<PAGE>   1

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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                            ------------------------

                                   FORM 10-Q
                            ------------------------

(MARK ONE)

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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001

                                       OR

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

                       COMMISSION FILE NUMBER: 001-14245

                               AMB PROPERTY, L.P.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<Table>
<Caption>
                   DELAWARE                                      94-3285362
<S>                                            <C>
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)

   PIER 1, BAY 1, SAN FRANCISCO, CALIFORNIA                        94111
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                      (ZIP CODE)
</Table>

                                 (415) 394-9000
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

     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 [X]  No [ ].

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<PAGE>   2

                               AMB PROPERTY, L.P.

                                     INDEX

<Table>
<Caption>
                                                                         PAGE
                                                                         ----
<S>      <C>                                                             <C>
                        PART I. FINANCIAL INFORMATION
Item 1.  Financial Statements (unaudited)
         Consolidated Balance Sheets as of June 30, 2001, and
         December 31, 2000...........................................      1
         Consolidated Statements of Operations for the three and six
         months ended June 30, 2001 and 2000.........................      2
         Consolidated Statements of Cash Flows for the six months
         ended June 30, 2001 and 2000................................      3
         Consolidated Statement of Partners' Capital for the six
         months ended June 30, 2001..................................      4
         Notes to Consolidated Financial Statements..................      5
Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations...................................     18
Item 3.  Quantitative and Qualitative Disclosures About Market
         Risk........................................................     33

                         PART II. OTHER INFORMATION
Item 1.  Legal Proceedings...........................................     34
Item 2.  Changes in Securities and Use of Proceeds...................     34
Item 3.  Defaults Upon Senior Securities.............................     34
Item 4.  Submission of Matters to a Vote of Security Holders.........     34
Item 5.  Other Information...........................................     34
Item 6.  Exhibits and Reports on Form 8-K............................     43
Signatures...........................................................     44
</Table>

                                        i
<PAGE>   3

                                     PART I

ITEM 1. FINANCIAL STATEMENTS

                               AMB PROPERTY, L.P.

                          CONSOLIDATED BALANCE SHEETS
                   AS OF JUNE 30, 2001 AND DECEMBER 31, 2000
             (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT UNIT AMOUNTS)

                                     ASSETS

<Table>
<Caption>
                                                               JUNE 30,     DECEMBER 31,
                                                                 2001           2000
                                                              ----------    ------------
<S>                                                           <C>           <C>
Investments in real estate:
  Land......................................................  $  929,429     $  833,325
  Buildings and improvements................................   3,128,867      2,915,537
  Construction in progress..................................     303,202        277,735
                                                              ----------     ----------
         Total investments in properties....................   4,361,498      4,026,597
  Accumulated depreciation and amortization.................    (213,923)      (177,467)
                                                              ----------     ----------
    Net investments in properties...........................   4,147,575      3,849,130
Investments in unconsolidated joint ventures................      83,865         80,432
Properties held for divestiture, net........................      96,209        197,146
                                                              ----------     ----------
    Net investments in real estate..........................   4,327,649      4,126,708
Cash and cash equivalents...................................     135,101         20,358
Restricted cash.............................................      41,483         22,364
Mortgage receivables........................................      92,250        115,969
Accounts receivable, net....................................      68,982         69,874
Investments in affiliated companies.........................          --         35,731
Investments in other companies..............................          --         15,965
Other assets................................................      56,700         18,657
                                                              ----------     ----------
         Total assets.......................................  $4,722,165     $4,425,626
                                                              ==========     ==========

                           LIABILITIES AND PARTNERS' CAPITAL
Debt:
  Secured debt..............................................  $1,058,247     $  940,276
  Unsecured senior debt securities..........................     755,000        680,000
  Alliance Fund II credit facility..........................      98,100             --
  Unsecured credit facility.................................          --        216,000
                                                              ----------     ----------
         Total debt.........................................   1,911,347      1,836,276
Dividends payable...........................................      35,930          6,775
Other liabilities...........................................     165,101        140,267
                                                              ----------     ----------
         Total liabilities..................................   2,112,378      1,983,318
Commitments and contingencies (note 12).....................
Minority interests..........................................     653,367        496,405
Partners' capital:
  General Partner, 84,764,956 and 83,909,340 units,
    respectively, and 4,000,000 Series A preferred units
    with a $100,000 liquidation preference..................   1,789,884      1,767,930
  Limited Partners, 5,229,620 and 5,827,917 units
    outstanding, respectively, and 1,300,000 Series B
    preferred units with a $65,000 liquidation preference...     166,536        177,973
                                                              ----------     ----------
         Total partners' capital............................   1,956,420      1,945,903
                                                              ----------     ----------
         Total liabilities and partners' capital............  $4,722,165     $4,425,626
                                                              ==========     ==========
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                        1
<PAGE>   4

                               AMB PROPERTY, L.P.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
           FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
      (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT UNIT AND PER UNIT AMOUNTS)

<Table>
<Caption>
                                                                FOR THE THREE MONTHS         FOR THE SIX MONTHS
                                                                   ENDED JUNE 30,              ENDED JUNE 30,
                                                              ------------------------    ------------------------
                                                                 2001          2000          2001          2000
                                                              ----------    ----------    ----------    ----------
<S>                                                           <C>           <C>           <C>           <C>
REVENUES
  Rental revenues...........................................  $  139,535    $  110,597    $  275,336    $  218,863
  Equity in earnings of unconsolidated joint ventures.......       1,255         1,317         2,729         2,559
  Investment management income..............................       1,544           704         3,964           952
  Interest and other income.................................       3,692           861         8,831         1,428
                                                              ----------    ----------    ----------    ----------
        Total revenues......................................     146,026       113,479       290,860       223,802
OPERATING EXPENSES
  Property operating expenses...............................      16,707        11,586        33,046        23,063
  Real estate taxes.........................................      16,933        13,502        33,514        26,998
  Interest, including amortization..........................      30,206        20,002        61,758        40,344
  Depreciation and amortization.............................      27,323        22,631        54,177        41,823
  General and administrative................................       9,201         5,984        17,384        11,335
  Loss on investments in other companies....................      16,103            --        20,758            --
                                                              ----------    ----------    ----------    ----------
        Total operating expenses............................     116,473        73,705       220,637       143,563
                                                              ----------    ----------    ----------    ----------
  Income from operations before minority interests..........      29,553        39,774        70,223        80,239
Minority interests:
  Preferred units...........................................      (5,943)       (4,560)      (11,399)       (8,768)
  Minority interests........................................      (7,046)       (2,306)      (11,410)       (4,163)
                                                              ----------    ----------    ----------    ----------
  Minority interests' share of net income...................     (12,989)       (6,866)      (22,809)      (12,931)
                                                              ----------    ----------    ----------    ----------
        Net income before gain and extraordinary items......      16,564        32,908        47,414        67,308
Gain from divestitures of real estate.......................      17,792           416        34,559           405
                                                              ----------    ----------    ----------    ----------
        Net income before extraordinary items...............      34,356        33,324        81,973        67,713
Extraordinary items.........................................        (438)           --          (438)           --
                                                              ----------    ----------    ----------    ----------
        Net income..........................................      33,918        33,324        81,535        67,713
Series A preferred unit distributions.......................      (2,125)       (2,125)       (4,250)       (4,250)
Series B preferred unit distributions.......................      (1,402)       (1,402)       (2,804)       (2,804)
                                                              ----------    ----------    ----------    ----------
        Net income available to common unitholders..........  $   30,391    $   29,797    $   74,481    $   60,659
                                                              ==========    ==========    ==========    ==========
Income available to common unitholders attributable to:
  General partner...........................................      27,808        27,882        70,123        56,801
  Limited partners..........................................       2,583         1,915         4,358         3,858
                                                              ----------    ----------    ----------    ----------
        Net income available to common unitholders..........  $   30,391    $   29,797    $   74,481    $   60,659
                                                              ==========    ==========    ==========    ==========
BASIC INCOME PER COMMON UNIT
  Before extraordinary items................................  $     0.34    $     0.33    $     0.83    $     0.68
  Extraordinary items.......................................          --            --            --            --
                                                              ----------    ----------    ----------    ----------
        Net income available to common unitholders..........  $     0.34    $     0.33    $     0.83    $     0.68
                                                              ==========    ==========    ==========    ==========
DILUTED INCOME PER COMMON UNIT
  Before extraordinary items................................  $     0.33    $     0.33    $     0.82    $     0.68
  Extraordinary items.......................................          --            --            --            --
                                                              ----------    ----------    ----------    ----------
        Net income available to common unitholders..........  $     0.33    $     0.33    $     0.82    $     0.68
                                                              ==========    ==========    ==========    ==========
WEIGHTED AVERAGE COMMON UNITS
  Basic.....................................................  89,691,164    89,822,498    89,680,557    89,758,199
                                                              ==========    ==========    ==========    ==========
  Diluted...................................................  90,608,347    90,098,892    90,580,540    89,903,417
                                                              ==========    ==========    ==========    ==========
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                        2
<PAGE>   5

                               AMB PROPERTY, L.P.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
                       (UNAUDITED, DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                                2001         2000
                                                              ---------    ---------
<S>                                                           <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................  $  81,535    $  67,713
Adjustments:
  Depreciation and amortization.............................     54,177       41,823
  Loss on investments in other companies....................     20,758           --
  Straight-line rents.......................................     (3,466)      (5,343)
  Amortization of debt premiums and financing costs.........     (1,033)      (2,781)
  Minority interests' share of net income...................     22,809       12,931
  Gain on divestitures of real estate, net of related
    extraordinary items.....................................    (34,559)        (405)
  Extraordinary items.......................................        438           --
  Equity in earnings of AMB Investment Management...........         43        1,292
  Equity in earnings of unconsolidated joint ventures.......     (2,729)      (2,559)
  Changes in other assets, net..............................      3,034       (8,068)
  Changes in other liabilities, net.........................     24,834       15,766
                                                              ---------    ---------
         Net cash provided by operating activities..........    165,841      120,369
CASH FLOWS FROM INVESTING ACTIVITIES
Change in restricted cash...................................    (19,119)      81,693
Cash paid for property acquisitions.........................   (165,326)    (224,210)
Additions to buildings, development costs, and other first
  generation improvements...................................   (113,517)    (129,616)
Additions to second generation building improvements and
  lease costs...............................................    (16,874)     (15,986)
Additions to interest in unconsolidated joint ventures......     (3,222)     (10,884)
Distributions received from unconsolidated joint ventures...      2,518        1,841
Net proceeds from divestitures of real estate...............     97,702       15,083
                                                              ---------    ---------
         Net cash used in investing activities..............   (217,838)    (282,079)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common units....................................      1,138          269
Borrowings on unsecured credit facility.....................    198,000      160,000
Borrowings on Alliance Fund I credit facility...............         --       25,000
Borrowings on Alliance Fund II credit facility..............     98,100           --
Borrowings on secured debt..................................    138,785       45,109
Payments on unsecured credit facility.......................   (414,000)     (67,000)
Payments on Alliance Fund I credit facility.................         --      (54,000)
Payments on secured debt....................................    (19,749)        (136)
Payment of financing fees...................................     (1,220)      (3,893)
Net proceeds from issuance of unsecured senior debt
  securities................................................     74,563           --
Net proceeds from issuance of preferred units...............     24,856       19,590
Contributions from co-investment partners...................    131,950       73,282
Distributions paid to common and preferred unitholders......    (40,621)     (38,074)
Distributions to limited partners' minority interests,
  including preferred units.................................    (25,062)     (17,006)
                                                              ---------    ---------
         Net cash provided by financing activities..........    166,740      143,141
                                                              ---------    ---------
Net increase (decrease) in cash and cash equivalents........    114,743      (18,569)
Cash and cash equivalents at beginning of period............     20,358       33,312
                                                              ---------    ---------
Cash and cash equivalents at end of period..................  $ 135,101    $  14,743
                                                              =========    =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest......................................  $  66,282    $  45,536
                                                              =========    =========
Non-cash transactions:
  Acquisitions of properties................................    165,326    $ 228,103
  Assumption of debt........................................         --       (3,893)
                                                              ---------    ---------
         Net cash paid......................................  $ 165,326    $ 224,210
                                                              =========    =========
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                        3
<PAGE>   6

                               AMB PROPERTY, L.P.

                  CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
                     FOR THE SIX MONTHS ENDED JUNE 30, 2001
                       (UNAUDITED, DOLLARS IN THOUSANDS)
<Table>
<Caption>
                                                      GENERAL PARTNER                               LIMITED PARTNERS
                                       ---------------------------------------------   ------------------------------------------
                                         PREFERRED UNITS          COMMON UNITS           PREFERRED UNITS         COMMON UNITS
                                       -------------------   -----------------------   -------------------   --------------------
                                         UNITS     AMOUNT      UNITS        AMOUNT       UNITS     AMOUNT      UNITS      AMOUNT
                                       ---------   -------   ----------   ----------   ---------   -------   ---------   --------
<S>                                    <C>         <C>       <C>          <C>          <C>         <C>       <C>         <C>
BALANCE AT DECEMBER 31, 2000.........  4,000,000   $96,100   83,909,340   $1,671,830   1,300,000   $62,319   5,827,917   $115,654
Comprehensive income:
  Net Income.........................         --     4,250           --       70,123          --     2,804          --      4,358
  Realized loss on securities........         --        --           --        3,732          --        --          --        230
        Total comprehensive income...
Issuance of common limited
  partnership units in connection
  with issuance of restricted
  stock..............................         --        --      232,014        5,708          --        --          --         --
Issuance of common limited
  partnership units in connection
  with the exercise of stock
  options............................         --        --       50,305        1,138          --        --          --         --
Conversion of operating partnership
  units to common stock..............         --        --      598,297       13,443          --        --    (598,297)   (11,921)
Retirement of operating partnership
  units..............................         --        --      (25,000)        (570)         --        --          --         --
Deferred compensation................         --        --           --       (5,708)         --        --          --         --
Deferred compensation amortization...         --        --           --        1,266          --        --          --         --
Reallocation of interests............         --        --           --          (28)         --        --          --         28
Distributions........................         --    (4,250)          --      (67,150)         --    (2,804)         --     (4,132)
                                       ---------   -------   ----------   ----------   ---------   -------   ---------   --------
BALANCE AT JUNE 30, 2001.............  4,000,000   $96,100   84,764,956   $1,693,784   1,300,000   $62,319   5,229,620   $104,217
                                       =========   =======   ==========   ==========   =========   =======   =========   ========

<Caption>

                                         TOTAL
                                       ----------
<S>                                    <C>
BALANCE AT DECEMBER 31, 2000.........  $1,945,903
Comprehensive income:
  Net Income.........................
  Realized loss on securities........
        Total comprehensive income...      85,497
Issuance of common limited
  partnership units in connection
  with issuance of restricted
  stock..............................       5,708
Issuance of common limited
  partnership units in connection
  with the exercise of stock
  options............................       1,138
Conversion of operating partnership
  units to common stock..............       1,522
Retirement of operating partnership
  units..............................        (570)
Deferred compensation................      (5,708)
Deferred compensation amortization...       1,266
Reallocation of interests............          --
Distributions........................     (78,336)
                                       ----------
BALANCE AT JUNE 30, 2001.............  $1,956,420
                                       ==========
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                        4
<PAGE>   7

                               AMB PROPERTY, L.P.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 2001
                                  (UNAUDITED)

 1. ORGANIZATION AND BASIS OF PRESENTATION

     AMB Property Corporation, a Maryland corporation (the "Company"), commenced
operations as a fully integrated real estate company effective with the
completion of its initial public offering on November 26, 1997. The Company
elected to be taxed as a real estate investment trust under Sections 856 through
860 of the Internal Revenue Code of 1986, commencing with its taxable year ended
December 31, 1997, and believes its current organization and method of operation
will enable it to maintain its status as a real estate investment trust. The
Company, through its controlling interest in its subsidiary, AMB Property, L.P.,
a Delaware limited partnership (the "Operating Partnership"), is engaged in the
acquisition, ownership, operation, management, renovation, expansion, and
development of primarily industrial buildings in target markets nationwide.
Unless the context otherwise requires, the "Company" means AMB Property
Corporation, the Operating Partnership, and its other controlled subsidiaries
and the "Operating Partnership" means AMB Property, L.P. and its other
controlled subsidiaries.

     As of June 30, 2001, the Company owned an approximate 94.2% general partner
interest in the Operating Partnership, excluding preferred units. The remaining
5.8% limited partner interest is owned by non-affiliated investors and certain
current and former directors and officers of the Company. For local law
purposes, certain properties are owned through limited partnerships and limited
liability companies. The ownership of such properties through such entities does
not materially affect the Operating Partnership's overall ownership of the
interests in the properties. As the sole general partner of the Operating
Partnership, the Company has full, exclusive, and complete responsibility and
discretion in the day-to-day management and control of the Operating
Partnership. Net operating results of the Operating Partnership are allocated
after preferred unit distributions based on the respective partners' ownership
interests.

     The Operating Partnership enters into co-investment joint ventures with
institutional investors. These co-investment joint ventures provide the
Operating Partnership with an additional source of capital to fund certain
acquisitions and development and renovation projects. As of June 30, 2001, the
Operating Partnership had investments in five co-investment joint ventures,
which are consolidated for financial reporting purposes.

     AMB Investment Management, Inc., a Maryland corporation ("AMB Investment
Management"), provides real estate investment services on a fee basis to
clients. Headlands Realty Corporation, a Maryland Corporation conducts a variety
of businesses that include incremental income programs, such as the Company's
Customer Assist Program and, to a limited extent, development projects available
for sale to third parties. On May 31, 2001, the Operating Partnership acquired
100% of the common stock of AMB Investment Management and Headlands Realty
Corporation from current and former executive officers of the Company, a former
executive officer of AMB Investment Management, and a director of Headlands
Realty Corporation, thereby owning 100% of both entities' capital stock. The
Operating Partnership began consolidating its investments in AMB Investment
Management and Headlands Realty Corporation on May 31, 2001. Prior to May 31,
2001, the Operating Partnership owned 100% of AMB Investment Management's and
Headlands Realty Corporation's non-voting preferred stock (representing a 95%
economic interest therein) and reflected its investment using the equity method.

     As of June 30, 2001, the Operating Partnership owned 865 industrial
buildings and eight retail centers, located in 26 markets throughout the United
States. The Operating Partnership's strategy is to become a leading provider of
High Throughput Distribution, or HTD, properties located near key passenger and
cargo airports, highway systems and ports in major metropolitan areas, such as
Atlanta, Chicago, Dallas/Fort Worth, Northern New Jersey/New York City, the San
Francisco Bay Area, Southern California, Miami, and Seattle. As of June 30,
2001, the industrial buildings, principally warehouse distribution buildings,
encompassed approximately 77.3 million rentable square feet and were 95.9%
leased to over 2,807 tenants. As of

                                        5
<PAGE>   8
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 JUNE 30, 2001
                                  (UNAUDITED)

June 30, 2001, the retail centers, principally grocer-anchored community
shopping centers, encompassed approximately 1.5 million rentable square feet and
were 93.0% leased to over 180 tenants.

     As of June 30, 2001, through the Operating Partnership's subsidiary, AMB
Investment Management, it also managed industrial buildings and retail centers,
totaling approximately 4.4 million rentable square feet on behalf of various
institutional investors. In addition, the Operating Partnership has invested in
industrial buildings, totaling approximately 4.9 million rentable square feet,
through unconsolidated joint ventures.

 2. INTERIM FINANCIAL STATEMENTS

     The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and note disclosures normally included in the
annual financial statements prepared in accordance with accounting principles
generally accepted in the Unites States have been condensed or omitted.

     In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, of a normal recurring nature,
necessary for a fair presentation of the Operating Partnership's consolidated
financial position and results of operations for the interim periods.

     The interim results of the three and six months ended June 30, 2001 and
2000, are not necessarily indicative of future results. These financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Operating Partnership's Annual Report on Form 10-K
for the year ended December 31, 2000.

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

     Investments in other companies are accounted for on a cost basis and
realized gains and losses are included in current earnings. For its investments
in private companies, the Operating Partnership periodically reviews its
investments and management determines if the value of such investments have been
permanently impaired. Permanent impairment losses for investments in public and
private companies are included in current earnings. During the first half of
2001, the Operating Partnership recognized a realized loss on its investment in
other companies totaling $20.8 million, including its investment in Webvan
Group, Inc. The Operating Partnership had previously recognized gains and losses
on its investment in Webvan Group, Inc. as a component of other comprehensive
income.

     The Operating Partnership adopted FASB Statement No. 133 on derivatives in
2001 and it did not impact its financial position or results of operations as
the Operating Partnership does not utilize derivative instruments in its
operations. Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities as amended by Statement No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities,
established accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The Statement, as amended, requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met.

                                        6
<PAGE>   9
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 JUNE 30, 2001
                                  (UNAUDITED)

 3. REAL ESTATE ACQUISITION AND DEVELOPMENT ACTIVITY

     During the second quarter of 2001, the Operating Partnership invested $71.9
million in operating properties, consisting of 12 industrial buildings
aggregating approximately 1.0 million square feet, which included the investment
of $42.3 million in operating properties, consisting of six industrial buildings
aggregating approximately 0.6 million square feet for three of the Operating
Partnership's co-investment joint ventures. Year to date, the Operating
Partnership has invested $165.3 million in operating properties, consisting of
26 industrial buildings aggregating approximately 2.8 million square feet, which
included the investment of $84.8 million in operating properties, consisting of
14 industrial buildings aggregating approximately 1.6 million square feet for
three of the Operating Partnership's co-investment joint ventures.

     During the second quarter of 2001, the Operating Partnership also
contributed operating properties valued at $111.9 million, consisting of 17
industrial buildings aggregating approximately 1.9 million square feet, to two
of its co-investment joint ventures. Year to date, the Operating Partnership
contributed operating properties valued at $539.2 million, consisting of 111
industrial buildings aggregating approximately 10.8 million square feet, to
three of its co-investment joint ventures. Year to date, the Operating
Partnership has recognized a gain of $15.8 million related to these
contributions.

     The Operating Partnership completed two development projects during the
second quarter, which aggregated approximately 0.7 million square feet and had a
total cost of $42.3 million. The Operating Partnership also initiated one new
development project during the first quarter, which will aggregate approximately
0.1 million square feet and have a total estimated cost of $4.9 million upon
completion. As of June 30, 2001, the Operating Partnership had 17 industrial
projects, which will total approximately 4.5 million square feet and have an
aggregate estimated investment of $254.2 million upon completion, in its
development pipeline. It also had three retail projects, which will total
approximately 0.5 million square feet and have an aggregate estimated investment
of $68.6 million upon completion, in its development pipeline. As of June 30,
2001, the Operating Partnership and its Development Alliance Partners have
funded an aggregate of $210.1 million and will need to fund an estimated
additional $112.7 million in order to complete projects currently under
construction.

 4. PROPERTY DIVESTITURES AND PROPERTIES HELD FOR DIVESTITURE

     During the quarter, the Operating Partnership divested itself of seven
industrial buildings, aggregating approximately 1.3 million square feet, for an
aggregate price of $61.6 million, with a resulting net gain of $18.4 million,
including extraordinary losses related to prepayment penalties. Year to date,
the Operating Partnership divested itself of 13 industrial buildings,
aggregating approximately 1.9 million square feet, for an aggregate price of
$93.1 million, with a resulting net gain of $18.3 million.

     The Operating Partnership has decided to divest itself of two retail
centers and four industrial buildings, which are not in its core markets or
which do not meet its strategic objectives. The divestitures of the properties
are subject to negotiation of acceptable terms and other customary conditions.
As of June 30, 2001, the net carrying value of the properties held for
divestiture was $96.2 million.

                                        7
<PAGE>   10
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 JUNE 30, 2001
                                  (UNAUDITED)

     The following table summarizes the condensed results of operations of the
properties held for divestiture (dollars in thousands):

<Table>
<Caption>
          PROPERTIES HELD FOR DIVESTITURE             2001      2000
          -------------------------------            ------    ------
<S>                                                  <C>       <C>
THREE MONTHS ENDED JUNE 30,
Income.............................................  $2,771    $2,355
Property operating expenses........................     648       567
Interest expense...................................     635       796
Depreciation expense...............................     145       136
                                                     ------    ------
  Net income.......................................  $1,343    $  856
                                                     ======    ======
SIX MONTHS ENDED JUNE 30,
Income.............................................  $5,537    $4,837
Property operating expenses........................   1,369     1,219
Interest expense...................................   1,273     1,595
Depreciation expense...............................     289       271
                                                     ------    ------
  Net income.......................................  $2,606    $1,752
                                                     ======    ======
</Table>

 5. MORTGAGE RECEIVABLES

     In September 2000, the Operating Partnership sold a retail center located
in Los Angeles, California. The Operating Partnership carries an 8.75% mortgage
note in the principal amount of $79.0 million on the retail center. The mortgage
note matures in September 2001 and has a one-year extension option.

     Through a wholly-owned subsidiary, the Operating Partnership also holds a
mortgage loan receivable on AMB Pier One, LLC, an unconsolidated joint venture.
The note bears interest at 13.0% and matures in May 2026. As of June 30, 2001,
the outstanding balance on the note was $13.3 million.

 6. DEBT

     As of June 30, 2001, and December 31, 2000, debt consisted of the following
(dollars in thousands):

<Table>
<Caption>
                                                      JUNE 30,     DECEMBER 31,
                                                        2001           2000
                                                     ----------    ------------
<S>                                                  <C>           <C>
Secured debt, varying interest rates from 4.0% to
  10.4% due November 2001 to June 2023.............  $1,049,454     $  930,418
Unsecured senior debt securities, weighted average
  interest rate of 7.3% due June 2005 to June
  2018.............................................     755,000        680,000
Unsecured credit facility, variable interest at
  LIBOR plus 75 basis points due May 2003..........          --        216,000
Alliance Fund II credit facility, variable interest
  at LIBOR plus 87.5 basis points (weighted average
  interest rate of 4.7% at June 30, 2001) due
  December 2001....................................      98,100             --
                                                     ----------     ----------
  Total before premiums............................   1,902,554      1,826,418
  Unamortized premiums.............................       8,793          9,858
                                                     ----------     ----------
          Total consolidated debt..................  $1,911,347     $1,836,276
                                                     ==========     ==========
</Table>

     Secured debt generally requires monthly principal and interest payments.
The secured debt is secured by deeds of trust on certain properties. As of June
30, 2001, the total gross investment book value of those properties secured by
debt was $1.6 billion. All of the secured debt bears interest at fixed rates,
except for two

                                        8
<PAGE>   11
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 JUNE 30, 2001
                                  (UNAUDITED)

loans with an aggregate principal amount of $31.9 million, which bear interest
at variable rates (with a weighted average interest rate of 5.5% at June 30,
2001). The secured debt has various financial and non-financial covenants and
some are cross-collateralized. Management believes that the Operating
Partnership was in compliance with these covenants at June 30, 2001.

     Interest on the senior debt securities is payable semi-annually. The 2015
notes are putable and callable in June 2005. The senior debt securities are
subject to various financial and non-financial covenants. Management believes
that the Operating Partnership was in compliance with these covenants at June
30, 2001.

     In August 2000, the Operating Partnership commenced a medium-term note
program for the possible issuance of up to $400.0 million in principal amount of
medium-term notes, which will be guaranteed by the Company. In January 2001, the
Operating Partnership issued and sold $25.0 million of the notes under this
program to A.G. Edwards & Sons, Inc., as principal. The Company guaranteed the
notes, which mature on January 30, 2006, and bear interest at 6.90% per annum.
The Operating Partnership used the net proceeds of $24.9 million for general
corporate purposes, to partially repay indebtedness, and for the acquisition and
development of additional properties. In March 2001, the Operating Partnership
issued and sold $50.0 million of the notes under this program to First Union
Securities, Inc., as principal. The Company guaranteed the notes, which mature
on March 7, 2011, and bear interest at 7.00% per annum. The Operating
Partnership used the net proceeds of $49.7 million for general corporate
purposes, to partially repay indebtedness, and for the acquisition and
development of additional properties. The notes have various financial and
non-financial covenants. Management believes that the Company and the Operating
Partnership were in compliance with these covenants at June 30, 2001.

     In May 2000, the Operating Partnership entered into a $500.0 million
unsecured revolving credit agreement. The Company is a guarantor of the
Operating Partnership's obligations under the credit facility. The credit
facility matures in May 2003, has a one-year extension option, and is subject to
a 15 basis point annual facility fee. The credit facility has various financial
and non-financial covenants. Management believes that the Company and the
Operating Partnership were in compliance with these covenants at June 30, 2001.
The Operating Partnership has the ability to increase available borrowings up to
$700.0 million by adding additional banks to the facility or obtaining the
agreement of existing banks to increase their commitments. Monthly debt service
payments on the credit facility are interest only. The total amount available
under the credit facility fluctuates based upon the borrowing base, as defined
in the agreement governing the credit facility. At June 30, 2001, the remaining
amount available under the credit facility was $500.0 million (excluding the
additional $200.0 million of potential additional capacity).

     In June 2001, AMB Institutional Alliance Fund II, L.P. ("Alliance Fund II")
obtained a $125.0 million bridge loan from Bank of America N.A. Borrowings
currently bear interest at LIBOR plus 87.5 basis points, which includes the fee.
As of June 30, 2001, the outstanding balance was $98.1 million and the remaining
amount available was $26.9 million. It is currently anticipated that the bridge
loan will be replaced with a credit facility during the third quarter.

     Capitalized interest related to construction projects for the three months
ended June 30, 2001 and 2000, was $3.6 million and $4.2 million, respectively,
and for the six months ended June 30, 2001 and 2000, was $7.2 million and $7.2
million, respectively.

     During the six months ended June 30, 2001, the Operating Partnership
retired $8.6 million of secured debt prior to maturity in connection with
property divestitures. The Operating Partnership recognized an extraordinary
loss of $0.4 million related to prepayment penalties.

                                        9
<PAGE>   12
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 JUNE 30, 2001
                                  (UNAUDITED)

     The scheduled maturities of the Operating Partnership's total debt,
excluding unamortized debt premiums, as of June 30, 2001, were (dollars in
thousands):

<Table>
<Caption>
                                                     UNSECURED
                                          JOINT        SENIOR      UNSECURED
                             SECURED     VENTURE        DEBT         CREDIT
                               DEBT        DEBT      SECURITIES    FACILITIES      TOTAL
                             --------    --------    ----------    ----------    ----------
<S>                          <C>         <C>         <C>           <C>           <C>
2001.......................  $  6,368    $ 33,875     $     --      $98,100      $  138,343
2002.......................    29,163      50,291           --           --          79,454
2003.......................    72,653      10,475           --           --          83,128
2004.......................    71,122      24,448           --           --          95,570
2005.......................    64,266      34,093      250,000           --         348,359
2006.......................   106,183      37,216       25,000           --         168,399
2007.......................    32,181      24,157       55,000           --         111,338
2008.......................    33,604     143,669      175,000           --         352,273
2009.......................     5,176      28,482           --           --          33,658
2010.......................    52,780      67,779       75,000           --         195,559
2011.......................     1,311      93,161       50,000           --         144,472
Thereafter.................     3,307      23,694      125,000           --         152,001
                             --------    --------     --------      -------      ----------
                             $478,114    $571,340     $755,000      $98,100      $1,902,554
                             ========    ========     ========      =======      ==========
</Table>

 7. MINORITY INTERESTS IN CONSOLIDATED JOINT VENTURES

     Minority interests in the Operating Partnership represent the limited
partnership interests in a subsidiary of the Operating Partnership and interests
held by certain third parties in several real estate joint ventures, aggregating
approximately 27.2 million square feet, which are consolidated for financial
reporting purposes. Such investments are consolidated because: (1) the Operating
Partnership owns a majority interest; or (2) the Operating Partnership exercises
significant control over major operating decisions such as approval of budgets,
selection of property managers, and changes in financing.

     The Operating Partnership, together with one of its affiliates, owns, as of
June 30, 2001, approximately 21% of the partnership interests in AMB
Institutional Alliance Fund I, L.P. ("Alliance Fund I"). The Alliance Fund I is
a co-investment partnership between the Operating Partnership and AMB
Institutional Alliance REIT I, Inc. ("Alliance REIT I"), which includes 15
institutional investors as stockholders, and is engaged in the acquisition,
ownership, operation, management, renovation, expansion, and development of
primarily industrial buildings in target markets nationwide. As of June 30,
2001, the Alliance Fund I had received equity contributions from third party
investors totaling $169.0 million, which, when combined with anticipated debt
financings and the Operating Partnership's investment, created a total planned
capitalization of $410.0 million.

     On February 14, 2001, the Operating Partnership formed a partnership, AMB
Partners II, L.P. ("Partners II"), with the City and County of San Francisco
Employees' Retirement System ("CCSFERS") to acquire, manage, develop, and
redevelop distribution facilities nationwide. As of June 30, 2001, AMB Partners
II had received an equity contribution from CCSFERS of $50.0 million, which,
when combined with anticipated debt financings and the Operating Partnership's
investment, created a total planned capitalization of $250.0 million. The
Operating Partnership is the managing general partner of Partners II and owns,
as of June 30, 2001, 50% of Partners II.

                                        10
<PAGE>   13
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 JUNE 30, 2001
                                  (UNAUDITED)

     On March 26, 2001, the Operating Partnership formed a joint venture,
AMB-SGP, L.P. ("AMB-SGP"), with a subsidiary of GIC Real Estate Pte Ltd., the
real estate investment subsidiary of the Government of Singapore Investment
Corporation ("GIC"), to own and operate, through a private REIT, distribution
facilities nationwide. As of June 30, 2001, AMB-SGP had received an equity
contribution from GIC of $75.0 million, which, when combined with anticipated
debt financings and the Operating Partnership's investment in properties,
created a total planned capitalization of $335.0 million. The Operating
Partnership is the managing general partner of AMB-SGP and owns, as of June 30,
2001, 50.3% of AMB-SGP.

     On June 28, 2001, the Operating Partnership formed the Alliance Fund II.
The Operating Partnership, together with one of the Operating Partnership's
other affiliates, owns, as of June 30, 2001, approximately 20.6% of the
partnership interests in Alliance Fund II. The Alliance Fund II is a
co-investment partnership between the Operating Partnership and AMB
Institutional Alliance REIT II, Inc. ("Alliance REIT II"), which includes 10
institutional investors as stockholders. The Alliance Fund II is engaged in the
acquisition, ownership, operation, management, renovation, expansion, and
development of primarily industrial buildings in target markets nationwide. As
of June 30, 2001, the Alliance Fund II had received equity commitments from
third party investors totaling $159.0 million, which, when combined with
anticipated debt financings and the Operating Partnership's investment, created
a total planned capitalization of $400.0 million.

     The following table distinguishes the minority interest liability and the
minority interests' share of net income (dollars in thousands):

<Table>
<Caption>
                                                 LIABILITY           SHARE OF NET INCOME
                                               -------------    ------------------------------
                                                                FOR THE THREE     FOR THE SIX
                                                   AS OF        MONTHS ENDED     MONTHS ENDED
                                               JUNE 30, 2001    JUNE 30, 2001    JUNE 30, 2001
                                               -------------    -------------    -------------
<S>                                            <C>              <C>              <C>
Joint venture partners.......................    $372,720          $ 7,046          $11,410
Series C preferred units (liquidation
  preference of $110,000)....................     105,844            2,406            4,812
Series D preferred units (liquidation
  preference of $79,767).....................      77,687            1,545            3,090
Series E preferred units (liquidation
  preference of $11,022).....................      10,788              214              428
Series F preferred units (liquidation
  preference of $19,872).....................      19,597              395              790
Series G preferred units (liquidation
  preference of $1,000)......................         960               20               40
Series H preferred units (liquidation
  preference of $42,000).....................      40,915              853            1,706
Series I preferred units (liquidation
  preference of $25,500).....................      24,856              510              533
                                                 --------          -------          -------
          Total..............................    $653,367          $12,989          $22,809
                                                 ========          =======          =======
</Table>

 8. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES

     The Operating Partnership has non-controlling limited partnership interests
in three separate unconsolidated equity investment joint ventures. The Operating
Partnership has a 56.1% interest in a joint venture, which owns an aggregate of
36 industrial buildings totaling approximately 4.0 million square feet. The
Operating Partnership also has a 50% interest in each of two other operating and
development alliance joint ventures. For the three months ended June 30, 2001
and 2000, the Operating Partnership's share of net operating income was $2.3
million and $2.1 million, respectively, and for the six months ended June 30,
2001

                                        11
<PAGE>   14
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 JUNE 30, 2001
                                  (UNAUDITED)

and 2000, the Operating Partnership's share of net operating income was $5.1
million and $4.1 million, respectively, and, as of June 30, 2001, the Operating
Partnership's share of the unconsolidated joint ventures' debt was $32.4
million, with a weighted average interest rate of 6.4% and a weighted average
maturity of 3.8 years.

 9. PARTNERS' CAPITAL

     On March 21, 2001, AMB Property II, L.P., one of the Operating
Partnership's subsidiaries, issued and sold 510,000 8.00% Series I Cumulative
Redeemable Preferred Limited Partnership Units at a price of $50.00 per unit in
a private placement. Distributions are cumulative from the date of issuance and
payable quarterly in arrears at a rate per unit equal to $4.00 per annum. The
Series I Preferred Units are redeemable by AMB Property II, L.P. on or after
March 21, 2006, subject to certain conditions, for cash at a redemption price
equal to $50.00 per unit, plus accumulated and unpaid distributions thereon, if
any, to the redemption date. The Series I Preferred Units are exchangeable, at
specified times and subject to certain conditions, on a one-for-one basis, for
shares of the Company's Series I Preferred Stock. AMB Property II, L.P. used the
net proceeds of $24.9 million to repay advances from the Operating Partnership
and to make a loan to the Operating Partnership. The Operating Partnership used
the funds to partially repay borrowings under its unsecured credit facility and
for general corporate purposes. The loan bears interest at 8.0% per annum and is
payable on demand.

     During the second quarter of 2001, no limited partnership units of the
Operating Partnership were redeemed. During the first quarter of 2001, the
Operating Partnership redeemed 598,297 limited partnership units of the
Operating Partnership for shares of its common stock.

     The Company's board of directors has approved a stock repurchase program
for the repurchase of up to $100.0 million worth of common stock. During the
quarter ended June 30, 2001, the Company repurchased 25,000 shares of its common
stock at a purchase price of $22.80 per share under this program. The Company's
stock repurchase program expires in December 2001.

     The Operating Partnership declared a regular cash distribution for the
quarter ending June 30, 2001, of $0.395 per common unit. The distributions were
payable on July 16, 2001, to unitholders of record on July 5, 2001. The Series
A, B, C, E, F, and G preferred unit distributions were also payable on July 16,
2001, to unitholders of record on July 5, 2001. The Series D, H, and I preferred
unit distributions were payable on July 25, 2001, to unitholders or record on
July 5, 2001. The following table sets forth the distributions for the three and
six months ended June 30, 2001 and 2000:

<Table>
<Caption>
                                                             FOR THE THREE MONTHS    FOR THE SIX MONTHS
                                                                ENDED JUNE 30,         ENDED JUNE 30,
                                                             --------------------    ------------------
            SECURITY                    PAYING ENTITY          2001        2000       2001       2000
            --------                    -------------        --------    --------    -------    -------
<S>                               <C>                        <C>         <C>         <C>        <C>
Common limited partnership units  Operating Partnership....   $0.395      $0.370     $0.790     $0.740
Series A preferred units          Operating Partnership....   $0.531      $0.531     $1.063     $1.063
Series B preferred units          Operating Partnership....   $1.078      $1.078     $2.156     $2.156
Series C preferred units          AMB Property II, L.P. ...   $1.094      $1.094     $2.188     $2.188
Series D preferred units          AMB Property II, L.P. ...   $0.969      $0.969     $1.938     $1.938
Series E preferred units          AMB Property II, L.P. ...   $0.969      $0.969     $1.938     $1.938
Series F preferred units          AMB Property II, L.P. ...   $0.994      $0.994     $1.103     $1.103
Series G preferred units          AMB Property II, L.P. ...   $0.994         n/a     $1.103        n/a
Series H preferred units          AMB Property II, L.P. ...   $1.016         n/a     $2.032        n/a
Series I preferred units          AMB Property II, L.P. ...   $1.000         n/a     $1.044        n/a
</Table>

                                        12
<PAGE>   15
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 JUNE 30, 2001
                                  (UNAUDITED)

10. INCOME PER UNIT

     The Operating Partnership's only dilutive securities outstanding for the
three and six months ended June 30, 2001 and 2000, were stock options and
restricted stock granted under the Company's stock incentive plan. The effect
was to increase weighted average common limited partnership units outstanding.
Such dilution was computed using the treasury stock method.

<Table>
<Caption>
                                      FOR THE THREE MONTHS         FOR THE SIX MONTHS
                                         ENDED JUNE 30,              ENDED JUNE 30,
                                    ------------------------    ------------------------
                                       2001          2000          2001          2000
                                    ----------    ----------    ----------    ----------
<S>                                 <C>           <C>           <C>           <C>
WEIGHTED AVERAGE COMMON UNITS
Basic.............................  89,691,164    89,822,498    89,680,557    89,758,199
Stock options and restricted
  stock...........................     917,183       276,394       899,983       145,218
                                    ----------    ----------    ----------    ----------
Diluted...........................  90,608,347    90,098,892    90,580,540    89,903,417
                                    ==========    ==========    ==========    ==========
</Table>

                                        13
<PAGE>   16
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 JUNE 30, 2001
                                  (UNAUDITED)

11. SEGMENT INFORMATION

     The Operating Partnership operates industrial and retail properties
nationwide and manages its business by market. Industrial properties consist
primarily of warehouse distribution facilities suitable for single or multiple
tenants and are typically comprised of multiple buildings that are leased to
tenants engaged in various types of businesses. As of June 30, 2001, the
Operating Partnership operated in eight hub and gateway markets in addition to
18 other markets nationwide. Retail properties are generally leased to one or
more anchor tenants, such as grocery and drug stores, and various retail
businesses. The accounting policies of the segments are the same as those
described in the Operating Partnership's Annual Report on Form 10-K for the year
ended December 31, 2000. The Operating Partnership evaluates performance based
upon property net operating income of the combined properties in each segment.
The Operating Partnership's properties are managed separately because each
segment requires different operating, pricing, and leasing strategies.

     During the first quarter of 2001, the Operating Partnership split its
industrial market into hub and gateway markets and other markets. Within the hub
and gateway market categorization, the Operating Partnership operates in eight
major U.S. markets. The other industrial market category captures all of the
Operating Partnership's other smaller markets nationwide. The 2000 rental
revenue and net operating income disclosure below has been restated to reflect
these markets. Summary information for the reportable segments is as follows
(dollars in thousands):

<Table>
<Caption>
                                            RENTAL REVENUES(1)      PROPERTY NOI(1)(2)
                                           --------------------    ---------------------
                                           FOR THE THREE MONTHS    FOR THE THREE MONTHS
                                              ENDED JUNE 30,          ENDED JUNE 30,
                                           --------------------    ---------------------
                                             2001        2000        2001         2000
                                           --------    --------    ---------    --------
<S>                                        <C>         <C>         <C>          <C>
Industrial Hub & Gateway Markets:
  Atlanta................................  $  6,801    $  5,882    $  5,442     $ 4,885
  Chicago................................     9,804       9,813       6,553       6,955
  Dallas/Ft. Worth.......................     8,052       6,160       5,209       4,429
  No. New Jersey/New York................    11,690       8,021       8,680       6,009
  San Francisco Bay Area.................    25,999      18,918      22,064      15,783
  Southern California....................    15,375       8,632      12,426       6,959
  Miami..................................     8,092       4,397       5,799       3,320
  Seattle................................     6,592       5,300       5,068       4,311
                                           --------    --------    --------     -------
          Total hub and gateway
            markets......................    92,405      67,123      71,241      52,651
Total other industrial markets...........    37,222      34,359      26,868      25,877
Total retail markets.....................     7,767       6,932       5,645       4,798
                                           --------    --------    --------     -------
Total properties.........................  $137,394    $108,414    $103,754     $83,326
                                           ========    ========    ========     =======
</Table>

---------------
(1) Excludes straight line rents of $2.1 million and $2.2 million for the three
    months ended June 30, 2001 and 2000, respectively.

(2) Property net operating income is defined as rental revenue, including
    reimbursements and excluding straight-line rents, less property level
    operating expenses, excluding depreciation, amortization, general and
    administrative expenses, and interest expense.

                                        14
<PAGE>   17
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 JUNE 30, 2001
                                  (UNAUDITED)

<Table>
<Caption>
                                 RENTAL REVENUES(1)    PROPERTY NOI(1)(2)
                                 FOR THE SIX MONTHS    FOR THE SIX MONTHS    TOTAL GROSS INVESTMENT (3)
                                   ENDED JUNE 30,        ENDED JUNE 30,      ---------------------------
                                 -------------------   -------------------    JUNE 30,     DECEMBER 31,
                                   2001       2000       2001       2000        2001           2000
                                 --------   --------   --------   --------   -----------   -------------
<S>                              <C>        <C>        <C>        <C>        <C>           <C>
Industrial Hub and Gateway
  Markets:
  Atlanta......................  $ 13,989   $ 11,076   $ 11,256   $  9,124   $  267,537     $  225,352
  Chicago......................    19,818     19,467     13,308     13,544      296,192        303,489
  Dallas/Ft. Worth.............    16,231     12,617     10,715      9,101      239,226        240,933
  No. New Jersey/New York......    22,533     14,078     16,261     10,936      400,727        382,285
  San Francisco Bay Area.......    49,960     36,649     42,295     30,161      666,313        641,137
  Southern California..........    30,313     17,162     24,555     13,929      596,598        552,055
  Miami........................    16,819      9,030     12,433      6,858      284,806        281,710
  Seattle......................    12,936     10,693     10,090      8,771      211,070        203,786
                                 --------   --------   --------   --------   ----------     ----------
          Total hub and gateway
            markets............   182,699    130,772    140,913    102,424    2,962,469      2,830,747
Total other industrial
  markets......................    73,552     68,420     52,758     50,895    1,192,595      1,045,455
Total retail markets...........    15,619     14,328     11,639     10,140      206,434        150,395
                                 --------   --------   --------   --------   ----------     ----------
Total properties...............  $271,870   $213,520   $205,310   $163,459   $4,361,498     $4,026,597
                                 ========   ========   ========   ========   ==========     ==========
</Table>

---------------
(1) Excludes straight-line rents of $3.5 million and $5.3 million for the six
    months ended June 30, 2001 and 2000, respectively.

(2) Property net operating income is defined as rental revenue, including
    reimbursements and excluding straight-line rents, less property level
    operating expenses, excluding depreciation, amortization, general and
    administrative expenses, and interest expense.

(3) Excludes net properties held for divestiture of $96.2 million, which is
    comprised of $35.8 million in industrial and $60.4 million in retail
    properties, as of June 30, 2001, and $197.1 million, which is comprised of
    $158.7 million in industrial and $38.4 million in retail properties, as of
    December 31, 2000.

                                        15
<PAGE>   18
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 JUNE 30, 2001
                                  (UNAUDITED)

     The Operating Partnership uses property net operating income as an
operating performance measure. The following is a reconciliation between total
reportable segment revenue and property net operating income to consolidated
revenues and net income (dollars in thousands):

<Table>
<Caption>
                                          FOR THE THREE MONTHS     FOR THE SIX MONTHS
                                             ENDED JUNE 30,          ENDED JUNE 30,
                                          --------------------    --------------------
                                            2001        2000        2001        2000
                                          --------    --------    --------    --------
<S>                                       <C>         <C>         <C>         <C>
REVENUES
Total rental revenues for reportable
  segments..............................  $139,535    $110,597    $275,336    $218,863
Investment management and other
  income................................     6,491       2,882      15,524       4,939
                                          --------    --------    --------    --------
          Total consolidated revenues...  $146,026    $113,479    $290,860    $223,802
                                          ========    ========    ========    ========
NET INCOME
Property net operating income for
  reportable segments...................  $105,895    $ 85,509    $208,776    $168,802
Equity in earnings of unconsolidated
  joint ventures........................     1,255       1,317       2,729       2,559
Investment management and other
  income................................     5,236       1,565      12,795       2,380
Less:
  Interest expense......................   (30,206)    (20,002)    (61,758)    (40,344)
  Depreciation and amortization.........   (27,323)    (22,631)    (54,177)    (41,823)
  General and administrative............    (9,201)     (5,984)    (17,384)    (11,335)
  Loss on investments in other
     companies..........................   (16,103)         --     (20,758)         --
  Minority interests....................   (12,989)     (6,866)    (22,809)    (12,931)
                                          --------    --------    --------    --------
Net income before gain and extraordinary
  items.................................    16,564      32,908      47,414      67,308
Gain from divestitures of real estate...    17,792         416      34,559         405
                                          --------    --------    --------    --------
Net income before extraordinary items...    34,356      33,324      81,973      67,713
Extraordinary items.....................      (438)         --        (438)         --
                                          --------    --------    --------    --------
          Net income....................  $ 33,918    $ 33,324    $ 81,535    $ 67,713
                                          ========    ========    ========    ========
</Table>

                                        16
<PAGE>   19
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 JUNE 30, 2001
                                  (UNAUDITED)

12. COMMITMENTS AND CONTINGENCIES

     Litigation. In the normal course of business, from time to time, the
Operating Partnership is involved in legal actions relating to the ownership and
operations of its properties. In management's opinion, the liabilities, if any,
that may ultimately result from such legal actions are not expected to have a
material adverse effect on the consolidated financial position, results of
operations, or cash flows of the Operating Partnership.

     Environmental Matters. The Operating Partnership monitors its properties
for the presence of hazardous or toxic substances. The Operating Partnership is
not aware of any environmental liability with respect to the properties that
would have a material adverse effect on the Operating Partnership's business,
assets, or results of operations. However, there can be no assurance that such a
material environmental liability does not exist. The existence of any such
material environmental liability would have an adverse effect on the Operating
Partnership's results of operations and cash flow.

     General Uninsured Losses. The Operating Partnership carries property and
rental loss, liability, flood, and environmental insurance. The Operating
Partnership believes that the policy terms and conditions, limits, and
deductibles are adequate and appropriate under the circumstances, given the
relative risk of loss, the cost of such coverage, and industry practice. In
addition, certain of the Operating Partnership's properties are located in areas
that are subject to earthquake activity; therefore, the Operating Partnership
has obtained limited earthquake insurance on those properties. There are,
however, certain types of extraordinary losses that may be either uninsurable or
not economically insurable. Should an uninsured loss occur, the Operating
Partnership could lose its investment in, and anticipated profits and cash flows
from, a property.

                                        17
<PAGE>   20

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     You should read the following discussion and analysis of our consolidated
financial condition and results of operations in conjunction with the Notes to
Consolidated Financial Statements. Statements contained in this discussion that
are not historical facts may be forward-looking statements. You can identify
forward-looking statements by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," "seeks," "approximately,"
"intends," "plans," "pro forma," "estimates," or "anticipates' or the negative
of these words and phrases or similar words or phrases. You can also identify
forward-looking statements by discussions of strategy, plans, or intentions.
Forward-looking statements involve numerous risks and uncertainties and you
should not rely upon them as predictions of future events. There is no assurance
that the events or circumstances reflected in forward-looking statements will be
achieved or occur. Forward-looking statements are necessarily dependent on
assumptions, data, or methods that may be incorrect or imprecise and we may not
be able to realize them.

     The following factors, among others, could cause actual results and future
events to differ materially from those set forth or contemplated in the
forward-looking statements:

     - defaults or non-renewal of leases by tenants;

     - increased interest rates and operating costs;

     - our failure to obtain necessary outside financing;

     - difficulties in identifying properties to acquire and in effecting
       acquisitions;

     - our failure to successfully integrate acquired properties and operations;

     - our failure to divest of properties that we have contracted to sell or to
       timely reinvest proceeds from any such divestitures;

     - risks and uncertainties affecting property development and construction
       (including construction delays, cost overruns, our inability to obtain
       necessary permits, and public opposition to these activities);

     - environmental uncertainties;

     - risks related to natural disasters;

     - financial market fluctuations;

     - risks arising from the California energy shortage;

     - changes in real estate and zoning laws; and

     - increases in real property tax rates.

     Our success also depends upon economic trends generally, including interest
rates, income tax laws, governmental regulation, legislation, population
changes, and those risk factors discussed in the section entitled "Business
Risks" in this report. We caution you not to place undue reliance on
forward-looking statements, which reflect our analysis only and speak as of the
date of this report or as of the dates indicated in the statements.

     Unless the context otherwise requires, the terms "we," "us," and "our"
refer to AMB Property, L.P. and our controlled subsidiaries. The following marks
are our registered trademarks of AMB Property Corporation, our general partner:
AMB(R); Customer Alliance Partners(R); Customer Alliance Program(R); Development
Alliance Partners(R); Development Alliance Program(R); eSpace(R); Institutional
Alliance Partners(R); Institutional Alliance Program(R); Management Alliance
Partners(R); Management Alliance Program(R); UPREIT Alliance Partners(R); and
UPREIT Alliance Program(R). The following marks are our unregistered trademarks
of AMB Property Corporation, our general partner: Broker Alliance Partners(TM);
Broker Alliance Program(TM); HTD(TM); High Throughput Distribution(TM);
Strategic Alliance Partners(TM); and Strategic Alliance Programs(TM).

                                        18
<PAGE>   21

                           THE OPERATING PARTNERSHIP

     AMB Property, L.P., a Delaware limited partnership, is one of the leading
owners and operators of industrial real estate nationwide. Our investment
strategy is to become a leading provider of High Throughput Distribution, or
HTD, properties located near key passenger and cargo airports, highway systems
and ports in major metropolitan areas, such as Atlanta, Chicago, Dallas/Fort
Worth, Northern New Jersey/New York City, the San Francisco Bay Area, Southern
California, Miami, and Seattle. Within each of our markets, we focus our
investments in in-fill submarkets. In-fill sub-markets are characterized by
supply constraints on the availability of land for competing projects. High
Throughput Distribution facilities are designed to serve the high-speed,
high-value freight handling needs of today's supply chain, as opposed to
functioning as long-term storage facilities. We believe that the rapid growth of
the airfreight business, the outsourcing of supply chain management to third
party logistics companies and e-commerce are indicative of the changes that are
occurring in the supply chain and the manner in which goods are distributed. In
addition, we believe that inventory levels as a percentage of final sales are
falling and that goods are moving more rapidly through the supply chain. As a
result, we intend to focus our investment activities primarily on industrial
properties that we believe will benefit from these changes.

     As of June 30, 2001, we owned and operated 865 industrial buildings and
eight retail centers, totaling approximately 78.8 million rentable square feet,
located in 26 markets nationwide. As of June 30, 2001, our industrial and retail
properties were 95.9% and 93.0% leased, respectively. As of June 30, 2001,
through our subsidiary, AMB Investment Management, we also managed industrial
buildings and retail centers, totaling approximately 4.4 million rentable square
feet on behalf of various institutional investors. In addition, we have invested
in industrial buildings, totaling approximately 4.9 million rentable square
feet, through unconsolidated joint ventures.

     As of June 30, 2001, we had two retail centers and four industrial
buildings, which were held for divestiture. In addition, during the quarter, we
disposed of seven industrial buildings, aggregating approximately 1.3 million
rentable square feet, for an aggregate price of $61.6 million. Year to date, we
have disposed of 13 industrial buildings, aggregating approximately 1.9 million
rentable square feet, for an aggregate price of $93.1 million. Over the next few
years, we intend to dispose of non-strategic assets and redeploy the resulting
capital into High Throughput Distribution properties that better fit our current
investment focus.

     We are engaged in the acquisition, ownership, operation, management,
renovation, expansion, and development of primarily industrial properties in
target markets nationwide. As of June 30, 2001, AMB Property Corporation owned
an approximate 94.2% general partnership interest in us, excluding preferred
units. As our sole general partner, AMB Property Corporation has the full,
exclusive, and complete responsibility and discretion in our day-to-day
management and control.

     We enter into co-investment joint ventures with institutional investors.
These co-investment joint ventures provide us with an additional source of
capital to fund certain acquisitions, development projects, and renovation
projects. As of June 30, 2001, we had investments in five co-investment joint
ventures, which are consolidated for financial reporting purposes.

     We are the managing general partner of AMB Institutional Alliance Fund I,
L.P. and, together with an affiliate, own, as of June 30, 2001, approximately
21% of the partnership interests in the Alliance Fund I. The Alliance Fund I is
a co-investment partnership between us and AMB Institutional Alliance REIT I,
Inc., a limited partner of the Alliance Fund I, which includes 15 institutional
investors as stockholders and is engaged in the acquisition, ownership,
operation, management, renovation, expansion, and development of primarily
industrial buildings in target markets nationwide. As of June 30, 2001, the
Alliance Fund I had received equity contributions from third party investors
totaling $169.0 million, which, when combined with anticipated debt financings
and our investment, creates a total planned capitalization of $410.0 million.

     On February 14, 2001, we formed AMB Partners II, L.P. with the City and
County of San Francisco Employees' Retirement System to acquire, develop, and
redevelop distribution facilities nationwide. As of June 30, 2001, AMB Partners
II had received an equity contribution from City and County of $50.0 million,
which, when combined with anticipated debt financings and our investment,
created a total planned

                                        19
<PAGE>   22

capitalization of $250.0 million. We are the managing general partner of AMB
Partners II, L.P. and owns, as of June 30, 2001, 50% of AMB Partners II, L.P.

     On March 26, 2001, we formed a joint venture, AMB-SGP, L.P., with a
subsidiary of GIC Real Estate Pte Ltd., the real estate investment subsidiary of
the Government of Singapore Investment Corporation, to own and operate, through
a private REIT, distribution facilities nationwide. As of June 30, 2001,
AMB-SGP, L.P. had received an equity contribution from GIC of $75.0 million,
which, when combined with anticipated debt financings and our investment,
created a total planned capitalization of $335.0 million. We are the managing
general partner of AMB-SGP, L.P. and owns, as of June 30, 2001, 50.3% of
AMB-SGP, L.P.

     On June 28, 2001, we formed AMB Institutional Alliance Fund II, L.P. We are
the managing general partner and own, as of June 30, 2001, approximately 20.6%
of the partnership interests in the Alliance Fund II. The Alliance Fund II is a
co-investment partnership between us and AMB Institutional Alliance REIT II,
Inc., a limited partner of the Alliance Fund II, which includes 10 institutional
investors as stockholders. The Alliance Fund II is engaged in the acquisition,
ownership, operation, management, renovation, expansion, and development of
primarily industrial buildings in target markets nationwide. As of June 30,
2001, the Alliance Fund II had received equity commitments from third party
investors totaling $159.0 million, which, when combined with anticipated debt
financings and our investment, creates a total planned capitalization of $400.0
million.

     AMB Property Corporation is a self-administered and self-managed and
expects that it has qualified and will continue to qualify as a real estate
investment trust for federal income tax purposes beginning with the year ending
December 31, 1997. Because AMB Property Corporation is a self-administered and
self-managed real estate investment trust, our employees perform its
administrative and management functions, rather than it relying on an outside
manager for these services. The principal executive office of AMB Property, L.P.
is located at Pier 1, Bay 1, San Francisco, CA 94111, and our telephone number
is (415) 394-9000. We also maintain a regional office in Boston, Massachusetts.

ACQUISITION AND DEVELOPMENT ACTIVITY

     During the quarter, we invested $71.9 million in operating properties,
consisting of 12 industrial buildings aggregating approximately 1.0 million
square feet, including the investment of $42.3 million in operating properties,
consisting of six industrial buildings, aggregating approximately 0.6 million
square feet, for three of our co-investment joint ventures. Year to date, we
have invested $165.3 million in operating properties, consisting of 26
industrial buildings aggregating approximately 2.8 million square feet,
including the investment of $84.8 million in operating properties, consisting of
14 industrial buildings, aggregating approximately 1.6 million square feet, for
three of our co-investment joint ventures.

     During the second quarter of 2001, we also contributed $111.9 million in
operating properties, consisting of 17 industrial buildings aggregating
approximately 1.9 million square feet, to two of our co-investment joint
ventures. Year to date, we have contributed $539.2 million in operating
properties, consisting of 111 industrial buildings aggregating approximately
10.8 million square feet, to three of our co-investment joint ventures. Year to
date, we have recognized gains of $15.8 million on the contributions.

     We also completed two development projects during the second quarter, which
aggregated approximately 0.7 million square feet and had a total cost of $42.3
million. We also initiated one new development project during the first quarter,
which will aggregate approximately 0.1 million square feet and has a total
estimated cost of $4.9 million upon completion. As of June 30, 2001, we had 17
industrial projects, which will total approximately 4.5 million square feet and
have a total estimated investment of $254.2 million upon completion, in our
development pipeline. We also had three retail projects, which will total
approximately 0.5 million square feet and have a total estimated investment of
$68.6 million upon completion, in our development pipeline. As of June 30, 2001,
we and our Development Alliance Partners have funded an aggregate of $210.1
million and will need to fund an estimated additional $112.7 million in order to
complete projects currently under construction.

                                        20
<PAGE>   23

OPERATING STRATEGY

     We are a full-service real estate company with in-house expertise in
acquisitions, development and redevelopment, asset management and leasing,
finance and accounting, and market research. We have long-standing relationships
with many real estate management and development firms across the country, our
Strategic Alliance Partners.

     We believe that real estate is fundamentally a local business and that the
most effective way for us to operate is by forging alliances with service
providers in every market. We believe that these collaborations allow us to: 1)
leverage our national presence with the local market expertise of brokers,
developers, and property managers; 2) improve the operating efficiency and
flexibility of our national portfolio; 3) strengthen customer satisfaction and
retention; and 4) provide a continuous pipeline of growth.

     We believe that our partners give us local market expertise and flexibility
allowing us to focus on our core competencies: developing and refining our
strategic approach to real estate investment and management and raising private
capital to finance growth and enhance returns.

GROWTH STRATEGIES

  AMB Investment Management

     AMB Investment Management, Inc. provides real estate investment management
services on a fee basis to clients and co-investment partners. As of May 31,
2001, we hold all of the outstanding capital stock of AMB Investment Management.
AMB Investment Management, Inc. conducts its operations through AMB Investment
Management Limited Partnership, a Maryland limited partnership, of which it is
the sole general partner. We intend to expand this business through our
co-investment program.

     We co-invest with clients of AMB Investment Management, Inc., to the extent
such clients newly commit investment capital, through partnerships, limited
liability companies, or joint ventures. We currently use a co-investment formula
with each client whereby we will own at least a 20% interest in all ventures. We
currently have five co-investment joint ventures. In general, we control all
significant operating and investment decisions of our co-investment entities.

  Headlands Realty Corporation

     Headlands Realty Corporation conducts a variety of businesses that include
incremental income programs, such as our Customer Assist Program and, to a
limited extent, development projects available for sale to third parties. As of
May 31, 2001, we hold all of the outstanding capital stock of Headlands Realty
Corporation.

  Growth Through Operations

     We seek to generate internal growth through rent increases on existing
space and renewal on re-tenanted space, by maintaining a high occupancy rate of
our properties and by controlling expenses by capitalizing on the economies of
owning, operating, and growing a large national portfolio. As of June 30, 2001,
our industrial properties and retail centers were 95.9% leased and 93.0% leased,
respectively. Year to date, we have increased average industrial base rental
rates (on a cash basis) by 29.2% from the expiring rent for that space, on
leases entered into or renewed during such period, representing approximately
5.2 million rentable square feet. This amount excludes expense reimbursements,
rental abatements, and percentage rents.

  Growth Through Acquisitions and Capital Redeployment

     We believe that our significant acquisition experience, our alliance-based
operating strategy, and our extensive network of property acquisition sources
will continue to provide opportunities for external growth. We believe that our
relationships with third party local property management firms through our
Management Alliance Program also will create acquisition opportunities as such
managers market properties on behalf of sellers. Our operating structure also
enables us to acquire properties through our UPREIT Alliance Program

                                        21
<PAGE>   24

in exchange for our limited partnership units, thereby enhancing our
attractiveness to owners and developers seeking to transfer properties on a
tax-deferred basis. In addition to acquisitions, we seek to redeploy capital
from non-strategic assets into properties that better fit our current investment
focus.

     We are generally in various stages of negotiations for a number of
acquisitions and dispositions, which may include acquisitions and dispositions
of individual properties, acquisitions of large multi-property portfolios, and
acquisitions of other real estate companies. There can be no assurance that we
will consummate any of these acquisitions. Such transactions, if we consummate
them, may be material individually or in the aggregate. Sources of capital for
acquisitions may include undistributed cash flow from operations, borrowings
under the credit facility, other forms of secured or unsecured debt financing,
issuances of debt or limited partnership unit offerings (including issuances of
limited partnership units by our subsidiaries), proceeds from divestitures of
properties, and assumption of debt related to the acquired properties.

  Growth Through Development

     We believe that renovation and expansion of value-added properties and
development of well-located, high-quality industrial properties should continue
to provide us with attractive opportunities for increased cash flow and a higher
rate of return than we may obtain from the purchase of fully leased, renovated
properties. Value-added properties are typically characterized as properties
with available space or near-term leasing exposure, undeveloped land acquired in
connection with another property that provides an opportunity for development,
or properties that are well located but require redevelopment or renovation.
Value-added properties require significant management attention or capital
investment to maximize their return. We have developed the in-house expertise to
create value through acquiring and managing value-added properties and believe
that our national market presence and expertise will enable us to continue to
generate and capitalize on these opportunities. Through our Development Alliance
Program, we have established strategic alliances with national and regional
developers to enhance our development capabilities.

     The multidisciplinary backgrounds of our employees provide us with the
skills and experience to capitalize on strategic renovation, expansion, and
development opportunities. Several of the officers of our general partner have
extensive experience in real estate development, both with us and with national
development firms. We generally pursue development projects in joint ventures
with local developers. This way, we leverage the development skill, access to
opportunities, and capital of such developers, transferring a significant amount
of the development risk to them and eliminating the need and expense of an
in-house development staff. Under a typical joint venture agreement with a
Development Alliance Partner, we would fund 95% of the construction costs and
our partner would fund 5%. Upon completion, we generally would purchase our
partner's interest in the joint venture.

                                        22
<PAGE>   25

                             RESULTS OF OPERATIONS

     The analysis below includes changes attributable to acquisitions,
development activity and divestitures and the changes resulting from properties
that we owned during both the current and prior year reporting periods,
excluding development properties prior to being stabilized (generally 90%
leased). We refer to these properties as the same store properties. For the
comparison between the three and six months ended June 30, 2001 and 2000, the
same store industrial properties consisted of properties aggregating
approximately 61.4 million square feet. The properties acquired in 2000
consisted of 145 buildings, aggregating approximately 10.5 million square feet,
and the properties acquired during the six months of 2001 consisted of 26
buildings, aggregating 2.8 million square feet. In 2000, property divestitures
consisted of one retail center and 25 industrial buildings, aggregating
approximately 2.5 million square feet, and property divestitures during the
first six months of 2001 consisted of 13 industrial buildings, aggregating
approximately 1.9 million square feet. Our future financial condition and
results of operations, including rental revenues, may be impacted by the
acquisition of additional properties and dispositions. Our future revenues and
expenses may vary materially from their historical rates.

THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2000
(DOLLARS IN MILLIONS):

<Table>
<Caption>
               RENTAL REVENUES                  2001      2000     $ CHANGE    % CHANGE
               ---------------                 ------    ------    --------    --------
<S>                                            <C>       <C>       <C>         <C>
Same store...................................  $102.0    $ 94.7     $ 7.3         7.7%
2000 acquisitions............................    26.5       5.2      21.3       409.6%
2001 acquisitions............................     3.5        --       3.5          --
Developments.................................     1.9       0.4       1.5       375.0%
Divestitures.................................     3.5       8.1      (4.6)      (56.8)%
Straight-line rents..........................     2.1       2.2      (0.1)       (4.5)%
                                               ------    ------     -----       -----
          Total..............................  $139.5    $110.6     $28.9        26.1%
                                               ======    ======     =====       =====
</Table>

     The growth in rental revenues in same store properties resulted primarily
from the incremental effect of cash rental rate increases, fixed rent increases
on existing leases, and reimbursement of expenses, partially offset by lower
occupancy. During the three months ended June 30, 2001, the same store rent
increases on industrial renewals and rollovers (cash basis) was 49.4% on 1.9
million square feet leased.

<Table>
<Caption>
     INVESTMENT MANAGEMENT AND OTHER INCOME        2001    2000    $ CHANGE    % CHANGE
     --------------------------------------        ----    ----    --------    --------
<S>                                                <C>     <C>     <C>         <C>
Equity in earnings of unconsolidated JVs.........  $1.3    $1.3      $0.0         0.0%
Investment management income.....................   1.5     0.7       0.8       114.3%
Interest and other income........................   3.7     0.9       2.8       311.1%
                                                   ----    ----      ----       -----
          Total..................................  $6.5    $2.9      $3.6       124.1%
                                                   ====    ====      ====       =====
</Table>

     The $0.8 million increase in investment management income was due primarily
to increased acquisition fees. The $2.8 million increase in interest and other
income was primarily due to interest income from our mortgage note on the retail
center that we sold in 2000 and from our construction loan to one of our
unconsolidated joint ventures. Interest income also increased resulting from
increased cash balances and bridge loans to our joint ventures.

                                        23
<PAGE>   26

<Table>
<Caption>
PROPERTY OPERATING EXPENSES AND REAL ESTATE TAXES  2001     2000     $ CHANGE    % CHANGE
-------------------------------------------------  -----    -----    --------    --------
(EXCLUSIVE OF DEPRECIATION AND AMORTIZATION)
<S>                                                <C>      <C>      <C>         <C>
Rental expenses.................................   $16.7    $11.6     $ 5.1        43.4%
Real estate taxes...............................    16.9     13.5       3.4        25.2%
                                                   -----    -----     -----       -----
  Property operating expenses...................   $33.6    $25.1     $ 8.5        33.4%
                                                   =====    =====     =====       =====
Same store......................................   $23.7    $21.4     $ 2.3        10.7%
2000 acquisitions...............................     7.7      1.5       6.2       413.3%
2001 acquisitions...............................     0.8       --       0.8          --
Developments....................................     0.8       --       0.8          --
Divestitures....................................     0.6      2.2      (1.6)      (72.7)%
                                                   -----    -----     -----       -----
          Total.................................   $33.6    $25.1     $ 8.5        33.4%
                                                   =====    =====     =====       =====
</Table>

     The increase in same store properties' operating expenses primarily relates
to increases in common area maintenance expenses of $0.7 million and real estate
taxes of $1.2 million.

<Table>
<Caption>
                OTHER EXPENSES                   2001     2000     $ CHANGE    % CHANGE
                --------------                   -----    -----    --------    --------
<S>                                              <C>      <C>      <C>         <C>
Interest, including amortization...............  $30.2    $20.0     $10.2        51.0%
Depreciation and amortization..................   27.3     22.6       4.7        20.8%
General and administrative.....................    9.2      6.0       3.2        53.3%
                                                 -----    -----     -----        ----
          Total................................  $66.7    $48.6     $18.1        37.2%
                                                 =====    =====     =====        ====
</Table>

     The increase in interest expense was primarily due to the issuance of
additional unsecured senior debt securities and an increase in secured debt
balances. The increase in depreciation expense was due to increases in our
investments in real estate. The increase in general and administrative expenses
was primarily due to increased personnel costs, occupancy costs, and timing
differences. In addition, the consolidation of AMB Investment Management, Inc.
and Headlands Realty Corporation on May 31, 2001, resulted in an increase in
general and administrative expenses.

     The $16.1 million loss on investments in other companies during the quarter
related to our investments in technology-based companies. The loss reflects a
100% of the value of the investments.

     During the three months ended June 30, 2001, we retired $8.6 million of
secured debt prior to maturity in connection with property divestitures. We
recognized an extraordinary loss of $0.4 million related to prepayment
penalties.

SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN MILLIONS):

<Table>
<Caption>
               RENTAL REVENUES                  2001      2000     $ CHANGE    % CHANGE
               ---------------                 ------    ------    --------    --------
<S>                                            <C>       <C>       <C>         <C>
Same store...................................  $203.1    $188.4     $14.7         7.8%
2000 acquisitions............................    51.8       8.0      43.8       547.5%
2001 acquisitions............................     5.1        --       5.1          --
Developments.................................     3.3       0.6       2.7       450.0%
Divestitures.................................     8.5      16.6      (8.1)      (48.8)%
Straight-line rents..........................     3.5       5.3      (1.8)      (34.0)%
                                               ------    ------     -----       -----
          Total..............................  $275.3    $218.9     $56.4        25.7%
                                               ======    ======     =====       =====
</Table>

     The growth in rental revenues in same store properties resulted primarily
from the incremental effect of cash rental rate increases, fixed rent increases
on existing leases, and reimbursement of expenses, partially

                                        24
<PAGE>   27

offset by lower occupancy. During the six months ended June 30, 2001, the same
store rent increases on industrial renewals and rollovers (cash basis) was 33.8%
on 4.2 million square feet leased.

<Table>
<Caption>
     INVESTMENT MANAGEMENT AND OTHER INCOME       2001     2000    $ CHANGE    % CHANGE
     --------------------------------------       -----    ----    --------    --------
<S>                                               <C>      <C>     <C>         <C>
Equity in earnings of unconsolidated JVs........  $ 2.7    $2.6     $ 0.1         3.9%
Investment management income....................    4.0     1.0       3.0       300.0%
Interest and other income.......................    8.8     1.4       7.4       528.6%
                                                  -----    ----     -----       -----
          Total.................................  $15.5    $5.0     $10.5       210.0%
                                                  =====    ====     =====       =====
</Table>

     The $3.0 million increase in investment management income was due primarily
to increased acquisition fees. The $7.4 million increase in interest and other
income was primarily due to interest income from our mortgage note on the retail
center that we sold in 2000 and from our construction loan to one of our
unconsolidated joint ventures.

<Table>
<Caption>
PROPERTY OPERATING EXPENSES AND REAL ESTATE TAXES  2001     2000     $ CHANGE    % CHANGE
-------------------------------------------------  -----    -----    --------    --------
(EXCLUSIVE OF DEPRECIATION AND AMORTIZATION)
<S>                                                <C>      <C>      <C>         <C>
Rental expenses.................................   $33.1    $23.1     $10.0        43.3%
Real estate taxes...............................    33.5     27.0       6.5        24.1%
                                                   -----    -----     -----       -----
  Property operating expenses...................   $66.6    $50.1     $16.5        32.9%
                                                   =====    =====     =====       =====
Same store......................................   $47.2    $43.3     $ 3.9         9.0%
2000 acquisitions...............................    16.0      2.5      13.5       540.0%
2001 acquisitions...............................     1.0       --       1.0          --
Developments....................................     1.0       --       1.0          --
Divestitures....................................     1.4      4.3      (2.9)      (67.4)%
                                                   -----    -----     -----       -----
          Total.................................   $66.6    $50.1     $16.5        32.9%
                                                   =====    =====     =====       =====
</Table>

     The increase in same store properties' operating expenses primarily relates
to increases in common area maintenance expenses of $1.7 million and real estate
taxes of $1.8 million.

<Table>
<Caption>
                OTHER EXPENSES                   2001     2000     $ CHANGE    % CHANGE
                --------------                  ------    -----    --------    --------
<S>                                             <C>       <C>      <C>         <C>
Interest, including amortization..............  $ 61.8    $40.3     $21.5        53.4%
Depreciation and amortization.................    54.2     41.8      12.4        29.7%
General and administrative....................    17.4     11.3       6.1        54.0%
                                                ------    -----     -----        ----
          Total...............................  $133.4    $93.4     $40.0        42.8%
                                                ======    =====     =====        ====
</Table>

     The increase in interest expense was primarily due to the issuance of
additional unsecured senior debt securities and to an increase in secured debt
balances. The increase in depreciation expense was due to increases in our
investments in real estate. The increase in general and administrative expenses
was primarily due to increased personnel costs, occupancy costs, and timing
differences. In addition, the consolidation of AMB Investment Management, Inc.
and Headlands Realty Corporation on May 31, 2001, resulted in an increase in
general and administrative expenses.

     The $20.8 million loss on investments in other companies during the quarter
related to our investment in Webvan Group, Inc. and other technology-based
companies. The loss reflects a 100% of the value of the investments.

     During the six months ended June 30, 2001, we retired $8.6 million of
secured debt prior to maturity in connection with property divestitures. We
recognized an extraordinary loss of $0.4 million related to prepayment
penalties.

                        LIQUIDITY AND CAPITAL RESOURCES

     We currently expect that our principal sources of working capital and
funding for acquisitions, development, expansion, and renovation of properties
will include: 1) cash flow from operations; 2) borrowings under our unsecured
credit facility; 3) other forms of secured or unsecured financing; 4) proceeds
from debt or

                                        25
<PAGE>   28

limited partnership unit offerings (including issuances of limited partnership
units by our subsidiaries); and 5) net proceeds from divestitures of properties.
Additionally, our co-investment program will also continue to serve as a source
of capital for acquisitions and developments. We believe that our sources of
working capital and our ability to access private and public debt and equity
capital are adequate for us to meet our liquidity requirements for the
foreseeable future.

CAPITAL RESOURCES

     Property Divestitures. In the second quarter, we divested ourselves of
seven industrial buildings for an aggregate price of $61.6 million, with a
resulting net gain of $18.4 million, including extraordinary losses related to
prepayment penalties. Year to date, we have divested ourselves of 13 industrial
buildings for an aggregate price of $93.1 million, with a resulting net gain of
$18.3 million.

     Properties Held for Divestiture. We have decided to divest ourselves of
four industrial buildings and two retail centers, which are not in our core
markets or which do not meet our strategic objectives. The divestitures of the
properties are subject to negotiation of acceptable terms and other customary
conditions. As of June 30, 2001, the net carrying value of the properties held
for divestiture was $96.2 million.

     Co-investment Program. During the quarter, we contributed $111.9 million in
operating properties, consisting of 17 industrial buildings aggregating
approximately 1.9 million square feet, to two of our co-investment joint
ventures. Year to date, we have contributed $539.2 million in operating
properties, consisting of 111 industrial buildings aggregating approximately
10.8 million square feet, to three of our co-investment joint ventures.

     On June 28, 2001, we formed AMB Alliance Fund II to acquire, develop, and
redevelop distribution facilities nationwide. As of June 30, 2001, AMB Alliance
Fund II had received equity commitments from investors of $159.0 million, which,
when combined with anticipated debt financings and our investment, created a
total planned capitalization of $400.0 million. We are the managing general
partner of AMB Alliance Fund II and own, as of June 30, 2001, 20.6% of the
co-investment joint venture.

     On February 14, 2001, we formed AMB Partners II, L.P. with the City and
County of San Francisco Employees' Retirement System to acquire, develop, and
redevelop distribution facilities nationwide. As of June 30, 2001, AMB Partners
II had received an equity contribution from City and County of $50.0 million,
which, when combined with anticipated debt financings and our investment,
created a total planned capitalization of $250.0 million. We are the managing
general partner of Partners II and own, as of June 30, 2001, 50% of the
co-investment joint venture.

     On March 26, 2001, we formed a joint venture, AMB-SGP, L.P., with a
subsidiary of GIC Real Estate Pte Ltd., the real estate investment subsidiary of
the Government of Singapore Investment Corporation, to own and operate, through
a private REIT, distribution facilities nationwide. As of June 30, 2001,
AMB-SGP, L.P. had received an equity contribution from GIC of $75.0 million,
which, when combined with anticipated debt financings and our investment,
created a total planned capitalization of $335.0 million. We are the managing
general partner of AMB-SGP, L.P. and own, as of June 30, 2001, 50.25% of the
co-investment joint venture.

     Credit Facilities. In May 2000, we entered into a $500.0 million unsecured
revolving credit agreement. AMB Property Corporation guarantees our obligations
under the credit facility. The credit facility matures in May 2003, has a
one-year extension option, and is subject to a 15 basis point annual facility
fee. We have the ability to increase available borrowings up to $700.0 million
by adding additional banks to the facility or obtaining the agreement of
existing banks to increase its commitments. We use our unsecured credit facility
principally for acquisitions and for general working capital requirements.
Borrowings under our credit facility currently bear interest at LIBOR plus 75
basis points. As of June 30, 2001, there was no outstanding balance on our
unsecured credit facility. Monthly debt service payments on our credit facility
are interest only. The total amount available under our credit facility
fluctuates based upon the borrowing base, as defined in the agreement governing
the credit facility. At June 30, 2001, the remaining amount available under our

                                        26
<PAGE>   29

unsecured credit facility was $500.0 million (excluding the additional $200.0
million of potential additional capacity).

     In June 2001, AMB Alliance Fund II obtained a $125.0 million bridge loan
from Bank of America N.A. Borrowings currently bear interest at LIBOR plus 87.5
basis points, which includes the fee. As of June 30, 2001, the outstanding
balance was $98.1 million and the remaining amount available was $26.9 million.
It is currently anticipated that the bridge loan will be replaced with a credit
facility during the third quarter.

     Equity. In March 2001, AMB Property II, L.P., one of our subsidiaries,
issued and sold 510,000 8.00% Series I Cumulative Redeemable Preferred Limited
Partnership Units at a price of $50.00 per unit in a private placement.
Distributions are cumulative from the date of issuance and payable quarterly in
arrears at a rate per unit equal to $4.00 per annum. The Series I Preferred
Units are redeemable by AMB Property II, L.P. on or after March 21, 2006,
subject to certain conditions, for cash at a redemption price equal to $50.00
per unit, plus accumulated and unpaid distributions thereon, if any, to the
redemption date. The Series I Preferred Units are exchangeable, at specified
times and subject to certain conditions, on a one-for-one basis, for shares of
AMB Property Corporation's Series I Preferred Stock. AMB Property II, L.P. used
the net proceeds of $24.9 million to repay advances from us and to make a loan
to us. We used the funds to partially repay borrowings under our unsecured
credit facility and for general corporate purposes. The loan bears interest at
8.0% per annum and is payable on demand.

     During the second quarter of 2001, no limited partnership units were
redeemed. During the first quarter of 2001, we redeemed 598,297 of our limited
partnership units for shares of AMB Property Corporation's common stock.

     AMB Property Corporation's board of directors has approved a stock
repurchase program for the repurchase of up to $100.0 million worth of its
common stock. During the second quarter, AMB Property Corporation repurchased
25,000 shares of its common stock at a purchase price of $22.80 per share under
the program. AMB Property Corporation's stock repurchase program expires in
December 2001.

     Debt. As of June 30, 2001, the aggregate principal amount of our secured
debt was $1.0 billion, excluding unamortized debt premiums of $8.8 million. The
secured debt bears interest at rates varying from 4.0% to 10.4% per annum (with
a weighted average rate of 8.1%) and final maturity dates ranging from November
2001 to June 2023. All of the secured debt bears interest at fixed rates, except
for two loans with an aggregate principal amount of $31.9 million as of June 30,
2001, which bear interest at variable rates (with a weighted average interest
rate of 5.5% at June 30, 2001).

     In August 2000, we commenced a medium-term note program for the possible
issuance of up to $400.0 million in principal amount of medium-term notes, which
will be guaranteed by AMB Property Corporation. As of June 30, 2001, we have
issued $355.0 million of medium-term notes under this program, leaving $45.0
million available for issuance. In January 2001, we issued and sold $25.0
million of the notes under this program to A.G. Edwards & Sons, Inc., as
principal. AMB Property Corporation has guaranteed the notes, which mature on
January 30, 2006, and bear interest at 6.90% per annum. We used the net proceeds
of $24.9 million for general corporate purposes, to partially repay
indebtedness, and for the acquisition and development of additional properties.
In March 2001, we issued and sold $50.0 million of the notes under this program
to First Union Securities, Inc., as principal. AMB Property Corporation has
guaranteed the notes, which mature on March 7, 2011, and bear interest at 7.00%
per annum. We used the net proceeds of $49.7 million for general corporate
purposes, to partially repay indebtedness, and for the acquisition and
development of additional properties.

     Mortgage Receivables. In September 2000, we sold our retail center located
in Los Angeles, California. We carry an 8.75% mortgage note in the principal
amount of $79.0 million on the retail center. The mortgage note matures in
September 2001 and has a one-year extension option. Through a wholly-owned
subsidiary, we also hold a mortgage loan receivable on AMB Pier One, LLC, an
unconsolidated joint venture. The note bears interest at 13.0% and matures in
May 2026. As of June 30, 2001, the outstanding balance on the note was $13.3
million.

                                        27
<PAGE>   30

     In order to maintain financial flexibility and facilitate the rapid
deployment of capital through market cycles, we presently intend to operate with
a debt-to-total market capitalization ratio of approximately 45% or less.
Additionally, we presently manage our capitalization in order to maintain an
investment grade rating on our senior unsecured debt. In spite of these
policies, our organizational documents do not contain any limitation on the
amount of indebtedness that we may incur. Accordingly, our general partner could
alter or eliminate these policies.

     The tables below summarize our debt maturities and capitalization as of
June 30, 2001 (dollars in thousands):

<Table>
<Caption>
                                                  DEBT
---------------------------------------------------------------------------------------------------------
                                            OUR        JOINT      UNSECURED      UNSECURED
                                          SECURED     VENTURE    SENIOR DEBT      CREDIT         TOTAL
                                          DEBT(1)      DEBT      SECURITIES    FACILITIES(2)      DEBT
                                          --------   ---------   -----------   -------------   ----------
<S>                                       <C>        <C>         <C>           <C>             <C>
2001....................................  $  6,368   $  33,875    $     --       $ 98,100      $  138,343
2002....................................    29,163      50,291          --             --          79,454
2003....................................    72,653      10,475          --             --          83,128
2004....................................    71,122      24,448          --             --          95,570
2005....................................    64,266      34,093     250,000             --         348,359
2006....................................   106,183      37,216      25,000             --         168,399
2007....................................    32,181      24,157      55,000             --         111,338
2008....................................    33,604     143,669     175,000             --         352,273
2009....................................     5,176      28,482          --             --          33,658
2010....................................    52,780      67,779      75,000             --         195,559
2011....................................     1,311      93,161      50,000             --         144,472
Thereafter..............................     3,307      23,694     125,000             --         152,001
                                          --------   ---------    --------       --------      ----------
  Subtotal..............................   478,114     571,340     755,000         98,100       1,902,554
  Unamortized premiums..................     8,793          --          --             --           8,793
                                          --------   ---------    --------       --------      ----------
          Total consolidated debt.......   486,907     571,340     755,000         98,100       1,911,347
Our share of unconsolidated joint
  venture debt(3).......................        --      32,383          --             --          32,383
                                          --------   ---------    --------       --------      ----------
          Total debt....................   486,907     603,723     755,000         98,100       1,943,730
Joint venture partners' share of
  consolidated joint venture debt.......        --    (290,001)         --        (77,892)       (367,893)
                                          --------   ---------    --------       --------      ----------
     Our share of total debt............  $486,907   $ 313,722    $755,000       $ 20,208      $1,575,837
                                          ========   =========    ========       ========      ==========
Weighed average interest rate...........       8.1%        7.4%        7.3%           4.7%            7.4%
Weighed average maturity (in years).....       5.2         7.4         8.0            0.4             6.7
</Table>

---------------
(1) All of the secured debt bears interest at fixed rates, except for two loans
    with an aggregate principal amount of $31.9 million as of June 30, 2001,
    which bear interest at variable rates (with a weighted average interest rate
    of 5.5% at June 30, 2001).

(2) The 2001 maturity represents a short-term credit facility obtained by the
    Alliance Fund II, which will repay the facility with capital contributions
    and secured debt proceeds. AMB also has a $500.0 million credit facility,
    which matures in 2003.

(3) The weighted average interest and weighted average maturity for the
    unconsolidated joint venture debt were 6.4% and 3.8 years, respectively.

<Table>
<Caption>
                                       MARKET CAPITAL
---------------------------------------------------------------------------------------------
                                                       UNITS
                     SECURITY                       OUTSTANDING   MARKET PRICE   MARKET VALUE
                     --------                       -----------   ------------   ------------
<S>                                                 <C>           <C>            <C>
Common general partnership units..................  84,994,367       $25.76       $2,189,455
Common limited partnership units..................   5,229,620        25.76          134,715
                                                    ----------                    ----------
          Total...................................  90,223,987                    $2,324,170
                                                    ==========                    ==========
</Table>

                                        28
<PAGE>   31

<Table>
<Caption>
                                      PREFERRED UNITS
-------------------------------------------------------------------------------------------
                                                    DIVIDEND   LIQUIDATION     REDEMPTION
                     SECURITY                         RATE     PREFERENCE      PROVISIONS
                     --------                       --------   -----------   --------------
<S>                                                 <C>        <C>           <C>
Series A preferred units..........................    8.50%     $100,000     July 2003
Series B preferred units..........................    8.63%       65,000     November 2003
Series C preferred units..........................    8.75%      110,000     November 2003
Series D preferred units..........................    7.75%       79,767     May 2004
Series E preferred units..........................    7.75%       11,022     August 2004
Series F preferred units..........................    7.95%       19,872     March 2005
Series G preferred units..........................    7.95%        1,000     August 2005
Series H preferred units..........................    8.13%       42,000     September 2005
Series I preferred units..........................    8.00%       25,500     March 2006
                                                      ----      --------
  Weighted Average/Total..........................    8.34%     $454,161
                                                      ====      ========
</Table>

<Table>
<Caption>
                       CAPITALIZATION RATIOS
-------------------------------------------------------------------
<S>                                                           <C>
Total debt-to-total market capitalization...................  41.2%
Our share of total debt-to-total market capitalization......  36.2%
Total debt plus preferred-to-total market capitalization....  50.8%
Our share of total debt plus preferred-to-total market
  capitalization............................................  46.6%
Our share of total debt-to-total book capitalization........  42.5%
</Table>

LIQUIDITY

     As of June 30, 2001, we had approximately $176.6 million in cash,
restricted cash, and cash equivalents, and $500.0 million of additional
available borrowings under our credit facility. We intend to use: 1) cash from
operations; 2) borrowings under our credit facility; 3) other forms of secured
and unsecured financing; 4) proceeds from any future debt or limited partnership
unit offerings(including issuances of limited partnership units by our
subsidiaries); 5) proceeds from divestitures of properties; and 6) private
capital to fund acquisitions, development activities, and capital expenditures
and to provide for general working capital requirements.

     We declared a regular cash distribution for the quarter ending June 30,
2001, of $0.395 per common unit. The distributions were payable on July 16,
2001, to unitholders of record on July 5, 2001. The Series A, B, C, E, F, and G
preferred unit distributions were also payable on July 16, 2001, to unitholders
of record on July 5, 2001. The Series D, H, and I preferred unit distributions
were payable on July 25, 2001, to unitholders of record on July 5, 2001. The
following table sets forth the distributions:

<Table>
<Caption>
                                                             FOR THE THREE MONTHS    FOR THE SIX MONTHS
                                                                ENDED JUNE 30,         ENDED JUNE 30,
                                                             --------------------    ------------------
          SECURITY                    PAYING ENTITY            2001        2000       2001       2000
          --------                    -------------          --------    --------    -------    -------
<S>                           <C>                            <C>         <C>         <C>        <C>
Operating partnership units   Operating Partnership........   $0.395      $0.370     $0.790     $0.740
Series A preferred units      Operating Partnership........   $0.531      $0.531     $1.063     $1.063
Series B preferred units      Operating Partnership........   $1.078      $1.078     $2.156     $2.156
Series C preferred units      AMB Property II, L.P. .......   $1.094      $1.094     $2.188     $2.188
Series D preferred units      AMB Property II, L.P. .......   $0.969      $0.969     $1.938     $1.938
Series E preferred units      AMB Property II, L.P. .......   $0.969      $0.969     $1.938     $1.938
Series F preferred units      AMB Property II, L.P. .......   $0.994      $0.994     $1.103     $1.103
Series G preferred units      AMB Property II, L.P. .......   $0.994       n/a       $1.103      n/a
Series H preferred units      AMB Property II, L.P. .......   $1.016       n/a       $2.032      n/a
Series I preferred units      AMB Property II, L.P. .......   $1.000       n/a       $1.044      n/a
</Table>

     The anticipated size of our distributions, using only cash from operations,
will not allow us to retire all of our debt as it comes due. Therefore, we
intend to also repay maturing debt with net proceeds from future debt

                                        29
<PAGE>   32

or limited partnership unit offerings. However, we may not be able to obtain
future financings on favorable terms or at all.

CAPITAL COMMITMENTS

     In addition to recurring capital expenditures and costs to renew or
re-tenant space, as of June 30, 2001, we are developing 20 projects representing
a total estimated investment of $322.8 million upon completion. Of this total,
$210.1 million had been funded as of June 30, 2001, and approximately $112.7
million is estimated to be required to complete current and planned projects. We
expect to fund these expenditures with cash from operations, borrowings under
our credit facility, debt or limited partnership unit issuances, and net
proceeds from property divestitures. We have no other material capital
commitments.

     Year to date, we have invested $165.3 million in 26 operating industrial
buildings, aggregating approximately 2.8 million rentable square feet. We funded
these acquisitions and initiated development and renovation projects through
private capital contributions, borrowings under our credit facility, cash, debt
and limited partnership unit issuances, and net proceeds from property
divestitures.

                                        30
<PAGE>   33

                             FUNDS FROM OPERATIONS

     We believe that funds from operations, or FFO, as defined by the National
Association of Real Estate Investment Trusts, is an appropriate measure of
performance for an equity real estate investment trust, such as AMB Property
Corporation, our general partner. While funds from operations is a relevant and
widely used measure of operating performance of real estate investment trusts,
it does not represent cash flow from operations or net income as defined by U.S.
generally accepted accounting principles and it should not be considered as an
alternative to those indicators in evaluating liquidity or operating
performance. Further, funds from operations as disclosed by other real estate
investment trusts may not be comparable.

     FFO is defined as income from operations before minority interest, gains or
losses from sale of real estate, and extraordinary items plus real estate
depreciation and adjustment to derive our pro rata share of FFO of
unconsolidated joint ventures, less minority interest pro rata share of FFO of
consolidated joint ventures and perpetual preferred stock dividends. In
accordance with the NAREIT White Paper on funds from operations, we include the
effects of straight-line rents in funds from operations. Further, we do not
adjust FFO to eliminate the effects of non-recurring charges.

     The following table reflects the calculation of funds from operations
(dollars in thousands, except share and per share data):

<Table>
<Caption>
                                             FOR THE THREE MONTHS     FOR THE SIX MONTHS
                                                ENDED JUNE 30,          ENDED JUNE 30,
                                             --------------------    --------------------
                                               2001        2000        2001        2000
                                             --------    --------    --------    --------
<S>                                          <C>         <C>         <C>         <C>
Income from operations.....................  $29,553     $39,774     $ 70,223    $ 80,239
Real estate related depreciation and
  amortization:
  Total depreciation and amortization......   27,323      22,631       54,177      41,823
  FF&E depreciation and ground lease
     amortization(1).......................     (492)       (231)        (973)       (634)
FFO attributable to minority interests(2):
  Separate account co-investors............   (1,390)     (1,283)      (2,779)     (2,547)
  Alliance Fund I..........................   (4,769)       (478)      (8,815)     (1,234)
  Other joint venture partners.............   (2,380)       (920)      (4,132)     (1,526)
  Series C-I preferred unit
     distributions.........................   (5,943)     (4,560)     (11,399)     (8,768)
Adjustments to derive FFO in unconsolidated
  joint venture(3):
  Our share of net income..................   (1,255)     (1,317)      (2,729)     (2,559)
  Our share of FFO.........................    2,133       1,811        4,253       3,547
Series A preferred unit distributions......   (2,125)     (2,125)      (4,250)     (4,250)
Series B preferred unit distributions......   (1,402)     (1,402)      (2,804)     (2,804)
                                             -------     -------     --------    --------
Funds from operations(1)...................  $39,253     $51,900     $ 90,772    $101,287
                                             =======     =======     ========    ========
</Table>

---------------
(1) Ground lease amortization represents the amortization of our investments in
    ground lease properties, for which we do not have a purchase options.

(2) Represents FFO attributable to minority interest in consolidated joint
    ventures whose interests are not exchangeable into common stock. The
    minority interest's share of NOI for the quarters ended June 30, 2001 and
    2000, was $16.3 million and $5.3 million, respectively, and for the six
    months ended June 30, 2001 and 2000, was $26.2 million and $10.1 million,
    respectively.

(3) Our share of NOI for the quarters ended June 30, 2001 and 2000, was $2.3
    million and $2.1 million, respectively, and for the six months ended June
    30, 2001 and 2000, was $5.1 million and $4.1 million, respectively.

                                        31
<PAGE>   34

                    OPERATING AND LEASING STATISTICS SUMMARY

     The following table summarizes key operating and leasing statistics for all
of our industrial properties as of and for the period ended June 30, 2001
(dollars in thousands):

<Table>
<Caption>
                                                    THREE MONTHS      SIX MONTHS
                                                        ENDED            ENDED
                                                    JUNE 30, 2001    JUNE 30, 2001
                                                    -------------    -------------
<S>                                                 <C>              <C>
Square feet owned(1)..............................    77,317,388       77,317,388
Occupancy percentage..............................          95.9%            95.9%
Weighted average lease terms:
  Original........................................     6.3 years        6.3 years
  Remaining.......................................     3.3 years        3.3 years
Tenant retention..................................          72.6%            67.7%
  SF expired......................................     3,381,619        7,159,089
Rent increases on renewals and rollovers..........          38.5%            29.2%
  SF leased.......................................     2,653,379        5,239,174
Second generation tenant improvements and leasing
  commissions per sq. ft.(2):
  Renewals........................................   $      1.12      $      0.93
  Re-tenanted.....................................          4.09             3.18
                                                     -----------      -----------
     Weighted average.............................   $      2.28      $      1.93
                                                     ===========      ===========
Recurring capital expenditures(3)
  Tenant improvements.............................   $     2,123      $     4,039
  Lease commissions...............................         3,959            7,283
  Building improvements...........................         3,454            5,552
                                                     -----------      -----------
     Sub-total....................................         9,536           16,874
  JV Partner's share of capital expenditures......          (812)          (1,675)
                                                     -----------      -----------
     Total........................................   $     8,724      $    15,199
                                                     ===========      ===========
</Table>

---------------
(1) In addition to owned square feet as of June 30, 2001, we managed, through
    our subsidiary, AMB Investment Management, approximately 3.7 million, 0.6
    million, and 0.1 million additional square feet of industrial, retail and
    other properties, respectively. We also have an investment in approximately
    4.9 million square feet of industrial properties through our investments in
    the unconsolidated joint ventures.

(2) Consists of all second-generation leases renewing or re-tenanting with lease
    terms greater than one year.

(3) Includes second generation leasing costs and building improvements.

                                        32
<PAGE>   35

     The following table summarizes key operating and leasing statistics for all
of our retail properties as of and for the three and six month periods ended
June 30, 2001 (dollars in thousands):

<Table>
<Caption>
                                                             RETAIL
                                                           ----------
<S>                                                        <C>
Square feet owned(1).....................................   1,479,481
Occupancy percentage.....................................        93.0%
Weighted average lease terms:
  Original...............................................  14.1 years
  Remaining..............................................   9.5 years
Tenant retention:
  Quarter................................................        31.2%
  Year-to-Date...........................................        11.6%
Square Feet Retained:
  Quarter................................................       2,835
  Year-to-Date...........................................       6,671
Rent increases on renewals and rollovers:
  Quarter................................................        10.0%
  Year-to-Date...........................................        26.7%
Square feet leased:
  Quarter................................................       6,308
  Year-to-Date...........................................      78,631
</Table>

     The following summarizes key same store properties' operating statistics
for our industrial properties as of and for the three and six month periods
ending June 30, 2001:

<Table>
<Caption>
                                                     THREE MONTHS      SIX MONTHS
                                                         ENDED            ENDED
                                                     JUNE 30, 2001    JUNE 30, 2001
                                                     -------------    -------------
<S>                                                  <C>              <C>
Square feet in same store pool(1)..................   61,362,745       61,362,745
  % of total square feet...........................         79.4%            79.4%
Occupancy percentage at period end
  June 30, 2001....................................         96.4%            96.4%
  June 30, 2000....................................         97.6%            97.6%
Tenant retention...................................         71.2%            65.3%
  SF expired.......................................    2,522,257        5,567,235
Rent increases on lease commencements..............         49.4%            33.8%
  SF leased........................................    1,857,650        4,216,731
Cash basis NOI growth % increase:
  Revenues.........................................          7.7%             7.9%
  Expenses.........................................         10.8%             9.1%
  Net operating income.............................          6.8%             7.6%
</Table>

---------------
(1) Consists of industrial buildings and retail centers owned prior to January
    1, 2000, and excludes development properties prior to stabilization.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our exposure to market risk includes: 1) the rising interest rates in
connection with our unsecured credit facility and other variable rate
borrowings; and 2) our ability to incur more debt without unitholder or
noteholder approval, thereby increasing our debt service obligations, which
could adversely affect our cash flows. See "Item 2: Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Capital Resources -- Market Capitalization."

                                        33
<PAGE>   36

                                    PART II

ITEM 1. LEGAL PROCEEDINGS

     As of June 30, 2001, there were no pending legal proceedings to which we
are a party or of which any of our properties is the subject, the adverse
determination of which we anticipate would have a material adverse effect upon
our financial condition and results of operations.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     In May 2001, we retired 25,000 operating partnership units. The repurchase
was exempt from the registration requirement of the Securities Act pursuant to
Section 4(2) of the Securities Act and Rule 506 of Regulation D.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None

ITEM 5. OTHER INFORMATION

                                 BUSINESS RISKS

     Our operations involve various risks that could have adverse consequences
to us. These risks include, among others:

GENERAL REAL ESTATE RISKS

THERE ARE FACTORS OUTSIDE OF OUR CONTROL THAT AFFECT THE PERFORMANCE AND VALUE
OF OUR PROPERTIES

     Real property investments are subject to varying degrees of risk. The
yields available from equity investments in real estate depend on the amount of
income earned and capital appreciation generated by the related properties as
well as the expenses incurred in connection with the properties. If our
properties do not generate income sufficient to meet operating expenses,
including debt service and capital expenditures, then our ability to make
distributions to our unitholders and payments to our noteholders could be
adversely affected. Income from, and the value of, our properties may be
adversely affected by the general economic climate, local conditions such as
oversupply of industrial space, or a reduction in demand for industrial space,
the attractiveness of our properties to potential customers, competition from
other properties, our ability to provide adequate maintenance and insurance, and
an increase in operating costs. Our properties are currently concentrated
predominantly in the industrial real estate sector. Our concentration in a
certain property type may expose us to the risk of economic downturns in this
sector to a greater extent than if our portfolio also included other property
types. As a result of such concentration, economic downturns in the industrial
real estate sector could adversely affect our financial condition, results of
operations, cash flow, and ability to make distributions to our unitholders and
payments to our noteholders. In addition, revenues from properties and real
estate values are also affected by factors such as the cost of compliance with
regulations, the potential for liability under applicable laws (including
changes in tax laws), interest rate levels, and the availability of financing.
Our income would be adversely affected if a significant number of customers were
unable to pay rent or if we were unable to rent our industrial space on
favorable terms. Certain significant expenditures associated with an investment
in real estate (such as mortgage payments, real estate taxes, and maintenance
costs) generally do not decline when circumstances cause a reduction in income
from the property.

                                        34
<PAGE>   37

WE MAY BE UNABLE TO RENEW LEASES OR RELET SPACE AS LEASES EXPIRE

     We are subject to the risks that leases may not be renewed, space may not
be relet, or the terms of renewal or reletting (including the cost of required
renovations) may be less favorable than current lease terms. Leases on a total
of 8.7% of our industrial properties (based on annualized base rent) as of June
30, 2001, will expire on or prior to December 31, 2001. In addition, numerous
properties compete with our properties in attracting customers to lease space,
particularly with respect to retail centers. The number of competitive
commercial properties in a particular area could have a material adverse effect
on our ability to lease space in our properties and on the rents that we are
able to charge. Our financial condition, results of operations, cash flow, and
our ability to make distributions to our unitholders and payments to our
noteholders could be adversely affected if we are unable to promptly relet or
renew the leases for all or a substantial portion of expiring leases, if the
rental rates upon renewal or reletting is significantly lower than expected, or
if our reserves for these purposes prove inadequate.

REAL ESTATE INVESTMENTS ARE ILLIQUID

     Because real estate investments are relatively illiquid, our ability to
vary our portfolio promptly in response to economic or other conditions is
limited. The limitations in the Internal Revenue Code and related regulations on
a real estate investment trust holding property for sale, which limitations are
applicable to us as a subsidiary of AMB Property Corporation, may affect our
ability to sell properties without adversely affecting distributions to our
unitholders and payments to our noteholders. The relative illiquidity of our
holdings and Internal Revenue Code prohibitions and related regulations could
impede our ability to respond to adverse changes in the performance of our
investments and could adversely affect our financial condition, results of
operations, cash flow, and our ability to make distributions to our unitholders
and payments to our noteholders.

A SIGNIFICANT NUMBER OF OUR PROPERTIES ARE LOCATED IN CALIFORNIA

     Our industrial properties located in California as of June 30, 2001,
represented approximately 25.5% of the aggregate square footage of our
industrial properties as of June 30, 2001, and 32.9% of our annualized base
rent. Annualized base rent means the monthly contractual amount under existing
leases at June 30, 2001, multiplied by 12. This amount excludes expense
reimbursements and rental abatements. Our revenue from, and the value of, our
properties located in California may be affected by a number of factors,
including local real estate conditions (such as oversupply of or reduced demand
for industrial properties) and the local economic climate. Business layoffs,
downsizing, industry slowdowns, changing demographics, and other factors may
adversely impact the local economic climate. A downturn in either the California
economy or in California real estate conditions could adversely affect our
financial condition, results of operations, cash flow, and our ability to make
distributions to our unitholders and payments to our noteholders. Certain of our
properties are also subject to possible loss from seismic activity.

RISING ENERGY COSTS AND POWER OUTAGES IN CALIFORNIA MAY HAVE AN ADVERSE EFFECT
ON OUR OPERATIONS AND REVENUE

     Problems associated with deregulation of the electricity industry in
California have resulted in intermittent service interruptions and significantly
higher costs in some areas. Properties located within municipalities that either
do not produce their own power or have not entered into long-term, fixed-price
contracts may be subject to intermittent service interruptions or significant
rate increases from their utility providers. Most of our properties located in
California are subject to leases that require our tenants to pay all utility
costs. The remainder of our California leases provide that tenants will
reimburse us for utility costs in excess of a base year amount. Although we have
not experienced any material losses resulting from electric deregulation, it is
possible that some of our tenants will not fulfill their lease obligations and
reimburse us for their share of any significant rate increases and that we will
not be able to retain or replace our tenants if energy problems in California
continue.

                                        35
<PAGE>   38

SOME POTENTIAL LOSSES ARE NOT COVERED BY INSURANCE

     We carry comprehensive liability, fire, extended coverage, and rental loss
insurance covering all of our properties, with policy specifications and insured
limits that we believe are adequate and appropriate under the circumstances
given relative risk of loss, the cost of such coverage, and industry practice.
There are, however, certain losses that are not generally insured because it is
not economically feasible to insure against them, including losses due to riots
or acts of war. Certain losses such as losses due to floods or seismic activity
may be insured subject to certain limitations including large deductibles or
co-payments and policy limits. If an uninsured loss or a loss in excess of
insured limits occurs with respect to one or more of our properties, then we
could lose the capital we invested in the properties, as well as the anticipated
future revenue from the properties and, in the case of debt, which is with
recourse to us, we would remain obligated for any mortgage debt or other
financial obligations related to the properties. Any such liability could
adversely affect our financial condition, results of operations, cash flow, and
ability to make distributions to our unitholders and payments to our
noteholders.

     A number of our properties are located in areas that are known to be
subject to earthquake activity, including California where, as of June 30, 2001,
255 industrial buildings aggregating approximately 19.7 million square feet
(representing 25.5% of our properties based on aggregate square footage and
32.9% based on annualized base rent) are located. We carry replacement cost
earthquake insurance on all of our properties located in areas historically
subject to seismic activity, subject to coverage limitations and deductibles
that we believe are commercially reasonable. This insurance coverage also
applies to the properties managed by AMB Investment Management, with a single
aggregate policy limit and deductible applicable to those properties and our
properties. We own 100% of the capital stock of AMB Investment Management.
Through an annual analysis prepared by outside consultants, we evaluate our
earthquake insurance coverage in light of current industry practice and
determine the appropriate amount of earthquake insurance to carry. We may incur
material losses in excess of insurance proceeds and we may not be able to
continue to obtain insurance at commercially reasonable rates.

WE ARE SUBJECT TO RISKS AND LIABILITIES IN CONNECTION WITH PROPERTIES OWNED
THROUGH JOINT VENTURES, LIMITED LIABILITY COMPANIES, AND PARTNERSHIPS

     As of June 30, 2001, we had ownership interests in several joint ventures,
limited liability companies, or partnerships with third parties, as well as
interests in three unconsolidated entities. As of June 30, 2001, we owned
approximately 27.2 million square feet (excluding three unconsolidated joint
ventures) of our properties through these entities. We may make additional
investments through these ventures in the future and presently plan to do so
with clients of AMB Investment Management and certain Development Alliance
Partners, who share certain approval rights over major decisions. Partnership,
limited liability company, or joint venture investments may involve risks such
as the following: (1) our partners, co-members, or joint venturers might become
bankrupt (in which event we and any other remaining general partners, members,
or joint venturers would generally remain liable for the liabilities of the
partnership, limited liability company, or joint venture); (2) our partners,
co-members, or joint venturers might at any time have economic or other business
interests or goals that are inconsistent with our business interests or goals;
(3) our partners, co-members, or joint venturers may be in a position to take
action contrary to our instructions, requests, policies, or objectives; and (4)
agreements governing joint ventures, limited liability companies, and
partnerships often contain restrictions on the transfer of a joint venturer's,
member's, or partner's interest or "buy-sell" or other provisions, which may
result in a purchase or sale of the interest at a disadvantageous time or on
disadvantageous terms.

     We will, however, generally seek to maintain sufficient control of our
partnerships, limited liability companies, and joint ventures to permit us to
achieve our business objectives. Our organizational documents do not limit the
amount of available funds that we may invest in partnerships, limited liability
companies, or joint ventures. The occurrence of one or more of the events
described above could adversely affect our financial condition, results of
operations, cash flow, and ability to make distributions to our unitholders and
payments to our noteholders.

                                        36
<PAGE>   39

WE MAY BE UNABLE TO CONSUMMATE ACQUISITIONS ON ADVANTAGEOUS TERMS

     We intend to continue to acquire primarily industrial properties.
Acquisitions of properties entail risks that investments will fail to perform in
accordance with expectations. Estimates of the costs of improvements necessary
for us to bring an acquired property up to market standards may prove
inaccurate. In addition, there are general investment risks associated with any
new real estate investment. Further, we anticipate significant competition for
attractive investment opportunities from other major real estate investors with
significant capital including both publicly traded real estate investment
trusts, such as our general partner, and private institutional investment funds.
We expect that future acquisitions will be financed through a combination of
borrowings under our unsecured credit facility, proceeds from debt or limited
partnership unit offerings (including issuances of limited partnership units by
our subsidiaries), and proceeds from property divestitures, which could have an
adverse effect on our cash flow. We may not be able to acquire additional
properties. Our inability to finance any future acquisitions on favorable terms
or the failure of acquisitions to conform with our expectations or investment
criteria, or our failure to timely reinvest the proceeds from property
divestitures could adversely affect our financial condition, results of
operations, cash flow, and ability to make distributions to our unitholders and
payments to our noteholders.

WE MAY BE UNABLE TO COMPLETE RENOVATION AND DEVELOPMENT ON ADVANTAGEOUS TERMS

     The real estate development business, including the renovation and
rehabilitation of existing properties, involves significant risks. These risks
include the following: (1) we may not be able to obtain financing on favorable
terms for development projects and we may not complete construction on schedule
or within budget, resulting in increased debt service expense and construction
costs and delays in leasing such properties and generating cash flow; (2) we may
not be able to obtain, or we may experience delays in obtaining, all necessary
zoning, land-use, building, occupancy, and other required governmental permits
and authorizations; (3) new or renovated properties may perform below
anticipated levels, producing cash flow below budgeted amounts; (4) substantial
renovation as well as new development activities, regardless of whether or not
they are ultimately successful, typically require a substantial portion of
management's time and attention that could divert management's time from our
day-to-day operations; and (5) activities that we finance through construction
loans involve the risk that, upon completion of construction, we may not be able
to obtain permanent financing or we may not be able to obtain permanent
financing on advantageous terms.

     These risks could adversely affect our financial condition, results of
operations, cash flow, and ability to make distributions to our unitholders and
payments to our noteholders.

WE MAY BE UNABLE TO COMPLETE DIVESTITURES ON ADVANTAGEOUS TERMS

     We intend to dispose of properties from time to time that do not conform
with our current investment strategy or that we have otherwise determined should
be divested, including, as of June 30, 2001, three industrial buildings and two
retail centers, which are held for divestiture. Our ability to dispose of
properties on advantageous terms is dependent upon factors beyond our control,
including competition from other owners (including other real estate investment
trusts) that are attempting to dispose of industrial and retail properties and
the availability of financing on attractive terms for potential buyers of our
properties. Our inability to dispose of properties on favorable terms or our
inability to redeploy the proceeds of property divestitures in accordance with
our investment strategy could adversely affect our financial condition, results
of operations, cash flow, and ability to make distributions to our unitholders
and payments to our noteholders.

DEBT FINANCING

WE COULD INCUR MORE DEBT

     We operate with a policy of incurring debt, either directly or through our
subsidiaries, only if upon such incurrence our debt-to-total market
capitalization ratio would be approximately 45% or less. The aggregate amount of
indebtedness that we may incur under our policy varies directly with the
valuation of AMB Property Corporation's capital stock and the number of shares
of capital stock outstanding. Accordingly, we would be able to incur additional
indebtedness under our policy as a result of increases in the market price per

                                        37
<PAGE>   40

share of AMB Property Corporation's common stock or other outstanding classes of
capital stock, and future issuance of shares of AMB Property Corporation's
capital stock. In spite of this policy, our organizational documents do not
contain any limitation on the amount of indebtedness that we may incur.
Accordingly, AMB Property Corporation, as our general partner could alter or
eliminate this policy. If we change this policy, then we could become more
highly leveraged, resulting in an increase in debt service that could adversely
affect our financial condition, results of operations, cash flow, and ability to
make distributions to our unitholders and payments to our noteholders.

SCHEDULED DEBT PAYMENTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION

     We are subject to risks normally associated with debt financing, including
the risks that cash flow will be insufficient to make distributions to our
unitholders and payments to our noteholders, that we will be unable to refinance
existing indebtedness on our properties (which in all cases will not have been
fully amortized at maturity) and that the terms of refinancing will not be as
favorable as the terms of existing indebtedness. As of June 30, 2001, we had
total debt outstanding of approximately $1.9 billion.

     If we are unable to refinance or extend principal payments due at maturity
or pay them with proceeds of other capital transactions, then we expect that our
cash flow will not be sufficient in all years to make distributions to our
unitholders and payments to our noteholders and to repay all such maturing debt.
Furthermore, if prevailing interest rates or other factors at the time of
refinancing (such as the reluctance of lenders to make commercial real estate
loans) result in higher interest rates upon refinancing, then the interest
expense relating to that refinanced indebtedness would increase. This increased
interest expense would adversely affect our financial condition, results of
operations, cash flow, and ability to make distributions to our unitholders and
payments to our noteholders. In addition, if we mortgage one or more of our
properties to secure payment of indebtedness and we are unable to meet mortgage
payments, then the property could be foreclosed upon or transferred to the
mortgagee with a consequent loss of income and asset value. A foreclosure on one
or more of our properties could adversely affect our financial condition,
results of operations, cash flow, and ability to make distributions to our
unitholders and payments to our noteholders.

RISING INTEREST RATES COULD ADVERSELY AFFECT OUR CASH FLOW

     As of June 30, 2001, we had approximately $98.1 million outstanding under
our unsecured credit facility and we had two secured loans with an aggregate
principal amount of $31.9 million, which bear interest at variable rates (with
weighted average interest rate of 5.5% at June 30, 2001). In addition, we may
incur other variable rate indebtedness in the future. Increases in interest
rates on this indebtedness could increase our interest expense, which would
adversely affect our financial condition, results of operations, cash flow, and
ability to make distributions to our unitholders and payments to our
noteholders. Accordingly, we may in the future engage in transactions to limit
our exposure to rising interest rates.

WE ARE DEPENDENT ON EXTERNAL SOURCES OF CAPITAL

     In order for AMB Property Corporation to qualify as a real estate
investment trust under the Internal Revenue Code, it is required each year to
distribute to its stockholders at least 90% of its real estate investment trust
taxable income (determined without regard to the dividends-paid deduction and by
excluding any net capital gain) and it is subject to tax on its income to the
extent it is not distributed. Because of this distribution requirement, we may
not be able to fund all future capital needs, including capital needs in
connection with acquisitions, from cash retained from operations. As a result,
to fund capital needs, we rely on third party sources of capital, which we may
not be able to obtain on favorable terms or at all. Our access to third party
sources of capital depends upon a number of factors, including: 1) general
market conditions; 2) the market's perception of our growth potential; 3) our
current and potential future earnings and cash distributions; and 4) the market
price of AMB Property Corporation's capital stock. Additional debt financing may
substantially increase our leverage.

                                        38
<PAGE>   41

WE COULD DEFAULT ON CROSS-COLLATERALIZED AND CROSS-DEFAULTED DEBT

     As of June 30, 2001, we had 19 non-recourse secured loans, which are cross
collateralized by 30 properties. As of June 30, 2001, we had $356.0 million (not
including unamortized debt premium) outstanding on these loans. If we default on
any of these loans, then we will be required to repay the aggregate of all
indebtedness, together with applicable prepayment charges, to avoid foreclosure
on all the cross-collateralized properties within the applicable pool.
Foreclosure on our properties, or our inability to refinance our loans on
favorable terms, could adversely impact our financial condition, results of
operations, cash flow, and ability to make distributions to our unitholders and
payments to our noteholders on, and the market price of, our stock. In addition,
our credit facility and the senior debt securities of the operating partnership
contain certain cross-default provisions, which are triggered in the event that
our other material indebtedness is in default. These cross-default provisions
may require us to repay or restructure the credit facility and the senior debt
securities in addition to any mortgage or other debt that is in default, which
could adversely affect our financial condition, results of operations, cash
flow, and ability to make distributions to our unitholders and payments to our
noteholders.

CONTINGENT OR UNKNOWN LIABILITIES COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION

     Our predecessors have been in existence for varying lengths of time up to
18 years. At the time of our formation we acquired the assets of these entities
subject to all of their potential existing liabilities. There may be current
liabilities or future liabilities arising from prior activities that we are not
aware of and therefore have not disclosed in this report. AMB Property
Corporation assumed these liabilities as the surviving entity in the various
merger and contribution transactions that occurred at the time of our formation.
Existing liabilities for indebtedness generally were taken into account in
connection with the allocation of the operating partnership's limited
partnership units or shares of AMB Property Corporation's common stock in the
formation transactions, but no other liabilities were taken into account for
these purposes. We do not have recourse against AMB Property Corporation's
predecessors or any of their respective stockholders or partners or against any
individual account investors with respect to any unknown liabilities. Unknown
liabilities might include the following: (1) liabilities for clean-up or
remediation of undisclosed environmental conditions; (2) claims of customers,
vendors, or other persons dealing with AMB Property Corporation's predecessors
prior to the formation transactions that had not been asserted prior to the
formation transactions; (3) accrued but unpaid liabilities incurred in the
ordinary course of business; (4) tax liabilities; and (5) claims for
indemnification by the officers and directors of AMB Property Corporation's
predecessors and others indemnified by these entities.

     Certain customers may claim that the formation transactions gave rise to a
right to purchase the premises that they occupy. We do not believe any such
claims would be material and, to date, no such claims have been filed. See
"-- Government Regulations -- We Could Encounter Costly Environmental Problems"
below regarding the possibility of undisclosed environmental conditions
potentially affecting the value of our properties. Undisclosed material
liabilities in connection with the acquisition of properties, entities and
interests in properties, or entities could adversely affect our financial
condition, results of operations, cash flow, and ability to make distributions
to our unitholders and payments to our noteholders.

CONFLICTS OF INTEREST

SOME OF AMB PROPERTY CORPORATION'S EXECUTIVE OFFICERS ARE INVOLVED IN OTHER REAL
ESTATE ACTIVITIES AND INVESTMENTS

     Some of AMB Property Corporation's executive officers own interests in real
estate-related businesses and investments. These interests include minority
ownership of Institutional Housing Partners, L.P., a residential housing finance
company, and ownership of AMB Development, Inc. and AMB Development, L.P.,
developers that own property not suitable for ownership by us. AMB Development,
Inc. and AMB Development, L.P. have agreed not to initiate any new development
projects following AMB Property Corporation's initial public offering in
November 1997. These entities have also agreed that they will not make any
further investments in industrial properties other than those currently under
development at the time of

                                        39
<PAGE>   42

AMB Property Corporation's initial public offering. AMB Development, Inc. and
AMB Development, L.P. continue to use the name "AMB" pursuant to royalty-free
license arrangements. The continued involvement in other real estate-related
activities by some of AMB Property Corporation's executive officers and
directors could divert management's attention from our day-to-day operations.
Most of AMB Property Corporation's executive officers have entered into
non-competition agreements with AMB Property Corporation pursuant to which they
have agreed not to engage in any activities, directly or indirectly, in respect
of commercial real estate, and not to make any investment in respect of
industrial real estate, other than through ownership of not more than 5% of the
outstanding shares of a public company engaged in such activities or through the
existing investments referred to in this report. State law may limit our ability
to enforce these agreements.

     We could also, in the future, subject to the unanimous approval of the
disinterested members of AMB Property Corporation's board of directors with
respect to such transaction, acquire property from executive officers, enter
into leases with executive officers, or engage in other related activities in
which the interests pursued by AMB Property Corporation's executive officers may
not be in the best interests of our unitholders.

CERTAIN OF AMB PROPERTY CORPORATION'S EXECUTIVE OFFICERS AND DIRECTORS MAY HAVE
CONFLICTS OF INTEREST WITH US IN CONNECTION WITH OTHER PROPERTIES THAT THEY OWN
OR CONTROL

     As of June 30, 2001, AMB Development, L.P. owns interests in five retail
development projects in the U.S., three of which are single freestanding
Walgreens drugstores and two of which are Walgreens drugstores plus shop
buildings, which are less than 10,000 feet. In addition, Messrs. Abbey,
Moghadam, and Burke, each a founder and director of AMB Property Corporation,
own less than 1% interests in two partnerships that own office buildings in
various markets; these interests have negligible value. Luis A. Belmonte, an
executive officer of AMB Property Corporation, owns less than a 10% interest,
representing an estimated value of $150,000, in a limited partnership, which
owns an office building located in Oakland, California.

     In addition, several of AMB Property Corporation's executive officers
individually own: (1) less than 1% interests in the stocks of certain
publicly-traded real estate investment trusts; (2) certain interests in and
rights to developed and undeveloped real property located outside the United
States; and (3) certain other de minimus holdings in equity securities of real
estate companies.

     Thomas W. Tusher, a member of AMB Property Corporation's board of
directors, is a limited partner in a partnership in which Messrs. Abbey,
Moghadam, and Burke are general partners and which owns a 75% interest in an
office building. Mr. Tusher owns a 20% interest in the partnership, valued at
approximately $1.2 million. Messrs. Abbey, Moghadam, and Burke each have a 26.7%
interest in the partnership, each valued at approximately $1.6 million.

     We believe that the properties and activities set forth above generally do
not directly compete with any of our properties. However, it is possible that a
property in which an executive officer or director, or an affiliate of an
executive officer or director of AMB Property Corporation, has an interest may
compete with us in the future if we were to invest in a property similar in type
and in close proximity to that property. In addition, the continued involvement
of AMB Property Corporation's executive officers and directors in these
properties could divert management's attention from our day-to-day operations.
Our policy prohibits us from acquiring any properties from our executive
officers or their affiliates without the approval of the disinterested members
of AMB Property Corporation's board of directors with respect to that
transaction.

AMB PROPERTY CORPORATION'S DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT
STOCKHOLDERS COULD ACT IN A MANNER THAT IS NOT IN THE BEST INTEREST OF OUR
LIMITED PARTNERS OR NOTEHOLDERS

     As of July 31, 2001, AMB Property Corporation's two largest stockholders,
Cohen & Steers Capital Management, Inc. (with respect to various client accounts
for which Cohen & Steers Capital Management, Inc. serves as investment advisor)
and European Investors Inc. (with respect to various client accounts for which
European Investors Inc. serves as investment advisor) beneficially owned
approximately 13.4% of its outstanding common stock. In addition, AMB Property
Corporation's executive officers and directors beneficially owned approximately
5.3% of AMB Property Corporation's outstanding common stock as of July 31, 2001,
and will have influence on AMB Property Corporation's and our management and
operation
                                        40
<PAGE>   43

and, as stockholders of AMB Property Corporation, will have influence on the
outcome of any matters submitted to a vote of AMB Property Corporation's
stockholders. This influence might be exercised in a manner that is inconsistent
with the interests of our limited partners and noteholders. Although there is no
understanding or arrangement for these directors, officers, and stockholders and
their affiliates to act in concert, these parties would be in a position to
exercise significant influence over AMB Property Corporation's affairs if they
choose to do so.

GOVERNMENT REGULATIONS

     Many laws and governmental regulations are applicable to our properties and
changes in these laws and regulations, or their interpretation by agencies and
the courts, occur frequently.

COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT

     Under the Americans with Disabilities Act, places of public accommodation
must meet certain federal requirements related to access and use by disabled
persons. Compliance with the Americans with Disabilities Act might require us to
remove structural barriers to handicapped access in certain public areas where
such removal is "readily achievable." If we fail to comply with the Americans
with Disabilities Act, then we might be required to pay fines to the government
or damages to private litigants. The impact of application of the Americans with
Disabilities Act to our properties, including the extent and timing of required
renovations, is uncertain. If we are required to make unanticipated expenditures
to comply with the Americans with Disabilities Act, then our cash flow and the
amounts available for distributions to our unitholders and payments to our
noteholders may be adversely affected.

WE COULD ENCOUNTER ENVIRONMENTAL PROBLEMS

     Federal, state, and local laws and regulations relating to the protection
of the environment impose liability on a current or previous owner or operator
of real estate for contamination resulting from the presence or discharge of
hazardous or toxic substances or petroleum products at the property. A current
or previous owner may be required to investigate and clean up contamination at
or migrating from a site. These laws typically impose liability and clean-up
responsibility without regard to whether the owner or operator knew of or caused
the presence of the contaminants. Even if more than one person may have been
responsible for the contamination, each person covered by the environmental laws
may be held responsible for all of the clean-up costs incurred. In addition,
third parties may sue the owner or operator of a site for damages based on
personal injury, property damage, or other costs, including investigation and
clean-up costs, resulting from environmental contamination present at or
emanating from that site.

     Environmental laws also govern the presence, maintenance, and removal of
asbestos. These laws require that owners or operators of buildings containing
asbestos properly manage and maintain the asbestos, that they adequately inform
or train those who may come into contact with asbestos, and that they undertake
special precautions, including removal or other abatement in the event that
asbestos is disturbed during renovation or demolition of a building. These laws
may impose fines and penalties on building owners or operators for failure to
comply with these requirements and may allow third parties to seek recovery from
owners or operators for personal injury associated with exposure to asbestos
fibers. Some of our properties may contain asbestos-containing building
materials.

     Some of our properties are leased or have been leased, in part, to owners
and operators of businesses that use, store, or otherwise handle petroleum
products or other hazardous or toxic substances. These operations create a
potential for the release of petroleum products or other hazardous or toxic
substances. Some of our properties are adjacent to or near other properties that
have contained or currently contain petroleum products or other hazardous or
toxic substances. In addition, certain of our properties are on, are adjacent
to, or are near other properties upon which others, including former owners or
tenants of the properties, have engaged or may in the future engage in
activities that may release petroleum products or other hazardous or toxic
substances. From time to time, we may acquire properties, or interests in
properties, with known adverse environmental conditions where we believe that
the environmental liabilities associated with these conditions are quantifiable

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and the acquisition will yield a superior risk-adjusted return. Environmental
issues for each property are evaluated and quantified prior to acquisition. The
costs of environmental investigation, clean-up, and monitoring are underwritten
into the cost of the acquisition and appropriate environmental insurance is
obtained for the property. In connection with certain divested properties, we
have agreed to remain responsible for, and to bear the cost of, remediating or
monitoring certain environmental conditions on the properties.

     All of our properties were subject to a Phase I or similar environmental
assessments by independent environmental consultants at the time of acquisition.
Phase I assessments are intended to discover and evaluate information regarding
the environmental condition of the surveyed property and surrounding properties
and include an historical review, a public records review, an investigation of
the surveyed site and surrounding properties, and preparation and issuance of a
written report. We may perform additional Phase II testing if recommended by the
independent environmental consultant. Phase II testing may include the
collection and laboratory analysis of soil and groundwater samples, completion
of surveys for asbestos-containing building materials, and any other testing
that the consultant considers prudent in order to test for the presence of
hazardous materials.

     None of the environmental assessments of our properties has revealed any
environmental liability that we believe would have a material adverse effect on
our financial condition or results of operations taken as a whole. Furthermore,
we are not aware of any such material environmental liability. Nonetheless, it
is possible that the assessments do not reveal all environmental liabilities and
that there are material environmental liabilities of which we are unaware or
that known environmental conditions may give rise to liabilities that are
materially greater than anticipated. Moreover, the current environmental
condition of our properties may be affected by tenants, the condition of land,
operations in the vicinity of the properties (such as releases from underground
storage tanks), or by third parties unrelated to us. If the costs of compliance
with existing or future environmental laws and regulations exceed our budgets
for these items, then our financial condition, results of operations, cash flow,
and ability to make distributions to our unitholders and payments to our
noteholders.

OUR FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED IF WE FAIL TO COMPLY WITH
OTHER REGULATIONS

     Our properties are also subject to various federal, state, and local
regulatory requirements such as state and local fire and life safety
requirements. If we fail to comply with these requirements, then we might incur
fines by governmental authorities or be required to pay awards of damages to
private litigants. We believe that our properties are currently in substantial
compliance with all such regulatory requirements. However, these requirements
may change or new requirements may be imposed, which could require significant
unanticipated expenditures by us. Any such unanticipated expenditure could
adversely affect our financial condition, results of operations, cash flow, and
ability to make distributions to our unitholders and payments to our
noteholders.

CERTAIN PROPERTY TRANSFERS MAY GENERATE PROHIBITED TRANSACTION INCOME

     From time to time, we may transfer or otherwise dispose of some of our
properties. Under the Internal Revenue Code, any gain resulting from transfers
of properties that we hold as inventory or primarily for sale to customers in
the ordinary course of business would be treated as income from a prohibited
transaction. We would be required to pay a 100% penalty tax on that income.
Since we acquire properties for investment purposes, we believe that any
transfer or disposal of property by us would not be deemed by the Internal
Revenue Service to be a prohibited transaction with any resulting gain allocable
to us being subject to a 100% penalty tax. However, whether property is held for
investment purposes is a question of fact that depends on all the facts and
circumstances surrounding the particular transaction. The Internal Revenue
Service may contend that certain transfers or disposals of properties by us are
prohibited transactions. While we believe that the Internal Revenue Service
would not prevail in any such dispute, if the IRS successfully argued that a
transfer or disposition of property constituted a prohibited transaction, then
we would be required to pay a 100% penalty tax on any gain allocable to us from
the prohibited transaction.

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WE ARE DEPENDENT ON OUR GENERAL PARTNER'S PERSONNEL

     We depend on the efforts of the executive officers of our general partner.
While we believe that AMB Property Corporation could find suitable replacements
for these key personnel, the loss of their services or the limitation of their
availability could adversely affect our financial condition, results of
operations, cash flow, and ability to make distributions to our unitholders and
payments to our noteholders. AMB Property Corporation does not have employment
agreements with any of our executive officers.

WE MAY BE UNABLE TO MANAGE OUR GROWTH

     Our business has grown rapidly and continues to grow through property
acquisitions and developments. If we fail to effectively manage our growth, then
our financial condition, results of operations, cash flow, and ability to make
distributions to our unitholders and payments to our noteholders could be
adversely affected.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

     None

(b) Reports on Form 8-K:

     - The Registrant filed a Current Report on Form 8-K on April 5, 2001, in
       connection with the formation of joint ventures with the City and County
       of San Francisco Employees' Retirement System and with a subsidiary of
       GIC Real Estate Pte Ltd., the real estate investment subsidiary of the
       Government of Singapore Investment Corporation.

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                                   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.

                                          AMB PROPERTY, L.P.
                                          Registrant

                                          By: AMB Property Corporation,
                                            Its General Partner

Date: August 14, 2001                     By:      /s/ MICHAEL A. COKE
                                            ------------------------------------
                                                      Michael A. Coke
                                                Chief Financial Officer and
                                                  Executive Vice President
                                                (Duly Authorized Officer and
                                                          Principal
                                             Financial and Accounting Officer)

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