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DENVER-Fitch Ratings affirmed the ‘BBB+’ senior and ‘BBB’ preferred stock ratings of Archstone-Smith Operating Trust, the operating partnership of Archstone Properties Trust. The rating outlook is stable. Approximately $2.3 billion in securities are affected by the rating for the large apartment REIT based here.

The ratings reflect Fitch’s comfort with the stability of the earnings generated by Archstone’s national portfolio of well-located, well-leased, multifamily assets. Fitch also notes Archstone’s relatively strong operating results through the current economic downturn.

Fitch acknowledges Archstone’s modest use of enterprise leverage, as indicated by the ratios of total debt to undepreciated book capitalization of 43.2% and total debt-plus-preferred to undepreciated book capitalization of 45%, as of June 30.

Operating EBITDA covered interest expense 2.8 times for the 12 months ended June 30, down from 3.1 times at year-end 2002. Likewise, unencumbered net operating income covered unsecured interest expense by 2.8 times and unencumbered assets (at cost) covered unsecured debt by 2.2 times.

Fitch says it recognizes Archstone’s sound liquidity, as evidenced by availability under the company’s line of credit and recent bond offerings. In addition, Archstone has demonstrated solid asset liquidity, with the sale of more than $4.6 billion in assets over the past seven years.

Fitch, however, continues to monitor the impact of asset sales on the unencumbered asset pool, cash flow and asset coverage measures.

Fitch describes Archstone’s increased commitment to the opportunistic investment activities of its Ameriton affiliate, and will continue to monitor those investments to assess the potential for higher cash flow volatility in the portfolio.

Fitch’s rating currently incorporates modestly constrained financial flexibility resulting from significant mortgage borrowings representing 49% of total debt as of June 30, down from 61% at year-end 2001.

Fitch acknowledges the positive results of management’s efforts to reduce secured debt and to increase unencumbered NOI (56% of total NOI) and anticipates further enhancement of the unencumbered pool as ASN repays maturing mortgage debt with proceeds from asset sales and unsecured financings over time. However, the rating also incorporates the third-quarter 2003 consolidation of Ameriton under GAAP as required by the Financial Accounting Standards Board’s (FASB) FIN 46, which is a partially offsetting adjustment to these improvements.

Fitch does, however, acknowledge concern about Archstone’s increased reliance on sales proceeds to fund the dividend and will look for improvement over the coming quarters.

Archstone focuses on the operation, development, redevelopment, acquisition, management and long-term ownership of apartment communities in protected markets throughout the US. It owns 205 apartment communities, representing 73,800 apartment units as of June 30.

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