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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission file number 1-10272

Archstone-Smith Operating Trust

9200 E. Panorama Circle, Suite 400

(303) 708-5959

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

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

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

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

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

      Based on the closing price of Archstone-Smith Trust’s Common Shares on June 28, 2002, which are issuable upon redemption of the A-1 Common Units, the aggregate market value of the Class A-1 Common Units held by non-affiliates was approximately $662,364,522.

      At February 14, 2003, there were approximately 18,204,357 Class A-1 and Class B Common Units outstanding held by non-affiliates.

DOCUMENTS INCORPORATED BY REFERENCE

      None.

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GLOSSARY

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

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PART I

Item 1.     Business

      Archstone-Smith Operating Trust is a leading real estate operating company focused on the operation, development, redevelopment, acquisition, management and long-term ownership of apartment communities in protected markets throughout the United States. Our garden communities operate under the Archstone Communities brand name; our high-rise communities operate under the Charles E. Smith Residential brand name. As of December 31, 2002, we own or have an ownership position in 236 garden-style communities and 51 high-rise properties, representing 99,840 units, including 2,295 units under construction. At the end of 2002, 83.2% of our wholly-owned operating portfolio was concentrated in protected locations in our eight core markets, based on NOI:

The Company

      We are engaged primarily in the operation, development, redevelopment, acquisition, management and long-term ownership of apartment communities throughout the United States. The company is structured as an UPREIT, under which all property ownership and business operations are conducted through the Operating Trust. Archstone-Smith is our sole trustee and owns 88.0% of our Common Units and its Common Shares trade on the New York Stock Exchange (NYSE:ASN).

      Our principal focus is to create unitholder value by:

	•	Maximizing the performance of our communities and strengthening our operating platform by improving our customer service delivery, strengthening our brand position, leveraging technology and solidifying our reputation for operational leadership;
	•	Owning and operating apartments in eight core protected markets, which are characterized by: (i) protected locations with limited land on which to build new housing; (ii) expensive single-family housing; and (iii) a strong, diversified economic base;
	•	Generating long-term sustainable growth in operating cash flow;
	•	Creating incremental value by acquiring, developing, or redeveloping apartments in core protected markets; and
	•	Managing our invested capital through the disposition of assets that no longer meet our investment objectives and redeploying that capital into investments in our core protected markets.

Customer-focused Operations

      One of our primary objectives is to be viewed as a leading operating company in corporate America, not just a well-run company within the real estate industry. We believe we will achieve this objective by leveraging our operating platform across our two well-respected customer-facing brands — Archstone Communities and Charles E. Smith Residential — and investing in innovation and technology that improves our core business. We believe that strong brands, a robust and scalable technology platform and continued investment in our human capital improve our potential for long-term cash flow growth.

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      Powerful Brands. An essential component of our strategy is to offer a consistent and notably higher level of service at Archstone communities and Charles E. Smith properties, coast to coast. Through Archstone’s unconditional Seal of Service™ guarantees and Charles E. Smith’s Commitment to Excellent Service, we have adapted and implemented successful customer service programs from other industries to create customer loyalty and trust, while establishing the service benchmarks for the apartment industry.

      Attracting and retaining the best professionals in our industry and giving them the tools to provide an exceptional customer experience is a critical component to ensuring the integrity of our brands. In 2002, we unified our Customer-centered Sales Excellence training program across our two brands to ensure consistent delivery of our brand promises. The seven training modules cover all important aspects of our sales process and are offered to associates in manageable half-day classes. This uniform sales philosophy ensures that from start to finish, our associates have the tools to efficiently serve our customers at every community in our national portfolio.

      Strategic use of technology. The Internet is changing the way people do business, and we are committed to staying ahead of the curve by investing in technology that streamlines operations and improves our core business. We continue to develop new initiatives and improve upon existing programs and services to make it easier for our customers to do business with us. In 2002, we launched two important web-based tools that we believe will redefine the way customers lease an apartment and how we manage our properties.

      We pioneered the use of Lease Rent Optimizer™ (LRO), the first revenue management software system in the apartment industry, which enables us to more precisely forecast and analyze market demand and unit availability to optimize pricing for our apartments. We believe this system has a significant positive impact on our community revenues. In 2002, we completed the rollout of LRO to our Archstone garden communities and expanded the LRO system to 75% of the Charles E. Smith high-rise properties by year-end. In addition, LRO allows us to accommodate new and renewing customers’ lease term needs creating a level of flexibility that previously has never been available in the apartment industry.

      In addition to LRO, we are also upgrading our existing property management system with MRI Residential Management (RM) software. Developed in conjunction with MRI, an Intuit company (NASDAQ: INTU), RM is a customer-centric, web-based property management software system that dramatically improves our reporting capabilities, ability to accurately track resident rental histories, and gives our customers around-the-clock access to their information through resident-only web sites. RM standardizes operations between the Archstone and Charles E. Smith portfolios and is scalable and flexible, allowing us to add new tools to the system as they become available.

      RM is fully integrated with other tools already in use at our communities, including LRO and SafeRent, a web-based applicant-screening product. Through the resident web sites, our customers will be able to view and pay account balances through direct debit, submit service requests and renew or fully lease an apartment online. RM is customized so that each associate can quickly access the features and data required for his or her specific job responsibilities. This allows us to execute leases much more smoothly, which not only helps us fill our apartments faster, but also ensures a much better experience for our customers. RM is expected to be fully rolled out across our entire portfolio by mid 2004.

Investment Strategy

      We use our extensive research to identify investment opportunities that we believe will produce total returns in excess of our long-term cost of capital. We estimate our long-term cost of equity capital to be 11 to 12%. When combined with current long-term debt rates, this gives us a weighted average long-term cost of capital of approximately 9%.

      Protected markets. We invest our capital in protected markets with high barriers to entry. Barriers to entry exist in areas where there is a very limited amount of vacant land, any land that exists is not zoned for apartment development, and local municipalities are reluctant to zone additional land for apartment properties. Our eight core markets include the Greater Washington, D.C. metropolitan area, Southern California, the San Francisco Bay area, Seattle, Chicago, Southeast Florida, Boston and the greater New York

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      Capital recycling program. In 1995, we articulated a strategy that still guides our decisions today: to build a national apartment portfolio in protected locations in the nation’s best apartment markets. To execute this strategy, we have sold virtually all the assets we owned at that time and, utilizing a sophisticated capital recycling strategy, we redeployed our disposition proceeds principally into our eight core protected markets. We believe that concentrating our portfolio in protected markets improves our core growth rate and long-term business fundamentals.

      In 2002, we sold $420.1 million of real estate assets, generating gains of over $108 million. We realized an average unleveraged return during our holding period for the disposition communities of 18.6%. Additionally, we acquired $402.4 million of operating apartment communities, representing a total of 1,795 units. Our acquisitions over the last seven years were principally funded by capital recycled through tax-deferred exchanges. We focus our acquisition activity on assets in highly desirable residential locations with minimal competition and strong, long-term growth prospects. Our locally based investment infrastructure often allows us to identify attractive opportunities before they are made available to the general market, which often results in advantageous pricing.

      Development and redevelopment. We believe we create substantial value through the development of new apartment communities and the redevelopment of existing operating communities. At December 31, 2002, we had $480.8 million of development communities under construction, with 68.3%, or $328.4 million, of this amount already funded. In 2002, we completed $265.9 million of new development communities, representing 1,469 units, in markets that include the greater Washington, D.C. metropolitan area and Southern California.

      Through our redevelopment strategy, we reposition assets by intelligently investing capital in renovations that include upgrades to interiors, exteriors, leasing offices, landscaping and amenities. In addition, we invest in revenue-enhancing capital expenditures such as building garages/carports and additional storage facilities. We also invest in expense-reducing expenditures, including water sub-metering systems and xeriscaping.

Conservative Balance Sheet Management

      One of our primary financial objectives is to structure our balance sheet in order to have access to capital when other competitors in the industry do not. We have a significant equity base, with a total equity market capitalization of $5.3 billion. During 2002, we financed our investment activity primarily through internally-generated cash flow from operations and asset dispositions. We are focused on ensuring that we do not face liquidity issues in any given quarter or year. As of February 14, 2003, we had $381.9 million in total available capacity on our lines of credit. We believe that careful balance sheet management will enable us to take advantage of compelling investment opportunities that are more likely to emerge in a capital-constrained environment.

      We are committed to preserving our strong balance sheet in order to enhance our financial flexibility. Our investment-grade debt ratings from Standard & Poor’s (BBB+), Moody’s Investors Service (Baa1) and Fitch, Inc. (BBB+) are indicative of our solid financial position.

      Our long-term debt is structured to create a relatively level principal maturity schedule, without significant repayment obligations in any year. We have only $223.9 million of long-term debt maturing in 2003, representing 2.4% of our total market capitalization.

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      The following summarizes our long-term debt maturity profile for the next five years, and thereafter, as of December 31, 2002 (dollar amounts in thousands):

(1)	Total market capitalization as of December 31, 2002

      We made significant progress in reducing our secured debt and increasing our unencumbered asset base during the year. We repaid over $500 million of secured debt, reducing our ratio of secured debt to total debt from 60.5% at the end of 2001, to 47.8% at the end of 2002. As a result, we have $5.0 billion of unencumbered assets as of December 31, 2002.

      Consistent distribution growth. We paid distributions of $1.70 per Common Unit in 2002, a 3.7% increase over Common Unit distributions paid in 2001. We also announced our anticipated 2003 distribution level of $1.71 per share. We have increased our annual distribution for 11 consecutive years and have paid 110 consecutive quarterly distributions. Including the announced increase for 2003, our annual distribution per unit has increased 167% since 1991.

Registrant’s Website Address

      A copy of this Annual Report on Form 10-K, as well as our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports are available, free of charge, on the Internet on our website www.archstonesmith.com. All required reports are made available on the website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission. The reference to our website address does not constitute incorporation by reference of the information contained in the website and should not be considered part of this document.

Affiliates

      We own or owned the majority of the economic interest in the following companies, which provide various investment and operational services as described below:

	Ameriton utilizes our national development, acquisition and operating infrastructure to make real estate investments with a shorter-term ownership horizon. Ameriton creates the potential for additional positive earnings growth for us.
	Archstone Management Services Incorporated is a full-service, third-party property management company, which manages assets for private and institutional owners of apartment properties throughout the United States.
	Consolidated Engineering Services is a broad-based building technical services company with a network of leading regional companies that provide specialized technical services for building equipment, systems and operations. CES has particular expertise in operating mission critical facilities. We sold our interest in CES to a third party in December 2002; see Note 2 in our audited financial statements in this Annual Report for additional information on the CES sale.
	Smith Management Construction is a construction management service company that performs renovation, rehabilitation and tenant improvement services to both the private and governmental sector.

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	We sold SMC in February 2003; see Note 18 in our audited financial statements in this Annual Report for additional information on the SMC sale.

Management

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

     Officers of the Operating Trust

      Archstone-Smith is the majority owner of the Operating Trust and owns approximately 88.0% of our total outstanding Common Units. Archstone-Smith is the Operating Trust’s sole Trustee.

      References throughout this section are labeled “Operating Trust” for the post-merger period as a result of this name change. Pre-merger periods will be referenced as follows: (i) as “Operating Trust” for individuals who were associated with Archstone and/or its affiliates; and (ii) as “Smith Residential” for individuals who were associated with Smith Residential and/or its affiliates. See Note 2 of the Operating Trust’s audited financial statements in this Annual Report or in Management’s Discussion and Analysis in this Annual Report for additional information on the Smith Merger.

     Senior Officers of Archstone-Smith Operating Trust

      The senior officers of Archstone-Smith Operating Trust are:

     Biographies of Senior Officers

      R. Scot Sellers – 46 — Chairman and Chief Executive Officer of Archstone-Smith Operating Trust since June 1997, with overall responsibility for the Operating Trust’s strategic direction, investments and operations; Co-Chairman and Chief Investment Officer of the Operating Trust from July 1998 to December 1998. From September 1994 to June 1997, Managing Director of the Operating Trust, where he had overall responsibility for the Operating Trust’s investment strategy and implementation; Senior Vice President of the Operating Trust from May 1994 to September 1994. Mr. Sellers is a member of the Executive Committee of the Board of Governors of NAREIT and also is a member of the Executive Committee of the Board of Directors of the National Multi Housing Council.

      J. Lindsay Freeman – 57 — Chief Operating Officer since September 2002, with responsibility for managing all investment and operating activities for the Operating Trust; President-East Division of the Operating Trust from October 2001 to September 2002, with responsibility for all investments and operations

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      Charles E. Mueller, Jr. – 39 — Chief Financial Officer of the Operating Trust since December 1998, with responsibility for the planning and execution of the company’s financial strategy and balance sheet management; Mr. Mueller oversees the company’s accounting/financial reporting, corporate finance, investor relations, corporate and property tax, due diligence and risk management functions. Vice President of the Operating Trust from September 1996 to December 1998; prior thereto, he held various financial positions with Security Capital, where he provided financial services to Security Capital and its affiliates.

      Richard A. Banks – 55 — President-West Division of the Operating Trust since October 2001, with responsibility for all investments and operations of the West Division; from December 1997 to October 2001, Managing Director of the Operating Trust, with responsibility for investments and operations in the West Region; Senior Vice President of the Operating Trust from August 1997 to December 1997; from January 1995 to August 1997, President and Chief Executive Officer of Lincoln Residential Services, where he was responsible for all aspects of leading a full service property management company of approximately 40,000 apartment units in the western United States; member of the Executive Committee of the Board of Directors of the National Multi Housing Council.

      James D. Rosenberg – 45 — President-Charles E. Smith Residential Division of the Operating Trust since November 2002, with responsibility for all investments and operations of the Division; President and Chief Operating Officer of Winston Hotels from January 1998 to November 2002; Senior Vice President for Holiday Inn Worldwide from January 1994 to January 1998, where he was responsible for the operations of 85 hotel properties, including nearly 50 high-rise properties in urban areas; Mr. Rosenberg started his career with the public accounting firm of Price Waterhouse.

      Dana K. Hamilton – 34 — Executive Vice President-National Operations for the Operating Trust since May 2001, with responsibility for corporate services, including human resources, training and development, marketing and corporate communications, and new business development; property operations in the central United States; and Archstone Management Services Incorporated, the company’s third-party management business; Senior Vice President of the Operating Trust from December 1998 to May 2001; Vice President from December 1996 to December 1998, with responsibility for new product development and revenue enhancement through portfolio-wide initiatives.

      Caroline Brower – 54 — Executive Vice President, General Counsel and Secretary of the Operating Trust since December 2002, with responsibility for legal and corporate governance; Senior Vice President, General Counsel and Secretary of the Operating Trust from September 1999 to December 2002; from September 1998 to September 1999, President of Ameriton Properties Incorporated; prior thereto, Ms. Brower was a partner of Mayer, Brown & Platt (now Mayer, Brown, Rowe & Maw), where she practiced transaction and real estate law.

      Daniel E. Amedro – 46 — Chief Information Officer and Senior Vice President of the Operating Trust since May 1998, with primary responsibility for the company’s information technology functions and initiatives; Chief Information Officer and Vice President from May 1998 to January 1999; from September 1996 to March 1998, Vice President of Information Services for American Medical Response, the largest private ambulance operation in the United States; prior thereto, Vice President of Information Services for Hyatt Hotels and Resorts, where he was responsible for all strategic information systems including Spirit, Hyatt’s worldwide reservation system, which supported over 50,000 users and was recognized as the leading reservations system in the hospitality industry.

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      Mark A. Schumacher – 44 — Senior Vice President and Corporate Controller of the Operating Trust since January 2002, with principal responsibility for accounting and financial reporting; prior thereto, Vice President and Corporate Controller of Qwest Communications International from December 2000 to December 2001 where he had principal responsibility for accounting and financial reporting; from April 1991 to December 2000, held various senior and executive level positions in the accounting and financial reporting department of Qwest Communications International and predecessor entity US West; from April 1984 to April 1991 he held various managerial level positions in the accounting and financial reporting department of US West.

Employees

      We currently employ approximately 3,450 individuals, of whom approximately 2,750 are focused on the site-level operation of our garden communities and high-rise properties. Of the site-level associates, approximately 100 are subject to collective bargaining agreements with four unions in Illinois and New York. The balance are professionals who manage corporate and regional operations, including our investment program, property operations, financial reporting and other support functions. We consider our relationship with our employees to be very good.

Insurance

      We carry comprehensive general liability coverage on our owned communities, with limits of liability customary within the industry to insure against liability claims and related defense costs. Similarly, we are insured against the risk of direct physical damage in amounts necessary to reimburse the company on a replacement cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period. Our property policies for all operating and development communities include coverages for the perils of flood and earthquake shock with limits and deductibles customary in the industry. We also obtain title insurance policies when acquiring new properties, which insure fee title to our real properties. We currently have coverage for losses incurred in connection with both domestic and foreign terrorist-related activities. The terms of our property and general liability policies after June 30, 2002, may exclude certain mold-related claims. Should an uninsured loss arise against the company, we would be required to use our own funds to resolve the issue, including litigation costs.

Risk Factors

      The following factors could affect our future financial performance:

     We are restricted in our ability to sell the properties located in the Crystal City area of Arlington, Virginia without the consent of Messrs. Smith and Kogod, which could result in our inability to sell these properties at an opportune time and/or at increased costs to us.

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

     We depend on our key personnel.

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

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     Debt financing could adversely affect our performance.

      We are subject to risks associated with debt financing and preferred equity. These risks include the risks that we will not have sufficient cash flow from operations to meet required payments of principal and interest or to pay distributions on our securities at expected rates, that we will be unable to refinance current or future indebtedness, that the terms of any refinancing will not be as favorable as the terms of existing indebtedness, and that we will be unable to make necessary investments in new business initiatives due to lack of available funds. Increases in interest rates could increase interest expense, which would adversely affect net earnings and cash available for payment of obligations. If we are unable to make required payments on indebtedness that is secured by a mortgage on our property, the asset may be transferred to the lender with a consequent loss of income and value to us.

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

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

      We had $4.1 billion in total debt outstanding as of December 31, 2002, of which $2.0 billion was secured by real estate assets and $784.8 million was subject to variable interest rates, including $365.6 million outstanding on our short-term credit facilities.

     Archstone-Smith may not have access to equity capital.

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

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

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

     We are subject to risks inherent in real estate development.

      We have developed or commenced development on a substantial number of apartment communities and expect to develop additional apartment communities in the future. Real estate development involves risks in addition to those involved in the ownership and operation of established communities, including the risks that financing, if needed, may not be available on favorable terms, construction may not be completed on schedule, contractors may default, estimates of the costs of developing apartment communities may prove to be inaccurate and communities may not be leased or rented on profitable terms or in the time frame anticipated. Timely construction may be affected by local weather conditions, local moratoria on construction, local or

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

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

     We are subject to the Americans with Disabilities Act.

      Our communities must comply with Title III of the Americans with Disabilities Act to the extent that such communities are or contain public accommodations and/or commercial facilities as defined by the Act. The Act does not consider apartment communities to be public accommodations or commercial facilities, except for portions of such facilities which are open to the public, such as the leasing office. Noncompliance could result in imposition of fines or an award of damages to private litigants. We believe our communities comply with all present requirements under the Act and applicable state laws.

     Compliance with environmental regulations may be costly.

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

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

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

      We are not aware of any other environmental condition on any of our real estate investments that is likely to have a material adverse effect on our financial position or results of operations; however, we cannot give any assurance that any such condition does not exist or may not arise in the future.

     Changes in laws may result in increased cost.

      We may not be able to pass on increased costs resulting from increases in real estate taxes, income taxes or other governmental requirements directly to our residents. Substantial increases in rents, as a result of those increased costs, may affect the ability of a resident to pay rent, causing increased vacancy. Changes in laws increasing potential liability for environmental conditions or increasing the restrictions on discharges or other environmental conditions may result in significant unanticipated expenditures.

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

      We intend to qualify as a partnership for federal income tax purposes. However, we will be treated as an association taxable as a corporation for federal income tax purposes if we are deemed to be a publicly traded partnership, unless at least 90% of our income is qualifying income as defined in the tax code. Qualifying income for the 90% test generally includes passive income, such as real property rents, distributions and interest. The income requirements applicable to REITs and the definition of qualifying income for purposes of this 90% test are similar in most respects. We believe that we will meet this qualifying income test, but cannot guarantee that we will. If we were to be taxed as a corporation, we would incur substantial tax liabilities, Archstone-Smith would fail to qualify as a REIT for tax purposes and Archstone-Smith’s and the Operating Trust’s ability to raise additional capital would be impaired.

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

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

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

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

     We have a concentration of investments in certain markets.

      At December 31, 2002, approximately 35.1% of our apartment communities are located in the Greater Washington, D.C. Metropolitan Area, based on NOI. Approximately 13.2% of our apartment communities are located in Southern California at December 31, 2002, based on NOI. Southern California is the geographic area comprised of the Los Angeles, Inland Empire, Orange County, San Diego and Ventura County markets. Additionally, approximately 9.0% of our apartment communities are located in the San Francisco Bay Area of California at December 31, 2002, based on NOI. We are, therefore, subject to increased exposure (positive or negative) to economic and other competitive factors specific to protected markets within these geographic areas.

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     Our business is subject to extensive competition.

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

Item 2.     Properties

Geographic Distribution

      At December 31, 2002, the geographic distribution for our eight core markets based on NOI was as follows:

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      The following table summarizes the geographic distribution of our garden communities and high-rise properties at December 31, 2002 based on NOI:

(1)	Based on NOI for the fourth quarter of each calendar year, excluding NOI from communities disposed of during the period. For 2001, includes an entire quarter of NOI for the assets acquired in the Smith Merger.

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Real Estate Portfolio

      We are a leading real estate operating company focused on the operation, development, redevelopment, acquisition, management and long-term ownership of apartment communities in protected markets throughout the United States. We have a strategic national presence with 222 wholly-owned communities representing 77,988 units, including 2,295 units in our development pipeline at December 31, 2002. The following information summarizes our real estate portfolio as of December 31, 2002 (dollar amounts in thousands). Additional information on our real estate portfolio is contained in “Schedule III, Real Estate and Accumulated Depreciation” and in our audited financial statements contained in this Annual Report:

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