##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549




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Form 10-Q



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|           |  |                                                                                                
|---------- |  | -----------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the quarterly period ended June 30,
    2002                                               
|          
|or        
|          
|o          |  | 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)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 94-3285362                              
|(State or Other Jurisdiction of
    Incorporation or Organization) |  | (I.R.S. Employer
    Identification No.)
|                                                                  
|Pier 1, Bay 1, San Francisco,
    California                       |  | 94111                                   
|(Address of Principal Executive
    Offices)                       |  | (Zip Code)                              

(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 þ          No o.



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TABLE OF CONTENTS



|                                                |                                                                    |                                                       |  |  |  |  |  | 
|----------------------------------------------- | ------------------------------------------------------------------ | ----------------------------------------------------- |  |  |  |  |  | 
|PART I                                         
|                                                |                                                                    | CONDENSED CONSOLIDATED BALANCE SHEETS                
|                                                |                                                                    | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS      
|                                                |                                                                    | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS      
|                                                |                                                                    | CONDENSED CONSOLIDATED STATEMENT OF PARTNERS CAPITAL
|                                                | Item 3. Quantitative and Qualitative Disclosures About Market Risk
|PART II                                        
|                                                | Item 1. Legal Proceedings                                         
|                                                | Item 2. Changes in Securities and Use of Proceeds                 
|                                                | Item 3. Defaults Upon Senior Securities                           
|                                                | Item 4. Submission of Matters to a Vote of Security Holders       
|                                                | Item 5. Other Information                                         
|                                                | Item 6. Exhibits and Reports on Form 8-K                          
|SIGNATURES                                     
|Quarterly Report for Period Ended June 30, 2002
|Exhibit 10.2                                   



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##### Table of Contents



AMB PROPERTY, L.P.

INDEX

|                                   |  |                                                                                                               |  |      |    | 
|---------------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                   |  |                                                                                                               |  | Page
|                                   |  |                                                                                                               |  |     
|PART I.  FINANCIAL
    INFORMATION |  |                                                                                                               |  |     
|Item 1.                            |  | Financial Statements (unaudited)                                                                              |  |      |    | 
|                                   |  | Condensed Consolidated Balance Sheets as of June
    30, 2002, and December 31, 2001                          |  |      | 2  | 
|                                   |  | Condensed Consolidated Statements of Operations
    for the three and six months ended June 30, 2002 and 2001 |  |      | 3  | 
|                                   |  | Condensed Consolidated Statements of Cash Flows
    for the six months ended June 30, 2002 and 2001           |  |      | 4  | 
|                                   |  | Condensed Consolidated Statement of
    Partners Capital for the six months ended June 30,
    2002          |  |      | 5  | 
|                                   |  | Notes to Condensed Consolidated Financial
    Statements                                                      |  |      | 6  | 
|Item 2.                            |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                     |  |      | 22 | 
|Item 3.                            |  | Quantitative and Qualitative Disclosures About
    Market Risk                                                |  |      | 40 | 
|PART II.  OTHER
    INFORMATION   
|Item 1.                            |  | Legal Proceedings                                                                                             |  |      | 41 | 
|Item 2.                            |  | Changes in Securities and Use of Proceeds                                                                     |  |      | 41 | 
|Item 3.                            |  | Defaults Upon Senior Securities                                                                               |  |      | 41 | 
|Item 4.                            |  | Submission of Matters to a Vote of Security
    Holders                                                       |  |      | 41 | 
|Item 5.                            |  | Other Information                                                                                             |  |      | 41 | 
|Item 6.                            |  | Exhibits and Reports on Form 8-K                                                                              |  |      | 50 | 

1



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##### Table of Contents






PART I



|        |                     
|------- | --------------------
|Item 1. | Financial Statements

AMB PROPERTY, L.P.






CONDENSED CONSOLIDATED BALANCE
SHEETS


As of June 30, 2002 and December 31,
2001


|                                            |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |           |           | 
|------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------- | ------- | ------------ | --------- |  | ------- | --------- | --------- | 
|                                            |                                                                                                                                                                                                                                                                                                                   | June 30,                                |         | December 31,
|                                            |                                                                                                                                                                                                                                                                                                                   | 2002                                    |         | 2001        
|                                            |                                                                                                                                                                                                                                                                                                                   |                                         |         |             
|                                            |                                                                                                                                                                                                                                                                                                                   |                                        
|                                            |                                                                                                                                                                                                                                                                                                                   | (Unaudited, dollars in                 
|                                            |                                                                                                                                                                                                                                                                                                                   | thousands)                             
|ASSETS                                     
|Investments in real estate:                 |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                            | Land                                                                                                                                                                                                                                                                                                              |                                         | $       | 1,117,410    |           |  | $       | 1,064,422 |          
|                                            | Buildings and improvements                                                                                                                                                                                                                                                                                        |                                         |         | 3,438,408    |           |  |         | 3,285,110 |          
|                                            | Construction in progress                                                                                                                                                                                                                                                                                          |                                         |         | 176,503      |           |  |         | 181,179   |          
|                                            |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                            |                                                                                                                                                                                                                                                                                                                   | Total investments in properties         |         |              | 4,732,321 |  |         |           | 4,530,711 | 
|                                            | Accumulated depreciation and amortization                                                                                                                                                                                                                                                                         |                                         |         | (311,058     | )         |  |         | (265,653  | )        
|                                            |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                            |                                                                                                                                                                                                                                                                                                                   | Net investments in properties           |         |              | 4,421,263 |  |         |           | 4,265,058 | 
|Investment in unconsolidated joint ventures |                                                                                                                                                                                                                                                                                                                   |                                         | 64,083  |              |           |  | 71,097  |          
|Properties held for divestiture, net        |                                                                                                                                                                                                                                                                                                                   |                                         | 133,934 |              |           |  | 157,174 |          
|                                            |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                            |                                                                                                                                                                                                                                                                                                                   | Net investments in real estate          |         |              | 4,619,280 |  |         |           | 4,493,329 | 
|Cash and cash equivalents                   |                                                                                                                                                                                                                                                                                                                   |                                         | 109,153 |              |           |  | 73,071  |          
|Restricted cash                             |                                                                                                                                                                                                                                                                                                                   |                                         | 10,134  |              |           |  | 8,661   |          
|Mortgages receivable                        |                                                                                                                                                                                                                                                                                                                   |                                         | 87,175  |              |           |  | 87,214  |          
|Accounts receivable                         |                                                                                                                                                                                                                                                                                                                   |                                         | 80,366  |              |           |  | 70,794  |          
|Other assets                                |                                                                                                                                                                                                                                                                                                                   |                                         | 31,172  |              |           |  | 27,824  |          
|                                            |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                            |                                                                                                                                                                                                                                                                                                                   | Total assets                            |         | $            | 4,937,280 |  |         | $         | 4,760,893 | 
|                                            |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|LIABILITIES AND PARTNERS
    CAPITAL      
|Debt:                                       |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                            | Secured debt                                                                                                                                                                                                                                                                                                      |                                         | $       | 1,352,218    |           |  | $       | 1,220,164 |          
|                                            | Unsecured senior debt securities                                                                                                                                                                                                                                                                                  |                                         |         | 800,000      |           |  |         | 780,000   |          
|                                            | Alliance Fund II credit facility                                                                                                                                                                                                                                                                                  |                                         |         | 52,000       |           |  |         | 123,500   |          
|                                            | Unsecured credit facility                                                                                                                                                                                                                                                                                         |                                         |         |             |           |  |         | 12,000    |          
|                                            |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                            |                                                                                                                                                                                                                                                                                                                   | Total debt                              |         |              | 2,204,218 |  |         |           | 2,135,664 | 
|Dividends payable                           |                                                                                                                                                                                                                                                                                                                   |                                         | 42,289  |              |           |  | 4,960   |          
|Other liabilities                           |                                                                                                                                                                                                                                                                                                                   |                                         | 120,340 |              |           |  | 133,641 |          
|                                            |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                            |                                                                                                                                                                                                                                                                                                                   | Total liabilities                       |         |              | 2,366,847 |  |         |           | 2,274,265 | 
|Commitments and contingencies               |                                                                                                                                                                                                                                                                                                                   |                                         |        |              |           |  |        |          
|Minority interests                          |                                                                                                                                                                                                                                                                                                                   |                                         | 586,035 |              |           |  | 534,276 |          
|Partners Capital:                          |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                            | General Partner, 84,024,954 and 83,592,418 units,
    respectively and 4,000,000 Series A preferred units with a
    $100,000 liquidation preference                                                                                                                                                              |                                         |         | 1,746,009    |           |  |         | 1,752,342 |          
|                                            | Limited Partners, 4,932,916 and 4,969,027 units,
    respectively, 1,300,000 Series B preferred units with a
    $65,000 liquidation preference and 800,000 Series J
    preferred units with a $40,000 liquidation preference and
    800,000 Series K preferred units with a $40,000 liquidation
    preference |                                         |         | 238,389      |           |  |         | 200,010   |          
|                                            |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                            |                                                                                                                                                                                                                                                                                                                   | Total partners capital                 |         |              | 1,984,398 |  |         |           | 1,952,352 | 
|                                            |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                            |                                                                                                                                                                                                                                                                                                                   | Total liabilities and partners capital |         | $            | 4,937,280 |  |         | $         | 4,760,893 | 
|                                            |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          

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

2



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##### Table of Contents



AMB PROPERTY, L.P.






CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


For the three and six months ended
June 30, 2002 and 2001


|                                                            |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |            |        |         | 
|----------------------------------------------------------- | --------------------------------------------------------------------- | ------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ------ | ------- | - | ---------- | ------ | ------- | - | ---------- | ------ | ------- | - | ---------- | ------ | ------- | 
|                                                            |                                                                       |                                            |                                                                                                                                   |                   
|                                                            |                                                                       | For the Three Months                       |                                                                                                                                   | For the Six Months
|                                                            |                                                                       | Ended June 30,                             |                                                                                                                                   | Ended June 30,    
|                                                            |                                                                       |                                            |                                                                                                                                   |                   
|                                                            |                                                                       | 2002                                       |                                                                                                                                   | 2001               |        | 2002    |   | 2001      
|                                                            |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |           
|                                                            |                                                                       |                                           
|                                                            |                                                                       | (Unaudited, dollars in thousands,         
|                                                            |                                                                       | except per unit amounts)                  
|REVENUES AND OTHER INCOME                                   |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|                                                            | Rental revenues                                                       |                                            | $                                                                                                                                 | 149,741            |        |         | $ | 138,317    |        |         | $ | 300,826    |        |         | $ | 272,845    |       
|                                                            | Equity in earnings of unconsolidated joint
    ventures               |                                            |                                                                                                                                   | 1,638              |        |         |   | 1,255      |        |         |   | 3,121      |        |         |   | 2,729      |       
|                                                            | Investment management income                                          |                                            |                                                                                                                                   | 3,114              |        |         |   | 1,544      |        |         |   | 5,702      |        |         |   | 3,964      |       
|                                                            | Interest and other income                                             |                                            |                                                                                                                                   | 3,330              |        |         |   | 3,692      |        |         |   | 7,312      |        |         |   | 8,831      |       
|                                                            |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|                                                            |                                                                       |                                            | Total revenues and other income                                                                                                   |                    |        | 157,823 |   |            |        | 144,808 |   |            |        | 316,961 |   |            |        | 288,369 | 
|EXPENSES                                                    |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|                                                            | Property operating expenses                                           |                                            |                                                                                                                                   | 18,639             |        |         |   | 16,580     |        |         |   | 36,997     |        |         |   | 32,763     |       
|                                                            | Real estate taxes                                                     |                                            |                                                                                                                                   | 18,204             |        |         |   | 16,697     |        |         |   | 36,557     |        |         |   | 33,049     |       
|                                                            | Interest, including amortization                                      |                                            |                                                                                                                                   | 37,217             |        |         |   | 29,841     |        |         |   | 72,912     |        |         |   | 61,050     |       
|                                                            | Depreciation and amortization                                         |                                            |                                                                                                                                   | 31,972             |        |         |   | 27,140     |        |         |   | 61,464     |        |         |   | 53,812     |       
|                                                            | General and administrative                                            |                                            |                                                                                                                                   | 10,762             |        |         |   | 9,201      |        |         |   | 21,831     |        |         |   | 17,384     |       
|                                                            | Loss on investments in other companies                                |                                            |                                                                                                                                   |                   |        |         |   | 16,103     |        |         |   |           |        |         |   | 20,758     |       
|                                                            |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|                                                            |                                                                       |                                            | Total expenses                                                                                                                    |                    |        | 116,794 |   |            |        | 115,562 |   |            |        | 229,761 |   |            |        | 218,816 | 
|                                                            |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|                                                            |                                                                       |                                            | Income before minority interests, gains from
    disposition of real estate, discontinued operations, and
    extraordinary items |                    |        | 41,029  |   |            |        | 29,246  |   |            |        | 87,200  |   |            |        | 69,553  | 
|                                                            | Minority interests share of income                                   |                                            |                                                                                                                                   | (10,966            | )      |         |   | (12,889    | )      |         |   | (22,409    | )      |         |   | (22,594    | )     
|                                                            | Gains from dispositions of real estate, net of
    minority interests |                                            |                                                                                                                                   | 2,768              |        |         |   | 17,792     |        |         |   | 2,480      |        |         |   | 34,559     |       
|                                                            |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|                                                            |                                                                       |                                            | Net income before discontinued operations and
    extraordinary items                                                             |                    |        | 32,831  |   |            |        | 34,149  |   |            |        | 67,271  |   |            |        | 81,518  | 
|                                                            | Discontinued operations                                               |                                            |                                                                                                                                   | 484                |        |         |   | 207        |        |         |   | 683        |        |         |   | 455        |       
|                                                            | Extraordinary items (early debt extinguishments)                      |                                            |                                                                                                                                   | (52                | )      |         |   | (438       | )      |         |   | (268       | )      |         |   | (438       | )     
|                                                            |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|                                                            |                                                                       |                                            | Net income                                                                                                                        |                    |        | 33,263  |   |            |        | 33,918  |   |            |        | 67,686  |   |            |        | 81,535  | 
|                                                            | Series A preferred stock distributions                                |                                            |                                                                                                                                   | (2,125             | )      |         |   | (2,125     | )      |         |   | (4,250     | )      |         |   | (4,250     | )     
|                                                            | Series B preferred unit distributions                                 |                                            |                                                                                                                                   | (1,401             | )      |         |   | (1,402     | )      |         |   | (2,803     | )      |         |   | (2,804     | )     
|                                                            | Series J preferred unit distributions                                 |                                            |                                                                                                                                   | (795               | )      |         |   |           |        |         |   | (1,713     | )      |         |   |           |       
|                                                            | Series K preferred unit distributions                                 |                                            |                                                                                                                                   | (777               | )      |         |   |           |        |         |   | (777       | )      |         |   |           |       
|                                                            |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|                                                            |                                                                       |                                            | Net income available to common unitholders                                                                                        |                    | $      | 28,165  |   |            | $      | 30,391  |   |            | $      | 58,143  |   |            | $      | 74,481  | 
|                                                            |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|Income available to common unitholders
    attributable to: |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|                                                            | General partner                                                       |                                            | $                                                                                                                                 | 26,725             |        |         | $ | 27,808     |        |         | $ | 54,903     |        |         | $ | 70,123     |       
|                                                            |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|                                                            | Limited partners                                                      |                                            |                                                                                                                                   | 1,440              |        |         |   | 2,583      |        |         |   | 3,240      |        |         |   | 4,358      |       
|                                                            |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|                                                            |                                                                       | Net income available to common unitholders |                                                                                                                                   | $                  | 28,165 |         |   | $          | 30,391 |         |   | $          | 58,143 |         |   | $          | 74,481 |        
|                                                            |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|BASIC INCOME PER COMMON UNIT                                |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|                                                            | Before discontinued operations and extraordinary
    items            |                                            | $                                                                                                                                 | 0.31               |        |         | $ | 0.34       |        |         | $ | 0.65       |        |         | $ | 0.83       |       
|                                                            | Discontinued operations                                               |                                            |                                                                                                                                   | 0.01               |        |         |   |           |        |         |   | 0.01       |        |         |   | 0.01       |       
|                                                            | Extraordinary items                                                   |                                            |                                                                                                                                   |                   |        |         |   | (0.01      | )      |         |   |           |        |         |   | (0.01      | )     
|                                                            |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|                                                            |                                                                       |                                            | Net income available to common stockholders                                                                                       |                    | $      | 0.32    |   |            | $      | 0.33    |   |            | $      | 0.66    |   |            | $      | 0.83    | 
|                                                            |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|DILUTED INCOME PER COMMON UNIT                              |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|                                                            | Before discontinued operations and extraordinary
    items            |                                            | $                                                                                                                                 | 0.30               |        |         | $ | 0.34       |        |         | $ | 0.64       |        |         | $ | 0.82       |       
|                                                            | Discontinued operations                                               |                                            |                                                                                                                                   | 0.01               |        |         |   |           |        |         |   | 0.01       |        |         |   | 0.01       |       
|                                                            | Extraordinary items                                                   |                                            |                                                                                                                                   |                   |        |         |   | (0.01      | )      |         |   |           |        |         |   | (0.01      | )     
|                                                            |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|                                                            |                                                                       |                                            | Net income available to common stockholders                                                                                       |                    | $      | 0.31    |   |            | $      | 0.33    |   |            | $      | 0.65    |   |            | $      | 0.82    | 
|                                                            |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|WEIGHTED AVERAGE COMMON UNITS OUTSTANDING                   |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|                                                            | Basic                                                                 |                                            |                                                                                                                                   | 88,643,124         |        |         |   | 89,691,164 |        |         |   | 88,562,012 |        |         |   | 89,680,557 |       
|                                                            |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           
|                                                            | Diluted                                                               |                                            |                                                                                                                                   | 90,462,332         |        |         |   | 90,608,347 |        |         |   | 90,055,320 |        |         |   | 90,580,540 |       
|                                                            |                                                                       |                                            |                                                                                                                                   |                    |        |         |   |            |        |         |   |            |        |         |   |           

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

3



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##### Table of Contents



AMB PROPERTY, L.P.






CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


For the six months ended June 30, 2002
and 2001


|                                                                                       |                                                                       |                                        |                                           |         |         |          |          |         |        |          |  
|-------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | -------------------------------------- | ----------------------------------------- | ------- | ------- | -------- | -------- | ------- | ------ | -------- | -
|                                                                                       |                                                                       | 2002                                   |                                           | 2001   
|                                                                                       |                                                                       |                                        |                                           |        
|                                                                                       |                                                                       |                                       
|                                                                                       |                                                                       | (Unaudited, dollars in                
|                                                                                       |                                                                       | thousands)                            
|CASH FLOWS FROM OPERATING ACTIVITIES                                                   |                                                                       |                                        |                                           |         |         |          |          |        
|Net income                                                                             |                                                                       | $                                      | 67,686                                    |         |         | $        | 81,535   |        
|Adjustments to reconcile net income to net cash
    provided by Operating activities:  |                                                                       |                                        |                                           |         |         |          |          |        
|                                                                                       | Depreciation and amortization                                         |                                        |                                           | 61,647  |         |          |          | 54,177  |       
|                                                                                       | Loss on investments in other companies                                |                                        |                                           |        |         |          |          | 20,758  |       
|                                                                                       | Straight-line rents                                                   |                                        |                                           | (6,747  | )       |          |          | (3,466  | )     
|                                                                                       | Amortization of debt premiums and financing
    costs, net            |                                        |                                           | (624    | )       |          |          | (1,033  | )     
|                                                                                       | Amortization of stock-based compensation                              |                                        |                                           | 1,962   |         |          |          | 1,266   |       
|                                                                                       | Minority interests                                                    |                                        |                                           | 22,469  |         |          |          | 22,809  |       
|                                                                                       | Gains from dispositions of real estate, net of
    minority interests |                                        |                                           | (2,480  | )       |          |          | (34,559 | )     
|                                                                                       | Non-cash portion of extraordinary items                               |                                        |                                           | (330    | )       |          |          | 438     |       
|                                                                                       | Equity in earnings of unconsolidated joint
    ventures               |                                        |                                           | (3,121  | )       |          |          | (2,686  | )     
|                                                                                       | Changes in assets and liabilities:                                    |                                        |                                           |         |         |          |          |         |       
|                                                                                       |                                                                       | Accounts receivable and other assets   |                                           |         | (3,089  | )        |          |         | 1,768  |         
|                                                                                       |                                                                       | Accounts payable and other liabilities |                                           |         | (13,301 | )        |          |         | 24,834 |         
|                                                                                       |                                                                       |                                        |                                           |         |         |          |          |        
|                                                                                       |                                                                       |                                        | Net cash provided by operating activities |         |         | 124,072  |          |         |        | 165,841  |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                   |                                                                       |                                        |                                           |         |         |          |          |        
|Change in restricted cash                                                              |                                                                       |                                        | (1,473                                    | )       |         |          | (19,119  | )      
|Cash paid for property acquisitions                                                    |                                                                       |                                        | (136,477                                  | )       |         |          | (159,574 | )      
|Additions to buildings, development costs, and
    other first generation improvements |                                                                       |                                        | (60,646                                   | )       |         |          | (119,269 | )      
|Additions to second generation building
    improvements and lease costs               |                                                                       |                                        | (27,230                                   | )       |         |          | (16,874  | )      
|Additions to interests in unconsolidated joint
    ventures                            |                                                                       |                                        |                                          |         |         |          | (3,222   | )      
|Contributions to unconsolidated joint ventures                                         |                                                                       |                                        | 10,135                                    |         |         |          | 2,518    |        
|Net proceeds from divestiture of real estate                                           |                                                                       |                                        | 50,951                                    |         |         |          | 97,702   |        
|                                                                                       |                                                                       |                                        |                                           |         |         |          |          |        
|                                                                                       |                                                                       |                                        | Net cash used in investing activities     |         |         | (164,740 | )        |         |        | (217,838 | )
|CASH FLOWS FROM FINANCING ACTIVITIES                                                   |                                                                       |                                        |                                           |         |         |          |          |        
|Issuance of common units                                                               |                                                                       |                                        | 4,915                                     |         |         |          | 1,138    |        
|Borrowings on secured debt                                                             |                                                                       |                                        | 166,976                                   |         |         |          | 138,785  |        
|Payments on secured debt                                                               |                                                                       |                                        | (50,455                                   | )       |         |          | (19,749  | )      
|Borrowings on unsecured credit facility                                                |                                                                       |                                        |                                          |         |         |          | 198,000  |        
|Payments on unsecured credit facility                                                  |                                                                       |                                        | (12,000                                   | )       |         |          | (414,000 | )      
|Borrowings on Alliance Fund II credit facility                                         |                                                                       |                                        | 23,500                                    |         |         |          | 98,100   |        
|Payments on Alliance Fund II credit facility                                           |                                                                       |                                        | (95,000                                   | )       |         |          |         |        
|Payment of financing fees                                                              |                                                                       |                                        | (2,191                                    | )       |         |          | (1,220   | )      
|Net proceeds from issuances of senior debt
    securities                              |                                                                       |                                        | 19,883                                    |         |         |          | 74,563   |        
|Net proceeds from issuances of preferred units
    (minority interests)                |                                                                       |                                        | 38,939                                    |         |         |          | 24,856   |        
|Contributions from co-investment partners
    (minority interests)                     |                                                                       |                                        | 58,350                                    |         |         |          | 131,950  |        
|Dividends paid to general partner and preferred
    unitholders                        |                                                                       |                                        | (44,009                                   | )       |         |          | (40,621  | )      
|Distributions to minority interests, including
    preferred units                     |                                                                       |                                        | (32,158                                   | )       |         |          | (25,062  | )      
|                                                                                       |                                                                       |                                        |                                           |         |         |          |          |        
|                                                                                       |                                                                       |                                        | Net cash provided by financing activities |         |         | 76,750   |          |         |        | 166,740  |  
|                                                                                       |                                                                       |                                        |                                           |         |         |          |          |        
|Net increase in cash and cash equivalents                                              |                                                                       |                                        | 36,082                                    |         |         |          | 114,743  |        
|Cash and cash equivalents at beginning of period                                       |                                                                       |                                        | 73,071                                    |         |         |          | 20,358   |        
|                                                                                       |                                                                       |                                        |                                           |         |         |          |          |        
|Cash and cash equivalents at end of period                                             |                                                                       | $                                      | 109,153                                   |         |         | $        | 135,101  |        
|                                                                                       |                                                                       |                                        |                                           |         |         |          |          |        
|Supplemental Disclosures                                                               |                                                                       |                                        |                                           |         |         |          |          |        
|Cash paid for interest, net of amounts capitalized                                     |                                                                       | $                                      | 70,058                                    |         |         | $        | 66,282   |        
|Acquisition of properties                                                              |                                                                       | $                                      | 154,259                                   |         |         | $        | 159,574  |        
|Non-cash transactions:                                                                 |                                                                       |                                        |                                           |         |         |          |          |        
|                                                                                       | Assumption of secured debt                                            |                                        |                                           | (17,782 | )       |          |          |        |       
|                                                                                       |                                                                       |                                        |                                           |         |         |          |          |        
|                                                                                       |                                                                       |                                        | Net cash paid                             |         | $       | 136,477  |          |         | $      | 159,574  |  
|                                                                                       |                                                                       |                                        |                                           |         |         |          |          |        

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

4



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##### Table of Contents



AMB PROPERTY, L.P.






CONDENSED CONSOLIDATED STATEMENT OF
PARTNERS CAPITAL


For the six months ended June 30,
2002


|                                                                                                  |                                 |                                   |           |                  |  |                 |        |              |  |       |            |        |  |       |           |        |   |       |           |   |  |   |         |       |  |  |           |   |  |   |        |       |  |   |           |   |        | 
|------------------------------------------------------------------------------------------------- | ------------------------------- | --------------------------------- | --------- | ---------------- |  | --------------- | ------ | ------------ |  | ----- | ---------- | ------ |  | ----- | --------- | ------ | - | ----- | --------- | - |  | - | ------- | ----- |  |  | --------- | - |  | - | ------ | ----- |  | - | --------- | - | ------ | 
|                                                                                                  |                                 |                                   |           |                  |  |                
|                                                                                                  |                                 | General Partner                   |           | Limited Partners |  |                
|                                                                                                  |                                 |                                   |           |                  |  |                
|                                                                                                  |                                 |                                   |           |                  |  |                 |        |              |  |      
|                                                                                                  |                                 | Preferred Units                   |           | Common Units     |  | Preferred Units |        | Common Units |  |      
|                                                                                                  |                                 |                                   |           |                  |  |                 |        |              |  |      
|                                                                                                  |                                 | Units                             |           | Amount           |  | Units           |        | Amount       |  | Units |            | Amount |  | Units |           | Amount |   | Total
|                                                                                                  |                                 |                                   |           |                  |  |                 |        |              |  |       |            |        |  |       |           |        |   |      
|                                                                                                  |                                 |                                  
|                                                                                                  |                                 | (Unaudited, dollars in thousands)
|Balance at December 31, 2001                                                                      |                                 |                                   | 4,000,000 |                  |  | $               | 96,100 |              |  |       | 83,592,418 |        |  | $     | 1,656,242 |        |   |       | 2,100,000 |   |  | $ | 101,225 |       |  |  | 4,969,027 |   |  | $ | 98,785 |       |  | $ | 1,952,352 |  
|Contributions                                                                                     |                                 |                                   |          |                  |  |                 |       |              |  |       |           |        |  |       |          |        |   |       | 800,000   |   |  |   | 38,939  |       |  |  |          |   |  |   |       |       |  |   | 38,939    |  
|Comprehensive income:                                                                             |                                 |                                   |           |                  |  |                 |        |              |  |       |            |        |  |       |           |        |   |       |           |   |  |   |         |       |  |  |           |   |  |   |        |       |  |   |           |  
|                                                                                                  | Net Income                      |                                   |           |                 |  |                 |        | 4,250        |  |       |            |       |  |       |           | 54,903 |   |       |           |  |  |   |         | 5,293 |  |  |           |  |  |   |        | 3,240 |  |   |           |   |       
|                                                                                                  | Currency translation adjustment |                                   |           |                 |  |                 |        |             |  |       |            |       |  |       |           | (31    | ) |       |           |  |  |   |         |      |  |  |           |  |  |   |        |      |  |   |           |   |       
|                                                                                                  |                                 | Total comprehensive income        |           |                  |  |                 |        |              |  |       |            |        |  |       |           |        |   |       |           |   |  |   |         |       |  |  |           |   |  |   |        |       |  |   |           |   | 67,655 | 
|Issuance of common limited partnership units in
    connection with issuance of restricted stock  |                                 |                                   |          |                  |  |                 |       |              |  |       | 168,901    |        |  |       | 4,708     |        |   |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | 4,708     |  
|Issuance of stock options                                                                         |                                 |                                   |          |                  |  |                 |       |              |  |       |           |        |  |       | 3,071     |        |   |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | 3,071     |  
|Issuance of common limited partnership units in
    connection with the exercise of stock options |                                 |                                   |          |                  |  |                 |       |              |  |       | 227,524    |        |  |       | 4,915     |        |   |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | 4,915     |  
|Conversion of common limited partnership units to
    common stock                                |                                 |                                   |          |                  |  |                 |       |              |  |       | 36,111     |        |  |       | 926       |        |   |       |          |   |  |   |        |       |  |  | (36,111   | ) |  |   | (702   | )     |  |   | 224       |  
|Deferred compensation                                                                             |                                 |                                   |          |                  |  |                 |       |              |  |       |           |        |  |       | (7,779    | )      |   |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | (7,779    | )
|Deferred compensation amortization                                                                |                                 |                                   |          |                  |  |                 |       |              |  |       |           |        |  |       | 1,962     |        |   |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | 1,962     |  
|Reallocation of interests                                                                         |                                 |                                   |          |                  |  |                 |       |              |  |       |           |        |  |       |          |        |   |       |          |   |  |   | 947     |       |  |  |          |   |  |   |       |       |  |   | 947       |  
|Distributions                                                                                     |                                 |                                   |          |                  |  |                 | (4,250 | )            |  |       |           |        |  |       | (69,008   | )      |   |       |          |   |  |   | (5,293  | )     |  |  |          |   |  |   | (4,045 | )     |  |   | (82,596   | )
|                                                                                                  |                                 |                                   |           |                  |  |                 |        |              |  |       |            |        |  |       |           |        |   |       |           |   |  |   |         |       |  |  |           |   |  |   |        |       |  |   |           |  
|Balance at June 30, 2002                                                                          |                                 |                                   | 4,000,000 |                  |  | $               | 96,100 |              |  |       | 84,024,954 |        |  | $     | 1,649,909 |        |   |       | 2,900,000 |   |  | $ | 141,111 |       |  |  | 4,932,916 |   |  | $ | 97,278 |       |  | $ | 1,984,398 |  
|                                                                                                  |                                 |                                   |           |                  |  |                 |        |              |  |       |            |        |  |       |           |        |   |       |           |   |  |   |         |       |  |  |           |   |  |   |        |       |  |   |           |  

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

5



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##### Table of Contents



AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

June 30, 2002


(Unaudited)


1.     Organization
and Formation of the Operating Partnership

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
(REIT) under Sections 856 through 860 of the
Internal Revenue Code of 1986 (the Code), 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 industrial buildings primarily
within key distribution markets throughout North America. Unless
the context otherwise requires, the Company means
AMB Property Corporation, the Operating Partnership, and their
other controlled subsidiaries and the Operating
Partnership means AMB Property, L.P. and its controlled
subsidiaries.

As of June 30, 2002, the Company owned an
approximate 94.4% general partner interest in the Operating
Partnership, excluding preferred units. The remaining 5.6%
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 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, 2002, the Operating Partnership had investments in
five co-investment joint ventures, which are consolidated for
financial reporting purposes.

AMB Capital Partners, LLC, a Delaware limited
liability company (AMB Capital Partners), the
successor-in-interest to AMB Investment Management, Inc.
(AMB Investment Management), provides real estate
investment services to clients on a fee basis. Headlands Realty
Corporation, a Maryland corporation, conducts a variety of
businesses that include incremental income programs, such as the
Operating Partnerships CustomerAssist Program and
development projects available for sale to third parties. On
December 31, 2001, AMB Investment Management was
reorganized through a series of related transactions into AMB
Capital Partners. The Operating Partnership is the managing
member of AMB Capital Partners. 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 acquiring 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 reflected its
investment using the equity method. The impact of consolidating
AMB Investment Management and Headlands Realty Corporation was
not material.

As of June 30, 2002, the Operating
Partnership owned 933 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 distribution properties in supply-constrained, in
fill submarkets located near key international passenger and
cargo airports, highway systems, and sea ports in major
metropolitan areas. As of June 30, 2002, the industrial
buildings, principally warehouse distribution buildings,
encompassed approximately 84.2 million rentable square feet
and were 94.4% leased to over 2,900 customers. As of
June 30, 2002,

6



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the retail centers, principally grocer-anchored
community shopping centers, encompassed approximately
1.1 million rentable square feet and were 87.8% leased to
more than 120 customers.

As of June 30, 2002, through AMB Capital
Partners, the Operating Partnership also managed industrial
buildings and retail centers, totaling approximately
2.3 million rentable square feet on behalf of various
clients. 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 condensed 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 condensed 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 for the three and six
months ended June 30, 2002 and 2001, 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, 2001.

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect 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.

The consolidation of AMB Investment Management,
Inc. (predecessor-in-interest to AMB Capital Partners) and
Headlands Realty Corporation on May 31, 2001, contributed
to the increase in general and administrative expenses. Prior to
May 31, 2001,the Operating Partnership did not include
expenses incurred by two unconsolidated preferred stock
subsidiaries, Headlands Realty Corporation and AMB Capital
Partners, in general and administrative expenses, they were
netted with investment management income. General and
administrative expenses for the quarter and six months ended
June 30, 2001, would have been $10.3 million and
$20.9 million, respectively, had the subsidiaries been
consolidated beginning January 1, 2001.

Reclassifications.Certain items in the consolidated
financial statements for prior periods have been reclassified to
conform with current classifications.

Investments in other companies.Investments in other companies were
accounted for on a cost basis and realized gains and losses were
included in current earnings. During the three and six months
ended June 30, 2001, the Operating Partnership recognized a
loss on its investments in other companies, including Webvan
Group, Inc., totaling $16.1 million and $20.8 million,
respectively. The Operating Partnership had previously
recognized gains and losses on its investment in Webvan Group,
Inc. as a component of other comprehensive income. No gains or
losses have been recognized in 2002.

Stock-based compensation expense.In the second quarter of 2002 and
effective beginning in the first quarter of 2002, the Operating
Partnership adopted the expense recognition provisions of
Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based
Compensation. The Operating Partnership values stock options
issued by the Company, its general partner, using the
Black-Scholes option-pricing model and recognizes this value as
an expense over the period in which the options vest. Under this
standard, recognition of expense for stock options is applied to
all options granted after the beginning of the

7



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

year of adoption. Prior to the second quarter of
2002, the Operating Partnership followed the intrinsic method
set forth in APB Opinion 25, Accounting for Stock Issued
to Employees. In the first quarter of 2002, the Company
awarded approximately 1.8 million stock options to
employees. In accordance with SFAS No. 123, the Operating
Partnership will recognize the associated expense over the three
to five-year vesting periods. Related stock-based compensation
expense was $0.2 million and $0.4 million for the
three and six month periods ended June 30, 2002,
respectively. The expense is included in general and
administrative expenses in the accompanying Condensed
Consolidated Statements of Operations. The Operating Partnership
revised results for the three months ended March 31, 2002,
to include $0.2 million of stock-based compensation
expense. The adoption of SFAS No. 123 is prospective and
the 2002 expense relates only to stock options granted in 2002.
If the Operating Partnership had adopted retroactively, then the
related stock-based compensation expense would have been
$0.8 million and $1.6 million for the three and
six-month periods ended June 30, 2002, respectively.

Discontinued operations.In August 2001, the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standard No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS
No. 144 retains SFAS No. 121s, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of,fundamental provisions for the:
(1) recognition and measurement of impairment of long-lived
assets to be held and used; and (2) measurement of
long-lived assets to be disposed of by sale. The Operating
Partnership reported discontinued operations separately as
prescribed under the provisions of SFAS No. 144, including
the reclassification of prior period operating results.

Financial Instruments.In June 2002, the Operating
Partnership initiated a new industrial development project
valued at $30.8 million aggregating approximately
0.8 million square feet in Mexico. For its lease
denominated in Mexican pesos, the Operating Partnership uses
derivative financial instruments to manage foreign currency
exchange rate risk. The derivatives are cash flow hedges of the
lease payments to be received between December 2002 and November
2003. The Operating Partnership adopted Statement of Financial
Accounting Standard No. 133, Accounting for Derivative
Instruments and for Hedging Activities, as amended, on
January 1, 2001. SFAS No. 133 provides comprehensive
guidelines for the recognition and measurement of derivatives
and hedging activities and, specifically, requires all
derivatives to be recorded on the balance sheet at fair value as
an asset or liability, with an offset to accumulated other
comprehensive income or income. The Operating Partnerships
only derivative financial instruments in effect at June 30,
2002, were a combination of foreign currency option contracts.
These derivative instruments were marked to market through
accumulated other comprehensive income because they qualified
for hedge accounting treatment. In assessing the fair value of
its financial instruments, the Operating Partnership uses a
variety of methods and assumptions that are based on market
conditions and risks existing at each balance sheet date. The
Operating Partnership uses quoted market prices or quotes from
brokers or dealers for the same or similar instruments. These
values represent a general approximation of possible value and
may never actually be realized.

New Accounting Pronouncements.In April and June 2002, the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standards Nos. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections, and 146,
Accounting for Costs Associated with Exit or Disposal
Activities, respectively. FASB No. 145, restricts the
classification of debt extinguishments as extraordinary and FASB
No. 146 addresses financial accounting and reporting for
exit and disposal costs. The Operating Partnership does not
believe that either FASB Statement No. 145 or No. 146
will have a material impact on its financial position or results
of operations. FASB Statement No. 145 is effective for
transactions occurring after May 15, 2002, and FASB
Statement No. 146 is effective for exit or disposal
activities that are initiated after December 15, 2002.

8



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

3.     Real Estate
Acquisition and Development Activity

During the three months ended June 30, 2002,
the Operating Partnership invested $121.9 million in
17 industrial buildings aggregating approximately
2.0 million square feet, which included the investment of
$80.0 million in 16 industrial buildings aggregating
approximately 1.7 million square feet through two of the
Operating Partnerships co-investment joint ventures.
During the six months ended June 30, 2002, the Operating
Partnership invested $156.9 million in 25 industrial
buildings aggregating approximately 2.7 million square
feet, which included $115.0 million in 24 industrial
buildings aggregating 2.4 million square feet through two
of the Operating Partnerships co-investment joint ventures.

During the three months ended June 30, 2002,
the Operating Partnership completed industrial developments
valued at $15.8 million, aggregating approximately
0.3 million square feet. The Operating Partnership also
initiated a new industrial development project valued at
$30.8 million aggregating approximately 0.8 million
square feet in Mexico. During the six months ended June 30,
2002, the Operating Partnership completed industrial
developments valued at $27.2 million, aggregating
approximately 0.5 million square feet. The Operating
Partnership also initiated new industrial development projects
valued at $36.8 million aggregating approximately 0.9
million square feet.

During the three months ended June 30, 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 joint ventures. During the six
months ended June 30, 2001, the Operating Partnership
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 joint
ventures.

During the three months ended June 30, 2002,
the Operating Partnership also sold $76.9 million in
operating properties, consisting of 15 industrial buildings
aggregating approximately 1.9 million square feet, to one
of its co-investment joint ventures. The Operating Partnership
recognized a gain of $3.3 million on the sale, representing
the portion of the sold properties acquired by the third-party
co-investor.

During the three months ended June 30, 2001,
the Operating Partnership also contributed $111.9 million
in operating properties, consisting of 17 industrial
buildings aggregating approximately 1.9 million square
feet, to two of its co-investment joint ventures. During the six
months ended June 30, 2001, the Operating Partnership
contributed $539.2 million in operating properties,
consisting of 111 industrial buildings aggregating approximately
10.8 million square feet, to three of its co-investment
joint ventures. The Operating Partnership recognized a gain of
$15.8 million on the contributions, representing the
portion of the contributed properties acquired by the
third-party co-investors.

As of June 30, 2002, the Operating
Partnership had in its development pipeline: (1) 11
industrial projects, which will total approximately 3.5 million
square feet and have an aggregate estimated investment of $163.6
million upon completion and (2) two development projects
available for sale, which will total approximately
0.6 million square feet and have an aggregate estimated
investment of $51.6 million upon completion. As of
June 30, 2002, the Operating Partnership and its
Development Alliance Partners have funded an aggregate of
$140.9 million and will need to fund an estimated
additional $74.3 million in order to complete current and
planned projects. The Operating Partnerships development
pipeline includes projects to be completed through November 2003.

4.     Property
Divestitures and Properties Held for Divestiture

Property Divestitures.During the three months ended
June 30, 2002, the Operating Partnership divested itself of
one industrial building, aggregating approximately
0.5 million square feet, for an aggregate

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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

price of $12.1 million, with a resulting net
loss of $0.4 million. The building disposed was classified
as held for sale as of December 31, 2001. During the six
months ended June 30, 2002, the Operating Partnership
divested itself of two industrial buildings and one retail
building, aggregating approximately 0.8 million square
feet, for an aggregate price of $50.6 million, with a
resulting net loss of $0.7 million. The buildings disposed
were classified as held for sale as of December 31, 2001.

Discontinued operations.In August 2001, the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standard No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS
No. 144 retains SFAS No. 121s, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of,fundamental provisions for the:
(1) recognition and measurement of impairment of long-lived
assets to be held and used; and (2) measurement of
long-lived assets to be disposed of by sale. The Operating
Partnership reported discontinued operations separately as
prescribed under the provisions of SFAS No. 144.

Properties Held for Divestiture under the
provisions of SFAS No. 121.As of
June 30, 2002, the Operating Partnership had decided to
divest itself of five retail centers with a net book value of
$97.3 million. The retail centers do not meet the Operating
Partnerships strategic objectives. The divestitures of the
properties are subject to negotiation of acceptable terms and
other customary conditions. Properties held for divestiture are
stated at the lower of cost or estimated fair value less costs
to sell. The following summarizes the condensed results of
operations of the properties held for divestiture under SFAS
No. 121 at June 30, 2002 (dollars in thousands):

|                                                              |            |                      |        |                    |  |      |        |      |  |   |        |       |  |   |        |       | 
|------------------------------------------------------------- | ---------- | -------------------- | ------ | ------------------ |  | ---- | ------ | ---- |  | - | ------ | ----- |  | - | ------ | ----- | 
|                                                              |            |                      |        |                   
|                                                              |            | For the Three Months |        | For the Six Months
|                                                              |            | Ended June 30,       |        | Ended June 30,    
|                                                              |            |                      |        |                   
|                                                              |            | 2002                 |        | 2001               |  | 2002 |        | 2001
|                                                              |            |                      |        |                    |  |      |        |     
|Rental revenues                                               |            | $                    | 2,557  |                    |  | $    | 2,972  |      |  | $ | 5,874  |       |  | $ | 5,944  |      
|Property operating expenses                                   |            |                      | (1,173 | )                  |  |      | (1,323 | )    |  |   | (2,362 | )     |  |   | (2,359 | )    
|Depreciation and interest expenses and minority
    interests |            |                      | (339   | )                  |  |      | (1,186 | )    |  |   | (1,119 | )     |  |   | (2,347 | )    
|                                                              |            |                      |        |                    |  |      |        |      |  |   |        |       |  |   |        |      
|                                                              | Net income |                      | $      | 1,045              |  |      | $      | 463  |  |   | $      | 2,393 |  |   | $      | 1,238 | 
|                                                              |            |                      |        |                    |  |      |        |      |  |   |        |       |  |   |        |      

Properties Held for Divestiture under the
provisions of SFAS No. 144.As of
June 30, 2002, the Operating Partnership had decided to
divest itself of four industrial properties and four development
properties with a net book value of $36.6 million. The
properties are not in the Operating Partnerships core
markets or do not meet its strategic objectives. The
divestitures of the properties are subject to negotiation of
acceptable terms and other customary conditions. Properties held
for divestiture are stated at the lower of cost or estimated
fair value less costs to sell. The following summarizes the
condensed results of operations of the properties held for
divestiture under SFAS No. 144 at June 30, 2002
(dollars in thousands):

|                                                              |            |                      |       |                    |  |      |       |      |  |   |       |     |  |   |        |     | 
|------------------------------------------------------------- | ---------- | -------------------- | ----- | ------------------ |  | ---- | ----- | ---- |  | - | ----- | --- |  | - | ------ | --- | 
|                                                              |            |                      |       |                   
|                                                              |            | For the Three Months |       | For the Six Months
|                                                              |            | Ended June 30,       |       | Ended June 30,    
|                                                              |            |                      |       |                   
|                                                              |            | 2002                 |       | 2001               |  | 2002 |       | 2001
|                                                              |            |                      |       |                    |  |      |       |     
|Rental revenues                                               |            | $                    | 1,136 |                    |  | $    | 1,201 |      |  | $ | 2,261 |     |  | $ | 2,444  |    
|Straight-line rents                                           |            |                      | (59   | )                  |  |      | 17    |      |  |   | (28   | )   |  |   | 47     |    
|Property operating expenses                                   |            |                      | (330  | )                  |  |      | (363  | )    |  |   | (688  | )   |  |   | (748   | )  
|Depreciation and interest expenses and minority
    interests |            |                      | (263  | )                  |  |      | (648  | )    |  |   | (862  | )   |  |   | (1,288 | )  
|                                                              |            |                      |       |                    |  |      |       |      |  |   |       |     |  |   |        |    
|                                                              | Net income |                      | $     | 484                |  |      | $     | 207  |  |   | $     | 683 |  |   | $      | 455 | 
|                                                              |            |                      |       |                    |  |      |       |      |  |   |       |     |  |   |        |    

10



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of June 30, 2002, and December 31,
2001, assets and liabilities of properties held for divestiture
under the provisions of SFAS No. 144 consisted of the
following (dollars in thousands):

|                         |  |          |       |              |  |   |        | 
|------------------------ |  | -------- | ----- | ------------ |  | - | ------ | 
|                         |  | June 30, |       | December 31,
|                         |  | 2002     |       | 2001        
|                         |  |          |       |             
|Accounts receivable, net |  | $        | 138   |              |  | $ | 254    | 
|Other assets             |  | $        | 440   |              |  | $ | 414    | 
|Secured debt             |  | $        | 9,987 |              |  | $ | 17,552 | 
|Other liabilities        |  | $        | 187   |              |  | $ | 377    | 

5.     Mortgages
Receivable

In September 2000, the Operating Partnership sold
a retail center located in Los Angeles, California. As of
June 30, 2002, the Operating Partnership carried a 9.5%
mortgage note secured by the retail center in the principal
amount of $74.0 million, due September 30, 2002. The
Operating Partnership received full repayment of this mortgage
on July 3, 2002.

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,
2002, the outstanding balance on the note was $13.2 million.

6.     Debt

As of June 30, 2002, and December 31,
2001, debt consisted of the following (dollars in thousands):

|                                                                                                                                                                                    |                       |                         |         |              |           |   |         |           |           | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ----------------------- | ------- | ------------ | --------- | - | ------- | --------- | --------- | 
|                                                                                                                                                                                    |                       | June 30,                |         | December 31,
|                                                                                                                                                                                    |                       | 2002                    |         | 2001        
|                                                                                                                                                                                    |                       |                         |         |             
|Operating Partnership secured debt, varying
    interest rates from 3.7% to 10.4%, due October 2002 to April
    2014 (weighted average interest rate of 8.0% at June 30,
    2002) |                       | $                       | 414,046 |              |           | $ | 453,954 |          
|Joint venture secured debt, varying interest
    rates from 3.4% to 10.4%, due September 2002 to June 2023
    (weighted average interest rate of 7.0% at June 30, 2002)            |                       |                         | 933,585 |              |           |   | 759,374 |          
|Unsecured senior debt securities, varying
    interest rates from 5.9% to 8.0%, (weighted average interest
    rate of 7.2%), due June 2005 to June 2018                            |                       |                         | 800,000 |              |           |   | 780,000 |          
|Unsecured credit facility, variable interest at
    LIBOR plus 75 basis points, due May 2003                                                                                        |                       |                         |        |              |           |   | 12,000  |          
|Alliance Fund II credit facility, variable
    interest at LIBOR plus 87.5 basis points (weighted average
    interest rate of 2.7% at June 30, 2002), due August 2003              |                       |                         | 52,000  |              |           |   | 123,500 |          
|                                                                                                                                                                                    |                       |                         |         |              |           |   |         |          
|                                                                                                                                                                                    | Total before premiums |                         |         | 2,199,631    |           |   |         | 2,128,828 |          
|                                                                                                                                                                                    | Unamortized premiums  |                         |         | 4,587        |           |   |         | 6,836     |          
|                                                                                                                                                                                    |                       |                         |         |              |           |   |         |          
|                                                                                                                                                                                    |                       | Total consolidated debt |         | $            | 2,204,218 |   |         | $         | 2,135,664 | 
|                                                                                                                                                                                    |                       |                         |         |              |           |   |         |          

Secured debt generally requires monthly principal
and interest payments. The secured debt is secured by deeds of
trust on certain properties and is generally non-recourse. As of
June 30, 2002, and December 31, 2001, the total gross
investment book value of those properties securing the debt was
$2.6 billion and $2.3 billion, respectively, including
$1.4 billion and $1.2 billion, respectively, in
consolidated joint ventures. All of the secured debt bears
interest at fixed rates, except for seven loans with an
aggregate principal amount of $72.6 million as of
June 30, 2002, which bear interest at variable rates
(weighted average interest rate of 3.5%

11



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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

as of June 30, 2002). The secured debt has
various financial and non-financial covenants. Management
believes that the Operating Partnership was in material
compliance with these covenants as of June 30, 2002. As of
June 30, 2002, the Operating Partnership had 23
non-recourse secured loans, which are cross-collateralized by 59
properties, totaling $676.5 million (not including
unamortized debt premiums).

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 material compliance with these
covenants at June 30, 2002.

In May 2002, the Operating Partnership commenced
a medium-term note program for the issuance of up to
$400.0 million in principal amount of medium-term notes,
which will be guaranteed by the Company. As of June 30,
2002, the Operating Partnership had issued no medium-term notes
under this program.

In August 2000, the Operating Partnership
commenced a medium-term note program for the issuance of up to
$400.0 million in principal amount of medium-term notes,
which are guaranteed by the Company. On January 14, 2002,
the Operating Partnership completed this program when it issued
and sold the remaining $20.0 million of the notes to Lehman
Brothers, Inc., as principal. The Company has guaranteed the
notes, which mature on January 17, 2007, and bear interest
at 5.90% per annum. The Operating Partnership used the net
proceeds of $19.9 million for general corporate purposes,
to partially repay indebtedness, and to acquire and develop
additional properties.

In May 2000, the Operating Partnership entered
into a $500.0 million unsecured revolving credit agreement.
The Company guarantees the Operating Partnerships
obligations under the credit facility. Borrowings under the
credit facility currently bear interest at LIBOR plus 75 basis
points, which is based on the Operating Partnerships
credit rating. The credit facility matures in May 2003, has a
one-year extension option, and is subject to a 15 basis
point annual facility fee based on the Operating
Partnerships credit rating. The credit facility has
various financial and non-financial covenants. Management
believes that the Operating Partnership was in material
compliance with these covenants at June 30, 2002. The
Operating Partnership has the ability to increase available
borrowings 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,
generally the value of the Operating Partnerships
unencumbered properties. As of June 30, 2002, there was no
outstanding balance on the credit facility and the amount
available under the credit facility was $500.0 million
(excluding the additional $200.0 million of potential
additional capacity).

In July 2001, AMB Institutional Alliance
Fund II, L.P. (Alliance Fund II) obtained a
$150.0 million credit facility secured by the unfunded
capital commitments of the investors in AMB Institutional
Alliance REIT II, Inc. (Alliance REIT II)
and the Alliance Fund II. Borrowings currently bear
interest at LIBOR plus 87.5 basis points. As of June 30,
2002, the outstanding balance was $52.0 million and the
remaining amount available was $56.8 million, net of
outstanding letters of credit and capital contributions from
third-party investors. The credit facility has various financial
and non-financial covenants. Management believes that the
Alliance Fund II and the Alliance REIT II were in
material compliance with these covenants at June 30, 2002.

During the three months ended June 30, 2002,
the Operating Partnership retired $11.6 million of secured
debt. The Operating Partnership recognized a net extraordinary
loss of $0.1 million related to the early debt retirement.
During the six months ended June 30, 2002, the Operating
Partnership retired $40.4 million of secured debt and
recognized a net extraordinary loss of $0.3 million related
to the early debt retirement.

12



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of June 30, 2002, the scheduled
maturities of the Operating Partnerships total debt,
excluding unamortized debt premiums, were as follows (dollars in
thousands):

|           |  |         |         |         |  |            |         |            |  |       |         |  |  |   |        |  |  |   |           | 
|---------- |  | ------- | ------- | ------- |  | ---------- | ------- | ---------- |  | ----- | ------- |  |  | - | ------ |  |  | - | --------- | 
|           |  |         |         |         |  | Unsecured  |         |            |  |      
|           |  |         |         | Joint   |  | Senior     |         |            |  |      
|           |  | Secured |         | Venture |  | Debt       |         | Credit     |  |      
|           |  | Debt    |         | Debt    |  | Securities |         | Facilities |  | Total
|           |  |         |         |         |  |            |         |            |  |      
|2002.      |  | $       | 14,845  |         |  | $          | 28,403  |            |  | $     |        |  |  | $ |       |  |  | $ | 43,248    | 
|2003       |  |         | 75,951  |         |  |            | 41,630  |            |  |       |        |  |  |   | 52,000 |  |  |   | 169,581   | 
|2004       |  |         | 72,210  |         |  |            | 56,559  |            |  |       |        |  |  |   |       |  |  |   | 128,769   | 
|2005       |  |         | 46,020  |         |  |            | 58,831  |            |  |       | 250,000 |  |  |   |       |  |  |   | 354,851   | 
|2006       |  |         | 85,619  |         |  |            | 79,329  |            |  |       | 25,000  |  |  |   |       |  |  |   | 189,948   | 
|2007       |  |         | 24,721  |         |  |            | 42,474  |            |  |       | 75,000  |  |  |   |       |  |  |   | 142,195   | 
|2008       |  |         | 33,373  |         |  |            | 153,903 |            |  |       | 175,000 |  |  |   |       |  |  |   | 362,276   | 
|2009       |  |         | 4,911   |         |  |            | 45,802  |            |  |       |        |  |  |   |       |  |  |   | 50,713    | 
|2010       |  |         | 51,778  |         |  |            | 106,751 |            |  |       | 75,000  |  |  |   |       |  |  |   | 233,529   | 
|2011       |  |         | 1,311   |         |  |            | 196,240 |            |  |       | 75,000  |  |  |   |       |  |  |   | 272,551   | 
|Thereafter |  |         | 3,307   |         |  |            | 123,633 |            |  |       | 125,000 |  |  |   |       |  |  |   | 251,970   | 
|           |  |         |         |         |  |            |         |            |  |       |         |  |  |   |        |  |  |   |           | 
|           |  | $       | 414,046 |         |  | $          | 933,585 |            |  | $     | 800,000 |  |  | $ | 52,000 |  |  | $ | 2,199,631 | 
|           |  |         |         |         |  |            |         |            |  |       |         |  |  |   |        |  |  |   |           | 

7.     Minority
Interests in Consolidated Joint Ventures and Preferred
Units

Minority interests in the Operating Partnership
represent interests held by certain third parties in several
real estate joint ventures, aggregating approximately
33.5 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, investment
activity, and changes in financing.

The Operating Partnership enters into
co-investment joint ventures with institutional investors. As of
June 30, 2002, the Operating Partnership had investments in
five co-investment joint ventures with a gross book value of
$1.5 billion, which are consolidated for financial
reporting purposes and which are discussed below.

AMB/Erie L.P. (Erie) is a
co-investment partnership between the Operating Partnership and
various entities related to Erie Insurance Company, and is
engaged in the acquisition, ownership, operation, management,
renovation, expansion, and development of industrial buildings.
As of June 30, 2002, Erie had a total capitalization
(defined as total book equity and total book debt) of
$199.4 million. The Operating Partnership, together with
one of its other affiliates, owned, as of June 30, 2002,
approximately 50% of Erie.

AMB Institutional Alliance Fund I, L.P.
(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 industrial buildings. As of June 30, 2002,
the Alliance Fund I had a total capitalization of
$393.1 million. The Operating Partnership is the managing
general partner of the Alliance Fund I. The Operating
Partnership, together with one of its other affiliates, owned,
as of June 30, 2002, approximately 21% of the partnership
interests in the Alliance Fund I.

The Operating Partnership, together with one of
its other affiliates, formed AMB Partners II, L.P.
(Partners II) to acquire, manage, develop, and
redevelop distribution facilities nationwide. Partners II
has

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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

received equity contributions from City and
County of San Francisco Employees Retirement System
(CCSFERS) of $59.3 million. As of June 30,
2002, Partners II had a total capitalization of
$221.1 million. The Operating Partnership is the managing
general partner of Partners II and owned, as of
June 30, 2002, approximately 50% of Partners II.

The Operating Partnership, together with one of
the its other affiliates, formed 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 real estate investment trust,
distribution facilities nationwide. On March 23, 2001,
AMB-SGP received an equity contribution from GIC of
$75.0 million. As of June 30, 2002, AMB-SGP had a
total capitalization of $367.2 million. The Operating
Partnership is the managing general partner of AMB-SGP and
owned, as of June 30, 2002, approximately 50.3% of AMB-SGP.

AMB Institutional Alliance Fund II, L.P.
(Alliance Fund II) is a co-investment
partnership between the Operating Partnership, AMB Institutional
Alliance REIT II, Inc. (Alliance REIT II),
and a third-party limited partner. The Alliance REIT II
included 14 institutional investors as stockholders as of
June 30, 2002. The Alliance Fund II is engaged in the
acquisition, ownership, operation, management, renovation,
expansion, and development of industrial buildings in target
markets nationwide. As of June 30, 2002, the Alliance
Fund II had a total capitalization of $306.2 million.
The Operating Partnership is the managing general partner of the
Alliance Fund II. The Operating Partnership owned, as of
June 30, 2002, approximately 20% of the partnership
interests in the Alliance Fund II.

As of June 30, 2002, the Operating
Partnership had outstanding 84,024,954 common general
partnership units, 4,932,916 common limited partnership units,
4,000,000 8 1/2% Series A Cumulative Redeemable
Partnership Units, 1,300,000 8 5/8% Series B
Cumulative Redeemable Partnership Units, 800,000 7.95%
Series J Cumulative Redeemable Partnership Units, and
800,000 7.95% Series K Cumulative Redeemable Partnership
Units.

On April 17, 2002, the Operating Partnership
issued and sold 800,000 7.95% Series K Cumulative
Redeemable 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. The Series K
preferred units are redeemable by the Operating Partnership on
or after April 17, 2007, 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 K 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 K preferred stock. The Operating
Partnership used the net proceeds of $39.0 million for
general corporate purposes, which included the partial repayment
of indebtedness and the acquisition and development of
additional properties.

On July 31, 2002, AMB Property II, L.P., one of
the Operating Partnerships subsidiaries, repurchased 130,000 7.95%
Series F Cumulative Redeemable Preferred Limited
Partnership Units and all 20,000 of its outstanding 7.95%
Series G Cumulative Redeemable Preferred Limited
Partnership Units from a single institutional investor. AMB
Property II, L.P. redeemed the units for an aggregate cost
of $7.1 million, including accrued and unpaid dividends.

14



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table distinguishes the minority
interest liability as of June 30, 2002, and
December 31, 2001 (dollars in thousands):

|                                    |                                                                  |          |         |              |         |   |         |        |         | 
|----------------------------------- | ---------------------------------------------------------------- | -------- | ------- | ------------ | ------- | - | ------- | ------ | ------- | 
|                                    |                                                                  | June 30, |         | December 31,
|                                    |                                                                  | 2002     |         | 2001        
|                                    |                                                                  |          |         |             
|Joint Venture Partners              |                                                                  | $        | 411,299 |              |         | $ | 359,514 |       
|Held through AMB Property II, L.P.: |                                                                  |          |         |              |         |   |         |       
|                                    | Series D preferred units (liquidation
    preference of $79,767) |          |         | 77,685       |         |   |         | 77,687 |        
|                                    | Series E preferred units (liquidation
    preference of $11,022) |          |         | 10,788       |         |   |         | 10,788 |        
|                                    | Series F preferred units (liquidation
    preference of $19,872) |          |         | 19,597       |         |   |         | 19,597 |        
|                                    | Series G preferred units (liquidation
    preference of $1,000)  |          |         | 954          |         |   |         | 954    |        
|                                    | Series H preferred units (liquidation
    preference of $42,000) |          |         | 40,912       |         |   |         | 40,915 |        
|                                    | Series I preferred units (liquidation
    preference of $25,500) |          |         | 24,800       |         |   |         | 24,821 |        
|                                    |                                                                  |          |         |              |         |   |         |       
|                                    |                                                                  | Total    |         | $            | 586,035 |   |         | $      | 534,276 | 
|                                    |                                                                  |          |         |              |         |   |         |       

The following table distinguishes the minority
interests share of net income (dollars in thousands):

|                                    |                                                                  |                      |       |                    |        |      |       |       |        |   |        |       |        |   |        |       |        | 
|----------------------------------- | ---------------------------------------------------------------- | -------------------- | ----- | ------------------ | ------ | ---- | ----- | ----- | ------ | - | ------ | ----- | ------ | - | ------ | ----- | ------ | 
|                                    |                                                                  |                      |       |                   
|                                    |                                                                  | For the Three Months |       | For the Six Months
|                                    |                                                                  | Ended June 30,       |       | Ended June 30,    
|                                    |                                                                  |                      |       |                   
|                                    |                                                                  | 2002                 |       | 2001               |        | 2002 |       | 2001 
|                                    |                                                                  |                      |       |                    |        |      |       |      
|Joint Venture Partners              |                                                                  | $                    | 7,429 |                    |        | $    | 6,946 |       |        | $ | 15,335 |       |        | $ | 11,195 |      
|Held through AMB Property II, L.P.: |                                                                  |                      |       |                    |        |      |       |       |        |   |        |       |        |   |        |      
|                                    | Series C preferred units (repurchased in
    December 2001)      |                      |       |                   |        |      |       | 2,406 |        |   |        |      |        |   |        | 4,812 |       
|                                    | Series D preferred units (liquidation
    preference of $79,767) |                      |       | 1,546              |        |      |       | 1,545 |        |   |        | 3,091 |        |   |        | 3,090 |       
|                                    | Series E preferred units (liquidation
    preference of $11,022) |                      |       | 213                |        |      |       | 214   |        |   |        | 427   |        |   |        | 428   |       
|                                    | Series F preferred units (liquidation
    preference of $19,872) |                      |       | 395                |        |      |       | 395   |        |   |        | 790   |        |   |        | 790   |       
|                                    | Series G preferred units (liquidation
    preference of $1,000)  |                      |       | 20                 |        |      |       | 20    |        |   |        | 40    |        |   |        | 40    |       
|                                    | Series H preferred units (liquidation
    preference of $42,000) |                      |       | 853                |        |      |       | 853   |        |   |        | 1,706 |        |   |        | 1,706 |       
|                                    | Series I preferred units (liquidation
    preference of $25,500) |                      |       | 510                |        |      |       | 510   |        |   |        | 1,020 |        |   |        | 533   |       
|                                    |                                                                  |                      |       |                    |        |      |       |       |        |   |        |       |        |   |        |      
|                                    |                                                                  | Total                |       | $                  | 10,966 |      |       | $     | 12,889 |   |        | $     | 22,409 |   |        | $     | 22,594 | 
|                                    |                                                                  |                      |       |                    |        |      |       |       |        |   |        |       |        |   |        |      

8.     Investments in
Unconsolidated Joint Ventures

The Operating Partnership has non-controlling
limited partnership interests in three separate unconsolidated
joint ventures. These investments are not consolidated because
the Operating Partnership does not exercise significant control
over major operating decisions such as approval of budgets,
selection of property managers, investment activity, and changes
in financing. The Operating Partnership accounts for the joint
ventures using the equity method of accounting. Under the
agreements governing the joint ventures, the Operating
Partnership and the other parties to the joint venture may be
required to make additional capital contributions, and subject
to certain limitations, the joint ventures may incur additional
debt. 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. The
Operating Partnerships net equity investment in these
joint ventures is shown as investment in unconsolidated joint
ventures on the accompanying Condensed Consolidated Balance
Sheets. For the three months ended June 30, 2002 and 2001,
the Operating Partnerships share of net operating income
from these joint ventures was $3.1 million and
$2.3 million,

15



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

respectively. For the six months ended
June 30, 2002 and 2001, the Operating Partnerships
share of net operating income from these joint ventures was
$5.7 million and $5.1 million, respectively.

The Operating Partnership also has a 0.1%
unconsolidated equity interest (with an approximate 33% economic
interest) in Pier One LLC, a joint venture to redevelop the
Operating Partnerships office space in San Francisco. The
investment is not consolidated because the Operating Partnership
does not own a majority interest and does not exercise
significant control over major operating decisions such as
approval of budgets, selection of property managers, investment
activity, and changes in financing. The Operating Partnership
has an option to purchase the remaining equity interest
beginning January 1, 2007, and expiring December 31,
2009, based on the fair market value as stipulated in the
partnership agreement.

9.     Partners
Capital

During the six months ended June 30, 2002,
the Operating Partnership redeemed 36,111 of its common limited
partnership units for shares of the Companys common stock.
Holders of common limited partnership units of the Operating
Partnership have the right, commencing generally on or after the
first anniversary of the holder becoming a limited partner of
the Operating Partnership (or such other date agreed to by the
Operating Partnership and the applicable unit holders), to
require the Operating Partnership to redeem part or all of their
common units for cash (based upon the fair market value of an
equivalent number of shares of common stock at the time of
redemption) or the Operating Partnership may, in its sole and
absolute discretion (subject to the limits on ownership and
transfer of common stock set forth in the Companys
charter) elect to have the Company exchange those common units
for shares of the Companys common stock on a one-for-one
basis, subject to adjustment in the event of stock splits, stock
dividends, issuance of certain rights, certain extraordinary
distributions and similar events. The Operating Partnership
presently anticipates that it will generally elect to have the
Company issue shares of its common stock in exchange for common
units in connection with a redemption request; however, the
Operating Partnership has paid cash, and may in the future pay
cash, for a redemption of common units. With each redemption or
exchange, the Companys percentage ownership in the
Operating Partnership will increase. Common limited partners may
exercise this redemption right from time to time, in whole or in
part, subject to the limitations that limited partners may not
exercise this right if such exercise would result in any person
actually or constructively owning shares of common stock in
excess of the ownership limit or any other amount specified by
the board of directors, assuming common stock was issued in the
exchange.

In December 2001, the Companys board of
directors approved a new stock repurchase program for the
repurchase of up to $100.0 million worth of common and
preferred stock. The new stock repurchase program expires in
December 2003 and no repurchases have been made under the new
program as of June 30, 2002.

16



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table sets forth the dividend and
distribution declarations per share or unit:

|                                 |  |                       |  |                |       |                    |  |      |       |      |  |   |       |  |  |   |       | 
|-------------------------------- |  | --------------------- |  | -------------- | ----- | ------------------ |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                                 |  |                       |  |                |       |                    |  |     
|                                 |  |                       |  | For the        |       |                   
|                                 |  |                       |  | Three Months   |       | For the Six Months
|                                 |  |                       |  | Ended June 30, |       | Ended June 30,    
|                                 |  |                       |  |                |       |                   
|Security                         |  | Paying Entity         |  | 2002           |       | 2001               |  | 2002 |       | 2001
|                                 |  |                       |  |                |       |                    |  |      |       |     
|Common limited partnership units |  | Operating Partnership |  | $              | 0.410 |                    |  | $    | 0.395 |      |  | $ | 0.820 |  |  | $ | 0.790 | 
|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. |  |                | n/a   |                    |  | $    | 1.094 |      |  |   | n/a   |  |  | $ | 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 |      |  | $ | 1.988 |  |  | $ | 1.988 | 
|Series G preferred units         |  | AMB Property II, L.P. |  | $              | 0.994 |                    |  | $    | 0.994 |      |  | $ | 1.988 |  |  | $ | 1.103 | 
|Series H preferred units         |  | AMB Property II, L.P. |  | $              | 1.016 |                    |  | $    | 1.016 |      |  | $ | 2.031 |  |  | $ | 2.032 | 
|Series I preferred units         |  | AMB Property II, L.P. |  | $              | 1.000 |                    |  | $    | 1.000 |      |  | $ | 2.000 |  |  | $ | 1.044 | 
|Series J preferred units         |  | Operating Partnership |  | $              | 0.994 |                    |  |      | n/a   |      |  | $ | 1.988 |  |  |   | n/a   | 
|Series K preferred units         |  | Operating Partnership |  | $              | 0.972 |                    |  |      | n/a   |      |  | $ | 0.972 |  |  |   | n/a   | 

10.     Income Per
Unit

The Operating Partnerships only dilutive
securities outstanding for the three and six months ended
June 30, 2002 and 2001, were stock options and restricted
stock granted under its stock incentive plans. The effect on
diluted income per share was to increase weighted average shares
outstanding. Such dilution was computed using the treasury stock
method.

|                              |                                    |                      |  |                    |  |      |  |            |  |  |  |            |  |  |  |            | 
|----------------------------- | ---------------------------------- | -------------------- |  | ------------------ |  | ---- |  | ---------- |  |  |  | ---------- |  |  |  | ---------- | 
|                              |                                    |                      |  |                   
|                              |                                    | For the Three Months |  | For the Six Months
|                              |                                    | Ended June 30,       |  | Ended June 30,    
|                              |                                    |                      |  |                   
|                              |                                    | 2002                 |  | 2001               |  | 2002 |  | 2001      
|                              |                                    |                      |  |                    |  |      |  |           
|WEIGHTED AVERAGE COMMON UNITS |                                    |                      |  |                    |  |      |  |            |  |  |  |            |  |  |  |           
|                              | Basic                              |                      |  | 88,643,124         |  |      |  | 89,691,164 |  |  |  | 88,562,012 |  |  |  | 89,680,557 | 
|                              | Stock options and restricted stock |                      |  | 1,819,208          |  |      |  | 917,183    |  |  |  | 1,493,308  |  |  |  | 899,983    | 
|                              |                                    |                      |  |                    |  |      |  |            |  |  |  |            |  |  |  |           
|                              | Diluted                            |                      |  | 90,462,332         |  |      |  | 90,608,347 |  |  |  | 90,055,320 |  |  |  | 90,580,540 | 
|                              |                                    |                      |  |                    |  |      |  |            |  |  |  |            |  |  |  |           

11.     Segment
Information

The Operating Partnership operates industrial and
retail properties in North America and manages its business both
by property type and by market. Industrial properties represent
more than 98% of the Operating Partnerships portfolio by
rentable square feet and consist primarily of warehouse
distribution facilities suitable for single or multiple
customers and are typically comprised of multiple buildings that
are leased to customers engaged in various types of businesses.
As of June 30, 2002, the Operating Partnership operated
industrial properties in eight hub and gateway markets in
addition to 18 other markets nationwide. The Operating
Partnerships geographic markets for industrial properties
are managed separately because each market requires different
operating, pricing, and leasing strategies. As of June 30,
2002, the Operating Partnership operated retail properties in
Southeast Florida, Atlanta, Chicago, the San Francisco Bay Area,
Boston, and Baltimore. The Operating Partnership does not
separately manage its retail operations by market. Retail
properties are generally leased to one or more anchor customers,
such as grocery and drug stores, and various retail businesses.
The accounting policies of the segments are the same as those
described in the summary of

17



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

significant accounting policies. The Operating
Partnership evaluates performance based upon property net
operating income of the combined properties in each segment.

Within the hub and gateway market categorization,
the Operating Partnership operates in eight major U.S. markets.
The other industrial markets category captures all of the
Operating Partnerships other smaller markets nationwide.
Summary information for the reportable segments is as follows
(dollars in thousands):

|                                  |                          |                             |                  |                    |         |         |         |        |        |         |         |        |         |         |         |        |         |         | 
|--------------------------------- | ------------------------ | --------------------------- | ---------------- | ------------------ | ------- | ------- | ------- | ------ | ------ | ------- | ------- | ------ | ------- | ------- | ------- | ------ | ------- | ------- | 
|                                  |                          |                             |                  |                   
|                                  |                          | Rental Revenues(1)          |                  | Rental Revenues(1)
|                                  |                          |                             |                  |                   
|                                  |                          |                             |                  |                   
|                                  |                          | For the Three Months        |                  | For the Six Months
|                                  |                          | Ended June 30,              |                  | Ended June 30,    
|                                  |                          |                             |                  |                   
|                                  |                          | 2002                        |                  | 2001               |         | 2002    |         | 2001  
|                                  |                          |                             |                  |                    |         |         |         |       
|Industrial Hub & Gateway Markets: |                          |                             |                  |                    |         |         |         |        |        |         |         |        |         |         |         |       
|                                  | Atlanta                  |                             | $                | 7,415              |         |         | $       | 6,801  |        |         | $       | 14,729 |         |         | $       | 13,989 |        
|                                  | Chicago                  |                             |                  | 11,063             |         |         |         | 9,804  |        |         |         | 22,949 |         |         |         | 19,911 |        
|                                  | Dallas/ Ft. Worth        |                             |                  | 6,625              |         |         |         | 6,340  |        |         |         | 13,247 |         |         |         | 12,766 |        
|                                  | No. New Jersey/ New York |                             |                  | 11,176             |         |         |         | 11,690 |        |         |         | 22,007 |         |         |         | 22,533 |        
|                                  | San Francisco Bay Area   |                             |                  | 31,437             |         |         |         | 25,999 |        |         |         | 61,439 |         |         |         | 49,960 |        
|                                  | Southern California      |                             |                  | 18,879             |         |         |         | 14,873 |        |         |         | 37,529 |         |         |         | 29,230 |        
|                                  | Miami                    |                             |                  | 8,946              |         |         |         | 8,092  |        |         |         | 17,242 |         |         |         | 16,819 |        
|                                  | Seattle                  |                             |                  | 6,539              |         |         |         | 5,791  |        |         |         | 12,031 |         |         |         | 11,393 |        
|                                  |                          |                             |                  |                    |         |         |         |        |        |         |         |        |         |         |         |       
|                                  |                          | Total hub & gateway markets |                  |                    | 102,080 |         |         |        | 89,390 |         |         |        | 201,173 |         |         |        | 176,601 |        
|Total other industrial markets    |                          |                             | 42,090           |                    |         |         | 41,577  |        |        |         | 85,834  |        |         |         | 82,427  |       
|Discontinued operations           |                          |                             | (1,136           | )                  |         |         | (1,201  | )      |        |         | (2,261  | )      |         |         | (2,444  | )     
|                                  |                          |                             |                  |                    |         |         |         |        |        |         |         |        |         |         |         |       
|Total industrial markets          |                          |                             | 143,034          |                    |         |         | 129,766 |        |        |         | 284,746 |        |         |         | 256,584 |       
|Total retail markets              |                          |                             | 3,921            |                    |         |         | 6,410   |        |        |         | 9,333   |        |         |         | 12,795  |       
|                                  |                          |                             |                  |                    |         |         |         |        |        |         |         |        |         |         |         |       
|                                  |                          |                             | Total properties |                    | $       | 146,955 |         |        | $      | 136,176 |         |        | $       | 294,079 |         |        | $       | 269,379 | 
|                                  |                          |                             |                  |                    |         |         |         |        |        |         |         |        |         |         |         |       



---



|    |                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes straight-line rents of $2.8 million
    and $2.1 million for the three months ended June 30,
    2002 and 2001, respectively, and $6.7 million and
    $3.5 million for the six months ended June 30, 2002
    and 2001, respectively.

18



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                  |                               |                             |                  |                    |         |                           |        |              |        |         |        |        |         |         |        |        |         |         |           |         |           |           |           |         |           |           | 
|--------------------------------- | ----------------------------- | --------------------------- | ---------------- | ------------------ | ------- | ------------------------- | ------ | ------------ | ------ | ------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | ------- | --------- | ------- | --------- | --------- | --------- | ------- | --------- | --------- | 
|                                  |                               |                             |                  |                    |         |                           |        |             
|                                  |                               | Property NOI(1)(2)          |                  | Property NOI(1)(2) |         |                           |        |             
|                                  |                               |                             |                  |                    |         |                           |        |             
|                                  |                               |                             |                  |                    |         |                          
|                                  |                               | For the Three Months        |                  | For the Six Months |         | Total Gross Investment(3)
|                                  |                               | Ended June 30,              |                  | Ended June 30,     |         |                          
|                                  |                               |                             |                  |                    |         | June 30,                  |        | December 31,
|                                  |                               | 2002                        |                  | 2001               |         | 2002                      |        | 2001         |        | 2002    |        | 2001  
|                                  |                               |                             |                  |                    |         |                           |        |              |        |         |        |       
|Industrial Hub & Gateway Markets: |                               |                             |                  |                    |         |                           |        |              |        |         |        |        |         |         |        |        |         |         |           |         |           |           |           |        
|                                  | Atlanta                       |                             | $                | 5,746              |         |                           | $      | 5,443        |        |         | $      | 11,626 |         |         | $      | 11,256 |         |         | $         | 281,672 |           |           | $         | 271,663 |          
|                                  | Chicago                       |                             |                  | 7,556              |         |                           |        | 6,556        |        |         |        | 15,887 |         |         |        | 13,301 |         |         |           | 353,788 |           |           |           | 330,127 |          
|                                  | Dallas/ Fort Worth            |                             |                  | 4,642              |         |                           |        | 4,416        |        |         |        | 9,482  |         |         |        | 9,023  |         |         |           | 196,226 |           |           |           | 171,263 |          
|                                  | Northern New Jersey/ New York |                             |                  | 7,376              |         |                           |        | 8,680        |        |         |        | 14,639 |         |         |        | 16,261 |         |         |           | 427,731 |           |           |           | 406,077 |          
|                                  | San Francisco Bay Area        |                             |                  | 26,285             |         |                           |        | 22,064       |        |         |        | 51,577 |         |         |        | 42,294 |         |         |           | 811,278 |           |           |           | 806,528 |          
|                                  | Southern California           |                             |                  | 14,800             |         |                           |        | 12,120       |        |         |        | 29,513 |         |         |        | 23,869 |         |         |           | 713,585 |           |           |           | 694,602 |          
|                                  | Miami                         |                             |                  | 6,392              |         |                           |        | 5,799        |        |         |        | 12,624 |         |         |        | 12,433 |         |         |           | 289,170 |           |           |           | 288,046 |          
|                                  | Seattle                       |                             |                  | 5,252              |         |                           |        | 4,588        |        |         |        | 9,629  |         |         |        | 9,133  |         |         |           | 245,491 |           |           |           | 193,154 |          
|                                  |                               |                             |                  |                    |         |                           |        |              |        |         |        |        |         |         |        |        |         |         |           |         |           |           |           |        
|                                  |                               | Total hub & gateway markets |                  |                    | 78,049  |                           |        |              | 69,666 |         |        |        | 154,977 |         |        |        | 137,570 |         |           |         | 3,318,941 |           |           |         | 3,161,460 |          
|Total other industrial markets    |                               |                             | 30,558           |                    |         |                           | 29,888 |              |        |         | 61,261 |        |         |         | 59,051 |        |         |         | 1,373,277 |         |           |           | 1,321,959 |        
|Discontinued operations           |                               |                             | (806             | )                  |         |                           | (838   | )            |        |         | (1,573 | )      |         |         | (1,696 | )      |         |         |          |         |           |           |          |        
|                                  |                               |                             |                  |                    |         |                           |        |              |        |         |        |        |         |         |        |        |         |         |           |         |           |           |           |        
|                                  |                               | Total industrial markets    |                  |                    | 107,801 |                           |        |              | 98,716 |         |        |        | 214,665 |         |        |        | 194,925 |         |           |         | 4,692,218 |           |           |         | 4,483,419 |          
|Total retail markets              |                               |                             | 2,311            |                    |         |                           | 4,183  |              |        |         | 5,860  |        |         |         | 8,642  |        |         |         | 40,103    |         |           |           | 47,292    |        
|                                  |                               |                             |                  |                    |         |                           |        |              |        |         |        |        |         |         |        |        |         |         |           |         |           |           |           |        
|                                  |                               |                             | Total properties |                    | $       | 110,112                   |        |              | $      | 102,899 |        |        | $       | 220,525 |        |        | $       | 203,567 |           |         | $         | 4,732,321 |           |         | $         | 4,530,711 | 
|                                  |                               |                             |                  |                    |         |                           |        |              |        |         |        |        |         |         |        |        |         |         |           |         |           |           |           |        



---



|    |                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes straight-line rents of $2.8 million
    and $2.1 million for the three months ended June 30,
    2002 and 2001, respectively, and $6.7 million and
    $3.5 million for the six months ended June 30, 2002
    and 2001, 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) | Includes Construction in progress of
    $176.5 million as of June 30, 2002, and
    $181.2 million as of December 31, 2001 and excludes
    net properties held for divestiture of $133.9 million as of
    June 30, 2002, and $157.2 million as of
    December 31, 2001.     

19



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Operating Partnership uses property net
operating income as an operating performance measure. The
following table reconciles total reportable segment revenue and
property net operating income to rental revenues and income from
operations (dollars in thousands):

|                                                                                    |                                        |                                            |         |                    |         |      |         |         |         |   |         |         |         |   |         |         |         | 
|----------------------------------------------------------------------------------- | -------------------------------------- | ------------------------------------------ | ------- | ------------------ | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                                    |                                        |                                            |         |                   
|                                                                                    |                                        | For the Three Months                       |         | For the Six Months
|                                                                                    |                                        | Ended June 30,                             |         | Ended June 30,    
|                                                                                    |                                        |                                            |         |                   
|                                                                                    |                                        | 2002                                       |         | 2001               |         | 2002 |         | 2001   
|                                                                                    |                                        |                                            |         |                    |         |      |         |        
|Rental Revenues                                                                     |                                        |                                            |         |                    |         |      |         |         |         |   |         |         |         |   |         |        
|Total rental revenues for reportable segments                                       |                                        | $                                          | 146,955 |                    |         | $    | 136,176 |         |         | $ | 294,079 |         |         | $ | 269,379 |        
|Straight-line rents                                                                 |                                        |                                            | 2,786   |                    |         |      | 2,141   |         |         |   | 6,747   |         |         |   | 3,466   |        
|                                                                                    |                                        |                                            |         |                    |         |      |         |         |         |   |         |         |         |   |         |        
|                                                                                    |                                        | Total rental revenues                      |         | $                  | 149,741 |      |         | $       | 138,317 |   |         | $       | 300,826 |   |         | $       | 272,845 | 
|                                                                                    |                                        |                                            |         |                    |         |      |         |         |         |   |         |         |         |   |         |        
|Income before minority interests and net gains
    from dispositions of real estate |                                        |                                            |         |                    |         |      |         |         |         |   |         |         |         |   |         |        
|Property net operating income for reportable
    segments                           |                                        | $                                          | 110,112 |                    |         | $    | 102,899 |         |         | $ | 220,525 |         |         | $ | 203,567 |        
|Straight-line rents                                                                 |                                        |                                            | 2,786   |                    |         |      | 2,141   |         |         |   | 6,747   |         |         |   | 3,466   |        
|Equity in earnings of unconsolidated joint
    ventures                             |                                        |                                            | 1,638   |                    |         |      | 1,255   |         |         |   | 3,121   |         |         |   | 2,729   |        
|Investment management income                                                        |                                        |                                            | 3,114   |                    |         |      | 1,544   |         |         |   | 5,702   |         |         |   | 3,964   |        
|Other income                                                                        |                                        |                                            | 3,330   |                    |         |      | 3,692   |         |         |   | 7,312   |         |         |   | 8,831   |        
|Less:                                                                               |                                        |                                            |         |                    |         |      |         |         |         |   |         |         |         |   |         |        
|                                                                                    | Interest, including amortization       |                                            |         | (37,217            | )       |      |         | (29,841 | )       |   |         | (72,912 | )       |   |         | (61,050 | )      
|                                                                                    | Depreciation and amortization          |                                            |         | (31,972            | )       |      |         | (27,140 | )       |   |         | (61,464 | )       |   |         | (53,812 | )      
|                                                                                    | General, administrative, and other     |                                            |         | (10,762            | )       |      |         | (9,201  | )       |   |         | (21,831 | )       |   |         | (17,384 | )      
|                                                                                    | Loss on investments in other companies |                                            |         |                   |         |      |         | (16,103 | )       |   |         |        |         |   |         | (20,758 | )      
|                                                                                    |                                        |                                            |         |                    |         |      |         |         |         |   |         |         |         |   |         |        
|                                                                                    |                                        | Income before minority interests and gains |         | $                  | 41,029  |      |         | $       | 29,246  |   |         | $       | 87,200  |   |         | $       | 69,553  | 
|                                                                                    |                                        |                                            |         |                    |         |      |         |         |         |   |         |         |         |   |         |        

12.     Commitments
and Contingencies

Litigation.In the
normal course of business, from time to time, the Operating
Partnership may be 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, such as those due to acts
of war that may be either uninsurable or not economically
insurable. Although we have obtained coverage for certain acts
of terrorism, with policy specifications and insured limits that
we

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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

believe are commercially reasonable, it is not
certain that we will be able to collect under such policies.
Should an uninsured loss occur, the Operating Partnership could
lose its investment in, and anticipated profits and cash flows
from, a property.

Captive Insurance Company.The Operating Partnership has
responded to recent trends towards increasing costs and
decreasing coverage availability in the insurance markets by
obtaining higher-deductible property insurance from third-party
insurers and by forming a wholly-owned captive insurance
company, Arcata National Insurance Ltd. (Arcata) in
December 2001. Arcata provides insurance coverage for all or a
portion of losses below the increased deductible under the
third-party policies. The Operating Partnership capitalized
Arcata in accordance with regulatory requirements. Arcata
established annual premiums based on projections derived from
the past loss experience at the Operating Partnerships
properties. Annually, the Operating Partnership intends to
engage an independent third party to perform an actuarial
estimate of future projected claims.

Premiums paid to Arcata have a retrospective
component, so that if expenses, including losses, are less than
premiums collected, the excess will be returned to the property
owners (and, in turn, as appropriate, to the customers) and
conversely, subject to certain limitations, if expenses,
including losses, are greater than premiums collected, an
additional premium will be charged. As with all recoverable
expenses, differences between estimated and actual insurance
premiums will be recognized in the subsequent year. Through this
structure, the Operating Partnership believes that it will be
able to obtain insurance for its portfolio with more
comprehensive coverage at a projected overall lower cost than
would otherwise be available in the market.

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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.
Such statements relate to our future performance and plans,
results of operations, capital expenditures, acquisitions, and
operating improvements and costs. 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 occur or be achieved. 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
    customers;                                                                                                                                                                      
|
| |  | 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;                                                                                                                                                                                           
|
| |  | changes in real estate and zoning
    laws;                                                                                                                                                                              
|
| |  | increases in real property tax rates;
    and                                                                                                                                                                            
|
| |  | risks of doing business internationally,
    including currency risks.                                                                                                                                                   

Our success also depends upon economic trends
generally, including interest rates, income tax laws,
governmental regulation, legislation, population changes, and
those other 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., a Delaware limited partnership, and our
other controlled subsidiaries. The following marks are the
registered trademarks of AMB Property Corporation, our
general partner: AMB®; Broker Alliance Partners®;
Broker Alliance Program®; Customer Alliance Partners®;
Customer Alliance Program®; Development Alliance
Partners®; Development Alliance Program®;
Institutional Alliance Partners®; Institutional Alliance
Program®; Management Alliance Partners®; Management
Alliance Program®; UPREIT Alliance Partners®; UPREIT
Alliance Program®, HTD®; and High Throughput
Distribution®. The following marks are the unregistered
trademarks of AMB Property Corporation: Strategic Alliance
PartnersTM and Strategic Alliance
ProgramsTM.

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GENERAL

We commenced operations in 1997 shortly before
the consummation of AMB Property Corporations initial
public offering.

We generate revenue primarily from rent received
from customers under long-term operating leases at our
properties, including reimbursements from customers for certain
operating costs. In addition, our growth is, in part, dependent
on our ability to increase occupancy rates or increase rental
rates at our properties and our ability to continue the
acquisition and development of additional properties. 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. Moreover, as the general partner of
the co-investment joint ventures, we generally will be liable
for all of the joint ventures unsatisfied obligations
other than non-recourse obligations. Any such liabilities could
adversely affect our financial condition, results of operations,
cash flow, and ability to make distributions to our unitholders
and payments to our noteholders.

Critical Accounting Policies

Our discussion and analysis of financial
condition and results of operations is based on our consolidated
financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United
States. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported
amounts of assets, liabilities, and contingencies as of the date
of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. We evaluate our
assumptions and estimates on an on-going basis. We base our
estimates on historical experience and on various other
assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions. We believe the following critical accounting
policies affect our more significant judgments and estimates
used in the preparation of our consolidated financial statements.

Investments in Real Estate.Investments in real estate are stated
at cost unless circumstances indicate that cost cannot be
recovered, in which case, the carrying value of the property is
reduced to estimated fair value. Carrying values for financial
reporting purposes are reviewed for impairment on a
property-by-property basis whenever events or changes in
circumstances indicate that the carrying value of a property may
not be recoverable. Impairment is recognized when estimated
expected future cash flows (undiscounted and without interest
charges) are less than the carrying amount of the property. The
estimation of expected future net cash flows is inherently
uncertain and relies on assumptions regarding current and future
market conditions and the availability of capital. If impairment
analysis assumptions change, then an adjustment to the carrying
amount of our long-lived assets could occur in the future period
in which the assumptions change. To the extent that a property
is impaired, the excess of the carrying amount of the property
over its estimated fair value is charged to income. We believe
that there are no additional impairments of the carrying values
of our investments in real estate at June 30, 2002.

Rental Revenues.We
record rental revenue from operating leases on a straight-line
basis over the term of the leases and maintain an allowance for
estimated losses that may result from the inability of our
customers to make required payments. If customers fail to make
contractual lease payments that are greater than our bad-debt
reserves, then we may have to recognize additional bad debt
charges in future periods. Historically, our bad debt expense
has been between 50 and 150 basis points of total revenues.

Stock-based compensation expense.In the second quarter of 2002 and
effective beginning in the first quarter of 2002, we adopted the
expense recognition provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation. We value stock options issued by
AMB Property Corporation, our general partner, using the
Black-Scholes option-pricing model and recognize this value as
an expense over the period in which the options vest. Under this
standard, recognition of expense for stock options is
retroactively applied to all options granted after the beginning
of the year of adoption. Prior

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to the second quarter of 2002, we followed the
intrinsic method set forth in APB Opinion 25, Accounting
for Stock Issued to Employees. In the first quarter of 2002,
AMB Property Corporation awarded approximately
1.8 million stock options to employees. In accordance with
SFAS No. 123, we will recognize the associated expense over
the three to five-year vesting periods. The expense is included
in general and administrative expenses in the accompanying
Condensed Consolidated Statements of Operations.


THE COMPANY

AMB Property, L.P., a Delaware limited
partnership, acquires, develops, and operates industrial
property primarily within key distribution markets throughout
North America. We currently own, manage, or are developing
96.6 million square feet in 27 North American
metropolitan markets, with more than two-thirds of these assets
concentrated in eight targeted hub and gateway locations. Our
portfolio is comprised of strategically located industrial
buildings in in-fill submarkets; specifically, buildings near
airports, seaports, and freeway systems within targeted
metropolitan areas. In-fill sub-markets are characterized by
supply constraints on the availability of land for competing
projects as well as by having physical, political, or economic
barriers to new development. A substantial majority of our owned
or managed buildings function as High Throughput Distribution,
or HTD facilities, which are designed and built to quickly
distribute our customers products, rather than store them.
Because we invest in areas that have natural supply constraints,
high barriers to entry, and a close proximity to large
population centers, we believe that our HTD facilities will
benefit from high customer demand as well as limited competition.

As of June 30, 2002, we owned and operated
933 industrial buildings and eight retail centers, totaling
approximately 85.3 million rentable square feet, located in
26 markets nationwide. As of June 30, 2002, our industrial
and retail properties were 94.4% and 87.8% leased, respectively.
As of June 30, 2002, through our subsidiary, AMB Capital
Partners, LLC, we also managed industrial buildings and retail
centers, totaling approximately 2.3 million rentable square
feet on behalf of various clients. In addition, we have invested
in 40 industrial buildings, totaling approximately
4.9 million rentable square feet, through unconsolidated
joint ventures.

As of June 30, 2002, we had five retail
centers, four industrial properties, and four development
properties, which were held for divestiture. Over the next few
years, we intend to dispose of non-strategic assets and redeploy
the resulting capital into industrial properties in
supply-constrained markets in the U.S. and internationally 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, 2002, AMB Property Corporation owned an
approximate 94.4% 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.

AMB Property Corporation is self-administered and
self-managed and, as a result, our employees perform its
administrative and management functions, rather than it relying
on an outside manager for these services. Our principal
executive office 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.

Co-investment Joint Ventures

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
well as investment management income. As of June 30, 2002,
we had investments in five co-investment joint ventures with a
gross book value of $1.5 billion, which are consolidated
for financial reporting purposes and which are discussed below.
We believe that our co-investment program will also continue to
serve as a source of capital for acquisitions and developments;
however, there can be no assurance that it will continue to do
so.

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Acquisition, Development, and Disposition
Activity

During the quarter, we invested
$121.9 million in operating properties, consisting of
17 industrial buildings aggregating approximately
2.0 million square feet, which included the investment of
$80.0 million in 16 buildings aggregating
approximately 1.7 million square feet through two of our
co-investment joint ventures. Year to date, we have invested
$156.9 million in operating properties, consisting of
25 industrial buildings aggregating approximately
2.7 million square feet, which included the investment of
$115.0 million in 24 buildings aggregating
approximately 2.4 million square feet through two of our
co-investment joint ventures.

During the quarter, we completed industrial
developments valued at $15.8 million, aggregating
approximately 0.3 million square feet. We also initiated a
new industrial development project valued at $30.8 million
aggregating approximately 0.8 million square feet in
Mexico. Year to date, we have completed industrial developments
valued at $27.2 million, aggregating approximately
0.5 million square feet. We also have initiated two new
industrial development projects valued at $36.8 million
aggregating approximately 0.9 million square feet.

As of June 30, 2002, we had in our
development pipeline: (1) 11 industrial projects,
which will total approximately 3.5 million square feet and
have an aggregate estimated investment of $163.6 million
upon completion and (2) two development projects available
for sale, which will total approximately 0.6 million square
feet and have an aggregate estimated investment of
$51.6 million upon completion. As of June 30, 2002, we
and our Development Alliance Partners have funded an aggregate
of $140.9 million and will need to fund an estimated
additional $74.3 million in order to complete current and
planned projects.

During the quarter, we disposed of one industrial
building, aggregating approximately 0.5 million rentable
square feet, for an aggregate price of $12.1 million. Year
to date, we have disposed of two industrial building and one
retail center, aggregating approximately 0.8 million
rentable square feet, for an aggregate price of
$50.6 million. During the three months ended June 30,
2002, we also sold $76.9 million in operating properties,
consisting of 15 industrial buildings aggregating
approximately 1.9 million square feet, to one of our
co-investment joint ventures.

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.
Local partners give us best-in-class, local market expertise and
intelligence. We, in turn, contribute national customer
relationships, industry knowledge, perspective, and financial
strength.

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



| |                  
| | -----------------
| | Growth Strategies



| |                          
| | -------------------------
| | Growth Through Operations

We seek to generate internal growth through rent
increases on existing space and renewals on re-tenanted space.
We do this by seeking to maintain a high occupancy rate at our
properties and by seeking to control expenses by capitalizing on
the economies of owning, operating, and growing a large national
portfolio. As of June 30, 2002, our industrial properties
and retail centers were 94.4% leased and 87.8% leased,
respectively. Year to date, we increased average industrial base
rental rates (on a cash basis) by 1.5% from the expiring rent
for that space, on leases entered into or renewed during the
period. This amount excludes expense

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reimbursements, rental abatements, and percentage
rents. Year to date, we also increased cash-basis same-store net
operating income by 1.4% on our industrial properties.




| |                                                         
| | --------------------------------------------------------
| | 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 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 transactions.
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 our unsecured 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
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 believe that 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 should provide us with the skills and experience to
capitalize on strategic renovation, expansion, and development
opportunities. Several of our general partners officers
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, and we eliminate
the need and expense of an extensive 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.



| |                              
| | -----------------------------
| | Growth Through Co-Investments

We co-invest with third-party partners (some of
whom may be clients of AMB Capital Partners, LLC, to the
extent such clients commit new investment capital), through
partnerships, limited liability companies, or joint ventures. We
currently use a co-investment formula with each third party
whereby we will own at least a 20% interest in all ventures. In
general, we control all significant operating and investment
decisions of our co-investment entities. We believe that our
co-investment program will continue to serve as a source of
capital for acquisitions and developments and investment
management income; however, there can be no assurance that it
will continue to do so.

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| |                                     
| | ------------------------------------
| | Growth Through Developments for Sale

Through a wholly-owned subsidiary, Headlands
Realty Corporation, we conduct a variety of businesses that
include incremental income programs, such as our development
projects available for sale to third parties. Such development
properties include value-added conversion projects and
build-to-sell projects. During 2001, we completed and sold two
value-added conversion projects for a net gain of
$13.2 million. As of June 30, 2002, we were developing
two projects for sale to third parties.



| |                     
| | --------------------
| | AMB Capital Partners

AMB Capital Partners, LLC provides real estate
investment management services on a fee basis to third-party
clients. On December 31, 2001, AMB Investment
Management, Inc. was reorganized through a series of related
transactions into AMB Capital Partners, LLC. On
May 31, 2001, we began consolidating our investment in AMB
Investment Management, Inc. by acquiring 100% of its common
stock for $0.3 million. Prior to May 31, 2001, we
owned 100% of AMB Investment Management, Inc.s
non-voting preferred stock (representing a 95% economic interest
therein) and reflected our investment using the equity method.

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 defined as 90%
leased or 12 months after we receive a certificate of
occupancy for the building). We refer to these properties as the
same store properties. For the comparison between the years
ended June 30, 2002 and 2001, the same store industrial
properties consisted of properties aggregating approximately
72.1 million square feet. The properties acquired during
the first six months of 2002 consisted of 25 buildings,
aggregating approximately 2.7 million square feet. The
properties acquired during 2001 consisted of 65 buildings,
aggregating approximately 6.8 million square feet. In the
first six months of 2002, the property divestitures consisted of
two industrial buildings and one retail center, aggregating
approximately 0.8 million square feet. In 2001, property
divestitures consisted of 24 industrial and two retail
buildings, aggregating approximately 3.2 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 historical rates.

For the Three Months Ended June 30, 2002
and 2001 (dollars in millions)

|                    |                         |       |     |       |       |          |     |          |       |  |      |      |      |  |       |       |     |  
|------------------- | ----------------------- | ----- | --- | ----- | ----- | -------- | --- | -------- | ----- |  | ---- | ---- | ---- |  | ----- | ----- | --- | -
|Rental Revenues     |                         | 2002  |     | 2001  |       | $ Change |     | % Change
|                    |                         |       |     |       |       |          |     |         
|Industrial          |                         |       |     |       |       |          |     |          |       |  |      |      |      |  |       |      
|                    | Same store              |       | $   | 125.5 |       |          | $   | 122.5    |       |  | $    | 3.0  |      |  |       | 2.4   | %  
|                    | 2001 acquisitions       |       |     | 15.2  |       |          |     | 4.8      |       |  |      | 10.4 |      |  |       | 216.7 | %  
|                    | 2002 acquisitions       |       |     | 1.9   |       |          |     |         |       |  |      | 1.9  |      |  |       |      |    
|                    | Developments            |       |     | 1.1   |       |          |     | 0.3      |       |  |      | 0.8  |      |  |       | 266.7 | %  
|                    | Divestitures            |       |     | 0.4   |       |          |     | 3.4      |       |  |      | (3.0 | )    |  |       | (88.2 | )% 
|                    | Discontinued operations |       |     | (1.1  | )     |          |     | (1.2     | )     |  |      | 0.1  |      |  |       | (8.3  | )% 
|Retail              |                         |       | 3.9 |       |       |          | 6.4 |          |       |  | (2.5 | )    |      |  | (39.1 | )%   
|Straight-line rents |                         |       | 2.8 |       |       |          | 2.1 |          |       |  | 0.7  |      |      |  | 33.3  | %    
|                    |                         |       |     |       |       |          |     |          |       |  |      |      |      |  |       |      
|                    |                         | Total |     | $     | 149.7 |          |     | $        | 138.3 |  |      | $    | 11.4 |  |       |       | 8.2 | %
|                    |                         |       |     |       |       |          |     |          |       |  |      |      |      |  |       |      

The growth in rental revenues in same store
properties resulted primarily from fixed rent increases on
existing leases, reimbursement of expenses, and lease
termination fees, partially offset by lower average occupancies.
Industrial same store occupancy was 94.6% at June 30, 2002,
and 95.6% at June 30, 2001. During

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the quarter, the same store rent decreases on
industrial renewals and rollovers (cash basis) were (0.3%) on
3.7 million square feet leased.


|                                                        |       |      |     |      |  |          |     |          |  |   |      |     |  |  |       |      |  
|------------------------------------------------------- | ----- | ---- | --- | ---- |  | -------- | --- | -------- |  | - | ---- | --- |  |  | ----- | ---- | -
|Investment Management and Other Income                  |       | 2002 |     | 2001 |  | $ Change |     | % Change
|                                                        |       |      |     |      |  |          |     |         
|Equity in earnings of unconsolidated joint
    ventures |       | $    | 1.7 |      |  | $        | 1.3 |          |  | $ | 0.4  |     |  |  | 30.8  | %   
|Investment management income                            |       |      | 3.1 |      |  |          | 1.5 |          |  |   | 1.6  |     |  |  | 106.7 | %   
|Interest and other income                               |       |      | 3.3 |      |  |          | 3.7 |          |  |   | (0.4 | )   |  |  | (10.8 | )%  
|                                                        |       |      |     |      |  |          |     |          |  |   |      |     |  |  |       |     
|                                                        | Total |      | $   | 8.1  |  |          | $   | 6.5      |  |   | $    | 1.6 |  |  |       | 24.6 | %
|                                                        |       |      |     |      |  |          |     |          |  |   |      |     |  |  |       |     

The increase in investment management income was
due primarily to increased priority distributions from our
co-investment joint ventures and the consolidation of
AMB Investment Management, Inc. (predecessor-in-interest to
AMB Capital Partners, LLC) and Headlands Realty Corporation
on May 31, 2001. The decrease in interest and other income
was primarily due to our having construction loans to our
unconsolidated joint ventures and bridge loans to our joint
ventures in 2001.

|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |       |      |  
|------------------------------------------------- | --------------------------- | ----- | ---- | ---- | ---- | -------- | ---- | -------- | ---- | - | ---- | ---- | --- |  | ----- | ----- | ---- | -
|Property Operating Expenses and Real Estate Taxes |                             | 2002  |      | 2001 |      | $ Change |      | % Change
|                                                  |                             |       |      |      |      |          |      |         
|(Exclusive of depreciation and amortization)      |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      
|Rental expenses                                   |                             | $     | 18.6 |      |      | $        | 16.6 |          |      | $ | 2.0  |      |     |  | 12.0  | %    
|Real estate taxes                                 |                             |       | 18.2 |      |      |          | 16.7 |          |      |   | 1.5  |      |     |  | 9.0   | %    
|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      
|                                                  | Property operating expenses |       | $    | 36.8 |      |          | $    | 33.3     |      |   | $    | 3.5  |     |  |       | 10.5  | %   
|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      
|Industrial                                        |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      
|                                                  | Same store                  |       | $    | 31.3 |      |          | $    | 29.2     |      |   | $    | 2.1  |     |  |       | 7.2   | %   
|                                                  | 2001 acquisitions           |       |      | 2.9  |      |          |      | 1.0      |      |   |      | 1.9  |     |  |       | 190.0 | %   
|                                                  | 2002 acquisitions           |       |      | 0.3  |      |          |      |         |      |   |      | 0.3  |     |  |       |      |     
|                                                  | Developments                |       |      | 0.9  |      |          |      | 0.2      |      |   |      | 0.7  |     |  |       | 350.0 | %   
|                                                  | Divestitures                |       |      | 0.1  |      |          |      | 1.1      |      |   |      | (1.0 | )   |  |       | (90.9 | )%  
|                                                  | Discontinued operations     |       |      | (0.3 | )    |          |      | (0.4     | )    |   |      | 0.1  |     |  |       | (25.0 | )%  
|Retail                                            |                             |       | 1.6  |      |      |          | 2.2  |          |      |   | (0.6 | )    |     |  | (27.3 | )%   
|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      
|                                                  |                             | Total |      | $    | 36.8 |          |      | $        | 33.3 |   |      | $    | 3.5 |  |       |       | 10.5 | %
|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      

The increase in same store properties
operating expenses primarily relates to increases in real estate
taxes and insurance expenses, partially offset by decreases in
common area maintenance expenses.

|                                 |       |      |      |      |  |          |      |          |  |   |     |      |  |  |      |      |  
|-------------------------------- | ----- | ---- | ---- | ---- |  | -------- | ---- | -------- |  | - | --- | ---- |  |  | ---- | ---- | -
|Other Expenses                   |       | 2002 |      | 2001 |  | $ Change |      | % Change
|                                 |       |      |      |      |  |          |      |         
|Interest, including amortization |       | $    | 37.2 |      |  | $        | 29.8 |          |  | $ | 7.4 |      |  |  | 24.8 | %   
|Depreciation and amortization    |       |      | 32.0 |      |  |          | 27.1 |          |  |   | 4.9 |      |  |  | 18.1 | %   
|General and administrative       |       |      | 10.8 |      |  |          | 9.2  |          |  |   | 1.6 |      |  |  | 17.4 | %   
|                                 |       |      |      |      |  |          |      |          |  |   |     |      |  |  |      |     
|                                 | Total |      | $    | 80.0 |  |          | $    | 66.1     |  |   | $   | 13.9 |  |  |      | 21.0 | %
|                                 |       |      |      |      |  |          |      |          |  |   |     |      |  |  |      |     

The increase in interest expense was primarily
due to the issuance of additional unsecured senior debt
securities and an increase in secured debt balances, partially
offset by decreased borrowings on our unsecured credit facility.
The secured debt issuances were primarily for our co-investment
joint ventures properties. The increase in depreciation
expense was due to the increase in our net investment in real
estate. The increase in general and administrative expenses was
primarily due to the consolidation of AMB Investment
Management, Inc. (predecessor-in-interest to AMB Capital
Partners, LLC) and Headlands Realty Corporation on May 31,
2001. Prior to May 31, 2001, G&A did not include
expenses incurred by two unconsolidated preferred stock
subsidiaries, Headlands Realty Corporation and AMB Capital
Partners, LLC. General and administrative expenses would have
been $10.3 million had the subsidiaries been consolidated
beginning January 1, 2001. General and administrative
expense also includes stock-based compensation expense of
$1.1 million, including $0.9 million related to the
issuance of restricted stock and $0.2 million related to
the adoption of Statement of

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Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based
Compensation. The adoption of SFAS No. 123 is
prospective and the 2002 expense relates only to stock options
granted in 2002. If we had adopted retroactively, then the
related stock-based compensation expense would have been
$0.8 million.


During the three months ended June 30, 2001,
we recognized $16.1 million of losses on investments in
other companies, including our investment in Webvan Group, Inc.
and other technology-related companies. The loss reflects a 100%
write-down of the investments. No gains or losses have been
recognized in 2002.

During 2002, we retired $11.6 million of
secured debt primarily in connection with property divestitures
and prepayments. We recognized a net extraordinary loss of
$0.1 million related to the early retirement of debt,
resulting from prepayment penalties, partially offset by the
write-off of debt premiums.

For the Six Months Ended June 30, 2002
and 2001 (dollars in millions)

|                    |                         |       |     |       |       |          |      |          |       |  |      |      |      |  |       |       |      |  
|------------------- | ----------------------- | ----- | --- | ----- | ----- | -------- | ---- | -------- | ----- |  | ---- | ---- | ---- |  | ----- | ----- | ---- | -
|Rental Revenues     |                         | 2002  |     | 2001  |       | $ Change |      | % Change
|                    |                         |       |     |       |       |          |      |         
|Industrial          |                         |       |     |       |       |          |      |          |       |  |      |      |      |  |       |      
|                    | Same store              |       | $   | 250.2 |       |          | $    | 245.5    |       |  | $    | 4.7  |      |  |       | 1.9   | %   
|                    | 2001 acquisitions       |       |     | 27.9  |       |          |      | 4.6      |       |  |      | 23.3 |      |  |       | 506.5 | %   
|                    | 2002 acquisitions       |       |     | 2.5   |       |          |      |         |       |  |      | 2.5  |      |  |       |      |     
|                    | Developments            |       |     | 4.8   |       |          |      | 0.7      |       |  |      | 4.1  |      |  |       | 585.7 | %   
|                    | Divestitures            |       |     | 1.7   |       |          |      | 8.1      |       |  |      | (6.4 | )    |  |       | (79.0 | )%  
|                    | Discontinued operations |       |     | (2.3  | )     |          |      | (2.4     | )     |  |      | 0.1  |      |  |       | 4.2   | %   
|Retail              |                         |       | 9.3 |       |       |          | 12.8 |          |       |  | (3.5 | )    |      |  | (27.3 | )%   
|Straight-line rents |                         |       | 6.7 |       |       |          | 3.5  |          |       |  | 3.2  |      |      |  | 91.4  | %    
|                    |                         |       |     |       |       |          |      |          |       |  |      |      |      |  |       |      
|                    |                         | Total |     | $     | 300.8 |          |      | $        | 272.8 |  |      | $    | 28.0 |  |       |       | 10.3 | %
|                    |                         |       |     |       |       |          |      |          |       |  |      |      |      |  |       |      

The growth in rental revenues in same store
properties resulted primarily from the incremental effect of
cash rental rate increases on renewals and rollovers, fixed rent
increases on existing leases, reimbursement of expenses, and
lease termination fees, partially offset by lower average
occupancies. Industrial same store occupancy was 94.6% at
June 30, 2002, and 95.6% at June 30, 2001. Year to
date, the same store rent increases on industrial renewals and
rollovers (cash basis) was 1.5% on 7.9 million square feet
leased.

|                                                        |  |      |      |      |  |          |      |          |  |   |      |   |  |  |       |   
|------------------------------------------------------- |  | ---- | ---- | ---- |  | -------- | ---- | -------- |  | - | ---- | - |  |  | ----- | --
|Investment Management and Other Income                  |  | 2002 |      | 2001 |  | $ Change |      | % Change
|                                                        |  |      |      |      |  |          |      |         
|Equity in earnings of unconsolidated joint
    ventures |  | $    | 3.1  |      |  | $        | 2.7  |          |  | $ | 0.4  |   |  |  | 14.8  | % 
|Investment management income                            |  |      | 5.7  |      |  |          | 4.0  |          |  |   | 1.7  |   |  |  | 42.5  | % 
|Interest and other income                               |  |      | 7.3  |      |  |          | 8.8  |          |  |   | (1.5 | ) |  |  | (17.0 | )%
|                                                        |  |      |      |      |  |          |      |          |  |   |      |   |  |  |       |   
|Total                                                   |  | $    | 16.1 |      |  | $        | 15.5 |          |  | $ | 0.6  |   |  |  | 3.9   | % 
|                                                        |  |      |      |      |  |          |      |          |  |   |      |   |  |  |       |   

The increase in investment management income was
due primarily to increased priority distributions from our
co-investment joint ventures and the consolidation of AMB
Investment Management, Inc. (predecessor-in-interest to
AMB Capital Partners, LLC) and Headlands Realty Corporation
on May 31,

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##### Table of Contents



2001. The decrease in interest and other income
was primarily due to our having construction loans to our
unconsolidated joint ventures and bridge loans to our joint
ventures in 2001.


|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |       |      |  
|------------------------------------------------- | --------------------------- | ----- | ---- | ---- | ---- | -------- | ---- | -------- | ---- | - | ---- | ---- | --- |  | ----- | ----- | ---- | -
|Property Operating Expenses and Real Estate Taxes |                             | 2002  |      | 2001 |      | $ Change |      | % Change
|                                                  |                             |       |      |      |      |          |      |         
|(Exclusive of depreciation and amortization)      |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      
|Rental expenses                                   |                             | $     | 37.0 |      |      | $        | 32.8 |          |      | $ | 4.2  |      |     |  | 12.8  | %    
|Real estate taxes                                 |                             |       | 36.6 |      |      |          | 33.0 |          |      |   | 3.6  |      |     |  | 10.9  | %    
|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      
|                                                  | Property operating expenses |       | $    | 73.6 |      |          | $    | 65.8     |      |   | $    | 7.8  |     |  |       | 11.9  | %   
|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      
|Industrial                                        |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      
|                                                  | Same store                  |       | $    | 60.7 |      |          | $    | 58.6     |      |   | $    | 2.1  |     |  |       | 3.6   | %   
|                                                  | 2001 acquisitions           |       |      | 6.8  |      |          |      | 1.0      |      |   |      | 5.8  |     |  |       | 580.0 | %   
|                                                  | 2002 acquisitions           |       |      | 0.4  |      |          |      |         |      |   |      | 0.4  |     |  |       |      |     
|                                                  | Developments                |       |      | 2.3  |      |          |      | 0.7      |      |   |      | 1.6  |     |  |       | 228.6 | %   
|                                                  | Divestitures                |       |      | 0.6  |      |          |      | 2.0      |      |   |      | (1.4 | )   |  |       | (70.0 | )%  
|                                                  | Discontinued operations     |       |      | (0.7 | )    |          |      | (0.7     | )    |   |      |     |     |  |       |      |     
|Retail                                            |                             |       | 3.5  |      |      |          | 4.2  |          |      |   | (0.7 | )    |     |  | (16.7 | )%   
|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      
|                                                  |                             | Total |      | $    | 73.6 |          |      | $        | 65.8 |   |      | $    | 7.8 |  |       |       | 11.9 | %
|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      

The increase in same store properties
operating expenses primarily relates to increases in real estate
taxes and insurance expenses, partially offset by decreases in
common area maintenance expenses.

|                                 |       |      |      |       |  |          |      |          |  |   |      |      |  |  |      |      |  
|-------------------------------- | ----- | ---- | ---- | ----- |  | -------- | ---- | -------- |  | - | ---- | ---- |  |  | ---- | ---- | -
|Other Expenses                   |       | 2002 |      | 2001  |  | $ Change |      | % Change
|                                 |       |      |      |       |  |          |      |         
|Interest, including amortization |       | $    | 72.9 |       |  | $        | 61.1 |          |  | $ | 11.8 |      |  |  | 19.3 | %   
|Depreciation and amortization    |       |      | 61.5 |       |  |          | 53.8 |          |  |   | 7.7  |      |  |  | 14.3 | %   
|General and administrative       |       |      | 21.8 |       |  |          | 17.4 |          |  |   | 4.4  |      |  |  | 25.3 | %   
|                                 |       |      |      |       |  |          |      |          |  |   |      |      |  |  |      |     
|                                 | Total |      | $    | 156.2 |  |          | $    | 132.3    |  |   | $    | 23.9 |  |  |      | 18.1 | %
|                                 |       |      |      |       |  |          |      |          |  |   |      |      |  |  |      |     

The increase in interest expense was primarily
due to the issuance of additional unsecured senior debt
securities and an increase in secured debt balances, partially
offset by decreased borrowings on our unsecured credit facility.
The secured debt issuances were primarily for our co-investment
joint ventures properties. The increase in depreciation
expense was due to the increase in our net investment in real
estate. The increase in general and administrative expenses was
primarily due to the consolidation of AMB Investment Management,
Inc. (predecessor-in-interest to AMB Capital Partners, LLC) and
Headlands Realty Corporation on May 31, 2001. Prior to
May 31, 2001, G&A did not include expenses incurred by
two unconsolidated preferred stock subsidiaries, Headlands
Realty Corporation and AMB Capital Partners, LLC. General and
administrative expenses would have been $20.9 million had
the subsidiaries been consolidated beginning January 1,
2001. General and administrative expense also includes
stock-based compensation expense of $2.0 million, including
$1.6 million related to the issuance of restricted stock
and $0.4 million related the adoption of SFAS No. 123.
The adoption of SFAS No. 123 is prospective and the 2002
expense relates only to stock options granted in 2002. If we had
adopted retroactively, then the related stock-based compensation
expense would have been $1.6 million.

Year to date June 30, 2001, we recognized
$20.8 million of losses on investments in other companies,
including our investment in Webvan Group, Inc. and other
technology-related companies. The loss reflects a 100%
write-down of the investments. No gains or losses have been
recognized in 2002.

Year to date June 30, 2002, we retired
$40.4 million of secured debt primarily in connection with
property divestitures and prepayments. We recognized a net
extraordinary loss of $0.3 million related to the early
retirement of debt, resulting from prepayment penalties,
partially offset by the write-off of debt premiums.

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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 limited
partnership unit offerings (including issuances of limited
partnership units by our subsidiaries); and (5) net
proceeds from divestitures of properties. Additionally, we
believe that our private capital 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,
specifically our cash flow from operations and borrowings
available under our unsecured credit facility, 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.During the quarter, we divested
ourselves of one industrial building for an aggregate price of
$12.1 million, with a resulting net loss of
$0.4 million. This building was classified as held for sale
as of December 31, 2001. Year to date, we divested
ourselves of two industrial buildings and one retail center for
an aggregate price of $50.6 million, with a resulting net
loss of $0.7 million. These buildings were classified as
held for sale as of December 31, 2001.

Properties Held for Divestiture.We have decided to divest ourselves of
five retail centers, four industrial properties, and four
development properties, 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, 2002, the
net carrying value of the properties held for divestiture was
$133.9 million.

Co-investment Joint Ventures.We consolidate the financial position,
results of operations, and cash flows of our five co-investment
joint ventures. We consolidate these joint ventures for
financial reporting purposes because we are the sole managing
general partner and, as a result, control all of the major
operating decisions. Third-party equity interests in the joint
ventures are reflected as minority interests in the consolidated
financial statements. As of June 30, 2002, we owned
approximately 33.5 million square feet of our properties
through these entities. We may make additional investments
through these joint ventures or new joint ventures in the future
and presently plan to do so. The inability to obtain new joint
venture partners could adversely affect our financial condition,
results of operations, cash flow, and ability to make
distributions to our unitholders and payments to our noteholders.

During the three months ended June 30, 2002,
we sold $76.9 million in operating properties, consisting
of 15 industrial buildings aggregating approximately
1.9 million square feet, to one of our co-investment joint
ventures, AMB-SGP, L.P. We recognized a gain of
$3.3 million related to these contributions, representing
the portion of the sold properties acquired by the third-party
co-investor.

During the three months ended June 30, 2001,
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. During the six months ended June 30, 2001, we
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. We recognized a gain of $15.8 million
related to these contributions, representing the portion of the
contributed properties acquired by the third-party co-investors.

AMB/Erie L.P. is our co-investment partnership
with various entities related to Erie Insurance Company, and is
engaged in the acquisition, ownership, operation, management,
renovation, expansion, and development of industrial buildings
in target markets nationwide. As of June 30, 2002, AMB/Erie
L.P. had received equity contributions from third-party
investors totaling $50.0 million, which when combined with
debt financings and our investment, creates a total planned
capitalization of $200.0 million. We owned, as of
June 30, 2002, approximately 50% of AMB/Erie L.P.

AMB Institutional Alliance Fund I, L.P. is
our co-investment partnership with AMB Institutional Alliance
REIT I, Inc., which includes 15 institutional
investors as stockholders, and is engaged in the

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acquisition, ownership, operation, management,
renovation, expansion, and development of industrial buildings
in target markets nationwide. As of June 30, 2002, the
Alliance Fund I had received equity contributions from
third-party investors totaling $169.0 million, which, when
combined with debt financings and our investment, creates a
total planned capitalization of $420.0 million. We owned,
as of June 30, 2002, approximately 21% of the partnership
interests in the Fund I.


We formed AMB Partners II, L.P. to acquire,
manage, develop, and redevelop distribution facilities
nationwide. Partners II has received equity contributions
from the City and County of San Francisco Employees
Retirement System of $59.3 million, which, when combined
with anticipated debt financings and our investment, creates a
total planned capitalization of $296.0 million. We are the
managing general partner of Partners II and owned, as of
June 30, 2002, approximately 50% of Partners II.

We formed 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 real estate investment trust,
distribution facilities nationwide. On March 23, 2001,
AMB-SGP received an equity contribution from GIC of
$75.0 million, which, when combined with anticipated debt
financings and our investment, creates a total planned
capitalization of $425.0 million. We are the managing
general partner of AMB-SGP and owned, as of June 30, 2002,
approximately 50.3% of AMB-SGP.

AMB Institutional Alliance Fund II, L.P. is
our co-investment partnership with AMB Institutional Alliance
REIT II, Inc. and a third-party limited partner. The
Alliance REIT II included 14 institutional investors as
stockholders as of June 30, 2002. The Alliance Fund II
is engaged in the acquisition, ownership, operation, management,
renovation, expansion, and development of industrial buildings
in target markets nationwide. As of June 30, 2002, the
Alliance Fund II had received total equity commitments from
third-party investors of $195.4 million, which, when
combined with anticipated debt financings and our investment,
creates a total planned capitalization of $489.0 million.
We are the managing general partner and owned, as of
June 30, 2002, approximately 20% of the partnership
interests in the Alliance Fund II.

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, which is based on our credit rating.
We have the ability to increase available borrowings 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, which is based on our credit
rating. 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, in the future, we may engage in
transactions to limit our exposure to rising interest rates. As
of June 30, 2002, 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,
generally the value of our unencumbered properties. At
June 30, 2002, the remaining amount available under our
unsecured credit facility was $500.0 million (excluding the
$200.0 million of potential additional capacity).

In July 2001, the Alliance Fund II obtained
a $150.0 million credit facility secured by the unfunded
capital commitments of the investors in the Alliance
REIT II and the Alliance Fund II. Borrowings currently
bear interest at LIBOR plus 87.5 basis points. As of
June 30, 2002, the outstanding balance was
$52.0 million and the remaining amount available was
$56.8 million, net of outstanding letters of credit and
capital contributions from third-party investors.

Partners Capital.As of June 30, 2002, we had
outstanding 84,024,954 common general partnership units,
4,932,916 common limited partnership units, 4,000,000
8 1/2% Series A Cumulative Redeemable Partnership
Units, 1,300,000 8 5/8% Series B Cumulative Redeemable
Partnership Units, 800,000 7.95% Series J Cumulative
Redeemable Partnership Units, and 800,000 7.95% Series K
Cumulative Redeemable

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Partnership Units.


On April 17, 2002, we issued and sold
800,000 7.95% Series K Cumulative Redeemable 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. The Series K preferred units
are redeemable by us or after April 17, 2007, 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 K
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 K preferred stock. We
used the net proceeds of $39.0 million for general
corporate purposes, which included the partial repayment of
indebtedness and the acquisition and development of additional
properties.

During the three months ended June 30, 2002,
we redeemed no common limited partnership units for shares of
AMB Property Corporations common stock. During the six
months ended June 30, 2002, we redeemed 36,111 common
limited partnership units for shares of AMB Property
Corporations common stock.

In December 2001, AMB Property Corporations
board of directors approved a new stock repurchase program for
the repurchase of up to $100.0 million worth of our common
and preferred stock. The new stock repurchase program expires in
December 2003 and no repurchases have been made under the new
program through June 30, 2002.

Debt.In order to
maintain financial flexibility and facilitate the deployment of
capital through market cycles, we presently intend to operate
with a debt-to-total market capitalization ratio of
approximately 45% or less. At June 30, 2002, our share of
total debt-to-total market capitalization ratio was 34.3%.
Additionally, we currently intend to 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s board of directors could alter or eliminate these
policies without unitholder or noteholder approval or
circumstances could arise that could render us unable to comply
with these policies.

As of June 30, 2002, the aggregate principal
amount of our secured debt was $1.3 billion, excluding
unamortized debt premiums of $4.6 million. Of the
$1.3 billion of secured debt, $0.9 billion is secured
by our joint ventures. The secured debt bears interest at rates
varying from 3.4% to 10.4% per annum (with a weighted average
rate of 7.3%) and final maturity dates ranging from September
2002 to June 2023. All of the secured debt bears interest at
fixed rates, except for seven loans with an aggregate principal
amount of $72.6 million as of June 30, 2002, which
bear interest at variable rates (with a weighted average
interest rate of 3.5% at June 30, 2002).

In May 2002, we commenced a medium-term note
program for the 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, 2002, we had
issued no medium-term notes under this program.

In August 2000, we commenced a medium-term note
program for the issuance of up to $400.0 million in
principal amount of medium-term notes, which are guaranteed by
AMB Property Corporation. On January 14, 2002, we completed
the program when we issued and sold the remaining
$20.0 million of the notes to Lehman Brothers, Inc., as
principal. AMB Property Corporation has guaranteed the notes,
which mature on January 17, 2007, and bear interest at
5.90% per annum. We used the net proceeds of $19.9 million
for general corporate purposes, to partially repay indebtedness,
and to acquire and develop additional properties.

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 pay distributions to our
unitholders, make 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

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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.


Mortgage Receivables.In September 2000, we sold a retail
center located in Los Angeles, California. As of June 30,
2002, we carried a 9.5% mortgage note secured by the retail
center in the principal amount of $74.0 million, due
September 30, 2002. On July 3, 2002, we received a
full repayment of the mortgage. 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,
2002, the outstanding balance on the note was $13.2 million.

The tables below summarize our debt maturities
and capitalization as of June 30, 2002 (dollars in
thousands):

Debt

|                                                                     |                      |                         |                         |         |         |             |          |               |         |         |         |         |         |         |         |        |        |        |          |           |           |           | 
|-------------------------------------------------------------------- | -------------------- | ----------------------- | ----------------------- | ------- | ------- | ----------- | -------- | ------------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------ | ------ | ------ | -------- | --------- | --------- | --------- | 
|                                                                     |                      | Company                 |                         | Joint   |         | Unsecured   |          |               |         |        
|                                                                     |                      | Secured                 |                         | Venture |         | Senior Debt |          | Credit        |         | Total  
|                                                                     |                      | Debt(1)                 |                         | Debt    |         | Securities  |          | Facilities(2) |         | Debt   
|                                                                     |                      |                         |                         |         |         |             |          |               |         |        
|2002                                                                 |                      | $                       | 14,845                  |         |         | $           | 28,403   |               |         | $       |        |         |         | $       |        |        |        | $      | 43,248   |          
|2003                                                                 |                      |                         | 75,951                  |         |         |             | 41,630   |               |         |         |        |         |         |         | 52,000  |        |        |        | 169,581  |          
|2004                                                                 |                      |                         | 72,210                  |         |         |             | 56,559   |               |         |         |        |         |         |         |        |        |        |        | 128,769  |          
|2005                                                                 |                      |                         | 46,020                  |         |         |             | 58,831   |               |         |         | 250,000 |         |         |         |        |        |        |        | 354,851  |          
|2006                                                                 |                      |                         | 85,619                  |         |         |             | 79,329   |               |         |         | 25,000  |         |         |         |        |        |        |        | 189,948  |          
|2007                                                                 |                      |                         | 24,721                  |         |         |             | 42,474   |               |         |         | 75,000  |         |         |         |        |        |        |        | 142,195  |          
|2008                                                                 |                      |                         | 33,373                  |         |         |             | 153,903  |               |         |         | 175,000 |         |         |         |        |        |        |        | 362,276  |          
|2009                                                                 |                      |                         | 4,911                   |         |         |             | 45,802   |               |         |         |        |         |         |         |        |        |        |        | 50,713   |          
|2010                                                                 |                      |                         | 51,778                  |         |         |             | 106,751  |               |         |         | 75,000  |         |         |         |        |        |        |        | 233,529  |          
|2011                                                                 |                      |                         | 1,311                   |         |         |             | 196,240  |               |         |         | 75,000  |         |         |         |        |        |        |        | 272,551  |          
|Thereafter                                                           |                      |                         | 3,307                   |         |         |             | 123,663  |               |         |         | 125,000 |         |         |         |        |        |        |        | 251,970  |          
|                                                                     |                      |                         |                         |         |         |             |          |               |         |         |         |         |         |         |         |        |        |        |          |          
|                                                                     | Subtotal             |                         |                         | 414,046 |         |             |          | 933,585       |         |         |         | 800,000 |         |         |         | 52,000 |        |        |          | 2,199,631 |          
|                                                                     | Unamortized premiums |                         |                         | 2,655   |         |             |          | 1,932         |         |         |         |        |         |         |         |       |        |        |          | 4,587     |          
|                                                                     |                      |                         |                         |         |         |             |          |               |         |         |         |         |         |         |         |        |        |        |          |          
|                                                                     |                      |                         | Total consolidated debt |         |         | 416,701     |          |               |         | 935,517 |         |         |         | 800,000 |         |        |        | 52,000 |          |           |           | 2,204,218 | 
|Our share of unconsolidated joint venture debt(3)                    |                      |                         |                        |         |         |             | 39,790   |               |         |         |        |         |         |         |        |        |        |        | 39,790   |          
|                                                                     |                      |                         |                         |         |         |             |          |               |         |         |         |         |         |         |         |        |        |        |          |          
|                                                                     |                      |                         | Total debt              |         |         | 416,701     |          |               |         | 975,307 |         |         |         | 800,000 |         |        |        | 52,000 |          |           |           | 2,244,008 | 
|Joint venture partners share of
    consolidated joint venture debt |                      |                         |                        |         |         |             | (538,259 | )             |         |         |        |         |         |         | (41,600 | )      |        |        | (579,859 | )        
|                                                                     |                      |                         |                         |         |         |             |          |               |         |         |         |         |         |         |         |        |        |        |          |          
|                                                                     |                      | Our share of total debt |                         | $       | 416,701 |             |          | $             | 437,048 |         |         | $       | 800,000 |         |         | $      | 10,400 |        |          | $         | 1,664,149 |          
|                                                                     |                      |                         |                         |         |         |             |          |               |         |         |         |         |         |         |         |        |        |        |          |          
|Weighed average interest rate                                        |                      |                         | 8.0                     | %       |         |             | 7.0      | %             |         |         | 7.2     | %       |         |         | 2.7     | %      |        |        | 7.2      | %        
|Weighed average maturity (in years)                                  |                      |                         | 4.3                     |         |         |             | 7.2      |               |         |         | 7.1     |         |         |         | 1.1     |        |        |        | 6.5      |          



---



|    |                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | All of the secured debt bears interest at fixed
    rates, except for seven loans with an aggregate principal amount
    of $72.6 million as of June 30, 2002, which bear
    interest at variable rates (with a weighted average interest
    rate of 3.5% at June 30, 2002).                                                  
|   
|(2) | The 2003 maturity represents a secured credit
    facility obtained by the Alliance Fund II, which will repay
    the facility with capital contributions and secured debt
    proceeds. We also have a $500.0 million unsecured credit
    facility, which matures in 2003 and had no outstanding balance
    at June 30, 2002.
|   
|(3) | The weighted average interest and weighted
    average maturity for the unconsolidated joint venture debt were
    6.2% and 6.2 years, respectively.                                                                                                                                                                            

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Market Capital

|                                 |       |             |            |              |  |              |       |  |  |   |           |           | 
|-------------------------------- | ----- | ----------- | ---------- | ------------ |  | ------------ | ----- |  |  | - | --------- | --------- | 
|                                 |       | Units       |            |              |  |             
|Security                         |       | Outstanding |            | Market Price |  | Market Value
|                                 |       |             |            |              |  |             
|Common general partnership units |       |             | 84,254,365 |              |  | $            | 31.00 |  |  | $ | 2,611,885 |          
|Common limited partnership units |       |             | 4,932,916  |              |  |              | 31.00 |  |  |   | 152,920   |          
|                                 |       |             |            |              |  |              |       |  |  |   |           |          
|                                 | Total |             |            | 89,187,281   |  |              |       |  |  |   | $         | 2,764,805 | 
|                                 |       |             |            |              |  |              |       |  |  |   |           |          

Preferred Units

|                         |                        |          |       |             |  |            |         |         |  |  |                |  | 
|------------------------ | ---------------------- | -------- | ----- | ----------- |  | ---------- | ------- | ------- |  |  | -------------- |  | 
|                         |                        | Dividend |       | Liquidation |  | Redemption
|Security                 |                        | Rate     |       | Preference  |  | Provisions
|                         |                        |          |       |             |  |           
|Series A preferred units |                        |          | 8.50% |             |  | $          | 100,000 |         |  |  | July 2003      | 
|Series B preferred units |                        |          | 8.63% |             |  |            | 65,000  |         |  |  | 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     | 
|Series J preferred units |                        |          | 7.95% |             |  |            | 40,000  |         |  |  | September 2006 | 
|Series K preferred units |                        |          | 7.95% |             |  |            | 40,000  |         |  |  | April 2007     | 
|                         |                        |          |       |             |  |            |         |         |  |  |                | 
|                         | Weighted Average/Total |          |       | 8.16%       |  |            | $       | 424,161 |  |  |                |  | 
|                         |                        |          |       |             |  |            |         |         |  |  |                | 

Capitalization Ratios

|                                                                          |  |  |       | 
|------------------------------------------------------------------------- |  |  | ----- | 
|Total debt-to-total market capitalization                                 |  |  | 41.3% | 
|Our share of total debt-to-total market
    capitalization                |  |  | 34.3% | 
|Total debt plus preferred-to-total market
    capitalization              |  |  | 49.1% | 
|Our share of total debt plus preferred-to-total
    market capitalization |  |  | 43.0% | 
|Our share of total debt-to-total book
    capitalization                  |  |  | 44.7% | 

Liquidity

As of June 30, 2002, we had approximately
$119.3 million in cash, restricted cash, and cash
equivalents, and $500.0 million of additional available
borrowings under our credit facility. We also had
$56.8 million of additional available borrowings under our
Alliance Fund II credit facility. To fund acquisitions,
development activities, and capital expenditures and to provide
for general working capital requirements, 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. The
unavailability of capital would adversely affect our financial
condition, results of operations, cash flow, and ability to make
distributions to our unitholders and payments to our noteholders.

We declared a regular cash distribution for the
quarter ending June 30, 2002, of $0.41 per common unit. The
distributions were payable on July 15, 2002, to common
unitholders of record on July 5, 2002. The Series A,
B, E, F, G, J, and K preferred unit distributions were also
payable on July 15, 2002, to unitholders of record on
July 5, 2002. The Series D, H, and I preferred unit
distributions were payable on July 25, 2002, to

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unitholders of record on July 11, 2002. The
following table sets forth the distribution declarations for the
three and six months ended June 30, 2002 and 2001:


|                         |  |               |                       |                |  |                    |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|------------------------ |  | ------------- | --------------------- | -------------- |  | ------------------ | ----- | ---- |  | ---- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                         |  |               |                       |                |  |                    |       |     
|                         |  |               |                       | For the        |  |                   
|                         |  |               |                       | Three Months   |  | For the Six Months
|                         |  |               |                       | Ended June 30, |  | Ended June 30,    
|                         |  |               |                       |                |  |                   
|Security                 |  | Paying Entity |                       | 2002           |  | 2001               |       | 2002 |  | 2001
|                         |  |               |                       |                |  |                    |       |      |  |     
|Common partnership units |  |               | AMB Property, L.P.    |                |  | $                  | 0.410 |      |  | $    | 0.395 |  |  | $ | 0.820 |  |  | $ | 0.790 | 
|Series A preferred units |  |               | AMB Property, L.P.    |                |  | $                  | 0.531 |      |  | $    | 0.531 |  |  | $ | 1.063 |  |  | $ | 1.063 | 
|Series B preferred units |  |               | AMB Property, L.P.    |                |  | $                  | 1.078 |      |  | $    | 1.078 |  |  | $ | 2.156 |  |  | $ | 2.156 | 
|Series C preferred units |  |               | AMB Property II, L.P. |                |  |                    | n/a   |      |  | $    | 1.094 |  |  |   | n/a   |  |  | $ | 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 |  |  | $ | 1.988 |  |  | $ | 1.988 | 
|Series G preferred units |  |               | AMB Property II, L.P. |                |  | $                  | 0.994 |      |  | $    | 0.994 |  |  | $ | 1.988 |  |  | $ | 1.988 | 
|Series H preferred units |  |               | AMB Property II, L.P. |                |  | $                  | 1.016 |      |  | $    | 1.016 |  |  | $ | 2.031 |  |  | $ | 2.032 | 
|Series I preferred units |  |               | AMB Property II, L.P. |                |  | $                  | 1.000 |      |  | $    | 1.000 |  |  | $ | 2.000 |  |  | $ | 1.044 | 
|Series J preferred units |  |               | AMB Property, L.P.    |                |  | $                  | 0.994 |      |  |      | n/a   |  |  | $ | 1.988 |  |  |   | n/a   | 
|Series K preferred units |  |               | AMB Property, L.P.    |                |  | $                  | 0.972 |      |  |      | n/a   |  |  | $ | 0.972 |  |  |   | n/a   | 

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 or limited
partnership unit offerings. However, we may not be able to
obtain future financings on favorable terms or at all. Our
inability to obtain future financings on favorable terms or at
all would adversely affect our financial condition, results of
operations, cash flow, and ability to make distributions to our
unitholders and payments to our noteholders.

Capital
Commitments

Developments.In
addition to recurring capital expenditures, which consist of
building improvements and leasing costs incurred to renew or
re-tenant space, as of June 30, 2002, we are developing
11 projects representing a total estimated investment of
$163.6 million upon completion and two development projects
available for sale representing a total estimated investment of
$51.6 million upon completion. Of this total,
$140.9 million had been funded as of June 30, 2002,
and an estimated $74.3 million is 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, which could have an
adverse effect on our cash flow. 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. This 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 have no other material capital commitments.

Acquisitions.During
the quarter, we invested $121.9 million in
17 operating industrial buildings, aggregating
approximately 2.0 million rentable square feet. Year to
date, we have invested $156.9 million in 25 operating
industrial buildings, aggregating approximately 2.7 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.

Captive Insurance Company.We have responded to recent trends
towards increasing costs and decreasing coverage availability in
the insurance markets by obtaining higher-deductible property
insurance from third-party insurers and by forming a
wholly-owned captive insurance company, Arcata National
Insurance Ltd. in December 2001. Arcata provides insurance
coverage for all or a portion of losses below the

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increased deductible under the third-party
policies. We capitalized Arcata in accordance with regulatory
requirements. Arcata established annual premiums based on
projections derived from the past loss experience of our
properties. Annually, we intend to engage an independent third
party to perform an actuarial estimate of future projected
claims.


Premiums paid to Arcata have a retrospective
component, so that if expenses, including losses, are less than
premiums collected, the excess will be returned to the property
owners (and, in turn, as appropriate, to the customers) and
conversely, subject to certain limitations, if expenses,
including losses, are greater than premiums collected, an
additional premium will be charged. As with all recoverable
expenses, differences between estimated and actual insurance
premiums will be recognized in the subsequent year. Through this
structure, we believe that we have been able to obtain insurance
for our portfolio with more comprehensive coverage at a
projected overall lower cost than would otherwise be available
in the market.

Potential Unknown Liabilities.Unknown liabilities may include the
following: (1) liabilities for clean-up or remediation of
undisclosed environmental conditions; (2) claims of
customers, vendors, or other persons dealing with our
predecessors prior to our formation transactions that had not
been asserted prior to our 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 our general partners predecessors and others
indemnified by these entities.

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 a 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 generally accepted
accounting principles in the United States 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 interests pro rata share of FFO of
consolidated joint ventures and perpetual preferred unit
distributions. 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.

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##### Table of Contents



The following table reflects the calculation of
funds from operations (dollars in thousands):

|                                                                   |                                                        |                      |        |                    |   |      |        |        |   |   |        |         |   |   |        |         |  
|------------------------------------------------------------------ | ------------------------------------------------------ | -------------------- | ------ | ------------------ | - | ---- | ------ | ------ | - | - | ------ | ------- | - | - | ------ | ------- | -
|                                                                   |                                                        |                      |        |                   
|                                                                   |                                                        | For the Three Months |        | For the Six Months
|                                                                   |                                                        | Ended June 30,       |        | Ended June 30,    
|                                                                   |                                                        |                      |        |                   
|                                                                   |                                                        | 2002                 |        | 2001               |   | 2002 |        | 2001  
|                                                                   |                                                        |                      |        |                    |   |      |        |       
|Income before minority interests and gains                         |                                                        | $                    | 41,029 |                    |   | $    | 29,246 |        |   | $ | 87,200 |         |   | $ | 69,553 |        
|Real estate related depreciation and amortization:                 |                                                        |                      |        |                    |   |      |        |        |   |   |        |         |   |   |        |        
|                                                                   | Total depreciation and amortization                    |                      |        | 31,972             |   |      |        | 27,140 |   |   |        | 61,464  |   |   |        | 53,812  |  
|                                                                   | FF&E depreciation and ground lease
    amortization(1) |                      |        | (519               | ) |      |        | (492   | ) |   |        | (1,193  | ) |   |        | (973    | )
|Discontinued operations                                            |                                                        |                      | 484    |                    |   |      | 490    |        |   |   | 926    |         |   |   | 1,035  |        
|FFO attributable to minority interests:                            |                                                        |                      |        |                    |   |      |        |        |   |   |        |         |   |   |        |        
|                                                                   | Joint venture partners(2)                              |                      |        | (11,274            | ) |      |        | (8,539 | ) |   |        | (24,118 | ) |   |        | (15,726 | )
|                                                                   | Series C-I preferred unit distributions                |                      |        | (3,537             | ) |      |        | (5,943 | ) |   |        | (7,074  | ) |   |        | (11,399 | )
|Adjustments to derive FFO in unconsolidated joint
    ventures(3): |                                                        |                      |        |                    |   |      |        |        |   |   |        |         |   |   |        |        
|                                                                   | Our share of net income                                |                      |        | (1,638             | ) |      |        | (1,255 | ) |   |        | (3,121  | ) |   |        | (2,729  | )
|                                                                   | Our share of FFO                                       |                      |        | 2,700              |   |      |        | 2,133  |   |   |        | 4,829   |   |   |        | 4,253   |  
|Preferred unit distributions                                       |                                                        |                      | (5,098 | )                  |   |      | (3,527 | )      |   |   | (9,543 | )       |   |   | (7,054 | )      
|                                                                   |                                                        |                      |        |                    |   |      |        |        |   |   |        |         |   |   |        |        
|                                                                   | Funds from operations                                  |                      | $      | 54,119             |   |      | $      | 39,253 |   |   | $      | 109,370 |   |   | $      | 90,772  |  
|                                                                   |                                                        |                      |        |                    |   |      |        |        |   |   |        |         |   |   |        |        



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | FF&E depreciation represents depreciation on
    furniture, fixtures, and equipment that is not real estate
    related. Ground lease amortization represents the amortization
    of our investments in ground lease properties, for which we do
    not have a purchase option.                                                                                                                                                                                   
|   
|(2) | Represents FFO attributable to minority interests
    in consolidated joint ventures whose interests are not
    exchangeable into common stock of AMB Property Corporation. The
    minority interests share of net operating income for the
    three months ended June 30, 2002 and 2001, was
    $19.7 million and $16.3 million, respectively, and for
    the six months ended June 30, 2002 and 2001, was
    $39.4 million and $26.2 million, respectively.
|   
|(3) | Our share of net operating income for the three
    months ended June 30, 2002 and 2001, was $3.1 million
    and $2.3 million, respectively, and for the six months
    ended June 30, 2002 and 2001, was $5.7 million and
    $5.1 million, respectively.                                                                                                                                                                                                         

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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 three month period ended June 30, 2002 (dollars
in thousands):

|                                                                               |                       |                                         |                  |               |        |        |            |           |        |        | 
|------------------------------------------------------------------------------ | --------------------- | --------------------------------------- | ---------------- | ------------- | ------ | ------ | ---------- | --------- | ------ | ------ | 
|                                                                               |                       | Three Months                            |                  | Six Months   
|                                                                               |                       | Ended                                   |                  | Ended        
|                                                                               |                       | June 30, 2002                           |                  | June 30, 2002
|                                                                               |                       |                                         |                  |              
|Square feet owned(1)(2)                                                        |                       |                                         | 84,189,979       |               |        |        | 84,189,979 |          
|Occupancy percentage(1)                                                        |                       |                                         | 94.4             | %             |        |        | 94.4       | %        
|Weighted average lease terms:                                                  |                       |                                         |                  |               |        |        |            |          
|                                                                               | Original              |                                         |                  | 6.2 years     |        |        |            | 6.2 years |       
|                                                                               | Remaining             |                                         |                  | 3.2 years     |        |        |            | 3.2 years |       
|Tenant retention                                                               |                       |                                         | 75.1             | %             |        |        | 74.9       | %        
|Rent increases on renewals and rollovers                                       |                       |                                         | -0.4             | %             |        |        | 1.5        | %        
|                                                                               | Square feet leased(3) |                                         |                  | 3,854,747     |        |        |            | 8,146,018 |       
|Second generation tenant improvements and leasing
    commissions per sq. ft.: |                       |                                         |                  |               |        |        |            |          
|                                                                               |                       | Renewals                                |                  | $             | 0.77   |        |            | $         | 0.82   |       
|                                                                               |                       | Re-tenanted                             |                  |               | 1.50   |        |            |           | 1.81   |       
|                                                                               |                       |                                         |                  |               |        |        |            |          
|                                                                               |                       |                                         | Weighted average |               | $      | 1.22   |            |           | $      | 1.39   | 
|                                                                               |                       |                                         |                  |               |        |        |            |          
|Recurring capital expenditures(4)                                              |                       |                                         |                  |               |        |        |            |          
|                                                                               |                       | Tenant improvements                     |                  | $             | 7,017  |        |            | $         | 10,936 |       
|                                                                               |                       | Lease commissions and other lease costs |                  |               | 5,404  |        |            |           | 10,367 |       
|                                                                               |                       | Building improvements                   |                  |               | 3,586  |        |            |           | 5,927  |       
|                                                                               |                       |                                         |                  |               |        |        |            |          
|                                                                               |                       |                                         | Sub-total        |               |        | 16,007 |            |           |        | 27,230 | 
|                                                                               |                       | Partners share of capital expenditures |                  |               | (2,966 | )      |            |           | (5,808 | )     
|                                                                               |                       |                                         |                  |               |        |        |            |          
|                                                                               |                       |                                         | Total            |               | $      | 13,041 |            |           | $      | 21,422 | 
|                                                                               |                       |                                         |                  |               |        |        |            |          



---



|    |                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes all industrial consolidated operating
    properties and excludes development and renovation projects.
    Excludes retail and other properties square feet of
    1,087,091, occupancy of 87.8%, and annualized base rent of
    $12.9 million.                                                                                                                                    
|   
|(2) | In addition to owned square feet as of
    June 30, 2002, we managed, through our subsidiary, AMB
    Capital Partners, approximately 2.3 million additional
    square feet of industrial, retail, and other properties. We also
    have investments in approximately 4.9 million square feet
    of industrial properties through our investments in the
    unconsolidated joint ventures.
|   
|(3) | Consists of all second-generation leases renewing
    or re-tenanting with current and prior lease terms greater than
    one year.                                                                                                                                                                                                                                                           
|   
|(4) | Includes second generation leasing costs and
    building improvements.                                                                                                                                                                                                                                                                                                                       

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The following summarizes key same store
properties operating statistics for our industrial
properties as of and for the three and six month periods ended
June 30, 2002:

|                                                   |                        |                      |            |               |     |   |            |           |     |  
|-------------------------------------------------- | ---------------------- | -------------------- | ---------- | ------------- | --- | - | ---------- | --------- | --- | -
|                                                   |                        | Three Months         |            | Six Months   
|                                                   |                        | Ended                |            | Ended        
|                                                   |                        | June 30, 2002        |            | June 30, 2002
|                                                   |                        |                      |            |              
|Square feet in same store pool(1)                  |                        |                      | 72,099,147 |               |     |   | 72,099,147 |          
|                                                   | % of total square feet |                      |            | 85.6          | %   |   |            | 85.6      | %  
|Occupancy percentage at period end                 |                        |                      |            |               |     |   |            |          
|                                                   | June 30, 2002.         |                      |            | 94.6          | %   |   |            | 94.6      | %  
|                                                   | June 30, 2001.         |                      |            | 95.6          | %   |   |            | 95.6      | %  
|Tenant retention                                   |                        |                      | 73.3       | %             |     |   | 75.1       | %        
|Rent increases on lease commencements              |                        |                      | -0.3       | %             |     |   | 1.5        | %        
|                                                   | Square feet leased     |                      |            | 3,721,546     |     |   |            | 7,886,116 |    
|Cash basis net operating income growth % increase: |                        |                      |            |               |     |   |            |          
|                                                   |                        | Revenues             |            |               | 2.5 | % |            |           | 1.9 | %
|                                                   |                        | Expenses             |            |               | 7.1 | % |            |           | 3.7 | %
|                                                   |                        | Net operating income |            |               | 1.0 | % |            |           | 1.4 | %



---



|    |                                                                                      
|--- | -------------------------------------------------------------------------------------
|(1) | Excludes properties purchased or developments
    stabilized after December 31, 2000.




Item 3.     Quantitative
and Qualitative Disclosures About Market Risk

Market risk is the risk of loss from adverse
changes in market prices and interest rates. Our future earnings
and cash flows are dependent upon prevalent market rates.
Accordingly, we manage our market risk by matching projected
cash inflows from operating, investing, and financing activities
with projected cash outflows for debt service, acquisitions,
capital expenditures, distributions to unitholders and payment
to noteholders, and other cash requirements. The majority of our
outstanding debt has fixed interest rates, which minimizes the
risk of fluctuating interest rates. Our exposure to market risk
includes: (1) interest rate fluctuations in connection with
our credit facilities 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. As of
June 30, 2002, we had no interest rate caps or swaps. See
Item 2: Managements Discussion and Analysis of
Financial Condition and Results of Operations 
Liquidity and Capital Resources  Capital
Resources  Market Capitalization.

The table below summarizes the market risks
associated with our fixed and variable rated debt outstanding
before unamortized debt premiums of $4.6 million as of
June 30, 2002:

|                      |  |                        |        |       |  |      |        |      |  |      |        |            |  |      |         |   |  |   |         |   |  |   |           |   |  |   |           |  
|--------------------- |  | ---------------------- | ------ | ----- |  | ---- | ------ | ---- |  | ---- | ------ | ---------- |  | ---- | ------- | - |  | - | ------- | - |  | - | --------- | - |  | - | --------- | -
|                      |  |                       
|                      |  | Expected Maturity Date
|                      |  |                       
|                      |  |                        |        | Total
|                      |  | 2002                   |        | 2003  |  | 2004 |        | 2005 |  | 2006 |        | Thereafter |  | Debt
|                      |  |                        |        |       |  |      |        |      |  |      |        |            |  |     
|Fixed rate debt(1)    |  | $                      | 42,664 |       |  | $    | 91,982 |      |  | $    | 99,256 |            |  | $    | 352,143 |   |  | $ | 181,980 |   |  | $ | 1,307,055 |   |  | $ | 2,075,080 |  
|Average interest rate |  |                        | 7.9    | %     |  |      | 7.8    | %    |  |      | 8.0    | %          |  |      | 7.3     | % |  |   | 7.3     | % |  |   | 7.4       | % |  |   | 7.4       | %
|Variable rate debt(2) |  | $                      | 584    |       |  | $    | 77,599 |      |  | $    | 29,513 |            |  | $    | 2,708   |   |  | $ | 7,968   |   |  | $ | 6,179     |   |  | $ | 124,551   |  
|Average interest rate |  |                        | 3.7    | %     |  |      | 3.0    | %    |  |      | 3.6    | %          |  |      | 3.9     | % |  |   | 3.5     | % |  |   | 3.4       | % |  |   | 3.2       | %



---



|    |                                          
|--- | -----------------------------------------
|(1) | Represents 94.3% of all outstanding debt.
|   
|(2) | Represents 5.7% of all outstanding debt. 

If market rates of interest on our variable rate
debt increased by 10% (or approximately 32 basis points), then
the increase in interest expense on the variable rate debt would
be approximately $0.4 million annually. As of June 30,
2002 the estimated fair value of our fixed rate debt was
$2,182.3 million.

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##### Table of Contents






PART II




Item 1.     Legal
Proceedings

As of June 30, 2002, 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

On July 31, 2002, AMB Property II,
L.P., one of our subsidiaries, repurchased
130,000 7.95% Series F Cumulative Redeemable
Preferred Limited Partnership Units and all 20,000 of its
outstanding 7.95% Series G Cumulative Redeemable
Preferred Limited Partnership Units from a single institutional
investor. AMB Property II, L.P. redeemed the units for an
aggregate cost of $7.1 million, including accrued and
unpaid dividends.




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. Periods of economic slowdown or
recession in the United States and in other countries, rising
interest rates, or declining demand for real estate, or public
perception that any of these events may occur would result in a
general decrease in rents or an increased occurrence of defaults
under existing leases, which would adversely affect our
financial condition and results of operations.

Our properties are currently concentrated
predominantly in the industrial real estate sector. Our
concentration in a certain property type exposes 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),

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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.
Future terrorist attacks in the United States may result in
declining economic activity, which could harm the demand for and
the value of our properties. To the extent that our customers
are impacted by future attacks, their businesses similarly could
be adversely affected, including their ability to continue to
honor their existing leases.




| |                                                                     
| | --------------------------------------------------------------------
| | 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
8.0% of our industrial properties (based on annualized base
rent) as of June 30, 2002, will expire on or prior to
December 31, 2002. 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 payment
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, 2002, represented approximately 27.9% of the
aggregate square footage of our industrial operating properties
as of June 30, 2002, and 35.1% of our industrial annualized
base rent. Annualized base rent means the monthly contractual
amount under existing leases as of June 30, 2002,
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 Californias economy or 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. (See Some Potential Losses are not Covered by
Insurance.)

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,

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including losses due to riots or acts of war.
Although we have obtained coverage for certain acts of
terrorism, with policy specifications and insured limits that we
believe are commercially reasonable, it is not certain that we
will be able to collect under such policies. Certain losses such
as losses due to terrorism, 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.
Moreover, as the general partner of the joint ventures, we
generally will be liable for all of the joint ventures
unsatisfied obligations other than non-recourse obligations. Any
such liabilities 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, 2002, 292 industrial
buildings aggregating approximately 23.5 million square
feet (representing 27.9% of our industrial operating properties
based on aggregate square footage and 35.1% based on industrial
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 Capital Partners, LLC, with a single
aggregate policy limit and deductible applicable to those
properties and our properties. 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, which we believe is commercially reasonable. 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, 2002, 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,
2002, we owned approximately 33.5 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. Such partners may 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.

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

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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 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 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 Divestitures on
Advantageous Terms

We have decided to divest ourselves of retail
centers and industrial properties that 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. 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.

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.

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 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.
However, 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 without unitholder or
noteholder

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consent. 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, 2002, we had total debt
outstanding of approximately $2.2 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, 2002, we had
$52.0 million outstanding under our Alliance Fund II
secured credit facility, no outstanding balance on our unsecured
credit facility, and we had seven secured loans with an
aggregate principal amount of $72.6 million, which bear
interest at variable rates (with weighted average interest rate
of 3.5% as of June 30, 2002). 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, in the future, we may engage in
transactions to limit our exposure to rising interest rates.



| |                                                    
| | ---------------------------------------------------
| | We Are Dependent on External Sources of
    Capital

In order for our general partner, AMB Property
Corporation, to qualify as a real estate investment trust under
the Internal Revenue Code, we are required each year to make
distributions to enable our general partner to distribute to its
stockholders at least 90% of our 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 debt-to-total capitalization ratio.



| |                                                                      
| | ---------------------------------------------------------------------
| | We Could Default on Cross-Collateralized
    and Cross-Defaulted Debt

As of June 30, 2002, we had 23 non-recourse
secured loans, which are cross-collateralized by
59 properties, totaling $676.5 million (not including
unamortized debt premium). If we default on any of these

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loans, then we could 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. In addition, our credit facilities and our senior
debt securities 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 facilities 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 19 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 our
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 our 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.

Our Former Independent Public Accountant,
Arthur Andersen LLP, Has Been Found Guilty of Federal
Obstruction of Justice Charges

Although we dismissed Arthur Andersen, LLP as our
independent public accountants and engaged
PricewaterhouseCoopers LLP on May 8, 2002, our consolidated
financial statements as of and for each of the fiscal years
ended December 31, 2001, 2000 and 1999 included in our
Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 were audited by Arthur Andersen. In light
of the jury conviction of Arthur Andersen on obstruction of
justice charges and the underlying events, Arthur Andersen has
informed the Securities and Exchange Commission that it will
cease practicing before the Securities and Exchange Commission
by August 31, 2002, unless the Securities and Exchange
Commission determines another date is appropriate. A substantial
number of Arthur Andersens personnel have already left the
firm, including the individuals responsible for auditing our
audited financial statements in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2001,
and substantially all remaining personnel are expected to do so
in the near future. Because it is unlikely that Arthur Andersen
will survive, our security holders are unlikely to be able to
exercise effective remedies or collect judgments against them.
Moreover, Arthur Andersen has informed us that it is no longer
able to reissue its audit reports because both the partner and
the audit manager who were assigned to our account have left the
firm. In addition, Arthur Andersen is unable to perform

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procedures to assure the continued accuracy of
its report on our audited financial statements in our Annual
Report on Form 10-K for the fiscal year ended
December 31, 2001, or to provide other information or
documents that would customarily be received by us or
underwriters in connection with financings or other
transactions, including consents and comfort
letters. As a result, we may encounter delays, additional
expense, and other difficulties in future financings. Any
resulting delay in accessing public capital markets could
adversely affect our financial condition and results of
operations. However, we believe that our sources of working
capital, specifically our cash flow from operations and
borrowings available under our unsecured credit facility, are
adequate for us to meet our liquidity requirements for the
foreseeable future.


Conflicts of Interest



| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | Some of AMB Property Corporations
    Directors and 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 Aspire Development, Inc. and
Aspire Development, L.P., developers that own property not
suitable for ownership by us. Aspire Development, Inc. and
Aspire Development, L.P. have agreed that they will not make any
further investments in industrial properties other than those
currently under development at the time of AMB Property
Corporations initial public offering. 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. 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.



| |                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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, 2002, Aspire Development,
L.P. owns interests in several retail development projects in
the U.S., which are individually less than 10,000 feet. In
addition, Messrs. 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. 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, with a
market value of approximately $2.2 million.
Messrs. Moghadam and Burke each have a 26.7% interest in
the partnership, each with a market value of approximately
$2.9 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 by 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

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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 23, 2002, AMB Property
Corporations two largest stockholders, Morgan Stanley
Investment Management, Inc. (with respect to various client
accounts for which Morgan Stanley Investment Management, Inc.
serves as investment advisor) and Cohen & Steers Capital
Management, Inc. (with respect to various client accounts for
which Cohen & Steers Capital Management, Inc. serves as
investment advisor) beneficially owned 10.4% of AMB Property
Corporations outstanding common stock. In addition, AMB
Property Corporations executive officers and directors
beneficially owned 4.3% of AMB Property Corporations
outstanding common stock as of August 2, 2002, and will
have influence on AMB Property Corporations management and
operation and, as stockholders, 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.



| |                                              
| | ---------------------------------------------
| | 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 failing

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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
customers 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 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 customers, 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 could be adversely affected.



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | 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.

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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.

We May Be Unable to Effectively Manage Our
International Growth

We expect to acquire or develop additional
properties in foreign countries. Local markets affect our
operations and, therefore, we would be subject to economic
fluctuations in foreign locations. Our international operations
also would be subject to the usual risks of doing business
abroad such as the revaluation of currencies, revisions in tax
treaties or other laws governing the taxation of revenues,
restrictions on the transfer of funds, and, in certain parts of
the world, political instability. We cannot predict the
likelihood that any such developments may occur. Further, we may
enter into agreements with non-U.S. entities that are governed
by the laws of, and are subject to dispute resolution in, the
courts of another country or region. We cannot accurately
predict whether such a forum would provide us with an effective
and efficient means of resolving disputes that may arise. Even
if we are able to obtain a satisfactory decision through
arbitration or a court proceeding, we could have difficulty
enforcing any award or judgment on a timely basis. Our business
has grown rapidly and continues to grow through property
acquisitions and developments. If we fail to effectively manage
our international 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.

We Are Dependent On Our General Partners
Personnel

We depend on the efforts of our general
partners executive officers. 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 its executive officers.




Item 6.     Exhibits
and Reports on Form 8-K

(a) Exhibits:

|        |      |             |  |                                                                                                                                                                                                                                                                                  
|------- | ---- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 4.1  |             |  | Registration Rights Agreement among AMB Property
    Corporation and the Registrant and the unitholders signatory
    thereto dated April 17, 2002 (incorporated by reference to
    Exhibit 4.1 of AMB Property, L.P.s Current Report on
    Form 8-K filed on April 23, 2002).
|        | 10.1 |             |  | Sixth Amended and Restated Agreement of Limited
    Partnership of AMB Property, L.P., dated April 17, 2002
    (incorporated by reference to Exhibit 10.1 of AMB Property,
    L.P.s Current Report on Form 8-K filed on
    April 23, 2002).                                  
|        | 10.2 |             |  | Eleventh Amended and Restated Agreement of
    Limited Partnership of AMB Property II, L.P., dated
    July 31, 2002.                                                                                                                                                            

(b) Reports on Form 8-K:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | AMB Property, L.P. filed a Current Report on
    Form 8-K on April 23, 2002, in connection with its
    issuance and sale of 800,000 7.95% Series K Cumulative
    Redeemable Preferred Limited Partnership Units and the filing by
    AMB Property, L.P. of Articles Supplementary establishing and
    fixing the rights and preferences of the 7.95% Series K
    Cumulative Redeemable Preferred Stock.
|
| |  | AMB Property, L.P. filed a Current Report on
    Form 8-K on May 8, 2002, in connection with its
    dismissal of its independent auditors, Arthur Andersen LLP and
    its engagement of PricewaterhouseCoopers LLP as its new
    independent auditors for the current fiscal year ending
    December 31, 2002.                                                                                          

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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        



| |     |                      
| | --- | ---------------------
| | By: | /s/ HAMID R. MOGHADAM

| |                             
| | ----------------------------
| |                             
| | Hamid R. Moghadam           
| | Chairman of the Board and   
| | Chief Executive Officer     
| | (Duly Authorized Officer and
| | Principal Executive Officer)



| |     |                   
| | --- | ------------------
| | By: | /s/ W. BLAKE BAIRD

| |                          
| | -------------------------
| |                          
| | W. Blake Baird           
| | President and Director   
| | (Duly Authorized Officer)



| |     |                    
| | --- | -------------------
| | By: | /s/ MICHAEL A. COKE

| |                                       
| | --------------------------------------
| |                                       
| | Michael A. Coke                       
| | Chief Financial Officer and           
| | Executive Vice President              
| | (Duly Authorized Officer and Principal
| | Financial and Accounting Officer)     

Date: August 14, 2002

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