distributions, qualifications of terms or conditions of redemption.

Preferred Unit Redemption and Conversions

      The Series A Preferred Units were called for redemption during 2003. Of the 2.9 million Series A Preferred Units outstanding, 2.8 million were converted to Common Units and the remaining were redeemed. During May 2003, the Series H Preferred Units were converted into Common Units. In August 2004, the series D Preferred Units were redeemed at liquidation value plus distributions for a total of $47.6 million. In August and November 2004, 520,000 and 400,000 Series E Perpetual Preferred Units were redeemed at liquidation value plus accrued dividends. In September 2004, the Series F Perpetual Preferred Units were redeemed at liquidation value plus accrued dividends. The Series K Preferred Units were converted to Common Units in September 2004 and the Series L Preferred Units were converted to Common Units in December 2004.

Common Unit Repurchase and Issuances

      During 2004, we repurchased and retired 3,516,700 Common Units for an average price of $27.93 per share. In 2003, we repurchased 614,100 Common Units for an average price of $21.38 per share. During 2004, we issued 156,000 Common Units in exchange for real estate.

Preferred Units

      A summary of our Convertible Preferred Units outstanding at December 31, 2004 and 2003, including their significant rights, preferences, and privileges follows (amounts in thousands):

							Annual
							Dividend		December 31,
	Redemption		Conversion		Liquidation		Rate Per
Description	Date		Ratio		value		Unit		2004		2003
Series K Preferred Units; 0 Units issued and outstanding at December 31, 2004 and 666,667 at December 31, 2003(1)		9/20/04		1.975		37.50		3.38		—		25,000
Series L Preferred Units; 0 Units issued and outstanding at December 31, 2004 and 641,026 at December 31, 2003(2)		12/21/04		1.975		39.00		3.38		—		25,000
									$	—	$	50,000

(1)	The Series K Preferred Units were converted into Common Units in September 2004.
(2)	The Series L Preferred Units were converted into Common Units in December 2004.

80

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      A summary of our Perpetual Preferred Units outstanding at December 31, 2004 and 2003, including their significant rights, preferences, and privileges follows (amounts in thousands):

					Annual
					Dividend		December 31,
	Redemption		Liquidation		Rate Per
Description	Date(1)		Value		Unit		2004		2003
							(Amounts in
							Thousands)
Series D Preferred Units; 0 and 1,957,606 units issued and outstanding at December 31, 2004 and 2003, respectively(1)		08/06/04		25.00	$	2.19	$	—	$	48,940
Series E Preferred Units; 200,000 and 1,120,000 units issued and outstanding at December 31, 2004 and 2003, respectively(2)		02/04/05		25.00		2.09		4,929		27,123
Series F Preferred Units; 0 and 800,000 units issued and outstanding at December 31, 2004 and 2003, respectively(2)		09/27/04		25.00		2.03		—		19,464
Series G Preferred Units; 600,000 units issued and outstanding at December 31, 2004 and 2003, respectively(2)		03/03/05		25.00		2.16		14,593		14,593
Series I Preferred Units; 500 units issued and outstanding at December 31, 2004 and 2003, respectively(3)		02/01/28		100,000		7,660		50,000		50,000
							$	69,522	$	160,120

(1)	The Series D Preferred Shares were redeemed in August 2004.
(2)	In August 2002, 3,000,000 DownREIT Perpetual Preferred Units were converted into Operating Trust Perpetual Preferred Units. The Company redeemed the Series F Preferred Units in September 2004, 520,000 of the Series E Preferred Units in August 2004 and 400,000 of the Series E Preferred Units in November 2004.
(3)	Series I Preferred Units may be redeemed for cash at our option, in whole or in part, at a redemption price equal to the liquidation price per share, plus accrued and unpaid distributions, if any, on or after the redemption dates indicated.

      The holders of our Preferred Units do not have preemptive rights over the holders of Common Units, but do have limited voting rights under certain circumstances. The Preferred Units have no stated maturity, are not subject to any sinking fund requirements and we are not obligated to redeem or retire the Units. Holders of the Preferred Units are entitled to receive cumulative preferential cash distributions, when and as declared and authorized by the Board, out of funds legally available for the payment of distributions. All Preferred Unit distributions are cumulative from date of original issue and all series of Preferred Units rank equally as to distributions and liquidation proceeds. All distributions due and payable on Preferred Units have been accrued and paid as of the end of each fiscal year.

      If six quarterly distributions payable (whether or not consecutive) on any series or class of Preferred Units that are of equal rank with respect to distributions and any distribution of assets, shall not be paid in full, the number of Independent Trustees shall be increased by two and the holders of all such Preferred Units voting as a class regardless of series or class, shall be entitled to elect the two additional Independent Trustees. Whenever all distributions in arrears have been paid, the right to elect the two additional Independent Trustees shall cease and the terms of such Independent Trustees shall terminate.

Dividend Reinvestment and Share Purchase Plan

      Archstone-Smith’s dividend reinvestment and share purchase plan was designed and implemented to increase ownership in the Company by private investors. Under the plan, holders of Archstone-Smith Common Shares and Operating Trust A-1 Common Units have the ability to automatically reinvest their cash dividends and distributions to purchase additional Common Units. In October 2003, we announced that units issued under the Dividend Reinvestment and Share Purchase Plan would be acquired through open market

81

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

purchases or in negotiated transactions with third parties pursuant to the automatic reinvestment of dividends or pursuant to optional cash payments under the plan. As a result, Common Shares acquired by investors under the plan are not currently entitled to a discount.

Series M Unit

      In December of 2004, the Operating Trust issued one Series M Preferred Unit in exchange for cash. This unit is redeemable at the option of the Unit Holder and/or the Operating Trust under certain circumstances. If the Operating Trust is required to redeem the Series M Preferred Unit, the redemption price will be paid in cash. If the holder of the Series M Preferred Unit requests redemption of the Series M Preferred Unit, the Operating Trust has the option of redeeming the Series M Preferred Unit with cash or with Common Shares. The redemption value under such circumstances is based on the performance of the related real estate asset, as outlined in the contribution agreement. The Series M Preferred Unit is entitled to a dividend equivalent to the same dividend paid on 263 Common Shares. The holder of the Series M Preferred Unit does not have preemptive rights over the holders of Common Shares and does not have any voting right except as required by law. The Series M Preferred Unit has no stated maturity and is not subject to any sinking fund requirements.

(8) Benefit Plans

      Our long-term incentive plan was approved in 1997, and was modified in connection with the Smith Merger. There have been five types of awards under the plan: (i) options with a DEU feature (only awarded prior to 2000); (ii) options without the DEU feature (generally awarded after 1999); (iii) restricted Common Share unit awards with a DEU feature; (iv) employee share purchase program with matching options without the DEU feature, granted only in 1997 and 1998; and (v) Common Units issued to certain named executives under our Special Long-Term Incentive Plan.

      No more than 20 million share or option awards in the aggregate may be granted under the plan and no individual may be awarded more than 1.0 million share or option awards in any one-year period. The plan has a 10-year term. As of December 31, 2004, Archstone-Smith had approximately 8,232,000 shares available for future grants. Beginning in 2004, the Board voted to eliminate regular option awards to officers with the title of Senior Vice President or above.

Share Options and Trustee Options

      The exercise price of each employee option granted is equal to the fair market value at the close of business on the day immediately preceding the date of grant. The options awarded through mid-2001 generally vest at a rate of 25% per year; options granted after mid-2001 generally vest at the rate of 33¹/3% a year.

      Archstone-Smith has authorized 400,000 Common Units for issuance to their Independent Trustees under the equity plan for Independent Trustees. The exercise price of outside trustee options is equal to the average of the high and low prices on the date of grant. All options granted to Independent Trustees before 1999 have been exercised or cancelled. The options issued to Independent Trustees between 1999 and 2001 have a DEU feature, a 10-year term and vest over a four-year period. Beginning in 2002 options are no longer issued to Independent Trustees.

      During 1997, as part of the employee share purchase plan, certain officers and other employees purchased Common Shares of Archstone-Smith. The Company financed 95% of the total purchase price by issuing notes representing approximately $17.1 million. Loans made to employees in connection with the employee share purchase plan are recourse loans and the associated receivable is recorded as a reduction of shareholders’/ unitholders’ equity. As of December 31, 2004, the aggregate outstanding balances on these notes were approximately $917,000.

82

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      A summary of all options outstanding at December 31, 2004 follows:

				Exercise Prices						Weighted-Average
		Number of						Expiration		Remaining
		Options		Range		Average		Date		Contractual Life
Matching options under the 1997 employee unit purchase program			72,086	$	21.49-$21.86	$	21.50		2007		2.69 years
Options with DEUs			862,569		19.00- 22.66		20.48		2007-2009		4.07 years
Options without DEUs			2,818,401		21.34- 29.33		24.45		2007-2014		7.47 years
Independent Trustees			61,250		22.56- 23.95		23.14		2009-2011		5.51 years
Exchanged options			66,920		14.68- 22.58		19.93		2007-2011		5.47 years
	Total		3,881,226	$	14.68-$29.33	$	23.41

      A summary of the status of Archstone-Smith’s option plans as of December 31, 2004, 2003 and 2002, and changes during the years ended on those dates is presented below:

					Weighted		Number of
		Number of			Average		Options
		Options			Exercise Price		Exercisable
Balance/ Average at December 31, 2001			8,107,628		$	21.33		5,131,390
	Granted		2,680,143			24.15
	Exercised		(1,210,890	)		26.28
	Forfeited		(340,519	)		23.94
Balance/ Average at December 31, 2002			9,236,362		$	22.44		5,314,210
	Granted		15,823			22.42
	Exercised		(2,101,605	)		19.58
	Forfeited		(762,838	)		24.38
Balance/ Average at December 31, 2003			6,387,742		$	23.15		4,546,725
	Granted		647,825			26.83
	Exercised		(3,002,193	)		22.85
	Forfeited		(152,148	)		25.45
Balance/ Average at December 31, 2004			3,881,226		$	23.41		2,891,895

Restricted Share Unit Awards

      Restricted Share Unit awards are granted at the market value of the underlying Common Units on the date of grant. To compute the total compensation expense to be recognized, the fair value of each share on the grant date is multiplied by the number of units granted. We then recognize this stock-based employee compensation expense over the vesting period, which ranges from two to four years. The total expense recognized in connection with these awards, including the DEUs for the years ending December 31, 2004, December 31, 2003 and December 31, 2002 was $5.7 million, $5.6 million, and $4.6 million, respectively.

      All RSU grants have a DEU feature. During 2004, 2003 and 2002 Archstone-Smith awarded 299,682, 0 and 341,048 RSUs, respectively, to certain employees under the long-term incentive plan, of which 50,763 have been forfeited prior to vesting. A total of 14,504 RSUs with a DEU feature were awarded to trustees under the equity plan for Independent Trustees, none of which has been forfeited. Each RSU provides the holder with one Common Share upon settlement. The RSUs and related DEU feature vest at 25%-33.33% per

83

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

year over a three or four-year period. We recognize the value of the awards and the related DEUs as compensation expense over the vesting period.

Dividend Equivalent Units

      Under the modified long-term incentive plan, participants who are awarded RSUs may be credited with DEUs equal to the amount of dividends paid on Common Units with respect to such awards. The DEUs are awarded annually at the end of each year and vest under substantially the same terms as the underlying share options or RSUs.

      DEUs credited in relation to options are calculated by taking the average number of options held at each record date and multiplying by the difference between the average annual dividend yield on Common Units and the average dividend yield for the Standard & Poor’s 500 Stock Index. DEUs credited in relation to RSUs are calculated by taking the average number of RSUs held at each record date and multiplying by the average annual dividend yield on Common Units. DEUs credited in relation to existing DEUs are calculated by taking the number of DEUs at December 31 and multiplying by the average annual dividend yield on Common Units.

      As of December 31, 2004, there were approximately 280,778 DEUs outstanding awarded to 86 holders of options and RSUs. The outstanding DEUs were valued at $10.8 million on December 31, 2004 based upon market price of the Common Units on that date. We recognize the value of the DEUs awarded as compensation expense over the vesting period. The matching options granted in connection with the 1997 employee purchase program and all of the employee options granted after 1999 (including the converted Smith Residential options) do not have a DEU feature.

401(k) Plan and Nonqualified Deferred Compensation Plan

      In December 1997, the Archstone-Smith Board established a 401(k) plan and a nonqualified savings plan, both of which became effective on January 1, 1998. The 401(k) plan provides for matching employer contributions of fifty cents for every dollar contributed by the employee, up to 6% of the employees’ annual contribution. Contributions by employees to the 401(k) plan are subject to federal limitations of $12,000 during 2004. The matching employer contributions are made in Common Units, which vest between years of service at 20% per year. The Smith Residential nonqualified deferred compensation plan and the Independent Trustees deferred fee plan were merged into our existing nonqualified savings plan to form a new on-going nonqualified deferred compensation plan on January 1, 2002. Generally, the deferred compensation plan permits only deferrals of compensation by eligible employees and non-employee trustees. No employer contributions are currently being made to that plan. Amounts deferred under the deferred compensation plan are invested among a variety of investments as directed by the participants, and are generally deferred until termination of employment or service as a trustee.

Deferral of Fees by Non-Employee Trustees

      Pursuant to the terms of the nonqualified deferred compensation plan, each non-employee member of our Board has the opportunity to defer receipt of all or a portion of the service fees they otherwise would have been paid in cash. If a participant elects to have their fees deferred, the fees accrue in the form of phantom Units equal to the number of Common Units that could have been purchased on the date the fee was credited. Dividends are calculated on the phantom Units and additional phantom Units are credited. Distribution of phantom Units may be deferred to a later date. Upon settlement, phantom Units convert into Common Units on a 1-to-1 basis. Alternatively, the Trustee can elect to have his or her fees deferred and invested in one or more of the investment funds that are otherwise available under the deferred compensation plan. Upon settlement such investments are paid out in cash.

84

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Special Long-Term Incentive Plan

      During December 2001, the Executive Compensation Committee approved a Special Long-Term Incentive Plan whereby certain named executive officers would be eligible to earn a number of Common Shares equal to the number of performance units that vest at the end of a three-year performance period from January 1, 2001 to December 31, 2004. The number of performance units that could vest ranged from zero to 100% depending upon our annual compounded total shareholder return at the end of the three-year performance period and our annual compounded total shareholder return compared to the NAREIT Apartment Index based on percentile rankings. We accounted for the Special Long-Term Incentive Plan as a variable plan as the number of shares to be ultimately issued was not known until the end of the performance period. Estimates of the ultimate compensation costs were recorded to expense on a quarterly basis over the performance period and adjusted as necessary.

      At the end of the three-year performance period, the number of performance units that vested were exchanged for an equal number of Common Shares. All performance units that did not vest at the end of the three-year performance period were cancelled. As a result of Archstone-Smith’s actual performance over this period, 205,600 Common Shares were issued to these named executive officers during the first quarter of 2005.

(9) Financial Instruments and Hedging Activities

Fair Value of Financial Instruments

      At December 31, 2004 and 2003, the fair values of cash and cash equivalents, restricted cash held in a tax-deferred exchange escrow accounts, receivables and accounts payable approximated their carrying values because of the short-term nature of these instruments. The estimated fair values of other financial instruments subject to fair value disclosures were determined based on available market information and valuation methodologies believed to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, therefore, are not necessarily indicative of the actual amounts that we could realize upon disposition. The following table summarizes these financial instruments (in thousands):

		Balance at December 31, 2004				Balance at December 31, 2003
		Carrying		Estimated		Carrying		Estimated
		Amounts		Fair Value		Amounts		Fair Value
Borrowings:
	Unsecured credit facilities	$	19,000	$	19,000	$	103,790	$	103,790
	Long-Term Unsecured Debt		2,099,132		2,262,778		1,871,695		2,043,289
	Mortgages payable		2,031,505		2,093,436		1,927,625		2,032,872
Interest rate contracts:
	Interest rate swaps	$	10,209	$	10,209	$	2,765	$	2,765
	Interest rate caps		—		—		—		—
Forward Contracts:
	Forward sales agreements	$	—	$	—	$	250	$	250

      All publicly traded equity securities are classified as “available for sale securities” and carried at fair value, with unrealized gains and losses reported as a separate component of unitholders’ equity. As of December 31, 2004 and 2003, our investments in publicly traded equity securities included in other assets were $19.0 million and $144.7 million, respectively. Private investments, for which we do not have the ability to exercise significant influence, are accounted for at cost. Declines in the value of public and private investments that management determines are other than temporary, are recorded as a provision for possible loss on investments. Our evaluation of the carrying value of these investments is primarily based upon a

85

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

regular review of market valuations (if available), each company’s operating performance and assumptions underlying cash flow forecasts. In addition, management considers events and circumstances that may signal the impairment of an investment.

Interest Rate Hedging Activities

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

      We formally assess, both at inception of the hedge and on an ongoing basis, whether each derivative is highly effective in offsetting changes in fair values or cash flows of the hedged item. We measure hedge effectiveness by comparing the changes in the fair value or cash flows of the derivative instrument with the changes in the fair value or cash flows of the hedged item. We assess effectiveness of purchased interest rate caps based on overall changes in the fair value of the caps. If a derivative ceases to be a highly effective hedge, we discontinue hedge accounting prospectively.

      To determine the fair values of derivative and other financial instruments, we use a variety of methods and assumptions that are based on market value conditions and risks existing at each balance sheet date. These methods and assumptions include standard market conventions and techniques such as discounted cash flow analysis, option pricing models, replacement cost and termination cost. All methods of assessing fair value result in a general approximation of value, and therefore, are not necessarily indicative of the actual amounts that we could realize upon disposition.

      During the years ended December 31, 2004, 2003 and 2002 we recorded an increase/ (decrease) to interest expense of $33,000, $101,000 and $(312,000), for hedge ineffectiveness caused by a difference between the interest rate index on a portion of our outstanding variable rate debt and the underlying index of the associated interest rate swap. We pursue hedging strategies that we expect will result in the lowest overall borrowing costs and least degree of earnings volatility possible under the new accounting standards.

86

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table summarizes the notional amount, carrying value and estimated fair value of our derivative financial instruments used to hedge interest rates, as of December 31, 2004 (dollar amounts in thousands). The notional amount represents the aggregate amount of a particular security that is currently hedged at one time, but does not represent exposure to credit, interest rate or market risks.

								Carrying and
				Notional		Maturity		Estimated Fair
				Amount		Date Range		Value
Cash flow hedges:
	Interest rate caps			$	109,008		2005-2007	$	8
	Interest rate swaps				150,000		2006		(3,556	)
		Total cash flow hedges		$	259,008		2005-2007	$	(3,548	)
Fair value hedges:
	Interest rate swaps			$	75,055		2008	$	4,470
	Total rate of return swaps				77,006		2006-2007		8,593
		Total fair value hedges		$	152,061		2005-2008	$	13,063
			Total hedges	$	411,069		2005-2008	$	9,515

      During 2004, we entered into interest rate swap transactions to mitigate the risk of changes in the interest-related cash outflows on a forecasted issuance of long-term unsecured debt. At inception, these swap transactions had an aggregate notional amount of $144 million and a fair value of zero. The long-term unsecured debt these swap transactions related to was issued in August 2004. The hedge was terminated when the debt was issued. The fair value of the cash flow hedge upon termination was a liability of approximately $2.5 million. This amount was deferred in accumulated other comprehensive income and will be reclassified out of accumulated other comprehensive income as additional interest expense as the hedged forecasted interest payments occur.

Equity Securities Hedging Activities

      We are exposed to price risk associated with changes in the fair value of certain equity securities. During 2003, we entered into forward sale agreements with an aggregate notional amount, which represents the fair value of the underlying marketable securities, of approximately $128.5 million and an aggregate fair value of the forward sale agreements of approximately $486,000, to protect against a reduction in the fair value of these securities. We designated this forward sale as a fair value hedge.

      During 2004, we settled all of the forward sales agreements for approximately 2.8 million shares, and sold 308,200 shares of marketable securities which were not subject to forward sales agreements, resulting in an aggregate gain of approximately $24.9 million. The total net proceeds from the sale were $143.0 million, with the marketable securities basis determined using the average costs of the securities. The fair value of forward sales agreements at December 31, 2004 and 2003 were $0 and $250,462, respectively.

87

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(10) Selected Quarterly Financial Data

      Selected quarterly financial data (in thousands, except per unit amounts) for 2004 and 2003 is summarized below. The sum of the quarterly earnings per Common Unit amounts may not equal the annual earnings per Common Unit amounts due primarily to changes in the number of Common Units outstanding from quarter to quarter.

			(Unaudited)
			Three Months Ended
															Year Ended
			3-31(1)			6-30(1)			9-30(1)			12-31(1)			12-31(1)
2004:
	Total revenues		$	204,859		$	215,013		$	222,484		$	230,973		$	873,329
	Earnings from operations			37,325			38,826			28,814			26,832			131,797
	Income from unconsolidated entities			5,276			7,354			5,485			(213	)		17,902
	Other non-operating income			10,510			9,951			7,701			—			28,162
	Less minority interest:
		Convertible operating partnership units		(352	)		—			(108	)		—			(460	)
	Plus: net earnings from discontinued operations			60,499			34,940			117,515			221,348			434,302
	Less Preferred Share distributions			4,447			4,459			5,706			1,642			16,254
	Net earnings attributable to Common Units  — Basic		$	109,515		$	86,612		$	153,917		$	246,325		$	596,369
	Net earnings per Common Unit:
		Basic	$	0.50		$	0.39		$	0.70		$	1.12		$	2.71
		Diluted	$	0.49		$	0.39		$	0.70		$	1.11		$	2.69
2003:
	Total revenues		$	193,362		$	194,443		$	196,683		$	199,184		$	783,672
	Earnings from operations			33,889			16,330			33,811			32,902			116,932
	Income from unconsolidated entities			455			(1,161	)		1,714			4,737			5,745
	Less minority interest:
		Convertible operating partnership units		—			—			—			—			—
	Plus net earnings from discontinued operations			63,442			59,316			142,192			106,564			371,514
	Less Preferred Unit distributions			8,358			7,251			6,128			4,416			26,153
	Net earnings attributable to Common Units  — Basic		$	89,428		$	67,234		$	171,589		$	139,787		$	468,038
	Net earnings per Common Share:
		Basic	$	0.43		$	0.32		$	0.80		$	0.64		$	2.20
		Diluted	$	0.43		$	0.32		$	0.79		$	0.63		$	2.18

(1)  Net earnings from discontinued operations have been reclassified for all periods presented.

(11) Segment Data

      We define our garden communities and high-rise properties each as individual operating segments. We have determined that each of our garden communities and each of our high-rise properties have similar

88

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

economic characteristics and also meet the other GAAP criteria, which permit the garden communities and high-rise properties to be aggregated into two reportable segments. Additionally, we have defined the activity from Ameriton as an individual operating segment as its primary focus is the opportunistic acquisition, development and eventual disposition of real estate with a short term investment horizon. NOI is defined as rental revenues less rental expenses and real estate taxes. We rely on NOI for purposes of making decisions about resource allocations and assessing segment performance. We also believe NOI is a valuable means of comparing year-to-year property performance.

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

				Years Ended December 31,
				2004		2003		2002
Reportable apartment communities segment revenues:
	Same-Store:
		Garden communities		$	421,196	$	421,259	$	429,556
		High-rise properties			255,279		254,151		253,229
	Non Same-Store:
		Garden communities			105,075		44,109		28,982
		High-rise properties			47,794		30,489		20,265
		Ameriton(1)			21,501		11,053		7,742
Other non-reportable operating segment revenues					3,276		3,277		5,103
			Total segment and consolidated revenues	$	854,121	$	764,338	$	744,877

				Years Ended December 31,
				2004			2003			2002
Reportable apartment communities segment NOI:
	Same-Store:
		Garden communities		$	278,638		$	284,819		$	290,709
		High-rise properties			161,066			161,922			159,890
	Non Same-Store:
		Garden communities			66,573			30,271			17,756
		High-rise properties			33,129			21,150			13,332
		Ameriton(1)			10,259			6,133			3,904
Other non-reportable operating segment NOI					2,807			2,614			3,744
			Total segment NOI		552,472			506,909			489,335
Reconciling items:
		Other income			19,208			19,334			9,462
		Depreciation on real estate investments			(203,183	)		(162,723	)		(148,588	)
		Interest expense			(175,249	)		(160,871	)		(149,538	)
		General and administrative expenses			(55,479	)		(49,838	)		(45,710	)
		Other expenses			(5,972	)		(35,879	)		(17,014	)
			Consolidated earnings from operations	$	131,797		$	116,932		$	137,947

89

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(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 2004, 2003 and 2002, pre-tax gains from the disposition of Ameriton real estate were $65.1 million, $42.7 million and $30.7 million, respectively. These gains are classified within discontinued operations. 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.

					Year Ended December 31,
					2004		2003
Reportable operating communities segment assets:
	Same-Store:
		Garden communities			$	3,021,343	$	3,080,488
		High-rise properties				2,521,725		2,547,861
	Non Same-Store:
		Garden communities				1,602,955		1,224,675
		High-rise properties				548,956		817,129
		Ameriton				434,946		472,743
Other non-reportable operating segment assets						82,537		57,960
			Total segment assets			8,212,462		8,200,856
			Real estate held for sale			245,034		149,342
				Total segment assets		8,457,496		8,350,198
Reconciling items:
		Investment in and advances to unconsolidated entities				111,481		86,367
		Cash and cash equivalents				203,255		5,230
		Restricted cash in tax-deferred exchange escrow				120,095		180,920
		Other assets				173,717		298,980
			Consolidated total assets		$	9,066,044	$	8,921,695

      Total capital expenditures for garden communities included in continuing operations were $48.8 million and $31.9 million for the years ended December 31, 2004 and 2003, respectively. Total capital expenditures for high-rise properties included in continuing operations were $34.5 million and $30.2 million for the years ended December 31, 2004 and 2003, respectively. Total capital expenditures for Ameriton properties included in continuing operations were $1.0 million and $1.9 million for the years ended December 31, 2004 and 2003, respectively.

(12) Income Taxes

      These consolidated financial statements have been presented as if the Company were a partnership for all periods presented. For income tax purposes, the Company was subject to regulations under the Internal Revenue Code pertaining to REITs through October 31, 2001 and to partnerships subsequent to that date. In either case, as a REIT or a partnership, our income is not generally subject to federal income taxes and no provision for income taxes is included in the accompanying Consolidated Statements of Earnings.

90

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      As a partnership, we make distributions to our partners and allocate our taxable income to our partners. The major portion of distributions and income are paid/ allocated to Archstone-Smith Trust with the remainder paid/ allocated to third party unitholders.

      The following table reconciles net earnings to taxable income subject to distribution requirement for the years ended December 31(in thousands):

		For the Year Ended December 31,
		2004			2003			2002
		(estimated)
GAAP net earnings		$	612,623		$	494,191		$	356,725
Book to tax differences:
	Gain on sale of CES(1)					—			(43,623	)
	Depreciation and amortization(2)		9,971			(1,513	)		(22,348	)
	Gain or loss from capital transactions(3)		(67,609	)		(124,390	)		(25,685	)
	Deferred compensation and gain contingencies		3,177			859			17,323
	Merger expenses		—			—			—
	Other, net		(9,254	)		11,704			3,400
Taxable income, including capital gains		$	548,908		$	380,851		$	285,792

(1)	In December 2002, CES was sold to a third party. See Note 4 for details.
(2)	We use accelerated depreciable lives for tax purposes. This change resulted in higher depreciation expense on newly acquired assets for tax purposes relative to GAAP. This was partially offset by the Smith Merger in 2001 as GAAP depreciation expense for the Smith assets was based on fair value and tax depreciation was based on a lower historical tax basis.

      Distributions have been made as follows:

		For the Year Ended December 31,
		2004		2003		2002
Distributions to Archstone-Smith Trust		$	545,586	$	340,819	$	334,316
Distributions to unitholders			68,311		47,489		45,165
	Total Distributions	$	613,897	$	388,308	$	379,481

(1)  Includes distribution of all ordinary income and capital gains.

      The following table summarizes the taxability of our distributions for the past three years:

	For the Year Ended December 31,
	2004			2003			2002
Ordinary income		46	%		45	%		78	%
Capital gains(1)		54	%		55	%		22	%
		100	%		100	%		100	%

(1)  Includes 22.8%, 6.2% and 22.0% of unrecaptured section 1250 gains in 2004, 2003, and 2002, respectively.

91

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      As a taxable REIT subsidiary, Ameriton is subject to state and federal income taxes. Income tax expense consists of the following for the years ended December 31, 2004, 2003, and 2002 which is included in either other expense or discontinued operations (in thousands):

	For the Year Ended December 31,
	2004			2003			2002
Income tax expense (benefit)
Current	$	20,119		$	16,645		$	11,046
Deferred		(1,314	)		(873	)		1,375
		18,805			15,772			12,421

      Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 35% to pretax income as a result of the following for the years ended December 31, 2004, 2003, and 2002 (in thousands):

	For the Year Ended December 31,
	2004		2003		2002
Computed expected tax expense	$	17,801	$	15,016	$	11,238
Increase in income taxes resulting from state taxes and other		1,004		756		1,183
		18,805		15,772		12,421

      Deferred income taxes reflect the estimated net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts for income tax purposes. Ameriton’s deferred tax assets and liabilities at December 31, 2004 and 2003 are presented below (in thousands).

			Year Ended
			December 31,
			2004		2003
Deferred tax assets:
	Earnings from unconsolidated real estate entities		$	—	$	476
	Deferred compensation			2,920		22
	Reserves			378		524
	Other			125		88
		Deferred tax assets		3,423		1,110
Deferred tax liabilities:
	Real estate, principally due to depreciation			351		1,517
	Earnings from unconsolidated real estate entities			2,164		—
		Deferred tax liabilities		2,515		1,517
		Net deferred tax asset (liability)	$	908	$	(407	)

(13) Commitments and Contingencies

Commitments

      At December 31, 2004 we had eight non-cancelable ground leases for certain apartment communities and buildings that expire between 2042 and 2095. Each ground lease generally provides for a fixed annual rental

92

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

payment plus additional rental payments based on the properties’ operating results. Additionally, we lease certain office space under non-cancelable operating leases with fixed annual rental payments.

      The future minimum lease payments payable under non-cancelable leases are as follows at December 31, 2004 (in thousands):

2005		$	4,117
2006			4,128
2007			4,167
2008			4,179
2009			4,220
Thereafter (2010-2095)			344,095
	Total	$	364,906

      See Note 2 for real estate related commitments.

Guarantees and Indemnifications

      We have extended performance bond guarantees relating to contracts entered into by SMC, which are customary to the type of business in which these entities engage. As of December 31, 2004, $1.3 million of these performance bond guarantees were still outstanding, based upon information provided by these companies. The Operating Trust, our subsidiaries and investees have not been required to perform on these guarantees, nor do we anticipate being required to perform on such guarantees. Since we believe that our risk of loss under these contingencies is remote, no accrual for potential loss has been made in the accompanying financial statements. There are recourse provisions available to us to recover any potential future payments from the new owners of SMC.

      Investee third-party debt consists principally of mortgage notes payable. Generally, mortgages on real estate assets owned by our unconsolidated investees are secured by the underlying properties. We generally do not guarantee third party debt incurred by our unconsolidated investees; however, the investees and/or Archstone-Smith are occasionally required to guarantee the mortgages along with all other venture partners. As of December 31, 2004, we have not been required to perform under any guarantees provided to our joint ventures.

      As part of the Smith Merger, we are required to indemnify the former Smith Partnership unitholders for any personal income tax expense resulting from the sale of high-rise properties identified in the shareholders’ agreement between Archstone-Smith, the Operating Trust, Robert H. Smith and Robert P. Kogod until October 31, 2021.

Litigation and Contingencies

      We are subject to various claims in connection with moisture infiltration and resulting mold issues at certain high-rise properties in Southeast Florida. These claims generally allege that water infiltration and resulting mold contamination resulted in the claimants having personal injuries and/or property damage. Although certain of these claims continue to be at various stages of litigation, with respect to the majority of these claims, we have either settled the claims and/or we have been dismissed from the lawsuits that had been filed. With respect to the lawsuits that have not been resolved, we continue to defend these claims in the normal course of litigation.

      We have recorded accruals for moisture infiltration and resulting mold issues. These accruals represent management’s best estimate of the probable and reasonably estimable costs and are based, in part, on the

93

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

settlements reached with the various claimants, estimates obtained from third-party contractors and actual costs incurred to date. It is possible that these estimates could increase or decrease as additional information becomes available.

      We are aggressively pursuing recovery of a significant portion of these costs from our insurance carriers. We are in litigation with our insurance providers, and therefore we have not recorded an estimate for future insurance recoveries associated with moisture infiltration and resulting mold. In addition, we will continue to pursue potential recoveries from third parties whom we believe bear responsibility for a considerable portion of the costs we have incurred. We cannot make assurances that we will obtain these recoveries or that our ultimate liability associated with these claims will not be material to our results of operations.

      During 2004, we incurred estimated losses associated with multiple hurricanes in Florida. As a result of this damage, we recorded a loss contingency of approximately $5.5 million associated with both wholly owned and unconsolidated apartment communities. This charge is offset by a $750,000 receivable for anticipated insurance recoveries. These estimates represent management’s best estimate of the probable and reasonably estimable costs and are based on the most current information available from our insurance adjustors.

      During December 2004, a lawsuit was filed against us that alleges various violations of the Fair Housing Act and the Americans with Disabilities Act at 112 properties currently or formerly owned by the Company. The plaintiffs are seeking injunctive relief, in the form of retrofitting apartments and public accommodations to comply with the Fair Housing Act and the Americans with Disabilities Act; unspecified monetary damages for the diversion of the plaintiffs’ resources to address fair housing violations, punitive damages and attorneys’ fees. We are in the process of evaluating the claims asserted in this litigation. Due to the preliminary nature of the litigation, it is not possible to predict or determine the outcome of the legal proceeding, nor is it reasonably possible to estimate the amount of loss, if any, that would be associated with an adverse decision.

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

(14) Supplemental Cash Flow Information

      Significant non-cash investing and financing activities for the years ended December 31, 2004, 2003 and 2002 consisted of the following:

•  Issued $10.8, $47.6 and $8.7 million of A-1 Common Units as partial consideration for properties acquired during 2004, 2003 and 2002, respectively;

•  Issued $4.5 million of A-2 Common Units as partial consideration for real estate during 2004.

•  Holders of Series K Preferred Units and Series L Preferred Units converted $25.0 million each of their units into Common Shares during 2004;

•  Holders of Series H Preferred Units converted $71.5 million of their units into Common Units during 2003;

•  Redeemed $47.9 million, $25.5 million and $41.7 million A-1 Common Units for Common Shares during 2004, 2003 and 2002, respectively;

•  Holders of Series J Preferred Units converted $25 million of their units into Common Shares during 2002;

•  Recorded an accrual related to moisture infiltration and resulting mold remediation for $36.1 million and $11.3 million at one of our high-rise properties in Southeast Florida during 2003 and 2002, respectively;

94

ARCHSTONE-SMITH OPERATING TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

•  Assumed mortgage debt of $113.6 million, $55.4 million and $195.6 million during 2004, 2003 and 2002, respectively, in connection with the acquisition of apartment communities;

•  Holders of Series A Preferred Units converted $71.9 million and $5.7 million of their units into Common Shares during 2003 and 2002, respectively.

(15) Related Party Transactions

Related Party Transactions

      Ameriton paid approximately $3.2 million and $1.5 million to certain officers and employees of the Operating Trust related to realized returns on investments sold during 2004 and 2003, respectively, none of which were made to members of Ameriton’s board. Four members of Ameriton’s board (James H. Polk, III, John C. Schweitzer, R. Scot Sellers and Charles E. Mueller, Jr.) are Trustees of Archstone-Smith or executive officers of the Operating Trust.

      During 1997, as part of the employee share purchase plan, certain officers and other employees purchased Common Shares of Archstone-Smith. Archstone-Smith financed 95% of the total purchase price by issuing notes representing approximately $17.1 million. As of December 31, 2004, the aggregate outstanding balances on these notes were approximately $917,000.

      ArchstoneSmith has the following business relationships with business entities or family members of Board of Trustee member Robert H. Smith:

      Mr. Smith owns a residence within a condominium in Crystal City, where Archstone-Smith staffs the property with doormen, maintenance, and administrative staff. Archstone-Smith is contractually reimbursed by the condominium association for payroll and benefits costs, and receives a contractual monthly management fee of $848 for other Archstone-Smith management oversight. ASN does not have an ownership interest in this property. Archstone-Smith billed $175,368 during 2004 for expenses incurred and management fees for this property.

      Mr. Smith and Mr. Kogod have a 0.33% and 4.36% ownership interest, respectively, in a partnership which owns two apartment communities in Washington D.C. Archstone-Smith receives a contractual management fee of 4.5% of revenues to employ the property maintenance and administrative staff, manage the property, and perform all accounting functions. Archstone-Smith does not have an ownership interest in this property. We billed $941,301 during the twelve months ended December 31, 2004, for expenses incurred and management fees for this property.

      Mr. Smith’s daughter is employed as a Vice President in Marketing at a salary and bonus of approximately $109,000 and received option grants with a face value of $237,000 as compensation during 2004. She has been employed by the Company and its predecessor Charles E. Smith Residential Realty since September 1980.

(16) Subsequent Events

      During February 2005, we redeemed our remaining 200,000 Series E Perpetual Preferred Units at liquidation value plus accrued dividends.

      During February 2005, we sold our investment in Viva Group, Inc. (d/b/a Rent.com) to eBay Inc. for approximately $27.5 million. This amount is net of $3.9 million paid to exercise certain Viva Group, Inc warrants. Of this amount, approximately $1.6 million was deposited in an escrow account to secure eBay’s rights to certain indemnifications associated with the transaction. This amount will be paid to us in August 2006 less amounts, if any, available to eBay in respect to indemnification claims.

95

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ON SUPPLEMENTARY INFORMATION

The Trustee and Unitholders

Archstone-Smith Operating Trust:

      We have audited and reported separately herein on the consolidated balance sheets of Archstone-Smith Operating Trust and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of earnings, unitholders’ equity, other common unitholders’ interest and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2004.

      Our audits were made for the purpose of forming an opinion on the consolidated financial statements of Archstone-Smith Operating Trust and subsidiaries taken as a whole. The supplementary information included in Schedules III and IV is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information has been subjected to the auditing procedures applied in the audits of the consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole.

      Effective July 1, 2003, Archstone-Smith Operating Trust adopted FASB Interpretation No. 46, Consolidation of Variable Interest Entities (revised). As a result, the accompanying consolidated financial statements, referred to above, have been restated to reflect the consolidated financial position and results of operations of Archstone-Smith Operating Trust and certain previously unconsolidated entities in accordance with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Denver, Colorado

February 28, 2005

96

ARCHSTONE-SMITH OPERATING TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2004

(Dollar amounts in thousands)

						Initial Cost to
						Archstone-Smith Trust				Costs
										Capitalized
				Encum-				Buildings &		Subsequent to
		Units		brances		Land		Improvements		Acquisition
Apartment Communities:
Garden Communities:
	Atlanta, Georgia		2,459		43,157		26,308		149,077		28,439
	Austin, Texas		1,446		10,980		6,828		26,791		55,626
	Boston, Massachusetts		1,338		163,035		68,664		49,330		129,726
	Chicago, Illinois		1,313		41,022		85,603		50,545		8,827
	Dallas, Texas		1,364		—		9,906		52,375		19,556
	Denver, Colorado		2,299		8,500		22,646		78,313		103,328
	Houston, Texas		1,783		33,233		16,393		32,786		68,643
	Inland Empire, California		1,594		16,659		12,663		71,771		13,810
	Long Island, New York		396		78,000		—		—		58,462
	Los Angeles, California		5,476		100,532		243,986		348,589		404,613
	Orange County, California		1,647		30,690		25,612		46,134		109,318
	Orlando, Florida		312		—		3,110		17,620		976
	Phoenix, Arizona		876		—		7,202		93		46,585
	Portland, Oregon		228		—		851		—		12,906
	Raleigh, North Carolina		1,324		13,588		13,499		76,490		7,771
	San Diego, California		3,406		90,036		51,413		115,328		242,192
	San Francisco, California		5,100		82,376		175,641		267,152		255,726
	Seattle, Washington		3,208		60,528		49,491		132,368		105,549
	Southeast, Florida		3,342		10,758		95,286		273,155		42,343
	Stamford, Connecticut		160		—		5,775		1,225		29,487
	Ventura County, California		716		—		12,095		31,024		37,323
	Washington, D.C. Metropolitan Area		8,847		186,093		236,228		506,050		399,149
	West Coast, Florida		746		—		5,430		30,766		8,177
Garden Communities Total			49,380		969,187		1,174,630		2,356,982		2,188,532
High-Rise Properties:
	Boston, Massachusetts		1,113		60,692		41,345		121,881		72,647
	Chicago, Illinois		3,025		130,142		118,828		373,044		24,884
	Southeast Florida		240		17,775		—		26,515		1,474
	NYC Metropolitan Area		1,062		197,302		84,522		181,256		194,404
	Washington, D.C. Metropolitan Area		11,399		656,403		511,659		1,191,546		370,099
High-Rise Properties Total			16,839		1,062,314		756,354		1,894,242		663,508
Total Apartment Communities — Operating and Under Construction			66,219		2,031,501		1,930,984		4,251,224		2,852,040
Other:
Development communities In Planning and Owned			2,953
Hotel, retail and other assets
Total real estate assets			69,172

[Additional columns below]

[Continued from above table, first column(s) repeated]

		Gross Amount at Which Carried at Year End
				Buildings &				Accumulated			Construction
		Land		Improvements		Totals		Depreciation			Year		Year Acquired
Apartment Communities:
Garden Communities:
	Atlanta, Georgia		35,674		168,150		203,824		(43,525	)		1978-1999		1998-2001
	Austin, Texas		15,312		73,933		89,245		(13,624	)		1979-1996		1993
	Boston, Massachusetts		36,349		211,371		247,720		(25,672	)		1975-2002		1999-2002
	Chicago, Illinois		26,723		118,252		144,975		(21,201	)		1968-1988		1999-2001
	Dallas, Texas		11,150		70,687		81,837		(13,212	)		1983-2000		1993-2004
	Denver, Colorado		25,024		179,263		204,287		(25,143	)		1981-2002		1992-2004
	Houston, Texas		11,205		106,617		117,822		(18,227	)		1972-2003		1994-2004
	Inland Empire, California		14,464		83,780		98,244		(19,900	)		1980-1990		1995-2004
	Long Island, New York		—		58,462		58,462		—			2003-2004		2001
	Los Angeles, California		195,963		801,225		997,188		(28,427	)		1973-2004		1998-2004
	Orange County, California		26,379		154,685		181,064		(27,389	)		1986-2002		1996-1999
	Orlando, Florida		3,740		17,966		21,706		(4,614	)		1988		1998
	Phoenix, Arizona		8,476		45,404		53,880		(11,052	)		1980-2001		1993-1997
	Portland, Oregon		3,256		10,501		13,757		(3,093	)		1985-1998		1995-1996
	Raleigh, North Carolina		14,871		82,889		97,760		(22,590	)		1985-1999		1998
	San Diego, California		57,345		351,588		408,933		(40,798	)		1985-2001		1996-1998
	San Francisco, California		128,346		570,173		698,519		(91,028	)		1965-2002		1995-2000
	Seattle, Washington		58,307		229,101		287,408		(43,601	)		1986-2002		1995-2004
	Southeast, Florida		100,171		310,613		410,784		(14,797	)		1986-2004		1998-2004
	Stamford, Connecticut		6,312		30,175		36,487		(1,927	)		2000-2002		2000
	Ventura County, California		12,474		67,968		80,442		(5,816	)		1985-2002		1997-2004
	Washington, D.C. Metropolitan Area		205,543		935,884		1,141,427		(78,232	)		1941-2002		1998-2002
	West Coast, Florida		5,783		38,590		44,373		(9,787	)		1982-1988		1998
Garden Communities Total			1,002,867		4,717,277		5,720,144		(563,655	)
High-Rise Properties:
	Boston, Massachusetts		41,730		194,143		235,873		(12,610	)		1986-1998		2001
	Chicago, Illinois		80,003		436,753		516,756		(39,546	)		1969-2002		2001
	Southeast Florida		189		27,800		27,989		(2,574	)		1964-2000		2001
	NYC Metropolitan Area		149,452		310,730		460,182		(12,849	)		2000-2002		2002-2004
	Washington, D.C. Metropolitan Area		551,025		1,522,279		2,073,304		(125,927	)		1923-2003		2001-2004
High-Rise Properties Total			822,399		2,491,705		3,314,104		(193,506	)
Total Apartment Communities — Operating and Under Construction			1,825,266		7,208,982		9,034,248		(757,161	)
Other:
Development communities In Planning and Owned							136,593
Hotel, retail and other assets							50,197		(6,381	)
Total real estate assets							9,221,038		(763,542	)

97

SCHEDULE III

      The following is a reconciliation of the carrying amount and related accumulated depreciation of the Operating Trust’s investment in real estate, at cost (in thousands):

		Year Ended December 31,
Carrying Amounts		2004			2003			2002
Balance at January 1		$	8,999,180		$	9,297,735		$	8,612,213
Apartment communities:
	Apartment properties acquired in the Smith Merger		—			—			31,877
	Acquisition-related expenditures		1,080,639			573,768			539,652
	Redevelopment expenditures		40,999			69,649			152,428
	Recurring capital expenditures		50,147			48,960			40,683
	Development expenditures, excluding land acquisitions		333,782			91,430			247,044
	Acquisition and improvement of land for development		175,470			125,581			107,727
	Dispositions		(1,460,046	)		(1,209,956	)		(439,847	)
	Provision for possible loss on investments		—			(3,714	)		(2,611	)
Net apartment community activity		$	220,991		$	(304,282	)	$	676,953
Other:
	Disposition of retail asset acquired in the Smith Merger		—			—			(5,990	)
	Change in other real estate assets		867			5,727			14,559
Net other activity			867			5,727			8,569
Balance at December 31		$	9,221,038		$	8,999,180		$	9,297,735

	Year Ended December 31,
Accumulated Depreciation	2004			2003			2002
Balance at January 1	$	648,982		$	578,855		$	412,894
Depreciation for the year(1)		203,639			200,356			206,625
Accumulated depreciation on real estate dispositions		(89,079	)		(130,229	)		(40,563	)
Other		—			—			(101	)
Balance at December 31	$	763,542		$	648,982		$	578,855

(1)  Depreciation is net of $16.4 million and $3.0 million for our intangible asset related to the value of leases in place for real estate assets acquired in 2004 and 2003, respectively.

98

SCHEDULE IV

Archstone-Smith Operating Trust

Mortgage Loans on Real Estate

12/31/04

(Dollar amounts in thousands)

Principal

Amount of Loan

Carrying

Subject to

Final

Periodic

Face

Amount

Delinquent

Maturity

Payment

Amount of

of

Principal or

Description

Interest Rate

Date

Term

Prior Liens

Mortgages

Mortgages

Interest

Mezzanine Construction Loan

Condominium CA

18%

11/28/2006

(1)

Senior Loan

$

9,900

$

8,729

—

		2004		2003
Balance at January 1			—		—
	New Mortgage Loans	$	8,650	$	—
	Other(2)		79		—
	Collections of Principal		—		—
Balance at December 31		$	8,729	$	—

(1)	Outstanding principal plus accrued and unpaid interest is due on the maturity date. Partial prepayment is required to the extent the borrower receives proceeds from the sale of constructed units in accordance with contracted terms.
(2)	A portion of the accrued interest amount is added to the principal amount on a monthly basis.

99

ARCHSTONE-SMITH OPERATING TRUST

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Archstone-Smith Operating Trust

By:  /s/ R. Scot Sellers

R. Scot Sellers

Chairman of the Board and

Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated:

Signature		Title	Date
/s/ R. Scot Sellers R. Scot Sellers		Chief Executive Officer (principal executive officer)	February 28, 2005
/s/ Charles E. Mueller, Jr. Charles E. Mueller, Jr.		Executive Vice President and Chief Financial Officer (principal financial officer)	February 28, 2005
/s/ Mark A. Schumacher Mark A. Schumacher		Senior Vice President and Chief Accounting Officer (principal accounting officer)	February 28, 2005
Archstone-Smith Operating Trust
By:	/s/ R. Scot Sellers Chief Executive Officer	Trustee	February 28, 2005

100

INDEX TO EXHIBITS

      Certain of the following documents are filed herewith. Certain other of the following documents have been previously filed with the Securities and Exchange Commission and, pursuant to Rule 12b-32, are incorporated herein by reference:

Number			Description
	3	.1	Amended and Restated Declaration of Trust of Archstone-Smith Operating Trust (incorporated by reference to Exhibit 4.3 to the Archstone-Smith Trust’s Current Report on Form 8-K filed with the SEC on November 1, 2001)
	3	.2	Amended and Restated Bylaws of Archstone-Smith Operating Trust (incorporated by reference to Exhibit 4.4 to the Archstone-Smith Trust’s Current Report on Form 8-K filed with the SEC on November 1, 2001)
	3	.3	Articles Supplementary for Series E Cumulative Redeemable Preferred Units of Beneficial Interest of Archstone-Smith Operating Trust (incorporated by reference to Exhibit 10.1 of Archstone-Smith’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2002)
	3	.4	Articles Supplementary for Series F Cumulative Redeemable Preferred Units of Beneficial Interest of Archstone-Smith Operating Trust (incorporated by reference to Exhibit 10.2 of Archstone-Smith’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2002)
	3	.5	Articles Supplementary for Series G Cumulative Redeemable Preferred Units of Beneficial Interest of Archstone-Smith Operating Trust (incorporated by reference to Exhibit 10.3 of Archstone-Smith’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2002)
	3	.6	Articles Supplementary for Series M Preferred Unit of Beneficial Interest of Archstone-Smith Operating Trust (incorporated by reference to Exhibit 3.1 to the Archstone-Smith Trust’s Current Report on Form 8-K filed with the SEC on December 16, 2004)
	4	.1	Indenture, dated as of February 1, 1994, between Archstone-Smith Operating Trust (formerly Archstone Communities Trust) and Morgan Guaranty Trust Company of New York, as Trustee relating to Archstone-Smith Operating Trust’s (formerly Archstone Communities Trust) unsecured senior debt securities (incorporated by reference to Exhibit 4.2 to Archstone-Smith Operating Trust’s (formerly Archstone Communities Trust) Annual Report on Form 10-K for the year ended December 31, 1993)
	4	.2	First Supplemental Indenture, dated February 2, 1994, among Archstone-Smith Operating Trust (formerly Archstone Communities Trust), Morgan Guaranty Trust Company of New York and State Street Bank and Trust Company, as successor Trustee (incorporated by reference to Exhibit 4.3 to Archstone-Smith Operating Trust’s (formerly Archstone Communities Trust) Current Report on Form 8-K dated July 19, 1994)
	4	.3	Indenture, dated as of August 14, 1997, between Security Capital Atlantic Incorporated and State Street Bank and Trust Company, as Trustee (incorporated by reference to Exhibit 4.8 to Security Capital Atlantic Incorporated’s Registration Statement on Form S-11 (File No. 333-30747))
	4	.5	Form of Archstone-Smith Trust common share ownership certificate (incorporated by reference to Exhibit 3.3 to Archstone-Smith Trust’s Registration Statement on Form S-4 (File No. 333-63734))
	4	.10	Form of Archstone-Smith Trust share certificate for Series I Preferred Units (incorporated by reference to Exhibit 3.8 to Archstone-Smith Trust’s Registration Statement on Form S-4 (File No. 333-63734))
	10	.1	Amended and Restated Declaration of Trust of Archstone-Smith Trust (incorporated by reference to Exhibit 4.1 to the Archstone-Smith Trust’s Current Report of Form 8-K filed with the SEC on November 1, 2001)
	10	.2	Amended and Restated Bylaws of Archstone-Smith 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 November 1, 2001)
	10	.8	Archstone-Smith Trust 2001 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.14 to Archstone-Smith Trust’s Registration Statement on Form S-4 (File No. 333-63734))
	10	.9	Archstone-Smith Deferred Compensation Plan (incorporated by reference to Exhibit 10.5 to Archstone-Smith’s Annual Report on Form 10-K for the year ended December 31, 2001)

101

INDEX TO EXHIBITS — (Continued)

Number			Description
	10	.10	Amendment to Archstone-Smith Trust 2001 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of Archstone-Smith Trust’s Annual Report on Form 10-Q for the Quarter Ended June 30, 2004)
	10	.11	Form of Non-Qualified Share Option Agreement for Archstone-Smith Trust 2001 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of Archstone-Smith Trust’s Annual Report on Form 10-Q for the Quarter Ended September 30, 2004)
	10	.12	Form of Restricted Share Unit Agreement for Archstone-Smith Trust 2001 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of Archstone-Smith Trust’s Annual Report on Form 10-Q for the Quarter Ended September 30, 2004)
	10	.13	Form of Restricted Share Unit Agreement for Archstone-Smith Trust Equity Plan for Outside Trustees (incorporated by reference to Exhibit 10.1 of Archstone-Smith Trust’s Annual Report on Form 10-Q for the Quarter Ended September 30, 2004)
	10	.14	Form of Indemnification Agreement entered into between Archstone-Smith Trust and each of its officers and Trustees (incorporated by reference to Exhibit 10.6 to Archstone-Smith Trust’s Annual Report on From 10K for the year ended December 31, 2003)
	10	.15	Form of Change in Control Agreement between Archstone-Smith Trust and certain of its officers (incorporated by reference to Exhibit 10.7 to Archstone-Smith’s Annual Report on Form 10-K for the year ended December 31, 2002)
	10	.16	Amended and Restated Credit Agreement, dated as of December 13, 2004, by and among Archstone-Smith Operating Trust, as borrower, and Archstone-Smith Trust as parent, and J.P. Morgan Chase Bank, as administrative agent, and Bank of America, N.A., and Wells Fargo Bank, N.A., as syndication agents, and Suntrust Bank and Commerzbank A.G., New York and Grand Cayman Branches, as documentation agents
	10	.17	Archstone Dividend Reinvestment and Share Purchase Plan (incorporated by reference to the prospectus contained in Archstone-Smith Trust’s Registration Statement on Form S-3 (No. 333-44639-01))
	10	.18	Shareholders’ Agreement, dated as of October 31, 2001, by and among Archstone-Smith Trust, Archstone-Smith Operating Trust, Robert H. Smith and Robert P. Kogod (incorporated by reference to Exhibit 10.1 to Archstone-Smith Trust’s Current Report on Form 8-K filed with the SEC on November 1, 2001)
	10	.19	Noncompetition Agreement by and among Charles E. Smith Residential Realty, Inc., Charles E. Smith Residential Realty L.P. and Robert P. Kogod and Robert H. Smith (incorporated by reference to Exhibit 10.1 of Charles E. Smith Residential Realty, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1994)
	10	.20	Registration Rights and Lock-up Agreement (incorporated by reference to Exhibit 10.2 of Charles E. Smith Residential Realty, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1994)
	10	.21	License Agreement between Charles E. Smith Management, Inc. and Charles E. Smith Residential Realty, Inc. (incorporated by reference to Exhibit 10.35 of Charles E. Smith Residential Realty, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1994)
	10	.22	License Agreement between Charles E. Smith Management, Inc. and Charles E. Smith Residential Realty L.P. (incorporated by reference to Exhibit 10.36 of Charles E. Smith Residential Realty, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1994)
	12	.1	Computation of Ratio of Earnings to Fixed Charges
	12	.2	Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Share Dividends
	15	.1	Consent of Independent Registered Public Accounting Firm
	21		Subsidiaries of Archstone-Smith Operating Trust
	31	.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31	.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32	.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

102

INDEX TO EXHIBITS — (Continued)

Number			Description
	32	.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	99	.1	Corporate Governance Guidelines (incorporated by reference to Exhibit 99.1 of Archstone-Smith’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2003)
	99	.3	Audit Committee Charter (incorporated by reference to Exhibit 99.3 of Archstone-Smith’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2003)
	99	.4	Management Development and Executive Compensation Committee Charter (incorporated by reference to Exhibit 99.4 of Archstone-Smith’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2003)
	99	.5	Nominating and Corporate Governance Committee Charter (incorporated by reference to Exhibit 99.5 of Archstone-Smith’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2003)

103 EX-10.16 2 d22604exv10w16.htm AMENDED AND RESTATED CREDIT AGREEMENT

Exhibit 10.16

AMENDED AND RESTATED CREDIT AGREEMENT

Dated

December 13, 2004

among

ARCHSTONE-SMITH OPERATING TRUST,
as Borrower

and

ARCHSTONE-SMITH TRUST,
as Parent

and

JPMORGAN CHASE BANK, N.A.
as Administrative Agent

and
BANK OF AMERICA, N.A., and
WELLS FARGO BANK, N.A.
as Syndication Agents

and

SUNTRUST BANK and
COMMERZBANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES
as Documentation Agents

and

the Lenders Party Hereto

J. P. MORGAN SECURITIES INC.,
as Lead Arranger and Sole Bookrunner

TABLE OF CONTENTS

1. Definitions	1
2. The Loans	17
2.1 Advances	17
2.2 Letters of Credit	19
2.3 Payments	23
2.4 Pro Rata Treatment	25
2.5 Non-Receipt of Funds by the Agent	25
2.6 Sharing of Payments, Etc	26
2.7 Fees	26
2.8 Money Market Borrowings	28
2.9 Reduction of Commitment	32
2.10 Additional Guarantees	32
3. Conditions	32
3.1 All Loans	32
3.2 First Loan	33
3.3 Options Available	33
3.4 Designation and Conversion	34
3.5 Special Provisions Applicable to Eurodollar Rate Borrowings and Money Market Loans	34
3.6 Funding Offices; Adjustments Automatic	37
3.7 Funding Sources, Payment Obligations	37
3.8 Mitigation, Non-Discrimination	37
4. Representations and Warranties	38
4.1 Organization	38
4.2 Financial Statements	38
4.3 Enforceable Obligations; Authorization	39
4.4 Other Debt	39
4.5 Litigation	39
4.6 Taxes	39
4.7 Regulation U	39
4.8 Securities Act of 1933	39
4.9 No Contractual or Corporate Restrictions	40
4.10 Investment Company Act Not Applicable	40
4.11 Public Utility Holding Company Act Not Applicable	40
4.12 ERISA Not Applicable	40
5. Affirmative Covenants	40
5.1 Taxes, Insurance, Existence, Regulations, Property, etc	40
5.2 Financial Statements and Information	40

i

5.3 Financial Tests	41
5.4 Inspection	41
5.5 Further Assurances	42
5.6 Books and Records	42
5.7 Insurance	42
5.8 Notice of Certain Matters	42
5.9 Use of Proceeds	42
5.10 Expenses of and Claims Against the Agent and the Lenders	42
5.11 Legal Compliance; Indemnification	43
5.12 Borrower’s Performance	44
5.13 Professional Services	44
5.14 Capital Adequacy	44
5.15 Property Pool	45
5.16 DC Holdings	46
6. Negative Covenants	46
6.1 Mergers, Consolidations and Acquisitions of Assets	47
6.2 Redemption	47
6.3 Nature of Business	47
6.4 Transactions with Related Parties	48
6.5 Limiting Agreements	48
6.6 Parent Negative Covenants	48
7. Events of Default and Remedies	48
7.1 Events of Default	48
7.2 Remedies Cumulative	50
7.3 Guaranty Proceeds	50
8. The Agent	51
8.1 Appointment, Powers and Immunities	51
8.2 Reliance	53
8.3 Defaults	53
8.4 Rights as a Lender	54
8.5 Indemnification	54
8.6 Non-Reliance on Agent and Other Lenders	54
8.7 Failure to Act	55
8.8 Resignation of Agent	55
8.9 No Partnership	55
9. Renewal and Extension	56
9.1 Procedure for Renewal and Extension	56
9.2 Conditions to Renewal and Extension	56
10. Miscellaneous	56
10.1 No Waiver, Amendments	56
10.2 Notices	56
10.3 Venue	57

ii

	10.4 Choice of Law	57
	10.5 Survival; Parties Bound; Successors and Assigns	58
	10.6 Counterparts	61
	10.7 Usury Not Intended; Refund of Any Excess Payments	61
	10.8 Captions	62
	10.9 Severability	62
	10.10 Disclosures	62
	10.11 No Novation	62
	10.12 Limitation of Liability	62
	10.13 Entire Agreement	62
SCHEDULE I: Guarantor
EXHIBITS:
A -	Officer’s Certificate
B -	Request for Loan
C -	Note
C-1-	Swing Loan Note
C-2-	Master Note
D -	Legal Opinion
E -	Money Market Quote Request
F -	Invitation for Money Market Quotes
G -	Money Market Quote
H -	Designation Agreement
I -	Form of Guaranty
J -	Assignment and Assumption Agreement
K -	Form of Additional Guaranty

iii

AMENDED AND RESTATED
CREDIT AGREEMENT

     THIS AMENDED AND RESTATED CREDIT AGREEMENT (the “Agreement”) is made and entered into as of December 13, 2004, by and among ARCHSTONE-SMITH OPERATING TRUST, a Maryland real estate investment trust (the “Borrower”), ARCHSTONE-SMITH TRUST, a Maryland real estate investment trust, and the parent of the Borrower (the “Parent”), the financial institutions (including JPMC, the Syndication Agents and the Documentation Agents, the “Lenders”) which are now or may hereafter become signatories hereto, JPMORGAN CHASE BANK, N.A., a national banking association (formerly known as JPMorgan Chase Bank) (“JPMC”), as administrative agent for Lenders (in such capacity, “Agent”), BANK OF AMERICA, N.A. and WELLS FARGO BANK, N.A., and as syndication agents for Lenders (in such capacity, “Syndication Agents”), and SUNTRUST BANK and COMMERZBANK AG, NEW YORK and GRAND CAYMAN BRANCHES, as documentation agents for Lenders (in such capacity, “Documentation Agents”).

     WHEREAS, the Borrower, the Agent and certain of the Lenders entered into an Amended and Restated Credit Agreement dated as of October 30, 2003 (as amended to the date hereof, the “Original Credit Agreement”); and

     WHEREAS, the Borrower has requested that the Agent and the Lenders amend and restate the Original Credit Agreement and the Agent and the Lenders have agreed to do so pursuant to the terms of this Agreement; and

     WHEREAS, the Borrower desires to obtain Loans and obtain Letters of Credit (as such terms are hereinafter defined) from the Lenders; and

     WHEREAS, subject to and upon the terms and conditions set forth herein, the Lenders are willing to make Loans and provide for the issuance of Letters of Credit to the Borrower, as provided for herein;

     NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained herein, the adequacy of which is hereby acknowledged, the parties hereto hereby agree that the aforementioned recitals are true and correct and hereby incorporated herein and that the parties hereto hereby agree as follows:

1. Definitions.

     Unless a particular word or phrase is otherwise defined or the context otherwise requires, capitalized words and phrases used in Credit Documents have the meanings provided below.

     Absolute Rate Auction shall mean a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.8.

1

     Acceptable Credit Rating shall mean a Credit Rating from two of Standard & Poor’s Rating Services, Moody’s Investors Service, Inc., or Fitch (one of which must be an S&P Rating or a Moody’s Rating) equal to a Credit Rating from Fitch, or an S&P Rating of BBB- or better, or a Moody’s Rating of Baa3 or better.

     Accounts, Equipment and Inventory shall have the respective meanings assigned to them in the Texas Business and Commerce Code in force on the date the document using such term was executed.

     Administrative Questionnaire means an Administrative Questionnaire in a form supplied by the Agent.

     Affiliate shall mean any Person controlling, controlled by or under common control with any other Person. For purposes of this definition, “control” (including “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or otherwise.

     Annual Audited Financial Statements shall mean the annual financial statements of a Person, including all notes thereto, which statements shall include a balance sheet as of the end of such fiscal year and an income statement and a statement of cash flows, all setting forth in comparative form the corresponding figures from the previous fiscal year, all prepared in conformity with Generally Accepted Accounting Principles and accompanied by a report and opinion of independent certified public accountants satisfactory to the Agent, which shall state that such financial statements, in the opinion of such accountants, present fairly the financial position of such Person as of the date thereof and the results of its operations for the period covered thereby in conformity with Generally Accepted Accounting Principles. Such statements shall be accompanied by a certificate of such accountants that in making the appropriate audit and/or investigation in connection with such report and opinion, such accountants did not become aware of any Default or, if in the opinion of such accountant any such Default exists, a description of the nature and status thereof. The Annual Audited Financial Statements shall be prepared on a consolidated basis in accordance with Generally Accepted Accounting Principles.

     Applicable Margin shall mean (a) if a Credit Rating is obtained from more than one agency, and one of the two highest Credit Ratings is an S&P Rating or a Moody’s Rating, the following percentage based on the corresponding Credit Rating which is the second highest, or (b) if the one of the two highest Credit Ratings in clause (a) above is not an S&P Rating or a Moody’s Rating, the following percentage based on the corresponding S&P Rating or Moody’s Rating which is the highest, or (c) if only one Credit Rating is obtained, which must be an S&P Rating or a Moody’s Rating, the following percentage based on the corresponding S&P Rating or Moody’s Rating:

2

APPLICABLE MARGIN

APPLICABLE	EURODOLLAR RATE	BASE RATE
CREDIT RATING	BORROWING	BORROWING
A/A2 or better	0.425%	0
A-/A3	0.450%	0
BBB+/Baa1	0.500%	0
BBB/Baa2	0.600%	0
BBB-/Baa3	0.800%	0
Worse than BBB-/Baa3	1.250%	.25%
or no Credit Rating

Each Applicable Margin shall be in effect whenever and for so long as the corresponding Credit Rating or no Credit Rating is in effect.

     Assignment and Assumption means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 10.5), and accepted by the Agent, in the form of Exhibit J or any other form approved by the Agent.

     Base Rate shall mean for any day a rate per annum equal to the Applicable Margin on that day plus the greater on a daily basis of (a) the Prime Rate for that day, or (b) the Federal Funds Effective Rate for that day plus one-half of one percent (¹/2%).

     Base Rate Borrowing shall mean that portion of the principal balance of the Loans at any time bearing interest at the Base Rate.

     Business Day shall mean a day other than (a) a day when the main office of the Agent is not open for business, or (b) a day that is a federal banking holiday in the United States of America.

     Calculation Date shall mean the beginning of the first full calendar quarter after the Stabilization Date.

     Capital Lease Obligations of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under Generally Accepted Accounting Principles, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with Generally Accepted Accounting Principles.

     Ceiling Rate shall mean, on any day, the maximum nonusurious rate of interest permitted for that day by whichever of applicable federal or Texas laws permits the higher interest rate, stated as a rate per annum. On each day, if any, that Texas law establishes the

3

Ceiling Rate, the Ceiling Rate shall be the “weekly ceiling” (as defined in Chapter 303 of the Texas Finance Code, as amended (the “Texas Finance Code”)) for that day. The Agent may from time to time, as to current and future balances, implement any other ceiling under the Texas Finance Code by notice to the Borrower, if and to the extent permitted by the Texas Finance Code. Without notice to the Borrower or any other person or entity, the Ceiling Rate shall automatically fluctuate upward and downward as and in the amount by which such maximum nonusurious rate of interest permitted by applicable law fluctuates.

     Code shall mean the Internal Revenue Code of 1986, as amended, as now or hereafter in effect, together with all regulations, rulings and interpretations thereof or thereunder by the Internal Revenue Service.

     Commitment shall mean the commitment of the Lenders to lend funds under Section 2.1 of this Agreement, other than Swing Loans. The aggregate Commitment on the date hereof is $600,000,000.00.

     Committed Loan shall mean Loans other than Money Market Loans.

     Construction Interest shall mean Borrower’s interest expense for the construction of projects, which is capitalized in accordance with Generally Accepted Accounting Principles.

     Coverage Ratio shall mean the ratio of (a) the Borrower’s EBITDA (calculated by adding the Parent’s Interest Expense) for the immediately preceding four (4) calendar quarters, to (b) dividends or other distributions of any kind or character paid or payable with respect to any Disqualified Stock plus all of the Borrower’s and the Parent’s Interest Expense, in each case for the period used to calculate EBITDA.

     Credit Documents shall mean this Agreement, the Notes, any Guaranty, all instruments, certificates and agreements now or hereafter executed or delivered to the Agent or the Lenders pursuant to any of the foregoing, and all amendments, modifications, renewals, extensions, increases and rearrangements of, and substitutions for, any of the foregoing.

     Credit Rating shall mean the S&P Rating, the Moody’s Rating, or the rating assigned by Fitch to Borrower’s senior unsecured indebtedness.

     DC Holdings Entities shall mean Metropolitan Acquisition Finance LP, Smith Property Holdings Cronin’s Landing LP, Smith Property Holdings Crystal towers LP, Smith Property Holdings One LP, Smith Property Holdings Two LP, Smith Property Holdings Three LP, Smith Property Holdings Four LP, Smith Property Holdings Five LP, Smith Property Holdings Six LP, Smith Property Holdings Seven LP, Smith Property Holdings Alban Towers LLC, First Herndon Associates LP, Smith Property Holdings One (DC) LP, Smith Property Holdings Two (DC) LP, Smith Property Holdings Three (DC) LP, Smith Property Holdings Kenmore LP, Smith Property Holdings Five (DC) LP, Smith Property Holdings Six (DC) LP, Smith Property Holdings Van Ness LP, Smith Property Holdings Consulate LLC and Smith Property Holdings Columbia Road LP, Smith Property

4

Holdings 4411 Connecticut Avenue LLC, ASN Dupont LLC, and any Person formed solely for the purpose of owning Real Property in the District of Columbia.

     Debt to Total Asset Value Ratio shall mean the ratio (expressed as a percentage) of (a) the sum of the Borrower’s and the Parent’s Indebtedness to (b) Total Asset Value.

     Designated Lender shall mean a special purpose corporation that (a) shall have become a party to this Agreement pursuant to Section 10.5(f), and (b) is not otherwise a Lender.

     Designated Lender Notes shall mean promissory notes of the Borrower, substantially in the form of Exhibit C hereto, evidencing the obligation of the Borrower to repay Money Market Loans made by Designated Lenders, and Designated Lender Note means any one of such promissory notes issued under Section 10.5(f).

     Designating Lender shall have the meaning set forth in Section 10.5(f).

     Designation Agreement shall mean a designation agreement in substantially the form of Exhibit H attached hereto, entered into by a Lender and a Designated Lender and accepted by the Agent.

     Disqualified Stock shall mean any of the Borrower’s capital stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable) (a) matures or is subject to mandatory redemption, pursuant to a sinking fund obligation or otherwise, (b) is convertible into or exchangeable or exercisable for Indebtedness or Disqualified Stock, (c) is redeemable at the option of the holder of such stock, or (d) otherwise requires any payments by Borrower, in each case on or before the Maturity Date.

     EBITDA means an amount derived from (a) net income (including all net cash gains and losses on dispositions of Real Property in accordance with Generally Accepted Accounting Principles), including (without duplication) the Equity Percentage of EBITDA for the Borrower’s Unconsolidated Affiliates, plus (b) to the extent included in the determination of net income, depreciation, amortization, Interest Expense, income taxes, deferred taxes and other non-cash charges, minority interest, extraordinary losses, prepayment penalties and make-whole costs paid in connection with prepayment of Indebtednesss, and payments made on Borrower’s preferred stock, minus (c) to the extent included in the determination of net income, any extraordinary gains, in each case, as determined on a consolidated basis in accordance with Generally Accepted Accounting Principles.

     Equity Percentage shall mean the aggregate ownership interest of Borrower in each Unconsolidated Affiliate, which shall be calculated as Borrower’s economic ownership interest in such Person, reflecting Borrower’s share of income and expenses of such Person.

5

     Eurodollar Business Day shall mean a Business Day on which transactions in United States dollar deposits between banks may be carried on in the London interbank dollar market.

     Eurodollar Interbank Rate shall mean, for each Interest Period, the rate of interest per annum, rounded, if necessary, to the next highest whole multiple of one-sixteenth percent (1/16%), quoted by Agent at or before 11:00 a.m., London time (or as soon thereafter as practicable), on the date two (2) Eurodollar Business Days before the first day of such Interest Period, to be the arithmetic average of the prevailing rates per annum at the time of determination and in accordance with the then existing practice in the London interbank dollar market, for the offering to Agent by one or more prime banks selected by Agent in its sole discretion, in the London interbank dollar market, of deposits in United States dollars for delivery on the first day of such Interest Period and having a maturity equal to the length of such Interest Period and in an amount equal (or as nearly equal as may be) to the Eurodollar Rate Borrowing to which such Interest Period relates. Each determination by Agent of the Eurodollar Interbank Rate shall be prima facie evidence thereof.

     Eurodollar Rate shall mean for any day a rate per annum equal to the sum of the Applicable Margin for that day plus the Eurodollar Interbank Rate in effect on the first day of the Interest Period for the applicable Eurodollar Rate Borrowing. Each Eurodollar Rate is subject to adjustments for reserves, insurance assessments and other matters as provided for in Section 3.5 hereof.

     Eurodollar Rate Borrowing shall mean that portion of the principal balance of the Loans at any time bearing interest at a Eurodollar Rate.

     Eurodollar Reserve Requirement shall mean, on any day, the cost incurred by a Lender as a reserve requirement (including, without limitation, basic, supplemental, marginal and emergency reserves) applicable to “Eurocurrency liabilities,” as currently defined in Regulation D, all as specified by any Governmental Authority, including but not limited to those imposed under Regulation D, because of that Lender making a Eurodollar Rate Borrowing or a Money Market LIBOR Loan available to the Borrower.

     Event of Default shall mean any of the events specified as an event of default in Section 7 of this Agreement, and Default shall mean any of such events, whether or not any requirement for notice, grace or cure has been satisfied.

     Federal Funds Effective Rate shall to the extent necessary be determined by the Agent separately for each day and shall for each such day be a rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for each such day (or if any such day is not a Business Day, for the next immediately preceding Business Day) by the Federal Reserve Bank of New York, or if the weighted average of such rates is not so published for any such day which is a Business Day, the average of the quotations for any such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by the Agent.

6

     Fee shall mean, collectively, the fee described in Section 2.7.

     Fitch shall mean Fitch, Inc.

     Fixed Charge Coverage Ratio shall mean the ratio of (a) the Borrower’s EBITDA (calculated by adding the Parent’s Interest Expense) for the immediately preceding four (4) calendar quarters, less Unit Capital Expenditures, to (b) dividends of any kind or character or other proceeds paid or payable with respect to any Disqualified Stock, plus all of the Borrower’s and the Parent’s Interest Expense, plus all of the principal payable and principal paid on the Borrower’s and the Parent’s Indebtedness (but not including prepayment penalties and make-whole costs not included in the calculation of EBITDA) other than (i) any final scheduled principal payment on any Indebtedness which pays such Indebtedness in full, to the extent the amount of such scheduled principal payment is greater than the scheduled principal payment immediately preceding such final scheduled principal payment and (ii) scheduled principal payments on the Borrower’s and the Parent’s Indebtedness incurred prior to December 13, 2004 which has a rating from Standard & Poor’s Rating Services, Moody’s Investor Service, Inc. or Fitch which is the equivalent of BBB-/Baa3 or better at the time of issuance, in each case for the period used to calculate EBITDA.

     Funding Loss shall mean, with respect to (a) Borrower’s payment or prepayment of principal of a Eurodollar Rate Borrowing or a Money Market Loan on a day other than the last day of the applicable Interest Period; (b) Borrower’s failure to borrow a Eurodollar Rate Borrowing or a Money Market Loan on the date specified by Borrower; (c) Borrower’s failure to make any prepayment of the Loans (other than Base Rate Borrowings) on the date specified by Borrower, or (d) any cessation of a Eurodollar Rate to apply to the Loans or any part thereof pursuant to Section 3.5, in each case whether voluntary or involuntary, any direct loss, expense, penalty, premium or liability incurred by any Lender (including but not limited to any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by a Lender to fund or maintain a Loan).

     Generally Accepted Accounting Principles shall mean, as to a particular Person, such accounting practice as, in the opinion of the independent accountants of recognized national standing regularly retained by such Person and acceptable to the Agent, conforms at the time to generally accepted accounting principles, consistently applied. Generally Accepted Accounting Principles means those principles and practices (a) which are recognized as such by the Financial Accounting Standards Board, (b) which are applied for all periods after the date hereof in a manner consistent with the manner in which such principles and practices were applied to the most recent audited financial statements of the relevant Person furnished to the Lenders or where a change therein has been concurred in by such Person’s independent auditors, and (c) which are consistently applied for all periods after the date hereof so as to reflect properly the financial condition, and results of operations and changes in financial position, of such Person. If there is a change in such accounting practice as to the Borrower that could affect the Borrower’s ability to comply with the terms of this Agreement, the parties hereto agree to review and discuss such changes in accounting practice and the terms of this Agreement for a period of no more

7

than thirty (30) days with a view to amending this Agreement so that the financial measures of the Borrower’s operating performance and financial condition are substantially the same after such change as they were immediately before such change.

     Governmental Authority shall mean any foreign governmental authority, the United States of America, any State of the United States and any political subdivision of any of the foregoing, and any agency, department, commission, board, bureau, court or other tribunal having jurisdiction over the Agent, any Lender or the Borrower or their respective Property.

     Guarantor shall mean each Subsidiary of Borrower that executes a Guaranty as required by Section 5.15 hereof. Guarantor as of the date hereof is the Persons listed on Schedule I attached hereto.

     Guaranty (whether one or more) shall mean a Guaranty in the form of Exhibit I attached hereto and made a part hereof.

     Hedging Agreements shall mean any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging agreement.

     Historical Value shall mean the purchase price of Real Property (including improvements) and ordinary related purchase transaction costs, plus the cost of subsequent capital improvements made by the Borrower, less any provision for losses, all determined in accordance with Generally Accepted Accounting Principles. If the Real Property is purchased as a part of a group of properties, the Historical Value shall be calculated based upon a reasonable allocation of the aggregate purchase price by the Borrower, and consistent with Generally Accepted Accounting Principles.

     Indebtedness shall mean and include, without duplication (1) all obligations for borrowed money, (2) all obligations evidenced by bonds, debentures, notes or other similar agreements, (3) all obligations to pay the deferred purchase price of Property or services, except accrued expenses and trade accounts payable arising in the ordinary course of business (unless included in (6) below), (4) all guaranties and endorsements and other contingent obligations in respect of, or any obligations to purchase or otherwise acquire, Indebtedness of others (provided that, where the guarantor is not the sole owner of the Person whose Indebtedness is guaranteed, and where the guaranty is of that portion of the Indebtedness remaining unpaid after the collection of the collateral for the Indebtedness, the amount guaranteed that is less than twenty-five percent (25%) of the Historical Value of said related collateral will not be included in the calculation of Indebtedness), (5) all Indebtedness secured by any Lien existing on any interest of the Person with respect to which Indebtedness is being determined in Property owned subject to such Lien whether or not the Indebtedness secured thereby shall have been assumed, (6) accounts payable, dividends of any kind or character or other proceeds payable with respect to any stock and accrued expenses which in the aggregate are in excess of five percent (5%) of the undepreciated value of the assets of the Borrower, (7) payments received in consideration for sale of Borrower’s stock when the amount of the stock so sold is determined, and the

8

date of delivery is, more than one (1) month after receipt of such payment and only to the extent that the obligation to deliver stock is not payable solely in stock of the Borrower, (8) all obligations under Hedging Agreements (calculated on a mark-to-market basis as of the reporting date) other than Hedging Agreements related to interest rates on identified outstanding borrowed money Indebtedness, and (9) all Capital Lease Obligations of such Person. Indebtedness shall be calculated on a consolidated basis in accordance with Generally Accepted Accounting Principles, including (without duplication) the Equity Percentage of Indebtedness for the Borrower’s Unconsolidated Affiliates.

     Interest Expense shall mean all of a Person’s paid, accrued or capitalized interest expense on such Person’s Indebtedness (whether direct, indirect or contingent, and including, without limitation, interest on all convertible debt), but excluding Construction Interest.

     Interest Options shall mean the Base Rate and the Eurodollar Rate, and “Interest Option” means either of them.

     Interest Payment Dates shall mean (a) the first (1st) day of each calendar month and the Maturity Date, for Base Rate Borrowings and Eurodollar Rate Borrowings; and (b) for Money Market Loans, the last day of each Interest Period and the maturity date of the Money Market Loans

     Interest Period shall mean:

          (1) For each Eurodollar Rate Borrowing, a period commencing on the date such Eurodollar Rate Borrowing was made and ending on the numerically corresponding day which is, subject to availability, (a) one (1), two (2), three (3) or six (6) months thereafter, or (b) seven (7), fourteen (14) or twenty-one (21) days thereafter for no more than four (4) time periods (provided that the first Eurodollar Rate Borrowing under this Agreement with an Interest Period of seven (7) days shall not count against the four time maximum) each calendar year in connection with payments of the Loans because of debt and/or equity sales by the Borrower, changes in the Lender Commitments, sales of major assets by the Borrower, or other similar reasons specifically approved by the Agent; provided that, (v) any Interest Period which would otherwise end on a day which is not a Eurodollar Business Day shall be extended to the next succeeding Eurodollar Business Day, unless such Eurodollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Eurodollar Business Day; (w) any Interest Period which begins on the last Eurodollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Eurodollar Business Day of the appropriate calendar month; (x) no Interest Period shall ever extend beyond the Maturity Date; and (y) Interest Periods shall be selected by Borrower in such a manner that the Interest Period with respect to any portion of the Loans which shall become due shall not extend beyond such due date .

9

          (2) For each Money Market LIBOR Loan, the period commencing on the date such Money Market LIBOR Loan was made and ending one (1), two (2), three (3) or six (6) months thereafter, as the Borrower may elect in the applicable Notice of Money Market Borrowing in accordance with Section 2.8; provided that such Interest Period shall be limited as provided in clauses (1)(v) through (y) above.

          (3) With respect to each Money Market Absolute Rate Loan, the period commencing on the date such Money Market Absolute Rate was made and ending such number of days thereafter (but not less than 14 days) as the Borrower may elect in accordance with Section 2.8; provided that such Interest Period shall be limited as provided in clauses (1)(x) and (y) above.

     Issuing Bank (whether one or more) means JPMorgan Chase Bank, N.A. and up to five (5) other Lenders, in their capacity as the issuer of Letters of Credit hereunder, and their successors in such capacity as provided in Section 2.2(i). The Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of the Issuing Bank, in which case the term “Issuing Bank” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate.

     LC Disbursement means a payment made by the Issuing Bank pursuant to a Letter of Credit.

     LC Exposure means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Lender at any time shall be its Percentage of the total LC Exposure at such time.

     Legal Requirement shall mean any law, statute, ordinance, decree, requirement, order, judgment, rule, regulation (or interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority.

     Lender Commitment means, for any Lender, the amount set forth opposite such Lender’s name on its signature page of this Agreement, or as may hereafter become a signatory hereto, as adjusted to reflect assignments or amendments made in accordance with this Agreement.

     Letter of Credit means any letter of credit issued pursuant to this Agreement.

     LIBOR Auction shall mean a solicitation of Money Market Quotes setting forth Money Market Margins based on the Eurodollar Interbank Rate pursuant to Section 2.8.

     Lien shall mean any mortgage, pledge, charge, encumbrance, security interest, collateral assignment, negative pledge or other lien or restriction of any kind, whether based on common law, constitutional provision, statute or contract, and shall include

10

reservations, exceptions, encroachments, easements, rights of way, covenants, conditions, restrictions, leases and other title exceptions.

     Limiting Agreements shall mean any agreement, instrument or transaction, including, without limitation, a Person’s Organizational Documents, which has or may have the effect of prohibiting or limiting any Person’s ability to pledge assets in the Pool to secure Indebtedness.

     Loans shall mean the Loans described in Sections 2.1, 2.2 and 2.8 hereof. Loan shall mean any such Loan.

     Majority Lenders shall mean the Lenders with an aggregate amount in excess of fifty percent (50%) of the amount of the Commitment then outstanding, and after the Commitment has expired or terminated, shall mean Lenders with an aggregate amount in excess of fifty percent (50%) of the unpaid principal balance of the Revolving Credit Exposures.

     Material Adverse Change shall mean a change which could reasonably be expected to have a Material Adverse Effect.

     Material Adverse Effect means a material adverse effect on (a) the financial condition, or results of operations of Borrower and its Subsidiaries taken as a whole, (b) the ability of Borrower to perform its material obligations under the Credit Documents to which it is a party taken as a whole, (c) the validity or enforceability of such Credit Documents taken as a whole, or (d) the material rights and remedies of Lenders and Agent under the Credit Documents taken as a whole.

     Maturity Date shall mean three (3) years after the date hereof, unless extended pursuant to Section 9.

     Money Market Absolute Rate has the meaning set forth in Section 2.8.

     Money Market Absolute Rate Loan shall mean a loan to be made by a Lender pursuant to an Absolute Rate Auction.

     Money Market LIBOR Loan shall mean a loan to be made by a Lender pursuant to a LIBOR Auction.

     Money Market Loan shall mean a Money Market LIBOR Loan or a Money Market Absolute Rate Loan, as the context may require or allow.

     Money Market Margin has the meaning set forth in Section 2.8.

     Money Market Quote shall mean an offer by a Lender to make a Money Market Loan in accordance with Section 2.8.

     Moody’s Rating shall mean the senior unsecured debt rating from time to time received by the Borrower from Moody’s Investors Service, Inc.

11

     Net Operating Income shall mean, for any income producing operating properties, the difference between (a) any cash rentals, proceeds and other income received from such Property (but excluding security or other deposits, or other income of an extraordinary and non-recurring nature) during the determination period, less (b) all cash costs and expenses (excluding interest expense and any expenditures that are capitalized in accordance with Generally Accepted Accounting Principles) incurred as a result of, or in connection with, or properly allocated to, the operation or leasing of such Property during the determination period. Net Operating Income shall be calculated on a consolidated basis in accordance with Generally Accepted Accounting Principles, and including (without duplication) the Equity Percentage of Net Operating Income for the Borrower’s Unconsolidated Affiliates.

     Non-recourse Debt shall mean any Indebtedness the payment of which the Borrower or any of its Subsidiaries is not obligated to make other than to the extent of any security therefor.

     Notes shall mean the promissory notes of the Borrower described in Section 2.1 hereof, including the Swing Loan Note, any and all renewals, extensions, modifications, rearrangements and replacements thereof and any and all substitutions therefor, and Note shall mean any one of them.

     Obligations shall mean, as at any date of determination thereof, the sum of (a) the aggregate Revolving Credit Exposures plus (b) all other liabilities, obligations and Indebtedness of any Parties under any Credit Document.

     Occupancy Level shall mean the occupancy level of a Property that is leased to bona fide tenants paying rent under written leases, based on the average of the actual occupancy level for the immediately preceding three (3) months.

     Officer’s Certificate shall mean a certificate in the form attached hereto as Exhibit A.

     Organizational Documents shall mean, with respect to a corporation, the certificate of incorporation, articles of incorporation and bylaws of such corporation; with respect to a partnership, the partnership agreement establishing such partnership; with respect to a joint venture, the joint venture agreement establishing such joint venture, and with respect to a trust, the instrument establishing such trust; in each case including any and all modifications thereof as of the date of the Credit Document referring to such Organizational Document and any and all future modifications thereof which are consented to by the Lenders.

     Parties shall mean all Persons other than the Agent, the Syndication Agents, the Documentation Agents or any Lender executing any Credit Document.

     Past Due Rate shall mean, on any day, a rate per annum equal to the Base Rate plus an additional three percent (3%) per annum, but in any event not to exceed the Ceiling Rate.

12

     Percentage shall mean the amount, expressed as a percentage, of each Lender Commitment as compared to the Commitment, set forth opposite the Lender’s name on its signature page of this Agreement, or as may hereafter become signatory hereto, as adjusted or amended in accordance with this Agreement. If the Commitment has terminated or expired, the Percentage shall be determined based on the Revolving Credit Exposure most recently in effect, giving effect to any assignments.

     Permitted Encumbrances shall mean (a) encumbrances consisting of zoning restrictions, easements, or other restrictions on the use of Real Property, provided that such items do not materially impair the use of such property for the purposes intended and none of which is violated in any material respect by existing or proposed structures or land use; (b) the following: (i) Liens for taxes not yet due and payable, or being diligently contested in good faith, or where no Material Adverse Effect could reasonably be expected to result from such nonpayment or the imposition of such Lien; or (ii) materialmen’s, mechanic’s, warehousemen’s and other like Liens arising in the ordinary course of business, securing payment of Indebtedness whose payment is not yet due, or that are being contested in good faith by appropriate proceedings diligently conducted, and for or against which the Borrower has established adequate reserves in accordance with Generally Accepted Accounting Principles; (c) Liens for taxes, assessments and governmental charges or assessments that are being contested in good faith by appropriate proceedings diligently conducted, and for or against which the Borrower has established adequate reserves in accordance with Generally Accepted Accounting Principles; (d) Liens on Real Property which are insured around or against by title insurance; (e) Liens securing assessments or charges payable to a property owner association or similar entity which assessments are not yet due and payable or are being diligently contested in good faith; and (f) Liens securing this Agreement and Indebtedness hereunder.

     Person shall mean any individual, corporation, trust, unincorporated organization, Governmental Authority or any other form of entity.

     Pool shall have the meaning given to it in Section 5.15(a).

     Pool Value shall mean the Value of the Pool.

     Prime Rate shall mean, as of a particular date, the prime rate of interest per annum publicly announced from time to time by JPMC as its prime rate in effect at its principal office in New York, New York; each change in the Prime Rate shall be effective on the date such change is determined; which Prime Rate may not necessarily represent the Agent’s lowest or best rate actually charged to a customer.

     Proper Form shall mean in form and substance reasonably satisfactory to the Agent and the Majority Lenders.

     Property shall mean any interest in any kind of property or asset, whether real, personal or mixed, tangible or intangible.

     QRS Entities shall mean Smith One, Inc., Smith Two, Inc., Smith Three, Inc., Smith Four, Inc., Smith Five, Inc., Smith Six, Inc. and Smith Seven, Inc.

13

     Quarterly Unaudited Financial Statements shall mean the quarterly financial statements of a Person, including all notes thereto, which statements shall include a balance sheet as of the end of such quarter and an income statement for such fiscal quarter, and for the fiscal year to date, a statement of cash flows for such quarter and for the fiscal year to date, subject to normal year-end adjustments, and a detailed listing of the Borrower’s Property and the Historical Value thereof, all setting forth in comparative form the corresponding figures for the corresponding fiscal period of the preceding year (or, in the case of the balance sheet, the end of the preceding fiscal year), prepared in accordance with Generally Accepted Accounting Principles except that the Quarterly Unaudited Financial Statements may contain condensed footnotes as permitted by regulations of the United States Securities and Exchange Commission, and certified as true and correct by a managing director, senior vice president, controller, co-controller or vice president of Borrower. The Quarterly Unaudited Financial Statements shall be prepared on a consolidated basis in accordance with Generally Accepted Accounting Principles.

     Rate Designation Date shall mean 1:00 p.m., New York, New York time, on the date three (3) Eurodollar Business Days preceding the first day of any proposed Interest Period.

     Real Property means, collectively, all interest in any land and improvements located thereon, together with all equipment, furniture, materials, supplies and personal property now or hereafter located at or used in connection with the land and all appurtenances, additions, improvements, renewals, substitutions and replacements thereof now or hereafter acquired by any Person.

     Regulation D shall mean Regulation D of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulation relating to reserve requirements applicable to member lenders of the Federal Reserve System.

     Request for Loan shall mean a written request for a Committed Loan substantially in the form of Exhibit B.

     Revolving Credit Exposure means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender’s Loans, the Swing Loans, and its LC Exposure at such time.

     S&P Rating shall mean the senior unsecured debt rating from time to time received by the Borrower from Standard & Poor’s Rating Services.

     Secured Debt means the Indebtedness of the Borrower or the Parent secured by a Lien, and any Indebtedness of any of the Borrower’s or the Parent’s Subsidiaries and Unconsolidated Affiliates owed to a Person not an Affiliate of the Borrower or the Parent or such Subsidiary.

     Secured Debt to Total Asset Value Ratio means the ratio (expressed as a percentage) of Secured Debt to Total Asset Value.

14

     Stabilization Date shall mean, with respect to a property, the earlier of (a) eighteen (18) months from the date of acquisition of an income producing property by the Borrower or eighteen (18) months after substantial completion of construction or development of a new construction or development property, and (b) the date on which the Occupancy Level is at least ninety-three percent (93%).

     Stated Rate shall, on any day, mean whichever of the Base Rate, the Eurodollar Rate, or a rate applicable to Money Market Loans has been designated and provided pursuant to this Agreement; provided that, if on any day such rate shall exceed the Ceiling Rate for that day, the Stated Rate shall be fixed at the Ceiling Rate on that day and on each day thereafter until the total amount of interest accrued at the Stated Rate on the unpaid principal balance of the Notes equals the total amount of interest which would have accrued if there had been no Ceiling Rate. If the Notes mature (or are prepaid) before such equality is achieved, then, in addition to the unpaid principal and accrued interest then owing pursuant to the other provisions of the Credit Documents, Borrower promises to pay on demand to the order of the holders of the Notes interest in an amount equal to the excess (if any) of (a) the lesser of (i) the total interest which would have accrued on the Notes if the Stated Rate had been defined as equal to the Ceiling Rate from time to time in effect and (ii) the total interest which would have accrued on the Notes if the Stated Rate were not so prohibited from exceeding the Ceiling Rate, over (b) the total interest actually accrued on the Notes to such maturity (or prepayment) date.

     Subsidiary shall mean, as to a particular parent entity, any entity of which more than fifty percent (50%) of the indicia of voting equity or ownership rights (whether outstanding capital stock or otherwise) is at the time directly or indirectly owned by, such parent entity, or by one or more of its other Subsidiaries.

     Super-Majority Lenders shall mean the Lenders with an aggregate amount of sixty-six and sixty-seven hundredths percent (66.67%) or more of the amount of the Commitment then outstanding, and after the Commitment has expired or terminated, shall mean Lenders with an aggregate amount of sixty-six and sixty-seven hundredths percent (66.67%) or more of the unpaid balance of the Revolving Credit Exposures.

     Swing Loan shall mean a Loan made pursuant to Section 2.1(c) hereof.

     Swing Loan Note shall mean that certain promissory note dated of even date herewith in the original principal amount of $100,000,000.00 executed by the Borrower payable to the order of JPMC.

     Tangible Net Worth shall mean total assets (without deduction for accumulated depreciation) less (1) all intangibles and (2) all liabilities (including contingent and indirect liabilities), all determined in accordance with Generally Accepted Accounting Principles. The term “intangibles” shall include, without limitation, (i) deferred charges, and (ii) the aggregate of all amounts appearing on the assets side of any such balance sheet for franchises, licenses, permits, patents, patent applications, copyrights, trademarks, trade names, goodwill, treasury stock, experimental or organizational expenses and other like intangibles. The term “liabilities” shall include, without limitation, (i) Indebtedness

15

secured by Liens on Property of the Person with respect to which Tangible Net Worth is being computed whether or not such Person is liable for the payment thereof, (ii) deferred liabilities, and (iii) Capital Lease Obligations. Tangible Net Worth shall be calculated on a consolidated basis in accordance with Generally Accepted Accounting Principles.

     Taxes shall mean any tax, levy, impost, duty, charge or fee.

     Total Asset Value shall mean the sum of (without duplication) (a) the aggregate Value of all of the Real Property owned by the Borrower and its Subsidiaries on a consolidated basis plus (b) the amount of the Borrower’s cash and cash equivalents, excluding tenant security and other restricted deposits, plus (c) the total book value of all of the Borrower’s other assets not described in (a) or (b) above, excluding all intangibles and all equity investments in Unconsolidated Affiliates, plus (d) the Value of the Real Property, and cash and other assets of the type permitted, and as valued, in clauses (b) and (c) of this definition, owned by each of the Borrower’s Unconsolidated Affiliates, multiplied by the Equity Percentage for that Unconsolidated Affiliate, including gains on sales of assets to Unconsolidated Affiliates which must be deferred in accordance with Generally Accepted Accounting Principles. Total Asset Value shall be calculated on a consolidated basis in accordance with Generally Accepted Accounting Principles.

     Unconsolidated Affiliate shall mean, in respect of any Person, any other Person that is an Affiliate of such Person and in whom such Person holds a voting equity or other ownership interest and whose financial results would not be consolidated under Generally Accepted Accounting Principles with the financial results of such other Person on the consolidated financial statements of such first mentioned Person.

     Unit Capital Expenditure shall mean, on an annual basis, an amount equal to the sum of (a) the result of (i) the number of apartment units contained in each completed, operating Real Property owned by Borrower and any Subsidiary as of the last day of each of the immediately preceding four (4) calendar quarters, divided by four (4), and multiplied by (ii) $200.00; plus (b) for Unconsolidated Affiliates, the result of (i) the amount in clause (a) above for Unconsolidated Affiliates, multiplied by (ii) the Equity Percentage for each Unconsolidated Affiliate.

     Value means the sum of the following:

     (a) for Real Property that has reached the Calculation Date and that the Person has owned for the full determination period, the result of dividing (i) the aggregate Net Operating Income of the subject property ((1) beginning with the Calculation Date until the end of the third full calendar quarter after the Stabilization Date, based on the annualized Net Operating Income from the Calculation Date until the time of measurement, and (2) beginning with the fourth full calendar quarter after the Stabilization Date, based on the immediately preceding four (4) calendar quarter period), by seven and one-half percent (7.5%); plus

16

     (b) for Real Property that is completed but has not reached the Calculation Date or that has not been owned by Borrower for the full determination period, the Historical Value of the subject property; plus

     (c) for Real Property that is under construction or development, or that is undeveloped land, the Historical Value of the subject property.

2. The Loans.

     2.1 Advances. (a) Subject to the terms and conditions of this Agreement, each Lender severally agrees to make Committed Loans (other than Swing Loans) prior to the Maturity Date to the Borrower not to exceed an amount (in the aggregate, the “Commitment”) at any one time outstanding equal to the difference between the Lender’s Lender Commitment and the Lender’s Revolving Credit Exposure. Each such request for a Committed Loan by Borrower shall be deemed a request for a Committed Loan from each Lender equal to such Lender’s Percentage of the aggregate amount so requested, and such aggregate amount shall be in an amount at least equal to $1,000,000.00 and equal to a multiple of $100,000.00, or the difference between the Commitment and the aggregate Revolving Credit Exposures, whichever is less. Each repayment of the Committed Loans shall be deemed a repayment of each Lender’s Committed Loan equal to such Lender’s Percentage of the amount so repaid. The obligations of the Lenders hereunder are several and not joint, and the preceding two sentences will give rise to certain inappropriate results if special provisions are not made to accommodate the failure of a Lender to fund a Committed Loan as and when required by this Agreement; therefore, notwithstanding anything herein to the contrary, (A) no Lender shall be required to make Committed Loans at any one time outstanding in excess of such Lender’s Percentage of the Commitment, and (B) if a Lender fails to make a Committed Loan as and when required hereunder and Borrower subsequently makes a repayment on the Committed Loans, such repayment shall be split among the non-defaulting Lenders ratably in accordance with their respective Percentages until each Lender has its Percentage of all of the outstanding Committed Loans, and the balance of such repayment shall be divided among all of the Lenders in accordance with their respective Percentages. Notwithstanding the foregoing, borrowings and payments of Swing Loans shall be for JPMC’s own account. The Loans (other than Swing Loans) shall be evidenced by the Notes substantially in the form of Exhibit C attached hereto. The Borrower, the Agent and the Lenders agree that Chapter 346 of the Texas Finance Code shall not apply to this Agreement, the Notes or any Loan.

     (b) The Borrower shall give the Agent notice of each borrowing of a Committed Loan to be made hereunder as provided in Section 3.1, and the Agent shall deliver same to each Lender promptly thereafter. Not later than 12:00 noon, New York, New York time, on the date specified for each such borrowing of a Committed Loan hereunder other than Swing Loans, each Lender shall make available the amount of the Loan, if any, to be made by it on such date to the Agent at the Agent’s principal office in New York, New York, in immediately available funds, for the account of the Borrower. Such amounts received by the Agent will be held in Agent’s general ledger account. The amounts so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Borrower by wiring or otherwise transferring, in

17

immediately available funds not later than 1:00 p.m., New York, New York time, such amount to an account designated by the Borrower and maintained with JPMC or any other account or accounts which the Borrower may from time to time designate to the Agent by a written notice as the account or accounts to which borrowings hereunder are to be wired or otherwise transferred. JPMC shall make available the amount of each Swing Loan by depositing the same in immediately available funds, in the foregoing account by 3:00 p.m., New York, New York time, on the date of the borrowing.

     (c) Subject to the terms and conditions hereof, if necessary to meet the Borrower’s funding deadlines, JPMC agrees to make Swing Loans to the Borrower at any time on or prior to the Maturity Date, not to exceed an amount at any one time outstanding equal to the lesser of (i) $100,000,000.00, or (ii) the difference between the Commitment and the aggregate Revolving Credit Exposures. Swing Loans shall constitute “Loans” for all purposes hereunder. Notwithstanding the foregoing, the aggregate amount of all Loans (including, without limitation, all Swing Loans) shall not at any time exceed the difference between the Commitment and the LC Exposure. Each request for a Swing Loan shall be in an amount at least equal to $1,000,000.00 and equal to a multiple of $100,000.00. If necessary to meet the Borrower’s funding deadlines, the Agent may treat any Request for Loan as a request for a Swing Loan from JPMC and JPMC may fund it as a Swing Loan. Within two (2) Business Days after each Swing Loan is funded, JPMC shall request that each Lender, and each Lender shall, on the first Business Day after such request is made, purchase a portion of any one or more Swing Loans in an amount equal to that Lender’s Percentage of such Swing Loans by funding under such Lender’s Note, such purchase to be made in accordance with the terms of Section 2.1(b) just as if the Lender were funding directly to the Borrower under its Note (such that all Lenders other than JPMC shall fund only under their respective Note and not under the Swing Loan Note). Unless the Agent knew or should have known when JPMC funded a Swing Loan that the Borrower had not satisfied the conditions in this Agreement to obtain a Loan, each Lender’s obligation to purchase an interest in the Swing Loans shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Lender or any other Person may have against JPMC or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default or Event of Default or the termination of any Lender Commitment; (iii) any adverse change in the condition (financial or otherwise) of the Borrower or any of its Subsidiaries; (iv) any breach of this Agreement or any other Credit Documents by the Borrower, any of its Subsidiaries, the Agent or any other Lender; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. Any portion of a Swing Loan not so purchased and converted may be treated by JPMC as a Committed Loan which was not funded by the non-purchasing Lenders as contemplated in Section 2.1(a), and as a funding by JPMC under the Commitment in excess of JPMC’s Percentage. Each Swing Loan, once so sold, shall cease to be a Swing Loan for the purposes of this Agreement, but shall be a Committed Loan made under the Commitment and each Lender’s Lender Commitment. The Swing Loans shall be evidenced by the Swing Loan Note substantially in the form of Exhibit C-1 attached hereto.

18

     (d) So long as the Borrower is not then in Default and so long as the Borrower has not reduced the Commitment pursuant to Section 2.9, the Borrower may on two (2) occasions prior to December 13, 2007, request that the aggregate Commitment be increased, so long as (i) the aggregate Commitment does not exceed Nine Hundred Million Dollars ($900,000,000.00) (the “Maximum Commitment”), and (ii) each increase is a minimum of $50,000,000. If the Borrower requests that the aggregate Commitment be increased, the Agent shall use its best efforts to obtain increased or additional commitments up to the Maximum Commitment, and to do so the Agent may obtain additional lenders of its choice (and approved by Borrower, such approval not to be unreasonably withheld or delayed), and without the necessity of approval from any of the Lenders. The Borrower and each Guarantor shall execute an amendment to this Agreement, additional Notes and other documents as the Agent may reasonably require to evidence the increase of the Commitment, and the admission of additional Persons as Lenders, if necessary.

     2.2 Letters of Credit.

          (a) Subject to the terms and conditions set forth herein, the Borrower may request the issuance of Letters of Credit for its own account, in a form reasonably acceptable to the Agent and the Issuing Bank, at any time and from time to time before the Maturity Date. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control.

          (b) To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or facsimile (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the Issuing Bank, the Borrower also shall submit a letter of credit application on the Issuing Bank’s standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed $150,000,000.00 and (ii) the total Revolving Credit Exposures shall not exceed the total Commitment. Copies of all Letters of Credit and amendments, extensions and cancellations related thereto, must be delivered to the Agent and the other Lenders by the Issuing Bank.

19

          (c) Each Letter of Credit shall expire not later than the earlier of (i) three (3) years after date of issuance of the Letter of Credit (the “Maximum Outside Date”), and (ii) the close of business on the date that is ten (10) days prior to the Maturity Date (including the extension period provided in Section 9); provided, however, that Letters of Credit with an aggregate LC Exposure not exceeding $50,000,000.00 at any time may expire up to the earlier of December 13, 2009 and the Maximum Outside Date.

          (d) By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Lender’s Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Agent, for the account of the Issuing Bank, such Lender’s Percentage of each LC Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrower for any reason. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction of the Commitment, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.

          (e) If the Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Agent an amount equal to such LC Disbursement not later than 1:00 p.m., New York, New York time, on the date that such LC Disbursement is made if the Borrower shall have received notice of such LC Disbursement prior to 11:00 a.m., New York, New York time, on such date, or, if such notice has not been received by the Borrower prior to such time on such date, then not later than 1:00 p.m., New York, New York time, on (i) the Business Day that the Borrower receives such notice, if such notice is received prior to 11:00 a.m., New York, New York time, on the day of receipt, or (ii) the Business Day immediately following the day that the Borrower receives such notice, if such notice is not received prior to such time on the day of receipt; provided that the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.1 that such payment be financed with a Base Rate Borrowing in an equivalent amount and, to the extent so financed, the Borrower’s obligation to make such payment shall be discharged and replaced by the resulting Base Rate Borrowing. If the Borrower fails to make such payment when due, the Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof and such Lender’s Percentage thereof. Promptly following receipt of such notice, each Lender shall pay to the Agent its Percentage of the payment then due from the Borrower, in the same manner as provided in Section 2.1(a) with respect to Loans made by such Lender (and Section 2.1(a) shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Agent shall promptly pay to the Issuing Bank the amounts so received by it from the Lenders. Promptly following receipt by the Agent of any payment from the Borrower pursuant to this

20

paragraph, the Agent shall distribute such payment to the Issuing Bank or, to the extent that Lenders have made payments pursuant to this paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing Bank as their interests may appear. Any payment made by a Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC Disbursement (other than the funding of Base Rate Loans as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such LC Disbursement.

          (f) The Borrower’s obligation to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder. Neither the Agent, the Lenders nor the Issuing Bank shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; provided that the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Bank’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.

          (g) The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall promptly notify the Agent and the Borrower by telephone

21

(confirmed by telecopy) of such demand for payment and whether the Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank and the Lenders with respect to any such LC Disbursement.

          (h) If the Issuing Bank shall make any LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at the rate per annum then applicable to Base Rate Loans; provided that, if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, then the unpaid amount thereof shall bear interest from the date reimbursement was due until the date payment is made at the Past Due Rate. Interest accrued pursuant to this paragraph shall be for the account of the Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to paragraph (e) of this Section to reimburse the Issuing Bank shall be for the account of such Lender to the extent of such payment.

          (i) The Issuing Bank may be replaced at any time by written agreement among the Borrower, the Agent, the replaced Issuing Bank and the successor Issuing Bank. The Agent shall notify the Lenders of any such replacement of the Issuing Bank. At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.7(c). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term “Issuing Bank” shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit.

          (j) If (i) any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Agent or the Majority Lenders demanding the deposit of cash collateral pursuant to this paragraph, or (ii) any Letter of Credit will expire after the Maturity Date as allowed by Section 2.2(c) then at least ten (10) days before the Maturity Date, the Borrower shall deposit in an account with the Agent, in the name of the Agent and for the benefit of the Lenders, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid interest thereon; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (h) or (i) of Section 7.1. Such deposit shall be held by the Agent as collateral for the payment and performance of the obligations of the Borrower under this Agreement. The Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such

22

deposits, which investments shall be made at the option and sole discretion of the Agent and at the Borrower’s risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Agent to reimburse the Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated, be applied to satisfy other obligations of the Borrower under this Agreement. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived.

     2.3 Payments.

          (a) Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be made by the Borrower hereunder, under the Notes and under the other Credit Documents shall be made in immediately available funds to the Agent at its principal office in New York, New York (or in the case of a successor Agent, at the principal office of such successor Agent in the United States), not later than 1:00 p.m., New York, New York time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day).

          (b) The Borrower may, at the time of making each payment hereunder, under any Note or under any other Credit Document, specify to the Agent the Loans or other amounts payable by the Borrower hereunder or thereunder to which such payment is to be applied (and in the event that it fails so to specify, such payment shall be applied to the Loans (first to the Swing Loans) or, if no Loans are outstanding, to other amounts then due and payable, provided that if no Loans or other amounts are then due and payable or an Event of Default has occurred and is continuing, the Agent may apply such payment to the Obligations in such order as it may elect in its sole discretion, but subject to the other terms and conditions of this Agreement, including without limitation Section 2.4 hereof). Each payment received by the Agent hereunder, under any Note or under any other Credit Document for the account of a Lender shall be paid promptly to such Lender, in immediately available funds. If the Agent receives a payment for the account of a Lender prior to 1:00 p.m., New York, New York time, such payment must be delivered to the Lender on that same day and if it is not so delivered due to the fault of the Agent, the Agent shall pay to the Lender entitled to the payment the interest accrued on the amount of the payment pursuant to said Lender’s Note from the date the Agent receives the payment to the date the Lender received the payment. The Agent may apply payments received from the Borrower to pay any unpaid principal and interest on the Swing Loans before making payment to each Lender of amounts due under the Notes other than the Swing Loan Note. Loans may be prepaid only if the accompanying Funding Loss, if any, is also paid.

          (c) If the due date of any payment hereunder or under any Note falls on a day which is not a Business Day or a Eurodollar Business Day, as the case may be, the due date for such payments shall be extended to the next succeeding Business Day or

23

Eurodollar Business Day, respectively, and interest shall be payable for any principal so extended for the period of such extension; provided, however, that with respect to Eurodollar Rate Borrowings and Money Market LIBOR Loans if such extension would cause the Eurodollar Business Day of payment to fall in another calendar month, the payment shall be due on the Eurodollar Business Day next preceding the due date of the payment.

          (d) The Borrower shall give the Agent at least one (1) Business Day’s prior written notice of the Borrower’s intent to make any payment of principal or interest under the Credit Documents not scheduled to be paid under the Credit Documents. Any such notification of payment shall be irrevocable after it is made by the Borrower. Upon receipt by the Agent of such notification of payment, it shall deliver same to the other Lenders.

          (e) All payments by the Borrower hereunder or under any other Credit Documents shall be made free and clear of and without deduction for or on account of any Taxes, including withholding and other charges of any nature whatsoever imposed by any taxing authority excluding in the case of each Lender taxes imposed on or measured by its net income or franchise taxes imposed in lieu of net income taxes by the jurisdiction in which it is organized or through which it acts for purposes of this Agreement. If any withholding or deduction from any payment to be made to, or for the account of, a Lender by the Borrower hereunder or under any other Credit Document is required in respect of any Taxes pursuant to any applicable law, rule, or regulation, then the Borrower will (i) pay to the relevant authority the full amount required to be so withheld or deducted; (ii) to the extent available, promptly forward to the Agent an official receipt or other documentation satisfactory to the Agent evidencing such payment to such authority; and (iii) pay to the Agent, for the account of each affected Lender, such additional amount or amounts as are necessary to ensure that the net amount actually received by such Lender will equal the full amount such Lender would have received had no such withholding or deduction been required. Each Lender shall determine such additional amount or amounts payable to it (which determination shall, in the absence of manifest error, be conclusive and binding on the Borrower). If a Lender becomes aware that any such withholding or deduction from any payment to be made by the Borrower hereunder or under any other Credit Document is required, then such Lender shall promptly notify the Agent and the Borrower thereof stating the reasons therefor and the additional amount required to be paid under this Section. Each Lender shall execute and deliver to the Agent and Borrower such forms as it may be required to execute and deliver pursuant to subsection (f) below. To the extent that any such withholding or deduction results from the failure of a Lender to provide a form required by subsection (f) below (unless such failure is due to some prohibition under applicable Legal Requirements), the Borrower shall have no obligation to pay the additional amount required by clause (iii) above. Anything in this Section notwithstanding, if any Lender elects to require payment by the Borrower of any material amount under this Section, the Borrower may, within 60 days after the date of receiving notice thereof and so long as no Default shall have occurred and be continuing, elect to terminate such Lender as a party to this Agreement; provided that, concurrently with such termination the Borrower shall (1) if the Agent and each of the other Lenders shall consent, pay that Lender all principal, interest and fees and other amounts owed to such Lender through such date of

24

termination or (2) have arranged for another institution approved by the Agent (such approval not to be unreasonably withheld) as of such date, to become a substitute Lender for all purposes under this Agreement in the manner provided in Section 10.5; provided further that, prior to substitution for any Lender, the Borrower shall have given written notice to the Agent of such intention and the Lenders shall have the option, but no obligation, for a period of 60 days after receipt of such notice, to increase their Commitments pro rata based on their Lender Commitments in order to replace the affected Lender in lieu of such substitution.

          (f) With respect to each Lender which is organized under the laws of a jurisdiction outside the United States, on the day of the initial borrowing from each such Lender hereunder and from time to time thereafter if requested by the Borrower or the Agent, such Lender shall provide the Agent and the Borrower with the forms prescribed by the Internal Revenue Service of the United States certifying as to such Lender’s status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to such Lender hereunder or other documents satisfactory to such Lender and the Agent indicating that all payments to be made to such Lender hereunder are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty. Unless the Borrower and the Agent shall have received such forms or such documents indicating that payments hereunder are not subject to United States withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, the Borrower or the Agent shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Lender organized under the laws of a jurisdiction outside the United States.

     2.4 Pro Rata Treatment. Except to the extent otherwise provided herein: (a) each borrowing from the Lenders under Section 2.1(a) hereof shall be made ratably from the Lenders on the basis of their respective Percentages, except as provided in Section 2.7(c)(ii) each payment of the Fee (hereinafter defined) shall be made for the account of the Lenders, and shall be applied, pro rata, according to the Lenders’ respective Lender Commitment; and (b) each payment by the Borrower of principal or interest on the Committed Loans other than the Swing Loans, of any other sums advanced by the Lenders pursuant to the Credit Documents, and of any other amount owed to the Lenders other than the Fee, payments of Swing Loans, or any other sums designated by this Agreement as being owed to a particular Lender, shall be made to the Agent for the account of the Lenders pro rata in accordance with the respective unpaid principal amounts of the Committed Loans (other than Swing Loans) held by the Lenders. Payments of Swing Loans shall be for JPMC’s own account.

     2.5 Non-Receipt of Funds by the Agent. Unless the Agent shall have been notified by a Lender or the Borrower (the “Payor”) prior to the date on which such Lender is to make payment to the Agent of the proceeds of a Loan (or purchase of a portion of a Swing Loan) to be made by it hereunder or the Borrower is to make a payment to the Agent for the account of one or more of the Lenders, as the case may be (such payment being herein called the “Required Payment”), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such

25

assumption (but shall not be required to), make the amount thereof available to the intended recipient on such date and, if the Payor has not in fact made the Required Payment to the Agent, the recipient of such payment shall, on demand, pay to the Agent the amount made available by the Agent together with interest thereon in respect of the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to (a) the Past Due Rate for such period if the recipient returning a Required Payment is the Borrower, or (b) the Federal Funds Effective Rate for such period if the recipient returning a Required Payment is the Agent or a Lender.

     2.6 Sharing of Payments, Etc. The Borrower agrees that, in addition to (and without limitation of) any right of set-off, bankers’ lien or counterclaim a Lender may otherwise have, each Lender shall be entitled, at its option, to offset balances held by it for the account of the Borrower at any of its offices, against any principal of or interest on any of such Lender’s Loans to the Borrower hereunder, or other Obligations of the Borrower hereunder, which is not paid (regardless of whether such balances are then due to the Borrower), in which case it shall promptly notify the Borrower and the Agent thereof, provided that such Lender’s failure to give such notice shall not affect the validity thereof. If a Lender shall obtain payment of any principal of or interest on any Committed Loan made by it under this Agreement (other than Swing Loans made by JPMC), or other Obligation then due to such Lender hereunder, through the exercise of any right of set-off, banker’s lien, counterclaim or similar right, or otherwise, it shall promptly purchase from the other Lenders portions of the Loans made or other Obligations held (other than Swing Loans made by JPMC), by the other Lenders in such amounts, and make such other adjustments from time to time as shall be equitable to the end that all the Lenders shall share the benefit of such payment (net of any expenses which may be incurred by such Lender in obtaining or preserving such benefit) pro rata in accordance with the unpaid principal and interest on the Obligations then due to each of them. To such end all the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of the Borrower.

     2.7 Fees. The Borrower shall pay fees equal to the following:

          (a) An amount payable as a facility fee by the Borrower to the Agent for the account of each Lender equal to the following percentage per annum multiplied by the Commitment (and after the Commitment terminates or expires, the aggregate Revolving Credit Exposures), which will be in effect whenever and for so long as the Borrower has received the corresponding Credit Rating (the method of determining the Credit Rating based on multiple ratings to be the same as set forth and used to determine the Credit Rating for the definition of Applicable Margin):

26

CREDIT RATING	FACILITY FEE
A/A2 or better		0.125	%
A-/A3		0.150	%
BBB+/Baa1		0.150	%
BBB/Baa2		0.150	%
BBB-/Baa3		0.200	%

If the Credit Rating is worse than BBB-/Baa3, or if there is no Credit Rating, then for that calendar quarter and for so long thereafter as the Credit Rating is worse than BBB-/Baa3 or if there is no Credit Rating, the facility fee will be equal to the daily unused amount of the Commitment (Swing Loans shall be deemed to be a utilization of the Commitment solely for the purposes of this Section 2.7(a)) multiplied by 0.250% per annum. The facility fee is payable in arrears on or before the tenth (10th) day of each January, April, July and October prior to termination or expiration of the Commitment, and on demand thereafter.

          (b) If the Maturity Date is extended pursuant to Section 9 of this Agreement, an amount payable as an extension fee by the Borrower to the Agent for the account of each Lender equal to 0.150% of each Lender’s Lender Commitment at that time payable on the first day of the extension.

          (c) (i) to the Agent for the account of each Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at the Applicable Margin provided for Eurodollar Rate Borrowings on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the date of this Agreement to but excluding the later of the date of termination of the Commitment and the date on which there ceases to be any LC Exposure, and (ii) to the Issuing Bank a nonrefundable fronting fee which shall accrue at the rate of 0.100% per annum on the face amount of each Letter of Credit, as well as the Issuing Bank’s standard fees (not to be less than $1,500.00 per transaction) with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees accrued through and including the last day of March, June, September and December of each year shall be payable on the tenth (10^th) day following such last day, commencing on the first such date to occur after the date of this Agreement; provided that all such fees shall be payable on the date on which the Commitment terminates and any such fees accruing after the date on which the Commitment terminates shall be payable on demand. Any other fees payable to the Issuing Bank pursuant to this paragraph shall be payable within ten (10) days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

     The Fee shall not be refundable (except as required by Section 3.1(c) of this Agreement). Any portion of the Fee which is not paid by the Borrower when due shall bear interest at the Past Due Rate from the date due until the date paid by the Borrower. The Fee shall be calculated on the actual number of days elapsed in a year deemed to consist of 360 days.

27

     2.8 Money Market Borrowings.

          (a) The Borrower may, as set forth in this Section, whenever at the time of the request therefor the Borrower has received an Acceptable Credit Rating, request the Lenders prior to the Maturity Date to make offers to make Money Market Loans to the Borrower, not to exceed, at such time, the lesser of (i) the difference between the Commitment and the aggregate Revolving Credit Exposures, and (ii) fifty percent (50%) of the Commitment. The Lenders may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. The Borrower shall pay the Agent a fee of $2,000.00 for each Money Market Quote Request provided below, payable monthly based on the requests for the previous month.

          (b) When the Borrower wishes to request offers to make Money Market Loans under this Section, it shall transmit to the Agent (in care of Ms. Angelica M. Castillo, Loan and Agency Services, 1111 Fannin, Houston, Texas 77002, Facsimile No. 713-750-2228, telephone number 713-750-2513) by facsimile transmission a Money Market Quote Request (“Money Market Quote Request”) substantially in the form of Exhibit E hereto so as to be received no later than 12:00 noon, New York, New York time on (i) the fourth Eurodollar Business Day prior to the date of borrowing proposed therein, in the case of a LIBOR Auction or (ii) the Business Day next preceding the date of borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Lenders not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying:

                  (x) the proposed date of borrowing, which shall be a Eurodollar Business Day in the case of a LIBOR Auction or a Business Day in the case of an Absolute Rate Auction, and

                  (y) the aggregate amount of such borrowing, which shall be $20,000,000.00 or a larger multiple of $1,000,000.00.

The Borrower may request offers to make Money Market Loans for more than one Interest Period in a single Money Market Quote Request. No Money Market Quote Request shall be given within five (5) Eurodollar Business Days (or such other number of days as the Borrower and the Agent may agree in writing ) of any other Money Market Quote Request.

          (c) Promptly upon receipt of a Money Market Quote Request, the Agent shall send to the Lenders by telex or facsimile transmission an Invitation for Money Market Quotes substantially in the form of Exhibit F hereto, which shall constitute an invitation by the Borrower to each Lender to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote Request relates in accordance with this Section.

28

          (d) (i) Each Lender may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any Invitation for Money Market Quotes. Each Money Market Quote must comply with the requirements of this subsection (d) and must be received by the Agent by telex or facsimile transmission not later than (x) 9:30 a.m. New York, New York time on the third Eurodollar Business Day prior to the proposed date of borrowing, in the case of a LIBOR Auction or (y) 9:30 a.m. New York, New York time on the proposed date of borrowing, in the case of an Absolute Rate Auction; provided that Money Market Quotes submitted by the Agent (or any affiliate of the Agent or its Designated Lender) in the capacity of a Lender may be submitted, and may only be submitted, if the Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than thirty (30) minutes prior to the applicable deadline for the other Lenders. Any Money Market Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Borrower. If, and only if, the Borrower elected in the applicable Money Market Quote Request to permit the Lenders to designate Designated Lenders to fund such Money Market Loans, such Money Market Loans may be funded by such Lender’s Designated Lender (if any) as provided in Section 10.5(f), however such Lender shall not be required to specify in its Money Market Quote whether such Money Market Loans will be funded by such Designated Lender.

          (ii) Each Money Market Quote shall be in substantially the form of Exhibit G hereto and shall in any case specify:

               (1) the principal amount of the Money Market Loan for which each offer is being made, which principal amount (w) may be greater than or less than the Lender Commitment of the quoting Lender, (x) must be $5,000,000.00 or a larger multiple of $500,000.00, (y) may not exceed the principal amount of Money Market Loans for which offers were requested, and (z) may be subject to an aggregate limitation as to the principal amount of Money Market Loans for which offers being made by such quoting Lender may be accepted,

               (2) in the case of a LIBOR Auction, the margin (the “Money Market Margin”) above or below the applicable Eurodollar Interbank Rate ) offered for each such Money Market Loan, expressed as a percentage (specified to the nearest 1/10,000th of 1%) to be added to or subtracted from such applicable rate, and

               (3) in the case of an Absolute Rate Auction, the rate of interest per annum (specified to the nearest 1/10,000th of 1%) (the “Money Market Absolute Rate”) offered for each such Money Market Loan.

A Money Market Quote may set forth up to five (5) separate offers by the quoting Lender with respect to each Interest Period specified in the related Invitation for Money Market Quotes.

          (iii) Any Money Market Quote shall be disregarded if it:

29

               (1) is not substantially in conformity with Exhibit G hereto or does not specify all of the information required by subsection (d)(ii) above;

               (2) contains qualifying, conditional or similar language;

               (3) proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes; or

               (4) arrives after the time set forth in subsection (d)(i) above.

          (e) The Agent shall promptly notify the Borrower (i) of the terms of each proper Money Market Quote and the identity of the Lender submitting such Money Market Quote, and (ii) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Lender with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote shall be disregarded by the Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote. The Agent’s notice to the Borrower shall specify (1) the aggregate principal amount of Money Market Loans for which offers have been received for each Interest Period specified in the related Money Market Quote Request, (2) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, so offered, and (3) if applicable, limitations on the aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted.

          (f) Not later than 10:30 a.m. New York, New York time on (i) the third Eurodollar Business Day prior to the proposed date of borrowing, in the case of a LIBOR Auction, or (ii) the proposed date of borrowing, in the case of an Absolute Rate Auction, the Borrower shall notify the Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to subsection (e) above. In the case of acceptance, such notice (a “Notice of Money Market Borrowing”) shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept any Money Market Quote in whole or in part; provided that:

               (1) the aggregate principal amount of each borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request;

               (2) the principal amount of each borrowing must be $5,000,000.00 or a larger multiple of $500,000.00;

               (3) acceptance of offers may only be made on the basis of ascending Money Market Margins or Money Market Absolute Rates, as the case may be; and

               (4) the Borrower may not accept any offer that is described in subsection (d)(iii) above or that otherwise fails to comply with the requirements of this Agreement.

30

          (g) If offers are made by two or more Lenders with the same Money Market Margins or Money Market Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by the Agent among such Lenders as nearly as possible (in multiples of $500,000.00, as the Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. The Agent shall promptly (and in any event within one (1) Business Day after such offers are accepted) notify the Borrower and each such Lender in writing of any such allocation of Money Market Loans. Determinations by the Agent of the allocation of Money Market Loans shall be conclusive in the absence of manifest error.

          (h) Upon receipt of the Borrower’s Notice of Money Market Borrowing, the Agent shall, on the date such Notice of Money Market Borrowing is received by the Agent, promptly notify each Lender of the principal amount of the Money Market Loans accepted by the Borrower and of such Lender’s share (if any) of such Money Market Loans and such Notice of Money Market Borrowing shall not thereafter be revocable by the Borrower. Any Lender so notified shall fund such Money Market Loans at the times provided in Section 2.1(b). A Lender that is notified that it has been selected to make a Money Market Loan may designate its Designated Lender (if any) to fund such Money Market Loan on its behalf, as described in Section 10.5(f). Any Designated Lender which funds a Money Market Loan shall on and after the time of such funding become the obligee under such Money Market Loan and be entitled to receive payment thereof when due. No Lender shall be relieved of its obligation to fund a Money Market Loan, and no Designated Lender shall assume such obligation, prior to the time the applicable Money Market Loan is funded. Money Market Loans shall be evidenced by a promissory note in the form of Exhibit C-2 attached hereto.

          (i) Notwithstanding anything to the contrary contained herein, each Lender shall be required to fund its Percentage of each Committed Loan in accordance with Section 2.1 despite the fact that any Lender’s Lender Commitment may have been or may be exceeded as a result of such Lender’s making of Money Market Loans.

          (j) Each Money Market LIBOR Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the Eurodollar Interbank Rate for such Interest Period plus (or minus) the Money Market Margin quoted by the Lender making such Loan in accordance with Section 2.8. Each Money Market Absolute Rate Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by the Lender making such Loan in accordance with Section 2.8. Such interest shall be payable on each Interest Payment Date. Each Money Market Loan shall mature at the end of each Interest Period, as specified in the Money Market Quote.

31

     2.9 Reduction of Commitment.

          (a) Unless previously terminated, the Commitment shall terminate on the Maturity Date.

          (b) The Borrower may on three (3) occasions reduce the Commitment; provided that (i) each reduction in the Commitment shall be a minimum of $50,000,000, (ii) the total Commitment may not be reduced to less than $200,000,000, (iii) after any reduction in the Commitment, the Borrower’s option to increase the Commitment provided in Section 2.1(d) shall terminate, and (iv) no reduction in the Commitment will be allowed if a Default is then in existence.

          (c) The Borrower shall notify the Agent of any election to reduce the Commitment under Section 2.9(b) at least three (3) Business Days prior to the effective date of such reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Agent shall advise the Lenders of the contents thereof. Each notice delivered pursuant to this Section shall be irrevocable. Any reduction of the Commitment shall be permanent. Each reduction in the Commitment shall be made ratably among the Lenders in accordance with their respective Lender Commitments.

     2.10 Additional Guarantees. From time to time, certain of the direct or indirect owners of legal interests in the Borrower may request to guarantee collection of the unpaid balance of the Loans remaining after application of other recoveries against the Loans by the Administrative Agent and the Lenders. If the Borrower notifies the Administrative Agent of such a guarantee request and (a) supplies the Administrative Agent with the Organizational Documents of the proposed guarantor and any other information regarding the proposed guarantor as reasonably requested by the Administrative Agent or any of the Lenders, including any information that the Administrative Agent is required to obtain for any guarantor pursuant to applicable Legal Requirements, and (b) so long as the acceptance of the guarantee from the proposed guarantor does not violate any Legal Requirement applicable to the Administrative Agent or any of the Lenders, the Administrative Agent agrees, on behalf of the Lenders, to accept a guarantee from such proposed guarantor in the form attached hereto as Exhibit K.

3. Conditions.

     3.1 All Loans. The obligation of any Lender to make any Loan, or to issue, renew or extend any Letter of Credit, is subject to the accuracy of all representations and warranties of the Borrower on the date of such Loan, or issuance, renewal or extension of such Letter of Credit, to the performance by the Borrower of its obligations under the Credit Documents and to the satisfaction of the following further conditions: (a) the Agent shall have received the following, all of which shall be duly executed and in Proper Form: (1) for Committed Loans, a Request for Loan (i) by 12:00 noon, New York, New York time, one (1) Business Day before the date (which shall also be a Business Day) of the proposed Loan which is to be a Base Rate Borrowing (other than Swing Loans or Base Rate Borrowings to finance the reimbursement of an LC Disbursement as contemplated by Section 2.2(e) hereof), (ii) by 12:00 noon, New York, New York time, on the same

32

Business Day of any proposed Swing Loan or Base Rate Borrowing to finance the reimbursement of an LC Disbursement as contemplated by Section 2.2(e) hereof, provided that by 12:00 noon, New York, New York time on the date of the proposed Loan, Borrower shall also have notified JPMC by telephone of its request for a Loan, or (iii) by the Rate Designation Date of the proposed Loan which is to be a Eurodollar Rate Borrowing; (2) for Money Market Loans the information required by Section 2.8; (3) for Letters of Credit the documents required by Section 2.2 hereof; and (4) such other documents as the Agent may reasonably require to satisfy itself or the request of any Lender; (b) no Default or Event of Default shall have occurred and be continuing; (c) the making of the Loan or issuance, renewal or extension of such Letter of Credit, shall not be prohibited by any Legal Requirement (in which event the applicable portion of the Fee will not be charged to the Borrower); (d) the Borrower shall have paid all legal fees and expenses of the type described in Section 5.10 hereof through the date of such Loan; (e) in the case of a Committed Loan other than a Swing Loan, all Swing Loans then outstanding shall have been paid or shall be paid with the proceeds of such Loan and (f) the Agent shall have received an Officer’s Certificate certifying the information set forth therein as of the end of the immediately preceding fiscal quarter.

     3.2 First Loan. In addition to the matters described in Section 3.1 hereof, the obligation of the Lenders to make the first Loan under this Agreement is subject to the receipt by the Lenders of each of the following, in Proper Form: (a) the Notes, executed by the Borrower; (b) a separate certificate executed by each of the Secretary of the Borrower and the Secretary of the Parent dated as of the date hereof; (c) a separate certificate from the Secretary of State or other appropriate public official of Maryland as to the continued existence and good standing of each of the Parent and the Borrower; (d) a separate certificate from the appropriate public official of Maryland as to the due qualification and good standing of each of the Parent and the Borrower; (e) a legal opinion from independent counsel for the Parent, the Borrower and the Guarantors as to the matters set forth on Exhibit D acceptable to the Lenders; (f) policies of insurance addressed to the Agent reflecting the insurance required by Section 5.7 hereof; (g) an Officer’s Certificate in the form of Exhibit A as of the end of the immediately preceding fiscal quarter; (h) a certificate from Borrower and Parent setting forth the pro forma calculations of Secured Debt to Total Asset Value Ratio, Coverage Ratio, Fixed Charge Coverage Ratio, Tangible Net Worth, Debt to Total Asset Value Ratio, and the Pool pursuant to Section 5.15 (which include actual figures as of September 30, 2004; and (i) any Guaranty required by Section 5.15 together with such Guarantors’ organizational documents and certificates of existence and good standing from the state of its organization; and to the further condition that, at the time of the initial Loan, all legal matters incident to the transactions herein contemplated shall be satisfactory to Locke Liddell & Sapp LLP, counsel for the Agent.

     3.3 Options Available. The outstanding principal balance of the Notes shall bear interest at the Base Rate; provided, that (1) all past due amounts, both principal and accrued interest, shall bear interest at the Past Due Rate, and (2) subject to the provisions hereof, Borrower shall have the option of having all or any portion of the principal balance of the Notes, other than the Swing Loan Note, from time to time outstanding bear interest at a Eurodollar Rate. The records of the Lenders with respect to Interest Options, Interest Periods and the amounts of Loans to which they are applicable shall be prima facie

33

evidence thereof. Interest on the Loans shall be calculated at the Base Rate except where it is expressly provided pursuant to this Agreement that a Eurodollar Rate is to apply.

     3.4 Designation and Conversion. Borrower shall have the right to designate or convert its Interest Options in accordance with the provisions hereof. Provided no Event of Default has occurred and is continuing and subject to the provisions of Section 3.5, Borrower may elect to have a Eurodollar Rate apply or continue to apply to all or any portion of the principal balance of the Notes, other than the Swing Loan Note. Each change in Interest Options shall be a conversion of the rate of interest applicable to the specified portion of the Loans, but such conversion shall not change the respective outstanding principal balance of the Notes. The Interest Options shall be designated or converted in the manner provided below:

          (a) Borrower shall give Agent a Request for Loan. Each such written notice shall specify the amount of Loan which is the subject of the designation, if any; the amount of borrowings into which such borrowings are to be converted or for which an Interest Option is designated; the proposed date for the designation or conversion and the Interest Period, if any, selected by Borrower. The Request for Loan shall be irrevocable and shall be given to Agent no later than the applicable Rate Designation Date. The Agent shall promptly deliver the Request for Loan to the Lenders.

          (b) No more than twelve (12) Eurodollar Rate Borrowings with twelve (12) Interest Periods shall be in effect at any time.

          (c) Each designation or conversion of a Eurodollar Rate Borrowing shall occur on a Eurodollar Business Day.

          (d) Except as provided in Section 3.5 hereof, no Eurodollar Rate Borrowing shall be converted on any day other than the last day of the applicable Interest Period.

          (e) Unless a Request for Loan to the contrary is received as provided in this Agreement, each Eurodollar Rate Borrowing will convert to a Base Rate Borrowing after the expiration of the Interest Period.

     3.5 Special Provisions Applicable to Eurodollar Rate Borrowings and Money Market Loans.

          (a) If the adoption of any applicable Legal Requirement or any change in any applicable Legal Requirement or in the interpretation or administration thereof by any Governmental Authority or compliance by the Lenders with any request or directive (whether or not having the force of law) of any central bank or other Governmental Authority shall at any time make it unlawful or impossible for any Lender to permit the establishment of or to maintain any Eurodollar Rate Borrowing or a Money Market Loan, or to increase the cost to such Lender of participating in or maintaining any Letter of Credit, the commitment of the Lenders to establish or maintain such Eurodollar Rate Borrowing or a Money Market Loan, or to issue or participate in Letters of Credit shall forthwith be suspended until such condition shall cease to exist and Borrower shall forthwith, upon

34

demand by Agent to Borrower, (1) convert the Eurodollar Rate Borrowing with respect to which such demand was made to a Base Rate Borrowing; (2) convert the Money Market LIBOR Loan with respect to which such demand was made to a Loan bearing interest at the Base Rate; (3) pay all accrued and unpaid interest to date on the amount so converted; and (4) pay any amounts required to compensate the Lenders for any additional cost or expense which the Lenders may incur as a result of such adoption of or change in such Legal Requirement or in the interpretation or administration thereof and any Funding Loss which the Lenders may incur as a result of such conversion. If, when Agent so notifies Borrower, Borrower has given a Request for Loan specifying a Eurodollar Rate Borrowing or a Notice of Money Market Borrowing but the selected Interest Period has not yet begun, such Request for Loan or a Notice of Money Market Borrowing shall be deemed to be of no force and effect, as if never made, and the balance of the Loans specified in such Request for Loan shall bear interest at the Base Rate until a different available Interest Option shall be designated in accordance herewith.

          (b) If the adoption of any applicable Legal Requirement or any change in any applicable Legal Requirement or in the interpretation or administration thereof by any Governmental Authority or compliance by any Lender with any request or directive of general applicability (whether or not having the force of law) of any central bank or Governmental Authority shall at any time as a result of any portion of the principal balance of the Notes being maintained on the basis of a Eurodollar Rate or as a Money Market Loan, or as a result of any Lender issuing or participating in Letters of Credit:

(1)	subject any Lender (or make it apparent that any Lender is subject) to any Taxes, or any deduction or withholding for any Taxes, on or from any payment due under any Eurodollar Rate Borrowing, Money Market Loan or other amount due hereunder, other than income and franchise taxes of the United States and its political subdivisions; or
(2)	change the basis of taxation of payments due from Borrower to any Lender under any Eurodollar Rate Borrowing or Money Market Loan (otherwise than by a change in the rate of taxation of the overall net income of a Lender); or
(3)	impose, modify, increase or deem applicable any reserve requirement (excluding that portion of any reserve requirement included in the calculation of the applicable interest rate), special deposit requirement or similar requirement (including, but not limited to, state law requirements and Regulation D) imposed, modified, increased or deemed applicable by any Governmental Authority against assets held by any Lender, or against deposits or accounts in or for the account of any Lender, or against loans made by any Lender, or against any other funds, obligations or other property owned or held by any Lender; or

35

(4)   impose on any Lender any other condition regarding any Eurodollar Rate Borrowing, Money Market Loan or Letter of Credit;

and the result of any of the foregoing is to increase the cost to any Lender of agreeing to make or of making, renewing or maintaining such Eurodollar Rate Borrowing or Money Market Loan, or issuing or participating in Letters of Credit, or reduce the amount of principal or interest received by any Lender, then, upon demand by Agent, Borrower shall pay to such Lender, from time to time as specified by such Lender, additional amounts which shall compensate such Lender for such increased cost or reduced amount. Agent will promptly notify Borrower in writing of any event which will entitle any Lender to additional amounts pursuant to this paragraph. A Lender’s determination of the amount of any such increased cost, increased reserve requirement or reduced amount shall be prima facie evidence thereof. Borrower shall have the right, if it receives from Agent any notice referred to in this paragraph, upon three Business Days’ notice to Agent, either (i) to repay in full (but not in part) any borrowing with respect to which such notice was given, together with any accrued interest thereon, or (ii) to convert the Eurodollar Rate Borrowing which is the subject of the notice to a Base Rate Borrowing or to convert the Money Market LIBOR Loan which is the subject of the notice to a Loan bearing interest at the Base Rate; provided, that any such repayment or conversion shall be accompanied by payment of (x) the amount required to compensate a Lender for the increased cost or reduced amount referred to in the preceding paragraph; (y) all accrued and unpaid interest to date on the amount so repaid or converted, and (z) any Funding Loss which any Lender may incur as a result of such repayment or conversion.

          (c) If for any reason with respect to any Interest Period Agent shall have determined (which determination shall be prima facie evidence thereof) that:

(1) Agent is unable through its customary general practices to determine any applicable Eurodollar Rate, or

(2) by reason of circumstances affecting the applicable market generally, Agent is not being offered deposits in United States dollars in such market, for the applicable Interest Period and in an amount equal to the amount of any applicable Eurodollar Rate Borrowing requested by Borrower, or

(3) any applicable Eurodollar Rate will not adequately and fairly reflect the cost to the Lenders of making and maintaining such Eurodollar Rate Borrowing hereunder for any proposed Interest Period,

then Agent shall give Borrower notice thereof and thereupon, (A) any Request for Loan previously given by Borrower designating the applicable Eurodollar Rate Borrowing which has not commenced as of the date of such notice from Agent shall be deemed for all purposes hereof to be of no force and effect, as if never given, and (B) until Agent shall notify Borrower that the circumstances giving rise to such notice from Agent no longer exist, each Request for Loan requesting the applicable Eurodollar Rate shall be

36

deemed a request for a Base Rate Borrowing, and any applicable Eurodollar Rate Borrowing then outstanding shall be converted, without any notice to or from Borrower, upon the termination of the Interest Period then in effect with respect to it, to a Base Rate Borrowing.

          (d) Borrower shall indemnify the Agent and each Lender against and hold the Agent and each Lender harmless from any Funding Loss. This agreement shall survive the payment of the Notes. A certificate as to any additional amounts payable pursuant to this subsection and setting forth the reasons for the Funding Loss submitted by Agent to Borrower shall be prima facie evidence thereof.

          (e) The Borrower shall pay to the Agent or a Lender the Eurodollar Reserve Requirement incurred by that Lender within thirty (30) days after written demand by Agent to the Borrower. The demand setting forth the Eurodollar Reserve Requirement shall be prima facie evidence thereof.

     3.6 Funding Offices; Adjustments Automatic. Any Lender may, if it so elects, fulfill its obligation as to any Eurodollar Rate Borrowing or Money Market Loan by causing a branch or affiliate of such Lender to make such Loan and may transfer and carry such Loan at, to, or for the account of, any branch office or affiliate of such Lender; provided, that in such event for the purposes of this Agreement such Loan shall be deemed to have been made by such Lender and the obligation of Borrower to repay such Loan shall nevertheless be to such Lender and shall be deemed held by it for the account of such branch or affiliate. Without notice to Borrower or any other person or entity, each rate required to be calculated or determined under this Agreement shall automatically fluctuate upward and downward in accordance with the provisions of this Agreement.

     3.7 Funding Sources, Payment Obligations. Notwithstanding any provision of this Agreement to the contrary, each Lender shall be entitled to fund and maintain its funding of all or any part of the Loans in any manner it sees fit, it being understood, however, that for the purposes of this Agreement all determinations hereunder shall be made as if each Lender had actually funded and maintained each Eurodollar Rate Borrowing and Money Market LIBOR Loan during each Interest Period through the purchase of deposits having a maturity corresponding to such Interest Period and bearing an interest rate equal to the interest rate for such Interest Period. Notwithstanding the foregoing, Funding Losses, increased costs and other obligations relating to Eurodollar Rate Borrowings and Money Market Loans described in Section 3.5 of this Agreement will only be paid by the Borrower as and when actually incurred by the Lenders.

     3.8 Mitigation, Non-Discrimination.

          (a) Each Lender will notify the Borrower through the Agent of any event occurring after the date of this Agreement which will require or enable such Lender to take the actions described in Sections 3.5(a) or (b) of this Agreement as promptly as practicable after it obtains knowledge thereof and determines to request such action, and (if so requested by the Borrower through the Agent) will designate a different lending office of such Lender for the applicable Eurodollar Rate Borrowing or Money Market Loan or will

37

take such other action as the Borrower reasonably requests if such designation or action is consistent with the internal policy of such Lender and legal and regulatory restrictions, can be undertaken at no additional cost, will avoid the need for, or reduce the amount of, such action and will not, in the sole opinion of such Lender, be disadvantageous to such Lender (provided that such Lender will have no obligation to designate a different lending office which is located in the United States of America).

          (b) None of the Lenders shall be able to pass through to the Borrower changes and costs under Section 3.5 of this Agreement on a discriminating basis, such that such changes and costs are not also passed through by each Lender to other customers of such Lender similarly situated where such customer is subject to documents providing for such pass through.

          (c) If any Lender elects under Section 3.5 of this Agreement to suspend or terminate the availability of Eurodollar Rate Borrowings for any material period of time, and the event giving rise to such election is not generally applicable to all of the Lenders, the Borrower may within sixty (60) days after notification of such Lender’s election, and so long as no Event of Default is then in existence, either (i) demand that such Lender, and upon such demand, such Lender shall promptly, assign its Lender Commitment to another financial institution subject to and in accordance with the provisions of Section 10.5 of this Agreement for a purchase price equal to the unpaid balance of principal, accrued interest, the unpaid balance of the Fee and expenses owing to such Lender pursuant to this Agreement, or (ii) pay such Lender the unpaid balance of principal, accrued interest, the unpaid balance of the Fee and expenses owing to such Lender pursuant to this Agreement, whereupon, such Lender shall no longer be a party to this Agreement or have any rights or obligations hereunder or under any other Credit Documents, and the Commitment shall immediately and permanently be reduced by an amount equal to the Lender Commitment of such Lender.

4. Representations and Warranties.

     To induce the Lenders to enter into this Agreement and to make the Loans, the Borrower represents and warrants to the Agent and the Lenders as follows:

     4.1 Organization. The Borrower is duly organized, validly existing and in good standing as a real estate investment trust under the laws of the state of Maryland; has all power and authority to conduct its business as presently conducted; and is duly qualified to do business and in good standing in every state where the location of its Property requires it to be qualified to do business, unless the failure to be so qualified would not reasonably be expected to have a Material Adverse Effect.

     4.2 Financial Statements. The financial statements delivered to the Agent fairly present, in accordance with Generally Accepted Accounting Principles (provided, however, that the Quarterly Unaudited Financial Statements are subject to normal year-end adjustments and may contain condensed footnotes as permitted by regulations of the United States Securities and Exchange Commission), the financial condition and the results of operations of the Borrower as at the dates and for the periods indicated. No

38

Material Adverse Change has occurred since the dates of such financial statements. The Borrower is not subject to any instrument or agreement which would materially prevent it from conducting its business as it is now conducted or as it is contemplated to be conducted.

     4.3 Enforceable Obligations; Authorization. The Credit Documents are legal, valid and binding obligations of the Parties, enforceable in accordance with their respective terms, except as may be limited by bankruptcy, insolvency and other laws affecting creditors’ rights generally and by general equitable principles. The execution, delivery and performance of the Credit Documents have all been duly authorized by all necessary action; are within the power and authority of the Parties; do not and will not contravene or violate any Legal Requirement or the Organizational Documents of the Parties; do not and will not result in the breach of, or constitute a default under, any agreement or instrument by which the Parties or any of their respective Property may be bound or affected, except where such breach or default could not reasonably be expected to have a Material Adverse Effect; and do not and will not result in the creation of any Lien upon any Property of any of the Parties except as expressly contemplated therein. All necessary permits, registrations and consents for such making and performance have been obtained except where the lack thereof would not reasonably be expected to have a Material Adverse Effect.

     4.4 Other Debt. The Borrower is not in default in the payment of any other Indebtedness or under any agreement, mortgage, deed of trust, security agreement or lease to which it is a party which default would reasonably be expected to have a Material Adverse Effect.

     4.5 Litigation. There is no litigation or administrative proceeding pending or, to the knowledge of the Borrower, threatened against, or any outstanding judgment, order or decree affecting, the Borrower before or by any Governmental Authority which is not adequately covered by insurance or which, if determined adversely to the Borrower could reasonably be expected to have a Material Adverse Effect. The Borrower is not in default with respect to any judgment, order or decree of any Governmental Authority which default could reasonably be expected to have a Material Adverse Effect.

     4.6 Taxes. The Borrower has filed all tax returns required to have been filed and paid all taxes shown thereon to be due, except those for which extensions have been obtained, those which are being contested in good faith and those for which the Borrower’s failure to file a return or pay could not reasonably be expected to have a Material Adverse Effect.

     4.7 Regulation U. None of the proceeds of any Loan or Letter of Credit will be used for the purpose of purchasing or carrying directly or indirectly any margin stock or for any other purpose that would constitute this transaction a “purpose credit” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System.

     4.8 Securities Act of 1933. Other than the Agent’s efforts in syndicating the Loans (for which the Agent is responsible) neither the Borrower nor any agent acting for it

39

has offered the Notes or any similar obligation of the Borrower for sale to or solicited any offers to buy the Notes or any similar obligation of the Borrower from any Person other than the Agent or any Lender, and neither the Borrower nor any agent acting for it will take any action which would subject the sale of the Note to the provisions of Section 5 of the Securities Act of 1933, as amended.

     4.9 No Contractual or Corporate Restrictions. The Borrower is not a party to, or bound by, any contract, agreement or charter or other corporate restriction materially and adversely affecting its business, Property, assets, operations or condition, financial or otherwise.

     4.10 Investment Company Act Not Applicable. The Borrower is not an “investment company”, or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended.

     4.11 Public Utility Holding Company Act Not Applicable. The Borrower is not a “holding company”, or a “subsidiary company” of a “holding company”, or an “affiliate” of a “holding company”, or an affiliate of a “subsidiary company” of a “holding company”, as such terms are defined in the Public Utility Holding Company Act of 1935, as amended.

     4.12 ERISA Not Applicable. The Borrower is not subject to any requirements of the Employee Retirement Income Security Act of 1974 as amended from time to time, or any rules, regulations, rulings or interpretations adopted by the Internal Revenue Service or the Department of Labor thereunder.

5. Affirmative Covenants.

     The Borrower covenants and agrees with the Agent and the Lenders that prior to the termination of this Agreement it will do, and if necessary cause to be done, each and all of the following:

     5.1 Taxes, Insurance, Existence, Regulations, Property, etc. At all times (a) pay when due all taxes and governmental charges of every kind upon it or against its income, profits or Property, unless and only to the extent that the same shall be contested in good faith and reserves which are adequate under Generally Accepted Accounting Principles have been established therefor, or unless such failure to pay could not reasonably be expected to have a Material Adverse Effect; (b) do all things necessary to preserve its existence, qualifications, rights and franchises in all States where such qualification is necessary or desirable, except where failure to obtain the same could not reasonably be expected to have a Material Adverse Effect; (c) comply with all applicable Legal Requirements in respect of the conduct of its business and the ownership of its Property except where failure to so comply could not reasonably be expected to have a Material Adverse Effect; and (d) cause its Property to be protected, maintained and kept in good repair (reasonable wear and tear excepted) and make all replacements and additions to its Property as may be reasonably necessary to conduct its business.

     5.2 Financial Statements and Information. Furnish or caused to be furnished (which may be by electronic access) to the Agent each of the following: (a) as soon as

40

available and in any event within 90 days after the end of each fiscal year of the Parent, Annual Audited Financial Statements of the Borrower and the Parent; (b) as soon as available and in any event within 50 days after the end of each quarter (except the last quarter) of each fiscal year of the Parent, Quarterly Unaudited Financial Statements of the Borrower and the Parent; (c) concurrently with the financial statements provided for in Sections 5.2(a) and (b) hereof, an Officer’s Certificate, together with such schedules, computations and other information (including, without limitation, if provided to Borrower information as to Unconsolidated Affiliates of the Borrower), in reasonable detail, as may be required by the Agent to demonstrate compliance with the covenants set forth herein or reflecting any non-compliance therewith as of the applicable date, all certified as true, correct and complete by a managing director, vice president, senior vice president, controller, a co-controller of Borrower and of the Parent; (d) promptly after the filing thereof, all reports to or filings made by the Parent or the Borrower or any of its Subsidiaries with the Securities and Exchange Commission, including, without limitation, registration statements and reports on Forms 10-K, 10-Q and 8-K (or their equivalents); (e) within two (2) Business Days after the receipt thereof, a copy of the notification to the Borrower or to the Parent of the respective Credit Rating of each, or change therein, and (f) such other information relating to the financial condition and affairs of the Borrower and the Parent as from time to time may be reasonably requested by any Lender. The Agent will send to each Lender the information received by the Agent pursuant to this Section 5.2 promptly after the receipt thereof by Agent. The financial calculations for Sections 5.3, 5.15 and 6.4 shall be made (1) on the date of each Loan or issuance, renewal or extension of a Letter of Credit using the best information available to the Borrower, and (2) on the last day of each of the Parent’s fiscal quarters.

     5.3 Financial Tests. Have and maintain on a consolidated basis in accordance with Generally Accepted Accounting Principles:

          (a) a Secured Debt to Total Asset Value Ratio no greater than forty percent (40%);

          (b) a Coverage Ratio of not less than 2.0:1.0;

          (c) a Fixed Charge Coverage Ratio of not less than 1.75:1.00;

          (d) a Tangible Net Worth of at least Three Billion Five Hundred Million Dollars ($3,500,000,000.00); and

          (e) a Debt to Total Asset Value Ratio no greater than sixty percent (60%), provided, however, that same may increase from time to time up to sixty-five percent (65%) for no more than two (2) consecutive calendar quarters.

     5.4 Inspection. In order to permit the Agent to ascertain compliance with the Credit Documents, during normal business hours permit the Agent to inspect its Property, to examine its files, books and records and make and take away copies thereof, and to discuss its affairs with its officers and accountants, all at such times and intervals and to such extent as a Lender may reasonably desire.

41

     5.5 Further Assurances. Promptly execute and deliver any and all other and further instruments which may be requested by the Agent to cure any defect in the execution and delivery of any Credit Document or more fully to describe particular aspects of the Borrower’s agreements set forth in the Credit Documents or so intended to be.

     5.6 Books and Records. Maintain books of record and account in accordance with Generally Accepted Accounting Principles.

     5.7 Insurance. Maintain insurance with such insurers, on such of its properties, in such amounts and against such risks as is consistent with insurance maintained by businesses of comparable type and size in the industry, and furnish the Agent satisfactory evidence thereof promptly upon request.

     5.8 Notice of Certain Matters. Notify the Agent promptly upon acquiring knowledge of the occurrence of any of the following: the institution or threatened institution of any lawsuit or administrative proceeding affecting the Borrower in which the claim exceeds $25,000,000.00 and if determined adversely could have a Material Adverse Effect; when the Borrower believes that there has been a Material Adverse Change; or the occurrence of any Event of Default or any Default. The Borrower will notify the Agent in writing at least thirty (30) Business Days prior to the date that the Borrower changes its name or the location of its chief executive office or principal place of business or the place where it keeps its books and records.

     5.9 Use of Proceeds. The proceeds of the Loans will be used for general business purposes, including (without limitation) for acquisition of multifamily real estate properties, for the development and enhancement of multifamily real estate properties, for the costs of construction of multifamily real estate projects owned or to be acquired by the Borrower, for repurchase of the Borrower’s stock, or for other investments permitted by this Agreement. Notwithstanding the foregoing, none of the proceeds of the Loans will be used to finance, fund or complete any hostile acquisition of any Person.

     5.10 Expenses of and Claims Against the Agent and the Lenders. To the extent not prohibited by applicable law, the Borrower will pay all reasonable costs and expenses incurred to third parties and reimburse the Agent and each Lender, as the case may be, for any and all reasonable expenditures of every character incurred or expended from time to time, in connection with (a) regardless of whether a Default or Event of Default shall have occurred, the Agent’s preparation, negotiation and completion of the Credit Documents, and (b) during the continuance of an Event of Default, all costs and expenses relating to the Agent’s and such Lender’s exercising any of its rights and remedies under this or any other Credit Document, including, without limitation, attorneys’ fees, legal expenses, and court costs; provided, that no rights or option granted by the Borrower to the Agent or any Lender or otherwise arising pursuant to any provision of this or any other instrument shall be deemed to impose or admit a duty on the Agent or any Lender to supervise, monitor or control any aspect of the character or condition of any property or any operations conducted in connection with it for the benefit of the Borrower or any other person or entity other than the Agent or such Lender. Notwithstanding the foregoing, the Borrower shall not be charged with any cost or expense incurred by the Agent or any Lender relating

42

to disputes or claims among or between the Agent, the Lenders, or any of them unless during the continuance of an Event of Default and related to details of enforcement of the Lenders’ rights under the Credit Documents.

     5.11 Legal Compliance; Indemnification.

          (a) The Borrower shall operate its Property and businesses in full compliance with all Legal Requirements. It shall not constitute an Event of Default if there is a failure to comply with any Legal Requirement which failure could not reasonably be expected to have a Material Adverse Effect. The Borrower shall indemnify the Agent and each Lender, their directors, officers, employees and shareholders (the “Indemnified Parties”) for and defend and hold the Indemnified Parties harmless against any and all claims, demands, liabilities, causes of action, penalties, obligations, damages, judgments, deficiencies, losses, costs or expenses (including, without limitation, interest, penalties, attorneys’ fees, and amounts paid in settlement) threatened or incurred by reason of, arising out of or in any way related to (i) any failure of the Borrower to so comply with the provisions of any Legal Requirement, this Agreement or the other Credit Documents, or (ii) the Agent or any Lender’s making of the Loans, issuing or participating in any Letters of Credit, or any other acts or omissions taken or made in connection with the Loans or Letters of Credit (including any refusal by the Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of the Letter of Credit), and any and all matters arising out of any act, omission, event or circumstance, regardless of whether the act, omission, event or circumstance constituted a violation of any such Legal Requirement, this Agreement or the other Credit Documents at the time of its existence or occurrence. THE BORROWER SHALL INDEMNIFY THE AGENT AND EACH LENDER PURSUANT TO THIS SECTION REGARDLESS OF WHETHER THE ACT, OMISSION, FACTS, CIRCUMSTANCES OR CONDITIONS GIVING RISE TO SUCH INDEMNIFICATION WERE CAUSED IN WHOLE OR IN PART BY THE AGENT’S OR SUCH LENDER’S NEGLIGENCE (SIMPLE, BUT NOT GROSS NEGLIGENCE).

          (b) The Parent will comply with all Legal Requirements to maintain, and will at all times elect, qualify as and maintain, its status as a real estate investment trust under Section 856(c)(1) of the Code.

          (c) The Parent will (i) maintain at least one class of common shares of the Parent having trading privileges on the New York Stock Exchange or the American Stock Exchange, or which is listed on The NASDAQ Stock Market’s National Market; (ii) own, directly or indirectly, at least fifty-one percent (51%) of (1) the shares of beneficial interest of the Borrower, and (2) the Class A-2 Common Units of the Borrower and any other class of security issued by the Borrower with the power to elect the Trustees of the Borrower; (iii) maintain management and control of the Borrower; (iv) not sell, transfer or convey any of the shares of beneficial interest of the Borrower owned by the Parent, except (A) in payment of the purchase price of Property (including mergers with and acquisitions of Persons) acquired by the Borrower, (B) upon conversion or redemption of securities of the Borrower in accordance with their terms or (C) upon any repurchase by the Borrower of the Borrower’s securities from the Parent in connection with a repurchase by the Parent of

43

the Parent’s securities; and (v) hold all of its assets and conduct all of its operations through the Borrower, the QRS Entities in existence on October 31, 2001 and one or more of the Borrower’s Subsidiaries.

     5.12 Borrower’s Performance. If the Borrower should fail to comply with any of the agreements, covenants or obligations of the Borrower under this Agreement or any other Credit Document which requires the payment of money, then the Agent (in the Borrower’s name or in Agent’s name) may, if such payment has not been made within ten (10) days after written request from Agent, perform or cause to be performed such agreement, covenant or obligation, for the account of the Borrower and at the Borrower’s sole expense, but shall not be obligated to do so. Any and all reasonable expenses thus incurred or paid by the Agent and by any Lender shall be the Borrower’s demand obligations to the Agent or such Lender and shall bear interest from the date of demand therefor until the date that the Borrower repays it to the Agent or the applicable Lender at the Past Due Rate. Upon making any such payment or incurring any such expense, the Agent or the applicable Lender shall be fully subrogated to all of the rights of the Person receiving such payment. Any amounts owing by the Borrower to the Agent or any Lender pursuant to this provision or any other provision of this Agreement shall automatically and without notice be secured by any collateral provided by the Credit Documents. The amount and nature of any such expense and the time when paid shall, absent manifest error, be fully established by the affidavit of the Agent or the applicable Lender or any of the Agent’s or the applicable Lender’s officers or agents.

     5.13 Professional Services. Promptly upon the Agent’s request to satisfy itself or the request of any Lender, the Borrower shall: (a) allow an inspection and/or appraisal of the Borrower’s Property to be made by a Person approved by the Agent in its sole discretion; and (b) if the Agent believes that an Event of Default has occurred or is about to occur, cause to be conducted or prepared any other written report, summary, opinion, inspection, review, survey, audit or other professional service relating to the Borrower’s Property or any operations in connection with it (all as designated in the Agent’s request), including, without limitation, any accounting, auctioneering, architectural, consulting, engineering, design, legal, management, pest control, surveying, title abstracting or other technical, managerial or professional service relating to such property or its operations. So long as no Event of Default has occurred and is continuing, the foregoing shall not be at the Borrower’s expense.

     5.14 Capital Adequacy.

          (a) If after the date of this Agreement, the Agent or any Lender shall have determined that the adoption or effectiveness of any applicable law, rule or regulation regarding capital adequacy of general applicability, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Agent or any Lender with any request or directive regarding capital adequacy of general applicability (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Agent’s or any Lender’s capital as a consequence of its obligations

44

hereunder to a level below that which the Agent or such Lender could have achieved but for such adoption, change or compliance (taking into consideration the Agent’s or such Lender’s policies with respect to capital adequacy) by an amount deemed by the Agent or such Lender to be material, then from time to time, the Borrower shall pay to the Agent or such Lender such additional amount or amounts as will compensate the Agent or such Lender for such reduction.

          (b) A certificate of the Agent or such Lender setting forth such amount or amounts as shall be necessary to compensate the Agent or such Lender as specified in Section 5.14(a) hereof and making reference to the applicable law, rule or regulation shall be delivered as soon as practicable to the Borrower and shall be prima facie evidence thereof. The Borrower shall pay the Agent or such Lender the amount shown as due on any such certificate within fourteen (14) Business Days after the Agent or such Lender delivers such certificate. In preparing such certificate, the Agent or such Lender may employ such assumptions and allocations of costs and expenses as it shall in good faith deem reasonable and may use any reasonable averaging and attribution method.

     5.15 Property Pool.

          (a) The Borrower (or a Subsidiary of the Borrower if the conditions in clause (c) below are satisfied) will at all times own fee simple title to a pool (the “Pool”) of Real Property that is not subject to any Lien other than Permitted Encumbrances (the “Pool Real Estate”) and except as permitted by Section 6.5 with an aggregate Pool Value of at least one hundred sixty-seven percent (167%) of the Borrower’s Indebtedness other than Secured Debt outstanding from time to time, with the following characteristics:

     (i) the Borrower must provide the Agent with written confirmation that it has received from third party independent environmental consultants, written assessments for each Pool Real Estate in, or to be added to, the Pool that do not disclose any material environmental conditions or risks related to such properties, and

     (ii) the Property is not subject to or affected by any Limiting Agreement except as permitted by Section 6.5.

If requested by the Agent, the Borrower will provide to the Agent written assessments from third party independent environmental consultants for all Pool Real Estate acquired after the date of this Agreement. If Super-Majority Lenders determine that there are material environmental conditions existing on or risks to such properties, the properties will be excluded from the Pool.

          (b) Notwithstanding the foregoing, (i) the maximum Pool Value that can be attributable to the Value of land not improved for multifamily use (not including land that is either under development for multifamily use or planned for commencement of development for multifamily use within three (3) years after the date of acquisition) is five percent (5%) of the Pool Value after adding the effect of said land, (ii) the maximum Pool Value that can be attributable to the Value (in the aggregate) of Real Property that is under

45

construction or development, that has not reached the Calculation Date, that has reached the Calculation Date but the Occupancy Level is less than eighty percent (80%), unimproved land that is planned for commencement of development within three (3) years after the date of acquisition, and land not improved for multifamily use, is twenty-five percent (25%) of the Pool Value after adding the effect of said Real Property and land; and (iii) the maximum Pool Value that can be attributable to the Value of improved property not used for multifamily residential use (property will be considered as multifamily residential use even if it includes other non-primary uses which are incidental to the residential use, such as retail or office) is ten percent (10%) of the Pool Value after adding the effect of said property.

            (c) If any Pool Real Estate is owned by a Subsidiary, then it may be included in the Pool only if:

     (i) the owner of the Pool Real Estate is either (1) a wholly owned Subsidiary of the Borrower or (2) if not a wholly owned Subsidiary, then (x) the value of the Pool Real Estate owned by such Subsidiary (“Partial Subsidiary Real Estate”) to be used in the calculation in clauses (a) and (b) above shall be as provided in clauses (a) and (b) multiplied by the cumulative percentage interest of the Subsidiary legally owned by the Borrower, (y) the maximum Pool Value that can be attributable to Partial Subsidiary Real Estate is seventeen and one-half percent (17-1/2%) of the Pool Value after adding the effect of the Partial Subsidiary Real Estate, and (z) the Borrower controls the right to sell, encumber or refinance the Partial Subsidiary Real Estate;

     (ii) the owner of the Pool Real Estate (1) either (x) executes a Guaranty and delivers it to the Agent, together with such Subsidiary’s Organizational Documents and current certificates of existence and good standing for the state in which it is organized and such Guaranty must remain in full force and effect, or (y) if such Subsidiary is not wholly owned by the Borrower, has no Indebtedness other than Non-recourse Debt, and other than Indebtedness to the Borrower subordinated to the Indebtedness incurred under this Agreement on terms satisfactory to the Agent; and (2) would not at any time be in default of Sections 7.1(g), (h), (i), (j), or (k), if said subsections were applicable to said owner; and

     (iii) the indicia of ownership of the Subsidiary is not subject to a Lien (other than Permitted Encumbrances).

     5.16 DC Holdings. The Borrower shall maintain at least 99.5% aggregate ownership of the indicia of ownership of each DC Holdings Entity, and shall maintain management and control of each DC Holdings Entity.

6. Negative Covenants.

     The Borrower covenants and agrees with the Agent and the Lenders that prior to the termination of this Agreement it will not do any of the following:

46

     6.1 Mergers, Consolidations and Acquisitions of Assets. In any single transaction or series of related transactions, directly or indirectly: (a) liquidate or dissolve; (b) be a party to any merger or consolidation other than a merger or consolidation in which (i) the Borrower is the surviving entity after such merger or consolidation, or (ii) the individuals constituting the Borrower’s Board of Trustees immediately prior to such merger or consolidation represent a majority of the surviving entity’s Board of Directors or Board of Trustees after such merger or consolidation; or (c) sell, convey or lease all or substantially all of its assets.

     6.2 Redemption. At any time redeem, retire or otherwise acquire, directly or indirectly, any shares of its capital stock if such action would cause the Borrower to not be in compliance with this Agreement.

     6.3 Nature of Business. Change the nature of its business or enter into any business which is substantially different from the business in which it is presently engaged. Borrower’s primary business will be the ownership, operation and development of multi-family residential properties, and may include other business initiatives, investments and activities which are related, but incidental, to Borrower’s primary business, subject only to the limitations on specific loans and investments described below (“Specified Permitted Holdings”); provided, however, that the aggregate value of the Specified Permitted Holdings shall not at any time exceed thirty percent (30%) of the Total Asset Value after giving effect to the Specified Permitted Holdings.

     “Specified Permitted Holdings” means the following:

          (a) securities received in settlement of liabilities created in the ordinary course of business, so long as the market value of such securities does not exceed five percent (5%) of the Total Asset Value after giving effect to such investment;

          (b) investments in Unconsolidated Affiliates that are engaged primarily in Borrower’s primary business as described in this section, so long as the aggregate amount of such investments does not exceed twenty percent (20%) of the Total Asset Value after giving effect to such investments;

          (c) loans, advances, and extensions of credit to Persons (who are not Affiliates of the Borrower), so long as the aggregate unpaid amount of such loans does not exceed ten percent (10%) of the Total Asset Value after giving effect to such loans;

          (d) investments in Persons not included in any other Specified Permitted Holdings so long as the aggregate value of all such investments (valued at the lower of cost or then market value) does not exceed ten percent (10%) of the Total Asset Value after giving effect to such investments;

          (e) investments in income producing Real Property that is not primarily multifamily residential property (property will be considered as primarily multifamily residential property even if it includes other non-primary uses which are incidental to the residential use, such as retail or office), so long as the aggregate Historical Value of such

47

investments does not exceed ten percent (10%) of the Total Asset Value after giving effect to such investments;

          (f) investments in land not improved for multifamily use (not including land that is either under development or planned for commencement of development within three (3) years after the date of acquisition), so long as the aggregate Historical Value of such investments does not exceed seven and one-half percent (7-1/2%) of the Total Asset Value after giving effect to such investments; and

          (g) investments of any kind not included in any other Specified Permitted Holdings and which are not incidental to Borrower’s primary business as described in this Section, so long as the aggregate value of such investments (valued at the lower of cost or then market value) does not exceed five percent (5%) of the Total Asset Value after giving effect to such investments.

     6.4 Transactions with Related Parties. Enter into any transaction or agreement with any officer, director, or holder of more than five percent (5%) (based on voting rights) of the issued and outstanding capital stock of the Borrower (or any Affiliate of the Borrower), unless the same is upon terms substantially similar to those obtainable from qualified wholly unrelated sources, and is approved by the majority of the Borrower’s non-interested directors.

     6.5 Limiting Agreements. Neither Borrower nor any of its Subsidiaries has entered into, and after the date hereof, neither Borrower nor any of its Subsidiaries shall enter into, any Limiting Agreements; provided that so long as the Borrower has received an S&P Rating and a Moody’s Rating that are BBB/Baa2 or better (respectively), up to five percent (5%) of the Pool Value (after adding the effect of said property) may be subject to debt-related agreements (but not the related mortgages or pledges) that require the owner of the project to mortgage and pledge the project to secure the debt if the Borrower’s S&P Rating and Moody’s Rating are below BBB-/Baa3 (respectively).

     6.6 Parent Negative Covenants. The Parent will not (a) have any Subsidiary that is a “qualified REIT subsidiary” under Section 856 of the Code other than the QRS Entities; (b) own any Property other than the ownership interests of the Borrower, and the Parent’s ownership interests as of October 31, 2001 in the QRS Entities; (c) give or allow any Lien on any of its Property including the ownership interests of the Borrower; and (d) create, incur, suffer or permit to exist, or assume or guarantee, directly or indirectly, contingently or otherwise, or become or remain liable with respect to (i) any Indebtedness if the aggregate of such Indebtedness and the Indebtedness of the Borrower would violate Sections 5.3(a), (b), (c) or (e) if such aggregate Indebtedness is treated as the Borrower’s Indebtedness, and (ii) any Indebtedness of a Person other than the Parent.

7. Events of Default and Remedies.

     7.1 Events of Default. If any of the following events shall occur, then, as to the events described in Sections 7.1(b), (c), and (d), if the event has not been waived, cured or remedied within twenty (20) days after the Agent gives the Borrower notice of such event,

48

at any time thereafter, and as to all of the other events described herein, at any time, the Agent may do any or all of the following: (1) without notice to the Borrower, declare the Notes to be, and thereupon the Notes shall forthwith become, immediately due and payable, together with all accrued interest thereon, without notice of any kind, notice of acceleration or of intention to accelerate, presentment and demand or protest, all of which are hereby expressly waived; (2) without notice to the Borrower, terminate the Commitment; (3) exercise, as may any other Lender, its rights of offset against each account and all other Property of the Borrower in the possession of the Agent or any such Lender, which right is hereby granted by the Borrower to the Agent and each Lender; and (4) exercise any and all other rights pursuant to the Credit Documents:

          (a) The Borrower shall fail to pay or prepay any principal of or interest on the Notes, any reimbursement obligation in respect of an LC Disbursement, or any fee or any other obligation hereunder within five (5) days after it was due; or

          (b) The Borrower or any Guarantor shall (i) fail to pay when due (whether on the scheduled maturity date or otherwise), or within any applicable period of grace, any principal of or interest on (1) any other Indebtedness, other than Non-recourse Debt or Disqualified Stock, in excess of $35,000,000.00 in principal amount, or (2) Non-recourse Debt in excess of $50,000,000.00 in principal amount; or (ii) fail to comply with Section 1004 of the Indenture dated February 1, 1994 between the Borrower and Morgan Guaranty Trust Company of New York, as Trustee, as said Section 1004 may be amended with the consent of the Majority Lenders; or

          (c) Any written representation or warranty made in any Credit Document by or on behalf of the Borrower, when taken as a whole shall prove to have been incorrect, false or misleading in any material respect; or

          (d) Default shall occur in the punctual and complete performance of any covenant of the Borrower or any other Person other than the Agent or the Lenders contained in any Credit Document not specifically set forth in this Section; or

          (e) A final judgment or judgments in the aggregate for the payment of money in excess of $35,000,000.00 shall be rendered against the Borrower or any Guarantor and the same shall remain undischarged for a period of thirty (30) days during which execution shall not be effectively stayed; or

          (f) The Borrower shall not be in compliance with any provision of Section 6.3 during the period covered by an Officer’s Certificate and such non-compliance remains in existence on the date the next Officer’s Certificate is required to be presented to the Agent under Section 5.2(c) of this Agreement; provided, however, that such right to defer compliance shall be available to the Borrower for each such provision no more than once every twelve (12) months; or

          (g) Any order shall be entered in any proceeding against the Borrower or any Guarantor decreeing the dissolution, liquidation or split-up thereof, and such order shall remain in effect for more than thirty (30) days; or

49

          (h) The Borrower or any Guarantor shall make a general assignment for the benefit of creditors or shall petition or apply to any tribunal for the appointment of a trustee, custodian, receiver or liquidator of all or any substantial part of its business, estate or assets or shall commence any proceeding under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction, whether now or hereafter in effect; or

          (i) Any such petition or application shall be filed or any such proceeding shall be commenced against the Borrower or any Guarantor and the Borrower or such Guarantor by any act or omission shall indicate approval thereof, consent thereto or acquiescence therein, or an order shall be entered appointing a trustee, custodian, receiver or liquidator of all or any substantial part of the assets of such Person or granting relief to such Person or approving the petition in any such proceeding, and such order shall remain in effect for more than ninety (90) days; or

          (j) The Borrower or any Guarantor shall fail generally to pay its debts as they become due or suffer any writ of attachment or execution or any similar process to be issued or levied against it or any substantial part of its Property which is not released, stayed, bonded or vacated within thirty (30) days after its issue or levy; or

          (k) The Borrower or any Guarantor shall have concealed, removed, or permitted to be concealed or removed, any part of its Property, with intent to hinder, delay or defraud its creditors or any of them, or made or suffered a transfer of any of its Property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or shall have made any transfer of its Property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid.

     7.2 Remedies Cumulative. No remedy, right or power conferred upon the Agent or the Lenders is intended to be exclusive of any other remedy, right or power given hereunder or now or hereafter existing at law, in equity, or otherwise, and all such remedies, rights and powers shall be cumulative.

     7.3 Guaranty Proceeds.

          (a) Notwithstanding any other provision of any Credit Document to the contrary, any funds, claims, or distributions actually received by Agent for the account of any Lender as a result of the enforcement of, or pursuant to, any Guaranty, net of Agent’s and Lenders’ expenses of collection thereof (such net amount, “Guaranty Proceeds”), shall be made available for distribution equally and ratably (in proportion to the aggregate amount of principal, interest and other amounts then owed in respect of the Obligations or of an issuance of Public Debt (as defined below), as the case may be) among the Agent, the Lenders and the trustee or trustees of any Indebtedness not subordinated to the Obligations (or to the holders thereof), issued by Borrower, before or after the date of this Agreement, in offerings registered under the Securities Act of 1933, as amended, or in transactions exempt from registration pursuant to rule 144A thereof (“Public Debt”). Agent is hereby authorized by Borrower, by each Lender and by each Guarantor (by its execution and delivery of the Guaranty to which it is party) to make such Guaranty Proceeds so available. No Lender

50

shall have any interest in any amount paid over by Agent to the trustee or trustees in respect of any Public Debt (or to the holders thereof) pursuant to the foregoing authorization. This Section 7.3(a) shall apply (i) solely to Guaranty Proceeds and not to any payments, funds, claims or distributions received by Agent or Lenders directly or indirectly from Borrower or any other Person other than from a Guarantor pursuant to a Guaranty, and (ii) as to Public Debt issued after December 20, 2000, only if the documents governing the Public Debt provide for the same sharing with the Lenders of guaranty proceeds recovered to pay the Public Debt. Borrower is aware of the terms of the Guaranty, and specifically understands and agrees with Agent and the Lenders that, to the extent Guaranty Proceeds are distributed to holders of Public Debt or their respective trustees, such Guarantor has agreed that the Obligations will not be deemed reduced by any such distributions, and each Guarantor shall continue to make payments pursuant to its Guaranty until such times as the Obligations have been paid in full (and the Commitment has been terminated and any LC Exposure reduced to zero), after taking into account any such distributions of Guaranty Proceeds in respect of Indebtedness other than the Obligations.

          (b) Nothing contained herein shall be deemed (i) to limit, modify, or alter the rights of Agent and Lenders under any Guaranty, (ii) to subordinate the Obligations to any Public Debt, or (iii) to give any holder of Public Debt (or any trustee for such holder) any rights of subrogation.

          (c) This Agreement and each Guaranty are for the sole benefit of Agent and the Lenders and their respective successors and assigns. Nothing contained herein or in any Guaranty shall be deemed for the benefit of any holder of Public Debt, or any trustee for such holder; nor shall anything contained herein or therein be construed to impose on Agent or Lenders any fiduciary duties, obligations or responsibilities to the holder of any Public Debt or their trustees (including, but not limited to, any duty to pursue any Guarantor for payment under its Guaranty).

8. The Agent.

     8.1 Appointment, Powers and Immunities.

          (a) Each Lender hereby irrevocably appoints and authorizes the Agent to act as its agent hereunder and under the other Credit Documents with such powers as are specifically delegated to the Agent by the terms hereof and thereof, together with such other powers as are reasonably incidental thereto. The Agent (i) shall not have any duties or responsibilities except those expressly set forth in this Agreement and the other Credit Documents, and shall not by reason of this Agreement or any other Credit Document be a trustee for any Lender; (ii) shall not be responsible to any Lender for any recitals, statements, representations or warranties contained in this Agreement or any other Credit Document, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Credit Document, or for the value, validity, effectiveness, genuineness, enforceability, execution, filing, registration, collectibility, recording, perfection, existence or sufficiency of this Agreement or any other Credit Document or any other document referred to or provided for herein or therein or any property covered thereby or for any failure by any Party or any other Person to perform any

51

of its obligations hereunder or thereunder, and shall not have any duty to inquire into or pass upon any of the foregoing matters; (iii) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or any other Credit Document except to the extent requested by the Majority Lenders; (iv) SHALL NOT BE RESPONSIBLE FOR ANY MISTAKE OF LAW OR FACT OR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO OR PROVIDED FOR HEREIN OR THEREIN OR IN CONNECTION HEREWITH OR THEREWITH, INCLUDING, WITHOUT LIMITATION, PURSUANT TO ITS OWN NEGLIGENCE, BUT NOT INCLUDING AND EXCEPT FOR THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE AGENT; (v) shall not be bound by or obliged to recognize any agreement among or between the Borrower, the Agent, and any Lender other than this Agreement and the other Credit Documents, regardless of whether the Agent has knowledge of the existence of any such agreement or the terms and provisions thereof; (vi) shall not be charged with notice or knowledge of any fact or information not herein set out or provided to the Agent in accordance with the terms of this Agreement or any other Credit Document; (vii) shall not be responsible for any delay, error, omission or default of any mail, telegraph, cable or wireless agency or operator, and (viii) shall not be responsible for the acts or edicts of any Governmental Authority. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care.

          (b) Without the prior written consent of Agent and all of the Lenders, Agent shall not (i) modify or amend in any respect whatsoever the interest rate provisions of the Credit Documents, (ii) increase the Commitment above $600,000,000.00 (provided that an increase requested in accordance with Section 2.1(d) must only be approved by the Lenders that are increasing their Commitments), (iii) extend the Maturity Date other than in accordance with the express provisions of the Credit Documents, (iv) extend or reduce the due date for, or change the amount of, the scheduled payments of principal or interest on the Loans, the LC Disbursements or the fees set forth in Section 2.7, (v) amend the definitions of Majority Lenders or Super-Majority Lenders or any requirement that certain actions be taken only with the consent of a certain number of the Lenders, (vi) amend or waive any provisions of Section 5.15 of this Agreement or (vii) release any Subsidiary from a Guaranty required under and delivered pursuant to Section 5.15, unless the Guaranty is no longer required pursuant to Section 5.15. From time to time upon Agent’s request, each Lender shall execute and deliver such documents and instruments as may be reasonably necessary to enable Agent to effectively administer and service the Loan in its capacity as lead lender and servicer and in the manner contemplated by the provisions of this Agreement.

          (c) Without the prior written consent of the Super-Majority Lenders, Agent shall not modify, amend or waive in any respect whatsoever the provisions of (i) Section 5.3 or the definitions of the financial covenants (or any component thereof) described in Section 5.3 (any modification, amendment or waiver of the provisions of, or definitions relating to, Section 5.3(e) must also be approved by the Agent, the Syndication Agents and the Documentation Agents), (ii) Section 5.11(c)(i), or (iii) Section 6.1.

52

          (d) All information provided to the Agent under or pursuant to the Credit Documents, and all rights of the Agent to receive or request information, or to inspect information or Property, shall be by the Agent on behalf of the Lenders. If any Lender requests that it be able to receive or request such information, or make such inspections, in its own right rather than through the Agent, the Borrower will cooperate with the Agent and such Lender in order to obtain such information or make such inspection as such Lender may reasonably require.

          (e) The Borrower shall be entitled to rely upon a written notice or a written response from the Agent as being pursuant to concurrence or consent of the Majority Lenders or the Super-Majority Lenders unless otherwise expressly stated in the Agent’s notice or response.

     8.2 Reliance. The Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, facsimile, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (which may be counsel for the Borrower), independent accountants and other experts selected by the Agent. The Agent shall not be required in any way to determine the identity or authority of any Person delivering or executing the same. As to any matters not expressly provided for by this Agreement or any other Credit Document, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and thereunder in accordance with instructions of the Majority Lenders, and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. If any order, writ, judgment or decree shall be made or entered by any court affecting the rights, duties and obligations of the Agent under this Agreement or any other Credit Document, then and in any of such events the Agent is authorized, in its sole discretion, to rely upon and comply with such order, writ, judgment or decree which it is advised by legal counsel of its own choosing is binding upon it under the terms of this Agreement, the relevant Credit Document or otherwise; and if the Agent complies with any such order, writ, judgment or decree, then it shall not be liable to any Lender or to any other Person by reason of such compliance even though such order, writ, judgment or decree may be subsequently reversed, modified, annulled, set aside or vacated.

     8.3 Defaults. The Agent shall not be deemed to have constructive knowledge of the occurrence of a Default (other than the non-payment of principal of or interest on Loans) unless it has received notice from a Lender or the Borrower specifying such Default and stating that such notice is a “Notice of Default”. In the event that the Agent receives such a notice of the occurrence of a Default, or whenever the Agent has actual knowledge of the occurrence of a Default, the Agent shall give prompt written notice thereof to the Lenders (and shall give each Lender prompt notice of each such non-payment). The Agent shall (subject to Section 8.7 hereof) take such action with respect to such Default as shall be directed by the Majority Lenders and within its rights under the Credit Documents and at law or in equity, provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, permitted hereby with respect to such Default as it shall deem advisable

53

in the best interests of the Lenders and within its rights under the Credit Documents in order to preserve, protect or enhance the collectibility of the Loans, at law or in equity.

     8.4 Rights as a Lender. With respect to the Commitment and the Loans made, Agent, in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting in its agency capacity, and the term “Lender” or “Lenders” shall, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent may (without having to account therefor to any other Lender) as a Lender, and to the same extent as any other Lender, accept deposits from, lend money to and generally engage in any kind of banking, trust, letter of credit, agency or other business with the Borrower (and any of its Affiliates) as if it were not acting as the Agent but solely as a Lender. The Agent may accept fees and other consideration from the Borrower (in addition to the fees heretofore agreed to between the Borrower and the Agent) for services in connection with this Agreement or otherwise without having to account for the same to the Lenders.

     8.5 Indemnification. The Lenders agree to indemnify the Agent, its officers, directors, agents and Affiliates, ratably in accordance with each Lender’s respective Percentage, for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever (INCLUDING BUT NOT LIMITED TO, THE CONSEQUENCES OF THE NEGLIGENCE OF THE AGENT) which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement or any other Credit Document or any other documents contemplated by or referred to herein or therein, or the transactions contemplated hereby or thereby (including, without limitation, interest, penalties, reasonable attorneys’ fees and amounts paid in settlement in accordance with the terms of this Section 8, but excluding, unless a Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents, INCLUDING BUT NOT LIMITED TO THE NEGLIGENCE OF THE AGENT, provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified, or from the Agent’s default in the express obligations of the Agent to the Lenders provided for in this Agreement. The obligations of the Lenders under this Section 8.5 shall survive the termination of this Agreement and the repayment of the Obligations.

     8.6 Non-Reliance on Agent and Other Lenders. Each Lender agrees that it has received current financial information with respect to the Borrower and that it has, independently and without reliance on the Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any of the other Credit Documents. The Agent shall not be required to keep itself informed as to the performance or observance by any Party of this Agreement or any of the other Credit Documents or any other document referred to or provided for herein or therein or to inspect the properties or

54

books of the Borrower or any Party except as specifically required by the Credit Documents. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder or the other Credit Documents, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower or any other Party (or any of their affiliates) which may come into the possession of the Agent. Each Lender assumes all risk of loss in connection with its Percentage in the Loans to the full extent of its Percentage therein. The Agent assumes all risk of loss in connection with its Percentage in the Loans to the full extent of its Percentage therein.

     8.7 Failure to Act. Except for action expressly required of the Agent, as the case may be, hereunder, or under the other Credit Documents, the Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction by the Lenders of their indemnification obligations under Section 8.5 hereof against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action.

     8.8 Resignation of Agent. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving notice thereof to the Lenders and the Borrower. The Agent shall resign if it has assigned all of its Lender Commitment and Loans and is not an Issuing Bank. Upon any such resignation, (i) the Majority Lenders with the consent of the Borrower, so long as no Default is in existence, shall have the right to appoint a successor Agent so long as such successor Agent is also a Lender at the time of such appointment and (ii) the Majority Lenders shall have the right to appoint a successor Agent that is not a Lender at the time of such appointment so long as the Borrower consents to such appointment (which consent shall not be unreasonably withheld). If no successor Agent shall have been so appointed by the Majority Lenders and accepted such appointment within 30 days after the retiring Agent’s giving of notice of resignation, then the retiring Agent may, on behalf of the Lenders, and with the consent of the Borrower which shall not be unreasonably withheld, appoint a successor Agent. Any successor Agent shall be a bank which has an office in the United States and a combined capital and surplus of at least $500,000,000.00. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations as Agent thereafter arising hereunder and under any other Credit Documents, but shall not be discharged from any liabilities for its actions as Agent prior to the date of discharge. Such successor Agent shall promptly specify by notice to the Borrower its principal office referred to in Section 2.1 and Section 2.3 hereof. After any retiring Agent’s resignation hereunder as Agent, the provisions of this Section 8 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent.

     8.9 No Partnership. Neither the execution and delivery of this Agreement nor any of the other Credit Documents nor any interest the Lenders, the Agent or any of them may now or hereafter have in all or any part of the Obligations shall create or be construed as creating a partnership, joint venture or other joint enterprise between the Lenders or

55

among the Lenders and the Agent. The relationship between the Lenders, on the one hand, and the Agent, on the other, is and shall be that of principals and agent only, and nothing in this Agreement or any of the other Credit Documents shall be construed to constitute the Agent as trustee or other fiduciary for any Lender or to impose on the Agent any duty, responsibility or obligation other than those expressly provided for herein and therein.

9. Renewal and Extension.

     9.1 Procedure for Renewal and Extension. The Borrower may extend the Maturity Date one (1) time by one (1) year by executing and delivering to the Agent a written request for extension (the “Extension Request”) at least thirty (30) days (but not more than ninety (90) days) prior to the Maturity Date.

     9.2 Conditions to Renewal and Extension. The extension of the Maturity Date under Section 9.1 of this Agreement shall be conditioned upon, among other things, the following terms and conditions (which shall be in addition to those required by Sections 2.7, 3 and 9.1 of this Agreement):

          (a) Execution by the Borrower of a renewal and extension agreement for each Note in Proper Form.

          (b) No Default must be in existence on the date of the Extension Request or on the Maturity Date (before extension).

          (c) Payment of the extension fee as set forth in Section 2.7(b).

          (d) Such other documents, instruments and items as Agent or any Lender shall reasonably require to document extension.

10. Miscellaneous.

     10.1 No Waiver, Amendments. No waiver of any Default shall be deemed to be a waiver of any other Default. No failure to exercise or delay in exercising any right or power under any Credit Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude any further or other exercise thereof or the exercise of any other right or power. Except as may be prohibited by Section 8.1 hereof, no amendment, modification or waiver of any Credit Document shall be effective unless the same is in writing and signed by the Borrower and the Majority Lenders. No notice to or demand on the Borrower or any other Person shall entitle the Borrower or any other Person to any other or further notice or demand in similar or other circumstances.

     10.2 Notices. All notices under the Credit Documents shall be in writing and either (i) delivered against receipt therefor, or (ii) mailed by registered or certified mail, return receipt requested, in each case addressed as set forth herein, or to such other address as a party may designate. Notices shall be deemed to have been given (whether actually received or not) when delivered (or, if mailed, on the next Business Day). Provided, however, that as between the Agent and the Lenders and among the Lenders, notice may

56

be given by telecopy or facsimile effective upon the earlier of actual receipt or confirmation of receipt by telephone.

     10.3 Venue. HARRIS COUNTY, TEXAS SHALL BE A PROPER PLACE OF VENUE TO ENFORCE PAYMENT OR PERFORMANCE OF THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS, UNLESS THE AGENT SHALL GIVE ITS PRIOR WRITTEN CONSENT TO A DIFFERENT VENUE. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS IN THE STATE OF TEXAS AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY PROCEEDING ARISING OUT OF ANY OF THE CREDIT DOCUMENTS BY SERVICE OF PROCESS AS PROVIDED BY TEXAS LAW. THE BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY OF THE CREDIT DOCUMENTS IN THE DISTRICT COURTS OF HARRIS COUNTY, TEXAS, OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION, AND HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIMS THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE BORROWER (A) AGREES TO DESIGNATE AND MAINTAIN AN AGENT FOR SERVICE OF PROCESS IN THE STATE OF TEXAS IN CONNECTION WITH ANY SUCH SUIT, ACTION OR PROCEEDING AND TO DELIVER TO THE AGENT EVIDENCE THEREOF AND (B) IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY NOTICE GIVEN AS PROVIDED FOR IN THIS AGREEMENT. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR THE LENDERS TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED BY APPLICABLE LAW. THE BORROWER HEREBY IRREVOCABLY AGREES THAT ANY LEGAL ACTION OR PROCEEDING AGAINST THE AGENT OR ANY LENDER ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER CREDIT DOCUMENTS SHALL BE BROUGHT AND MAINTAINED IN THE DISTRICT COURTS OF HARRIS COUNTY, TEXAS, OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION.

     10.4 Choice of Law. THIS AGREEMENT, THE NOTES AND THE OTHER CREDIT DOCUMENTS HAVE BEEN NEGOTIATED, EXECUTED AND DELIVERED IN THE STATE OF TEXAS AND SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, INCLUDING ALL APPLICABLE FEDERAL LAW, FROM TIME TO TIME IN FORCE IN THE STATE OF TEXAS.

57

     10.5 Survival; Parties Bound; Successors and Assigns.

          (a) All representations, warranties, covenants and agreements made by or on behalf of the Borrower in connection herewith shall survive the execution and delivery of the Credit Documents, shall not be affected by any investigation made by any Person, and shall bind the Borrower and its successors, trustees, receivers and assigns and inure to the benefit of the successors and assigns of the Agent and the Lenders (including any Affiliate of the Issuing Bank that issues any Letter of Credit); provided, however, that (i) the Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of the Agent and all of the Lenders, and any such assignment or transfer without such consent shall be null and void, and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, participants (to the extent provided in paragraph (c) of this Section) and, to the extent expressly contemplated hereby, the Affiliates of each of the Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

          (b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Lender Commitment and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld) of:

     (A) the Borrower, provided that no consent of the Borrower shall be required if a Default has occurred and is continuing; and

     (B) the Agent.

     (ii) Assignments shall be subject to the following additional conditions:

     (A) except in the case of an assignment of the entire remaining amount of the assigning Lender’s Lender Commitment or Loans, the amount of the Lender Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Agent) shall not be less than $10,000,000 unless each of the Borrower and the Agent otherwise consent, provided that no such consent of the Borrower shall be required if a Default has occurred and is continuing;

     (B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement;

     (C) the parties to each assignment shall execute and deliver to the Agent an Assignment and Assumption, together with a processing and recordation fee paid by the assigning Lender of $2,500; and

58

     (D) the assignee, if it shall not be a Lender, shall deliver to the Agent an Administrative Questionnaire.

          For the purposes of this Section 10.5, the term “Approved Fund” has the following meaning:

          “Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

          (iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this Section, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 3.5, 5.10, 5.11 and 10.7). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.

          (iv) The Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices, a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Lender Commitment of, and principal amount of the Loans owing to each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and Borrower, Agent, and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

          (v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Agent shall accept such Assignment and Assumption and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.

59

          (c) A Lender may sell participating interests to an Affiliate of the Lender with written notice to the Agent and the Borrower but not any consent of the Agent, the Borrower or any other Lender, and may sell participating interests in any of its Loans to an Approved Fund so long as such participation shall (1) limit the voting rights of the participant, if any, to the ability to vote for changes in the amount of the Commitment, the interest rate on the Loans, and the Maturity Date, (2) for the Committed Loans, if the participant is not an Affiliate of the participating Lender, require the written consent of the Borrower (so long as no Default is in existence) and the Agent, such consent not to be unreasonably withheld, (3) for Committed Loans be in a minimum principal amount of at least $10,000,000.00 if participated to a Person not already a Lender, and (4) not reduce the Lender’s Lender Commitment which has not been participated to less than $10,000,000.00. In connection with any sale of a participating interest made in compliance with this Agreement, (i) the participating Lender shall continue to be liable for its Lender Commitment and its other obligations under the Credit Documents, (ii) the Agent, the Borrower and the other Lenders shall continue to deal solely and directly with the participating Lender in connection with such Lender’s rights and obligations under the Credit Documents, and (iii) the participant may not require the participating Lender to take or refrain from taking any action under the Credit Documents that is in conflict with the terms and provisions of the Credit Documents.

          (d) Notwithstanding any provision hereof to the contrary, (i) any Lender may assign and pledge all or any portion of its Lender Commitment and Loans to a Federal Reserve Bank; provided, however, that any such assignment or pledge shall not relieve such Lender from its obligations under the Credit Documents; (ii) the Agent may not assign or participate its Lender Commitment so that its Lender Commitment after such assignment or participation is less than $15,000,000.00, to any Person other than an Affiliate of the Agent without the prior written consent of the Borrower, so long as no Default is in existence; and (iii) JPMC may assign, sell or participate all or any portion of the Swing Loan without the consent of the Borrower, the Agent or any other Lender.

          (e) The term of this Agreement shall be until the final maturity of the Notes and the payment of all amounts due under the Credit Documents.

          (f) Any Lender (each, a “Designating Lender”) may at any time designate one Designated Lender to fund Money Market Loans on behalf of such Designating Lender subject to the terms of this Section 10.5(f), and the provisions in Sections 10.5(b) and (c) shall not apply to such designation. No Lender may designate more than one (1) Designated Lender. The parties to each such designation shall execute and deliver to the Agent for its acceptance a Designation Agreement. Upon such receipt of an appropriately completed Designation Agreement executed by a Designating Lender and a designee representing that it is a Designated Lender, the Agent will accept such Designation Agreement and will give prompt notice thereof to the Borrower, whereupon, (i) the Borrower shall execute and deliver to the Designating Lender a Designated Lender Note payable to the order of the Designated Lender, (ii) from and after the effective date specified in the Designation Agreement, the Designated Lender shall become a party to this Agreement with a right (subject to the provisions of Section 2.8(b)) to make Money Market Loans on behalf of its Designating Lender pursuant to Section 2.8 after the Borrower has

60

accepted a Money Market Loan (or portion thereof) of the Designating Lender, and (iii) the Designated Lender shall not be required to make payments with respect to any obligations in this Agreement except to the extent of excess cash flow of such Designated Lender which is not otherwise required to repay obligations of such Designated Lender which are then due and payable; provided, however, that regardless of such designation and assumption by the Designated Lender, the Designating Lender shall be and remain obligated to the Borrower, Agent and the Lenders for each and every obligation of the Designating Lender and its related Designated Lender with respect to this Agreement, including, without limitation, any indemnification obligations under Section 8.5 hereof and any sums otherwise payable to the Borrower by the Designated Lender. Each Designating Lender shall serve as the administrative agent of the Designated Lender and shall on behalf of, and to the exclusion of, the Designated Lender: (1) receive any and all payments made for the benefit of the Designated Lender and (2) give and receive all communications and notices and take all actions hereunder, including, without limitation, votes, approvals, waivers, consents and amendments under or relating to this Agreement and the other Credit Documents. Any such notice, communication, vote, approval, waiver, consent or amendment shall be signed by the Designating Lender as administrative agent for the Designated Lender and shall not be signed by the Designated Lender on its own behalf, and shall be binding upon the Designated Lender to the same extent as if signed by the Designated Lender on its own behalf. The Borrower, the Agent and the Lenders may rely thereon without any requirement that the Designated Lender sign or acknowledge the same. No Designated Lender may assign or transfer all or any portion of its interest hereunder or under any other Credit Document, other than assignments to the Designating Lender which originally designated such Designated Lender or otherwise in accordance with the provisions of Sections 10.5(b) and (c). The Agent and each Lender agrees that it will not institute against any Designated Lender or join any other Person in instituting against any Designated Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding under any federal or state bankruptcy or similar law, until the later to occur of (x) one year and one day after the payment in full of the latest maturing commercial paper note issued by such Designated Lender and (y) the Maturity Date.

     10.6 Counterparts. This Agreement may be executed in several identical counterparts, and by the parties hereto on separate counterparts, and each counterpart, when so executed and delivered, shall constitute an original instrument, and all such separate counterparts shall constitute but one and the same instrument.

     10.7 Usury Not Intended; Refund of Any Excess Payments. It is the intent of the parties in the execution and performance of this Agreement to contract in strict compliance with the usury laws of the State of Texas and the United States of America from time to time in effect. In furtherance thereof, the Agent, the Lenders and the Borrower stipulate and agree that none of the terms and provisions contained in this Agreement or the other Credit Documents shall ever be construed to create a contract to pay for the use, forbearance or detention of money with interest at a rate in excess of the Ceiling Rate and that for purposes hereof “interest” shall include the aggregate of all charges which constitute interest under such laws that are contracted for, reserved, taken, charged or received under this Agreement. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Ceiling Rate, the Borrower, the Agent and the

61

Lenders shall, to the maximum extent permitted under applicable law, (a) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effects thereof, and (c) “spread” the total amount of interest throughout the entire contemplated term of the Loans. The provisions of this paragraph shall control over all other provisions of the Credit Documents which may be in apparent conflict herewith.

     10.8 Captions. The headings and captions appearing in the Credit Documents have been included solely for convenience and shall not be considered in construing the Credit Documents.

     10.9 Severability. If any provision of any Credit Documents shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions shall not be affected or impaired thereby.

     10.10 Disclosures. Every reference in the Credit Documents to disclosures of the Borrower to the Agent and the Lenders in writing, to the extent that such references refer to disclosures at or prior to the execution of this Agreement, shall be deemed strictly to refer only to written disclosures delivered to the Agent and the Lenders in an orderly manner concurrently with the execution hereof.

     10.11 No Novation. THE PARTIES HERETO HAVE ENTERED INTO THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS SOLELY TO AMEND, RESTATE AND RESTRUCTURE THE TERMS OF, AND THE OBLIGATIONS OWING UNDER AND IN CONNECTION WITH, THE CREDIT AGREEMENT DATED OCTOBER 30, 2003 AMONG THE BORROWER, THE AGENT AND CERTAIN OF THE LENDERS. THE PARTIES DO NOT INTEND THIS AGREEMENT NOR THE TRANSACTIONS CONTEMPLATED HEREBY TO BE, AND THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY SHALL NOT BE CONSTRUED TO BE, A NOVATION OF ANY OF THE OBLIGATIONS OWING BY THE BORROWER UNDER OR IN CONNECTION WITH THE SAID CREDIT AGREEMENT.

     10.12 Limitation of Liability. NO OBLIGATION OR LIABILITY WHATSOEVER OF THE BORROWER WHICH MAY ARISE AT ANY TIME UNDER THIS AGREEMENT OR ANY OBLIGATION OR LIABILITY WHICH MAY BE INCURRED BY IT PURSUANT TO ANY OTHER CREDIT DOCUMENT SHALL BE PERSONALLY BINDING UPON, NOR SHALL RESORT FOR THE ENFORCEMENT THEREOF BE HAD TO THE PRIVATE PROPERTY OF, ANY OF THE BORROWER’S TRUSTEES OR SHAREHOLDERS REGARDLESS OF WHETHER SUCH OBLIGATION OR LIABILITY IS IN THE NATURE OF CONTRACT, TORT OR OTHERWISE.

     10.13 Entire Agreement. THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS TOGETHER CONSTITUTE A WRITTEN AGREEMENT AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS

62

OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

63

          IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above.

ARCHSTONE-SMITH OPERATING TRUST
 

By:

Name:

Title:

Address:

9200 E. Panorama Circle

Suite 400

Englewood, Colorado 80112

Attention: Corporate Finance

The Parent joins in the execution of this Agreement to evidence its agreement to the provisions of Sections 5.2, 5.11(b) and (c), and 6.6 of this Agreement.

ARCHSTONE — SMITH TRUST
 

By:  

Name:

Title:

64

Lender Commitment: $38,000,000.00	JPMORGAN CHASE BANK, N.A.,
Percentage: 6.333333333%	as Agent and as a Lender

By:  

Name:

Title:

Address:

712 Main Street

Houston, Texas 77002

Attention: Manager, Real Estate Group

Telecopy No.:	713/216-7713
Telephone No.:	Kent Kaiser
	713/216-8699

Lender Commitment: $38,000,000.00	BANK OF AMERICA, N.A.
Percentage: 6.333333333%

By:  

Name:

Title:

Address:

901 Main Street, 64^th Floor

Dallas, Texas 75202

Attention: Charlotte Wai Deinhart

Telephone No.: 214/209-9129

Telecopy No.: 214/209-0996

Lender Commitment: $38,000,000.00	WELLS FARGO BANK, NATIONAL
Percentage: 6.333333333%	ASSOCIATION

By:  

Name:

Title:

Address:

4643 S. Ulster Street

Suite 1400

Denver, Colorado 80237

Attention: Martia Kontak

Telephone No.: 303/741-0800 X208

Telecopy No.: 303/741-0867

Lender Commitment: $38,000,000.00	COMMERZBANK AG, NEW YORK AND
Percentage: 6.333333333%	GRAND CAYMAN BRANCHES

By:  

Name:

Title:

By:  

Name:

Title:

Address:

Commerzbank AG, New York Branch

2 World Financial Center

New York, New York 10281-1050

Attention: David Goldman

Telephone No.: 212/266-7457

Telecopy No.: 212/266-7565

Lender Commitment: $38,000,000.00	SUNTRUST BANK
Percentage: 6.333333333%

By:  

Name:

Title:

Address:

8330 Boone Blvd., 8^th Floor

Vienna, Virginia 22182-2624

Attention: Gregory T. Horstman

Telephone No.:	703/442-1549
Telecopy No.:	703/442-1570

Lender Commitment: $35,000,000.00	PNC BANK, NATIONAL ASSOCIATION
Percentage: 5.833333333%

By:  

Name:

Title:

Address:

One PNC Plaza

Mail Stop PL-POPP-19-2

Pittsburgh, Pennsylvania 15222

Attention: James Collella

Telephone No.: 412/762-2260

Telecopy No.: 412/762-6500

Lender Commitment: $35,000,000.00	U.S. BANK NATIONAL ASSOCIATION
Percentage: 5.833333333%

By:  

Name:

Title:

Address:

918 17^th Street, 5th Floor

Denver, Colorado 80203

Attention: Leanne Toler

Telephone No.: 303/585-4172

Telecopy No.: 303/585-4199

Lender Commitment: $35,000,000.00	CITICORP NORTH AMERICA, INC.
Percentage: 5.833333333%
	By:
	Name:
	Title:
	By:
	Name:
	Title:
	Address:
	390 Greenwich Street
	New York, New York 10013
	Attention: Mr. Blake Gronich
	Telephone No.: 212/723-6590
	Telecopier No.: 212/723-8548

Lender Commitment: $10,000,000.00	SCOTIABANC, INC.
Percentage: 1.666666667%
	By:
	Name:
	Title:
	Address:
	600 Peachtree Street, Suite 2700
	Atlanta, Georgia 30308
	Attention: Bill Zarrett
	Telephone No.: 404/877-1504
	Telecopy No.: 404/888-8998
Lender Commitment: $25,000,000.00	THE BANK OF NOVA SCOTIA
Percentage: 4.166666666%
	By:
	Name:
	Title:
	Address:
	580 California Street, Suite 2100
	San Francisco, California 94104
	Attention: Mark Sparrow
	Telephone No.: 415/646-4108
	Telecopy No.: 415/397-0791

Lender Commitment: $35,000,000.00	KEYBANK NATIONAL ASSOCIATION
Percentage: 5.833333333%
	By:
	Name: Donald Woods
	Title: Asst Vice President
	Address:
	127 Public Square, 8th Floor
	Cleveland, OH 44114
	Attention: Scott Childs
	Telephone No.: 216-689-7547
	Telecopy No.: 216-689-4997

Lender Commitment: $27,000,000.00	CITIZENS BANK OF RHODE ISLAND
Percentage: 4.500000000%
	By:
	Name:
	Title:
	Address:
	One Citizens Plaza (RC0440)
	Providence, Rhode Island 02903
	Attention: Craig E. Schermerhorn
	Telephone No.: 401/455-5425
	Telecopy No.: 401/282-4485

Lender Commitment: $27,000,000.00	LASALLE BANK NATIONAL
Percentage: 4.500000000%	ASSOCIATION
	By:
	Name:
	Title:
	Address:
	135 South LaSalle Street
	Chicago, Illinois 60603
	Attention: Jay Palmer
	Telephone No.: 312/904-7211
	Telecopy No.: 312/904-6691

Lender Commitment: $27,000,000.00	MORGAN STANLEY BANK
Percentage: 4.500000000%
	By:
	Name:
	Title:
	Address:
	750 Seventh Avenue, 11th Floor
	New York, New York 10020
	Attention: Christopher Whelan
	Telephone No.: 212/762-2929
	Telecopy No.: 212/762-0346

Lender Commitment: $27,000,000.00	UNION BANK OF CALIFORNIA, N.A.
Percentage: 4.500000000%
	By:
	Name:
	Title:
	Address:
	350 California Street, 7th Floor
	San Francisco, California 94120
	Attention: Karen Kokame
	Telephone No.: 415/705-7116
	Telecopy No.: 415/433-7438

Lender Commitment: $27,000,000.00	BANK OF CHINA, NEW YORK BRANCH
Percentage: 4.500000000%
	By:
	Name:
	Title:
	Address:
	410 Madison Avenue
	New York, New York 10017
	Attention: Joseph Zeng/David Hoang
	Telephone No.: 212/935-3101 X408/X229
	Telecopy No.: 212/308-4993

Lender Commitment: $20,000,000.00	LEHMAN BROTHERS BANK, FSB
Percentage: 3.333333333%
	By:
	Name:
	Title:
	Address:
	745 Seventh Avenue, 7th Floor
	New York, New York 10019
	Attention: Janine Shugan
	Telephone No.: 212/526-8625
	Telecopy No.: 201/508-4654

Lender Commitment: $20,000,000.00	MANUFACTURERS AND TRADERS
Percentage: 3.333333333%	TRUST COMPANY
	By:
	Name:
	Title:
	Address:
	Mail Code 101-747
	25 South Charles Street, 17th Floor
	Baltimore, Maryland 21201
	Attention: D. Stewart Cooper
	Telephone No.: 410/545-2368
	Telecopy No.: 410/545-2385

Lender Commitment: $10,000,000.00 Percentage: 1.666666667%	UFJ BANK LIMITED
	By:
	Name:
	Title:
	Address:
	55 East 52nd Street
	New York, New York 10055
	Attention: Douglas E. Crater
	Telephone No.: 212/339-6233
	Telecopy No.: 212/754-1304

Lender Commitment: $10,000,000.00	CHANG HWA COMMERCIAL BANK, LTD.
Percentage: 1.666666667%
	By:
	Name:
	Title:
	Address:
	685 Third Avenue, 29th Floor
	New York, New York 10017
	Attention: Melody Tsou
	Telephone No.: 212/651-9770 X28
	Telecopy No.: 212/651-9785

Lender Commitment: $10,000,000.00	THE GOVERNOR AND COMPANY OF
Percentage: 1.666666667%	THE BANK OF IRELAND
	By:
	Name:
	Title:
	By:
	Name:
	Title:
	Address:
	Bank of Ireland Corporate
	La Touche House
	International Financial Services Centre
	Custom House Docks
	Dublin 1, Ireland
	Attention: Philip Allen
	Telephone No.: 00 353 1 611 5406
	Telecopy No.: 00 353 1 829 0129

Lender Commitment: $10,000,000.00	CHEVY CHASE BANK, F.S.B.
Percentage: 1.666666667%
	By:
	Name:
	Title:
	Address:
	7501 Wisconsin Avenue, 12th Floor
	Bethesda, Maryland 20814
	Attention: Carlos L. Heard
	Telephone No.: 240/497-7758
	Telecopy No.: 240/497-7714

Lender Commitment: $10,000,000.00	FIRST HORIZON BANK, A DIVISION OF
Percentage: 1.666666667%	FIRST TENNESSEE BANK N.A.
	By:
	Name:
	Title:
	Address:
	1650 Leesburg Pike, Suite 1650
	McLean, Virginia 22102
	Attention: Stephanie A. Carey
	Telephone No.: 703/394-2506
	Telecopy No.: 703/394-2644

Lender Commitment: $10,000,000.00	COMPASS BANK, an Alabama banking
Percentage: 1.666666667%	corporation
	By:
	Name:
	Title:
	Address:
	15 South 20th Street, 15th Floor
	Birmingham, Alabama 35233
	Attention: Johanna Duke Paley
	Telephone No.: 205/297-3851
	Telecopy No.: 205/297-7994

SCHEDULE I

Ameriton Properties Incorporated
API Cameron Park LLC
API Genesis Park LLC
ASN Bowie LLC
ASN Cambridge LLC
ASN City Place LLC
ASN Dakota Ridge LLC
ASN Doral West LLC
ASN Dupont Circle LLC
ASN Estancia LLC
ASN Fairfax Corner LLC
ASN Gresham Commons LLC
ASN Hoboken I LLC
ASN Hoboken II LLC
ASN Lakeshore East LLC
ASN Marina Del Rey LLC
ASN Northgate, LLC
ASN Palm Trace Landings, LLC
ASN Park Essex LLC
ASN Richardson Highlands LLC
ASN Rockville LLC
ASN Roosevelt Center LLC
ASN Santa Monica LLC
ASN Saybrooke LLC
ASN Studio City LLC
ASN Sussex Commons LLC
ASN Ventura LLC
ASN Warner Center, LLC
ASN Washington Boulevard LLC
ASN Watertown LLC
ASN Wendemere, LLC
ASN-Massachusetts Holdings (2) LLC
ASN-Massachusetts Holdings (4) LLC
ASN-Massachusetts Holdings (5) LLC
ASN-Washington Holdings (1) LLC
Courthouse Hill LLC
First Herndon Associates Limited Partnership
Hacienda Cove, LLC
Interlocken Apartments LLC
PTR-California Holdings (1) LLC
PTR-California Holdings (3) LLC
SCA Florida Holdings (2) LLC
SCA North Carolina Limited Partnership

Security Capital Atlantic Multifamily LLC
Smith Property Holdings 4411 Connecticut L.L.C.
Smith Property Holdings Four LP
Smith Property Holdings Harbour House L.L.C.
Smith Property Holdings Illinois Center LLC
Smith Property Holdings Lincoln Towers LLC
Smith Property Holdings One East Delaware LLC
Smith Property Holdings One L.P.
Smith Property Holdings Reston Landing L.L.C.
Smith Property Holdings Seven L.P.
Smith Property Holdings Six L.P.
Smith Property Holdings Superior Place L.L.C.
Smith Property Holdings Two (D.C.) L.P.
Smith Property Holdings Two L.P.
St. Andrews at Kings Point, Tamarac, Ltd.
TRG-Pembroke Road, LLC

2

OFFICER’S CERTIFICATE

     Archstone-Smith Operating Trust (the “Borrower”), Archstone-Smith Trust (the “Parent”), JPMorgan Chase Bank, N.A. (“JPMC”), Wells Fargo Bank, N.A. and Bank of America, N.A., as Agents (the “Agents”) and certain other Lenders (the “Lenders”) entered into that certain Amended and Restated Credit Agreement (the “Agreement”) dated as of December 13, 2004, as the same may be amended. Any term used herein and not otherwise defined shall have the meaning ascribed to it in the Agreement.

	The undersigned hereby certifies that:
I.	I am a Vice President of the Borrower and a Vice President of the Parent, and I make these certifications on behalf of the Borrower or the Parent, as applicable.
II.	The Parent’s financial statements as of                      as filed with the Securities and Exchange Commission (“SEC”), and the Borrower’s financial statements as of                      delivered to JPMC, were prepared in conformity with generally accepted accounting principles consistently applied and present fairly the financial position of the Parent and of the Borrower, respectively, as of the date thereof and the results of its operations for the period covered thereby subject to normal year-end adjustments.
III.	Borrower hereby certifies the following as of the end of the period covered by the financial statements described above:

	1.		Maximum Debt to Total Asset Value Ratio Calculation
			(Section 5.3 (e))
	(A	)	Indebtedness (Borrower and Parent)
			Total Unsecured Debt (per GAAP)	$
			Total Secured Debt (per GAAP)	$
			Guarantees, Endorsements and Other Contingent Obligations	$
			Obligations under Hedging Agreements, as defined	$
			Equity Percentage of Indebtedness of Unconsolidated Affiliates	$
			Other (pursuant to the Agreement)	$
			Total Indebtedness, as defined	$
	(B	)	Total Asset Value:
			Aggregated Net Operating Income from Stabilized Properties
			Divided by 7.50%	$
			Historical Value of Pre-Stabilized Properties	$
			Historical Value of Properties Under Construction	$
			Historical Value of Undeveloped Land	$
			Other Assets (excluding intangibles as defined by GAAP)	$
			Total Asset Value of Unconsolidated Affiliates	$
Page 1 of 7 Pages
EXHIBIT A

			Total Asset Value, as defined	$
	(C	)	Maximum Debt to Total Asset Value (Ratio of 1(A) to 1(B))
			Required: Maximum:		60	%
	2.		Maximum Secured Debt Calculation
			(Section 5.3 (a))
			(A) Secured Debt, as defined	$
			(B) Total Asset Value, as defined	$
			(C) Maximum Secured Debt to Total Asset Value
			(Ratio of 2(A) to 2(B))
			Required:Maximum:		40	%
	3.		Coverage Ratio Calculation
			(Section 5.3 (b))
	(A	)	Borrower’s EBITDA:
			Net Income (per GAAP)	$
			Plus:
			Depreciation and Amortization (per GAAP)	$
			Interest Expense, as defined, of Borrower and Parent	$
			Income Taxes (per GAAP)	$
			Extraordinary Gains/Losses (per GAAP)	$
			Payments on Borrower’s Preferred Stock (to the extent included in net income)	$
			Equity Percentage of EBITDA for	$
			Unconsolidated Affiliates	$
			Other (pursuant to the Agreement)	$
			Borrower’s EBITDA, as defined	$
	(B	)	Dividends and Distributions Paid with Respect to Disqualified Stock	$
	(C	)	Interest Expense, as defined, of Borrower and Parent	$
	(D	)	Sum of 3(B) and 3(C)	$
	(E	)	Coverage Ratio (Ratio of 3(A) to 3(D)):		1.0
			Required:	Minimum of 2.0 to 1.0
	4.		Fixed Charge Coverage Ratio Calculation
			(Section 5.3(c))
	(A	)	Borrower’s EBITDA, as defined	$
	(B	)	Unit Capital Expenditures	$
	(C	)	EBITDA minus Unit Capital Expenditures	$
Page 2 of 7 Pages
EXHIBIT A

		(D	)	Interest Expense, as defined, of Borrower and Parent	$
		(E	)	Payments and Payables on Disqualified Stock	$
		(F	)	Regularly Scheduled Principal Paid and Payable (Borrower and Parent)	$
		(G	)	Sum of 4(D), 4(E) and 4(F)	$
		(H	)	Fixed Charge Coverage Ratio (Ratio of 4(C) to 4(G))		1.0
				Required:	Minimum of 1.75 to 1.0
		5.		Tangible Net Worth
				(Section 5.3(d))
				Assets	$
				Liabilities	$
				Tangible Net Worth, as defined	$
				Required:	Minimum of $3.500 billion
		6.		Property Pool
				(Section 5.15)
		(A	)	Sum of the Aggregate Net Operating Income for Pool Real Estate That Has Reached the Stabilization Date Divided by 7.50% and the Aggregate Historical Value for Pool Real Estate That Has Not Reached the Stabilization Date	$
		(B	)	Outstanding Unsecured Indebtedness	$
		(C	)	Pool Value Divided by Outstanding Unsecured
				Indebtedness (6(A) divided by 6(B))	%
	Required:				Minimum of 167%
		(D	)	Pool Value attributable to unimproved land (Maximum-5%)	$
		(E	)	Pool Value attributable to unimproved land, land under construction or development, projects that do not have 80% Occupancy Level, non-multifamily land, land that has not reached the Calculation Date (Maximum-25%)	$
		(F	)	Pool Value attributable to improved property that is not multifamily residential (Maximum-10%)	$
		(G	)	The Borrower confirms that it has received the environmental assessments required by Section 5.15(a)(i)
		7.		Specified Permitted Holdings
				(Section 6.3)
Page 3 of 7 Pages
EXHIBIT A

(A	)	Securities Received in Settlement Liabilities Created in the Ordinary Course of Business
		(Maximum – 5%)
(B	)	Unconsolidated Affiliates Engaged in Permitted Businesses
		(Maximum – 20%)
(C	)	Loans to Unaffiliated Persons
		(Maximum – 10%)
(D	)	Other Securities
		(Maximum – 10%)
(E	)	Income Producing Properties That Are Not Multifamily Residential
		(Maximum – 10%)
(F	)	Unimproved Land
		(Maximum – 7.5%)
(G	)	Unrelated, Non-Incidental Investments
		(Maximum – 5%)
(H	)	Aggregate Value of the specified Permitted Holdings (sum of 7(A) through 7(H))
		(Maximum – 30%)

IV.	A review of the activities of the Borrower during the period covered by the financial statements has been made under my supervision and with a view to determining whether during such period the Borrower has kept, observed, performed and fulfilled all of its obligations under the Agreement.
	The Parent has made available its financial statements and related footnotes for the most recent period ended                     , as filed with the SEC and can be accessed at http://www.sec.gov/. The Borrower has delivered to JPMC its financial statements and related footnotes for the most recent period ended                     . The Parent’s and the Borrower’s earnings press releases and supplemental information for such period have been posted to the Parent’s website (                                        ). The financial statements were prepared in conformity with generally accepted accounting principles consistently applied (except for the omission of footnote disclosures and appropriately disclosed consistency exceptions) and present fairly the financial position of the Parent and the Borrower, respectively, as of the date thereof and the results of its operations for the period covered thereby subject to normal year-end adjustments.
V.	(Check either (A) or (B))

	o	(A) The Borrower has kept, observed, performed and fulfilled each and every one of its obligations under the Agreement during the period covered by the applicable financial statements.
Page 4 of 7 Pages
EXHIBIT A

o (B) The Borrower has kept, observed, performed and fulfilled each and every one of its obligations under the Agreement during the period covered by the applicable financial statements except for the following matters: [Describe all such defaults, specifying the nature, duration and status thereof and what action the Borrower has taken or proposes to take with respect thereto].

VI.   With regard to Section 1004 of the Indenture dated as of February 1, 1994 between the Borrower and Morgan Guaranty Trust Company of New York, as Trustee (and using the terms defined therein), a certificate required thereunder showing compliance with Section 1004 is attached (only required for the fourth quarter Officer’s Certificate), for the most recent period ended                      :

1.	(A)	Sum of Total Assets, Aggregate Purchase Price of Real Estate Assets, or Mortgages Receivable Acquired, and Securities Offering Proceeds Received to Purchase said Assets	$
	(B)	Maximum amount of Debt	$
	(C)	Debt	$
2.	(A)	Consolidated Income Available for Debt Service	$
	(B)	Annual Service Charge	$
	(C)	Ratio of Consolidated Income Available for Debt
		Service to Annual Service Charge
3.	(A)	Total Assets	$
	(B)	Maximum Secured Debt	$
	(C)	Secured Debt	$

VII.   The Parent hereby certifies the following as to itself as of the end of the period covered by the financial statements dated                      as filed with the SEC:

1.	Indebtedness	$
2.	Interest Expense	$

VIII.   Check either (A) or (B)

	o	(A) The Parent has kept, observed, performed and fulfilled each and every one of its obligations under the Agreement during the period covered by the applicable financial statements.
	o	(B) The Parent has kept, observed, performed and fulfilled each and every one of its obligations under the Agreement during the period covered by the applicable financial statements except for the following matters:
Page 5 of 7 Pages
EXHIBIT A

[Describe all such defaults, specifying the nature, duration and status thereof and what action the Parent has taken or proposes to take with respect thereto].

Date:	Name:
		[Vice President Name]

(A manually signed Officer’s Certificate is available at the request of any Agent or Lender.)

Page 6 of 7 Pages
EXHIBIT A

POOL PROPERTY LIST

     List each property separately showing the Historical Value and the components, the city, the state, the Occupancy Level for the past three months, the number of units, the age of the property and net operating income.

Page 7 of 7 Pages
EXHIBIT A

REQUEST FOR LOAN

Date:                                         , 2004

JPMorgan Chase Bank, N.A.
712 Main Street
Houston, Texas 77002
(“Agent”)

RE:	Request for Loan Under Amended and Restated Credit Agreement (as
	amended from time to time, the “Credit Agreement”) dated as of
	December 13, 2004, among Archstone-Smith Operating Trust (the “Borrower”),
	the Agent and the Lenders as signatory to the Credit Agreement

Gentlemen:

     Borrower hereby requests [check as applicable]  a conversion of an existing Loan as provided below, and/or  an advance under the Credit Agreement, which is allowed pursuant to Section 5.9 of the Credit Agreement, in the amount of $___[minimum of $1,000,000.00 and in multiples of $100,000.00].

Maximum Principal Amount	$	600,000,000.00
Less the amount outstanding under the
Credit Agreement (including Swing Loans
and Money Market Loans)	($                    .___)
Less the LC Exposure	($                    .___)
Less the LC Exposure	($                    .___)
Available amount	($                    .___)
Less amount requested	($                    .___)
Amount remaining to be advanced	$                    .___

Page 1 of 3 Pages
EXHIBIT B

The advance or conversion is to be made as follows:

A.	Base Rate Borrowing.
	1. Amount of Base Rate Borrowing:	$                    .___
	2. Date of Base Rate Borrowing	,20___
B.	Eurodollar Rate Borrowing:
	1. Amount of Eurodollar Rate
	Borrowing:	$                    .___
	2. Amount of conversion of existing
	Loan to Eurodollar Rate Borrowing:	$                    .___
	3. Number of Eurodollar Rate
	Borrowing(s) now in effect:
	[cannot exceed 12]
	4. Date of Eurodollar Rate Borrowing
	or conversion:	,20___
	5. Interest Period:
	6. Expiration date of current Interest
	Period as to this conversion:	, 20___
C.	Swing Loan.
	1. Amount of Swing Loan:	$                    ,___
	[minimum of $1,000,000.00 and in
	multiples of $100,000.00]
	2. Date of Swing Loan:	,20___

Page 2 of 3 Pages
EXHIBIT B

     Borrower hereby represents and warrants that the amounts set forth above are true and correct, that the amount above requested has actually been incurred, that the representations and warranties contained in the Credit Agreement are true and correct as if made as of this date, and that Borrower has kept, observed, performed and fulfilled each and every one of its obligations under the Credit Agreement as of the date hereof [except as follows:]

Very truly yours,

ARCHSTONE-SMITH OPERATING TRUST

By:

Name:

Title:

Page 3 of 3 Pages
EXHIBIT B

$[                    ]                     ,2004

     FOR VALUE RECEIVED ARCHSTONE-SMITH OPERATING TRUST, a Maryland real estate investment trust (herein called “Maker”) promises to pay to the order of [                                                                                                    ], a [                                                      &nbs p;     ] (“Payee”), at the offices of JPMorgan Chase Bank, N.A., as “Agent” under the Credit Agreement, at 712 Main Street, Houston, Texas 77002, or at such other place as the holder (the “Holder”, whether or not Payee is such holder) of this note may hereafter designate in writing, in immediately available funds and in lawful money of the United States of America, the principal sum of [                                                                                ] Dollars ($[                                        ]) (or the unpaid balance of all principal advanced against this note, if that amount is less), together with interest on the unpaid principal balance of this note from time to time outstanding at the Stated Rate and interest on all past due amounts, both principal and accrued interest, at the Past Due Rate; provided, that for the full term of this note the interest rate produced by the aggregate of all sums paid or agreed to be paid to the Holder of this note for the use, forbearance or detention of the debt evidenced hereby (including, but not limited to, all interest on this note at the Stated Rate) shall not exceed the Ceiling Rate.

     1. Definitions. Any terms not defined herein shall have the meaning given to them in the Amended and Restated Credit Agreement dated of even date herewith among the Maker, the Agent and certain other Lenders (as the same may be amended or modified the “Credit Agreement”).

     2. Rates Change Automatically and Without Notice. Without notice to Maker or any other person or entity and to the full extent allowed by applicable law from time to time in effect, the Prime Rate and the Ceiling Rate shall each automatically fluctuate upward and downward as and in the amount by which Agent’s said prime rate, and such maximum nonusurious rate of interest permitted by applicable law, respectively, fluctuate.

     3. Calculation of Interest. Interest shall be computed for the actual number of days elapsed in a year (up to 365, or 366 in a leap year) deemed to consist of 360 days, unless the Ceiling Rate would thereby be exceeded, in which event, to the extent necessary to avoid exceeding the Ceiling Rate, interest shall be computed on the basis of the actual number of days elapsed in the applicable calendar year in which it accrued.

     4. Excess Interest Will be Refunded or Credited. If, for any reason whatever, the interest paid or received on this note during its full term produces a rate which exceeds the Ceiling Rate, the Holder of this note shall refund to the payor or, at the Holder’s option, credit against the principal of this note such portion of that interest as shall be necessary to cause the interest paid on this note to produce a rate equal to the Ceiling Rate.

Page 1 of 5 Pages
EXHIBIT C

     5. Interest Will be Spread. All sums paid or agreed to be paid to the Holder of this note for the use, forbearance or detention of the indebtedness evidenced hereby, to the extent permitted by applicable law and to the extent necessary to avoid violating applicable usury laws, shall be amortized, prorated, allocated and spread in equal parts throughout the full term of this note, so that the interest rate is uniform throughout the full term of this note.

     6. Payment Schedule. The principal of this note shall be due and payable on the Maturity Date. Accrued and unpaid interest shall be due and payable on each Interest Payment Date.

     7. Prepayment. Maker may prepay this note only as provided in the Credit Agreement.

     8. Revolving Credit. Upon and subject to the terms and conditions of the Credit Agreement and the other provisions of this note, Maker may borrow, repay and reborrow against this note at any time unless and until a default (however designated) or event (an “Event of Potential Default”) which, if not cured after notice or before the lapse of time (or both) would develop into a default under this note, the Credit Agreement or any other Credit Documents has occurred which the Holder has not declared to have been fully cured or waived, and (except as the Credit Agreement or any of the other Credit Documents may otherwise provide) there is no limit on the number of advances against this note so long as the total unpaid principal of this note at any time outstanding does not exceed the Payee’s Lender Commitment. Interest on the amount of each advance against this note shall be computed on the amount of the unpaid balance of that advance from the date it is made until the date it is repaid. If Maker’s right (if any) to borrow against this note shall ever lapse because of the occurrence of any default, it shall not be reinstated (or construed from any course of conduct or otherwise to have been reinstated) unless and until the Holder shall declare in a signed writing that it has been cured or waived. The unpaid principal balance of this note at any time shall be the total of all principal lent against this note to Maker or for Maker’s account less the sum of all principal payments and permitted prepayments on this note received by the Holder. Absent manifest error, the Holder’s computer records shall on any day conclusively evidence the unpaid balance of this note and its advances and payments history posted up to that day. All loans and advances and all payments and permitted prepayments made on this note may be (but are not required to be) endorsed by the Holder on the schedule attached hereto (which is hereby made a part hereof for all purposes) or otherwise recorded in the Holder’s computer or manual records; provided, that any Holder’s failure to make notation of (a) any principal advance or accrual of interest shall not cancel, limit or otherwise affect Maker’s obligations or any Holder’s rights with respect to that advance or accrual, or (b) any payment or permitted prepayment of principal or interest shall not cancel, limit or otherwise affect

Page 2 of 5 Pages
EXHIBIT C

Maker’s entitlement to credit for that payment as of the date of its receipt by the Holder. Maker and Payee expressly agree, as expressly allowed by Chapter 346 of the Texas Finance Code, that Chapter 346 (which relates to open-end line of credit revolving loan accounts) shall not apply to this note or to any loan evidenced by this note and that neither this note nor any such loan shall be governed by Chapter 346 or subject to its provisions in any manner whatsoever.

     9. Credit Agreement. This note has been issued pursuant to the terms of the Credit Agreement, to which reference is made for all purposes. Advances against this note by Payee or other Holder hereof shall be governed by the Credit Agreement. Payee is entitled to the benefits of the Credit Agreement. As additional security for this note, Maker hereby grants to Payee and all other present and future Holders an express lien against, security interest in and contractual right of setoff in and to, all property and any and all deposits (general or special, time or demand, provisional or final) at any time held by the Payee or other Holder for any Maker’s credit or account.

     10. Defaults and Remedies. Time is of the essence. Maker’s failure to pay any principal or accrued interest owing on this note when due and after expiration of any applicable period for notice and right to cure such a default which is specifically provided for in the Credit Agreement or any other provision of this note, or the occurrence of any default under the Credit Agreement or any other Credit Documents shall constitute default under this note, whereupon the Holder may elect to exercise any or all rights, powers and remedies afforded (a) under the Credit Agreement and all other papers related to this note and (b) by law, including the right to accelerate the maturity of this entire note.

     In addition to and cumulative of such rights, the Holder is hereby authorized at any time and from time to time after any such default, at Holder’s option, without notice to Maker or any other person or entity (all rights to any such notice being hereby waived), to set off and apply any and all of any Maker’s deposits at any time held by the Holder, and any other debt at any time owing by the Holder to or for the credit or account of any Maker, against the outstanding balance of this note, in such order and manner as Holder may elect in its sole discretion.

     The Holder’s right to accelerate this note on account of any late payment or other default shall not be waived or deemed waived by the Holder by reason of the Holder’s having previously accepted one or more late payments or by reason of any Holder’s otherwise not accelerating this note or exercising other remedies for any default, and no Holder shall ever be obligated or deemed obligated to notify Maker or any other person that Holder is requiring strict compliance with this note or any papers securing or otherwise relating to it before such Holder may accelerate this note or exercise any other remedy.

Page 3 of 5 Pages
EXHIBIT C

     Nothing in this Section or elsewhere shall be construed as diminishing Holder’s absolute right to demand payment of all or any part of this note at any time.

     11. Legal Costs. If any Holder of this note retains an attorney in connection with any such default or to collect, enforce or defend this note or any papers intended to secure or guarantee it in any lawsuit or in any probate, reorganization, bankruptcy or other proceeding, or if Maker sues any Holder in connection with this note or any such papers and does not prevail, then Maker agrees to pay to each such Holder, in addition to principal and interest, all reasonable costs and expenses incurred by such Holder in trying to collect this note or in any such suit or proceeding, including reasonable attorneys’ fees.

     12. Waivers. Except only for any notices which are specifically required by the Credit Agreement, Maker and any and all co-makers, endorsers, guarantors and sureties severally waive notice (including, but not limited to, notice of intent to accelerate and notice of acceleration, notice of protest and notice of dishonor), demand, presentment for payment, protest, diligence in collecting and the filing of suit for the purpose of fixing liability and consent that the time of payment hereof may be extended and re-extended from time to time without notice to any of them. Each such person agrees that his, her or its liability on or with respect to this note shall not be affected by any release of or change in any guaranty or security at any time existing or by any failure to perfect or maintain perfection of any lien against or security interest in any such security or the partial or complete unenforceability of any guaranty or other surety obligation, in each case in whole or in part, with or without notice and before or after maturity.

     13. Rate of Return Maintenance Covenant. If at any time after the date of this note, any Holder determines that (a) any applicable law, rule or regulation regarding capital adequacy of general applicability has been adopted or changed, or (b) its interpretation or administration by any governmental authority, central bank or comparable agency has changed, and determines that such change or the Holder’s compliance with any request or directive regarding capital adequacy of general applicability (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Holder’s capital as a consequence of its obligations under this note or any related papers to a level below that which the Holder could have achieved but for such adoption, change or compliance (taking into consideration the Holder’s own capital adequacy policies) by an amount the Holder deems to be material, then Maker promises to pay from time to time to the order of the Holder such additional amount or amounts as will compensate the Holder for such reduction. A certificate of any Holder setting forth the amount or amounts necessary to compensate the Holder as specified above shall be given to Maker as soon as practicable after the Holder has made such determination and shall be conclusive and binding, absent manifest error. Maker shall pay the Holder the amount shown as due on any such certificate within 15 days after the Holder gives it. In preparing such certificate, the Holder may employ such assumptions and make such allocations of costs and expenses as

Page 4 of 5 Pages
EXHIBIT C

the Holder in good faith deems reasonable and may use any reasonable averaging and attribution method.

     14. Governing Law, Jurisdiction and Venue. This note shall be governed by and construed in accordance with the laws of the State of Texas and the United States of America from time to time in effect.

     15. General Purpose of Loan. Maker warrants and represents to Payee and all other Holders that all loans evidenced by this note are and will be for business, commercial, investment or other similar purpose and not primarily for personal, family, household or agricultural use.

     16. Participations and Assignments. Payee and each other Holder reserves the right, exercisable in such Holder’s discretion and without notice to Maker or any other person, to sell participations, assign interests or both, in all or any part of this note or the debt evidenced by this note, in accordance with the Credit Agreement.

     17. Limitation of Liability. No obligation or liability whatsoever of Maker which may arise at any time under this promissory note or any obligation or liability which may be incurred by it pursuant to any other instrument, transaction or undertaking contemplated hereby shall be personally binding upon, nor shall resort for the enforcement thereof be had to the private property of, any of Maker’s trustees or shareholders regardless of whether such obligation or liability is in the nature of contract, tort or otherwise.

ARCHSTONE-SMITH OPERATING TRUST

By:

Name:

Title:

Page 5 of 5 Pages
EXHIBIT C

SWING LOAN NOTE

$100,000,000.00                     ,2004

     FOR VALUE RECEIVED ARCHSTONE-SMITH OPERATING TRUST, a Maryland real estate investment trust (herein called “Maker”) promises to pay to the order of JPMORGAN CHASE BANK, N.A., at 712 Main Street, Houston, Texas 77002, or at such other place as the holder (the “Holder”, whether or not Payee is such holder) of this note may hereafter designate in writing, in immediately available funds and in lawful money of the United States of America, the principal sum of One Hundred Million Dollars ($100,000,000.00) (or the unpaid balance of all principal advanced against this note, if that amount is less), together with interest on the unpaid principal balance of this note from time to time outstanding at the Stated Rate and interest on all past due amounts, both principal and accrued interest, at the Past Due Rate; provided, that for the full term of this note the interest rate produced by the aggregate of all sums paid or agreed to be paid to the Holder of this note for the use, forbearance or detention of the debt evidenced hereby (including, but not limited to, all interest on this note at the Stated Rate) shall not exceed the Ceiling Rate.

     1. Definitions. Any terms not defined herein shall have the meaning given to them in the Amended and Restated Credit Agreement dated of even date herewith among the Maker, and certain other Lenders (as the same may be amended or modified the “Credit Agreement”).

     2. Rates Change Automatically and Without Notice. Without notice to Maker or any other person or entity and to the full extent allowed by applicable law from time to time in effect, the Prime Rate and the Ceiling Rate shall each automatically fluctuate upward and downward as and in the amount by which Holder’s said prime rate, and such maximum nonusurious rate of interest permitted by applicable law, respectively, fluctuate.

     3. Calculation of Interest. Interest shall be computed for the actual number of days elapsed in a year (up to 365, or 366 in a leap year) deemed to consist of 360 days, unless the Ceiling Rate would thereby be exceeded, in which event, to the extent necessary to avoid exceeding the Ceiling Rate, interest shall be computed on the basis of the actual number of days elapsed in the applicable calendar year in which it accrued.

     4. Excess Interest Will be Refunded or Credited. If, for any reason whatever, the interest paid or received on this note during its full term produces a rate which exceeds the Ceiling Rate, the Holder of this note shall refund to the payor or, at the Holder’s option, credit against the principal of this note such portion of that interest as shall be necessary to cause the interest paid on this note to produce a rate equal to the Ceiling Rate.

     5. Interest Will be Spread. All sums paid or agreed to be paid to the Holder of this note for the use, forbearance or detention of the indebtedness evidenced hereby, to the extent permitted by applicable law and to the extent necessary to avoid violating applicable usury laws,

EXHIBIT C-1
Page 1 of 5 Pages

shall be amortized, prorated, allocated and spread in equal parts throughout the full term of this note, so that the interest rate is uniform throughout the full term of this note.

     6. Payment Schedule. The principal of this note shall be due and payable on the Maturity Date. Accrued and unpaid interest shall be due and payable on each Interest Payment Date.

     7. Prepayment. Maker may prepay this note only as provided in the Credit Agreement.

     8. Revolving Credit. Upon and subject to the terms and conditions of the Credit Agreement and the other provisions of this note, Maker may borrow, repay and reborrow against this note at any time unless and until a default (however designated) or event (an “Event of Potential Default”) which, if not cured after notice or before the lapse of time (or both) would develop into a default under this note, the Credit Agreement or any other Credit Documents has occurred which the Holder has not declared to have been fully cured or waived, and (except as the Credit Agreement or any of the other Credit Documents may otherwise provide) there is no limit on the number of advances against this note so long as the total unpaid principal of this note at any time outstanding does not exceed $100,000,000.00. Interest on the amount of each advance against this note shall be computed on the amount of the unpaid balance of that advance from the date it is made until the date it is repaid. If Maker’s right (if any) to borrow against this note shall ever lapse because of the occurrence of any default, it shall not be reinstated (or construed from any course of conduct or otherwise to have been reinstated) unless and until the Holder shall declare in a signed writing that it has been cured or waived. The unpaid principal balance of this note at any time shall be the total of all principal lent against this note to Maker or for Maker’s account less the sum of all principal payments and permitted prepayments on this note received by the Holder. Absent manifest error, the Holder’s computer records shall on any day conclusively evidence the unpaid balance of this note and its advances and payments history posted up to that day. All loans and advances and all payments and permitted prepayments made on this note may be (but are not required to be) endorsed by the Holder on the schedule attached hereto (which is hereby made a part hereof for all purposes) or otherwise recorded in the Holder’s computer or manual records; provided, that any Holder’s failure to make notation of (a) any principal advance or accrual of interest shall not cancel, limit or otherwise affect Maker’s obligations or any Holder’s rights with respect to that advance or accrual, or (b) any payment or permitted prepayment of principal or interest shall not cancel, limit or otherwise affect Maker’s entitlement to credit for that payment as of the date of its receipt by the Holder. Maker and Payee expressly agree, as expressly allowed by Chapter 346 of the Texas Finance Code, that Chapter 346 (which relates to open-end line of credit revolving loan accounts) shall not apply to this note or to any loan evidenced by this note and that neither this note nor any such loan shall be governed by Chapter 346 or subject to its provisions in any manner whatsoever.

     9. Credit Agreement. This note has been issued pursuant to the terms of the Credit Agreement, to which reference is made for all purposes. Advances against this note by Payee or other Holder hereof shall be governed by the Credit Agreement. Payee is entitled to the benefits of the Credit Agreement. As additional security for this note, Maker hereby grants to Payee and

EXHIBIT C-1
Page 2 of 5 Pages

all other present and future Holders an express lien against, security interest in and contractual right of setoff in and to, all property and any and all deposits (general or special, time or demand, provisional or final) at any time held by the Payee or other Holder for any Maker’s credit or account.

     10. Defaults and Remedies. Time is of the essence. Maker’s failure to pay any principal or accrued interest owing on this note when due and after expiration of any applicable period for notice and right to cure such a default which is specifically provided for in the Credit Agreement or any other provision of this note, or the occurrence of any default under the Credit Agreement or any other Credit Documents shall constitute default under this note, whereupon the Holder may elect to exercise any or all rights, powers and remedies afforded (a) under the Credit Agreement and all other papers related to this note and (b) by law, including the right to accelerate the maturity of this entire note.

     In addition to and cumulative of such rights, the Holder is hereby authorized at any time and from time to time after any such default, at Holder’s option, without notice to Maker or any other person or entity (all rights to any such notice being hereby waived), to set off and apply any and all of any Maker’s deposits at any time held by the Holder, and any other debt at any time owing by the Holder to or for the credit or account of any Maker, against the outstanding balance of this note, in such order and manner as Holder may elect in its sole discretion.

     The Holder’s right to accelerate this note on account of any late payment or other default shall not be waived or deemed waived by the Holder by reason of the Holder’s having previously accepted one or more late payments or by reason of any Holder’s otherwise not accelerating this note or exercising other remedies for any default, and no Holder shall ever be obligated or deemed obligated to notify Maker or any other person that Holder is requiring strict compliance with this note or any papers securing or otherwise relating to it before such Holder may accelerate this note or exercise any other remedy.

     Nothing in this Section or elsewhere shall be construed as diminishing Holder’s absolute right to demand payment of all or any part of this note at any time.

     11. Legal Costs. If any Holder of this note retains an attorney in connection with any such default or to collect, enforce or defend this note or any papers intended to secure or guarantee it in any lawsuit or in any probate, reorganization, bankruptcy or other proceeding, or if Maker sues any Holder in connection with this note or any such papers and does not prevail, then Maker agrees to pay to each such Holder, in addition to principal and interest, all reasonable costs and expenses incurred by such Holder in trying to collect this note or in any such suit or proceeding, including reasonable attorneys’ fees.

     12. Waivers. Except only for any notices which are specifically required by the Credit Agreement, Maker and any and all co-makers, endorsers, guarantors and sureties severally waive notice (including, but not limited to, notice of intent to accelerate and notice of acceleration, notice of protest and notice of dishonor), demand, presentment for payment, protest, diligence in collecting and the filing of suit for the purpose of fixing liability and consent

EXHIBIT C-1
Page 3 of 5 Pages

that the time of payment hereof may be extended and re-extended from time to time without notice to any of them. Each such person agrees that his, her or its liability on or with respect to this note shall not be affected by any release of or change in any guaranty or security at any time existing or by any failure to perfect or maintain perfection of any lien against or security interest in any such security or the partial or complete unenforceability of any guaranty or other surety obligation, in each case in whole or in part, with or without notice and before or after maturity.

     13. Rate of Return Maintenance Covenant. If at any time after the date of this note, any Holder determines that (a) any applicable law, rule or regulation regarding capital adequacy of general applicability has been adopted or changed, or (b) its interpretation or administration by any governmental authority, central bank or comparable agency has changed, and determines that such change or the Holder’s compliance with any request or directive regarding capital adequacy of general applicability (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Holder’s capital as a consequence of its obligations under this note or any related papers to a level below that which the Holder could have achieved but for such adoption, change or compliance (taking into consideration the Holder’s own capital adequacy policies) by an amount the Holder deems to be material, then Maker promises to pay from time to time to the order of the Holder such additional amount or amounts as will compensate the Holder for such reduction. A certificate of any Holder setting forth the amount or amounts necessary to compensate the Holder as specified above shall be given to Maker as soon as practicable after the Holder has made such determination and shall be conclusive and binding, absent manifest error. Maker shall pay the Holder the amount shown as due on any such certificate within 15 days after the Holder gives it. In preparing such certificate, the Holder may employ such assumptions and make such allocations of costs and expenses as the Holder in good faith deems reasonable and may use any reasonable averaging and attribution method.

     14. Governing Law, Jurisdiction and Venue. This note shall be governed by and construed in accordance with the laws of the State of Texas and the United States of America from time to time in effect.

     15. General Purpose of Loan. Maker warrants and represents to Payee and all other Holders that all loans evidenced by this note are and will be for business, commercial, investment or other similar purpose and not primarily for personal, family, household or agricultural use.

     16. Participations and Assignments. Payee and each other Holder reserves the right, exercisable in such Holder’s discretion and without notice to Maker or any other person, to sell participations, assign interests or both, in all or any part of this note or the debt evidenced by this note, in accordance with the Credit Agreement.

     17. Limitation of Liability. No obligation or liability whatsoever of Maker which may arise at any time under this promissory note or any obligation or liability which may be incurred by it pursuant to any other instrument, transaction or undertaking contemplated hereby shall be personally binding upon, nor shall resort for the enforcement thereof be had to the

EXHIBIT C-1
Page 4 of 5 Pages

private property of, any of Maker’s trustees or shareholders regardless of whether such obligation or liability is in the nature of contract, tort or otherwise.

ARCHSTONE-SMITH OPERATING TRUST

By:

Name:

Title:

EXHIBIT C-1
Page 5 of 5 Pages

MASTER NOTE
Money Market Borrowings

$300,000,000.00                     ,2004

     FOR VALUE RECEIVED ARCHSTONE-SMITH OPERATING TRUST, a Maryland real estate investment trust (herein called “Maker”) promises to pay to the order of                                                              (“Payee”), at the offices of JPMorgan Chase Bank, N.A., as “Agent” under the Credit Agreement, at 712 Main Street, Houston, Texas 77002, or at such other place as the holder (the “Holder”, whether or not Payee is such holder) of this note may hereafter designate in writing, in immediately available funds and in lawful money of the United States of America, the principal sum of Three Hundred Million Dollars ($300,000,000.00) (or the unpaid balance of all principal advanced against this note, if that amount is less), together with interest on the unpaid principal balance of this note from time to time outstanding at the Stated Rate for Money Market Loans and interest on all past due amounts, both principal and accrued interest, at the Past Due Rate; provided, that for the full term of this note the interest rate produced by the aggregate of all sums paid or agreed to be paid to the Holder of this note for the use, forbearance or detention of the debt evidenced hereby (including, but not limited to, all interest on this note at the Stated Rate for Money Market Loans) shall not exceed the Ceiling Rate.

     1. Definitions. Any terms not defined herein shall have the meaning given to them in the Amended and Restated Credit Agreement dated of even date herewith among the Maker, the Agent and certain other Lenders (as the same has been and may be further amended or modified the “Credit Agreement”).

     2. Rates Change Automatically and Without Notice. Without notice to Maker or any other person or entity and to the full extent allowed by applicable law from time to time in effect, the Prime Rate and the Ceiling Rate shall each automatically fluctuate upward and downward as and in the amount by which Agent’s said prime rate, and such maximum nonusurious rate of interest permitted by applicable law, respectively, fluctuate.

     3. Calculation of Interest. Interest shall be computed for the actual number of days elapsed in a year (up to 365, or 366 in a leap year) deemed to consist of 360 days, unless the Ceiling Rate would thereby be exceeded, in which event, to the extent necessary to avoid exceeding the Ceiling Rate, interest shall be computed on the basis of the actual number of days elapsed in the applicable calendar year in which it accrued.

     4. Excess Interest Will be Refunded or Credited. If, for any reason whatever, the interest paid or received on this note during its full term produces a rate which exceeds the Ceiling Rate, the Holder of this note shall refund to the payor or, at the Holder’s option, credit

EXHIBIT C-2
Page 1 of 5 Pages

against the principal of this note such portion of that interest as shall be necessary to cause the interest paid on this note to produce a rate equal to the Ceiling Rate.

     5. Interest Will be Spread. All sums paid or agreed to be paid to the Holder of this note for the use, forbearance or detention of the indebtedness evidenced hereby, to the extent permitted by applicable law and to the extent necessary to avoid violating applicable usury laws, shall be amortized, prorated, allocated and spread in equal parts throughout the full term of this note, so that the interest rate is uniform throughout the full term of this note.

     6. Payment Schedule. The principal of this note shall be due and payable on the date set forth in each Notice of Money Market Borrowing with respect to the principal borrowed pursuant to said Notice, and the Maturity Date. Accrued and unpaid interest shall be due and payable on each Interest Payment Date.

     7. Prepayment. Maker may prepay this note only as provided in the Credit Agreement.

     8. Revolving Credit. Upon and subject to the terms and conditions of the Credit Agreement and the other provisions of this note, Maker may borrow, repay and reborrow against this note at any time unless and until a default (however designated) or event (an “Event of Potential Default”) which, if not cured after notice or before the lapse of time (or both) would develop into a default under this note, the Credit Agreement or any other Credit Documents has occurred which the Holder has not declared to have been fully cured or waived, and (except as the Credit Agreement or any of the other Credit Documents may otherwise provide) there is no limit on the number of advances against this note so long as the total unpaid principal of this note at any time outstanding does not exceed $300,000,000.00. Interest on the amount of each advance against this note shall be computed on the amount of the unpaid balance of that advance from the date it is made until the date it is repaid. If Maker’s right (if any) to borrow against this note shall ever lapse because of the occurrence of any default, it shall not be reinstated (or construed from any course of conduct or otherwise to have been reinstated) unless and until the Holder shall declare in a signed writing that it has been cured or waived. The unpaid principal balance of this note at any time shall be the total of all principal lent against this note to Maker or for Maker’s account less the sum of all principal payments and permitted prepayments on this note received by the Holder. Absent manifest error, the Holder’s computer records shall on any day conclusively evidence the unpaid balance of this note and its advances and payments history posted up to that day. All loans and advances and all payments and permitted prepayments made on this note may be (but are not required to be) endorsed by the Holder on the schedule attached hereto (which is hereby made a part hereof for all purposes) or otherwise recorded in the Holder’s computer or manual records; provided, that any Holder’s failure to make notation of (a) any principal advance or accrual of interest shall not cancel, limit or otherwise affect Maker’s obligations or any Holder’s rights with respect to that advance or accrual, or (b) any payment or

EXHIBIT C-2
Page 2 of 5 Pages

permitted prepayment of principal or interest shall not cancel, limit or otherwise affect Maker’s entitlement to credit for that payment as of the date of its receipt by the Holder. Maker and Payee expressly agree, as expressly allowed by Chapter 346 of the Texas Finance Code, that Chapter 346 (which relates to open-end line of credit revolving loan accounts) shall not apply to this note or to any loan evidenced by this note and that neither this note nor any such loan shall be governed by Chapter 346 or subject to its provisions in any manner whatsoever.

     9. Credit Agreement. This note has been issued pursuant to the terms of Section 2.8 of the Credit Agreement, to which reference is made for all purposes. Advances against this note by Payee or other Holder hereof shall be governed by the Credit Agreement. Payee is entitled to the benefits of the Credit Agreement. As additional security for this note, Maker hereby grants to Payee and all other present and future Holders an express lien against, security interest in and contractual right of setoff in and to, all property and any and all deposits (general or special, time or demand, provisional or final) at any time held by the Payee or other Holder for any Maker’s credit or account.

     10. Defaults and Remedies. Time is of the essence. Maker’s failure to pay any principal or accrued interest owing on this note when due and after expiration of any applicable period for notice and right to cure such a default which is specifically provided for in the Credit Agreement or any other provision of this note, or the occurrence of any default under the Credit Agreement or any other Credit Documents shall constitute default under this note, whereupon the Holder may elect to exercise any or all rights, powers and remedies afforded (a) under the Credit Agreement and all other papers related to this note and (b) by law, including the right to accelerate the maturity of this entire note.

     In addition to and cumulative of such rights, the Holder is hereby authorized at any time and from time to time after any such default, at Holder’s option, without notice to Maker or any other person or entity (all rights to any such notice being hereby waived), to set off and apply any and all of any Maker’s deposits at any time held by the Holder, and any other debt at any time owing by the Holder to or for the credit or account of any Maker, against the outstanding balance of this note, in such order and manner as Holder may elect in its sole discretion.

     The Holder’s right to accelerate this note on account of any late payment or other default shall not be waived or deemed waived by the Holder by reason of the Holder’s having previously accepted one or more late payments or by reason of any Holder’s otherwise not accelerating this note or exercising other remedies for any default, and no Holder shall ever be obligated or deemed obligated to notify Maker or any other person that Holder is requiring strict compliance with this note or any papers securing or otherwise relating to it before such Holder may accelerate this note or exercise any other remedy.

     Nothing in this Section or elsewhere shall be construed as diminishing Holder’s absolute right to demand payment of all or any part of this note at any time.

EXHIBIT C-2
Page 3 of 5 Pages

     11. Legal Costs. If any Holder of this note retains an attorney in connection with any such default or to collect, enforce or defend this note or any papers intended to secure or guarantee it in any lawsuit or in any probate, reorganization, bankruptcy or other proceeding, or if Maker sues any Holder in connection with this note or any such papers and does not prevail, then Maker agrees to pay to each such Holder, in addition to principal and interest, all reasonable costs and expenses incurred by such Holder in trying to collect this note or in any such suit or proceeding, including reasonable attorneys’ fees.

     12. Waivers. Except only for any notices which are specifically required by the Credit Agreement, Maker and any and all co-makers, endorsers, guarantors and sureties severally waive notice (including, but not limited to, notice of intent to accelerate and notice of acceleration, notice of protest and notice of dishonor), demand, presentment for payment, protest, diligence in collecting and the filing of suit for the purpose of fixing liability and consent that the time of payment hereof may be extended and re-extended from time to time without notice to any of them. Each such person agrees that his, her or its liability on or with respect to this note shall not be affected by any release of or change in any guaranty or security at any time existing or by any failure to perfect or maintain perfection of any lien against or security interest in any such security or the partial or complete unenforceability of any guaranty or other surety obligation, in each case in whole or in part, with or without notice and before or after maturity.

     13. Rate of Return Maintenance Covenant. If at any time after the date of this note, any Holder determines that (a) any applicable law, rule or regulation regarding capital adequacy of general applicability has been adopted or changed, or (b) its interpretation or administration by any governmental authority, central bank or comparable agency has changed, and determines that such change or the Holder’s compliance with any request or directive regarding capital adequacy of general applicability (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Holder’s capital as a consequence of its obligations under this note or any related papers to a level below that which the Holder could have achieved but for such adoption, change or compliance (taking into consideration the Holder’s own capital adequacy policies) by an amount the Holder deems to be material, then Maker promises to pay from time to time to the order of the Holder such additional amount or amounts as will compensate the Holder for such reduction. A certificate of any Holder setting forth the amount or amounts necessary to compensate the Holder as specified above shall be given to Maker as soon as practicable after the Holder has made such determination and shall be conclusive and binding, absent manifest error. Maker shall pay the Holder the amount shown as due on any such certificate within 15 days after the Holder gives it. In preparing such certificate, the Holder may employ such assumptions and make such allocations of costs and expenses as the Holder in good faith deems reasonable and may use any reasonable averaging and attribution method.

EXHIBIT C-2
Page 4 of 5 Pages

     14. Governing Law, Jurisdiction and Venue. This note shall be governed by and construed in accordance with the laws of the State of Texas and the United States of America from time to time in effect.

     15. General Purpose of Loan. Maker warrants and represents to Payee and all other Holders that all loans evidenced by this note are and will be for business, commercial, investment or other similar purpose and not primarily for personal, family, household or agricultural use.

     16. Participations and Assignments. Payee and each other Holder reserves the right, exercisable in such Holder’s discretion and without notice to Maker or any other person, to sell participations, assign interests or both, in all or any part of this note or the debt evidenced by this note, in accordance with the Credit Agreement.

     17. Limitation of Liability. No obligation or liability whatsoever of Maker which may arise at any time under this promissory note or any obligation or liability which may be incurred by it pursuant to any other instrument, transaction or undertaking contemplated hereby shall be personally binding upon, nor shall resort for the enforcement thereof be had to the private property of, any of Maker’s trustees or shareholders regardless of whether such obligation or liability is in the nature of contract, tort or otherwise.

ARCHSTONE-SMITH OPERATING TRUST

By:

Name:

Title:

EXHIBIT C-2
Page 5 of 5 Pages

Form of Money Market Quote Request

To:	JPMorgan Chase Bank, N.A. (the “Agent”)
From:	Archstone-Smith Operating Trust (the “Borrower”)
Re:	Amended and Restated Credit Agreement (the “Credit Agreement”), dated December 13, 2004 among the Borrower, the Lenders parties thereto and the Agent

          We hereby give notice pursuant to Section 2.8 of the Credit Agreement that we request Money Market Quotes for the following proposed Money Market Loan(s):

Date of Borrowing:                                         

Principal Amount	Interest Period
$

          Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the Adjusted Eurodollar Interbank Rate].

          The funding of Money Market Loans made in connection with this Money Market Quote Request [may/may not] be made by Designated Lenders.

          Terms used herein have the meanings assigned to them in the Credit Agreement.

ARCHSTONE-SMITH OPERATING TRUST

By:

Name:

Title:

                                             
Amount must be $20,000,000 or a larger multiple of $1,000,000.

Not less than one month (LIBOR Auction) or not less than 30 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period.

EXHIBIT E
Page 1 of 1 Page

EXHIBIT F

Form of Invitation for Money Market Quotes

To:	[Name of Lender]
RE:	Invitation for Money Market Quotes to Archstone-Smith Operating Trust (the “Borrower”)

     Pursuant to Section 2.8 of the Amended and Restated Credit Agreement dated December 13, 2004 among the Borrower, the Lenders parties thereto and the undersigned, as Agent, we are pleased on behalf of the Borrower to invite you to submit Money Market Quotes to the Borrower for the following proposed Money Market Loan(s):

Date of Borrowing:                                         

Principal Amount	Interest Period
$

     Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the Adjusted Eurodollar Interbank Rate.]

     Please respond to this invitation by no later than                      A.M. (New York, New York time) on [date].

JPMORGAN CHASE BANK, N.A., as Agent
By:
	Authorized Officer

EXHIBIT F
Page 1 of 1 Page

Form of Money Market Quote

To: JPMorgan Chase Bank, N.A., as Agent

RE: Money Market Quote to Archstone-Smith Operating Trust (the “Borrower”)

     In response to your invitation on behalf of the Borrower dated ___, 200___, we hereby make the following Money Market Quote on the following terms:

1.	Quoting Bank:
2.	Person to contact at Quoting Bank:
3.	We hereby offer to make Money Market Loan(s) in the following principal amounts, for the following Interest Periods and the following rates:

Principal	Interest	Money Market
Amount	Period	[Margin]_[Absolute Rate]
$
$

[Provided, that the aggregate principal amount of Money Market Loans for which the above offers may be accepted shall not exceed $___.]

               We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Amended and Restated Credit Agreement dated December 13, 2004 among the Borrower, the Lenders parties thereto and yourselves, as Agent, irrevocably obligates us to make the Money Market Loan(s) for which any offer(s) are accepted, in whole or in part.

	Very truly yours,
	[NAME OF LENDER]
Dated:	By:
		Authorized Officer

EXHIBIT G
Page 1 of 1

Form of Designation Agreement

Dated ____________, 200__

     Reference is made to that certain Amended and Restated Credit Agreement dated December 13, 2004 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”) among ARCHSTONE-SMITH OPERATING TRUST, the Lenders parties thereto, and JPMORGAN CHASE BANK, N.A. (the “Agent”), as Agent. Terms defined in the Credit Agreement are used herein with the same meaning.

     [NAME OF DESIGNOR] (the “Designor”), [NAME OF DESIGNEE] (the “Designee”), the Agent and Borrower agree as follows:

     1. The Designor hereby designates the Designee, and the Designee hereby accepts such designation, to have a right to make Money Market Loans pursuant to Section 2.8 of the Credit Agreement. Any assignment by Designor to Designee of its rights to make a Money Market Loan pursuant to such Section 2.8 shall be effective at the time of the funding of such Money Market Loan and not before such time.

     2. Except as set forth in Section 7 below, the Designor makes no representation or warranty and assumes no responsibility pursuant to this Designation Agreement with respect to (a) any statements, warranties or representations made in or in connection with any Credit Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of any Credit Document or any other instrument and document furnished pursuant thereto and (b) the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under any Credit Document or any other instrument or document furnished pursuant thereto.

     3. The Designee (a) confirms that it has received a copy of each Credit Document, together with copies of the financial statements referred to in Section 5.2 of the Credit Agreement and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Designation Agreement; (b) agrees that it will independently and without reliance upon the Agent, the Designor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under any Credit Document; (c) confirms that it is a Designated Lender; (d) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under any Credit Document as are delegated to the Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; and (e) agrees to be bound by each and every provision of each Credit Document and further agrees that it will perform in accordance with their terms all of the obligations which by the terms of any Credit Document are required to be performed by it as a Lender.

     4. The Designee hereby appoints Designor as Designee’s agent and attorney in fact, and grants to Designor an irrevocable power of attorney, to receive payments made for the

EXHIBIT H
Page 1 of 4

benefit of Designee under the Credit Agreement, to deliver and receive all communications and notices under the Credit Agreement and other Credit Documents and to exercise on Designee’s behalf all rights to vote and to grant and make approvals, waivers, consents or amendments to or under the Credit Agreement or other Credit Documents. Any document executed by the Designor on the Designee’s behalf in connection with the Credit Agreement or other Credit Documents shall be binding on the Designee. The Borrower, the Agent and each of the Lenders may rely on and are beneficiaries of the preceding provisions.

     5. Following the execution of this Designation Agreement by the Designor and its Designee, it will be delivered to the Agent for acceptance by the Agent. The effective date for this Designation Agreement (the “Effective Date”) shall be the date of acceptance hereof by the Agent, unless otherwise specified on the signature page hereto.

     6. The Agent hereby agrees that it will not institute against any Designee or join any other Person in instituting against any Designee any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding under any federal or state bankruptcy or similar law, until the later to occur of (i) one year and one day after the payment in full of the latest maturing commercial paper note issued by such Designee and (ii) the Maturity Date.

     7. The Designor unconditionally agrees to pay or reimburse the Designee and save the Designee harmless against all liabilities, obligations, losses, damages, penalties, actions and judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed or asserted by any of the parties to the Credit Documents against the Designee, in its capacity as such, in any way relating to or arising out of this Designation Agreement or any other Credit Documents or any action taken or omitted by the Designee hereunder or thereunder, INCLUDING THE NEGLIGENCE OF THE DESIGNEE provided that the Designor shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements if the same results from the Designee’s gross negligence or willful misconduct.

     8. As of the Effective Date the Designee shall be a party to the Credit Agreement with a right (subject to the provisions of Section 2.8(b)) to make Money Market Loans as a Lender pursuant to Section 2.8 of the Credit Agreement and the rights and obligations of a Lender related thereto; provided, however, that the Designee shall not be required to make payments with respect to such obligations except to the extent of excess cash flow of such Designee which is not otherwise required to repay obligations of such Designee, which are then due and payable. Notwithstanding the foregoing, the Designor, as administrative agent for the Designee, shall be and remain obligated to the Borrower, the Agent and the Lenders for each and every one of the obligations of the Designee and its Designor with respect to the Credit Agreement, including, without limitation, any indemnification obligations under Section 8.5 of the Credit Agreement and any sums otherwise payable to the Borrower by the Designee.

     9. This Designation Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas.

EXHIBIT H
Page 2 of 4

     10. This Designation Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Designation Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart of this Designation Agreement.

     IN WITNESS WHEREOF, the Designor and the Designee, intending to be legally bound, have caused this Designation Agreement to be executed by their officers thereunto duly authorized as of the date first above written.

Effective Date:

                                        , 200___

	[NAME OF DESIGNOR], as Designor
	By:
	Title:
	[NAME OF DESIGNEE], as Designee
	By:
	Title:
	Applicable Lending Office (and address for notices):
		[Address]
Accepted this _____ day of
______________, 200__
JPMORGAN CHASE BANK, N.A., as Agent
By:
Name:
Title:

EXHIBIT H
Page 3 of 4

FORM OF GUARANTY

     THIS GUARANTY dated as of ___, 2004 executed and delivered by each of the undersigned, whether one or more, (all each a “Guarantor” and collectively, the “Guarantors”), in favor of (a) JPMORGAN CHASE BANK, N.A., in its capacity as Agent (the “Agent”) for the Lenders under that certain Amended and Restated Credit Agreement dated as of December 13, 2004 by and among ARCHSTONE-SMITH OPERATING TRUST (the “Borrower”), the financial institutions party thereto and their assignees in accordance therewith (the “Lenders”), and the Agent (as the same may be amended, restated, supplemented or otherwise modified from time to time in accordance with its terms, the “Credit Agreement”) and (b) the Lenders.

     WHEREAS, pursuant to the Credit Agreement, the Lenders have made available to the Borrower certain financial accommodations on the terms and conditions set forth in the Credit Agreement;

     WHEREAS, each Guarantor is a wholly-owned Subsidiary of the Borrower;

     WHEREAS, the Borrower, each Guarantor and the other Subsidiaries of the Borrower, though separate legal entities, are mutually dependent on each other in the conduct of their respective businesses as an integrated operation and have determined it to be in their mutual best interests to obtain financing from the Agent and the Lenders through their collective efforts;

     WHEREAS, each Guarantor acknowledges that it will receive direct and indirect benefits from the Agent and the Lenders making such financial accommodations available to the Borrower under the Credit Agreement and, accordingly, each Guarantor is willing to guarantee the Borrower’s obligations to the Agent and the Lenders on the terms and conditions contained herein; and

     WHEREAS, each Guarantor’s execution and delivery of this Guaranty is one of the conditions precedent to the Agent and the Lenders making, or continuing to make, such financial accommodations to the Borrower.

     NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each Guarantor, each Guarantor agrees as follows:

     Section 1. Guaranty. Each Guarantor hereby absolutely and unconditionally guaranties the due and punctual payment and performance of all of the following (collectively referred to as the “Obligations”): (a) all indebtedness and obligations owing by the Borrower to any of the Lenders or the Agent under or in connection with the Credit Agreement and any other Credit Document, including without limitation, the repayment of all principal of the Loans made by the Lenders to the Borrower under the Credit Agreement and the payment of all interest, fees, charges, reasonable attorneys fees and other amounts payable to any Lender or the Agent thereunder or in connection therewith; (b) any and all extensions, renewals, modifications, amendments or substitutions of the foregoing; and (c) all expenses, including, without limitation,

EXHIBIT I
Page 1 of 9

reasonable attorneys’ fees and disbursements, that are incurred by the Lenders or the Agent in the enforcement of any of the foregoing or any obligation of such Guarantor hereunder.

     Section 2. Guaranty of Payment and Not of Collection. This Guaranty is a guaranty of payment, and not of collection, and a debt of each Guarantor for its own account. Accordingly, the Lenders and the Agent shall not be obligated or required before enforcing this Guaranty against any Guarantor: (a) to pursue any right or remedy the Lenders or the Agent may have against the Borrower, any other Guarantor or any other Person or commence any suit or other proceeding against the Borrower, any other Guarantor or any other Person in any court or other tribunal; (b) to make any claim in a liquidation or bankruptcy of the Borrower, any other Guarantor or any other Person; or (c) to make demand of the Borrower, any other Guarantor or any other Person or to enforce or seek to enforce or realize upon any collateral security held by the Lenders or the Agent which may secure any of the Obligations. In this connection, each Guarantor hereby waives the right of such Guarantor to require any holder of the Obligations to take action against the Borrower as provided by any Legal Requirement.

     Section 3. Guaranty Absolute. Each Guarantor guarantees that the Obligations will be paid strictly in accordance with the terms of the documents evidencing the same, regardless of any Legal Requirement now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Agent or the Lenders with respect thereto. The liability of each Guarantor under this Guaranty shall be absolute and unconditional in accordance with its terms and shall remain in full force and effect without regard to, and shall not be released, suspended, discharged, terminated or otherwise affected by, any circumstance or occurrence whatsoever, including without limitation, the following (whether or not such Guarantor consents thereto or has notice thereof):

     (a) (i) any change in the amount, interest rate or due date or other term of any of the Obligations, (ii) any change in the time, place or manner of payment of all or any portion of the Obligations, (iii) any amendment or waiver of, or consent to the departure from or other indulgence with respect to, the Credit Agreement, any other Credit Document, or any other document or instrument evidencing or relating to any Obligations, or (iv) any waiver, renewal, extension, addition, or supplement to, or deletion from, or any other action or inaction under or in respect of, the Credit Agreement, any of the other Credit Documents, or any other documents, instruments or agreements relating to the Obligations or any other instrument or agreement referred to therein or evidencing any Obligations or any assignment or transfer of any of the foregoing;

     (b) any lack of validity or enforceability of the Credit Agreement, any of the other Credit Documents, or any other document, instrument or agreement referred to therein or evidencing any Obligations or any assignment or transfer of any of the foregoing;

     (c) any furnishing to the Agent or the Lenders of any security for the Obligations, or any sale, exchange, release or surrender of, or realization on, any collateral security for the Obligations;

EXHIBIT I
Page 2 of 9

     (d) any settlement or compromise of any of the Obligations, any security therefor, or any liability of any other party with respect to the Obligations, or any subordination of the payment of the Obligations to the payment of any other liability of the Borrower;

     (e) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to any other Guarantor, the Borrower or any other Person, or any action taken with respect to this Guaranty by any trustee or receiver, or by any court, in any such proceeding;

     (f) any nonperfection of any security interest or other Lien on any of the collateral securing any of the Obligations;

     (g) any act or failure to act by the Borrower or any other Person which may adversely affect such Guarantor’s subrogation rights, if any, against the Borrower to recover payments made under this Guaranty;

     (h) any application of sums paid by the Borrower or any other Person with respect to the liabilities of the Borrower to the Agent or the Lenders, regardless of what liabilities of the Borrower remain unpaid;

     (i) any defect, limitation or insufficiency in the borrowing powers of the Borrower or in the exercise thereof; or

     (j) any other circumstance which might otherwise constitute a defense available to, or a discharge of, any Guarantor hereunder.

     Section 4. Action with Respect to Obligations. The Lenders and the Agent may, at any time and from time to time, without the consent of, or notice to, any Guarantor, and without discharging any Guarantor from its obligations hereunder take any and all actions described in Section 3 and may otherwise: (a) amend, modify, alter or supplement the terms of any of the Obligations, including, but not limited to, extending or shortening the time of payment of any of the Obligations or the interest rate that may accrue on any of the Obligations; (b) amend, modify, alter or supplement the Credit Agreement or any other Credit Document; (c) sell, exchange, release or otherwise deal with all, or any part, of any collateral securing any of the Obligations; (d) release any Person liable in any manner for the payment or collection of the Obligations; (e) exercise, or refrain from exercising, any rights against the Borrower or any other Person (including, without limitation, any other Guarantor); and (f) apply any sum, by whomsoever paid or however realized, to the Obligations in such order as the Lenders or the Agent shall elect.

     Section 5. Representations and Warranties. Each Guarantor hereby makes to the Agent and the Lenders all of the representations and warranties made by the Borrower with respect to or in any way relating to such Guarantor in the Credit Agreement and the other Credit Documents, as if the same were set forth herein in full.

     Section 6. Covenants. Each Guarantor will comply with all covenants which the Borrower is to cause such Guarantor to comply with under the terms of the Credit Agreement or

EXHIBIT I
Page 3 of 9

any other Credit Documents. Guarantor specifically agrees that to the extent Guaranty Proceeds (as defined in Section 7.3(a) of the Credit Agreement) are distributed to holders of Public Debt or their respective trustees (as defined in Section 7.3(a) of the Credit Agreement) pursuant to Section 7.3 of the Credit Agreement, the Obligations will not be deemed to be reduced by any such distributions and each Guarantor shall continue to make payments under this Guaranty until such time as the Obligations have been paid in full (and the Commitment has been terminated and any LC Exposure reduced to zero), after taking into account any such distributions of payments hereunder in report of Indebtedness other than the Obligations.

     Section 7. Waiver. Each Guarantor, to the fullest extent permitted by applicable law, hereby waives notice of acceptance hereof or any presentment, demand, protest or notice of any kind, and any other act or thing, or omission or delay to do any other act or thing, which in any manner or to any extent might vary the risk of such Guarantor or which otherwise might operate to discharge such Guarantor from its obligations hereunder.

     Section 8. Inability to Accelerate Loan. If the Agent and/or the Lenders are prevented from demanding or accelerating payment thereof by reason of any automatic stay or otherwise, the Agent and/or the Lenders shall be entitled to receive from each Guarantor, upon demand therefor, the sums which otherwise would have been due had such demand or acceleration occurred.

     Section 9. Reinstatement of Obligations. Each Guarantor agrees that this Guaranty shall continue to be effective or be reinstated, as the case may be, with respect to any Obligations if at any time payment of any such Obligations is rescinded or otherwise must be restored by the Agent and/or the Lenders upon the bankruptcy or reorganization of the Borrower or any Guarantor or otherwise.

     Section 10. Subrogation. Until all of the Obligations shall have been indefeasibly paid in full, no Guarantor shall have any right of subrogation and each Guarantor hereby waives any right to enforce any remedy which the Agent and/or the Lenders now have or may hereafter have against the Borrower, and each Guarantor hereby waives any benefit of, and any right to participate in, any security or collateral given to the Agent and the Lenders to secure payment or performance of any of the Obligations.

     Section 11. Payments Free and Clear. All sums payable by each Guarantor hereunder, whether of principal, interest, fees, expenses, premiums or otherwise, shall be paid in full, without set-off or counterclaim or any deduction or withholding whatsoever (including any withholding tax or liability imposed by any Governmental Authority, or any Legal Requirement promulgated thereby), and if any Guarantor is required by such Legal Requirement or by such Governmental Authority to make any such deduction or withholding, such Guarantor shall pay to the Agent and the Lenders such additional amount as will result in the receipt by the Agent and the Lenders of the full amount payable hereunder had such deduction or withholding not occurred or been required.

     Section 12. Set-off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, each Lender is hereby authorized by each

EXHIBIT I
Page 4 of 9

Guarantor, at any time or from time to time, without notice to any Guarantor or to any other Person, any such notice being hereby expressly waived, but subject to receipt of Agent’s prior written consent, to set-off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness at any time held or owing by such Lender or any Affiliate of such Lender, to or for the credit or the account of each Guarantor against and on account of any of the Obligations then due and owing after the expiration of any applicable grace periods. Each Guarantor agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note, whether or not acquired pursuant to the applicable provisions of the Credit Agreement, may exercise rights of setoff or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of such Guarantor in the amount of such participation.

     Section 13. Subordination. Each Guarantor hereby expressly covenants and agrees for the benefit of the Agent and the Lenders that all obligations and liabilities of the Borrower or any other Guarantor to such Guarantor of whatever description, including without limitation, all intercompany receivables of such Guarantor from the Borrower or any other Guarantor (collectively, the “Junior Claims”) shall be subordinate and junior in right of payment to all Obligations. If an Event of Default shall have occurred and be continuing, then no Guarantor shall accept any direct or indirect payment (in cash, property, securities by setoff or otherwise) from the Borrower or any other Guarantor on account of or in any manner in respect of any Junior Claim until all of the Obligations have been indefeasibly paid in full.

     Section 14. Avoidance Provisions. It is the intent of each Guarantor, the Agent and the Lenders that in any Proceeding, such Guarantor’s maximum obligation hereunder shall equal, but not exceed, the maximum amount which would not otherwise cause the obligations of such Guarantor hereunder (or any other obligations of such Guarantor to the Agent and the Lenders) to be avoidable or unenforceable against such Guarantor in such Proceeding as a result of applicable law, including without limitation, (a) Section 548 of the Bankruptcy Code of 1978, as amended (the “Bankruptcy Code”) and (b) any state fraudulent transfer or fraudulent conveyance act or statute applied in such Proceeding, whether by virtue of Section 544 of the Bankruptcy Code or otherwise. The applicable laws under which the possible avoidance or unenforceability of the obligations of such Guarantor hereunder (or any other obligations of such Guarantor to the Agent and the Lenders) shall be determined in any such Proceeding are referred to as the “Avoidance Provisions”. Accordingly, to the extent that the obligations of any Guarantor hereunder would otherwise be subject to avoidance under the Avoidance Provisions, the maximum Obligations for which such Guarantor shall be liable hereunder shall be reduced to that amount which, as of the time any of the Obligations are deemed to have been incurred under the Avoidance Provisions, would not cause the obligations of any Guarantor hereunder (or any other obligations of such Guarantor to the Agent and the Lenders), to be subject to avoidance under the Avoidance Provisions. This Section is intended solely to preserve the rights of the Agent and the Lenders hereunder to the maximum extent that would not cause the obligations of any Guarantor hereunder to be subject to avoidance under the Avoidance Provisions, and no Guarantor nor any other Person shall have any right or claim under this Section as against the Agent and the Lenders that would not otherwise be available to such Person under the Avoidance Provisions.

EXHIBIT I
Page 5 of 9

     Section 15. Information. Each Guarantor assumes all responsibility for being and keeping itself informed of the financial condition of the Borrower, of the other Guarantors and of all other circumstances bearing upon the risk of nonpayment of any of the Obligations and the nature, scope and extent of the risks that such Guarantor assumes and incurs hereunder, and agrees that none of the Agent or any Lender shall have any duty whatsoever to advise any Guarantor of information regarding such circumstances or risks.

     Section 16. Governing Law. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.

     SECTION 17. JURISDICTION, VENUE.

     (a) EACH GUARANTOR AGREES THAT THE FEDERAL DISTRICT COURT OF THE SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION, OR, AT THE OPTION OF THE AGENT, ANY STATE COURT LOCATED IN HARRIS COUNTY, TEXAS SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OR AMONG ANY GUARANTOR, THE AGENT OR ANY OF THE LENDERS, PERTAINING DIRECTLY OR INDIRECTLY TO THIS GUARANTY OR ANY OTHER CREDIT DOCUMENT OR TO ANY MATTER ARISING HEREFROM OR THEREFROM OR ANY COLLATERAL. EACH GUARANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURTS. THE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE BRINGING OF ANY ACTION BY THE AGENT OR ANY LENDER OR THE ENFORCEMENT BY THE AGENT OR ANY LENDER IN ANY OTHER APPROPRIATE JURISDICTION. FURTHER, EACH GUARANTOR IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

     (b) THE FOREGOING WAIVERS HAVE BEEN MADE WITH THE ADVICE OF COUNSEL AND WITH A FULL UNDERSTANDING OF THE LEGAL CONSEQUENCES THEREOF, AND SHALL SURVIVE THE PAYMENT OF THE OBLIGATIONS AND ALL OTHER AMOUNTS PAYABLE HEREUNDER OR UNDER THE OTHER CREDIT DOCUMENTS AND THE TERMINATION OF THIS GUARANTY.

     Section 18. Loan Accounts. The Agent may maintain books and accounts setting forth the amounts of principal, interest and other sums paid and payable with respect to the Obligations, and in the case of any dispute relating to any of the outstanding amount, payment or receipt of Obligation or otherwise, the entries in such account shall be binding upon each Guarantor as to the outstanding amount of such Obligations and the amounts paid and payable with respect thereto absent manifest error. The failure of the Agent to maintain such books and accounts shall not in any way relieve or discharge any Guarantor of any of its obligations hereunder.

EXHIBIT I
Page 6 of 9

     Section 19. Waiver of Remedies. No delay or failure on the part of the Agent or the Lenders in the exercise of any right or remedy it may have against any Guarantor hereunder or otherwise shall operate as a waiver thereof, and no single or partial exercise by the Agent or the Lenders of any such right or remedy shall preclude other or further exercise thereof or the exercise of any other such right or remedy.

     Section 20. Successors and Assigns. Each reference herein to the Agent or the Lenders shall be deemed to include such Person’s respective successors and assigns (including, but not limited to, any holder of the Obligations) in whose favor the provisions of this Guaranty also shall inure, and each reference herein to any Guarantor shall be deemed to include the Guarantor’s successors and assigns, upon whom this Guaranty also shall be binding. The Lenders and the Agent may, in accordance with the applicable provisions of the Credit Agreement, assign, transfer or sell any Obligation, or grant or sell participation in any Obligations, to any Person or entity without the consent of, or notice to, any Guarantor and without releasing, discharging or modifying such Guarantor’s obligations hereunder. Each Guarantor hereby consents to the delivery by the Agent or any Lender to any assignee, transferee or participant of any financial or other information regarding the Borrower or any Guarantor. Each Guarantor may not assign or transfer its obligations hereunder to any Person.

     SECTION 21. JOINT AND SEVERAL OBLIGATIONS. THE OBLIGATIONS OF THE GUARANTORS HEREUNDER AND UNDER OTHER CREDIT DOCUMENTS SHALL BE JOINT AND SEVERAL, AND ACCORDINGLY, EACH GUARANTOR CONFIRMS THAT IT IS LIABLE FOR THE FULL AMOUNT OF THE OBLIGATIONS AND ALL OF THE OBLIGATIONS AND LIABILITIES OF EACH OF THE OTHER GUARANTORS HEREUNDER AND UNDER OTHER COURT DOCUMENTS.

     Section 22. Amendments. This Guaranty may not be amended except as provided in the Credit Agreement.

     Section 23. Payments. All payments made by any Guarantor pursuant to this Guaranty shall be made in Dollars, in immediately available funds to the Agent at its Lending Office, not later than 12:00 noon, New York, New York time on the date one (1) Business Day after demand therefor.

     Section 24. Notices. All notices, requests and other communications hereunder shall be in writing and shall be given as provided in the Loan Agreement. Each Guarantor’s address for notice is set forth below its signature hereto.

     Section 25. Severability. In case any provision of this Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

     Section 26. Headings. Section headings used in this Guaranty are for convenience only and shall not affect the construction of this Guaranty.

EXHIBIT I
Page 7 of 9

     Section 27. Definitions. (a) For the purposes of this Guaranty:

     “Proceeding” means any of the following: (i) a voluntary or involuntary case concerning any Guarantor shall be commenced under the Bankruptcy Code or any other applicable bankruptcy laws; (ii) a custodian (as defined in the Bankruptcy Code or any other applicable bankruptcy laws) is appointed for, or takes charge of, all or any substantial part of the property of any Guarantor; (iii) any other proceeding under any applicable law, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding-up or composition for adjustment of debts, whether now or hereafter in effect, is commenced relating to any Guarantor; (iv) any Guarantor is adjudicated insolvent or bankrupt; (v) any order of relief or other order approving any such case or proceeding is entered by a court of competent jurisdiction; (vi) any Guarantor makes a general assignment for the benefit of creditors; (vii) any Guarantor shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; (viii) any Guarantor shall call a meeting of its creditors with a view to arranging a composition or adjustment of its debts; (ix) any Guarantor shall by any act or failure to act indicate its consent to, approval of or acquiescence in any of the foregoing; or (x) any corporate action shall be taken by any Guarantor for the purpose of effecting any of the foregoing.

     (b) Terms not otherwise defined herein are used herein with the respective meanings given them in the Credit Agreement.

     IN WITNESS WHEREOF, each Guarantor has duly executed and delivered this Guaranty as of the date and year first written above.

[Guarantor Signature]

Address:

9200 E. Panorama Circle

Suite 400

Englewood, Colorado 80112

Attention: Corporate Finance

EXHIBIT I
Page 8 of 9

ASSIGNMENT AND ASSUMPTION

     This Assignment and Assumption (the “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between [Insert name of Assignor] (the “Assignor”) and [Insert name of Assignee] (the “Assignee”). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

     For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of the Assignor’s rights and obligations in its capacity as a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including any letters of credit, guarantees, and swingline loans included in such facilities) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as the “Assigned Interest”). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.

1.	Assignor:
2.	Assignee:
		[and is an Affiliate/Approved Fund of [identify Lender]1]
3.	Borrower:	Archstone-Smith Operating Trust
4.	Administrative Agent:	JPMorgan Chase Bank, N.A., as the administrative agent under the Credit Agreement
5.	Credit Agreement:	[The Amended and Restated Credit Agreement dated as of December 13, 2004 among Archstone-Smith Operating Trust, the Lenders parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the other lenders parties thereto]

1 Select as applicable.

EXHIBIT J
Page 1 of 3

6.   Assigned Interest:

	Aggregate Amount of	Amount of
	Commitment/Loans for	Commitment/Loans	Percentage Assigned of
Facility Assigned2	all Lenders	Assigned	Commitment/Loans3
	$	$		%
	$	$		%
	$	$		%

Effective Date: _____________ ___, 20___ [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

The terms set forth in this Assignment and Assumption are hereby agreed to:

ASSIGNOR

[NAME OF ASSIGNOR]

By:

 Title:

ASSIGNEE

[NAME OF ASSIGNEE]

By:

 Title:

2 Fill in the appropriate terminology for the types of facilities under the Credit Agreement that are being assigned under this Assignment (e.g. “Revolving Commitment,” “Tranche A Commitment,” “Tranche B Commitment,” etc.)

3 Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder.

EXHIBIT J
Page 2 of 3

[Consented to and]4 Accepted:

JPMORGAN CHASE BANK, N.A., as
Administrative Agent

By

 Title:

[Consented to:]5

[NAME OF RELEVANT PARTY]

By

 Title:

4 To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement.

5 To be added only if the consent of the Borrower and/or other parties (e.g. Swingline Lender, Issuing Bank) is required by the terms of the Credit Agreement.

EXHIBIT J
Page 3 of 3

ANNEX 1

STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION

     1. Representations and Warranties.

     1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.

     1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it satisfies the requirements, if any, specified in the Credit Agreement that are required to be satisfied by it in order to acquire the Assigned Interest and become a Lender, (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section 5.2 thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender, and (v) if it is a Foreign Lender, attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

     2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.

     3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of Texas.

EXHIBIT J
Page 1 of 3

GUARANTY OF COLLECTION

     THIS GUARANTY (this “Guaranty”), dated as of ___is made by ___ (the “Guarantor”), in favor of (a) JPMorgan Chase Bank, N.A., in its capacity as Administrative Agent (the “Agent”) for the Lenders under that certain Amended and Restated Credit Agreement dated as of December 13, 2004 by and among Archstone-Smith Operating Trust (the “Borrower”), the financial institutions party thereto and their assignees in accordance therewith (the “Lenders”), and the Agent (as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms, the “Credit Agreement”) and (b) the Lenders.

     PRELIMINARY STATEMENT. Capitalized terms not otherwise defined herein shall have the respective meanings assigned thereto under the Credit Agreement. The Guarantor is a beneficial common unitholder of the Borrower and therefore the Guarantor has determined that the making of the Loan by the Lenders benefited, directly or indirectly, the Guarantor. If other beneficial common unitholders of the Borrower have entered into similar guaranty agreements (the “Other Guarantees”) with the Agent as this Guaranty, they shall be referred to in this Guaranty as the “Other Guarantors.”

     NOW, THEREFORE, in consideration of the premises, the Guarantor hereby agrees as follows:

     SECTION 1. Guaranty. This guaranty constitutes a limited guaranty of collection. The Guarantor hereby guarantees the punctual collection when due, on a several basis, whether at stated maturity, by demand, acceleration or otherwise, of (a) that portion of the principal and interest outstanding on the indebtedness of the Borrower under the Credit Agreement that remains outstanding equal to $ ___[THIS NUMBER IS INTENDED TO BE THE ACTUAL AMOUNT OF GUARANTEE] less such amounts as the Agent has collected upon exercising all rights, assertion of all claims and demands and enforcement of all remedies available to it (other than this Guaranty and the Other Guarantees) under the Credit Documents, and (b) reasonable attorney’s fees and all costs and expenses incurred in enforcing any rights under this Guaranty (such obligations being the “Obligations”). An objective of this guaranty is that the Obligation shall be a “recourse liability” as defined in Treasury Regulation §1.752-1(a)(1), and the Guarantor shall bear the economic risk of loss with respect to such portion of the liabilities as is equal to the Obligations within the meaning of Treasury Regulation §1.752-2.

     SECTION 2. Guaranty Absolute. The Guarantor hereby guarantees that the Obligations will be paid strictly in accordance with their terms, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Agent with respect thereto. The liability of the Guarantor under this Guaranty shall be absolute and unconditional irrespective of:

(a)	Any lack of validity or enforceability of the Credit Agreement or any other Credit Documents or agreement relating thereto or executed in connection therewith;
(b)	Any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations or any other amendment or waiver of or any consent

EXHIBIT K
Page 1 of 4

to any departure from the Credit Agreement, any other Credit Documents or any other documents or agreement relating thereto or executed in connection therewith;

(c)	Any exchange, release or non-perfection of any other collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of the Obligations; or
(d)	Any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Borrower, any subsidiary of Borrower or any other person that is a party to the Credit Agreement, any other Credit Documents or any other document or agreement related thereto or executed in connection therewith (including any guarantor) in respect to the Obligations.

This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Obligations is rescinded or must otherwise be returned by the Agent or any Lender upon the insolvency, bankruptcy or reorganization of the Borrower or Guarantor or otherwise, all as though such payment had not been made. The obligations of the Guarantor under this Guaranty shall not be subject to reduction, termination or other impairment by reason of any setoff, recoupment, counterclaim or defense or for any other reason. This Guaranty is to be in addition to and is not to prejudice or be prejudiced by any other securities or guaranties (including any guaranty signed by the Guarantor) which the Agent may now or hereafter hold from or on account of the Borrower and is to be binding on the Guarantor as a continuing guaranty notwithstanding any payments from time to time made to the Agent or any settlement of account or disability or incapacity affecting the Guarantor or any other thing whatsoever.

     SECTION 3. Representations and Warranties. Guarantor hereby represents and warrants that it has the requisite power and authority to execute and deliver and to carry out this Guaranty and the transactions contemplated herein; and to perform its obligations hereunder. This Guaranty has been duly and validly executed and delivered by the Guarantor and constitutes a valid and legally binding agreement of the Guarantor, enforceable in accordance with its terms.

     SECTION 4. Waiver. The Guarantor waives any notice with respect to any of the Obligations and this Guaranty (it being the understanding of the Agent and the Guarantor that this Guaranty is a guaranty of collection and not of payment).

     SECTION 5. No Subrogation. The Guarantor will not exercise any rights which it may acquire by way of subrogation under this Guaranty or in respect of any security for the Obligations, by any payment made hereunder or otherwise.

     SECTION 6. Amendments, Etc. No amendment or waiver of any provision of this Guaranty nor consent to any departure by the Guarantor herefrom, shall be effective unless the same is in writing and signed by the Agent and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

     SECTION 7. Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing or by facsimile, telegraph or

EXHIBIT K
Page 2 of 4

cable and mailed or sent or delivered as to each party hereto at the address for notices set forth under its name on the signature page hereof or, in the case of each party, at such other address as shall be designated by such party in a written notice to all other parties. All such notices and other communications shall be effective when received, and in the case of notice by facsimile, telegraph or cable, when sent, and upon receipt of an answer back, in each case addressed as set forth above.

     SECTION 8. No Waiver; Cumulative Remedies. No failure on the part of the Agent or any Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

     SECTION 9. Absolute and Continuing Guaranty. This Guaranty is an absolute and continuing guaranty and shall (a) remain in full force and effect until full payment of the Obligations or all amounts payable under this Guaranty, (b) be binding upon the Guarantor and its successors and assigns, and (c) inure to the benefit of the Agent and its successors and assigns.

     SECTION 10. Savings Clause. Nothing herein is intended to contract for, take, reserve, charge or receive interest or other consideration for the use, forbearance or detention of money at a rate in excess of the highest rate permitted by applicable laws (“Highest Lawful Rate”) nor shall the Guarantor be required to pay unearned interest. If any amount payable by the Guarantor hereunder is deemed to constitute unearned interest or if the Agent shall receive from the Guarantor any monies that are deemed to constitute interest at a rate in excess of the Highest Lawful Rate, then (a) the amount of interest which would otherwise be payable under this Guaranty shall be reduced to the amount allowed under applicable law, and (b) any unearned interest paid by the Guarantor or any interest paid by the Guarantor in excess of the Highest Lawful Rate shall, at the option of the Agent, be either refunded to the Guarantor or credited against the amounts payable by the Guarantor hereunder, in such order as the Agent shall determine.

     SECTION 11. Governing Law. This Guaranty shall be deemed to be executed by the parties hereto under the laws of the State of Texas, and shall be construed in accordance with the laws of Texas and applicable federal law.

     SECTION 12. Waiver of Suretyship Rights. By signing this Guaranty, Guarantor WAIVES each and every right to which it may be entitled by virtue of any suretyship law, including any rights it may have pursuant to Rule 31 of the Texas Rules of Civil Procedure, §17.001 of the Texas Civil Practice and Remedies Code and Chapter 34 of the Texas Business and Commerce Code, as the same may be amended from time to time.

     SECTION 13. Release of Claims. Guarantor hereby releases, discharges and acquits forever Agent, Lenders and their respective officers, directors, trustees, agents, employees and counsel (in each case, past, present or future) from any and all Claims existing as of the date hereof (or the date of actual execution hereof by Guarantor, if later). As used herein, the term “Claim” shall mean any and all liabilities, claims, defenses, demands, actions, causes of action,

EXHIBIT K
Page 3 of 4

judgments, deficiencies, interest, liens, costs or expenses (including court costs, penalties, attorneys’ fees and disbursements, and amounts paid in settlement) of any kind and character whatsoever, including claims for usury, breach of contract, breach of commitment, negligent misrepresentation or failure to act in good faith, in each case whether now known or unknown, suspected or unsuspected, asserted or unasserted or primary or contingent, and whether arising out of written documents, unwritten undertakings, course of conduct, tort, violations of laws or regulations or otherwise. To the maximum extent permitted by applicable law, Guarantor hereby waives all rights, remedies, claims and defenses based upon or related to Sections 51.003, 51.004 and 51.005 of the Texas Property Code, to the extent the same pertain or may pertain to any enforcement of this Guaranty.

     IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered as of the date first above written.

[Name of Guarantor]

By:

Name:

Title:

[Address of Guarantor]

EXHIBIT K
Page 4 of 4

EX-10.16

exv10w16

EX-12.1

EXHIBIT 12.1

ARCHSTONE-SMITH OPERATING TRUST
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
 
(Dollar amounts in thousands)

	Years Ended December 31,
	2004(1)		2003(1)		2002(1)		2001(1)		2000(1)
Earnings from operations	$	131,797	$	116,932	$	137,947	$	100,078	$	101,887
Add:
Interest Expense		175,249		160,871		149,538		34,223		53,781
Earnings as adjusted	$	307,046	$	277,803	$	287,485	$	134,301	$	155,668
Fixed Charges:
Interest expense	$	175,249	$	160,871	$	149,538	$	34,223	$	53,781
Capitalized interest		23,572		26,854		32,377		29,186		37,079
Total fixed charges	$	198,821	$	187,725	$	181,915	$	63,409	$	90,860
Ratio of earnings to fixed charges		1.5		1.5		1.6		2.1		1.7

(1)   Net earnings from discontinued operations have been reclassified for all periods presented.

EX-12.2

EXHIBIT 12.2

ARCHSTONE-SMITH OPERATING TRUST
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DISTRIBUTIONS
 
(Dollar amounts in thousands)

	Years Ended December 31,
	2004(1)		2003(1)		2002(1)		2001(1)		2000(1)
Earnings from operations	$	131,797	$	116,932	$	137,947	$	100,078	$	101,887
Add:
Interest Expense		175,249		160,871		149,538		34,223		53,781
Earnings as adjusted	$	307,046	$	277,803	$	287,485	$	134,301	$	155,668
Combined fixed charges and Preferred Share distributions:
Interest expense	$	175,249	$	160,871	$	149,538	$	34,223	$	53,781
Capitalized interest		23,572		26,854		32,377		29,186		37,079
Total fixed charges		198,821		187,725		181,915		63,409		90,860
Preferred Share distributions		16,254		26,153		34,309		25,877		25,340
Combined fixed charges and Preferred Share distributions	$	215,075	$	213,878	$	216,224	$	89,286	$	116,200
Ratio of earnings to combined fixed charges and Preferred Share distributions		1.4		1.3		1.3		1.5		1.3

a.   Net earnings from discontinued operations have been reclassified for all periods presented.

EX-15.1

EXHIBIT 15.1

Consent of Independent Registered Public Accounting Firm

The Trustee
Archstone-Smith Operating Trust:

     We consent to the incorporation by reference in the registration statement Nos. 333-103952 (Form S-3) and 333-114394 (Form S-3) of Archstone-Smith Operating Trust of our reports dated February 28, 2005, with respect to the consolidated balance sheets of Archstone-Smith Operating Trust and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of earnings, unitholders’ equity, other common unitholders’ interest and comprehensive earnings (loss), and cash flows for each of the years in the three-year period ended December 31, 2004, and all related financial statement schedules, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2004 and the effectiveness of internal control over financial reporting as of December 31, 2004, which reports appear in the December 31, 2004 annual report on Form 10-K of Archstone-Smith Operating Trust.

/s/ KPMG LLP

Denver, Colorado
February 28, 2005

EX-21

EXHIBIT 21

Subsidiary Name	Organization
AICP LLC	Delaware
AMERITON Properties Incorporated	Maryland
API Barrington Hills, LLC	Delaware
API Cameron Park LLC	Delaware
API Dadeland LLC	Delaware
API Genesis Park LLC	Delaware
API Hibiscus LLC	Delaware
API Lakemont LLC	Delaware
API Laurel Crossing LLC	Delaware
API Mission North LLC	Delaware
API Multifamily Properties LLC	Delaware
API Roosevelt Center Incorporated	Delaware
API Sonoma Incorporated	Delaware
API Stratford LLC	Delaware
Archstone Foundation	Delaware
Archstone Property Management LLC	Delaware
Archstone Property Management (California) LLC	Delaware
Archstone Vinnin Square LLC	Delaware
Archstone-Smith Communities LLC	Delaware
Archstone-Smith Unitholder Services LLC	Delaware
ASN Bowie LLC	Delaware
ASN Calabasas I LLC	Delaware
ASN Calabasas II LLC	Delaware
ASN Cambridge LLC	Delaware
ASN City Place LLC	Delaware
ASN Cypress Cove LLC	Florida
ASN Dakota Ridge LLC	Delaware
ASN Doral West LLC	Florida
ASN Dupont Circle LLC	Delaware
ASN Estancia LLC	Delaware
ASN Fairfax Corner LLC	Delaware
ASN Gresham Commons LLC	Delaware
ASN Hoboken I LLC	Delaware
ASN Hoboken II LLC	Delaware
ASN Lakeshore East LLC	Delaware
ASN Las Flores LLC	Delaware
ASN Maple Leaf Member LLC	Delaware
ASN Maple Leaf (Office) LLC	Delaware
ASN Marina Del Rey LLC	Delaware
ASN Meadow Wood LLC	Delaware
ASN Miramar Lakes LLC	Delaware
ASN Multifamily Limited Partnership	Delaware
ASN Newport Crossing LLC	Delaware
ASN Northgate LLC	Delaware
ASN Oak Creek LLC	Delaware
ASN Palm Trace Landings LLC	Florida
ASN Park Essex LLC	Delaware
ASN Pinnacle LLC	Delaware

Subsidiary Name	Organization
ASN Presidio View LLC	Delaware
ASN Reading LLC	Delaware
ASN RH Member LLC	Delaware
ASN Richardson Highlands LLC	Delaware
ASN Rockville LLC	Delaware
ASN Rolling Hills Manager LLC	Delaware
ASN Roosevelt Center LLC	Delaware
ASN San Diego LLC	Delaware
ASN Santa Monica LLC	Delaware
ASN Saybrooke LLC	Delaware
ASN Sonoma LLC	Delaware
ASN StoneRidge LLC	Delaware
ASN StoneRidge Manager LLC	Delaware
ASN Studio City LLC	Delaware
ASN Sussex Commons LLC	Delaware
ASN Technologies, Inc.	Delaware
ASN Ventura LLC	Delaware
ASN Warner Center LLC	Delaware
ASN Washington Boulevard LLC	Delaware
ASN Watertown LLC	Delaware
ASN Wendemere LLC	Delaware
ASN West End LLC	Delaware
ASN Wisconsin Place (Retail) LLC	Delaware
ASN Wisconsin Place (Residential) LLC	Delaware
ASN-Massachusetts Holdings (1) LLC	Delaware
ASN-Massachusetts Holdings (2) LLC	Delaware
ASN-Massachusetts Holdings (3) LLC	Delaware
ASN-Massachusetts Holdings (4) LLC	Delaware
ASN-Massachusetts Holdings (5) LLC	Delaware
ASN-Washington Holdings (1) LLC	Delaware
Brandywine Apartments of Maryland, LLC	Delaware
Capital Mezz LLC	Delaware
Casco Dunwoody LLC	Delaware
Casco GP LLC	Delaware
Casco Properties LP	Delaware
Casco Property Trust LLC	Delaware
Casco TN GP Inc	Delaware
Chateau Marina Junior Mezzanine, LLC	Delaware
Chateau Marina LLC	Delaware
Chateau Marina Senior Mezzanine, LLC	Delaware
Chateau Marina, L.P.	California
Courthouse Hill LLC	Delaware
Fiji Chateau Mezzanine, Inc	Delaware
Fiji Chateau, Inc.	Delaware
Fiji Villas Junior Mezzanine, Inc.	Delaware
Fiji Villas Senior Mezzanine, Inc.	Delaware
Fiji Villas, LLC	Delaware
First Herndon Associates LP	Delaware
First Multifamily Properties LLC	Delaware
Golden State Mezz LLC	Delaware
Hacienda Cove, LLC	Florida
Katahdin GP LLC	Delaware

Subsidiary Name	Organization
Katahdin Properties LP	Delaware
Katahdin Property Trust LLC	Delaware
KV Construction Incorporated	Delaware
Las Palmas LLC	Florida
Metropolitan Acquisition Finance LP	Delaware
MIV (1) LLC	Delaware
MIV (2) LLC	Delaware
Monadnock Property Trust, LLC	Delaware
Monadnock Texas LP	Texas
Panorama Insurance Ltd.	Bermuda
PTR- California Holdings (3) LLC	Delaware
PTR- California Holdings (1) LLC	Delaware
PTR- Colorado (1) LLC	Delaware
SCA Florida Holdings (2) LLC	Delaware
SCA-North Carolina (1) LLC	Delaware
SCA-North Carolina (2) LLC	Delaware
SCA North Carolina Limited Partnership	Delaware
Second Multifamily Properties LLC	Delaware
Second Multifamily Limited Partnership	Texas
Security Capital Atlantic Multifamily LLC	Delaware
Smith Property Holdings 2000 Commonwealth L.L.C.	Delaware
Smith Property Holdings 4411 Connecticut Avenue LLC	Delaware
Smith Property Holdings Alban Towers L.L.C.	Delaware
Smith Property Holdings Alban Towers Two L.L.C.	Delaware
Smith Property Holdings Ballston Place L.L.C.	Delaware
Smith Property Holdings Buchanan House L.L.C.	Delaware
Smith Property Holdings Columbia Road L.P.	Delaware
Smith Property Holdings Consulate L.L.C.	Delaware
Smith Property Holdings Cronin’s Landing L.P.	Delaware
Smith Property Holdings Crystal Houses L.L.C.	Delaware
Smith Property Holdings Crystal Plaza L.L.C.	Delaware
Smith Property Holdings Crystal Towers L.P.	Delaware
Smith Property Holdings Five (D.C.) L.P.	Delaware
Smith Property Holdings Five L.P.	Delaware
Smith Property Holdings Four L.P.	Delaware
Smith Property Holdings Harbour House L.L.C.	Delaware
Smith Property Holdings Illinois Center L.L.C.	Delaware
Smith Property Holdings Kenmore L.P.	Delaware
Smith Property Holdings Lincoln Towers L.L.C.	Delaware
Smith Property Holdings McClurg Court L.L.C.	Delaware
Smith Property Holdings New River Village L.L.C.	Delaware
Smith Property Holdings One (D.C.) L.P.	Delaware
Smith Property Holdings One L.P.	Delaware
Smith Property Holdings One East Delaware L.L.C.	Delaware
Smith Property Holdings Parc Vista L.L.C.	Delaware
Smith Property Holdings Plaza 440 Manager L.L.C.	Delaware
Smith Property Holdings Reston Landing L.L.C.	Delaware
Smith Property Holdings Sagamore Towers L.L.C.	Delaware
Smith Property Holdings Seven L.P.	Delaware
Smith Property Holdings Six (D.C.) L.P.	Delaware
Smith Property Holdings Six L.P.	Delaware
Smith Property Holdings Springfield L.L.C.	Delaware

Subsidiary Name	Organization
Smith Property Holdings Superior Place L.L.C.	Delaware
Smith Property Holdings Three (D.C.) L.P.	Delaware
Smith Property Holdings Three L.P.	Delaware
Smith Property Holdings Two (D.C.) L.P.	Delaware
Smith Property Holdings Two L.P.	Delaware
Smith Property Holdings Van Ness L.P.	Delaware
Smith Property Holdings Water Park Towers L.L.C.	Delaware
Smith Property Holdings Wilson L.L.C.	Delaware
Smith Realty Company	Delaware
SMP GP LLC	Delaware
TRG-Pembroke Road, LLC	Florida
Turtle Run at Coral Springs L.L.C.	Delaware

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

     I, R. Scot Sellers, certify that:

1.	I have reviewed this annual report on Form 10-K of Archstone-Smith Operating Trust (the “registrant”).
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the years covered by annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the years presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-f(f)) for the registrant and have:
a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of trustees (or persons performing the equivalent functions):
a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

By:	/s/ R. Scot Sellers
	R. Scot Sellers
	Chairman and Chief Executive Officer

Date: February 28, 2005

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

     I, Charles E. Mueller, Jr., certify that:

1.	I have reviewed this annual report on Form 10-K of Archstone-Smith Operating Trust (the “registrant”).
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the years covered by annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the years presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-f(f)) for the registrant and have:
a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of trustees (or persons performing the equivalent functions):
a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

By:	/s/ Charles E. Mueller, Jr.
	Charles E. Mueller, Jr.
	Chief Financial Officer (Principal Financial Officer)

Date: February 28, 2005

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     The undersigned, being the Chief Executive Officer of Archstone-Smith Operating Trust, a Maryland real estate investment trust (the “Issuer”), hereby certifies that the Annual Report on Form 10-K (the “Annual Report”) of the Issuer for the year ended December 31, 2004, which accompanies this certification, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. §78m(a)) and that the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

By:	/s/ R. Scot Sellers
	R. Scot Sellers
	Chairman and Chief Executive Officer

Date: February 28, 2005

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     The undersigned, being the Chief Financial Officer of Archstone-Smith Operating Trust, a Maryland real estate investment trust (the “Issuer”), hereby certifies, that the Annual Report on Form 10-K (the “Annual Report”) of the Issuer for the year ended December 31, 2004, which accompanies this certification, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. §78m(a)) and that the information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

By:	/s/ Charles E. Mueller, Jr.
	Charles E. Mueller, Jr.
	Chief Financial Officer (Principal Financial Officer)

Date: February 28, 2005