UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2007


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number 1-10272

Archstone-Smith Operating Trust

(Exact name of registrant as specified in its charter)


Maryland (State or other jurisdiction of incorporation or organization)		90-0042860 (I.R.S. employer identification no.)

9200 E. Panorama Circle, Suite 400
Englewood, Colorado 80112
(Address of principal executive offices and zip code)

(303) 708-5959
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated filer þ Accelerated filer o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

At May 1, 2007, there were approximately 27,309,000 of the Registrant’s Class A-1 and Class B Common Units outstanding, held by non-affiliates.

Table of Contents


			Page
Item		Description	Number

		PART I – Financial Information

	1.	Financial Statements

		Condensed Consolidated Balance Sheets – March 31, 2007 (Unaudited) and December 31, 2006		3

		Condensed Consolidated Statements of Earnings – Three Months Ended March 31, 2007 and 2006 (Unaudited)		4

		Condensed Consolidated Statement of Unitholders’ Equity, Other Common Unitholders’ Interest and Comprehensive Income – Three Months Ended March 31, 2007 (Unaudited)		5

		Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2007 and 2006 (Unaudited)		6

		Notes to Condensed Consolidated Financial Statements (Unaudited)		7

		Independent Registered Public Accounting Firm Review Report		22

	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		23

	3.	Quantitative and Qualitative Disclosures about Market Risk		32

	4.	Controls and Procedures		32

		PART II – Other Information

	1.	Legal Proceedings		33

	1A.	Risk Factors		33

	2.	Unregistered Sales of Equity Securities and Use of Proceeds		33

	3.	Defaults Upon Senior Securities		33

	4.	Submission of Matters to a Vote of Security Holders		33

	5.	Other Information		33

	6.	Exhibits		33
Computation of Ratio of Earnings to Fixed Charges
Computation of Ratio of Earnings to Combined Fixed Charges
Independent Registered Public Accounting Firm Awareness Letter
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

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Archstone-Smith Operating Trust

Condensed Consolidated Balance Sheets

(In thousands, except unit data)


	March 31,			December 31,
	2007			2006
	(Unaudited)
ASSETS
Real estate	$	12,101,054		$	12,214,034
Real estate – held-for-sale		975,821			973,606
Accumulated depreciation		(975,517	)		(957,146	)

		12,101,358			12,230,494

Investments in and advances to unconsolidated entities		252,014			235,323

Net investments		12,353,372			12,465,817
Cash and cash equivalents		49,270			48,655
Restricted cash in tax-deferred exchange and bond escrow		669,395			319,312
Other assets		389,464			425,343

Total assets	$	13,461,501		$	13,259,127


LIABILITIES AND UNITHOLDERS’ EQUITY

Liabilities:
Unsecured credit facilities	$	275,900		$	84,723
Unsecured loans – International		171,730			235,771
Long-Term Unsecured Debt		3,321,702			3,355,699
Mortgages payable		2,557,553			2,639,280
Mortgages payable – held-for-sale		136,738			136,954
Accounts payable		77,603			71,967
Accrued interest		47,446			67,135
Accrued expenses and other liabilities		342,403			365,260

Total liabilities		6,931,075			6,956,789

Other common unitholders’ interest, at redemption value (A-1 Common Units: 27,471,404 in 2007 and 29,514,128 in 2006)		1,491,148			1,718,017

Unitholders’ equity:

Perpetual Preferred Units		50,000			50,000
Common unitholders equity (222,754,422 units in 2007 and 220,147,167 units in 2006)		4,984,986			4,530,801
Accumulated other comprehensive income		4,292			3,520

Total unitholders’ equity		5,039,278			4,584,321

Total liabilities and unitholders’ equity	$	13,461,501		$	13,259,127

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Archstone-Smith Operating Trust

Condensed Consolidated Statements of Earnings

(In thousands, except per unit amounts)
(Unaudited)


	Three Months Ended
	March 31,
	2007			2006
Revenues:
Rental revenues	$	268,132		$	207,734
Other income		15,754			16,216

		283,886			223,950

Expenses:
Rental expenses		63,430			45,330
Real estate taxes		26,240			18,897
Depreciation on real estate investments		67,492			53,359
Interest expense		67,293			45,527
General and administrative expenses		18,998			15,385
Other expenses		955			10,354

		244,408			188,852

Earnings from operations		39,478			35,098
Income from unconsolidated entities		695			18,878
Other non-operating income		2,026			176

Earnings before discontinued operations		42,199			54,152
Earnings from discontinued operations		282,728			89,740

Net earnings		324,927			143,892
Preferred Unit distributions		(958	)		(958	)

Net earnings attributable to Common Units – Basic		323,969			142,934
Interest on Convertible Debt		7,295			—

Net earnings attributable to Common Units – Diluted	$	331,264		$	142,934

Weighted average Common Units outstanding:
Basic		249,982			246,961

Diluted		259,875			247,835


Earnings per Common Unit – Basic:
Earnings before discontinued operations	$	0.16		$	0.22
Discontinued operations, net		1.14			0.36

Net earnings $	$	1.30		$	0.58

Earnings per Common Unit – Diluted:
Earnings before discontinued operations	$	0.15		$	0.22
Discontinued operations, net		1.12			0.36

Net earnings	$	1.27		$	0.58


Distributions paid per Common Unit	$	0.4525		$	0.4350

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Archstone-Smith Operating Trust

Condensed Consolidated Statement of Unitholders’
Equity, Other Common Unitholders’ Interest and Comprehensive Income

Three Months Ended March 31, 2007

(In thousands)
(Unaudited)


	Perpetual
	Preferred
	Unitsat					Accumulated						Other
	Aggregate		Common			Other			Total			Common
	Liquidation		Unitholders’			Comprehensive			Unitholders’			Unitholders’
	Preference		Equity			Income			Equity			Interest			Total
Balances at December 31, 2006	$	50,000	$	4,530,801		$	3,520		$	4,584,321		$	1,718,017		$	6,302,338

Comprehensive income:

Net earnings		—		287,699			—			287,699			37,228			324,927

Change in fair value of hedges		—		—			845			845			—			845
Reclassification adjustment for realized net gains on marketable securities		—		—			(1,794	)		(1,794	)		—			(1,794	)
Foreign currency exchange translation		—		—			1,721			1,721			—			1,721


Comprehensive income attributable to Common Units		—		—			—			—			—			325,699


Preferred Unit distributions		—		(958	)		—			(958	)		—			(958	)

Common Unit distributions		—		(100,455	)		—			(100,455	)		(13,087	)		(113,542	)
A-1 Common Units converted into A-2 Common Units		—		49,351			—			49,351			(49,351	)		—
Issuance of Common Units under Dividend Reinvestment Plan		—		10,168			—			10,168			—			10,168

Exercise of options		—		5,891			—			5,891			—			5,891

Issuance of A-1 Common Units in exchange for real estate		—		—						—			1,024			1,024

Equity-classified awards under Compensation Plans		—		(1,382	)		—			(1,382	)		—			(1,382	)

Adjustment to redemption value				202,227						202,227			(202,227	)		—

Other, net		—		1,644			—			1,644			(456	)		1,188


Balances at March 31, 2007	$	50,000	$	4,984,986		$	4,292		$	5,039,278		$	1,491,148		$	6,530,426

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Archstone-Smith Operating Trust

Condensed Consolidated Statements of Cash Flows

(In thousands)
(Unaudited)


	Three Months Ended
	March 31,
	2007			2006
Operating activities:
Net earnings	$	324,927		$	143,892
Adjustments to reconcile net earnings to net cash flow provided by operating activities:
Depreciation and amortization		78,871			72,762
Gains on dispositions of depreciated real estate		(278,722	)		(82,191	)
Gains on sale of marketable equity securities		(1,867	)		—
Change in swap value – DeWAG derivatives		(258	)		—
Provision for possible loss on investments		—			2,200
Equity in earnings from unconsolidated entities		2,050			917
Interest accrued on Mezzanine loans		(1,336	)		(2,086	)
Change in other assets		(18,630	)		1,092
Change in accounts payable, accrued expenses and other liabilities		(32,755	)		(16,966	)
Other, net		4,741			6,556

Net cash flow provided by operating activities		77,021			126,176


Investing activities:
Real estate investments		(365,264	)		(435,550	)
Change in investments in unconsolidated entities, net		(18,736	)		(15,491	)
Proceeds from dispositions		689,405			280,133
Change in restricted cash		(350,083	)		315,532
Change in notes receivable, net		44,102			(54,105	)
Other, net		6,710			(34,933	)

Net cash flow provided by investing activities		6,134			55,586


Financing activities:
Proceeds from Long-Term Unsecured Debt, net		—			296,946
Payments on Long-Term Unsecured Debt		(34,750	)		(18,750	)
Proceeds from (payments on) unsecured credit facilities, net		191,177			(309,869	)
Principal repayment of mortgages payable, including prepayment penalties		(71,373	)		(49,923	)
Regularly scheduled principal payments on mortgages payable		(2,047	)		(4,406	)
Proceeds from Unsecured loans – International		88,627			—
Principal repayments on Unsecured loans – International		(152,668	)		—
Proceeds from Common Units issued under DRIP and employee stock options		16,059			22,630
Cash distributions paid on Common Units		(113,542	)		(107,952	)
Cash distributions paid on Preferred Units		(958	)		(958	)
Other, net		(3,065	)		629

Net cash flow used by financing activities		(82,540	)		(171,653	)

Net change in cash and cash equivalents		615			10,109
Cash and cash equivalents at beginning of period		48,655			13,638

Cash and cash equivalents at end of period	$	49,270		$	23,747


Significant non-cash investing and financing activities:
A-1 Common Units issued in exchange for real estate	$	1,024		$	25,191
A-1 Common Units converted to A-2 Common Units		49,351			23,552
Assumption of mortgages payable upon purchase of apartment communities		—			197,449

These Condensed Consolidated Statements of Cash Flows combine cash flows from discontinued operations with
cash flows from continuing operations.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Archstone-Smith Operating Trust

Notes to Condensed Consolidated Financial Statements

March 31, 2007 and 2006
(Unaudited)

(1) Description of the 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 Archstone-Smith Operating Trust, which we refer to herein as the “Operating Trust”. Archstone-Smith is our sole trustee and owns approximately 89.0% of the Operating Trust’s outstanding Common Units; the remaining 11.0% of the Common Units are owned by minority interest holders. As used herein, “we,” “our” and the “company” refers to the Operating Trust and Archstone-Smith, collectively, except where the context otherwise requires. Archstone-Smith is an equity REIT organized under the laws of the State of Maryland. We focus on creating value for our unitholders by acquiring, developing, redeveloping and operating apartments in markets characterized by protected locations with limited land for new housing construction, expensive single-family home prices, and a strong, diversified economic base with significant employment growth potential.

Interim Financial Reporting

The accompanying Condensed Consolidated Financial Statements of the Operating Trust are unaudited and certain information and footnote disclosures normally included in financial statements have been omitted. While management believes that the disclosures presented are adequate for interim reporting, these interim financial statements should be read in conjunction with the financial statements and notes included in the Operating Trust’s Annual Report on Form 10-K, for the year ended December 31, 2006 (“2006 Form 10-K”). See the glossary in our 2006 Form 10-K for definitions of all initially-capitalized terms not defined herein.

In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary for a fair presentation of the Operating Trust’s financial statements for the interim periods presented. The results of operations for the three months ended March 31, 2007 are not necessarily indicative of the results to be expected for the entire year.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported in the financial statements and the related notes. Actual results could differ from 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.

Real Estate and Depreciation

We allocate the cost of newly acquired properties between net tangible and identifiable intangible assets. 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. This amortization expense is included in depreciation on real estate investments in our Condensed Consolidated Statements of Earnings.

Archstone-Smith Operating Trust

Notes to Condensed Consolidated Financial Statements (Continued)

Intangibles

Intangible assets consist of lease-related intangibles and certain intangibles associated with the DeWAG acquisition. The market value of above and below market leases are based on our estimate of current market rents as compared to the rent that we are receiving and is recorded in either other assets or other liabilities. These assets are charged and liabilities are credited to rental income over the estimated term of the lease. We also recognize the value of our in-place lease agreements and amortize these assets into depreciation on real estate investments over the estimated term of the lease.

We will perform an impairment test annually, or more frequently, if events or changes in circumstances indicate impairment of our intangible assets, which are included in other assets.

Revenue and Gain Recognition

We generally lease our apartment units under operating leases with terms of one year or less. Communities subject to the Oakwood Master Leases entered into in 2005 have a seven-year term. Rental income related to leases is recognized in the period earned over the lease term in accordance with 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). We recognize deferred gains when a property is sold to a third party.

Rental Expenses

Rental expenses shown on the accompanying Condensed Consolidated Statements of Earnings include costs associated with on-site and property management personnel, utilities, repairs and maintenance, property insurance, marketing, landscaping and other on-site and related administrative costs. Utility reimbursements from residents, which are recorded as offsets to utility expenses, aggregated $6.8 million and $5.8 million including amounts reclassified to discontinued operations for the three months ended March 31, 2007 and 2006, respectively.

Insurance Recoveries

We recognize insurance recovery proceeds as other income if the recovery is related to items that were originally expensed, such as legal settlements, legal expenses and repairs that did not meet capitalization guidelines. For recoveries of property damages that were eligible for capitalization, we reduce the basis of the property or if the property has subsequently been sold, we recognize the proceeds as an additional gain on sale. We recognize insurance recoveries at such time that we believe the recovery is probable and we have sufficient information to make a reasonable estimate of proceeds, except in cases where we have to pursue recovery via litigation. In this circumstance, we recognize the recovery when we have a signed, legally binding agreement with the insurance carrier.

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 estimated cost of settlement.

Archstone-Smith Operating Trust

Notes to Condensed Consolidated Financial Statements (Continued)

Foreign Currency Translation

Assets and liabilities of the company’s foreign operations are translated into U.S. dollars at the exchange rate in effect at the balance sheet date. Revenue and expenses are translated at average rates in effect during the period. The resulting translation adjustment is reflected as accumulated other comprehensive income, a separate component of unitholders’ equity on the Condensed Consolidated Balance Sheets. The functional currency utilized for these subsidiaries is the local foreign currency.

Derivative Financial Instruments

We utilize derivative financial instruments to manage our interest rate risk, foreign currency exchange risk, exposure to changes in the fair value of certain investments in equity securities and exposure to volatile energy prices. 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 fair value of a fair value hedge and the fair value of the items hedged are generally recorded in earnings for each reporting period. The change in the fair value of effective cash flow hedges and foreign currency hedges are carried on our financial statements as a component of accumulated other comprehensive income. If effective, our hedges have little or no impact on our current earnings.

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.

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 Condensed Consolidated Statement of Unitholders’ Equity, Other Common Unitholders’ Interest and Comprehensive Income. Other comprehensive income reflects unrealized holding gains and losses on the available-for-sale investments, changes in the fair value of effective cash flow hedges and gains and losses on long-term foreign currency transactions.

Our accumulated other comprehensive income for the three months ended March 31, 2007 was as follows (in thousands):


	Net Unrealized								Accumulated
	Gains on						Foreign		Other
	Marketable			Cash Flow			Currency		Comprehensive
	Securities			Hedges			Translation		Income
Balance at December 31, 2006	$	1,822		$	(554	)	$	2,252	$	3,520
Change in fair value of hedges		—			789			—		789
Change in fair value of long-term debt hedges		—			56					56
Reclassification adjustment for realized net gains		(1,794	)		—			—		(1,794	)
Foreign currency exchange translation		—			—			1,721		1,721

Balance at March 31, 2007	$	28		$	291		$	3,973	$	4,292

Archstone-Smith Operating Trust

Notes to Condensed Consolidated Financial Statements (Continued)

Per Unit Data

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


	Three Months Ended
	March 31,
	2007		2006
Reconciliation of numerator between basic and diluted net earnings per Common Unit⁽¹⁾:

Net earnings attributable to Common Units – Basic	$	323,969	$	142,934
Interest on Convertible Debt		7,295		—

Net earnings attributable to Common Units – Diluted	$	331,264	$	142,934

Reconciliation of denominator between basic and diluted net earnings per Common Unit⁽¹⁾:
Weighted average number of Common Units outstanding – Basic		249,982		246,961
Assumed conversion of Convertible Debt into Common Units		9,039		—
Incremental options		854		874

Weighted average number of Common Units outstanding – Diluted		259,875		247,835


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

To calculate earnings per Common Unit, we allocate the interest on the Convertible Debt on a pro-rata basis between continuing and discontinued operations.

Reclassifications

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

New Accounting Pronouncements

In July 2006, the FASB issued Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109.” FIN 48 defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The adoption of FIN 48 as of January 1, 2007 did not have a material effect on our financial position, net earnings or cash flows.

We recognize these tax positions and evaluate them using a two-step process. First, we determine whether a tax position is more likely than not (greater than 50 percent probability) to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Then, we measure to determine the amount of benefit to recognize and record the amount of the benefit that is more likely than not to be realized upon ultimate settlement.

We or one of our subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With few exceptions, we are not subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2001. As of March 31, 2007, no taxing authority has proposed any significant adjustments to our tax positions. We have no significant current tax examinations in process.

Archstone-Smith Operating Trust

Notes to Condensed Consolidated Financial Statements (Continued)

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):


Unrecognized Tax Benefits:
Balance at January 1, 2007	$	2,021
Current Period Interest		69

Balance at March 31, 2007.	$	2,090

We are required to recognize interest and penalties accrued related to unrecognized tax benefits in tax expense. As of the date of adoption, the Company has accrued interest of approximately $228,000 and we have not recorded any penalties.

(2) Real Estate

Investments in Real Estate

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


	March 31,		December 31,
	2007		2006
	Investment		Investment
Operating Trust Apartment Communities:
Operating communities	$	10,899,899	$	11,208,052
Communities under construction		466,532		406,881
Development communities In Planning⁽¹⁾.		94,970		75,538

Total Operating Trust apartment communities		11,461,401		11,690,471
Ameriton⁽¹⁾		626,191		585,524
International		929,037		851,593
Other real estate assets⁽²⁾		60,246		60,052

Total real estate	$	13,076,875	$	13,187,640


(1)		Includes development communities In Planning – Owned but excludes In Planning – Under Control. Our investment as of March 31, 2007 and December 31, 2006 for development communities In Planning – Under Control was $10.9 million and $7.6 million, respectively, and is reflected in the “Other assets” caption of our Condensed Consolidated Balance Sheets.

(2)		Includes land that is not In Planning and other non-multifamily real estate assets.

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


Balance at December 31, 2006	$	13,187,640
Acquisition-related expenditures		165,125
Redevelopment expenditures		8,873
Recurring capital expenditures		7,731
Development expenditures, including initial acquisition costs		130,665
Acquisition of land for development		41,283
Dispositions		(466,379	)
Other		500

Net apartment community activity		(112,202	)
Change in other real estate assets		1,437

Balance at March 31, 2007	$	13,076,875

Archstone-Smith Operating Trust

Notes to Condensed Consolidated Financial Statements (Continued)

At March 31, 2007, we had unfunded contractual commitments of $507.6 million related to communities under construction and under redevelopment. The purchase prices of certain recent acquisitions in New York and Germany were allocated to land, buildings and other assets based on preliminary estimates and is subject to change as we obtain more complete information regarding land, building and lease intangibles values.

(3) DeWAG Acquisition

On July 27, 2006, we acquired 94% of the shares and 94% of an outstanding shareholder loan of DeWAG Deutsche WohnAnlage GmbH (“DeWAG”) for approximately $271 million, based on the exchange rate on the transaction date. We have the option to acquire the remaining 6%, owned by the Managing Directors of DeWAG, under certain circumstances. The results of DeWAG’s operations have been included in the Condensed Consolidated Financial Statements since July 1, 2006. The purchase was funded by an international term loan, which is expected to be repaid or refinanced during the second quarter of 2007. In addition, we assumed approximately $509 million in DeWAG liabilities. DeWAG specializes in the acquisition, ownership, operation and re-sale of quality residential properties in the major metropolitan areas of Southern and Western Germany, as well as West Berlin. As of July 1, 2006, the portfolio consisted of approximately 6,400 residential units. We acquired DeWAG because we are interested in expanding our operations into German markets which we believe have attractive fundamentals for apartment operations.

The following table summarizes the estimated fair value of the assets acquired and the liabilities assumed at the date of the acquisition. We recognized goodwill in connection with the DeWAG acquisition. Goodwill represents the excess of the purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets. The goodwill associated with the transaction is primarily attributable to the people and processes which comprise the investing and the operating platform. We will perform an impairment test annually, or more frequently if events or changes in circumstances indicate impairment of our goodwill. Due to the recent closing of the transaction, we are still in the process of seeking information to finalize the valuations for our real estate, intangible assets, and certain liabilities. Therefore, the purchase price allocation is subject to change (dollar amounts in thousands).


Real estate	$	646,285
Other assets		67,722
Intangible assets		30,958
Goodwill		34,490

Total assets	$	779,455


Mortgages payable	$	407,933
Other liabilities		10,759
Deferred tax liability		69,327
Intangible liabilities		20,514

Total liabilities		508,533

Net assets acquired	$	270,922

Following are preliminary values as of March 31, 2007 related to the intangible assets and liabilities we identified in connection with the DeWAG transaction and the corresponding amortization we expect to record (dollar amounts in thousands).


						Weighted
						Average
	Gross					Useful
	Carrying		Accumulated			Life (in
	Amount		Amortization			years)

Non-compete agreements.	$	19,869	$	(3,725	)		4
In-place leases		12,893		(2,417	)		4

Total intangible assets	$	32,762	$	(6,142	)

Below-market leases	$	21,711	$	(4,071	)		4

Total intangible liabilities	$	21,711	$	(4,071	)

Archstone-Smith Operating Trust

Notes to Condensed Consolidated Financial Statements (Continued)


Estimated net amortization for the year ended
2007	$	2,763
2008	$	2,763
2009	$	2,763
2010	$	1,382

The changes in the carrying amount of goodwill are as follows:


Balance December 31, 2006	$	35,450
Purchase accounting adjustment		(481	)
Change in foreign currency translation		355

Balance March 31, 2007	$	35,324

(4) 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, minority interest, income taxes, a pro-rata allocation of interest expense and the net gain or loss on the disposition of properties.

Consistent with our capital recycling program, we had 16 operating apartment communities, representing 6,724 units (unaudited), classified as held-for-sale under the provisions of SFAS No. 144, at March 31, 2007. Accordingly, we have reclassified the operating earnings from these properties to discontinued operations for the three months ended March 31, 2007 and 2006. During the three months ended March 31, 2007, we sold 11 REIT and one Ameriton operating community. The operating results of these communities and the related gain on sale are also included in discontinued operations for 2007 and 2006.

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


	Three Months Ended
	March 31,
	2007			2006
Rental revenues	$	31,254		$	77,504
Rental expenses		(7,997	)		(22,014	)
Real estate taxes		(3,616	)		(10,260	)
Depreciation on real estate investments		(6,654	)		(16,215	)
Interest expense⁽¹⁾		(7,027	)		(16,224	)
Income taxes from taxable REIT subsidiaries		(358	)		(422	)
Provision for possible loss on real estate investment		—			(2,200	)
Debt extinguishment costs related to dispositions		(746	)		(863	)
Gains from the disposition of REIT real estate investments, net		275,197			67,467
Internal disposition costs – REIT transactions⁽²⁾		(709	)		(649	)
Gains from the disposition of taxable subsidiary real estate investments, net		3,525			14,724
Internal disposition costs – taxable subsidiary transactions⁽²⁾		(141	)		(1,108	)

Earnings from discontinued apartment communities	$	282,728		$	89,740


(1)		Interest expense included in discontinued operations is allocated to properties based on each asset’s cost in relation to the company’s leverage ratio and the average effective interest rate for each respective period.

Archstone-Smith Operating Trust

Notes to Condensed Consolidated Financial Statements (Continued)


(2)		Represents the direct and incremental compensation and related costs associated with the employees dedicated to our significant disposition activity.

The real estate and mortgage payable balances associated with operating communities classified as held-for-sale are reflected as “Real estate – held-for-sale” and “Mortgages payable – held-for-sale” in the accompanying Condensed Consolidated Balance Sheets.

The disposition proceeds associated with the sales of individual rental units by our foreign subsidiaries are included in continuing operations as such sales do not meet the requirements under SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” to be reflected as discontinued operations.

(5) Investments in and Advances to Unconsolidated Entities

Real Estate Joint Ventures

We have investments in entities that we account for using the equity method. At March 31, 2007, the investment balance consisted of $210.7 million in thirteen Operating Trust joint ventures and $41.3 million in five Ameriton joint ventures. At December 31, 2006, the investment balance consisted of $199.7 million in 13 Operating Trust joint ventures and $35.6 million in five Ameriton joint ventures. The Operating Trust and Ameriton’s combined weighted average percentage of ownership in joint ventures based on total assets at March 31, 2007 was 37.4%.

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


	March 31,		December 31,
	2007		2006
Assets:
Real estate	$	1,589,914	$	1,530,659
Other assets		165,946		213,569

Total assets	$	1,755,860	$	1,744,228

Liabilities and owners’ equity:
Inter-company debt payable to Operating Trust	$	512	$	1,519
Mortgages payable⁽¹⁾		1,080,560		1,063,451
Other liabilities		65,932		126,048

Total liabilities		1,147,004		1,191,018

Owners’ equity		608,856		553,210

Total liabilities and owners’ equity	$	1,755,860	$	1,744,228


(1)		The Operating Trust guarantees $288.8 million of the outstanding debt balance as of March 31, 2007 and is committed to guarantee another $43.1 million upon funding of additional debt.

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


	Three Months Ended
	March 31,
	2007			2006
Operating Trust Joint Ventures
Revenues	$	37,483		$	31,008
Net Earnings⁽¹⁾		(2,589	)		2,179
Ameriton Joint Ventures
Revenues	$	128		$	141
Net Earnings⁽²⁾		3,850			18,362
Total
Revenues	$	37,611		$	31,149

Net Earnings	$	1,261		$	20,541

Archstone-Smith Operating Trust

Notes to Condensed Consolidated Financial Statements (Continued)


(1)		There were no gains associated with the disposition of Operating Trust Joint Venture assets for the three months ended March 31, 2007 and 2006.

(2)		Includes Ameriton’s share of pre-tax gains associated with the disposition of real estate joint venture assets. The gains for the three months ended March 31, 2007 and 2006 were $3.9 million and $19.6 million, respectively.

(6) Mortgage and Other Notes Receivable

The change in mortgage and other notes receivable, which are included in other assets, during the three months ended March 31, 2007 consisted of the following (in thousands):


Balance at December 31, 2006	$	123,261
Funding of additional notes		464
Accrued interest		1,336
Prepayments		(44,560	)

Balance at March 31, 2007	$	80,501

We have a commitment to fund an additional $20.9 million under existing agreements. Our rights to the underlying collateral on these notes in the event of default are generally subordinate to the primary mortgage lender. We evaluate the collectibility of our mezzanine and other notes receivable on a quarterly basis. We recognized interest income associated with notes receivable of $2.7 million and $3.6 million for the three months ended March 31, 2007 and 2006, respectively. The weighted average contracted interest rate on these notes as of March 31, 2007 was approximately 11.9%.

(7) Borrowings

Unsecured Credit Facilities

Our $600 million unsecured credit facility, which is led by JPMorgan Chase Bank, N.A., bears interest at the greater of the prime rate or the federal funds rate plus 0.50% or, at our option, LIBOR plus 0.40%. The spread over LIBOR can vary from LIBOR plus 0.325% to LIBOR plus 1.00%, based upon the rating of our long-term unsecured senior notes. The facility contains an accordion feature that allows us to increase the size of the commitment to $1.0 billion at any time during the life of the facility, subject to lenders providing additional commitments, and enables us to borrow up to $150 million in foreign currencies. The credit facility is scheduled to mature in June 2010, but may be extended for one year at our option.

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


	March 31, 2007			December 31, 2006
Total unsecured revolving credit facility	$	600,000		$	600,000
Borrowings outstanding at end of period		228,552			80,000
Outstanding letters of credit under this facility		9,211			14,880
Weighted average daily borrowings		160,160			100,474
Maximum borrowings outstanding during the period		242,417			360,000
Weighted average daily nominal interest rate		5.4	%		5.0	%
Weighted average daily effective interest rate		5.6	%		6.3	%

Archstone-Smith Operating Trust

Notes to Condensed Consolidated Financial Statements (Continued)

We also have a short-term unsecured borrowing agreement with JPMorgan Chase Bank, N.A., 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 5.6% to 5.8% during 2007. There were $47.3 million of borrowings outstanding under the agreement at March 31, 2007, and $4.7 million of borrowings outstanding at December 31, 2006.

Unsecured Loans – International

We entered into a $272.8 million short-term loan agreement with LaSalle Bank National Association to fund the acquisition of DeWAG. We also entered into a separate $129.6 million short-term revolving loan agreement with LaSalle Bank National Association to fund acquisitions by DeWAG. The borrowings under these loans bear interest at EURIBOR plus 0.40%. The effective interest rate at March 31, 2007 was 4.3%. The unpaid balance on our Unsecured loans – International at March 31, 2007 was $171.7 million. We expect the balances of these loans to be paid off or refinanced during the second quarter of 2007.

Long-Term Unsecured Debt

A summary of our Long-Term Unsecured Debt outstanding at March 31, 2007 and December 31, 2006 follows (dollar amounts in thousands):


				Effective							Average
	Coupon			Interest			Balance at		Balance at		Remaining
Type of Debt	Rate⁽¹⁾			Rate^{(1) (2)}			March 31, 2007		December 31, 2006		Life (Years)
Long-term unsecured senior notes		5.4	%		5.6	%	$	3,261,759	$	3,279,404		5.3
Unsecured tax-exempt bonds		4.0	%		4.3	%		59,943		76,295		14.8

Total/Weighted average		5.4	%		5.5	%	$	3,321,702	$	3,355,699		5.3


(1)		Represents a fixed rate for the long-term unsecured notes and a variable rate for the unsecured tax-exempt bonds.

(2)		Includes the effect of fair value hedges, loan cost amortization and other ongoing fees and expenses, where applicable.

Mortgages Payable

Our mortgages payable generally feature either monthly interest and principal payments or monthly interest-only payments with balloon payments due at maturity. Early repayment of mortgages is generally subject to prepayment penalties.

A summary of mortgages payable follows (dollar amounts in thousands):


	Outstanding Balance at⁽¹⁾
					Effective Interest
	March 31, 2007		December 31, 2006		Rate⁽²⁾
Secured floating rate debt:
Tax-exempt debt	$	866,720	$	935,536		5.1	%
Conventional mortgages		157,377		167,020		4.7	%

Total Floating		1,024,097		1,102,556		5.0	%
Secured fixed rate debt:
Tax-exempt debt		3,085		3,086		6.4	%
Conventional mortgages		1,648,448		1,651,650		5.8	%
Other secured debt		18,661		18,942		4.6	%

Total Fixed		1,670,194		1,673,678		5.8	%

Total mortgages payable	$	2,694,291	$	2,776,234		5.5	%

Archstone-Smith Operating Trust

Notes to Condensed Consolidated Financial Statements (Continued)


(1)		Includes the unamortized fair market value adjustment associated with assumption of fixed rate mortgages in connection with real estate acquisitions. The unamortized balance aggregated $40.8 million and $43.9 million at March 31, 2007 and December 31, 2006 respectively, and is being amortized as a credit to 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 the three months ended March 31, 2007 consisted of the following (in thousands):


Balance at December 31, 2006	$	2,776,234
Regularly scheduled principal amortization		(2,047	)
Prepayments, final maturities and other		(79,896	)

Balance at March 31, 2007	$	2,694,291

Other

The book value of total assets pledged as collateral for mortgage loans and other obligations at March 31, 2007 and December 31, 2006 was $5.6 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 March 31, 2007.

The total interest paid on all outstanding debt was $106.4 million and $82.0 million for the three months ended March 31, 2007 and 2006. We capitalize interest incurred during the construction period as part of the cost of apartment communities under development. Capitalized interest was $12.9 million and $12.8 million for the three months ended March 31, 2007 and 2006, respectively.

(8) Distributions to Unitholders

The following table summarizes the quarterly cash distributions paid per unit on Common and Preferred Units during the three months ended March 31, 2007 and the annualized distribution we expect to pay for 2007:


	Quarterly		Annualized
	Cash		Cash
	Distribution		Distribution
	Per Unit		Per Unit
Common Units	$	0.4525	$	1.81
Series I Perpetual Preferred Units⁽¹⁾		1,915		7,660


(1)		Series I Preferred Units have a par value of $100,000 per unit.

(9) Benefit Plans and Implementation of SFAS 123R

Our long-term incentive plan was approved in 1997 and was modified in connection with the Smith Merger. There have been six 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) RSU awards with a DEU feature (awarded prior to 2006); (iv) RSU awards with a cash dividend payment feature (awarded after 2005); (v) employee share purchase program with matching options without the DEU feature, granted only in 1997 and 1998; and (vi) performance units, which are convertible into Common Shares upon vesting, issued to certain named executives under a Special Long-Term Incentive Program.

No more than 20.0 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. As of March 31, 2007, Archstone-Smith had approximately 9.7 million shares available for future issuance. Non-qualified options

Archstone-Smith Operating Trust

Notes to Condensed Consolidated Financial Statements (Continued)

constitute an important component of compensation for officers below the level of senior vice president and for selected employees.

A summary of share option activity for the options and RSUs is presented below:


	Option Awards					RSU Awards
				Weighted					Weighted
				Average					Average
	Options			Exercise Price		Units			Grant Price
Balance, December 31, 2006		1,831,355		$	30.14		946,615		$	31.82
Granted		388,017		$	58.62		175,176		$	58.62
Exercised/Settled		(165,369	)	$	33.70		(99,532	)	$	28.86
Forfeited		(22,306	)	$	42.63		0		$	0
Expired		0		$	0		0		$	0
Balance, March 31, 2007		2,031,697		$	35.16		1,022,259		$	36.72

Certain of the options and RSUs, included in the table above, have a DEU feature. The aggregate number of vested DEUs outstanding as of March 31, 2007 was approximately 267,000. During the three months ended March 31, 2007, we recorded $97,000 as a charge to operating expense related to unvested DEUs and $415,000 of Common Share dividends related to vested DEUs.

Options

During the three months ended March 31, 2007 and 2006, the share options granted to associates had a calculated fair value of $8.44 and $5.52 per option, respectively. The historical exercise patterns of the associate groups receiving option awards are similar, and therefore we used only one set of assumptions in calculating fair value for each period. For the three months ended March 31, 2007, the calculated fair value was determined using the Black-Scholes-Merton valuation model, using a weighted average risk-free rate interest rate of 4.44%, a weighted average dividend yield of 3.39%, a volatility factor of 18.62% and a weighted average expected life of four years. For the three months ended March 31, 2006, the calculated fair value was determined using the Black-Scholes-Merton valuation model, using a weighted average risk-free interest rate of 4.66%, a weighted average dividend yield of 4.57%, a volatility factor of 18.30% and a weighted average expected life of four years. The options vest over a three-year period and have a contractual term of 10 years. We used an estimated forfeiture rate of 10% in recording option compensation expense for the three months ended March 31, 2007, based primarily on historical experience. The unamortized compensation cost is $2.2 million, which includes all options previously granted but not yet vested. This amount will be recorded as compensation cost ratably through December 31, 2009.

The total intrinsic value of the share options exercised during the three-month periods ended March 31, 2007 and 2006 were $4.5 million and $21.9 million, respectively. The intrinsic value is defined as the difference between the realized fair value of the share or the quoted fair value at the end of the period, less the exercise price of the option. We have 1.2 million fully vested options outstanding at March 31, 2007 with a weighted average exercise price of $25.64. The weighted-average contractual life of the fully vested options is 6.75 years, and they have an intrinsic value of $35.7 million. In addition, we have 627,342 options outstanding that we expect to vest with a weighted average exercise price of $51.15. The weighted-average contractual life of the unvested options is 9.5 years, and they have an intrinsic value of $2.0 million.

Restricted Share Units

Also during the three months ended March 31, 2007 and 2006, we issued RSUs to senior officers and trustees of the company with an average grant date fair value of $58.62 and $45.58, respectively per share. The units vest over a three-year period and the related unamortized compensation cost is $17.5 million, which includes all units previously granted but not yet vested. This amount will be recorded as compensation cost ratably through December 31, 2009.

Archstone-Smith Operating Trust

Notes to Condensed Consolidated Financial Statements (Continued)

We have 595,732 fully vested RSUs outstanding at March 31, 2007 with a weighted average grant date fair value of $36.72. The weighted-average contractual life for the fully vested shares is 6.74 years and the intrinsic value is $32.3 million. In addition, we have 426,527 RSUs outstanding that we expect to vest with a weighted average grant date fair value of $48.68. The weighted-average contractual life for the unvested shares is 9.1 years and the intrinsic value is $23.1 million. The total intrinsic value of the RSUs settled during the three-month periods ended March 31, 2007 and 2006 were $6.1 million and $4.3 million, respectively.

Special Long-Term Incentive Program

Effective January 1, 2006, a special long-term incentive program related to the achievement of total shareholder return performance targets was established for certain of our executive officers. We would issue approximately 300,000 performance units if all performance targets are ultimately met as of December 31, 2008. The calculated grant date fair value of approximately $4.8 million is being charged to compensation expense ratably over the three-year term of the plan. The calculated fair value was determined by an independent third party using a Monte Carlo simulation approach which yielded an estimated payout percentage of 41%. The related unamortized compensation cost at March 31, 2007 is $2.8 million.

Summary

The compensation cost associated with all awards for the three months ended March 31, 2007 was approximately $3.0 million, of which approximately $2.1 million was charged to operating expenses, and approximately $.9 million related to dedicated investment personnel and was capitalized with respect to development and other qualifying investment activities. The compensation cost associated with all awards for the three months ended March 31, 2006 was approximately $3.0 million, of which approximately $2.3 million was charged to operating expenses, and approximately $0.7 million related to dedicated investment personnel and was capitalized with respect to development and other qualifying investment activities.

(10) Segment Data

We have determined that our garden communities and our High-Rise properties have similar economic characteristics and 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 operating 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):


	Three Months Ended
	March 31,
	2007		2006
Reportable apartment communities segment revenues:
Same-Store:
Garden communities	$	116,538	$	108,760
High-Rise properties		84,436		79,598
Non Same-Store and other:
Garden communities		15,110		2,812
High-Rise communities		29,257		11,368
Ameriton communities⁽¹⁾		2,193		430
International and other non-reportable operating segment revenues		20,598		4,766

Total segment and consolidated rental revenues	$	268,132	$	207,734

Archstone-Smith Operating Trust

Notes to Condensed Consolidated Financial Statements (Continued)


	Three Months Ended
	March 31
	2007			2006
Reportable apartment communities segment NOI:
Same-Store:
Garden communities	$	82,350		$	76,656
High-Rise communities		58,155			55,089
Non Same-Store and other:
Garden communities		7,672			1,399
High-Rise communities		17,929			6,931
Ameriton communities⁽¹⁾		1,114			(2	)
International and other non-reportable operating segment		11,242			3,434

Total segment NOI	$	178,462		$	143,507

Reconciling items:
Other income		15,754			16,216
Depreciation on real estate investments		(67,492	)		(53,359	)
Interest expense		(67,293	)		(45,527	)
General and administrative expenses		(18,998	)		(15,385	)
Other expenses		(955	)		(10,354	)

Consolidated earnings from operations	$	39,478		$	35,098


(1)		While rental revenue and NOI are the primary measures we use to evaluate the performance of our assets, management also utilizes gains from the disposition of real estate when evaluating the performance of Ameriton as its primary focus is the opportunistic acquisition, development and eventual disposition of real estate with a short term investment horizon. Pre-tax net gains from the disposition of Ameriton operating communities were $3.4 million and $13.6 million for the three months ended March 31, 2007 and 2006, respectively. These gains are classified within discontinued operations. Additionally, Ameriton had gains from the sale of unconsolidated joint venture assets that are classified within income from unconsolidated entities and gains from land sales that are classified within other income. Ameriton assets are excluded from our Same-Store population as they are acquired or developed to achieve short-term opportunistic gains, and therefore, the average holding period is typically much shorter than the holding period of assets operated by the Operating Trust.


	March 31,		December 31,
	2007		2006
Reportable operating communities segment assets, net:
Same-Store:
Garden communities	$	3,598,470	$	3,610,111
High-Rise properties		3,055,678		3,070,712
Non Same-Store:
Garden communities		1,330,053		1,527,922
High-Rise properties		1,692,038		1,699,610
Ameriton		446,426		412,030
FHA/ADA settlement accrual		22,701		29,185
International		915,661		843,003
Other non-reportable operating segment assets		154,709		153,567

Total segment assets		11,215,736		11,346,140
Real estate held-for-sale, net		885,622		884,354

Total segment assets		12,101,358		12,230,494

Reconciling items:
Investment in and advances to unconsolidated entities		252,014		235,323
Cash and cash equivalents		49,270		48,655
Restricted cash in tax-deferred exchange escrow		669,395		319,312
Other assets		389,464		425,343

Consolidated total assets	$	13,461,501	$	13,259,127

Archstone-Smith Operating Trust

Notes to Condensed Consolidated Financial Statements (Continued)

Total capital expenditures for garden communities included in continuing operations were $12.4 million and $7.3 million for the three months ended March 31, 2007 and 2006, respectively. Total capital expenditures for High-Rise properties included in continuing operations were $7.0 million and $10.2 million for the three months ended March 31, 2007 and 2006, respectively. Total capital expenditures for Ameriton properties included in continuing operations were $0.5 million and $0.7 million for the three months ended March 31, 2007 and 2006, respectively.

(11) Litigation and Contingencies

During the second quarter of 2005, we entered into a full and final settlement in the United States District Court for the District of Maryland with three national disability organizations and agreed to make capital improvements in a number of our communities in order to make them fully compliant with the FHA and ADA. The litigation, settled by this agreement, alleged lack of full compliance with certain design and construction requirements under the two federal statutes at 71 of the company’s wholly-owned and joint venture communities, of which we still own or have an interest in 42. As part of the settlement, the three disability organizations all recognized that the Operating Trust had no intention to build any of its communities in a manner inconsistent with the FHA or ADA.

The amount of the capital expenditures required to remediate the communities named in the settlement was estimated at $47.2 million and was accrued as an addition to real estate during the fourth quarter of 2005. The settlement agreement approved by the court allows us to remediate each of the designated communities over a three year period, and also provides that we are not restricted from selling any of our communities during the remediation period. We agreed to pay damages totaling $1.4 million, which included legal fees and costs incurred by the plaintiffs. We had $22.7 million of the original accrual remaining on March 31, 2007.

We are subject to various claims filed in 2002 and 2003 in connection with moisture infiltration and resulting mold issues at certain high-rise properties we once owned 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 in 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 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.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Trustee and Unitholders

Archstone-Smith Operating Trust:

We have reviewed the accompanying condensed consolidated balance sheet of Archstone-Smith Operating Trust and subsidiaries as of March 31, 2007, and the related condensed consolidated statements of earnings for the three months ended March 31, 2007 and 2006, the condensed consolidated statement of unitholders’ equity, other common unitholders’ interest and comprehensive income for the three months ended March 31, 2007, and the condensed consolidated statements of cash flows for the three months ended March 31, 2007 and 2006. These condensed consolidated financial statements are the responsibility of Archstone-Smith Operating Trust’s management.

We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the Condensed Consolidated Financial Statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Archstone-Smith Operating Trust as of December 31, 2006, and the related consolidated statements of earnings, unitholders’ equity, other common unitholders’ interest and comprehensive income (loss), and cash flows for the year then ended (not presented herein); and in our report dated March 1, 2007, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2006 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ KPMG LLP

Denver, Colorado
May 9, 2007

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with Archstone-Smith Operating Trust’s 2006 Form 10-K as well as the financial statements and notes included in Item 1 of this report.

Forward-Looking Statements

Certain statements in this Form 10-Q that are not historical facts are “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our current expectations, beliefs, assumptions, estimates and projections about the industry and markets in which we operate. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and variations of such words and similar expressions are intended to identify such forward-looking statements. Information concerning expected investment balances, expected funding sources, planned investments, forecasted dates and revenue and expense growth assumptions are examples of forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control. Therefore, actual outcomes and results may differ materially from what is expressed, forecasted or implied in such forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Our operating results depend primarily on income from apartment communities, which is substantially influenced by supply and demand for apartment units, operating expense levels, property level operations and the pace and price at which we can develop, acquire or dispose of apartment communities. Capital and credit market conditions, which affect our cost of capital, also influence operating results. See Archstone-Smith Operating Trust’s 2006 Form 10-K, “Item 1. Business,” for a more complete discussion of risk factors that could impact our future financial performance.

The Company

We are engaged primarily in the acquisition, development, redevelopment, operation and long-term ownership of apartment communities in the United States. Archstone-Smith is structured as an UPREIT, with all property ownership and business operations conducted through the Operating Trust. Archstone-Smith is the sole trustee and owned approximately 89.0% of our Common Units at March 31, 2007. Archstone-Smith Common Shares trade on the New York Stock Exchange (NYSE: ASN).

Results of Operations

Executive Summary

The major factors that influenced our operating results for the quarter ended March 31, 2007 as compared to the quarter ended March 31, 2006 were as follows:

	•		NOI increased due primarily to an increase of 6.8% in NOI for our Same-Store communities as well as the DeWAG transaction.

	•		Other income was lower due primarily to lower insurance recoveries offset by an increase in interest income resulting from higher restricted cash balances attributable to our 1031 exchange disposition transactions.

	•		Higher depreciation and interest expense was due to the increase in the size of the real estate portfolio and the related financing activities, respectively. Rising interest rates also influenced the increase in interest expense.

	•		General and administrative expenses increased principally as a result of our international expansion.

	•		Other expenses were lower in 2007 due principally to $8.4 million of Ameriton income tax expense recorded in 2006 related primarily to disposition gains.

	•		Earnings from unconsolidated entities was higher in 2006 primarily due to higher gains on the sale of Ameriton joint venture assets.

	•		The increase in gains on disposition of real estate was driven principally by significantly higher volume of REIT dispositions in 2007.

Reconciliation of Quantitative Summary to Condensed Consolidated Statements of Earnings

The following schedules are provided to reconcile our Condensed Consolidated Statements of Earnings to the information presented in the “Quantitative Summary” provided in the next section (dollar amounts in thousands).


	Three Months Ended March 31, 2007						Three Months Ended March 31, 2006
	Continuing		Discontinued				Continuing		Discontinued
	Operations		Operations		Total		Operations		Operations		Total
Rental revenue	$	268,132	$	31,254	$	299,386	$	207,734	$	77,504	$	285,238
Other income		15,754		—		15,754		16,216		—		16,216
Property operating expenses (rental expenses and real estate taxes)		89,670		11,613		101,283		64,227		32,274		96,501
Depreciation on real estate investments		67,492		6,654		74,146		53,359		16,215		69,574
Interest expense		67,293		7,027		74,320		45,527		16,224		61,751
General and administrative expenses		18,998		—		18,998		15,385		—		15,385
Other expense		955		1,104		2,059		10,354		3,485		13,839
Income from unconsolidated entities		695		—		695		18,878		—		18,878
Other non-operating income		2,026		—		2,026		176		—		176
Gains, net of disposition costs		—		277,872		277,872		—		80,434		80,434


Net earnings	$	42,199	$	282,728	$	324,927	$	54,152	$	89,740	$	143,892

Quantitative Summary

This summary is provided for reference purposes and is intended to support and be read in conjunction with the narrative discussion of our results of operations. This quantitative summary includes all operating activities, including those classified as discontinued operations for GAAP reporting purposes. This information is presented to correspond with the manner in which we analyze the business. We generally reinvest disposition proceeds into new operating communities and developments and therefore believe it is most useful to analyze continuing and discontinued operations on a combined basis. The impact of communities classified as “discontinued operations”

for GAAP reporting purposes is discussed separately in a later section under the caption “Discontinued Operations Analysis” (dollar amounts in thousands).


	Three Months Ended March 31,
							Increase/
	2007			2006			(Decrease)
Rental revenues:
Same-Store⁽¹⁾	$	226,827		$	213,201		$	13,626
Non Same-Store and other		48,581			59,559			(10,978	)
Ameriton		3,380			7,712			(4,332	)
Non-multifamily		1,608			3,002			(1,394	)
International		18,990			1,764			17,226

Total rental revenues		299,386			285,238			14,148


Property operating expenses (rental expenses and real estate taxes):
Same-Store⁽¹⁾		68,922			65,392			3,530
Non Same-Store and other		21,378			25,851			(4,473	)
Ameriton		1,628			3,927			(2,299	)
Non-multifamily		216			541			(325	)
International		9,139			790			8,349

Total property operating expenses		101,283			96,501			4,782

Net operating income (rental revenues less property operating expenses).		198,103			188,737			9,366
Margin (NOI/rental revenues):		66.2	%		66.2	%		0.0	%
Average occupancy during period:⁽²⁾		93.2	%		95.2	%		(2.0	%)

Other income		15,754			16,216			(462	)
Depreciation of real estate investments		74,146			69,574			4,572
Interest expense		87,207			74,522			12,685
Capitalized interest		12,887			12,771			116

Net interest expense		74,320			61,751			12,569
General and administrative expenses		18,998			15,385			3,613
Other expense		2,059			13,839			(11,780	)

Earnings from continuing and discontinued operations.......		44,334			44,404			(70	)


Equity in earnings from unconsolidated entities		695			18,878			(18,183	)
Other non-operating income		2,026			176			1,850

Gains on disposition of real estate investments, net of disposition costs
Taxable subsidiaries		3,384			13,616			(10,232	)
REIT		274,488			66,818			207,670


Net earnings		324,927			143,892			181,035


(1)		Reflects revenues and operating expenses for Same-Store communities that were owned on March 31, 2007 and fully operating during both of the comparison periods.

(2)		Does not include occupancy associated with properties owned by Ameriton, located in Germany or operated under the Oakwood Master Leases.

Property-level operating results

We utilize NOI as the primary measure to evaluate our operating performance and 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 operating performance. In analyzing the performance of our operating portfolio, we evaluate Same-Store communities separately from Non Same-Store communities and other properties.

Same-Store Analysis

The following table reflects revenue, expense and NOI growth for Same-Store communities that were owned on March 31, 2007 and fully operating during each of the respective comparison periods.


	Same-Store			Same-Store
	Revenue			Expense			Same-Store
	Growth			Growth			NOI Growth
	Q1 2007 vs.			Q1 2007 vs.			Q1 2007 vs.
	Q1 2006			Q1 2006			Q1 2006
Garden		6.6	%		4.7	%		7.4	%
High-Rise		6.1	%		6.5	%		5.9	%

Average		6.4	%		5.4	%		6.8	%

Same-store revenues were up 6.4% for the quarter ended March 31, 2007 as compared to the same period in 2006 due primarily to an increase in average rental revenue per unit which was partially offset by a decrease in occupancy in Washington, D.C. and New York. Same-store expenses were up 5.4% for the quarter ended March 31, 2007 as compared to the same period in 2006, primarily due to higher real estate taxes and personnel costs. These changes in revenues and expenses resulted in an increase in same-store NOI of 6.8% driven principally by strong growth in Seattle, Southern California, the New York metropolitan area and the San Francisco Bay Area, which represent 57% of the company’s portfolio.

Non Same-Store and Other Analysis

The $6.5 million decrease in NOI in the Non Same-Store portfolio for the quarter ended March 31, 2007 as compared to the same period in 2006 is primarily attributable to a $23.8 million decrease related to community dispositions, offset by an $11.9 million increase related to acquisitions and a $4.5 million increase related to recently stabilized development communities and communities in lease-up.

Ameriton

The decrease in NOI from Ameriton apartment communities for the three months ended March 31, 2007 as compared to the comparable period in the prior year is primarily attributable to dispositions.

International

The increase in NOI of $8.9 million for the quarter ended March 31, 2007 as compared to the same period in the prior year is primarily attributable to the DeWAG acquisition that occurred in July 2006. As of March 31, 2007, the overall International portfolio consisted of approximately 9,100 residential units.

Other Income

Other income was lower for the quarter ended March 31, 2007 as compared to the same period in 2006 due primarily to a $5.0 million reduction in insurance recoveries offset by higher interest income earned on higher cash balances that resulted primarily from our 1031 exchange disposition transactions.

Depreciation Expense

The depreciation increase for the three months ended March 31, 2007 is primarily related to the increase in the size of the real estate portfolio as compared to March 31, 2006.

Interest Expense

The increase in gross interest expense during the three months ended March 31, 2007 is due to higher average debt levels associated with the increased size of the real estate portfolio as compared to March 31, 2006.

General and Administrative Expenses

General and administrative expenses were higher for the quarter ended March 31, 2007 due primarily to higher personnel-related costs associated with our recent international expansion.

Other Expense

Other expense for the quarter ended March 31, 2007 was lower due principally to $8.4 million of income tax expense related primarily to prior year disposition gains and a $2.2 million impairment charge related to an asset that we sold in 2006.

Equity in Earnings from Unconsolidated Entities

Earnings from unconsolidated entities were lower in 2007 primarily due to lower gains on the sale of Ameriton joint venture assets.

Other Non-Operating Income

Non-operating income was higher for the quarter ended March 31, 2007 due to higher gains on the sale of marketable securities.

Gains on Real Estate Dispositions

See “Discontinued Operations Analysis” below for discussion of gains.

Discontinued Operations Analysis

Included in the overall results discussed above are the following amounts associated with properties which have been sold or were classified as held-for-sale as of March 31, 2007 (dollars in thousands).


	Three Months Ended
	March 31,
	2007			2006
Rental revenues	$	31,254		$	77,504
Rental expenses		(7,997	)		(22,014	)
Real estate taxes		(3,616	)		(10,260	)
Depreciation on real estate investments		(6,654	)		(16,215	)
Interest expense⁽¹⁾		(7,027	)		(16,224	)
Income taxes from taxable REIT subsidiaries		(358	)		(422	)
Provision for possible loss on real estate investment					(2,200	)
Debt extinguishment costs related to dispositions		(746	)		(863	)
Gains on disposition of real estate investments, net of disposition costs:
Taxable subsidiaries		3,384			13,616
REIT		274,488			66,818

Total discontinued operations	$	282,728		$	89,740


Number of communities sold during the period		12			7
Number of sold communities included in discontinued operations NOI		12			56
Number of communities classified as held-for-sale and included in discontinued operations NOI as of March 31, 2007		16			15


(1)		Interest expense included in discontinued operations is allocated to properties based on each asset’s cost in relation to the company’s leverage ratio and the average effective interest rate for each respective period.

As a result of the execution of our strategy of managing our invested capital through the selective sale of apartment communities and redeploying the proceeds to fund investments with higher anticipated growth prospects, we had significant disposition activity in both 2007 and 2006. The resulting gains, net of disposition costs, including those from Ameriton, were the biggest drivers of overall earnings from discontinued operations. NOI related to communities sold or classified as held-for-sale was higher in 2006 as compared to 2007 due primarily to the longer holding period for communities we have sold. Direct operating expenses, depreciation and allocated interest expense are generally proportional to the net operating income of communities included in discontinued operations for each period. The number of REIT dispositions in 2007 and the relative size of the corresponding gain was significantly higher in 2007. The portion of earnings from discontinued operations allocated to minority interest in 2007 was higher than 2006 due primarily to higher gains.

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 our demonstrated ability to access the capital markets, we believe our liquidity and financial condition are sufficient to meet all of our reasonably anticipated cash flow needs during the next 12 months. Please refer to the Condensed Consolidated Statements of Cash Flows for detailed information of our sources and uses of cash for the periods ending March 31, 2007 and 2006.

Scheduled Debt Maturities and Interest Payment Requirements

We have structured our long-term debt maturities in a manner designed to avoid unmanageable repayment obligations in any year, which would negatively impact our financial flexibility. As of March 31, 2007, we had scheduled long-term debt maturities of $479.6 million, $544.6 million and $477.4 million during 2007, 2008 and 2009, respectively and $171.7 million in International loans that we expect to be paid off or refinanced during the second quarter of 2007.

On May 1, 2007, we had $484.9 million borrowed on our unsecured credit facilities, $19.3 million outstanding under letters of credit and available borrowing capacity on our unsecured credit facilities of $195.8 million.

Our unsecured credit facilities, long-term unsecured debt, mortgages payable and international loan had effective weighted average interest rates of 5.6%, 5.5%, 5.5% and 4.3%, respectively, as of March 31, 2007. 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 period ended March 31, 2007.

Unitholder Distribution Requirements

Based on anticipated distribution levels for 2007 and the number of Common Units outstanding as of March 31, 2007, we anticipate that we will pay distributions and dividends of $456.7 million in the aggregate during the year ending December 31, 2007. This amount represents distributions on our Common and Preferred Units.

Planned Investments

Following is a summary of planned investments as of March 31, 2007, including Ameriton, but excluding joint ventures. 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
	(in thousands)
	Discretionary		Committed
Communities under redevelopment	$	603	$	3,597
Communities under construction		—		503,969
Communities In Planning and owned		1,376,067		—
Communities In Planning and Under Control		660,418		—
Community acquisitions under contract		309,000		—
FHA/ADA settlement capital accrual		—		22,701

Total	$	2,346,088	$	530,267

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 by the end of 2010. 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, existing cash balances, borrowings under our unsecured credit facilities and proceeds from long-term financing. We have filed registration statements to facilitate issuance of debt and equity securities on an as-needed basis subject to our ability to effect offerings on satisfactory terms based on prevailing conditions. At May 1, 2007, we had $195.8 million in available capacity on our unsecured credit facilities. In addition, we expect the proceeds from REIT dispositions to approximate our investment in new Operating Trust operating community acquisitions in 2007. We therefore do not believe that discontinued operations will have a significant adverse impact on our liquidity in the foreseeable future.

Litigation and Contingencies

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.

Critical Accounting Policies

We define critical accounting policies as those accounting policies that require our management to exercise their most difficult, subjective and complex judgments. Our management has discussed the development and selection of all of these critical accounting policies with our audit committee, and the audit committee has reviewed the disclosure relating to these policies. Our critical accounting policies relate principally to the following key areas:

Internal Cost Capitalization

We have an investment organization 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.

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. Furthermore, decisions regarding when a property should be classified as held-for-sale under SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets,” requires significant management judgment. There are many phases to the disposition process ranging from the initial market research to being under contract with non-refundable earnest money to closing. Deciding when management is committed to selling an asset is therefore highly subjective.

When determining if there is an indication of impairment for assets intended to be held and used, 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 fair value of the asset.

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, as well as the quality and location of the properties. 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.

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 “critical accounting estimate.”

Pursuit Costs

We incur costs relating to the potential acquisition of existing operating communities or land for development of new operating communities, 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.”

Consolidation vs. Equity Method of Accounting for Ventures

From time to time, we make co-investments in real estate ventures with third parties and are required to determine whether to consolidate or use the equity method of accounting for the venture. FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities” (as revised) and Emerging Issues Task Force issued EITF No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights,” are the two primary sources of accounting guidance in this area. Appropriate application of these relatively complex rules requires substantial management judgment, which we believe, makes the choice of the appropriate accounting method for these ventures a “critical accounting estimate.”

Off Balance Sheet Arrangements

Our real estate investments in entities that do not qualify as variable interest entities, variable interest entities where we are not the primary beneficiary and entities we do not control through majority economic interest are not consolidated and are reported as investments in unconsolidated entities. Our investments in and advances to unconsolidated entities at March 31, 2007 aggregated $252.0 million. Please refer to Note 5, Investments in and Advances to Unconsolidated Entities for additional information.

Contractual Commitments

Please refer to “Scheduled Debt Maturities and Interest Payment Requirements” and “Planned Investments” above for further discussion of significant contractual commitments.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There has been no material change in the qualitative or quantitative disclosures regarding our market risk. For detailed information about the qualitative and quantitative disclosures of our market risk, see Item 7A in our 2006 Form 10-K.

Item 4. Controls and Procedures

Disclosure 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-15(e) 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 effective, to the best of their knowledge, as of March 31, 2007.

Changes in Internal Controls over Financial Reporting

There has been no change to our internal control over financial reporting during the quarter ended March 31, 2007 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are party to various 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. See Note 11 to the financial statements included in this report.

Item 1A. Risk Factors

See the factors discussed in Part 1, “Item 1A. Risk Factors” in our 2006 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended March 31, 2007, we issued 18,081 Common Units in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933.

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

No other information is required to be disclosed for the period ended March 31, 2007 that has not been disclosed in a report on Form 8-K. There has been no change to the procedures by which security holders may recommend nominees to our Board of Trustees.

Item 6. Exhibits

See Exhibits.

SIGNATURES

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


		ARCHSTONE-SMITH OPERATING TRUST

		BY:		/s/ R. SCOT SELLERS R. Scot Sellers
				Chairman and
				Chief Executive Officer

		BY:		/s/ CHARLES E. MUELLER, JR. Charles E. Mueller, Jr.
				Chief Financial Officer
				(Principal Financial Officer)

		BY:		/s/ MARK A. SCHUMACHER Mark A. Schumacher
				Senior Vice President and Chief Accounting Officer
				(Principal Accounting Officer)

Date: May 9, 2007

Item 6. Exhibits

3.1		Amended and Restated Declaration of Trust of Archstone-Smith Trust (incorporated by reference to Exhibit 3.1 to Archstone-Smith Trust’s Current Report of Form 8-K filed with the SEC on June 2, 2006)

3.3		Restated Bylaws of Archstone-Smith Trust (incorporated by reference to Exhibit 3.2 to the Archstone-Smith Trust’s Current Report on Form 8-K filed with the SEC on June 2, 2006)

10.1		Amended and Restated Declaration of Trust of Archstone-Smith Operating Trust (incorporated by reference to Exhibit 4.1 to the Archstone-Smith Trust’s Current Report on Form 8-K filed with the SEC on June 2, 2006)

10.2		Bylaws of Archstone-Smith Operating Trust (incorporated by reference to Exhibit 4.2 to the Archstone-Smith Trust’s Current Report on Form 8-K filed with the SEC on June 2, 2006)

12.1		Computation of Ratio of Earnings to Fixed Charges

12.2		Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Unit Distributions

15.1		Independent Registered Public Accounting Firm Awareness Letter

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

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

ARCHSTONE SMITH OPERATING TRUST 10-Q