##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, DC 20549




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Form 10-Q





|                                  |  |                                                                                             
|--------------------------------- |  | --------------------------------------------------------------------------------------------
|(Mark One)                        |  |                                                                                             
|                                 
|þ                                 |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                 
|                                  |  | For the quarterly period ended
    September 30, 2004                                       
|                                 
|OR                               
|                                 
|o                                 |  | TRANSITION 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.

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



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AMB PROPERTY, L.P.

INDEX

|                                   |  |                                                                                                                                 |  |      |    | 
|---------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                   |  |                                                                                                                                 |  | Page
|                                   |  |                                                                                                                                 |  |     
|PART I.  FINANCIAL
    INFORMATION
|Item 1.                            |  | Financial Statements
    (unaudited)                                                                                            |  |      |    | 
|                                   |  | Consolidated Balance Sheets
    as of September 30, 2004 and December 31, 2003
    (Restated)                                   |  |      | 1  | 
|                                   |  | Consolidated Statements of
    Operations for the three months and nine months ended
    September 30, 2004 and 2003 (Restated) |  |      | 2  | 
|                                   |  | Consolidated Statements of
    Cash Flows for the nine months ended September 30, 2004 and
    2003 (Restated)                  |  |      | 3  | 
|                                   |  | Consolidated Statement of
    Partners Capital for the nine months ended
    September 30, 2004                                |  |      | 4  | 
|                                   |  | Notes to Consolidated
    Financial Statements                                                                                  |  |      | 5  | 
|Item 2.                            |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                                       |  |      | 26 | 
|Item 3.                            |  | Quantitative and Qualitative
    Disclosures About Market Risk                                                                  |  |      | 53 | 
|Item 4.                            |  | Controls and Procedures                                                                                                         |  |      | 54 | 
|                                  
|PART II.  OTHER
    INFORMATION   
|Item 1.                            |  | Legal Proceedings                                                                                                               |  |      | 55 | 
|Item 2.                            |  | Unregistered Sales of Equity
    Securities and Use of Proceeds                                                                 |  |      | 56 | 
|Item 3.                            |  | Defaults Upon Senior
    Securities                                                                                             |  |      | 56 | 
|Item 4.                            |  | Submission of Matters to a
    Vote of Security Holders                                                                         |  |      | 56 | 
|Item 5.                            |  | Other Information                                                                                                               |  |      | 56 | 
|Item 6.                            |  | Exhibits                                                                                                                        |  |      | 56 | 
|EXHIBIT 10.3                      
|EXHIBIT 10.4                      
|EXHIBIT 31.1                      
|EXHIBIT 32.1                      





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##### Table of Contents






PART I






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

AMB PROPERTY, L.P.



CONSOLIDATED BALANCE SHEETS


As of September 30, 2004 and
December 31, 2003 (Restated)


|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |           |           |           | 
|--------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | --------------------------------------- | ------------ | --------- | --------- | ------- | --------- | --------- | --------- | 
|                                                                |                                                                                                                                                                                                                                                                                                     | September 30,                   |                                         | December 31,
|                                                                |                                                                                                                                                                                                                                                                                                     | 2004                            |                                         | 2003        
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |             
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         | (Restated)  
|                                                                |                                                                                                                                                                                                                                                                                                     |                                
|                                                                |                                                                                                                                                                                                                                                                                                     | (Unaudited, dollars in         
|                                                                |                                                                                                                                                                                                                                                                                                     | thousands)                     
|ASSETS                                                         
|Investments in real estate:                                     |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                | Land                                                                                                                                                                                                                                                                                                |                                 | $                                       | 1,527,247    |           |           | $       | 1,403,807 |          
|                                                                | Buildings and improvements                                                                                                                                                                                                                                                                          |                                 |                                         | 4,263,195    |           |           |         | 3,888,272 |          
|                                                                | Construction in progress                                                                                                                                                                                                                                                                            |                                 |                                         | 512,087      |           |           |         | 199,628   |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Total investments in properties |                                         |              | 6,302,529 |           |         |           | 5,491,707 |          
|                                                                | Accumulated depreciation and amortization                                                                                                                                                                                                                                                           |                                 |                                         | (595,438     | )         |           |         | (485,559  | )        
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Net investments in properties   |                                         |              | 5,707,091 |           |         |           | 5,006,148 |          
|Investments in unconsolidated joint ventures                    |                                                                                                                                                                                                                                                                                                     |                                 | 48,601                                  |              |           |           | 52,009  |          
|Properties held for contribution, net                           |                                                                                                                                                                                                                                                                                                     |                                 | 11,854                                  |              |           |           |        |          
|Properties held for divestiture, net                            |                                                                                                                                                                                                                                                                                                     |                                 | 59,924                                  |              |           |           | 11,751  |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Net investments in real estate  |                                         |              | 5,827,470 |           |         |           | 5,069,908 |          
|Cash and cash equivalents                                       |                                                                                                                                                                                                                                                                                                     |                                 | 116,378                                 |              |           |           | 127,678 |          
|Restricted cash                                                 |                                                                                                                                                                                                                                                                                                     |                                 | 57,945                                  |              |           |           | 28,985  |          
|Mortgages receivable                                            |                                                                                                                                                                                                                                                                                                     |                                 | 23,068                                  |              |           |           | 43,145  |          
|Accounts receivable, net of allowance for
    doubtful accounts |                                                                                                                                                                                                                                                                                                     |                                 | 102,078                                 |              |           |           | 88,452  |          
|Other assets                                                    |                                                                                                                                                                                                                                                                                                     |                                 | 94,711                                  |              |           |           | 51,391  |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Total assets                    |                                         | $            | 6,221,650 |           |         | $         | 5,409,559 |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                               
|LIABILITIES AND PARTNERS
    CAPITAL                          
|Debt:                                                           |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                | Secured debt including unamortized premium                                                                                                                                                                                                                                                          |                                 | $                                       | 1,617,944    |           |           | $       | 1,363,890 |          
|                                                                | Unsecured senior debt securities                                                                                                                                                                                                                                                                    |                                 |                                         | 1,025,000    |           |           |         | 925,000   |          
|                                                                | Unsecured debt                                                                                                                                                                                                                                                                                      |                                 |                                         | 9,182        |           |           |         | 9,628     |          
|                                                                | Unsecured credit facilities                                                                                                                                                                                                                                                                         |                                 |                                         | 583,864      |           |           |         | 275,739   |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Total debt                      |                                         |              | 3,235,990 |           |         |           | 2,574,257 |          
|Distributions payable                                           |                                                                                                                                                                                                                                                                                                     |                                 | 40,898                                  |              |           |           | 39,076  |          
|Accounts payable and other liabilities                          |                                                                                                                                                                                                                                                                                                     |                                 | 237,452                                 |              |           |           | 148,019 |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Total liabilities               |                                         |              | 3,514,340 |           |         |           | 2,761,352 |          
|Commitments and contingencies (Notes 3 and
    12)              |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|Minority interests:                                             |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                | Joint venture partners                                                                                                                                                                                                                                                                              |                                 |                                         | 701,639      |           |           |         | 658,723   |          
|                                                                | Preferred unitholders                                                                                                                                                                                                                                                                               |                                 |                                         | 203,260      |           |           |         | 166,865   |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Total minority interests        |                                         |              | 904,899   |           |         |           | 825,588   |          
|Partners capital:                                              |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                | General partner, 82,689,635 and
    81,563,502 units outstanding, respectively; 2,000,000
    Series L preferred units issued and outstanding with a
    $50,000 liquidation preference and 2,300,000 Series M
    preferred units issued and outstanding with a $57,500
    liquidation preference |                                 |                                         | 1,639,267    |           |           |         | 1,657,137 |          
|                                                                | Limited partners, 4,604,910 and
    4,618,242 units, respectively; 800,000 Series J
    preferred units with a $40,000 liquidation preference, 800,000
    Series K preferred units with a $40,000 liquidation
    preference                                                                       |                                 |                                         | 163,144      |           |           |         | 165,482   |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Total partners capital         |                                         |              | 1,802,411 |           |         |           | 1,822,619 |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 | Total liabilities and partners capital |              | $         | 6,221,650 |         |           | $         | 5,409,559 | 
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          

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

1



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##### Table of Contents



AMB PROPERTY, L.P.



CONSOLIDATED STATEMENTS OF
OPERATIONS


For the Three and Nine Months ended
September 30, 2004 and 2003 (Restated)


|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |            |          |          |        | 
|----------------------------------------------------------- | ------------------------------------------------------------------------------------ | ------------------------------------------------------- | -------------------------------------------------------- | ---------------------------------------------------------------- | ------- | -------- | ------ | ---------- | ------- | ------- | ------ | ---------- | -------- | -------- | ------- | ---------- | -------- | -------- | ------ | 
|                                                            |                                                                                      |                                                         |                                                          |                                                                 
|                                                            |                                                                                      | For the Three Months                                    |                                                          | For the Nine Months                                             
|                                                            |                                                                                      | ended September 30,                                     |                                                          | ended September 30,                                             
|                                                            |                                                                                      |                                                         |                                                          |                                                                 
|                                                            |                                                                                      | 2004                                                    |                                                          | 2003                                                             |         | 2004     |        | 2003      
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |           
|                                                            |                                                                                      |                                                         |                                                          | (Restated)                                                       |         |          |        | (Restated)
|                                                            |                                                                                      |                                                        
|                                                            |                                                                                      | (Unaudited, dollars in thousands,                      
|                                                            |                                                                                      | except share and per share amounts)                    
|REVENUES                                                    |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|                                                            |                                                                                      | Rental revenues                                         |                                                          | $                                                                | 173,803 |          |        | $          | 145,466 |         |        | $          | 497,000  |          |         | $          | 434,589  |         
|                                                            |                                                                                      | Private capital income                                  |                                                          |                                                                  | 2,726   |          |        |            | 1,928   |         |        |            | 8,077    |          |         |            | 7,844    |         
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|                                                            |                                                                                      |                                                         | Total revenues                                           |                                                                  |         | 176,529  |        |            |         | 147,394 |        |            |          | 505,077  |         |            |          | 442,433  |       
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|COSTS AND EXPENSES                                          |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|                                                            |                                                                                      | Property operating expenses                             |                                                          |                                                                  | (24,678 | )        |        |            | (21,910 | )       |        |            | (70,963  | )        |         |            | (63,627  | )       
|                                                            |                                                                                      | Real estate taxes                                       |                                                          |                                                                  | (19,275 | )        |        |            | (17,219 | )       |        |            | (57,617  | )        |         |            | (51,923  | )       
|                                                            |                                                                                      | Depreciation and amortization                           |                                                          |                                                                  | (42,099 | )        |        |            | (33,734 | )       |        |            | (120,998 | )        |         |            | (102,847 | )       
|                                                            |                                                                                      | Impairment losses                                       |                                                          |                                                                  |        |          |        |            |        |         |        |            |         |          |         |            | (5,251   | )       
|                                                            |                                                                                      | General and administrative                              |                                                          |                                                                  | (15,747 | )        |        |            | (10,824 | )       |        |            | (45,706  | )        |         |            | (34,834  | )       
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|                                                            |                                                                                      |                                                         | Total costs and expenses                                 |                                                                  |         | (101,799 | )      |            |         | (83,687 | )      |            |          | (295,284 | )       |            |          | (258,482 | )     
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|OTHER INCOME AND EXPENSES                                   |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|                                                            |                                                                                      | Equity in earnings of unconsolidated joint
    ventures |                                                          |                                                                  | 603     |          |        |            | 1,365   |         |        |            | 3,256    |          |         |            | 4,222    |         
|                                                            |                                                                                      | Interest and other income                               |                                                          |                                                                  | 1,295   |          |        |            | 653     |         |        |            | 3,283    |          |         |            | 3,144    |         
|                                                            |                                                                                      | Gains from dispositions of real estate                  |                                                          |                                                                  |        |          |        |            |        |         |        |            |         |          |         |            | 7,429    |         
|                                                            |                                                                                      | Development profits, net of taxes                       |                                                          |                                                                  | 1,521   |          |        |            | 5,512   |         |        |            | 4,756    |          |         |            | 5,512    |         
|                                                            |                                                                                      | Interest, including amortization                        |                                                          |                                                                  | (40,324 | )        |        |            | (35,562 | )       |        |            | (118,449 | )        |         |            | (107,132 | )       
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|                                                            |                                                                                      |                                                         | Total other income and expenses, net                     |                                                                  |         | (36,905  | )      |            |         | (28,032 | )      |            |          | (107,154 | )       |            |          | (86,825  | )     
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|                                                            |                                                                                      |                                                         |                                                          | Income before minority interests and discontinued
    operations |         |          | 37,825 |            |         |         | 35,675 |            |          |          | 102,639 |            |          |          | 97,126 | 
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|                                                            |                                                                                      | Minority interests share of income:                    |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |            |          |         
|                                                            |                                                                                      |                                                         | Joint venture partners share of operating
    income    |                                                                  |         | (10,302  | )      |            |         | (9,546  | )      |            |          | (28,978  | )       |            |          | (24,712  | )     
|                                                            |                                                                                      |                                                         | Joint venture partners share of development
    profits |                                                                  |         | (66      | )      |            |         | (3,331  | )      |            |          | (672     | )       |            |          | (3,331   | )     
|                                                            |                                                                                      |                                                         | Preferred unitholders                                    |                                                                  |         | (3,378   | )      |            |         | (3,322  | )      |            |          | (10,076  | )       |            |          | (10,098  | )     
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|                                                            |                                                                                      |                                                         | Total minority interests share of income                |                                                                  |         | (13,746  | )      |            |         | (16,199 | )      |            |          | (39,726  | )       |            |          | (38,141  | )     
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|Income from continuing operations                           |                                                                                      |                                                         | 24,079                                                   |                                                                  |         |          | 19,476 |            |         |         | 62,913 |            |          |          | 58,985  |           
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|Discontinued operations:                                    |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|                                                            | Income (loss) attributable to discontinued
    operations, net of minority interests |                                                         |                                                          | 185                                                              |         |          |        | 2,030      |         |         |        | (181       | )        |          |         | 14,357     |         
|                                                            | Gains from dispositions of real estate, net of
    minority interests                |                                                         |                                                          | 11,051                                                           |         |          |        | 8,338      |         |         |        | 13,034     |          |          |         | 41,849     |         
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|                                                            |                                                                                      |                                                         | Total discontinued operations                            |                                                                  |         | 11,236   |        |            |         | 10,368  |        |            |          | 12,853   |         |            |          | 56,206   |       
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|Net income                                                  |                                                                                      |                                                         | 35,315                                                   |                                                                  |         |          | 29,844 |            |         |         | 75,766 |            |          |          | 115,191 |           
|                                                            | Series A, L and M preferred unit
    distributions                                   |                                                         |                                                          | (1,783                                                           | )       |          |        | (1,470     | )       |         |        | (5,349     | )        |          |         | (5,788     | )       
|                                                            | Series B, J and K preferred unit
    distributions                                   |                                                         |                                                          | (1,590                                                           | )       |          |        | (2,992     | )       |         |        | (4,770     | )        |          |         | (8,975     | )       
|                                                            | Preferred unit redemption issuance costs                                             |                                                         |                                                          |                                                                 |         |          |        | (3,671     | )       |         |        |           |          |          |         | (3,671     | )       
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|                                                            |                                                                                      |                                                         | Net income available to common unitholders               |                                                                  | $       | 31,942   |        |            | $       | 21,711  |        |            | $        | 65,647   |         |            | $        | 96,757   |       
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|INCOME AVAILABLE TO COMMON UNITHOLDERS
    ATTRIBUTABLE TO: |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|                                                            | General partner                                                                      |                                                         | $                                                        | 30,266                                                           |         |          | $      | 20,547     |         |         | $      | 62,188     |          |          | $       | 91,391     |         
|                                                            | Limited partners                                                                     |                                                         |                                                          | 1,676                                                            |         |          |        | 1,164      |         |         |        | 3,459      |          |          |         | 5,366      |         
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|                                                            |                                                                                      |                                                         | Net income available to common unitholders               |                                                                  | $       | 31,942   |        |            | $       | 21,711  |        |            | $        | 65,647   |         |            | $        | 96,757   |       
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|BASIC INCOME PER COMMON UNIT                                |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|                                                            | Income from continuing operations (includes
    preferred unit distributions)        |                                                         | $                                                        | 0.24                                                             |         |          | $      | 0.13       |         |         | $      | 0.61       |          |          | $       | 0.47       |         
|                                                            | Discontinued operations                                                              |                                                         |                                                          | 0.13                                                             |         |          |        | 0.12       |         |         |        | 0.15       |          |          |         | 0.66       |         
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|                                                            |                                                                                      |                                                         |                                                          | Net income available to common unitholders                       |         | $        | 0.37   |            |         | $       | 0.25   |            |          | $        | 0.76    |            |          | $        | 1.13   | 
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|DILUTED INCOME PER COMMON UNIT                              |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|                                                            | Income from continuing operations (includes
    preferred unit distributions)        |                                                         | $                                                        | 0.23                                                             |         |          | $      | 0.13       |         |         | $      | 0.59       |          |          | $       | 0.46       |         
|                                                            | Discontinued operations                                                              |                                                         |                                                          | 0.12                                                             |         |          |        | 0.12       |         |         |        | 0.14       |          |          |         | 0.65       |         
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|                                                            |                                                                                      |                                                         |                                                          | Net income available to common unitholders                       |         | $        | 0.35   |            |         | $       | 0.25   |            |          | $        | 0.73    |            |          | $        | 1.11   | 
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|WEIGHTED AVERAGE COMMON UNITS
    OUTSTANDING               |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|                                                            | Basic                                                                                |                                                         |                                                          | 86,943,931                                                       |         |          |        | 85,776,251 |         |         |        | 86,749,022 |          |          |         | 85,874,579 |         
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           
|                                                            | Diluted                                                                              |                                                         |                                                          | 90,146,245                                                       |         |          |        | 87,399,544 |         |         |        | 89,764,633 |          |          |         | 87,342,075 |         
|                                                            |                                                                                      |                                                         |                                                          |                                                                  |         |          |        |            |         |         |        |            |          |          |         |           

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

2



---



##### Table of Contents



AMB PROPERTY, L.P.



CONSOLIDATED STATEMENTS OF CASH
FLOWS


For the Nine Months Ended September 30,
2004 and 2003 (Restated)


|                                                                                            |                                                                 |                                                                       |                                                         |                                                                  |         |          |          |         |         |          |         | 
|------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | --------------------------------------------------------------------- | ------------------------------------------------------- | ---------------------------------------------------------------- | ------- | -------- | -------- | ------- | ------- | -------- | ------- | 
|                                                                                            |                                                                 | 2004                                                                  |                                                         | 2003                                                            
|                                                                                            |                                                                 |                                                                       |                                                         |                                                                 
|                                                                                            |                                                                 |                                                                       |                                                         | (Restated)                                                      
|                                                                                            |                                                                 |                                                                       |                                                         |                                                                 
|                                                                                            |                                                                 |                                                                      
|                                                                                            |                                                                 | (Unaudited, dollars in                                               
|                                                                                            |                                                                 | thousands)                                                           
|CASH FLOWS FROM OPERATING ACTIVITIES                                                        |                                                                 |                                                                       |                                                         |                                                                  |         |          |          |        
|Net income                                                                                  |                                                                 | $                                                                     | 75,766                                                  |                                                                  |         | $        | 115,191  |        
|Adjustments to net income:                                                                  |                                                                 |                                                                       |                                                         |                                                                  |         |          |          |        
|                                                                                            | Straight-line rents                                             |                                                                       |                                                         | (11,251                                                          | )       |          |          | (6,832  | )      
|                                                                                            | Depreciation and amortization                                   |                                                                       |                                                         | 120,998                                                          |         |          |          | 102,847 |        
|                                                                                            | Impairment losses                                               |                                                                       |                                                         |                                                                 |         |          |          | 5,251   |        
|                                                                                            | Stock-based compensation amortization                           |                                                                       |                                                         | 7,943                                                            |         |          |          | 6,000   |        
|                                                                                            | Recognition of below market leases                              |                                                                       |                                                         | (710                                                             | )       |          |          |        |        
|                                                                                            | Equity in earnings of unconsolidated joint
    ventures         |                                                                       |                                                         | (3,256                                                           | )       |          |          | (4,222  | )      
|                                                                                            | Gains from dispositions of real estate                          |                                                                       |                                                         |                                                                 |         |          |          | (7,429  | )      
|                                                                                            | Development profits, net of taxes                               |                                                                       |                                                         | (4,756                                                           | )       |          |          | (5,512  | )      
|                                                                                            | Debt premiums, discounts and finance cost
    amortization, net |                                                                       |                                                         | (336                                                             | )       |          |          | 1,577   |        
|                                                                                            | Total minority interests share of net income                   |                                                                       |                                                         | 39,726                                                           |         |          |          | 38,141  |        
|                                                                                            | Discontinued operations:                                        |                                                                       |                                                         |                                                                  |         |          |          |         |        
|                                                                                            |                                                                 | Depreciation and amortization                                         |                                                         |                                                                  | 1,733   |          |          |         | 2,346   |         
|                                                                                            |                                                                 | Joint venture partners share of net income                           |                                                         |                                                                  | 2,474   |          |          |         | 2,414   |         
|                                                                                            |                                                                 | Gains from dispositions of real estate, net of
    minority interests |                                                         |                                                                  | (13,034 | )        |          |         | (41,849 | )       
|                                                                                            | Changes in assets and liabilities:                              |                                                                       |                                                         |                                                                  |         |          |          |         |        
|                                                                                            |                                                                 | Accounts receivable and other assets                                  |                                                         |                                                                  | (9,708  | )        |          |         | (27,697 | )       
|                                                                                            |                                                                 | Accounts payable and other liabilities                                |                                                         |                                                                  | 26,794  |          |          |         | (6,512  | )       
|                                                                                            |                                                                 |                                                                       |                                                         |                                                                  |         |          |          |        
|                                                                                            |                                                                 |                                                                       | Net cash provided by operating activities               |                                                                  |         | 232,383  |          |         |         | 173,714  |        
|                                                                                            |                                                                 |                                                                       |                                                         |                                                                  |         |          |          |        
|CASH FLOWS FROM INVESTING ACTIVITIES                                                        |                                                                 |                                                                       |                                                         |                                                                  |         |          |          |        
|Change in restricted cash                                                                   |                                                                 |                                                                       | (30,896                                                 | )                                                                |         |          | 3,828    |        
|Cash paid for property acquisitions                                                         |                                                                 |                                                                       | (300,802                                                | )                                                                |         |          | (176,498 | )      
|Additions to land, buildings, development costs
    and other first generation improvements |                                                                 |                                                                       | (470,934                                                | )                                                                |         |          | (188,165 | )      
|Net proceeds from divestiture of real estate                                                |                                                                 |                                                                       | 103,987                                                 |                                                                  |         |          | 355,986  |        
|Additions to interests in unconsolidated joint
    ventures                                 |                                                                 |                                                                       | (4,547                                                  | )                                                                |         |          | (22,071  | )      
|Distributions received from unconsolidated joint
    ventures                               |                                                                 |                                                                       | 12,339                                                  |                                                                  |         |          | 34,775   |        
|Repayment of mortgage receivable                                                            |                                                                 |                                                                       | 20,077                                                  |                                                                  |         |          |         |        
|                                                                                            |                                                                 |                                                                       |                                                         |                                                                  |         |          |          |        
|                                                                                            |                                                                 |                                                                       | Net cash (used in) provided by investing
    activities |                                                                  |         | (670,776 | )        |         |         | 7,855    |        
|                                                                                            |                                                                 |                                                                       |                                                         |                                                                  |         |          |          |        
|CASH FLOWS FROM FINANCING ACTIVITIES                                                        |                                                                 |                                                                       |                                                         |                                                                  |         |          |          |        
|Borrowings on secured debt                                                                  |                                                                 |                                                                       | 200,016                                                 |                                                                  |         |          | 148,450  |        
|Payments on secured debt                                                                    |                                                                 |                                                                       | (81,719                                                 | )                                                                |         |          | (126,972 | )      
|Payments on unsecured debt                                                                  |                                                                 |                                                                       | (446                                                    | )                                                                |         |          |         |        
|Borrowings on unsecured credit facilities                                                   |                                                                 |                                                                       | 683,463                                                 |                                                                  |         |          | 314,843  |        
|Payments on unsecured credit facilities                                                     |                                                                 |                                                                       | (377,324                                                | )                                                                |         |          | (321,000 | )      
|Borrowings on Alliance Fund II credit
    facility                                          |                                                                 |                                                                       |                                                        |                                                                  |         |          | 8,000    |        
|Payments on Alliance Fund II credit facility                                                |                                                                 |                                                                       |                                                        |                                                                  |         |          | (53,500  | )      
|Payment of financing fees                                                                   |                                                                 |                                                                       | (7,422                                                  | )                                                                |         |          | (2,625   | )      
|Net proceeds from issuances of senior debt
    securities                                   |                                                                 |                                                                       | 99,142                                                  |                                                                  |         |          |         |        
|Issuance of common units                                                                    |                                                                 |                                                                       | 20,133                                                  |                                                                  |         |          | 4,774    |        
|Repurchase and retirement of common and preferred
    units                                 |                                                                 |                                                                       |                                                        |                                                                  |         |          | (121,239 | )      
|Net proceeds from issuances of preferred units                                              |                                                                 |                                                                       |                                                        |                                                                  |         |          | 48,221   |        
|Repurchase of preferred units,                                                              |                                                                 |                                                                       |                                                        |                                                                  |         |          | (3,172   | )      
|Issuance costs on preferred units                                                           |                                                                 |                                                                       | (169                                                    | )                                                                |         |          |         |        
|Contributions from co-investment partners                                                   |                                                                 |                                                                       | 43,604                                                  |                                                                  |         |          | 158,718  |        
|Distributions paid to partners                                                              |                                                                 |                                                                       | (113,763                                                | )                                                                |         |          | (122,717 | )      
|Distributions to minority interests, including
    preferred units                          |                                                                 |                                                                       | (43,471                                                 | )                                                                |         |          | (75,083  | )      
|                                                                                            |                                                                 |                                                                       |                                                         |                                                                  |         |          |          |        
|                                                                                            |                                                                 |                                                                       | Net cash provided by (used in) financing
    activities |                                                                  |         | 422,044  |          |         |         | (143,302 | )      
|                                                                                            |                                                                 |                                                                       |                                                         |                                                                  |         |          |          |        
|                                                                                            |                                                                 |                                                                       |                                                         | Effect of exchange rate changes on cash and cash
    equivalents |         |          | 5,049    |         |         |          | 779     | 
|                                                                                            |                                                                 |                                                                       |                                                         |                                                                  |         |          |          |        
|                                                                                            |                                                                 |                                                                       |                                                         | Net (decrease) increase in cash and cash
    equivalents         |         |          | (11,300  | )       |         |          | 39,046  | 
|                                                                                            |                                                                 |                                                                       |                                                         | Cash and cash equivalents at beginning of period                 |         |          | 127,678  |         |         |          | 89,332  | 
|                                                                                            |                                                                 |                                                                       |                                                         |                                                                  |         |          |          |        
|                                                                                            |                                                                 |                                                                       |                                                         | Cash and cash equivalents at end of period                       |         | $        | 116,378  |         |         | $        | 128,378 | 
|                                                                                            |                                                                 |                                                                       |                                                         |                                                                  |         |          |          |        
|Supplemental Disclosures of Cash Flow
    Information                                       |                                                                 |                                                                       |                                                         |                                                                  |         |          |          |        
|Cash paid for interest, net of capitalized
    interest                                     |                                                                 | $                                                                     | 108,220                                                 |                                                                  |         | $        | 105,469  |        
|Acquisition of properties                                                                   |                                                                 | $                                                                     | 490,846                                                 |                                                                  |         | $        | 188,384  |        
|Non-cash transactions:                                                                      |                                                                 |                                                                       |                                                         |                                                                  |         |          |          |        
|                                                                                            | Assumption of secured debt                                      |                                                                       |                                                         | (130,588                                                         | )       |          |          | (7,676  | )      
|                                                                                            | Assumption of other assets and liabilities                      |                                                                       |                                                         | (52,302                                                          | )       |          |          |        |        
|                                                                                            | Acquisition capital                                             |                                                                       |                                                         | (5,319                                                           | )       |          |          | (4,210  | )      
|                                                                                            | Minority interests contributions                               |                                                                       |                                                         | (1,835                                                           | )       |          |          |        |        
|                                                                                            |                                                                 |                                                                       |                                                         |                                                                  |         |          |          |        
|                                                                                            |                                                                 |                                                                       | Net cash paid                                           |                                                                  | $       | 300,802  |          |         | $       | 176,498  |        
|                                                                                            |                                                                 |                                                                       |                                                         |                                                                  |         |          |          |        

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

3



---



##### Table of Contents



AMB PROPERTY, L.P.



CONSOLIDATED STATEMENT OF PARTNERS
CAPITAL


For the Nine Months Ended September 30,
2004


|                                        |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |       |            |         |  |       |           |            |   |            |           |   |  |   |        |        |   |  |           |         |   |   |        |        |   |   |           |          |        | 
|--------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | --------------------------------- | --------- | ---------------- |  | --------------- | ------- | ------------ | - | ----- | ---------- | ------- |  | ----- | --------- | ---------- | - | ---------- | --------- | - |  | - | ------ | ------ | - |  | --------- | ------- | - | - | ------ | ------ | - | - | --------- | -------- | ------ | 
|                                        |                                                                                                                  |                                   |           |                  |  |                
|                                        |                                                                                                                  | General Partner                   |           | Limited Partners |  |                
|                                        |                                                                                                                  |                                   |           |                  |  |                
|                                        |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |      
|                                        |                                                                                                                  | Preferred Units                   |           | Common Units     |  | Preferred Units |         | Common Units |   |      
|                                        |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |      
|                                        |                                                                                                                  | Units                             |           | Amount           |  | Units           |         | Amount       |   | Units |            | Amount  |  | Units |           | Amount     |   | Total     
|                                        |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |       |            |         |  |       |           |            |   |           
|                                        |                                                                                                                  |                                   |           |                  |  |                 |         | (Restated)   |   |       |            |         |  |       |           | (Restated) |   | (Restated)
|                                        |                                                                                                                  |                                   |           |                 
|                                        |                                                                                                                  | (Unaudited, dollars in thousands) |           |                 
|Balance at December 31, 2003 (Restated) |                                                                                                                  |                                   | 4,300,000 |                  |  | $               | 103,373 |              |   |       | 81,563,502 |         |  | $     | 1,553,764 |            |   |            | 1,600,000 |   |  | $ | 77,815 |        |   |  | 4,618,242 |         |   | $ | 87,667 |        |   | $ | 1,822,619 |         
|Comprehensive income:                   |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |       |            |         |  |       |           |            |   |            |           |   |  |   |        |        |   |  |           |         |   |   |        |        |   |   |           |         
|                                        | Net income                                                                                                       |                                   |           |                 |  |                 |         | 5,349        |   |       |            |        |  |       |           | 62,188     |   |            |           |  |  |   |        | 4,770  |   |  |           |        |   |   |        | 3,459  |   |   |           |         |       
|                                        | Unrealized gain on securities                                                                                    |                                   |           |                 |  |                 |         |             |   |       |            |        |  |       |           | (812       | ) |            |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           |         |       
|                                        | Currency translation adjustment                                                                                  |                                   |           |                 |  |                 |         |             |   |       |            |        |  |       |           | (178       | ) |            |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           |         |       
|                                        |                                                                                                                  | Total comprehensive income        |           |                  |  |                 |         |              |   |       |            |         |  |       |           |            |   |            |           |   |  |   |        |        |   |  |           |         |   |   |        |        |  |   |           |          | 74,776 | 
|                                        | Issuance of common limited partnership units in
    connection with the issuance of restricted stock and options |                                   |           |                 |  |                 |         |             |   |       |            | 201,413 |  |       |           | 12,695     |   |            |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           | 12,695   |       
|                                        | Issuance of common limited partnership units in
    connection with the exercise of stock options                |                                   |           |                 |  |                 |         |             |   |       |            | 911,388 |  |       |           | 20,133     |   |            |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           | 20,133   |       
|                                        | Conversion of operating partnership units to
    common stock                                                    |                                   |           |                 |  |                 |         |             |   |       |            | 13,332  |  |       |           | 457        |   |            |           |  |  |   |        |       |   |  |           | (13,332 | ) |   |        | (254   | ) |   |           | 203      |       
|Forfeiture of restricted units          |                                                                                                                  |                                   |          |                  |  |                 |        |              |   |       |           |         |  |       | (646      | )          |   |            |          |   |  |   |       |        |   |  |          |         |   |   |       |        |   |   | (646      | )       
|                                        | Deferred compensation                                                                                            |                                   |           |                 |  |                 |         |             |   |       |            |        |  |       |           | (12,695    | ) |            |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           | (12,695  | )     
|                                        | Deferred compensation amortization                                                                               |                                   |           |                 |  |                 |         |             |   |       |            |        |  |       |           | 7,943      |   |            |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           | 7,943    |       
|                                        | Reallocation of interests                                                                                        |                                   |           |                 |  |                 |         |             |   |       |            |        |  |       |           | (1,320     | ) |            |           |  |  |   |        |       |   |  |           |        |   |   |        | 515    |   |   |           | (805     | )     
|                                        | Issuance costs                                                                                                   |                                   |           |                 |  |                 |         | (169         | ) |       |            |        |  |       |           |           |   |            |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           | (169     | )     
|                                        | Distributions                                                                                                    |                                   |           |                 |  |                 |         | (5,349       | ) |       |            |        |  |       |           | (105,466   | ) |            |           |  |  |   |        | (4,770 | ) |  |           |        |   |   |        | (6,058 | ) |   |           | (121,643 | )     
|                                        |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |       |            |         |  |       |           |            |   |            |           |   |  |   |        |        |   |  |           |         |   |   |        |        |   |   |           |         
|Balance as of September 30, 2004        |                                                                                                                  |                                   | 4,300,000 |                  |  | $               | 103,204 |              |   |       | 82,689,635 |         |  | $     | 1,536,063 |            |   |            | 1,600,000 |   |  | $ | 77,815 |        |   |  | 4,604,910 |         |   | $ | 85,329 |        |   | $ | 1,802,411 |         
|                                        |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |       |            |         |  |       |           |            |   |            |           |   |  |   |        |        |   |  |           |         |   |   |        |        |   |   |           |         

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

4



---



##### Table of Contents



AMB PROPERTY, L.P.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


September 30, 2004


(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 REIT. 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, development
and operation of primarily industrial properties in key
distribution markets throughout North America, Europe and Asia.
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 September 30, 2004, the Company owned
an approximate 94.6% general partnership interest in the
Operating Partnership, excluding preferred units. The remaining
approximate 5.4% common limited partnership interests are owned
by non-affiliated investors and certain current and former
directors and officers of the Company. Certain properties are
owned through limited partnerships, limited liability companies
and other entities. 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 and income. As of
September 30, 2004, the Operating Partnership had
investments in seven co-investment joint ventures, which are
consolidated for financial reporting purposes.

AMB Capital Partners, LLC, a Delaware limited
liability company (AMB Capital Partners), provides
real estate investment services to clients on a fee basis.
Headlands Realty Corporation, a Maryland corporation, conducts a
variety of businesses that include development projects
available for sale to third parties and incremental income
programs. IMD Holding Corporation, a Delaware corporation, also
conducts a variety of businesses that include development
projects available for sale to third parties. AMB Capital
Partners and Headlands Realty Corporation are wholly-owned
direct or indirect subsidiaries of the Operating Partnership.

As of September 30, 2004, the Operating
Partnership owned 991 operating industrial buildings and four
retail and other properties, aggregating approximately
91.6 million rentable square feet, located in 35 markets
throughout the United States and in France, Germany, Japan,
Mexico and the Netherlands. The Operating Partnerships
strategy is to become a leading provider of distribution
properties in supply-constrained submarkets located near key
international passenger and cargo airports, highway systems and
seaports in major metropolitan areas of North America, Europe
and Asia. These submarkets are generally tied to global trade.
As of September 30, 2004, the Operating Partnerships
industrial buildings, principally warehouse distribution
buildings, encompassed approximately 91.1 million rentable
square feet and were 94.6% leased. As of September 30,
2004, the Operating Partnerships retail centers,
principally grocer-anchored community shopping centers, and
other properties encompassed approximately 0.4 million
rentable square feet and were 27.9% leased.

5



---



##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of September 30, 2004, through AMB
Capital Partners, the Operating Partnership also managed, but
did not have an ownership interest in, industrial, retail and
other properties, totaling approximately 0.5 million
rentable square feet. In addition, the Operating Partnership had
investments in industrial operating properties, totaling
approximately 8.0 million rentable square feet, through
unconsolidated joint ventures. As of September 30, 2004,
the Operating Partnership also had investments in industrial
development projects throughout the United States and in Japan,
Mexico, Singapore and Spain, which are expected to total
approximately 9.4 million square feet. Some of the
development projects in the U.S. were available for sale. See
Note 4: Gains from Dispositions of Real Estate, Development
Sales and Discontinued Operations: Properties Held for
Divestiture.



|   |                             
|-- | ----------------------------
|2. | Interim Financial Statements

The consolidated financial statements included
herein have been prepared pursuant to the rules and regulations
of the U.S. 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
United States of America have been condensed or omitted.

In the opinion of management, the accompanying
unaudited consolidated financial statements contain all
adjustments of a normal, recurring nature, necessary for a fair
presentation of the Operating Partnerships consolidated
financial position and results of operations for the interim
periods. The interim results for the three and nine months ended
September 30, 2004 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
Forms 10-K and 10-K/A for the year ended December 31,
2003.

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

Restatement.On
October 12, 2004, the Company announced a restatement of
depreciation expense for its prior period results relating to 39
buildings in its portfolio, 38 of which are located on-tarmac,
which is land owned by federal, state or local airport
authorities. As part of managements on-going review of its
accounting policies and internal control over financial
reporting, management determined that it should have depreciated
certain of its investments in buildings that reside on land
subject to ground leases over the remaining terms of the ground
leases, rather than over 40 years, which is the period used
to depreciate buildings that the Operating Partnership holds in
fee simple. The Operating Partnership did not segregate these
assets into a separate expected useful life category for
depreciation purposes. In connection with correcting this error,
the Operating Partnership has taken appropriate action to modify
its system of internal control over financial reporting to
remediate this internal control deficiency. Going forward, these
assets will be depreciated over the lesser of 40 years or
the contractual term of the underlying ground lease. To reflect
additional depreciation expense, management has restated the
Operating Partnerships previously issued consolidated
financial statements for the years ended December 31, 2003,
2002 and 2001 filed on Forms 10-K and 10-K/A for the year ended
December 31, 2003, and for the quarters ended
March 31, 2004 and June 30, 2004 filed on
Forms 10-Q for the quarters then ended.

6



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Restatements on Consolidated Balance
Sheets

|                                          |                        |                        |           |             |  |   |           |         | 
|----------------------------------------- | ---------------------- | ---------------------- | --------- | ----------- |  | - | --------- | ------- | 
|                                          |                        |                       
|                                          |                        | December 31, 2003     
|                                          |                        |                       
|                                          |                        | As Previously          |           |            
|                                          |                        | Reported               |           | As Restated
|                                          |                        |                        |           |            
|                                          |                        |                       
|                                          |                        | (Amounts in thousands)
|Accumulated depreciation and amortization |                        | $                      | (474,452  | )           |  | $ | (485,559  | )      
|Net investments in properties             |                        | $                      | 5,017,255 |             |  | $ | 5,006,148 |        
|Minority interests:                       |                        |                        |           |             |  |   |           |        
|                                          | Joint venture partners |                        | $         | 659,487     |  |   | $         | 658,723 | 
|Total partners capital                   |                        | $                      | 1,832,962 |             |  | $ | 1,822,619 |        

Restatements on Consolidated Statements of
Operations

|                                           |                                                       |                                                  |         |                           |   |               |         |             |   |   |         |         |   |   |          |         |  
|------------------------------------------ | ----------------------------------------------------- | ------------------------------------------------ | ------- | ------------------------- | - | ------------- | ------- | ----------- | - | - | ------- | ------- | - | - | -------- | ------- | -
|                                           |                                                       |                                                  |         |                          
|                                           |                                                       | For the Three Months Ended                       |         | For the Nine Months Ended
|                                           |                                                       | September 30, 2003                               |         | September 30, 2003       
|                                           |                                                       |                                                  |         |                          
|                                           |                                                       | As Previously                                    |         |                           |   | As Previously |         |            
|                                           |                                                       | Reported                                         |         | As Restated               |   | Reported      |         | As Restated
|                                           |                                                       |                                                  |         |                           |   |               |         |            
|                                           |                                                       |                                                 
|                                           |                                                       | (Amounts in thousands, except per share amounts)
|Depreciation and amortization              |                                                       | $                                                | (32,584 | )                         |   | $             | (33,734 | )           |   | $ | (99,269 | )       |   | $ | (102,847 | )      
|Minority interests share of income:       |                                                       |                                                  |         |                           |   |               |         |             |   |   |         |         |   |   |          |        
|                                           | Joint venture partners share of operating
    income |                                                  | $       | (9,809                    | ) |               | $       | (9,546      | ) |   | $       | (26,410 | ) |   | $        | (24,712 | )
|Net income                                 |                                                       | $                                                | 31,183  |                           |   | $             | 29,844  |             |   | $ | 119,008 |         |   | $ | 115,191  |        
|Net income available to common unitholders |                                                       | $                                                | 23,050  |                           |   | $             | 21,711  |             |   | $ | 100,574 |         |   | $ | 96,757   |        
|Basic income per common unit:              |                                                       |                                                  |         |                           |   |               |         |             |   |   |         |         |   |   |          |        
|                                           | Net income available to common unitholders            |                                                  | $       | 0.27                      |   |               | $       | 0.25        |   |   | $       | 1.17    |   |   | $        | 1.13    |  
|Diluted income per common unit:            |                                                       |                                                  |         |                           |   |               |         |             |   |   |         |         |   |   |          |        
|                                           | Net income available to common unitholders            |                                                  | $       | 0.26                      |   |               | $       | 0.25        |   |   | $       | 1.15    |   |   | $        | 1.11    |  

Investments in Real
Estate.Investments in real estate and
leasehold interests 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. The Operating Partnership also regularly reviews the
impact of above or below-market leases, in-place leases and
lease origination costs for all new acquisitions, and records an
intangible asset or liability accordingly. 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 fully recoverable. Impairment is recognized when
estimated expected future cash flows (undiscounted and without
interest charges) are less than the carrying value of the
property. The estimation of expected future net cash flows is
inherently uncertain and relies on assumptions regarding current
and future economics and market conditions and the availability
of capital. If impairment analysis assumptions change, then an
adjustment to the carrying value of the Operating
Partnerships 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 earnings.
The Operating Partnership believes that there are no impairments
of the carrying values of its investments in real estate as of
September 30, 2004.

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

7



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Comprehensive
Income.The Operating Partnership
reports comprehensive income in its Statement of Partners
Capital. Comprehensive income was $35.3 million and
$27.0 million (restated) for the three months ended
September 30, 2004 and 2003, respectively. Comprehensive
income was $74.8 million and $112.5 million (restated)
for the nine months ended September 30, 2004 and 2003,
respectively.

Stock-based Compensation
Expense.In 2002, the Operating
Partnership adopted the expense recognition provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation. The Operating Partnership values stock options
using the Black-Scholes option-pricing model and recognizes this
value as an expense over the vesting periods. Under this
standard, recognition of expense for stock options is applied to
all options granted after the beginning of the year of adoption.
Under SFAS No. 123, related stock option expense was
$1.0 million and $0.6 million during the three months
ended September 30, 2004 and 2003, respectively, and
$3.0 million and $1.8 million during the nine months
ended September 30, 2004 and 2003, respectively.
Additionally, the Operating Partnership awards restricted stock
and recognizes this value as an expense over the vesting
periods. Related restricted stock compensation expense was
$1.4 million for both the three months ended
September 30, 2004 and 2003, and $4.9 million and
$4.2 million during the nine months ended
September 30, 2004 and 2003, respectively. The expense is
included in general and administrative expenses in the
accompanying consolidated statements of operations. Prior to
2002, the Operating Partnership followed the intrinsic method
set forth in APB Opinion 25, Accounting for Stock Issued
to Employees.

Had compensation costs for the Operating
Partnerships stock-based compensation plans been
determined based on the fair value at the grant dates for awards
prior to 2002 consistent with the method of
SFAS No. 123, the Operating Partnerships pro
forma net income available to common unitholders would have been
(dollars in thousands):

|                                                        |         |                      |        |                     |  |      |        |            |  |   |        |      |  |   |        |      | 
|------------------------------------------------------- | ------- | -------------------- | ------ | ------------------- |  | ---- | ------ | ---------- |  | - | ------ | ---- |  | - | ------ | ---- | 
|                                                        |         |                      |        |                    
|                                                        |         | For the Three Months |        | For the Nine Months
|                                                        |         | Ended September 30,  |        | Ended September 30,
|                                                        |         |                      |        |                    
|                                                        |         | 2004                 |        | 2003                |  | 2004 |        | 2003      
|                                                        |         |                      |        |                     |  |      |        |           
|                                                        |         |                      |        | (Restated)          |  |      |        | (Restated)
|Reduction to net income                                 |         | $                    | 247    |                     |  | $    | 399    |            |  | $ | 857    |      |  | $ | 1,217  |     
|Adjusted net income available to common
    unitholders |         | $                    | 31,695 |                     |  | $    | 21,312 |            |  | $ | 64,790 |      |  | $ | 95,540 |     
|Adjusted earnings per unit:                             |         |                      |        |                     |  |      |        |            |  |   |        |      |  |   |        |     
|                                                        | Basic   |                      | $      | 0.37                |  |      | $      | 0.25       |  |   | $      | 0.75 |  |   | $      | 1.11 | 
|                                                        | Diluted |                      | $      | 0.35                |  |      | $      | 0.24       |  |   | $      | 0.72 |  |   | $      | 1.09 | 



|   |                                                     
|-- | ----------------------------------------------------
|3. | Real Estate Acquisition and Development
    Activity

During the three months ended September 30,
2004, the Operating Partnership acquired two industrial
buildings, aggregating approximately 0.6 million square
feet for a total expected investment of $51.6 million, of
which the Operating Partnership acquired one industrial building
aggregating approximately 0.1 million square feet through
one of the Operating Partnerships co-investment joint
ventures, for a total expected investment of $5.7 million.
Year-to-date through September 30, 2004, the Operating
Partnership acquired 48 industrial buildings, aggregating
approximately 4.6 million square feet for a total expected
investment of $490.8 million, of which the Operating
Partnership acquired 36 industrial buildings aggregating
approximately 2.0 million square feet through three of the
Operating Partnerships co-investment joint ventures, for a
total expected investment of $137.7 million. During the
three months ended September 30, 2003, the Operating
Partnership acquired 13 industrial buildings, aggregating
approximately 0.8 million square feet for a total expected
investment of $57.4 million, of which the Operating
Partnership acquired six industrial buildings aggregating
approximately 0.5 million square feet through two of the
Operating Partnerships co-investment joint ventures, for a
total expected investment of $27.3 million. During the nine
months ended September 30, 2003, the Operating Partnership
acquired 31 industrial buildings, aggregating approximately
3.2 million square

8



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

feet for a total expected investment of
$188.4 million, of which the Operating Partnership acquired
23 industrial buildings aggregating approximately
2.8 million square feet through two of the Operating
Partnerships co-investment joint ventures, for a total
expected investment of $154.6 million.

For the quarter ended September 30, 2004,
the Operating Partnership initiated four new industrial
development projects in North America with a total expected
investment of $59.4 million, aggregating approximately
0.7 million square feet, and three new industrial
development projects in Japan and Singapore with a total
expected investment of $286.3 million, aggregating
approximately 2.0 million square feet. During the nine
months ended September 30, 2004, the Operating Partnership
initiated nine new industrial development projects in North
America with a total expected investment of $128.9 million,
aggregating approximately 1.8 million square feet, and four
new industrial development projects in Japan and Singapore with
a total expected investment of $368.8 million, aggregating
approximately 2.7 million square feet. During the three
months ended September 30, 2003, the Operating Partnership
initiated two new industrial development projects in North
America with a total expected investment of $67.5 million,
aggregating approximately 1.6 million square feet. During
the nine months ended September 30, 2003, the Operating
Partnership initiated ten new industrial development projects in
North America with a total expected investment of
$146.0 million, aggregating approximately 3.1 million
square feet.

During the three months ended September 30,
2004, the Operating Partnership completed two industrial
buildings with a total expected investment at
$15.4 million, aggregating approximately 0.4 million
square feet. During the nine months ended September 30,
2004, the Operating Partnership completed four industrial
buildings with a total expected investment at
$42.3 million, aggregating approximately 0.8 million
square feet. During the three months ended September 30,
2003, the Operating Partnership completed three industrial
buildings with a total expected investment at
$21.5 million, aggregating approximately 0.4 million
square feet. During the nine months ended September 30,
2003, the Operating Partnership completed seven industrial
buildings with a total expected investment at
$49.4 million, aggregating approximately 0.8 million
square feet.

As of September 30, 2004, the Operating
Partnership had in its development pipeline: (1) 27
industrial projects, which will total approximately
8.6 million square feet and will have an aggregate
estimated investment of $689.3 million upon completion, of
which five industrial projects with a total of 2.2 million
square feet and an aggregate estimated investment of
$90.9 million upon completion are held in unconsolidated
joint ventures, and (2) five development projects available
for sale, which will total approximately 0.9 million square
feet and will have an aggregate estimated investment of
$44.5 million upon completion. As of September 30,
2004, the Operating Partnership and its Development Alliance
Partners had funded an aggregate of $384.2 million and
needed to fund an estimated additional $349.6 million in
order to complete current and planned projects. The Operating
Partnerships development pipeline currently includes
projects expected to be completed through the third quarter of
2006. Significant land acquisitions in the third quarter
included the purchase of 478 acres of land for industrial
warehouse developments in various U.S. markets for
$36.7 million. Significant land acquisitions for the nine
months ended September 30, 2004 included the purchase of
640 acres of land for industrial warehouse developments in
various U.S. markets and Mexico City for $68.3 million.



|   |                                                                                          
|-- | -----------------------------------------------------------------------------------------
|4. | Gains from Dispositions of Real Estate,
    Development Sales and Discontinued Operations

Gains from Dispositions of Real
Estate.On February 19, 2003, the
Operating Partnership contributed $94.0 million in
operating properties, consisting of 24 industrial buildings,
aggregating approximately 2.4 million square feet, to its
unconsolidated joint venture, Industrial Fund I, LLC. The
Operating Partnership recognized a gain of $7.4 million on
the contribution, representing the portion of the contributed
properties acquired by the third-party investors in exchange for
cash. For the three and nine months ended September 30,
2004, no such gains were recognized by the Operating Partnership.

9



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Development Sales.During the three months ended September 30, 2004, the
Operating Partnership sold one land parcel and three development
projects as part of its development-for-sale program,
aggregating approximately 0.1 million square feet, for an
aggregate price of $13.8 million, resulting in an after-tax
gain of $1.5 million. During the nine months ended
September 30, 2004, the Operating Partnership sold five
land parcels and four development projects as part of its
development-for-sale program, aggregating approximately
0.2 million square feet, for an aggregate price of
$27.8 million, resulting in an after-tax gain of
$4.8 million. During the three and nine months ended
September 30, 2003, the Operating Partnership sold three
development-for-sale projects, aggregating approximately
0.2 million square feet, for an aggregate price of
$32.1 million, resulting in an after-tax gain of
$5.5 million.

Discontinued
Operations.The Operating Partnership
reported its property divestitures as discontinued operations
separately as prescribed under the provisions of
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets(SFAS No. 144). During the three
months ended September 30, 2004, the Operating Partnership
divested itself of five industrial buildings and two retail
centers, aggregating approximately 0.8 million square feet,
for an aggregate price of $62.8 million, with a resulting
net gain of $10.5 million. During the nine months ended
September 30, 2004, the Operating Partnership divested
itself of seven industrial buildings, two retail centers and one
office building, aggregating approximately 1.2 million
square feet, for an aggregate price of $80.7 million, with
a resulting net gain of $12.3 million. During the three
months ended September 30, 2003, the Operating Partnership
divested itself of nine industrial buildings and one retail
center, aggregating approximately 0.8 million square feet,
for an aggregate price of $102.2 million, with a resulting
net gain of $7.9 million. During the nine months ended
September 30, 2003, the Operating Partnership divested
itself of 21 industrial buildings and one retail center,
aggregating approximately 2.6 million square feet, for an
aggregate price of $244.3 million, with a resulting net
gain of $39.6 million.

Properties Held for
Contribution.As of September 30,
2004, the Operating Partnership held for contribution to a
future co-investment joint venture one industrial building with
an aggregate net book value of $11.9 million, which, when
contributed to the joint ventures, will reduce the Operating
Partnerships current ownership interest from approximately
90% to an expected range of 20-50%. This asset is not being held
for divestiture under SFAS No. 144.

Properties Held for
Divestiture.As of September 30,
2004, the Operating Partnership held for divestiture 14
industrial buildings and three undeveloped land parcels with an
aggregate net book value of $59.9 million. These properties
are not in the Operating Partnerships core markets, do not
meet its current strategic objectives or are included as part of
its development-for-sale program. 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.

10



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following summarizes the condensed results of
operations of the properties held for divestiture and sold under
SFAS No. 144 (dollars in thousands):

|                                        |                                                           |                      |        |                     |  |      |        |            |  |   |        |      |   |   |        |        | 
|--------------------------------------- | --------------------------------------------------------- | -------------------- | ------ | ------------------- |  | ---- | ------ | ---------- |  | - | ------ | ---- | - | - | ------ | ------ | 
|                                        |                                                           |                      |        |                    
|                                        |                                                           | For the Three Months |        | For the Nine Months
|                                        |                                                           | Ended September 30,  |        | Ended September 30,
|                                        |                                                           |                      |        |                    
|                                        |                                                           | 2004                 |        | 2003                |  | 2004 |        | 2003      
|                                        |                                                           |                      |        |                     |  |      |        |           
|                                        |                                                           |                      |        | (Restated)          |  |      |        | (Restated)
|Rental revenues                         |                                                           | $                    | 4,690  |                     |  | $    | 5,725  |            |  | $ | 8,585  |      |   | $ | 28,000 |       
|Straight-line rents                     |                                                           |                      | (291   | )                   |  |      | 101    |            |  |   | 37     |      |   |   | 27     |       
|Property operating expenses             |                                                           |                      | (559   | )                   |  |      | (902   | )          |  |   | (1,746 | )    |   |   | (3,391 | )     
|Real estate taxes                       |                                                           |                      | (313   | )                   |  |      | (792   | )          |  |   | (1,203 | )    |   |   | (2,669 | )     
|Depreciation and amortization           |                                                           |                      | (525   | )                   |  |      | (597   | )          |  |   | (1,733 | )    |   |   | (2,346 | )     
|Interest, including amortization        |                                                           |                      | (609   | )                   |  |      | (476   | )          |  |   | (1,647 | )    |   |   | (2,850 | )     
|Joint venture partners share of income |                                                           |                      | (2,208 | )                   |  |      | (1,029 | )          |  |   | (2,474 | )    |   |   | (2,414 | )     
|                                        |                                                           |                      |        |                     |  |      |        |            |  |   |        |      |   |   |        |       
|                                        | Income (loss) attributable to discontinued
    operations |                      | $      | 185                 |  |      | $      | 2,030      |  |   | $      | (181 | ) |   | $      | 14,357 | 
|                                        |                                                           |                      |        |                     |  |      |        |            |  |   |        |      |   |   |        |       

As of September 30, 2004 and
December 31, 2003, assets and liabilities attributable to
properties held for divestiture under the provisions of
SFAS No. 144 consisted of the following (dollars in
thousands):

|                                       |  |               |       |              |  |   |     | 
|-------------------------------------- |  | ------------- | ----- | ------------ |  | - | --- | 
|                                       |  | September 30, |       | December 31,
|                                       |  | 2004          |       | 2003        
|                                       |  |               |       |             
|Accounts receivable, net               |  | $             | 925   |              |  | $ |    | 
|Other assets                           |  | $             | 50    |              |  | $ | 116 | 
|Accounts payable and other liabilities |  | $             | 1,421 |              |  | $ | 7   | 



|   |                    
|-- | -------------------
|5. | Mortgage Receivable

Through a wholly-owned subsidiary, the Operating
Partnership holds a mortgage loan receivable on AMB Pier One,
LLC, an unconsolidated joint venture. The Operating Partnership
also holds various other mortgages receivable from property
sales. The Operating Partnerships mortgages receivable at
September 30, 2004 and December 31, 2003 consisted of
the following (dollars in thousands):

|                                          |                            |        |                        |          |  |               |                |              |  |      |        |               |  |   |        |        |  |  |      |   |  |  |       |   | 
|----------------------------------------- | -------------------------- | ------ | ---------------------- | -------- |  | ------------- | -------------- | ------------ |  | ---- | ------ | ------------- |  | - | ------ | ------ |  |  | ---- | - |  |  | ----- | - | 
|                                          |                            |        |                        |          |  | September 30, |                | December 31, |  |      |        | Ownership    
|Mortgage Receivable                       |                            | Market |                        | Maturity |  | 2004          |                | 2003         |  | Rate |        | Percentage(1)
|                                          |                            |        |                        |          |  |               |                |              |  |      |        |              
|1. Pier 1                                 |                            |        | San Francisco Bay Area |          |  |               | May 2026       |              |  | $    | 12,966 |               |  | $ | 13,042 |        |  |  | 13.0 | % |  |  | 0.1   | %
|2. Platinum Distribution Center           |                            |        | No. New Jersey         |          |  |               | February 2004  |              |  |      |       |               |  |   | 19,500 |        |  |  | 6.0  | % |  |  | 20.0  | %
|3. Platinum Distribution Center           |                            |        | No. New Jersey         |          |  |               | November 2006  |              |  |      | 800    |               |  |   | 1,300  |        |  |  | 12.0 | % |  |  | 20.0  | %
|4. North Bay Distribution Center/ BAB     |                            |        | San Francisco Bay Area |          |  |               | December  2004 |              |  |      | 7,040  |               |  |   | 7,040  |        |  |  | 5.5  | % |  |  | 100.0 | %
|5. North Bay Distribution Center/ Corovan |                            |        | San Francisco Bay Area |          |  |               | December  2004 |              |  |      | 2,262  |               |  |   | 2,263  |        |  |  | 7.3  | % |  |  | 100.0 | %
|                                          |                            |        |                        |          |  |               |                |              |  |      |        |               |  |   |        |        |  |  |      |   |  |  |       |  
|                                          | Total Mortgages Receivable |        |                        |          |  |               |                |              |  |      | $      | 23,068        |  |   | $      | 43,145 |  |  |      |   |  |  |       |   | 
|                                          |                            |        |                        |          |  |               |                |              |  |      |        |               |  |   |        |        |  |  |      |   |  |  |       |  



---



|    |                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the Operating Partnerships
    ownership percentage in the co-investment joint venture or
    entity that holds the mortgage investment.

11



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |     
|-- | ----
|6. | Debt

As of September 30, 2004 and
December 31, 2003, debt consisted of the following (dollars
in thousands):

|                                                                                                                                                                                                                                       |                                        |                         |           |              |           |   |           |           |           | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ----------------------- | --------- | ------------ | --------- | - | --------- | --------- | --------- | 
|                                                                                                                                                                                                                                       |                                        | September 30,           |           | December 31,
|                                                                                                                                                                                                                                       |                                        | 2004                    |           | 2003        
|                                                                                                                                                                                                                                       |                                        |                         |           |             
|Operating Partnership secured debt, varying
    interest rates from 2.9% to 10.4%, due April 2005 to January
    2012 (weighted average interest rates of 7.3% and 8.1% at
    September 30, 2004 and December 31, 2003, respectively) |                                        | $                       | 297,268   |              |           | $ | 291,516   |          
|Consolidated joint venture secured debt, varying
    interest rates from 2.9% to 9.5%, due June 2005 to June 2023
    (weighted average interest rate of 6.5% and 6.7% at
    September 30, 2004 and December 31, 2003, respectively)  |                                        |                         | 1,308,077 |              |           |   | 1,061,585 |          
|Unsecured senior debt securities, varying
    interest rates from 2.4% to 8.0%, due June 2005 to June 2018
    (weighted average interest rates of 6.5% and 6.8% at
    September 30, 2004 and December 31, 2003, respectively)        |                                        |                         | 1,025,000 |              |           |   | 925,000   |          
|Unsecured debt, due June 2013 and November 2015,
    interest rate of 7.5%                                                                                                                                                             |                                        |                         | 9,182     |              |           |   | 9,628     |          
|Unsecured credit facilities, variable interest
    rate, due May 2006 through June 2007 (weighted average interest
    rates of 2.0% and 1.9% at September 30, 2004 and
    December 31, 2003, respectively)                           |                                        |                         | 583,864   |              |           |   | 275,739   |          
|                                                                                                                                                                                                                                       |                                        |                         |           |              |           |   |           |          
|                                                                                                                                                                                                                                       | Total debt before unamortized premiums |                         |           | 3,223,391    |           |   |           | 2,563,468 |          
|                                                                                                                                                                                                                                       | Unamortized premiums                   |                         |           | 12,599       |           |   |           | 10,789    |          
|                                                                                                                                                                                                                                       |                                        |                         |           |              |           |   |           |          
|                                                                                                                                                                                                                                       |                                        | Total consolidated debt |           | $            | 3,235,990 |   |           | $         | 2,574,257 | 
|                                                                                                                                                                                                                                       |                                        |                         |           |              |           |   |           |          

Secured debt generally requires monthly principal
and interest payments. The secured debt is secured by mortgages
or deeds of trust on certain properties and is generally
non-recourse. As of September 30, 2004 and
December 31, 2003, the total gross investment book value of
those properties securing the debt was $3.0 billion and
$2.6 billion, respectively, including $2.3 billion and
$1.8 billion, respectively, in consolidated joint ventures.
All of the secured debt bears interest at fixed rates, except
for eight loans with an aggregate principal amount of
$69.4 million as of September 30, 2004, which bear
interest at variable rates (weighted average interest rate of
4.5% as of September 30, 2004). The secured debt has
various covenants. Management believes that the Operating
Partnership was in compliance with its financial covenants as of
September 30, 2004 and December 31, 2003. As of
September 30, 2004, the Operating Partnership had certain
non-recourse, secured loans, which are cross-collateralized by
multiple properties.

As of September 30, 2004, the Operating
Partnership had issued an aggregate of $1.0 billion in
unsecured senior debt securities, which bore a weighted average
interest rate of 6.5% and had an average term of 4.9 years.
These unsecured senior debt securities include
$100.0 million in notes, which are putable and callable in
September 2005, $400.0 million of medium-term notes, which
were issued under the Operating Partnerships 2000
medium-term note program, and $225.0 million of medium-term
notes, which were issued under the Operating Partnerships
2002 medium-term note program. As of September 30, 2004,
the Operating Partnerships 2002 medium-term note program
had a remaining capacity of $175.0 million. The Operating
Partnership intends to continue to issue medium-term notes,
guaranteed by the Company, under its 2002 program from time to
time and as market conditions permit. The unsecured senior debt
securities are subject to various covenants. Management believes
that the Operating Partnership was in compliance with its
financial covenants as of September 30, 2004.

12



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On March 16, 2004, the Operating Partnership
issued $100.0 million aggregate principal amount of
medium-term notes under its 2002 program. The Company guaranteed
the principal amount and interest on the notes, which mature on
March 1, 2009, and bear interest at 3.5% per annum.

On June 1, 2004, the Operating Partnership
completed the early renewal of its senior unsecured revolving
line of credit in the amount of $500.0 million. The Company
remains a guarantor of the Operating Partnerships
obligations under the credit facility. The three-year credit
facility includes a multi-currency component under which up to
$250.0 million can be drawn in Yen, Euros or British Pounds
Sterling. The line, which matures in June 2007 and carries a
one-year extension option, can be increased up to
$700.0 million upon certain conditions, and replaces the
Operating Partnerships previous $500.0 million credit
facility that was to mature in December 2005. The line is priced
at 60 basis points over the applicable LIBOR index, with an
annual facility fee of 20 basis points, based on the
current credit rating of the Operating Partnerships
long-term debt. The revolving credit facility contains customary
and other affirmative covenants, including compliance with
financial reporting requirements and maintenance of specified
financial ratios, and negative covenants, including limitations
on the incurrence of liens and limitations on mergers or
consolidations. The Operating Partnership uses its unsecured
credit facility principally for acquisitions, funding
development activity and general working capital requirements.
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
September 30, 2004, the outstanding balance on the credit
facility was $363.6 million and the remaining amount
available was $122.3 million, net of outstanding letters of
credit of $14.1 million (excluding the additional
$200.0 million of potential additional capacity). The
outstanding balance included borrowings denominated in Euros and
Yen, which, using the exchange rate in effect on
September 30, 2004, would equal approximately
$96.5 million and $77.1 million in U.S. dollars,
respectively. As of September 30, 2004, the Operating
Partnership had an additional outstanding balance of
$26.6 million on other credit facilities. Management
believes that the Operating Partnership was in compliance with
its financial covenants at September 30, 2004.

On June 29, 2004, AMB Japan Finance Y.K., a
subsidiary of the Operating Partnership, entered into an
unsecured revolving credit agreement providing for loans or
letters of credit in a maximum principal amount outstanding at
any time of up to 24 billion Yen, which, using the exchange
rate in effect on September 30, 2004, equals approximately
$218.1 million U.S. dollars. The Company and the
Operating Partnership guarantee the obligations of AMB Japan
Finance Y.K. under the revolving credit facility, as well as the
obligations of any other entity in which the Operating
Partnership directly or indirectly owns an ownership interest,
and which is selected from time to time to be a borrower under
and pursuant to the revolving credit agreement. Generally,
borrowers under the revolving credit facility have the option to
secure all or a portion of the borrowings under the revolving
credit facility with certain real estate assets or equity in
entities holding such real estate assets. The revolving credit
facility matures in June 2007 and has a one-year extension
option, which is subject to the satisfaction of certain
conditions and the payment of an extension fee equal to 0.25% of
the outstanding commitments under the facility at that time. The
rate on the borrowings will generally be TIBOR plus a margin,
which is based on the current credit rating of the Operating
Partnerships long-term debt and is currently 60 basis
points. In addition, there is an annual facility fee, payable in
quarterly amounts, which is based on the credit rating of the
Operating Partnerships long-term debt, and is currently
20 basis points of the outstanding commitments under the
facility. The revolving credit facility contains customary and
other affirmative covenants, including financial reporting
requirements and maintenance of specified financial ratios, and
negative covenants, including limitations on the incurrence of
liens and limitations on mergers or consolidations. As of
September 30, 2004, the outstanding balance on this credit
facility, using the exchange rate in effect at
September 30, 2004, was $193.6 million
U.S. dollars. Management believes that Operating
Partnership was in compliance with its financial covenants at
September 30, 2004.

13



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of September 30, 2004, the scheduled
maturities of the Operating Partnerships total debt,
excluding unamortized debt premiums, were as follows (dollars in
thousands):

|           |       |             |        |         |  |             |         |           |  |            |         |           |  |   |       |       |  |   |         |         |  |   |         |           | 
|---------- | ----- | ----------- | ------ | ------- |  | ----------- | ------- | --------- |  | ---------- | ------- | --------- |  | - | ----- | ----- |  | - | ------- | ------- |  | - | ------- | --------- | 
|           |       | Operating   |        |         |  |             |         |           |  |            |         |          
|           |       | Partnership |        | Joint   |  | Unsecured   |         |           |  |            |         |          
|           |       | Secured     |        | Venture |  | Senior Debt |         | Unsecured |  | Credit     |         |          
|           |       | Debt        |        | Debt    |  | Securities  |         | Debt      |  | Facilities |         | Total    
|           |       |             |        |         |  |             |         |           |  |            |         |          
|2004       |       | $           | 2,141  |         |  | $           | 6,394   |           |  | $          |        |           |  | $ | 154   |       |  | $ |        |         |  | $ | 8,689   |          
|2005       |       |             | 42,629 |         |  |             | 67,692  |           |  |            | 250,000 |           |  |   | 647   |       |  |   |        |         |  |   | 360,968 |          
|2006       |       |             | 80,687 |         |  |             | 72,065  |           |  |            | 75,000  |           |  |   | 698   |       |  |   | 26,600  |         |  |   | 255,050 |          
|2007       |       |             | 12,850 |         |  |             | 72,777  |           |  |            | 75,000  |           |  |   | 752   |       |  |   | 557,264 |         |  |   | 718,643 |          
|2008       |       |             | 31,047 |         |  |             | 173,752 |           |  |            | 175,000 |           |  |   | 810   |       |  |   |        |         |  |   | 380,609 |          
|2009       |       |             | 2,059  |         |  |             | 112,994 |           |  |            | 100,000 |           |  |   | 873   |       |  |   |        |         |  |   | 215,926 |          
|2010       |       |             | 67,791 |         |  |             | 141,429 |           |  |            | 75,000  |           |  |   | 941   |       |  |   |        |         |  |   | 285,161 |          
|2011       |       |             | 56,023 |         |  |             | 369,063 |           |  |            | 75,000  |           |  |   | 1,014 |       |  |   |        |         |  |   | 501,100 |          
|2012       |       |             | 2,041  |         |  |             | 165,061 |           |  |            |        |           |  |   | 1,093 |       |  |   |        |         |  |   | 168,195 |          
|2013       |       |             |       |         |  |             | 87,665  |           |  |            | 75,000  |           |  |   | 920   |       |  |   |        |         |  |   | 163,585 |          
|Thereafter |       |             |       |         |  |             | 39,185  |           |  |            | 125,000 |           |  |   | 1,280 |       |  |   |        |         |  |   | 165,465 |          
|           |       |             |        |         |  |             |         |           |  |            |         |           |  |   |       |       |  |   |         |         |  |   |         |          
|           | Total |             | $      | 297,268 |  |             | $       | 1,308,077 |  |            | $       | 1,025,000 |  |   | $     | 9,182 |  |   | $       | 583,864 |  |   | $       | 3,223,391 | 
|           |       |             |        |         |  |             |         |           |  |            |         |           |  |   |       |       |  |   |         |         |  |   |         |          



|   |                                                                          
|-- | -------------------------------------------------------------------------
|7. | Minority Interests in Consolidated Joint
    Ventures and Preferred Units

Minority interests in the Operating Partnership
represent the limited partnership interests in AMB
Property II, L.P. and interests held by certain third
parties in several real estate joint ventures, aggregating
approximately 42.8 million square feet, which are
consolidated for financial reporting purposes. Such investments
are consolidated because the Operating Partnership owns a
majority interest or exercises significant control over major
operating decisions such as approval of budgets, selection of
property managers, asset management, investment activity and
changes in financing. These joint venture investments do not
meet the variable interest entity criteria under FASB
Interpretation No. 46R, Consolidation of Variable
Interest Entities.

The Operating Partnership enters into
co-investment joint ventures with institutional investors. The
Operating Partnerships co-investment joint ventures are
engaged in the acquisition, ownership, operation, management
and, in some cases, the renovation, expansion and development of
industrial buildings in target

14



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

markets nationwide. The Operating
Partnerships co-investment joint ventures total
investment and property debt in properties at September 30,
2004 and December 31, 2003 (dollars in thousands) were:

|                                         |  |                                                               |                                             |               |    |                  |           |               |         |               |           |              |         |   |         |  |         |   |         |  |         |   |         | 
|---------------------------------------- |  | ------------------------------------------------------------- | ------------------------------------------- | ------------- | -- | ---------------- | --------- | ------------- | ------- | ------------- | --------- | ------------ | ------- | - | ------- |  | ------- | - | ------- |  | ------- | - | ------- | 
|                                         |  |                                                               |                                             |               |    |                  |           |               |         |              
|                                         |  |                                                               |                                             |               |    | Total Investment |           |              
|                                         |  |                                                               |                                             | Operating     |    | in Real Estate   |           | Property Debt
|                                         |  |                                                               |                                             | Partnerships |    |                  |           |              
|                                         |  |                                                               |                                             | Ownership     |    | September 30,    |           | December 31,  |         | September 30, |           | December 31,
|Co-investment Joint Venture              |  | Joint Venture Partner                                         |                                             | Percentage    |    | 2004             |           | 2003          |         | 2004          |           | 2003        
|                                         |  |                                                               |                                             |               |    |                  |           |               |         |               |           |             
|AMB/Erie, L.P.                           |  |                                                               | Erie Insurance Company and affiliates       |               |    |                  | 50        | %             |         | $             | 161,165   |              |         | $ | 156,174 |  |         | $ | 52,115  |  |         | $ | 57,115  | 
|AMB Institutional Alliance Fund I, L.P.  |  |                                                               | AMB Institutional Alliance REIT I, Inc.(1)  |               |    |                  | 21        | %             |         |               | 419,595   |              |         |   | 417,902 |  |         |   | 212,189 |  |         |   | 214,538 | 
|AMB Partners II, L.P.                    |  | City and County of San Francisco Employees Retirement System |                                             |               | 20 | %                |           |               | 482,733 |               |           |              | 428,837 |   |         |  | 266,490 |   |         |  | 253,942 |  
|AMB-SGP, L.P.                            |  |                                                               | Industrial JV Pte Ltd(2)                    |               |    |                  | 50        | %             |         |               | 415,102   |              |         |   | 408,507 |  |         |   | 246,657 |  |         |   | 249,861 | 
|AMB Institutional Alliance Fund II, L.P. |  |                                                               | AMB Institutional Alliance REIT II, Inc.(3) |               |    |                  | 20        | %             |         |               | 483,777   |              |         |   | 449,709 |  |         |   | 232,762 |  |         |   | 204,542 | 
|AMB-AMS, L.P.(4)                         |  |                                                               | PMT, SPW and TNO(5)                         |               |    |                  | 39        | %             |         |               | 97,895    |              |         |   |        |  |         |   | 44,765  |  |         |   |        | 
|AMB Institutional Alliance Fund III      |  |                                                               | N/A                                         | (6)           |    |                  |           |               |         |               | 422,161   |              |         |   |        |  |         |   | 178,539 |  |         |   |        | 
|                                         |  |                                                               |                                             |               |    |                  |           |               |         |               |           |              |         |   |         |  |         |   |         |  |         |   |         | 
|Total Co-investment Joint
    Ventures   |  | $                                                             | 2,482,428                                   |               |    | $                | 1,861,129 |               |         | $             | 1,233,517 |              |         | $ | 979,998 | 
|                                         |  |                                                               |                                             |               |    |                  |           |               |         |               |           |              |         |   |         | 



---



|    |                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Included 16 institutional investors as
    stockholders as of September 30, 2004.                                                                                                                                                       
|   
|(2) | A subsidiary of the real estate investment
    subsidiary of the Government of Singapore Investment Corporation.                                                                                                                        
|   
|(3) | Included 13 institutional investors as
    stockholders and one third-party limited partner as of
    September 30, 2004.                                                                                                               
|   
|(4) | AMB-AMS, L.P. is a co-investment partnership with
    three Dutch pension funds advised by Mn Services NV.                                                                                                                              
|   
|(5) | PMT is Stichting Pensioenfonds Metaal en
    Techniek, SPW is Stichting Pensioenfonds voor de
    Woningcorporaties and TNO is Stichting Pensioenfonds TNO.                                                                             
|   
|(6) | The Operating Partnership expects to raise third
    party equity in the fourth quarter of 2004, reducing its current
    ownership interest from approximately 100% to an expected range
    of 20-50%. See Note 13  Subsequent Event.

The following table distinguishes the minority
interest liability as of September 30, 2004 and
December 31, 2003 (restated) (dollars in thousands):

|                                    |                                                                  |                          |         |              |         |   |         |        |         | 
|----------------------------------- | ---------------------------------------------------------------- | ------------------------ | ------- | ------------ | ------- | - | ------- | ------ | ------- | 
|                                    |                                                                  | September 30,            |         | December 31,
|                                    |                                                                  | 2004                     |         | 2003        
|                                    |                                                                  |                          |         |             
|                                    |                                                                  |                          |         | (Restated)  
|Joint venture partners              |                                                                  | $                        | 701,639 |              |         | $ | 658,723 |       
|Held through AMB Property II, L.P.: |                                                                  |                          |         |              |         |   |         |       
|                                    | Class B common limited partnership units                         |                          |         | 2,697        |         |   |         | 2,781  |        
|                                    | Series D preferred units (liquidation
    preference of $79,767) |                          |         | 77,684       |         |   |         | 77,684 |        
|                                    | Series E preferred units (liquidation
    preference of $11,022) |                          |         | 10,788       |         |   |         | 10,788 |        
|                                    | Series F preferred units (liquidation
    preference of $10,057) |                          |         | 9,900        |         |   |         | 9,900  |        
|                                    | Series H preferred units (liquidation
    preference of $42,000) |                          |         | 40,912       |         |   |         | 40,912 |        
|                                    | Series I preferred units (liquidation
    preference of $25,500) |                          |         | 24,800       |         |   |         | 24,800 |        
|                                    | Series N preferred units (liquidation
    preference of $36,479) |                          |         | 36,479       |         |   |         |       |        
|                                    |                                                                  |                          |         |              |         |   |         |       
|                                    |                                                                  | Total minority interests |         | $            | 904,899 |   |         | $      | 825,588 | 
|                                    |                                                                  |                          |         |              |         |   |         |       

15



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table distinguishes the minority
interests share of income, including minority
interests share of development profits, but excluding
minority interests share of discontinued operations
(dollars in thousands):

|                                                         |                                                                  |                                           |        |                     |        |      |       |            |        |   |        |       |        |   |        |       |        | 
|-------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------------------------- | ------ | ------------------- | ------ | ---- | ----- | ---------- | ------ | - | ------ | ----- | ------ | - | ------ | ----- | ------ | 
|                                                         |                                                                  |                                           |        |                    
|                                                         |                                                                  | For the Three Months                      |        | For the Nine Months
|                                                         |                                                                  | Ended September 30,                       |        | Ended September 30,
|                                                         |                                                                  |                                           |        |                    
|                                                         |                                                                  | 2004                                      |        | 2003                |        | 2004 |       | 2003      
|                                                         |                                                                  |                                           |        |                     |        |      |       |           
|                                                         |                                                                  |                                           |        | (Restated)          |        |      |       | (Restated)
|Joint Venture Partners                                   |                                                                  | $                                         | 10,302 |                     |        | $    | 9,546 |            |        | $ | 28,978 |       |        | $ | 24,712 |      
|Joint Venture Partners share of development
    profits |                                                                  |                                           | 66     |                     |        |      | 3,331 |            |        |   | 672    |       |        |   | 3,331  |      
|Held through AMB Property II, L.P.:                      |                                                                  |                                           |        |                     |        |      |       |            |        |   |        |       |        |   |        |      
|                                                         | Class B common limited partnership units                         |                                           |        | 26                  |        |      |       |           |        |   |        | 80    |        |   |        |      |       
|                                                         | Series D preferred units (liquidation
    preference of $79,767) |                                           |        | 1,545               |        |      |       | 1,545      |        |   |        | 4,636 |        |   |        | 4,636 |       
|                                                         | Series E preferred units (liquidation
    preference of $11,022) |                                           |        | 214                 |        |      |       | 214        |        |   |        | 641   |        |   |        | 641   |       
|                                                         | Series F preferred units (liquidation
    preference of $10,057) |                                           |        | 200                 |        |      |       | 200        |        |   |        | 600   |        |   |        | 732   |       
|                                                         | Series H preferred units (liquidation
    preference of $42,000) |                                           |        | 853                 |        |      |       | 853        |        |   |        | 2,559 |        |   |        | 2,559 |       
|                                                         | Series I preferred units (liquidation
    preference of $25,500) |                                           |        | 510                 |        |      |       | 510        |        |   |        | 1,530 |        |   |        | 1,530 |       
|                                                         | Series N preferred units (liquidation
    preference of $36,479) |                                           |        | 30                  |        |      |       |           |        |   |        | 30    |        |   |        |      |       
|                                                         |                                                                  |                                           |        |                     |        |      |       |            |        |   |        |       |        |   |        |      
|                                                         |                                                                  | Total minority interests share of income |        | $                   | 13,746 |      |       | $          | 16,199 |   |        | $     | 39,726 |   |        | $     | 38,141 | 
|                                                         |                                                                  |                                           |        |                     |        |      |       |            |        |   |        |       |        |   |        |      

The Operating Partnership has consolidated joint
ventures that have finite lives under the terms of the
partnership agreements. The minority interests associated with
these consolidated joint ventures represent mandatorily
redeemable interests as defined in SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. As of
September 30, 2004 and December 31, 2003, the
aggregate book value of the minority interests in the
accompanying consolidated balance sheet were $701.6 million
and $658.7 million (restated), respectively, and the
Operating Partnership believes that the aggregate settlement
value of these interests were approximately $812.1 million
and $729.2 million, respectively. This amount is based on
the estimated liquidation values of the assets and liabilities
and the resulting proceeds that the Operating Partnership would
distribute to its joint venture partners upon dissolution, as
required under the terms of the respective partnership
agreements. Subsequent changes to the estimated fair values of
the assets and liabilities of the consolidated joint ventures
will affect the Operating Partnerships estimate of the
aggregate settlement value. The partnership agreements do not
limit the amount that the minority partners would be entitled to
in the event of liquidation of the assets and liabilities and
dissolution of the respective partnerships. The FASB has
deferred indefinitely the implementation of SFAS 150 as it
applies to certain minority interests in finite-lived entities.
While the Operating Partnership adopted the disclosure
requirements of SFAS 150 in the third quarter of 2003,
there was no impact on the Operating Partnerships
financial position, results of operations or cash flows due to
this deferral.

16



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                 
|-- | ------------------------------------------------
|8. | Investments in Unconsolidated Joint
    Ventures

The Operating Partnerships unconsolidated
joint ventures net equity investments at
September 30, 2004 and December 31, 2003 (dollars in
thousands) were:

|                                                  |  |        |             |                  |  |        |                   |               |  |              |           |            |  |   |        |  |  |   |        |  |  |  |    |  
|------------------------------------------------- |  | ------ | ----------- | ---------------- |  | ------ | ----------------- | ------------- |  | ------------ | --------- | ---------- |  | - | ------ |  |  | - | ------ |  |  |  | -- | -
|                                                  |  |        |             |                  |  | Square |                   | September 30, |  | December 31, |           | Ownership 
|Unconsolidated Joint Ventures                     |  | Market |             | Alliance Partner |  | Feet   |                   | 2004          |  | 2003         |           | Percentage
|                                                  |  |        |             |                  |  |        |                   |               |  |              |           |           
|1. Elk Grove Du Page                              |  |        | Chicago     |                  |  |        | Hamilton Partners |               |  |              | 4,046,721 |            |  | $ | 33,467 |  |  | $ | 31,548 |  |  |  | 56 | %
|2. Pico Rivera                                    |  |        | Los Angeles |                  |  |        | Majestic Realty   |               |  |              | 855,600   |            |  |   | 748    |  |  |   | 1,091  |  |  |  | 50 | %
|3. Monte Vista Spectrum                           |  |        | Los Angeles |                  |  |        | Majestic Realty   |               |  |              | 576,852   |            |  |   | 288    |  |  |   | 487    |  |  |  | 50 | %
|4. Industrial Fund I, LLC                         |  |        | Various     |                  |  |        | Citigroup         |               |  |              | 2,326,334 |            |  |   | 3,559  |  |  |   | 4,173  |  |  |  | 15 | %
|5. Singapore Airport Logistics Center Bldg I      |  |        | Singapore   |                  |  |        | Boustead Projects |               |  |              | 230,460   |            |  |   | 2,508  |  |  |   | 2,067  |  |  |  | 50 | %
|6. Singapore Airport Logistics Center
    Bldg II |  |        | Singapore   |                  |  |        | Boustead Projects |               |  |              | 254,267   |            |  |   | 61     |  |  |   |       |  |  |  | 50 | %
|7. Sterling Distribution Center 1 &
    2         |  |        | Los Angeles |                  |  |        | Majestic Realty   |               |  |              | 1,490,000 |            |  |   | 4,653  |  |  |   | 10,429 |  |  |  | 40 | %
|8. Sterling Distribution Center 3                 |  |        | Los Angeles |                  |  |        | Majestic Realty   |               |  |              | 390,000   |            |  |   | 1,977  |  |  |   | 2,214  |  |  |  | 50 | %
|9. Nash Logistics Center                          |  |        | Los Angeles |                  |  |        | AMB - IAC         |               |  |              | 75,000    |            |  |   | 1,340  |  |  |   |       |  |  |  | 50 | %
|                                                  |  |        |             |                  |  |        |                   |               |  |              |           |            |  |   |        |  |  |   |        |  |  |  |    |  
|Total Unconsolidated Joint
    Ventures           |  |        | 10,245,234  |                  |  | $      | 48,601            |               |  | $            | 52,009    |            |  |   |        | 
|                                                  |  |        |             |                  |  |        |                   |               |  |              |           |            |  |   |        | 

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 also has a 0.1%
unconsolidated equity interest (with an approximate 33% economic
interest) in AMB 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 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, beginning
January 1, 2007 and expiring December 31, 2009, to
purchase the remaining equity interest based on the fair market
value as stipulated in the operating agreement.



|   |                  
|-- | -----------------
|9. | Partners Capital

Holders of common limited partnership units of
the Operating Partnership and class B common limited
partnership units of AMB Property II, L.P. have the right,
commencing generally on or after the first anniversary of the
holder becoming a limited partner of the Operating Partnership
or AMB Property II, L.P., as applicable (or such other date
agreed to by the Operating Partnership or AMB Property II,
L.P. and the applicable unit holders), to require the Operating
Partnership or AMB Property II, L.P., as applicable, to
redeem part or all of their common units or class B common
limited partnership units, as applicable, for cash (based upon
the fair market value, as defined in the applicable partnership
agreement, of an equivalent number of shares of common stock of
the Company at the time of redemption) or the Operating
Partnership or AMB Property II, L.P. may, in its respective 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
or class B common limited partnership units, as applicable,
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. With each redemption or
exchange of the Operating Partnerships common units, the
Companys percentage ownership

17



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

in the Operating Partnership will increase.
Common limited partners and class B common limited partners
may exercise this redemption right from time to time, in whole
or in part, subject to certain limitations. During the nine
months ended September 30, 2004, the Operating Partnership
redeemed 13,332 of its common limited partnership units for an
equivalent number of shares of the Companys common stock.

During 2003, the Company repurchased and retired
812,900 shares of its common stock for an aggregate
purchase price of $21.2 million, including commissions. In
December 2003, the Companys board of directors approved a
new two-year common stock repurchase program for the repurchase
of up to $200.0 million worth of common stock. During the
nine months ended September 30, 2004, the Company did not
repurchase any shares of its common stock and, accordingly, the
Operating Partnership did not redeem any general partnership
units.

On September 24, 2004, AMB Property II,
L.P., a partnership in which Texas AMB I, LLC, a Delaware
limited liability company and an indirect subsidiary of the
Company, owns an approximate 1.0% general partnership interest
and the Operating Partnership owns an approximate 99% common
limited partnership interest, issued 729,582 5.0% Series N
cumulative redeemable preferred limited partnership units at a
price of $50.00 per unit. The Series N preferred units
were issued to Robert Pattillo Properties, Inc. in exchange for
the contribution of certain parcels of land that are located in
multiple markets to AMB Property II, L.P. Beginning
September 25, 2006 and until and including
September 25, 2009, the Series N preferred units may
be redeemed by AMB Property II, L.P. at a redemption price
equal to 99.5% of the original $50.00 per unit capital
contribution, plus all accrued and unpaid distributions to the
date of redemption, which shall be paid solely out of capital
contributed to AMB Property II, L.P. by Texas AMB I,
LLC or the Operating Partnership (other than with respect to the
accumulated but unpaid distributions). Pursuant to a Put
Agreement, dated September 24, 2004, by and between Robert
Pattillo Properties, Inc. and the Operating Partnership,
beginning on June 1, 2005 and until January 15, 2006,
the holders of the Series N preferred units will have the
right to sell all, but not less than all, of such units to the
Operating Partnership (or to certain designees) at a price equal
to $50.00 per unit, plus all accrued and unpaid
distributions to the date of such sale.

During the nine months ended September 30,
2003, the Company issued and sold 2,000,000 shares of 6.5%
Series L Cumulative Redeemable Preferred Stock at a price
of $25.00 per share. Dividends are cumulative from the date
of issuance and payable quarterly in arrears at a rate per share
equal to $1.625 per annum. The Series L Preferred
Stock is redeemable at the option of the Company on or after
June 23, 2008, subject to certain conditions, for cash at a
redemption price equal to $25.00 per share, plus
accumulated and unpaid dividends thereon, if any, to the
redemption date. The Company contributed the net proceeds of
$48.4 million to the Operating Partnership, and in
exchange, the Operating Partnership issued to the Company
2,000,000 6.5% Series L Cumulative Redeemable Preferred
Units. The Operating Partnership used the proceeds, in addition
to proceeds previously contributed to the Operating Partnership
from other equity issuances, to redeem its 8.5% Series A
Cumulative Redeemable Preferred Units from the Company on
July 28, 2003. The Company, in turn, used those proceeds to
redeem its 8.5% Series A Cumulative Redeemable Preferred
Stock at $25.00 per share, and the Company also paid all
accumulated and unpaid dividends thereon to the redemption date.

As of September 30, 2004, the Operating
Partnership had outstanding 82,689,635 common general
partnership units, 4,604,910 common limited partnership units,
800,000 7.95% Series J Cumulative Redeemable Partnership
Units, 800,000 7.95% Series K Cumulative Redeemable
Partnership Units, 2,000,000 6.5% Series L Cumulative
Redeemable Partnership Units and 2,300,000 6.75% Series M
Cumulative Redeemable Partnership Units.

18



---



##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table sets forth the distributions
paid per unit:

|                      |  |                                          |  |                      |  |                     |  |        |  |       
|--------------------- |  | ---------------------------------------- |  | -------------------- |  | ------------------- |  | ------ |  | ------
|                      |  |                                          |  |                      |  |                    
|                      |  |                                          |  | For the Three Months |  | For the Nine Months
|                      |  |                                          |  | Ended September 30,  |  | Ended September 30,
|                      |  |                                          |  |                      |  |                    
|Paying Entity         |  | Security                                 |  | 2004                 |  | 2003                |  | 2004   |  | 2003  
|                      |  |                                          |  |                      |  |                     |  |        |  |       
|Operating Partnership |  | Common limited
    partnership units     |  | $0.425               |  | $0.415              |  | $1.275 |  | $1.245
|Operating Partnership |  | Series B preferred units                 |  | n/a                  |  | $1.078              |  | n/a    |  | $3.234
|Operating Partnership |  | Series J preferred units                 |  | $0.994               |  | $0.994              |  | $2.981 |  | $2.981
|Operating Partnership |  | Series K preferred units                 |  | $0.994               |  | $0.994              |  | $2.981 |  | $2.981
|AMB Property II, L.P. |  | Class B common limited partnership units |  | $0.425               |  | n/a                 |  | $1.275 |  | n/a   
|AMB Property II, L.P. |  | Series D preferred units                 |  | $0.969               |  | $0.969              |  | $2.906 |  | $2.906
|AMB Property II, L.P. |  | Series E preferred units                 |  | $0.969               |  | $0.969              |  | $2.906 |  | $2.906
|AMB Property II, L.P. |  | Series F preferred units                 |  | $0.994               |  | $0.994              |  | $2.981 |  | $2.981
|AMB Property II, L.P. |  | Series H preferred units                 |  | $1.016               |  | $1.016              |  | $3.047 |  | $3.047
|AMB Property II, L.P. |  | Series I preferred units                 |  | $1.000               |  | $1.000              |  | $3.000 |  | $3.000
|AMB Property II, L.P. |  | Series N preferred units                 |  | $0.042               |  | n/a                 |  | $0.042 |  | n/a   



|    |                
|--- | ---------------
|10. | Income Per Unit

When the Company issues stock options or
restricted stock, the Operating Partnership issues corresponding
general partnership units on a one-for-one basis. The Operating
Partnerships only dilutive securities outstanding for the
three and nine months ended September 30, 2004 and 2003
were stock options and restricted stock granted under its stock
incentive plans. The effect on income per unit was to increase
weighted average units outstanding. Such dilution was computed
using the treasury stock method.

|                              |                                       |                      |  |                     |  |      |  |            |  |  |  |            |  |  |  |            | 
|----------------------------- | ------------------------------------- | -------------------- |  | ------------------- |  | ---- |  | ---------- |  |  |  | ---------- |  |  |  | ---------- | 
|                              |                                       |                      |  |                    
|                              |                                       | For the Three Months |  | For the Nine Months
|                              |                                       | Ended September 30,  |  | Ended September 30,
|                              |                                       |                      |  |                    
|                              |                                       | 2004                 |  | 2003                |  | 2004 |  | 2003      
|                              |                                       |                      |  |                     |  |      |  |           
|WEIGHTED AVERAGE COMMON UNITS |                                       |                      |  |                     |  |      |  |            |  |  |  |            |  |  |  |           
|                              | Basic                                 |                      |  | 86,943,931          |  |      |  | 85,776,251 |  |  |  | 86,749,022 |  |  |  | 85,874,579 | 
|                              | Stock options and restricted stock    |                      |  | 3,202,314           |  |      |  | 1,623,293  |  |  |  | 3,015,611  |  |  |  | 1,467,496  | 
|                              |                                       |                      |  |                     |  |      |  |            |  |  |  |            |  |  |  |           
|                              | Diluted weighted average common units |                      |  | 90,146,245          |  |      |  | 87,399,544 |  |  |  | 89,764,633 |  |  |  | 87,342,075 | 
|                              |                                       |                      |  |                     |  |      |  |            |  |  |  |            |  |  |  |           



|    |                    
|--- | -------------------
|11. | Segment Information

The Operating Partnership mainly operates
industrial properties and manages its business by markets.
Industrial properties represent more than 99.5% 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. The Operating Partnerships
geographic markets for industrial properties are managed
separately because each market requires different operating,
pricing and leasing strategies. The remaining 0.5% of the
Operating Partnerships portfolio is comprised of retail
and other properties located in Southeast Florida and Atlanta.
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
significant accounting policies. The Operating Partnership
evaluates performance based upon property net operating income
of the combined properties in each segment.

19



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The industrial domestic target markets category
includes Austin, Baltimore/ Washington D.C., Boston and
Minneapolis. The industrial domestic non-target markets category
captures all of the Operating Partnerships other
U.S. markets, except for those markets listed individually
in the table. The international target markets category includes
France, Germany, Japan, Mexico and the Netherlands.

Summary information for the reportable segments
is as follows (dollars in thousands):

|                                             |                               |                                       |        |                      |         |      |        |        |         |  |        |        |         |  |        |        |         | 
|-------------------------------------------- | ----------------------------- | ------------------------------------- | ------ | -------------------- | ------- | ---- | ------ | ------ | ------- |  | ------ | ------ | ------- |  | ------ | ------ | ------- | 
|                                             |                               |                                       |        |                     
|                                             |                               | Rental Revenues                       |        | Property NOI(1)     
|                                             |                               |                                       |        |                     
|                                             |                               |                                       |        |                     
|                                             |                               | For the Three Months                  |        | For the Three Months
|                                             |                               | Ended September 30,                   |        | Ended September 30, 
|                                             |                               |                                       |        |                     
|Segments                                     |                               | 2004                                  |        | 2003                 |         | 2004 |        | 2003  
|                                             |                               |                                       |        |                      |         |      |        |       
|Industrial domestic hub and gateway markets: |                               |                                       |        |                      |         |      |        |        |         |  |        |        |         |  |        |       
|                                             | Atlanta                       |                                       | $      | 7,547                |         |      | $      | 7,491  |         |  | $      | 5,847  |         |  | $      | 6,132  |        
|                                             | Chicago                       |                                       |        | 11,139               |         |      |        | 10,826 |         |  |        | 7,302  |         |  |        | 7,162  |        
|                                             | Dallas/ Fort Worth            |                                       |        | 4,080                |         |      |        | 4,336  |         |  |        | 2,650  |         |  |        | 2,773  |        
|                                             | Los Angeles                   |                                       |        | 26,296               |         |      |        | 23,400 |         |  |        | 20,715 |         |  |        | 18,675 |        
|                                             | Northern New Jersey/ New York |                                       |        | 17,842               |         |      |        | 12,589 |         |  |        | 12,656 |         |  |        | 8,104  |        
|                                             | San Francisco Bay Area        |                                       |        | 30,329               |         |      |        | 24,447 |         |  |        | 25,143 |         |  |        | 19,135 |        
|                                             | Miami                         |                                       |        | 7,947                |         |      |        | 8,072  |         |  |        | 5,417  |         |  |        | 5,933  |        
|                                             | Seattle                       |                                       |        | 10,587               |         |      |        | 8,721  |         |  |        | 8,293  |         |  |        | 6,718  |        
|                                             | On-Tarmac                     |                                       |        | 12,757               |         |      |        | 12,647 |         |  |        | 7,244  |         |  |        | 7,106  |        
|                                             |                               |                                       |        |                      |         |      |        |        |         |  |        |        |         |  |        |       
|                                             |                               | Total industrial domestic hub markets |        |                      | 128,524 |      |        |        | 112,529 |  |        |        | 95,267  |  |        |        | 81,738  | 
|Total industrial domestic target markets     |                               |                                       | 27,847 |                      |         |      | 38,006 |        |         |  | 19,885 |        |         |  | 26,393 |       
|Total industrial domestic non-target markets |                               |                                       | 10,323 |                      |         |      | (6,113 | )      |         |  | 8,854  |        |         |  | (3,466 | )     
|International target markets                 |                               |                                       | 7,057  |                      |         |      | 1,704  |        |         |  | 6,408  |        |         |  | 1,764  |       
|Straight-line rents                          |                               |                                       | 2,593  |                      |         |      | 2,579  |        |         |  | 2,593  |        |         |  | 2,579  |       
|Total retail and other markets               |                               |                                       | 1,858  |                      |         |      | 2,587  |        |         |  | 370    |        |         |  | 1,461  |       
|Discontinued operations                      |                               |                                       | (4,399 | )                    |         |      | (5,826 | )      |         |  | (3,527 | )      |         |  | (4,132 | )     
|                                             |                               |                                       |        |                      |         |      |        |        |         |  |        |        |         |  |        |       
|                                             |                               | Total                                 |        | $                    | 173,803 |      |        | $      | 145,466 |  |        | $      | 129,850 |  |        | $      | 106,337 | 
|                                             |                               |                                       |        |                      |         |      |        |        |         |  |        |        |         |  |        |       



---



|    |                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Property net operating income (NOI)
    is defined as rental revenue, including reimbursements, less
    property operating expenses, which excludes depreciation,
    amortization, general and administrative expenses and interest
    expense. For a reconciliation of NOI to net income, see the
    table below.

20



---



##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                             |                               |                                       |        |                     |         |      |         |        |         |  |        |        |         |  |         |        |         | 
|-------------------------------------------- | ----------------------------- | ------------------------------------- | ------ | ------------------- | ------- | ---- | ------- | ------ | ------- |  | ------ | ------ | ------- |  | ------- | ------ | ------- | 
|                                             |                               |                                       |        |                    
|                                             |                               | Rental Revenues                       |        | Property NOI(1)    
|                                             |                               |                                       |        |                    
|                                             |                               |                                       |        |                    
|                                             |                               | For the Nine Months                   |        | For the Nine Months
|                                             |                               | Ended September 30,                   |        | Ended September 30,
|                                             |                               |                                       |        |                    
|Segments                                     |                               | 2004                                  |        | 2003                |         | 2004 |         | 2003  
|                                             |                               |                                       |        |                     |         |      |         |       
|Industrial domestic hub and gateway markets: |                               |                                       |        |                     |         |      |         |        |         |  |        |        |         |  |         |       
|                                             | Atlanta                       |                                       | $      | 22,688              |         |      | $       | 21,759 |         |  | $      | 17,729 |         |  | $       | 17,436 |        
|                                             | Chicago                       |                                       |        | 32,609              |         |      |         | 32,938 |         |  |        | 21,960 |         |  |         | 22,422 |        
|                                             | Dallas/ Fort Worth            |                                       |        | 11,681              |         |      |         | 12,599 |         |  |        | 7,603  |         |  |         | 8,229  |        
|                                             | Los Angeles                   |                                       |        | 76,952              |         |      |         | 69,385 |         |  |        | 60,774 |         |  |         | 55,498 |        
|                                             | Northern New Jersey/ New York |                                       |        | 46,298              |         |      |         | 39,440 |         |  |        | 32,015 |         |  |         | 25,980 |        
|                                             | San Francisco Bay Area        |                                       |        | 76,740              |         |      |         | 85,066 |         |  |        | 61,877 |         |  |         | 70,343 |        
|                                             | Miami                         |                                       |        | 24,546              |         |      |         | 24,114 |         |  |        | 17,027 |         |  |         | 17,178 |        
|                                             | Seattle                       |                                       |        | 30,987              |         |      |         | 22,268 |         |  |        | 24,239 |         |  |         | 17,427 |        
|                                             | On-Tarmac                     |                                       |        | 40,899              |         |      |         | 35,521 |         |  |        | 23,160 |         |  |         | 19,400 |        
|                                             |                               |                                       |        |                     |         |      |         |        |         |  |        |        |         |  |         |       
|                                             |                               | Total industrial domestic hub markets |        |                     | 363,400 |      |         |        | 343,090 |  |        |        | 266,384 |  |         |        | 253,913 | 
|Total industrial domestic target markets     |                               |                                       | 81,671 |                     |         |      | 76,999  |        |         |  | 59,118 |        |         |  | 55,353  |       
|Total industrial domestic non-target markets |                               |                                       | 25,322 |                     |         |      | 21,177  |        |         |  | 19,576 |        |         |  | 14,821  |       
|International target markets                 |                               |                                       | 18,578 |                     |         |      | 4,097   |        |         |  | 15,257 |        |         |  | 3,608   |       
|Straight-line rents                          |                               |                                       | 11,251 |                     |         |      | 6,832   |        |         |  | 11,251 |        |         |  | 6,832   |       
|Total retail and other markets               |                               |                                       | 5,400  |                     |         |      | 10,421  |        |         |  | 2,507  |        |         |  | 6,479   |       
|Discontinued operations                      |                               |                                       | (8,622 | )                   |         |      | (28,027 | )      |         |  | (5,673 | )      |         |  | (21,967 | )     
|                                             |                               |                                       |        |                     |         |      |         |        |         |  |        |        |         |  |         |       
|                                             |                               | Total                                 |        | $                   | 497,000 |      |         | $      | 434,589 |  |        | $      | 368,420 |  |         | $      | 319,039 | 
|                                             |                               |                                       |        |                     |         |      |         |        |         |  |        |        |         |  |         |       



---



|    |                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Property net operating income (NOI)
    is defined as rental revenue, including reimbursements, less
    property operating expenses, which excludes depreciation,
    amortization, general and administrative expenses and interest
    expense. For a reconciliation of NOI to net income, see the
    table below.

21



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Operating Partnership considers NOI to be an
appropriate supplemental performance measure because NOI
reflects the operating performance of the Operating
Partnerships real estate portfolio on a segment basis, and
the Operating Partnership uses NOI to make decisions about
resource allocations and to assess regional property level
performance. However, NOI should not be viewed as an alternative
measure of the Operating Partnerships financial
performance since it does not reflect general and administrative
expenses, interest expense, depreciation and amortization costs,
capital expenditures and leasing costs, or trends in development
and construction activities that could materially impact the
Operating Partnerships results from operations. Further,
the Operating Partnerships NOI may not be comparable to
that of other real estate investment trusts, as they may use
different methodologies for calculating NOI. The following table
is a reconciliation from NOI to reported net income, a financial
measure under generally accepted accounting principles in the
United States:

|                                                        |            |                      |         |                     |  |      |         |            |  |   |          |        |  |   |          |         | 
|------------------------------------------------------- | ---------- | -------------------- | ------- | ------------------- |  | ---- | ------- | ---------- |  | - | -------- | ------ |  | - | -------- | ------- | 
|                                                        |            |                      |         |                    
|                                                        |            | For the Three Months |         | For the Nine Months
|                                                        |            | Ended September 30,  |         | Ended September 30,
|                                                        |            |                      |         |                    
|                                                        |            | 2004                 |         | 2003                |  | 2004 |         | 2003      
|                                                        |            |                      |         |                     |  |      |         |           
|                                                        |            |                      |         | (Restated)          |  |      |         | (Restated)
|Property NOI                                            |            | $                    | 129,850 |                     |  | $    | 106,337 |            |  | $ | 368,420  |        |  | $ | 319,039  |        
|Private capital income                                  |            |                      | 2,726   |                     |  |      | 1,928   |            |  |   | 8,077    |        |  |   | 7,844    |        
|Depreciation and amortization                           |            |                      | (42,099 | )                   |  |      | (33,734 | )          |  |   | (120,998 | )      |  |   | (102,847 | )      
|Impairment losses                                       |            |                      |        |                     |  |      |        |            |  |   |         |        |  |   | (5,251   | )      
|General and administrative                              |            |                      | (15,747 | )                   |  |      | (10,824 | )          |  |   | (45,706  | )      |  |   | (34,834  | )      
|Equity in earnings of unconsolidated joint
    ventures |            |                      | 603     |                     |  |      | 1,365   |            |  |   | 3,256    |        |  |   | 4,222    |        
|Interest and other income                               |            |                      | 1,295   |                     |  |      | 653     |            |  |   | 3,283    |        |  |   | 3,144    |        
|Gains from dispositions of real estate                  |            |                      |        |                     |  |      |        |            |  |   |         |        |  |   | 7,429    |        
|Development profits, net of taxes                       |            |                      | 1,521   |                     |  |      | 5,512   |            |  |   | 4,756    |        |  |   | 5,512    |        
|Interest, including amortization                        |            |                      | (40,324 | )                   |  |      | (35,562 | )          |  |   | (118,449 | )      |  |   | (107,132 | )      
|Total minority interests share of income               |            |                      | (13,746 | )                   |  |      | (16,199 | )          |  |   | (39,726  | )      |  |   | (38,141  | )      
|Total discontinued operations                           |            |                      | 11,236  |                     |  |      | 10,368  |            |  |   | 12,853   |        |  |   | 56,206   |        
|                                                        |            |                      |         |                     |  |      |         |            |  |   |          |        |  |   |          |        
|                                                        | Net income |                      | $       | 35,315              |  |      | $       | 29,844     |  |   | $        | 75,766 |  |   | $        | 115,191 | 
|                                                        |            |                      |         |                     |  |      |         |            |  |   |          |        |  |   |          |        

22



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Operating Partnerships gross investment
in real estate by market was:

|                                                 |                               |                                       |         |                   |           |  |         |         |           | 
|------------------------------------------------ | ----------------------------- | ------------------------------------- | ------- | ----------------- | --------- |  | ------- | ------- | --------- | 
|                                                 |                               |                                      
|                                                 |                               | Total Gross Investment as of         
|                                                 |                               |                                      
|                                                 |                               | September 30, 2004                    |         | December 31, 2003
|                                                 |                               |                                       |         |                  
|Industrial domestic hub and gateway markets:     |                               |                                       |         |                   |           |  |         |        
|                                                 | Atlanta                       |                                       | $       | 278,339           |           |  | $       | 275,810 |          
|                                                 | Chicago                       |                                       |         | 377,866           |           |  |         | 381,364 |          
|                                                 | Dallas/ Fort Worth            |                                       |         | 151,971           |           |  |         | 152,661 |          
|                                                 | Los Angeles                   |                                       |         | 893,452           |           |  |         | 854,896 |          
|                                                 | Northern New Jersey/ New York |                                       |         | 805,149           |           |  |         | 516,712 |          
|                                                 | San Francisco Bay Area        |                                       |         | 866,131           |           |  |         | 862,173 |          
|                                                 | Miami                         |                                       |         | 335,139           |           |  |         | 329,107 |          
|                                                 | Seattle                       |                                       |         | 400,053           |           |  |         | 393,160 |          
|                                                 | On-Tarmac                     |                                       |         | 274,123           |           |  |         | 262,046 |          
|                                                 |                               |                                       |         |                   |           |  |         |        
|                                                 |                               | Total industrial domestic hub markets |         |                   | 4,382,223 |  |         |         | 4,027,929 | 
|Total industrial domestic target markets         |                               |                                       | 847,206 |                   |           |  | 764,097 |        
|Industrial domestic non-target markets and other |                               |                                       | 319,930 |                   |           |  | 290,982 |        
|International target markets                     |                               |                                       | 206,496 |                   |           |  | 160,974 |        
|Total retail and other markets                   |                               |                                       | 34,587  |                   |           |  | 48,097  |        
|Construction in progress                         |                               |                                       | 512,087 |                   |           |  | 199,628 |        
|                                                 |                               |                                       |         |                   |           |  |         |        
|                                                 |                               | Total investments in properties       |         | $                 | 6,302,529 |  |         | $       | 5,491,707 | 
|                                                 |                               |                                       |         |                   |           |  |         |        

The following table reconciles gross investment
in real estate by market to total assets:

|                                                                |                                           |                                |           |                   |           |   |           |          |           | 
|--------------------------------------------------------------- | ----------------------------------------- | ------------------------------ | --------- | ----------------- | --------- | - | --------- | -------- | --------- | 
|                                                                |                                           | September 30, 2004             |           | December 31, 2003
|                                                                |                                           |                                |           |                  
|                                                                |                                           |                                |           | (Restated)       
|Total investments in properties                                 |                                           | $                              | 6,302,529 |                   |           | $ | 5,491,707 |         
|                                                                | Accumulated depreciation and amortization |                                |           | (595,438          | )         |   |           | (485,559 | )        
|                                                                |                                           |                                |           |                   |           |   |           |         
|                                                                |                                           | Net investments in properties  |           |                   | 5,707,091 |   |           |          | 5,006,148 | 
|Investments in unconsolidated joint ventures                    |                                           |                                | 48,601    |                   |           |   | 52,009    |         
|Properties held for contribution, net                           |                                           |                                | 11,854    |                   |           |   |          |         
|Properties held for divestiture, net                            |                                           |                                | 59,924    |                   |           |   | 11,751    |         
|                                                                |                                           |                                |           |                   |           |   |           |         
|                                                                |                                           | Net investments in real estate |           |                   | 5,827,470 |   |           |          | 5,069,908 | 
|Cash and cash equivalents                                       |                                           |                                | 116,378   |                   |           |   | 127,678   |         
|Restricted cash                                                 |                                           |                                | 57,945    |                   |           |   | 28,985    |         
|Mortgages receivable                                            |                                           |                                | 23,068    |                   |           |   | 43,145    |         
|Accounts receivable, net of allowance for
    doubtful accounts |                                           |                                | 102,078   |                   |           |   | 88,452    |         
|Other assets                                                    |                                           |                                | 94,711    |                   |           |   | 51,391    |         
|                                                                |                                           |                                |           |                   |           |   |           |         
|                                                                |                                           | Total assets                   |           | $                 | 6,221,650 |   |           | $        | 5,409,559 | 
|                                                                |                                           |                                |           |                   |           |   |           |         

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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                              
|--- | -----------------------------
|12. | Commitments and Contingencies



| |            
| | -----------
| | Commitments

Lease Commitments.The Operating Partnership holds operating ground leases on land
parcels at its on-tarmac facilities, leases on office spaces for
corporate use, and a leasehold interest that it holds for
investment purposes. The remaining lease terms are from one to
64 years. Operating lease payments are being amortized
ratably over the terms of the related leases.

Standby Letters of
Credit.As of September 30, 2004,
the Operating Partnership had provided approximately
$33.9 million in letters of credit, of which
$14.1 million was provided under the Operating
Partnerships $500.0 million unsecured credit
facility. The letters of credit were required to be issued under
certain ground lease provisions, bank guarantees and other
commitments.

Guarantees.Other
than as disclosed elsewhere in this report, as of
September 30, 2004, the Operating Partnership had
outstanding guarantees in the aggregate amount of
$30.1 million in connection with certain acquisitions and
lease obligations of which $7.6 million were backed by
standby letters of credit. As of September 30, 2004, the
Operating Partnership guaranteed $2.3 million and
$4.7 million on outstanding construction loans for one of
our consolidated joint ventures and two of our unconsolidated
joint ventures, respectively. Additionally, the Operating
Partnership provided a take out guarantee after the completion
of construction on the aggregate construction loan amount of
$66.2 million for another of its unconsolidated joint
ventures, of which $35.5 million was outstanding as of
September 30, 2004. In connection with this construction
loan, the Operating Partnerships joint venture partner
provides an underlying construction loan guarantee up to the
completion of construction.

Performance and Surety
Bonds.As of September 30, 2004,
the Operating Partnership had outstanding performance and surety
bonds in an aggregate amount of $1.2 million. These bonds
were issued in connection with certain of its development
projects and were posted to guarantee certain tax obligations
and the construction of certain real property improvements and
infrastructure, such as grading, sewers and streets. Performance
and surety bonds are commonly required by public agencies from
real estate developers. Performance and surety bonds are
renewable and expire upon the payment of the taxes due or the
completion of the improvements and infrastructure.

Promoted Interests and Other Contractual
Obligations.Upon the achievement of
certain return thresholds and the occurrence of certain events,
the Operating Partnership may be obligated to make payments to
certain joint venture partners pursuant to the terms and
provisions of their contractual agreements with the Operating
Partnership. From time to time in the normal course of the
Operating Partnerships business, the Operating Partnership
enters into various contracts with third parties that may
obligate it to make payments or perform other obligations upon
the occurrence of certain events.



| |              
| | -------------
| | 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. Management does not
expect that the liabilities, if any, that may ultimately result
from such legal actions will 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

24



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Operating Partnerships results of
operations and cash flow. The Operating Partnership carries
environmental insurance and believes that the policy terms,
conditions, limits and deductibles are adequate and appropriate
under the circumstances, given the relative risk of loss, the
cost of such coverage and current industry practice.

General Uninsured
Losses.The Operating Partnership
carries property and rental loss, liability, flood and terrorism
insurance. The Operating Partnership believes that the policy
terms, conditions, limits and deductibles are adequate and
appropriate under the circumstances, given the relative risk of
loss, the cost of such coverage and current 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 the Operating Partnership has
obtained coverage for certain acts of terrorism, with policy
specifications and insured limits that it believes are
commercially reasonable, there can be no assurance that the
Operating Partnership 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.In December 2001, the
Operating Partnership formed a wholly-owned captive insurance
company, Arcata National Insurance Ltd. (Arcata),
which provides insurance coverage for all or a portion of losses
below the deductible under the Operating Partnerships
third-party policies. The Operating Partnership capitalized
Arcata in accordance with the applicable 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 engages an independent third party to perform an
actuarial estimate of future projected claims, related
deductibles and projected expenses necessary to fund associated
risk management programs. Premiums paid to Arcata may be
adjusted based on this estimate. Premiums paid to Arcata have a
retrospective component, so that if expenses, including losses,
deductibles and reserves, are less than premiums collected, the
excess may be returned to the property owners (and, in turn, as
appropriate, to the customers) and conversely, subject to
certain limitations, if expenses, including losses, deductibles
and reserves, 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 has more
comprehensive insurance coverage at an overall lower cost than
would otherwise be available in the market.



|    |                 
|--- | ----------------
|13. | Subsequent Event

On October 26, 2004, AMB Institutional
Alliance REIT III, Inc. received capital contributions of
$136.5 million from 12 third party investors, which it
contributed to AMB Institutional Alliance Fund III, L.P.
(Fund III), an open-end commingled fund, in
return for limited partnership interests. The Operating
Partnership is the general partner of Fund III and has an
aggregate direct and indirect capital interest of approximately
20% in Fund III. The current gross book value of
Fund III is approximately $422.0 million. The open-end
structure of Fund III allows investors to purchase
interests in Fund III and to redeem all or a portion of
their investments in Fund III on a quarterly basis, at any
time following the second anniversary of Fund IIIs
initial closing, subject to cash availability.

25



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The Managements Discussion and Analysis
of Financial Condition and Results of Operation set forth in
this Item 2 has been restated to reflect the restatement of
our consolidated financial statements for the years ended
December 31, 2003, 2002 and 2001 filed on Forms 10-K and
10-K/A for the year ended December 31, 2003, and for the
quarters ended March 31, 2004 and June 30, 2004 filed
on Forms 10-Q for the quarters then ended. See Note 2 to
the restated unaudited consolidated financial statements
included in Part I, Item 1 on this
Form 10-Q.

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:



| |   |                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | changes in general economic conditions or in
    the real estate sector;                                                                                                                  
|
| |  | non-renewal of leases by customers or renewal
    at lower than expected rent;                                                                                                            
|
| |  | difficulties in identifying properties to
    acquire and in effecting acquisitions on advantageous terms and
    the failure of acquisitions to perform as we expect;                    
|
| |  | risks and uncertainties affecting property
    development and renovation (including construction delays, cost
    overruns, our inability to obtain necessary permits and
    financing);
|
| |  | a downturn in Californias economy or
    real estate conditions;                                                                                                                         
|
| |  | losses in excess of our insurance
    coverage;                                                                                                                                           
|
| |  | our failure to divest of properties on
    advantageous terms or to timely reinvest proceeds from any such
    divestitures;                                                              
|
| |  | unknown liabilities acquired from our
    predecessors or in connection with acquired
    properties;                                                                                     
|
| |  | risks of doing business internationally,
    including unfamiliarity with new markets and currency
    risks;                                                                             
|
| |  | risks associated with using debt to fund
    acquisitions and development, including re-financing
    risks;                                                                              
|
| |  | our failure to obtain necessary
    financing;                                                                                                                                            
|
| |  | changes in local, state and federal regulatory
    requirements; and                                                                                                                      
|
| |  | environmental uncertainties.                                                                                                                                                              

Our success also depends upon economic trends
generally, various market conditions and fluctuations and those
other risk factors discussed in the Business Risks
section in this report and in the section entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations -Business Risks in our
Annual Report on Form 10-K for the year ended
December 31, 2003. 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. We assume no obligation
to update or supplement forward-looking statements.

26



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##### Table of Contents



Unless the context otherwise requires, the terms
we, us and our refer to AMB
Property, L.P. and our controlled subsidiaries. The following
marks are the registered trademarks of AMB Property Corporation,
our general partner: AMB®; Development Alliance
Partners®; HTD®; High Throughput Distribution®;
Management Alliance Program®; Strategic Alliance
Partners®; Strategic Alliance Programs®; and UPREIT
Alliance Program®.

GENERAL

We commenced operations shortly before the
consummation of AMB Property Corporations initial public
offering on November 26, 1997.

Managements Overview

We generate revenue and earnings primarily from
rent received from customers under long-term (generally three to
ten years) operating leases at our properties, including
reimbursements from customers for certain operating costs, and
from partnership distributions and fees from our private capital
business. We also derive earnings from the strategic disposition
of assets and from the disposition of projects and land under
our development-for-sale program. Our long-term growth is
dependent on our ability to maintain and increase occupancy
rates or increase rental rates at our properties and our ability
to continue to acquire and develop new properties.

According to data from Torto Wheaton Research,
national demand for leased industrial space improved for the
second consecutive quarter in the quarter ended
September 30, 2004. These two consecutive quarters of
improving demand follow 14 quarters of negatively trending
industrial space availability. While the period of rising
availability proved a difficult leasing environment, acquisition
demand for industrial property (as evidenced by our observation
of strong national sales volumes and declining acquisition
capitalization rates) has remained consistently strong. We
believe that, during this period of negative availability, we
have capitalized on this opportunity by accelerating the
repositioning of our portfolio through the disposition of
non-core properties. While we continue to sell selected assets
on an opportunistic basis, we believe that we have substantially
achieved our repositioning goals. Property dispositions result
in reinvestment capacity and trigger gain/loss recognition, but
they also create near-term earnings dilution if the capital
cannot be redeployed effectively. The table below summarizes our
leasing activity for industrial operating properties for the
three and nine months ended September 30, 2004 and 2003:

|                                                   |                                          |              |  |             |    |                |  |         |    |  |  |           |   
|-------------------------------------------------- | ---------------------------------------- | ------------ |  | ----------- | -- | -------------- |  | ------- | -- |  |  | --------- | --
|                                                   |                                          | U.S. Hub and |  |             |    |               
|                                                   |                                          | Gateway      |  | Total Other |    | Total/Weighted
|Property Data                                      |                                          | Markets (1)  |  | Markets     |    | Average       
|                                                   |                                          |              |  |             |    |               
|For the three months ended September 30,
    2004: |                                          |              |  |             |    |                |  |         |    |  |  |          
|                                                   | % of total rentable square feet          |              |  | 74.5        | %  |                |  | 25.5    | %  |  |  | 100.0     | % 
|                                                   | Occupancy percentage at period end       |              |  | 94.8        | %  |                |  | 94.1    | %  |  |  | 94.6      | % 
|                                                   | Same space square footage leased         |              |  | 3,276,590   |    |                |  | 964,889 |    |  |  | 4,241,479 |   
|                                                   | Rent decreases on renewals and rollovers |              |  | (13.4       | )% |                |  | (11.5   | )% |  |  | (13.2     | )%
|For the three months ended September 30,
    2003: |                                          |              |  |             |    |                |  |         |    |  |  |          
|                                                   | % of total rentable square feet          |              |  | 76.1        | %  |                |  | 23.9    | %  |  |  | 100.0     | % 
|                                                   | Occupancy percentage at period end       |              |  | 92.1        | %  |                |  | 91.4    | %  |  |  | 92.0      | % 
|                                                   | Same space square footage leased         |              |  | 4,165,824   |    |                |  | 380,266 |    |  |  | 4,546,090 |   
|                                                   | Rent decreases on renewals and rollovers |              |  | (16.0       | )% |                |  | (4.9    | )% |  |  | (15.1     | )%
|For the nine months ended September 30, 2004:      |                                          |              |  |             |    |                |  |         |    |  |  |          
|                                                   | % of total rentable square feet          |              |  | 74.5        | %  |                |  | 25.5    | %  |  |  | 100.0     | % 
|                                                   | Occupancy percentage at period end       |              |  | 94.8        | %  |                |  | 94.1    | %  |  |  | 94.6      | % 

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|                                              |                                                          |              |  |             |    |                |  |           |    |  |  |            |   
|--------------------------------------------- | -------------------------------------------------------- | ------------ |  | ----------- | -- | -------------- |  | --------- | -- |  |  | ---------- | --
|                                              |                                                          | U.S. Hub and |  |             |    |               
|                                              |                                                          | Gateway      |  | Total Other |    | Total/Weighted
|Property Data                                 |                                                          | Markets (1)  |  | Markets     |    | Average       
|                                              |                                                          |              |  |             |    |               
|                                              | Same space square footage leased                         |              |  | 11,066,425  |    |                |  | 2,260,625 |    |  |  | 13,327,050 |   
|                                              | Rent decreases on renewals and rollovers                 |              |  | (14.6       | )% |                |  | (7.8      | )% |  |  | (13.6      | )%
|For the nine months ended September 30, 2003: |                                                          |              |  |             |    |                |  |           |    |  |  |           
|                                              | % of total rentable square feet                          |              |  | 76.1        | %  |                |  | 23.9      | %  |  |  | 100.0      | % 
|                                              | Occupancy percentage at period end                       |              |  | 92.1        | %  |                |  | 91.4      | %  |  |  | 92.0       | % 
|                                              | Same space square footage leased                         |              |  | 10,472,076  |    |                |  | 2,877,223 |    |  |  | 13,349,299 |   
|                                              | Rent (decreases) increases on renewals and
    rollovers |              |  | (10.4       | )% |                |  | 5.5       | %  |  |  | (7.4       | )%



---



|    |                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our U.S. hub and gateway markets include
    on-tarmac and Atlanta, Chicago, Dallas/ Fort Worth, Los
    Angeles, Northern New Jersey/ New York City, the
    San Francisco Bay Area, Miami and Seattle.

We continued to observe two positive trends
nationally for industrial real estate during the quarter ended
September 30, 2004, supported by data provided by Torto
Wheaton Research. First, national industrial space availability
declined 20 basis points in the quarter from 11.4% to
11.2%. This decrease in national industrial space availability
represents the second consecutive quarter of improving demand
for national industrial space. In the 14 prior quarters,
national industrial space availability increased on
average 36 basis points per quarter. Second, national
absorption of industrial space, defined as the net change in
occupied stock as measured by square feet of completions less
the change in available vacant square feet, totaled
approximately 56 million square feet in the quarter ended
September 30, 2004, a level consistent with the
46 million square feet of industrial space absorbed in the
prior quarter. This represented the fifth consecutive quarter of
positive absorption, following ten quarters in which absorption
averaged a negative 16 million square feet per quarter.

In this improved environment, our industrial
portfolios occupancy levels increased to 94.6% at
September 30, 2004 from 93.6% at June 30, 2004, which
we believe reflects higher levels of demand for industrial space
generally and in our portfolio specifically. During the three
months ended September 30, 2004, our lease expirations
totaled approximately 4.9 million square feet while
commencements of new or renewed leases totaled approximately
5.7 million square feet, resulting in an increase in our
occupancy levels of approximately 100 basis points. On
September 30, 2004, our occupancy levels were
260 basis points higher than at September 30, 2003.

Rents on industrial renewals and rollovers in our
portfolio decreased 13.2% during the quarter ended
September 30, 2004 as leases were entered into or renewed
at rates consistent with what we believe to be current market
levels. We believe this decline in rents on lease renewals and
rollovers reflects trends in national industrial space
availability. We believe that relatively high levels of national
industrial space availability have caused market rents for
industrial properties to decline between 10 and 20% from their
peak levels in 2001. Rental rates in our portfolio declined at a
lower rate in the quarter ended September 30, 2004 than in
the prior quarter, which we believe indicates a stabilization of
market rental rate levels. While the level of rental rate
reduction varied by market, we achieved occupancy levels in our
portfolio 580 basis points in excess of the national
industrial market, as determined by Torto Wheaton Research, by
pricing lease renewals and new leases with sensitivity to local
market conditions. In periods of decreasing or stabilizing
rental rates, we strive to sign leases with shorter terms to
prevent locking in lower rent levels for long periods and to be
prepared to sign new, longer-term leases during periods of
growing rental rates. When we sign leases of shorter duration,
we attempt to limit overall leasing costs and capital
expenditures by offering different grades of tenant improvement
packages, appropriate to the lease term. We generally followed
this practice during the quarter ended September 30, 2004.

We believe that development, renovation and
expansion of well-located, high-quality industrial properties
should generally continue to provide us with attractive
investment opportunities at a higher rate of return than we may
obtain from the purchase of existing properties. We believe that
our development opportunities in Mexico and Japan are attractive
given the current lack of supply of modern distribution
facilities in the major

28



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##### Table of Contents



metropolitan markets of these countries.
Globally, we have increased our development pipeline from a low
of $107.0 million at the end of 2002 to approximately
$689.3 million at September 30, 2004. In addition to
our committed development pipeline, we hold 934 acres,
38 acres and six acres in North America, Asia and Europe,
respectively, which could support an aggregate of approximately
17.1 million square feet of additional development. We also
own approximately 307 acres of land in North America as
part of our development and land sales program.


Going forward, we believe that our co-investment
program with private-capital investors will continue to serve as
a significant source of capital for acquisitions. Through these
co-investment joint ventures, we earn acquisition and
development fees, asset management fees and priority
distributions, as well as promoted interests and incentive
distributions based on the performance of the co-investment
joint ventures; however, there can be no assurance that we will
continue to do so.

For our general partner to maintain its
qualification as a real estate investment trust, it must pay
dividends to its stockholders aggregating annually at least 90%
of its taxable income. As a result, we cannot rely on retained
earnings to fund our on-going operations to the same extent that
other corporations whose general partner is not a real estate
investment trust can. We must continue to raise capital in both
the debt and equity markets to fund our working capital needs,
acquisitions and developments. See Liquidity and Capital
Resources for a complete discussion of the sources of our
capital.

Summary of Key Transactions

During the three months ended September 30,
2004, we completed the following significant capital deployment
transactions:



| |   |                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Acquired two buildings in the U.S., aggregating
    approximately 0.6 million square feet, for an aggregate
    price of approximately $51.6 million, including
    $5.7 million invested through one of our co-investment
    joint ventures; and                 
|
| |  | Commenced seven new development projects in the
    United States, Singapore and Japan, totaling 2.7 million
    square feet with an estimated total investment of approximately
    $345.7 million (using exchange rates in effect at
    September 30, 2004); and
|
| |  | Acquired 478 acres of land for industrial
    warehouse development in various U.S. markets for
    $36.7 million; and                                                                                                                                             
|
| |  | Sold one land parcel and three development
    projects available for sale, aggregating approximately
    0.1 million square feet, for an aggregate price of
    $13.8 million; and                                                                                
|
| |  | Divested ourselves of five industrial buildings
    and two retail centers, aggregating 0.8 million square
    feet, for an aggregate price of $62.8 million.                                                                                                      

During the nine months ended September 30,
2004, we completed the following significant capital deployment
transactions:



| |   |                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Acquired 48 buildings in the U.S., Mexico, Europe
    and Japan, aggregating approximately 4.6 million square
    feet, for an aggregate price of approximately
    $490.8 million (using exchange rates in effect at
    acquisition dates), including $137.7 million invested
    through three of our co-investment joint ventures; and
|
| |  | Commenced 13 development projects in the United
    States, Mexico, Singapore and Japan, totaling 4.5 million
    square feet with an estimated total investment of approximately
    $497.7 million (using exchange rates in effect at
    applicable quarter end dates); and                                                            
|
| |  | Acquired 640 acres of land for industrial
    warehouse development in various U.S. markets and Mexico
    City for approximately $68.3 million; and                                                                                                                                                                                      
|
| |  | Sold five land parcels and four development
    projects available for sale, aggregating approximately
    0.2 million square feet, for an aggregate price of
    $27.8 million; and                                                                                                                                                      

29



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| |   |                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Divested ourselves of seven industrial buildings,
    two retail centers and one office building, aggregating
    1.2 million square feet, for an aggregate price of
    $80.7 million.

See Part I, Item 1: Notes 3 and 4
of the Notes to Consolidated Financial Statements
for a more detailed discussion of our acquisition, development
and disposition activity.

During the three months ended September 30,
2004, we completed the following capital markets transactions:



| |   |                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Obtained long-term secured debt financings for
    our co-investment joint ventures of $109.8 million at an
    average rate of 5.0%; and                            
|
| |  | Assumed $8.6 million of debt for our
    co-investment joint ventures and our pre-specified co-investment
    properties at a weighted average interest rate of 7.7%.

During the nine months ended September 30,
2004, we completed the following capital markets transactions:



| |   |                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Obtained long-term secured debt financings for
    our co-investment joint ventures totaling $140.9 million at
    an average rate of 5.0%; and                                                                                                                                                                                                                  
|
| |  | Assumed $124.9 million of debt for our
    co-investment joint ventures and our pre-specified co-investment
    properties at a weighted average interest rate of 6.5%; and                                                                                                                                                                                      
|
| |  | Obtained $63.8 million of debt (using
    exchange rates in effect at applicable quarter end dates) with a
    weighted average interest rate of 3.6% for international
    acquisitions; and                                                                                                                                                                    
|
| |  | Completed the early renewal our senior unsecured
    revolving line of credit in the amount of $500.0 million.
    The three-year credit facility includes a multi-currency
    component under which up to $250.0 million can be drawn in
    Yen, Euros or British Pounds Sterling; and                                                                        
|
| |  | Entered into an unsecured revolving credit
    agreement through AMB Japan Finance Y.K., one of our
    subsidiaries, providing for loans or letters of credit in a
    maximum principal amount outstanding at any time of up to
    24 billion Yen (approximately $218.1 million in
    U.S. dollars using exchange rates in effect at
    September 30, 2004).

See Part I, Item 1: Notes 6, 7 and
9 of the Notes to Consolidated Financial Statements
for a more detailed discussion of our capital markets and equity
transactions.

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
U.S. (GAAP). 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:

Restatement of Depreciation
Expense.On October 12, 2004, our
general partner announced a restatement of depreciation expense
for our prior period results relating to 39 buildings in our
portfolio, 38 of which are located on-tarmac, which is land
owned by federal, state or local airport authorities. As part of
managements on-going review of our accounting policies and
internal control over financial reporting, management determined
that we should have depreciated certain of our investments in
buildings that reside on land subject to ground leases over the
remaining terms of the ground leases, rather than over
40 years,

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which is the period used to depreciate buildings
that we hold in fee simple. We did not segregate these assets
into a separate expected useful life category for depreciation
purposes. Our management determined that the internal control
deficiency that resulted in this restatement represents a
material weakness, as defined by the Public Company Accounting
Oversight Boards Auditing Standard No. 2. In
connection with correcting this error, management has taken
appropriate action to modify our system of internal control over
financial reporting to remediate this internal control
deficiency. Going forward, these assets will be depreciated over
the lesser of 40 years or the contractual term of the
underlying ground lease. A description of this weakness and the
related remediation measures that have been undertaken by us is
set forth in Part I, Item 4, Controls and Procedures
of this Form 10-Q.


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. We also record at acquisition
an intangible asset or liability for the value attributable to
above or below-market leases, in-place leases and lease
origination costs for all acquisitions subsequent to
July 1, 2001. 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. Examples of certain situations that
could affect future cash flows of a property may include, but
are not limited to: significant decreases in occupancy;
unforeseen bankruptcy, lease termination and move-out of a major
customer; or a significant decrease in annual base rents of that
property. 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 earnings.

Revenue Recognition.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 allowance for doubtful accounts, security
deposits and letters of credit, then we may have to recognize
additional doubtful account charges in future periods. We
monitor the liquidity and creditworthiness of our customers on
an on-going basis. Each period, we review our outstanding
accounts receivable, including straight-line rents, for doubtful
accounts and provide allowances as needed. We also record lease
termination fees when a customer has executed a definitive
termination agreement with us and the payment of the termination
fee is not subject to any conditions that must be met or waived
before the fee is due to us. If a customer remains in the leased
space following the execution of a definitive termination
agreement, the applicable termination fees are deferred and
recognized over the term of such customers occupancy.

Property
Dispositions.We report real estate
dispositions in three separate categories on our consolidated
statements of operations. First, when we contribute properties
to our joint ventures, we recognize gains representing the
portion of the contributed properties acquired by the
third-party investors to the extent of cash proceeds received.
Second, we dispose of value-added conversion projects and
build-to-suit and speculative development projects that we have
held as development projects available for sale. The gain or
loss recognized from the disposition of these projects is
reported net of estimated taxes, when applicable. Lastly,
beginning in 2002, SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, required us to
separately report as discontinued operations the historical
operating results attributable to operating properties sold and
the applicable gain or loss on the disposition of the
properties. The consolidated statements of operations for prior
periods are also adjusted to conform to this classification.
There is no impact on our previously reported consolidated
financial position, net income or cash flows.

Joint Ventures.We
hold interests in both consolidated and unconsolidated joint
ventures. Our joint venture investments do not meet the variable
interest entity criteria under FASB Interpretation No. 46R,
Consolidation of Variable Interest Entities.Therefore,
we determine consolidation based on standards set forth in EITF
96-16, Investors Accounting for an Investee When the
Investor Has a Majority of the Voting Interest but the Minority
Shareholder or Shareholders Have Certain Approval or Veto
Rights, and Statement of

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Position 78-9, Accounting for Investments in
Real Estate Ventures. Based on the guidance set forth in
these pronouncements, we consolidate certain joint venture
investments because we own a majority interest or exercise
significant control over major operating decisions, such as
approval of budgets, selection of property managers, asset
management, investment activity and changes in financing. For
joint ventures where we do not own a majority interest or do not
exercise significant control over major operating and management
decisions, we use the equity method of accounting and do not
consolidate the joint venture for financial reporting purposes.


Our General Partners Status as a Real
Estate Investment Trust.As a real
estate investment trust, AMB Property Corporation, our general
partner, generally will not be subject to corporate level
federal income taxes if it meets minimum distribution, income,
asset and shareholder tests. However, some of its subsidiaries,
which are also our subsidiaries, may be subject to federal and
state taxes. In addition, foreign entities may also be subject
to the taxes of the host country. An income tax allocation is
required to be estimated on our general partners taxable
income arising from our taxable REIT subsidiaries and foreign
entities. A deferred tax component could arise based upon the
differences in GAAP versus tax income for items such as
depreciation and gain recognition. However, we believe deferred
tax is an immaterial component of our consolidated balance sheet
because of our general partners status as a real estate
investment trust.

THE COMPANY

AMB Property, L.P., a Delaware limited
partnership, acquires, develops and operates primarily
industrial properties in key distribution markets throughout
North America, Europe and Asia. We commenced operations as a
fully integrated real estate company effective with the
completion of AMB Property Corporations initial public
offering on November 26, 1997. Increasingly, our strategy
focuses on providing properties for customers who value the
efficient movement of goods in the worlds busiest
distribution markets: large, supply-constrained locations with
close proximity to airports, seaports and major freeway systems.
As of September 30, 2004, we owned, managed and had
renovation and development projects totaling 109.1 million
square feet (10.1 million square meters) and 1,106
buildings in 38 markets within eight countries.

As of September 30, 2004, AMB Property
Corporation owned an approximate 94.6% general partnership
interest in us, excluding preferred units. As our sole general
partner, AMB Property Corporation has the full, exclusive and
complete responsibility for and discretion in our day-to-day
management and control.

Our investment strategy generally targets
customers whose businesses are tied to global trade, which,
according to the World Trade Organization, has grown more than
three times the world gross domestic product growth rate during
the last 20 years. To serve the facilities needs of these
customers, we seek to invest in major distribution markets,
transportation hubs and gateways, both domestically and
internationally. Our investment strategy seeks target markets
that are generally characterized by large population densities
and typically offer substantial consumer bases, proximity to
large clusters of distribution-facility users and significant
labor pools. When measured by annualized base rents, 66.6% of
our industrial properties are concentrated in eight
U.S. hub and gateway distribution markets: Atlanta,
Chicago, Dallas/ Fort Worth, Los Angeles, Northern New
Jersey/ New York City, the San Francisco Bay Area, Miami
and Seattle. Our on-tarmac properties account for 8.1% of our
annualized base rents. Much of our portfolio is comprised of
industrial buildings in in-fill submarkets. In-fill locations
are characterized by supply constraints on the availability of
land for competing projects as well as physical, political or
economic barriers to new development.

We focus our investment strategy on High
Throughput Distribution®, or HTD® facilities, which
are buildings designed to quickly distribute our customers
products, rather than store them. Our investment focus on HTD
assets is based on what we believe to be a global trend toward
lower inventory levels and expedited supply chains. HTD
facilities generally have a variety of characteristics that
allow for the rapid transport of goods from point-to-point.
Examples of these physical characteristics include numerous dock
doors, shallower building depths, fewer columns, large truck
courts and more space for trailer parking. We believe that these
building characteristics represent a key factor for
time-sensitive customers such as air express, logistics and

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freight forwarding companies, and that these
facilities function best when located in convenient proximity to
transportation infrastructure such as major airports and
seaports.


As of September 30, 2004, we owned and
operated (exclusive of properties that we managed for third
parties) 991 industrial buildings and four retail and other
properties, totaling approximately 91.6 million rentable
square feet, located in 35 markets throughout the United States
and in France, Germany, Japan, Mexico and the Netherlands. As of
September 30, 2004, through our subsidiary, AMB Capital
Partners, LLC, we also managed, but did not have an ownership
interest in, industrial buildings and retail centers totaling
approximately 0.5 million rentable square feet. In
addition, as of September 30, 2004, we had investments in
operating industrial buildings totaling approximately
8.0 million rentable square feet, through investments in
unconsolidated joint ventures. As of September 30, 2004, we
also had investments in industrial development projects, some of
which are part of our development-for-sale program, totaling
approximately 9.4 million square feet. As of
September 30, 2004, we had 14 industrial buildings and
three undeveloped land parcels held for divestiture, and one
industrial building held for contribution.

Our own employees perform our corporate
administrative and management functions, rather than our relying
on an outside manager for these services. Through our Strategic
Alliance Program®, we have established relationships with
third-party real estate management firms, brokers and developers
that provide property-level administrative and management
services under our direction.

Our principal executive office is located at
Pier 1, Bay 1, San Francisco, California 94111;
our telephone number is (415) 394-9000. We also maintain
regional offices in Amsterdam, Boston, Chicago, Shanghai and
Tokyo. As of September 30, 2004, we employed 215
individuals: 140 at our San Francisco headquarters, 48 in
our Boston office, and the remainder in our other regional
offices. Our website address is www.amb.com. Our annual
report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and any amendments to those
reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 are available on
our website free of charge as soon as reasonably practicable
after we electronically file such material with, or furnish it
to, the U.S. Securities and Exchange Commission.
Information contained on our website is not and should not be
deemed a part of this quarterly report.

Operating Strategy

We base our operating strategy on a variety of
operational and service offerings, including in-house
acquisitions, development, redevelopment, asset management,
leasing, finance, accounting and market research. Our strategy
is to leverage our expertise across a large customer base, and
complement our internal management resources with long-standing
relationships with entrepreneurial real estate management and
development firms in our target markets, which we refer to as
our Strategic Alliance Partners®.

We believe that real estate is fundamentally a
local business and best operated by local teams in each market
comprised of AMB employees, local alliance partners or both. We
intend to increase utilization of internal management resources
in target markets to achieve both operating efficiencies and to
expose our customers to the broadening array of AMB service
offerings, including global locations and build-to-suit
developments. We actively manage our portfolio, whether directly
or with an alliance partner, by establishing leasing strategies,
negotiating lease terms, pricing, and level and timing of
property improvements.

Growth Strategies



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

We seek to generate long-term internal growth
through rent increases on existing space and renewals on
rollover space by working to maintain a high occupancy rate at
our properties and to control expenses by capitalizing on the
economies of scale inherent in owning, operating and growing a
large, global portfolio. However, during the three months ended
September 30, 2004, our average industrial base rental
rates decreased by 13.2% from the rent in place at expiration
for that space on leases entered into or renewed during the
period. This amount excludes expense reimbursements, rental
abatements, percentage rents and straight-line rents. Since
2001, as the industrial market weakened, we have focused on
maintaining occupancy levels.

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During the three months ended September 30,
2004, cash-basis same-store net operating income (rental
revenues less straight-lined rents, property operating expenses
and real estate taxes) increased by 4.8% on our industrial
properties, reflecting increased occupancy and receipt of lease
termination fees. During the nine months ended
September 30, 2004, cash-basis same-store net operating
income decreased by 1.1% on our industrial properties. From our
inception through the second quarter 2004 (the most recent
reporting period for our peer group), our cash-basis same-store
net operating income growth has outperformed our industrial peer
average by approximately 147 basis points. In the third
quarter of 2004, we have experienced decreases in industrial
base rental rates of 13.2%. However, since our inception in
November 1997, we have experienced average annual increases in
industrial base rental rates of 7.6% and maintained an average
quarter-end occupancy of 94.8% on our industrial operating
portfolio. While we believe that it is important to view real
estate as a long-term investment, past results are not
necessarily an indication of future performance. See
Part I, Item 1: Note 11 of the Notes to
Consolidated Financial Statements for detailed segment
information, including revenue attributable to each segment,
gross investment in each segment and total assets.




| |                                                         
| | --------------------------------------------------------
| | Growth Through Acquisitions and Capital
    Redeployment

We believe that our acquisition experience and
our network of property management and acquisition resources
will continue to provide opportunities for external growth. We
have long-term relationships with third-party local property
management firms, which we believe will give us access to
additional acquisition opportunities, as such managers
frequently market properties on behalf of sellers. We believe
that our operating structure also enables us to acquire
properties through our UPREIT Alliance Program® in exchange
for our limited partnership units (including issuances of
limited partnership units by our subsidiaries), thereby
enhancing our attractiveness to owners and developers seeking to
transfer properties on a tax-deferred basis. In addition, we
seek to redeploy capital from non-strategic assets into
properties that better fit our current investment focus.

We are generally engaged in various stages of
negotiations for a number of acquisitions and dispositions that
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 retained cash flow from operations,
borrowings under our unsecured credit facilities, 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, assumption of debt related to the
acquired properties and private capital from our co-investment
partners.



| |                           
| | --------------------------
| | Growth Through Development

We believe that development, renovation and
expansion of well-located, high-quality industrial properties
should continue to provide us with attractive investment
opportunities at a higher rate of return than we may obtain from
the purchase of existing properties. We believe we have the
in-house expertise to create value both through new construction
and acquisition and management of value-added properties.
Value-added properties are typically characterized as properties
with available space or near-term leasing exposure, undeveloped
land acquired in connection with other property that provides an
opportunity for development or properties that are well-located
but require redevelopment or renovation. Both new development
and value-added properties require significant management
attention and capital investment to maximize their return. In
addition to our in-house development staff, we have established
strategic alliances with global and regional developers that we
expect to enhance our development capabilities. We believe our
global market presence and expertise will enable us to continue
to generate and capitalize on a diverse range of development
opportunities.

We believe that the multidisciplinary backgrounds
of our employees should provide us with the skills and
experience to capitalize on strategic renovation, expansion and
development opportunities. Many of the officers of our general
partner have specific experience in real estate development,
both with AMB and with national development firms, and over the
past year we have expanded our development staff. We pursue

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development projects directly and in joint
ventures with our Development Alliance Partners®, which
provides us with the flexibility to pursue development projects
independently or in partnerships, depending on market
conditions, submarkets or building sites. 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%; however, in certain cases we may own as little as 50% or as
much as 98% of the joint venture. Upon completion, we generally
would purchase our partners interest in the joint venture.
We may also structure developments such that we would own 100%
of the asset with an incentive development fee to be paid upon
completion to our development partner.




| |                                                
| | -----------------------------------------------
| | Growth Through Development for Sale
    Program

We, through our taxable REIT subsidiaries,
conduct a variety of businesses that include incremental income
programs, such as our land and development projects available
for sale to third parties. Such development properties include
value-added conversion projects and build-to-sell projects.



| |                                    
| | -----------------------------------
| | Growth Through Global
    Expansion

By 2007, we plan to have approximately 15% of our
portfolio (based on consolidated annualized base rent) invested
in international markets. As of September 30, 2004, our
international operating properties comprised 4.1% of our total
annualized industrial base rent. Our North American target
markets outside of the United States currently include
Guadalajara, Mexico City, Monterrey and Toronto. Our European
target markets currently include Amsterdam, Frankfurt, London,
Madrid and Paris. Our Asian target markets currently include
Beijing, Nagoya, Osaka, the Pearl River Delta, Shanghai,
Singapore and Tokyo. There are many factors that could cause our
entry into target markets and future capital allocation to
differ from our current expectations, which are discussed under
the subheading Our International Growth is Subject to
Special Political and Monetary Risks and elsewhere under
the heading Managements Discussion and Analysis of
Financial Condition and Results of Operations 
Business Risks in our Annual Report on Form 10-K for
the year ended December 31, 2003. Further, it is possible
that our target markets will change over time to reflect
experience, market opportunities, customer needs and changes in
global distribution patterns. For a breakout of the amount of
our revenues attributable to the United States and to foreign
countries in total, please see Part I, Item 1:
Note 11 of the Notes to Consolidated Financial
Statements.

We believe that expansion into target
international markets represents a natural extension of our
strategy to invest in industrial markets with high population
densities, close proximity to large customer clusters and
available labor pools, and major distribution centers serving
global trade. Our international expansion strategy mirrors our
domestic focus on supply-constrained submarkets with political,
economic or physical constraints to new development. Our
international investments will extend our offering of High
Throughput Distribution® facilities for customers who value
speed-to-market over storage. We are generally focused on
customers whose business is derived from global trade. In
addition, our investments target major consumer distribution
markets and customers.

We believe that our established customer
relationships, our contacts in the air cargo and logistics
industries, our underwriting of markets and investment
considerations and our Strategic Alliance Programs with
knowledgeable developers and managers will assist us in
competing internationally.



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

We co-invest in properties with private-capital
investors through partnerships, limited liability companies or
joint ventures. Our co-investment joint ventures typically
operate under the same investment strategy that we apply to our
other operations. Typically we will own a 20-50% interest in our
co-investment 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;
however, there can be no assurance that it will continue to do
so. In addition, our co-investment joint ventures earn
acquisition and development fees, asset management fees and
priority distributions, as well as promoted interests and
incentive fees based on the performance of the co-investment
joint ventures. As of September 30,

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2004, we owned approximately 37.6 million
square feet of our properties (37% of the total consolidated
operating and development portfolio) through our co-investment
joint ventures. In addition, we expect to fund our international
expansion, in part, with private capital.


RESULTS OF OPERATIONS

The analysis below includes changes attributable
to same store growth, acquisitions, development activity and
divestitures. Same store properties are those that we owned
during both the current and prior year reporting periods,
excluding development properties prior to being stabilized
subsequent to December 31, 2002 (generally defined as
properties that are 90% leased or properties for which we have
held a certificate of occupancy or where building has been
substantially complete for at least 12 months).

As of September 30, 2004, same store
industrial properties consisted of properties aggregating
approximately 77.9 million square feet. The properties
acquired during the three months ended September 30, 2004
consisted of two buildings, aggregating approximately
0.6 million square feet. The properties acquired during the
three months ended September 30, 2003 consisted of 13
buildings, aggregating approximately 0.8 million square
feet. During the three months ended September 30, 2004,
property divestitures consisted of five industrial buildings and
two retail centers, aggregating approximately 0.8 million
square feet. During the three months ended September 30,
2003, property divestitures consisted of nine industrial
buildings and one retail center, aggregating approximately
0.8 million square feet.

The properties acquired during the nine months
ended September 30, 2004 consisted of 48 buildings,
aggregating approximately 4.6 million square feet. The
properties acquired during the nine months ended
September 30, 2003 consisted of 31 buildings, aggregating
approximately 3.2 million square feet. During the nine
months ended September 30, 2004, property divestitures
consisted of seven industrial buildings, two retail centers and
one office building, aggregating approximately 1.2 million
square feet. During the nine months ended September 30,
2003, property divestitures and contributions consisted of 46
industrial buildings, aggregating approximately 5.1 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
results.



| |                                                                                      
| | -------------------------------------------------------------------------------------
| | For the Three Months ended
    September 30, 2004 and 2003 (dollars in
    millions):

|                       |                          |                       |                |      |       |          |     |          |       |       |     |     |      |      |      |       |       |      |  
|---------------------- | ------------------------ | --------------------- | -------------- | ---- | ----- | -------- | --- | -------- | ----- | ----- | --- | --- | ---- | ---- | ---- | ----- | ----- | ---- | -
|Revenues               |                          | 2004                  |                | 2003 |       | $ Change |     | % Change
|                       |                          |                       |                |      |       |          |     |         
|Rental revenues        |                          |                       |                |      |       |          |     |          |       |       |     |     |      |      |      |      
|                       | U.S. industrial:         |                       |                |      |       |          |     |          |       |       |     |     |      |      |      |       |      
|                       |                          | Same store            |                | $    | 141.2 |          |     | $        | 136.6 |       |     | $   | 4.6  |      |      |       | 3.4   | %   
|                       |                          | 2003 acquisitions     |                |      | 11.8  |          |     |          | 4.5   |       |     |     | 7.3  |      |      |       | 162.2 | %   
|                       |                          | 2004 acquisitions     |                |      | 9.1   |          |     |          |      |       |     |     | 9.1  |      |      |       |      | %   
|                       |                          | Development           |                |      | 1.0   |          |     |          | 0.7   |       |     |     | 0.3  |      |      |       | 42.9  | %   
|                       |                          | Other industrial      |                |      | 2.8   |          |     |          | 1.2   |       |     |     | 1.6  |      |      |       | 133.3 | %   
|                       | International industrial |                       |                | 7.0  |       |          |     | 1.7      |       |       |     | 5.3 |      |      |      | 311.8 | %    
|                       | Retail                   |                       |                | 0.9  |       |          |     | 0.8      |       |       |     | 0.1 |      |      |      | 12.5  | %    
|                       |                          |                       |                |      |       |          |     |          |       |       |     |     |      |      |      |      
|                       |                          | Total rental revenues |                |      | 173.8 |          |     |          | 145.5 |       |     |     | 28.3 |      |      |       | 19.5  | %   
|Private capital income |                          |                       | 2.7            |      |       |          | 1.9 |          |       |       | 0.8 |     |      |      | 42.1 | %    
|                       |                          |                       |                |      |       |          |     |          |       |       |     |     |      |      |      |      
|                       |                          |                       | Total revenues |      | $     | 176.5    |     |          | $     | 147.4 |     |     | $    | 29.1 |      |       |       | 19.7 | %
|                       |                          |                       |                |      |       |          |     |          |       |       |     |     |      |      |      |      

The increase in industrial same store rental
revenues was primarily driven by current year lease termination
fees, net of associated straight-line rent write-offs, as well
as higher average occupancies in the San Francisco Bay
Area, Los Angeles, and Seattle submarkets and increased rental
rates. Across the portfolio, these and other factors accounted
for approximately $4.7 million of the change from prior
year. This increase was partially offset by an increase in
allowances for doubtful accounts of approximately
$0.1 million. Industrial same store occupancy was 94.8% at
September 30, 2004 and 92.5% at September 30, 2003.
For the three

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months ended September 30, 2004, rents in
the same store portfolio decreased 14.3% on industrial renewals
and rollovers (cash basis) on 3.9 million square feet
leased. The properties acquired during 2003 consisted of 82
buildings, aggregating approximately 6.5 million square
feet. The properties acquired during 2004 consisted of 48
buildings, aggregating approximately 4.6 million square
feet. Other industrial revenues include rental revenues from
divested properties not classified as discontinued operations,
which accordingly are not classified as discontinued operations
in our consolidated financial statements, and development
projects, which have reached certain levels of operation and are
not yet part of the same store operating pool of properties. In
2003 and 2004, we continued to acquire properties in France,
Germany, Japan, Mexico and the Netherlands, resulting in
increased international industrial revenues.


|                              |                          |                                |                          |            |      |          |      |          |      |      |     |     |      |      |      |       |       |      |  
|----------------------------- | ------------------------ | ------------------------------ | ------------------------ | ---------- | ---- | -------- | ---- | -------- | ---- | ---- | --- | --- | ---- | ---- | ---- | ----- | ----- | ---- | -
|Costs and Expenses            |                          | 2004                           |                          | 2003       |      | $ Change |      | % Change
|                              |                          |                                |                          |            |      |          |      |         
|                              |                          |                                |                          | (Restated) |      |          |      |         
|Property operating costs:     |                          |                                |                          |            |      |          |      |          |      |      |     |     |      |      |      |      
|                              | Rental expenses          |                                | $                        | 24.7       |      |          | $    | 21.9     |      |      | $   | 2.8 |      |      |      | 12.8  | %    
|                              | Real estate taxes        |                                |                          | 19.3       |      |          |      | 17.2     |      |      |     | 2.1 |      |      |      | 12.2  | %    
|                              |                          |                                |                          |            |      |          |      |          |      |      |     |     |      |      |      |      
|                              |                          | Total property operating costs |                          | $          | 44.0 |          |      | $        | 39.1 |      |     | $   | 4.9  |      |      |       | 12.5  | %   
|                              |                          |                                |                          |            |      |          |      |          |      |      |     |     |      |      |      |      
|Property operating costs      |                          |                                |                          |            |      |          |      |          |      |      |     |     |      |      |      |      
|                              | U.S. industrial:         |                                |                          |            |      |          |      |          |      |      |     |     |      |      |      |       |      
|                              |                          | Same store                     |                          | $          | 37.3 |          |      | $        | 36.6 |      |     | $   | 0.7  |      |      |       | 1.9   | %   
|                              |                          | 2003 acquisitions              |                          |            | 2.7  |          |      |          | 1.1  |      |     |     | 1.6  |      |      |       | 145.5 | %   
|                              |                          | 2004 acquisitions              |                          |            | 2.2  |          |      |          |     |      |     |     | 2.2  |      |      |       |      | %   
|                              |                          | Development                    |                          |            | 0.3  |          |      |          | 0.9  |      |     |     | (0.6 | )    |      |       | (66.7 | )%  
|                              |                          | Other industrial               |                          |            | 0.5  |          |      |          | 0.3  |      |     |     | 0.2  |      |      |       | 66.7  | %   
|                              | International industrial |                                |                          | 0.7        |      |          |      | (0.1     | )    |      |     | 0.8 |      |      |      | 800.0 | %    
|                              | Retail                   |                                |                          | 0.3        |      |          |      | 0.3      |      |      |     |    |      |      |      |      | %    
|                              |                          |                                |                          |            |      |          |      |          |      |      |     |     |      |      |      |      
|                              |                          | Total property operating costs |                          |            | 44.0 |          |      |          | 39.1 |      |     |     | 4.9  |      |      |       | 12.5  | %   
|Depreciation and amortization |                          |                                | 42.1                     |            |      |          | 33.7 |          |      |      | 8.4 |     |      |      | 24.9 | %    
|General and administrative    |                          |                                | 15.7                     |            |      |          | 10.9 |          |      |      | 4.8 |     |      |      | 44.0 | %    
|                              |                          |                                |                          |            |      |          |      |          |      |      |     |     |      |      |      |      
|                              |                          |                                | Total costs and expenses |            | $    | 101.8    |      |          | $    | 83.7 |     |     | $    | 18.1 |      |       |       | 21.6 | %
|                              |                          |                                |                          |            |      |          |      |          |      |      |     |     |      |      |      |      

Same store properties operating expenses
from September 30, 2003 to September 30, 2004, showed
an increase of $0.7 million from prior year on a
quarter-to-date basis. The 2003 acquisitions consist of 82
buildings, aggregating approximately 6.5 million square
feet. The 2004 acquisitions consist of 48 buildings, aggregating
approximately 4.6 million square feet. Other industrial
expenses include expenses from divested properties, which have
been contributed to an unconsolidated joint venture, which
accordingly are not classified as discontinued operations in our
consolidated financial statements, and development properties,
which have reached certain levels of operation and are not yet
part of the same store operating pool of properties. In 2003 and
2004, we continued to acquire properties in France, Germany,
Japan, Mexico and the Netherlands, resulting in increased
international industrial property operating costs. The increase
in depreciation and amortization expense was due to the increase
in our net investment in real estate. The increase in general
and administrative expenses was primarily due to increased
stock-based compensation expense of $0.4 million and
additional staffing and expenses for new initiatives, including
our international and development expansions.

|                                                        |                                        |      |       |       |   |          |       |          |   |   |      |     |  |  |       |      |  
|------------------------------------------------------- | -------------------------------------- | ---- | ----- | ----- | - | -------- | ----- | -------- | - | - | ---- | --- |  |  | ----- | ---- | -
|Other Income and (Expenses)                             |                                        | 2004 |       | 2003  |   | $ Change |       | % Change
|                                                        |                                        |      |       |       |   |          |       |         
|Equity in earnings of unconsolidated joint
    ventures |                                        | $    | 0.6   |       |   | $        | 1.4   |          |   | $ | (0.8 | )   |  |  | (57.1 | )%  
|Interest and other income                               |                                        |      | 1.3   |       |   |          | 0.7   |          |   |   | 0.6  |     |  |  | 85.7  | %   
|Development profits, net of taxes                       |                                        |      | 1.5   |       |   |          | 5.5   |          |   |   | (4.0 | )   |  |  | (72.7 | )%  
|Interest, including amortization                        |                                        |      | (40.3 | )     |   |          | (35.6 | )        |   |   | 4.7  |     |  |  | 13.2  | %   
|                                                        |                                        |      |       |       |   |          |       |          |   |   |      |     |  |  |       |     
|                                                        | Total other income and (expenses), net |      | $     | (36.9 | ) |          | $     | (28.0    | ) |   | $    | 8.9 |  |  |       | 31.8 | %
|                                                        |                                        |      |       |       |   |          |       |          |   |   |      |     |  |  |       |     

37



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##### Table of Contents



The $0.8 million decrease in equity in
earnings of unconsolidated joint ventures was primarily due to
decreased occupancy at a property held by one of our joint
ventures. The $0.6 million increase in interest and other
income was primarily due to the recovery of an insurance
settlement in the third quarter of 2004. Development profits
represent gains from the sale of development projects as part of
our development-for-sale program. The increase in interest
expense, including amortization, was due to the issuance of
additional unsecured debt under our 2002 medium-term note
program, increased borrowings on the unsecured credit facilities
and additional secured debt borrowings in our co-investment
joint ventures.

|                                                                              |                               |      |      |      |  |          |     |          |  |   |      |     |  |  |       |     |  
|----------------------------------------------------------------------------- | ----------------------------- | ---- | ---- | ---- |  | -------- | --- | -------- |  | - | ---- | --- |  |  | ----- | --- | -
|Discontinued Operations                                                       |                               | 2004 |      | 2003 |  | $ Change |     | % Change
|                                                                              |                               |      |      |      |  |          |     |         
|Income attributable to discontinued operations,
    net of minority interests |                               | $    | 0.2  |      |  | $        | 2.0 |          |  | $ | (1.8 | )   |  |  | (90.0 | )% 
|Gains from dispositions of real estate, net of
    minority interests         |                               |      | 11.1 |      |  |          | 8.3 |          |  |   | 2.8  |     |  |  | 33.7  | %  
|                                                                              |                               |      |      |      |  |          |     |          |  |   |      |     |  |  |       |    
|                                                                              | Total discontinued operations |      | $    | 11.3 |  |          | $   | 10.3     |  |   | $    | 1.0 |  |  |       | 9.7 | %
|                                                                              |                               |      |      |      |  |          |     |          |  |   |      |     |  |  |       |    

During the three months ended September 30,
2004, we divested ourselves of five industrial building and two
retail centers, aggregating approximately 0.8 million
square feet for $62.8 million, with a resulting net gain of
approximately $10.4 million. During 2003, we divested
ourselves of 24 industrial buildings and two retail centers,
aggregating approximately 2.8 million square feet for an
aggregate price of $272.3 million, with a resulting net
gain of approximately $42.9 million.

|                                         |  |      |      |      |  |          |      |          |  |   |     |  |  |  |       |  
|---------------------------------------- |  | ---- | ---- | ---- |  | -------- | ---- | -------- |  | - | --- |  |  |  | ----- | -
|Preferred Units                          |  | 2004 |      | 2003 |  | $ Change |      | % Change
|                                         |  |      |      |      |  |          |      |         
|Preferred unit distributions             |  | $    | (3.4 | )    |  | $        | (4.5 | )        |  | $ | 1.1 |  |  |  | 24.4  | %
|Preferred unit redemption issuance costs |  | $    |     |      |  | $        | (3.7 | )        |  | $ | 3.7 |  |  |  | 100.0 | %

In July 2003, we redeemed all of our 3,995,800
outstanding 8.5% Series A Cumulative Redeemable Preferred
Units, and in June and November 2003, issued 2,000,000 6.5%
Series L Cumulative Redeemable Preferred Units and
2,300,000 6.75% Series M Cumulative Redeemable Preferred
Units, respectively. The timing of the newly issued units
contributed to the increase in preferred unit distributions.



| |                                                                                     
| | ------------------------------------------------------------------------------------
| | For the Nine Months ended
    September 30, 2004 and 2003 (dollars in
    millions):

|                       |                          |                       |     |      |       |          |     |          |       |  |     |      |      |   |     |       |       |   
|---------------------- | ------------------------ | --------------------- | --- | ---- | ----- | -------- | --- | -------- | ----- |  | --- | ---- | ---- | - | --- | ----- | ----- | --
|Revenues               |                          | 2004                  |     | 2003 |       | $ Change |     | % Change
|                       |                          |                       |     |      |       |          |     |         
|Rental revenues        |                          |                       |     |      |       |          |     |          |       |  |     |      |      |   |     |      
|                       | U.S. industrial:         |                       |     |      |       |          |     |          |       |  |     |      |      |   |     |       |      
|                       |                          | Same store            |     | $    | 415.1 |          |     | $        | 417.3 |  |     | $    | (2.2 | ) |     |       | (0.5  | )%
|                       |                          | 2003 acquisitions     |     |      | 35.7  |          |     |          | 5.0   |  |     |      | 30.7 |   |     |       | 614.0 | % 
|                       |                          | 2004 acquisitions     |     |      | 14.7  |          |     |          |      |  |     |      | 14.7 |   |     |       |      | % 
|                       |                          | Development           |     |      | 2.7   |          |     |          | 2.4   |  |     |      | 0.3  |   |     |       | 12.5  | % 
|                       |                          | Other industrial      |     |      | 7.6   |          |     |          | 3.6   |  |     |      | 4.0  |   |     |       | 111.1 | % 
|                       | International industrial |                       |     | 18.5 |       |          |     | 4.1      |       |  |     | 14.4 |      |   |     | 351.2 | %    
|                       | Retail                   |                       |     | 2.7  |       |          |     | 2.2      |       |  |     | 0.5  |      |   |     | 22.7  | %    
|                       |                          |                       |     |      |       |          |     |          |       |  |     |      |      |   |     |      
|                       |                          | Total rental revenues |     |      | 497.0 |          |     |          | 434.6 |  |     |      | 62.4 |   |     |       | 14.4  | % 
|Private capital income |                          |                       | 8.1 |      |       |          | 7.8 |          |       |  | 0.3 |      |      |   | 3.8 | %    
|                       |                          |                       |     |      |       |          |     |          |       |  |     |      |      |   |     |      
|                       |                          | Total revenues        |     | $    | 505.1 |          |     | $        | 442.4 |  |     | $    | 62.7 |   |     |       | 14.2  | % 
|                       |                          |                       |     |      |       |          |     |          |       |  |     |      |      |   |     |      

On a year-to-date basis, the decrease in
industrial same store rental revenues was primarily driven by
decreased rental rates in various submarkets and prior year
lease termination fees. Across the portfolio, these and other
factors accounted for approximately $4.7 million of the
change from the prior year. This decrease was partially offset
by a decrease in allowances for doubtful accounts of
approximately $2.5 million. Industrial same store occupancy
was 94.8% at September 30, 2004 and 92.5% at
September 30, 2003. For the nine months ended
September 30, 2004, rents in the same store portfolio
decreased 15.1% on industrial renewals

38



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##### Table of Contents



and rollovers (cash basis) on 12.3 million
square feet leased. The properties acquired during 2003
consisted of 82 buildings, aggregating approximately
6.5 million square feet. The properties acquired during
2004 consisted of 48 buildings, aggregating approximately
4.6 million square feet. Other industrial revenues include
revenues from divested properties, which have been contributed
to an unconsolidated joint venture and accordingly are not
classified as discontinued operations in our consolidated
financial statements, and revenues from development properties,
which have reached certain levels of operation and are not yet
part of the same store operating pool of properties. In 2003 and
2004, we continued to acquire properties in the Netherlands,
France, Germany, Japan and Mexico, resulting in increased
international industrial revenues.


|                              |                          |                                |       |            |       |          |       |          |       |  |      |     |      |   |        |       |       |   
|----------------------------- | ------------------------ | ------------------------------ | ----- | ---------- | ----- | -------- | ----- | -------- | ----- |  | ---- | --- | ---- | - | ------ | ----- | ----- | --
|Costs and Expenses            |                          | 2004                           |       | 2003       |       | $ Change |       | % Change
|                              |                          |                                |       |            |       |          |       |         
|                              |                          |                                |       | (Restated) |       |          |       |         
|Property operating costs:     |                          |                                |       |            |       |          |       |          |       |  |      |     |      |   |        |      
|                              | Rental expenses          |                                | $     | 71.0       |       |          | $     | 63.6     |       |  | $    | 7.4 |      |   |        | 11.6  | %    
|                              | Real estate taxes        |                                |       | 57.6       |       |          |       | 51.9     |       |  |      | 5.7 |      |   |        | 11.0  | %    
|                              |                          |                                |       |            |       |          |       |          |       |  |      |     |      |   |        |      
|                              |                          | Total property operating costs |       | $          | 128.6 |          |       | $        | 115.5 |  |      | $   | 13.1 |   |        |       | 11.3  | % 
|                              |                          |                                |       |            |       |          |       |          |       |  |      |     |      |   |        |      
|Property operating costs:     |                          |                                |       |            |       |          |       |          |       |  |      |     |      |   |        |      
|                              | U.S. industrial:         |                                |       |            |       |          |       |          |       |  |      |     |      |   |        |       |      
|                              |                          | Same store                     |       | $          | 109.8 |          |       | $        | 109.0 |  |      | $   | 0.8  |   |        |       | 0.7   | % 
|                              |                          | 2003 acquisitions              |       |            | 8.0   |          |       |          | 1.3   |  |      |     | 6.7  |   |        |       | 515.4 | % 
|                              |                          | 2004 acquisitions              |       |            | 4.0   |          |       |          |      |  |      |     | 4.0  |   |        |       |      | % 
|                              |                          | Development                    |       |            | 1.1   |          |       |          | 2.8   |  |      |     | (1.7 | ) |        |       | (60.7 | )%
|                              |                          | Other industrial               |       |            | 1.5   |          |       |          | 1.1   |  |      |     | 0.4  |   |        |       | 36.4  | % 
|                              | International industrial |                                |       | 3.3        |       |          |       | 0.5      |       |  |      | 2.8 |      |   |        | 560.0 | %    
|                              | Retail                   |                                |       | 0.9        |       |          |       | 0.8      |       |  |      | 0.1 |      |   |        | 12.5  | %    
|                              |                          |                                |       |            |       |          |       |          |       |  |      |     |      |   |        |      
|                              |                          | Total property operating costs |       |            | 128.6 |          |       |          | 115.5 |  |      |     | 13.1 |   |        |       | 11.3  | % 
|Depreciation and amortization |                          |                                | 121.0 |            |       |          | 102.8 |          |       |  | 18.2 |     |      |   | 17.7   | %    
|Impairment losses             |                          |                                |      |            |       |          | 5.3   |          |       |  | (5.3 | )   |      |   | (100.0 | )%   
|General and administrative    |                          |                                | 45.7  |            |       |          | 34.9  |          |       |  | 10.8 |     |      |   | 30.9   | %    
|                              |                          |                                |       |            |       |          |       |          |       |  |      |     |      |   |        |      
|                              |                          | Total costs and expenses       |       | $          | 295.3 |          |       | $        | 258.5 |  |      | $   | 36.8 |   |        |       | 14.2  | % 
|                              |                          |                                |       |            |       |          |       |          |       |  |      |     |      |   |        |      

Same store properties operating expenses
from September 30, 2003 to September 30, 2004, showed
an increase of $0.8 million from prior year on a
year-to-date basis. The 2003 acquisitions consist of 82
buildings, aggregating approximately 6.5 million square
feet. The 2004 acquisitions consist of 48 buildings,
aggregating approximately 4.6 million square feet. Other
industrial expenses include expenses from divested properties,
which have been contributed to an unconsolidated joint venture,
which accordingly are not classified as discontinued operations
in our consolidated financial statements, and development
properties, which have reached certain levels of operation and
are not yet part of the same store operating pool of properties.
In 2003 and 2004, we continued to acquire properties in the
Netherlands, France, Germany, Japan and Mexico, resulting in
increased international industrial property operating costs. The
increase in depreciation and amortization expense was due to the
increase in our net investment in real estate. The 2003
impairment loss was on investments in real estate and leasehold
interests. The increase in general and administrative expenses

39



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##### Table of Contents



was primarily due to increased stock-based
compensation expense of $1.9 million and additional
staffing and expenses for new initiatives, including our
international and development expansions.


|                                                        |                                        |      |        |        |   |          |        |          |   |   |      |      |  |  |        |      |  
|------------------------------------------------------- | -------------------------------------- | ---- | ------ | ------ | - | -------- | ------ | -------- | - | - | ---- | ---- |  |  | ------ | ---- | -
|Other Income and (Expenses)                             |                                        | 2004 |        | 2003   |   | $ Change |        | % Change
|                                                        |                                        |      |        |        |   |          |        |         
|Equity in earnings of unconsolidated joint
    ventures |                                        | $    | 3.2    |        |   | $        | 4.2    |          |   | $ | (1.0 | )    |  |  | (23.8  | )%  
|Interest and other income                               |                                        |      | 3.2    |        |   |          | 3.2    |          |   |   |     |      |  |  |       |     
|Gains from dispositions of real estate                  |                                        |      |       |        |   |          | 7.4    |          |   |   | (7.4 | )    |  |  | (100.0 | )%  
|Development profits, net of taxes                       |                                        |      | 4.8    |        |   |          | 5.5    |          |   |   | (0.7 | )    |  |  | (12.7  | )%  
|Interest, including amortization                        |                                        |      | (118.4 | )      |   |          | (107.1 | )        |   |   | 11.3 |      |  |  | 10.6   | %   
|                                                        |                                        |      |        |        |   |          |        |          |   |   |      |      |  |  |        |     
|                                                        | Total other income and (expenses), net |      | $      | (107.2 | ) |          | $      | (86.8    | ) |   | $    | 20.4 |  |  |        | 23.5 | %
|                                                        |                                        |      |        |        |   |          |        |          |   |   |      |      |  |  |        |     

The $1.0 million decrease in equity in
earnings of unconsolidated joint ventures was primarily due to
decreased occupancy at a property held by one of our joint
ventures and increased non-reimbursable expenses. This decrease
was offset by the receipt of a lease termination fee at the
above-mentioned property in Chicago in the first quarter. In the
first quarter of 2003, we contributed properties to an
unconsolidated joint venture and accordingly recognized a gain.
The increase in interest expense, including amortization, was
due to the issuance of additional unsecured debt under our 2002
medium-term note program, increased borrowings on the unsecured
credit facilities, and additional secured debt borrowings in our
co-investment joint ventures.

|                                                                              |                               |      |      |      |  |          |      |          |  |   |       |       |   |  |        |       |   
|----------------------------------------------------------------------------- | ----------------------------- | ---- | ---- | ---- |  | -------- | ---- | -------- |  | - | ----- | ----- | - |  | ------ | ----- | --
|Discontinued Operations                                                       |                               | 2004 |      | 2003 |  | $ Change |      | % Change
|                                                                              |                               |      |      |      |  |          |      |         
|Income attributable to discontinued operations,
    net of minority interests |                               | $    | (0.2 | )    |  | $        | 14.4 |          |  | $ | (14.6 | )     |   |  | (101.4 | )%   
|Gains from dispositions of real estate, net of
    minority interests         |                               |      | 13.0 |      |  |          | 41.8 |          |  |   | (28.8 | )     |   |  | (68.9  | )%   
|                                                                              |                               |      |      |      |  |          |      |          |  |   |       |       |   |  |        |      
|                                                                              | Total discontinued operations |      | $    | 12.8 |  |          | $    | 56.2     |  |   | $     | (43.4 | ) |  |        | (77.2 | )%
|                                                                              |                               |      |      |      |  |          |      |          |  |   |       |       |   |  |        |      

During the nine months ended September 30,
2004, we divested ourselves of seven industrial buildings, two
retail centers and one office building, aggregating
approximately 1.2 million square feet for
$80.7 million, with a resulting net gain of approximately
$12.3 million. During 2003, we divested ourselves of 24
industrial buildings and two retail centers, aggregating
approximately 2.8 million square feet, for an aggregate
price of $272.3 million, with a resulting net gain of
approximately $42.9 million.

|                                         |  |      |       |      |  |          |       |          |  |   |     |  |  |  |       |  
|---------------------------------------- |  | ---- | ----- | ---- |  | -------- | ----- | -------- |  | - | --- |  |  |  | ----- | -
|Preferred Units                          |  | 2004 |       | 2003 |  | $ Change |       | % Change
|                                         |  |      |       |      |  |          |       |         
|Preferred unit distributions             |  | $    | (10.1 | )    |  | $        | (14.8 | )        |  | $ | 4.7 |  |  |  | 31.8  | %
|Preferred unit redemption issuance costs |  | $    |      |      |  | $        | (3.7  | )        |  | $ | 3.7 |  |  |  | 100.0 | %

In July 2003, we redeemed all of our 3,995,800
outstanding 8.5% Series A Cumulative Redeemable Preferred
Units, and in June and November 2003, issued 2,000,000 6.5%
Series L Cumulative Redeemable Preferred Units and
2,300,000 6.75% Series M Cumulative Redeemable Preferred
Units, respectively. The timing of the newly issued units
contributed to the increase in preferred unit distributions.

LIQUIDITY AND CAPITAL RESOURCES

Balance Sheet
Strategy.In general, we use unsecured
lines of credit, unsecured notes, preferred units and common
units (issued by us or our subsidiaries) to capitalize our
100%-owned assets. Over time, we plan to retire non-recourse,
secured debt encumbering our 100%-owned assets and replace that
debt with unsecured notes. In managing our co-investment joint
ventures, in general, we use non-recourse, secured debt to
capitalize our co-investment joint ventures.

We currently expect that our principal sources of
working capital and funding for acquisitions, development,
expansion and renovation of properties will include:



| |   |                                                 
| | - | ------------------------------------------------
| |  | retained earnings and cash flow from operations;

40



---



##### Table of Contents





| |   |                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------
| |  | borrowings under our unsecured credit facilities;                                                                                             
|
| |  | other forms of secured or unsecured financing;                                                                                                
|
| |  | proceeds from debt or limited partnership unit
    offerings (including issuances of limited partnership units by
    us or our subsidiaries);
|
| |  | net proceeds from divestitures of
    properties; and                                                                                         
|
| |  | private capital from co-investment partners.                                                                                                  

We currently expect that our principal funding
requirements will include:



| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | working capital;                                                                
|
| |  | development, expansion and renovation of
    properties;                        
|
| |  | acquisitions, including our global expansion;                                   
|
| |  | debt service; and                                                               
|
| |  | distributions on outstanding common and preferred
    limited partnership units.

We believe that our sources of working capital,
specifically our cash flow from operations, borrowings available
under our unsecured credit facilities 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.
The unavailability of capital could adversely affect our
financial condition, results of operations, cash flow and
ability to make distributions to our unitholders and payments to
our noteholders.

Capital Resources

Property
Divestitures.During the three months
ended September 30, 2004, we divested ourselves of five
industrial buildings and two retail centers, aggregating
approximately 0.8 million square feet for an aggregate
price of $62.8 million, with a resulting net gain of
$10.5 million. During the nine months ended
September 30, 2004, we divested ourselves of seven
industrial buildings, two retail centers and one office
building, aggregating approximately 1.2 million square feet
for an aggregate price of $80.7 million, with a resulting
net gain of $12.3 million.

Development Sales.During the three months ended September 30, 2004, we sold
one land parcel and three development projects as part of our
development-for-sale program, aggregating approximately
0.1 million square feet for an aggregate price of
$13.8 million, resulting in an after-tax gain of
$1.5 million. During the nine months ended
September 30, 2004, we sold five land parcels and four
development projects as part of our development-for-sale
program, aggregating approximately 0.2 million square feet
for an aggregate price of $27.8 million, resulting in an
after-tax gain of $4.8 million. During the three and nine
months ended September 30, 2003, we sold three development
projects as part of our development-for-sale program,
aggregating approximately 0.2 million square feet for an
aggregate price of $32.1 million, resulting in an after-tax
gain of $5.5 million.

Properties Held for
Contribution.As of September 30,
2004, we held for contribution to a future co-investment joint
venture one industrial building with an aggregate net book value
of $11.9 million, which, when contributed to the joint
venture, will reduce our current ownership interest from
approximately 90% to an expected range of 20-50%. This asset is
not being held for divestiture under SFAS No. 144.

Properties Held for
Divestiture.As of September 30,
2004, we held for divestiture 14 industrial buildings and three
undeveloped land parcels, which are not in our core markets, do
not meet our current strategic objectives or which we have
included as part of our development-for-sale program. The
divestitures of the properties are subject to negotiation of
acceptable terms and other customary conditions. As of
September 30, 2004, the net carrying value of the
properties held for divestiture was $59.9 million.

Mortgages
Receivable.Through a wholly-owned
subsidiary, we 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

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2026. As of September 30, 2004, the
outstanding balance on the note was $13.0 million. We also
hold short-term mortgages on sold properties totaling
$10.1 million with a weighted average interest rate of
6.4%. The mortgages mature between December 2004 and November
2006.


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 private capital income. We
consolidate these joint ventures for financial reporting
purposes because they are not variable interest entities and
because we are the sole managing general partner and control all
major operating decisions. Third-party equity interests in the
joint ventures are reflected as minority interests in our
consolidated financial statements.

As of September 30, 2004, we owned
approximately 37.6 million square feet of our properties
(37% of the total consolidated operating and development
portfolio) through our co-investment joint ventures and
5.2 million square feet of our properties through our other
consolidated joint ventures. We may make additional investments
through these joint ventures or new joint ventures in the future
and presently plan to do so.

Our co-investment joint ventures at
September 30, 2004 (dollars in thousands):

|                                         |  |                                                                   |  |             |      |                   |  |   |         |    
|---------------------------------------- |  | ----------------------------------------------------------------- |  | ----------- | ---- | ----------------- |  | - | ------- | ---
|                                         |  |                                                                   |  | Our         |      |                  
|                                         |  |                                                                   |  | Approximate |      |                  
|                                         |  |                                                                   |  | Ownership   |      | Original Planned 
|Co-investment Joint Venture              |  | Joint Venture Partner                                             |  | Percentage  |      | Capitalization(1)
|                                         |  |                                                                   |  |             |      |                  
|AMB/ Erie, L.P.                          |  | Erie Insurance Company and affiliates                             |  |             | 50%  |                   |  | $ | 200,000 |    
|AMB Institutional Alliance Fund I, L.P.  |  | AMB Institutional Alliance REIT I, Inc.(2)                        |  |             | 21%  |                   |  | $ | 420,000 |    
|AMB Partners II, L.P.                    |  | City and County of San Francisco
    Employees Retirement System |  |             | 20%  |                   |  | $ | 500,000 |    
|AMB-SGP, L.P.                            |  | Industrial JV Pte Ltd(3)                                          |  |             | 50%  |                   |  | $ | 425,000 |    
|AMB Institutional Alliance Fund II, L.P. |  | AMB Institutional Alliance REIT II, Inc.(4)                       |  |             | 20%  |                   |  | $ | 489,000 |    
|AMB-AMS, L.P.(5)                         |  | PMT, SPW and TNO(6)                                               |  |             | 39%  |                   |  | $ | 228,000 |    
|AMB Institutional Alliance Fund III      |  | N/A(7)                                                            |  |             | 100% |                   |  |   | N/A     | (7)



---



|    |                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Planned capitalization includes anticipated debt
    and both partners expected equity contributions.                                                                                                                                                                              
|   
|(2) | Included 16 institutional investors as
    stockholders as of September 30, 2004.                                                                                                                                                                                                   
|   
|(3) | A subsidiary of the real estate investment
    subsidiary of the Government of Singapore Investment Corporation.                                                                                                                                                                    
|   
|(4) | Included 13 institutional investors and one
    third-party limited partner as stockholders as of
    September 30, 2004.                                                                                                                                                           
|   
|(5) | AMB-AMS, L.P. is a co-investment partnership with
    three Dutch pension funds advised by Mn Services NV.                                                                                                                                                                          
|   
|(6) | PMT is Stichting Pensioenfonds Metaal en
    Techniek, SPW is Stichting Pensioenfonds voor de
    Woningcorporaties and TNO is Stichting Pensioenfonds TNO.                                                                                                                         
|   
|(7) | We expect to raise third party equity in the
    fourth quarter, reducing our current ownership interest from
    approximately 100% to an expected range of 20-50%. See
    Part I, Item 1: Note 13  Subsequent
    Event of the Notes to Consolidated Financial
    Statements.

Partners
Capital.As of September 30,
2004, we had outstanding 82,689,635 common general partnership
units, 4,604,910 common limited partnership units, 800,000 7.95%
Series J Cumulative Redeemable Partnership Units, 800,000
7.95% Series K Cumulative Redeemable Partnership Units,
2,000,000 6.5% Series L Cumulative Redeemable Partnership
Units and 2,300,000 6.75% Series M Cumulative Redeemable
Partnership Units.

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In December 2003, AMB Property Corporations
board of directors approved a new two-year common stock
repurchase program for the repurchase of up to
$200.0 million of its common stock. AMB Property
Corporation did not repurchase or retire any shares of its
common stock and accordingly, we did not redeem any of our
general partnership units during the nine months ended
September 30, 2004.

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 (our share) of
approximately 45% or less. As of September 30, 2004, our
share of total debt-to-total market capitalization ratio was
41.5%. However, we typically finance our co-investment joint
ventures with secured debt at a loan-to-value ratio of
50-65% per our joint venture partnership agreements.
Additionally, we currently intend to manage our capitalization
in order to maintain an investment grade rating on our senior
unsecured debt. Regardless of these policies, however, our
organizational documents do not limit the amount of indebtedness
that we may incur. Accordingly, our management could alter or
eliminate these policies without noteholder approval or
circumstances could arise that could render us unable to comply
with these policies.

As of September 30, 2004, the aggregate
principal amount of our secured debt was $1.6 billion,
excluding unamortized debt premiums of $12.6 million. Of
the $1.6 billion of secured debt, $1.3 billion is
secured by properties in our joint ventures. The secured debt is
generally non-recourse and bears interest at rates varying from
2.9% to 10.4% per annum (with a weighted average rate of
6.6%) and final maturity dates ranging from April 2005 to June
2023. All of the secured debt bears interest at fixed rates,
except for eight loans with an aggregate principal amount of
$69.4 million as of September 30, 2004, which bear
interest at variable rates (with a weighted average interest
rate of 4.5% as of September 30, 2004).

As of September 30, 2004, we had issued an
aggregate of $1.0 billion in unsecured senior debt
securities, which bore a weighted average interest rate of 6.5%
and had an average term of 4.9 years. These unsecured
senior debt securities include $100.0 million in notes,
which are putable and callable in September 2005,
$400.0 million of medium-term notes, which were issued
under our 2000 medium-term note program, and $225.0 million
of medium-term notes, which were issued under our 2002
medium-term note program. Our 2002 medium-term note program has
a remaining capacity of $175.0 million. We intend to
continue to issue medium-term notes, guaranteed by AMB Property
Corporation, under the 2002 program from time to time and as
market conditions permit.

AMB Property Corporation guarantees our
obligations with respect to our senior debt securities. If we
are unable to refinance or extend principal payments due at
maturity or pay them with proceeds from other capital
transactions, then our cash flow may be insufficient to pay
distributions to our unitholders in all years, to make payments
to our noteholders and to repay debt upon maturity. 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.

Credit Facilities.On June 1, 2004, we completed the early renewal of our
senior unsecured revolving line of credit in the amount of
$500.0 million. AMB Property Corporation guarantees our
obligations under the credit facility. The three-year credit
facility includes a multi-currency component under which up to
$250.0 million can be drawn in Yen, Euros or British Pounds
Sterling. The line, which matures in June 2007 and carries a
one-year extension option, can be increased up to
$700.0 million upon certain conditions, and replaces our
previous $500.0 million credit facility that was to mature
in December 2005. The line is priced at 60 basis points
over the applicable LIBOR index, with an annual facility fee of
20 basis points, based on the current credit rating of our
long-term debt. We use our unsecured credit facility principally
for acquisitions, funding development activity and general
working capital requirements. 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 our unencumbered properties. As of
September 30, 2004, the outstanding balance on the credit
facility was $363.6 million and the remaining amount
available was $122.3 million, net of outstanding letters of
credit of $14.1 million (excluding the additional
$200.0 million of potential additional

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capacity). The outstanding balance included
borrowings denominated in Euros and Yen, which, using the
exchange rate in effect on September 30, 2004, would equal
approximately $96.5 million and $77.1 million in
U.S. dollars, respectively. As of September 30, 2004,
we had an additional outstanding balance of $26.6 million
on other credit facilities.


On June 29, 2004, AMB Japan Finance Y.K.,
one of our subsidiaries, entered into an unsecured revolving
credit agreement providing for loans or letters of credit in a
maximum principal amount outstanding at any time of up to
24 billion Yen, which, using the exchange rate in effect on
September 30, 2004, equals approximately
$218.1 million U.S. dollars. We, along with AMB
Property Corporation, guarantee the obligations of AMB Japan
Finance Y.K. under the revolving credit facility, as well as the
obligations of any other entity in which we directly or
indirectly have an ownership interest, and which is selected
from time to time to be a borrower under and pursuant to the
revolving credit agreement. The borrowers intend to use the
proceeds from the facility to fund the acquisition and
development of properties and for other real estate purposes in
Japan. Generally, borrowers under the revolving credit facility
have the option to secure all or a portion of the borrowings
under the revolving credit facility with certain real estate
assets or equity in entities holding such real estate assets.
The revolving credit facility matures in June 2007 and has a
one-year extension option, which is subject to the satisfaction
of certain conditions and the payment of an extension fee equal
to 0.25% of the outstanding commitments under the facility at
that time. The rate on the borrowings will generally be TIBOR
plus a margin, which is based on the current credit rating of
our long-term debt and is currently 60 basis points. In
addition, there is an annual facility fee, payable in quarterly
amounts, which is based on the credit rating of our long-term
debt, and is currently 20 basis points of the outstanding
commitments under the facility. As of September 30, 2004,
the outstanding balance on this credit facility, using the
exchange rate in effect at September 30, 2004, was
$193.6 million in U.S. dollars.

44



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##### Table of Contents



The tables below summarize our debt maturities
and capitalization as of September 30, 2004 (dollars in
thousands):

|                                                                     |                      |                            |                         |         |         |             |          |           |         |               |         |            |           |           |       |       |       |       |         |         |         |         |          |           |           |           | 
|-------------------------------------------------------------------- | -------------------- | -------------------------- | ----------------------- | ------- | ------- | ----------- | -------- | --------- | ------- | ------------- | ------- | ---------- | --------- | --------- | ----- | ----- | ----- | ----- | ------- | ------- | ------- | ------- | -------- | --------- | --------- | --------- | 
|                                                                     |                      | Wholly-owned               |                         | Joint   |         | Unsecured   |          |           |         |               |         |           
|                                                                     |                      | Secured                    |                         | Venture |         | Senior Debt |          | Unsecured |         | Credit        |         |           
|                                                                     |                      | Debt                       |                         | Debt    |         | Securities  |          | Debt      |         | Facilities(2) |         | Total Debt
|                                                                     |                      |                            |                         |         |         |             |          |           |         |               |         |           
|2004                                                                 |                      | $                          | 2,141                   |         |         | $           | 6,394    |           |         | $             |        |            |           | $         | 154   |       |       | $     |        |         |         | $       | 8,689    |          
|2005                                                                 |                      |                            | 42,629                  |         |         |             | 67,692   |           |         |               | 250,000 |            |           |           | 647   |       |       |       |        |         |         |         | 360,968  |          
|2006                                                                 |                      |                            | 80,687                  |         |         |             | 72,065   |           |         |               | 75,000  |            |           |           | 698   |       |       |       | 26,600  |         |         |         | 255,050  |          
|2007                                                                 |                      |                            | 12,850                  |         |         |             | 72,777   |           |         |               | 75,000  |            |           |           | 752   |       |       |       | 557,264 |         |         |         | 718,643  |          
|2008                                                                 |                      |                            | 31,047                  |         |         |             | 173,752  |           |         |               | 175,000 |            |           |           | 810   |       |       |       |        |         |         |         | 380,609  |          
|2009                                                                 |                      |                            | 2,059                   |         |         |             | 112,994  |           |         |               | 100,000 |            |           |           | 873   |       |       |       |        |         |         |         | 215,926  |          
|2010                                                                 |                      |                            | 67,791                  |         |         |             | 141,429  |           |         |               | 75,000  |            |           |           | 941   |       |       |       |        |         |         |         | 285,161  |          
|2011                                                                 |                      |                            | 56,023                  |         |         |             | 369,063  |           |         |               | 75,000  |            |           |           | 1,014 |       |       |       |        |         |         |         | 501,100  |          
|2012                                                                 |                      |                            | 2,041                   |         |         |             | 165,061  |           |         |               |        |            |           |           | 1,093 |       |       |       |        |         |         |         | 168,195  |          
|2013                                                                 |                      |                            |                        |         |         |             | 87,665   |           |         |               | 75,000  |            |           |           | 920   |       |       |       |        |         |         |         | 163,585  |          
|Thereafter                                                           |                      |                            |                        |         |         |             | 39,185   |           |         |               | 125,000 |            |           |           | 1,280 |       |       |       |        |         |         |         | 165,465  |          
|                                                                     |                      |                            |                         |         |         |             |          |           |         |               |         |            |           |           |       |       |       |       |         |         |         |         |          |          
|                                                                     | Subtotal             |                            |                         | 297,268 |         |             |          | 1,308,077 |         |               |         | 1,025,000  |           |           |       | 9,182 |       |       |         | 583,864 |         |         |          | 3,223,391 |          
|                                                                     | Unamortized premiums |                            |                         | 3,972   |         |             |          | 8,627     |         |               |         |           |           |           |       |      |       |       |         |        |         |         |          | 12,599    |          
|                                                                     |                      |                            |                         |         |         |             |          |           |         |               |         |            |           |           |       |       |       |       |         |         |         |         |          |          
|                                                                     |                      |                            | Total consolidated debt |         |         | 301,240     |          |           |         | 1,316,704     |         |            |           | 1,025,000 |       |       |       | 9,182 |         |         |         | 583,864 |          |           |           | 3,235,990 | 
|Our share of unconsolidated joint venture debt(1)                    |                      |                            |                        |         |         |             | 95,965   |           |         |               |        |            |           |           |      |       |       |       |        |         |         |         | 95,965   |          
|                                                                     |                      |                            |                         |         |         |             |          |           |         |               |         |            |           |           |       |       |       |       |         |         |         |         |          |          
|                                                                     |                      |                            | Total debt              |         |         | 301,240     |          |           |         | 1,412,669     |         |            |           | 1,025,000 |       |       |       | 9,182 |         |         |         | 583,864 |          |           |           | 3,331,955 | 
|Joint venture partners share of
    consolidated joint venture debt |                      |                            |                        |         |         |             | (750,328 | )         |         |               |        |            |           |           |      |       |       |       |        |         |         |         | (750,328 | )        
|                                                                     |                      |                            |                         |         |         |             |          |           |         |               |         |            |           |           |       |       |       |       |         |         |         |         |          |          
|                                                                     |                      | Our share of total debt(3) |                         | $       | 301,240 |             |          | $         | 662,341 |               |         | $          | 1,025,000 |           |       | $     | 9,182 |       |         | $       | 583,864 |         |          | $         | 2,581,627 |          
|                                                                     |                      |                            |                         |         |         |             |          |           |         |               |         |            |           |           |       |       |       |       |         |         |         |         |          |          
|Weighted average interest rate                                       |                      |                            | 7.3                     | %       |         |             | 6.5      | %         |         |               | 6.5     | %          |           |           | 7.5   | %     |       |       | 2.0     | %       |         |         | 5.8      | %        
|Weighted average maturity (in years)                                 |                      |                            | 3.0                     |         |         |             | 6.2      |           |         |               | 4.9     |            |           |           | 10.1  |       |       |       | 2.7     |         |         |         | 4.9      |          



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The weighted average interest and maturity for
    the unconsolidated joint venture debt were 5.3% and
    4.3 years, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(2) | Includes Euro and Yen based borrowings translated
    to U.S. dollars using the foreign exchange rates in effect
    at September 30, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(3) | Our share of total debt is the pro rata portion
    of the total debt based on our percentage of equity interest in
    each of the consolidated ventures holding the debt. We believe
    that our share of total debt is a meaningful supplemental
    measure, which enables both management and investors to analyze
    our leverage and to compare our leverage to that of other
    companies. In addition, it allows for a more meaningful
    comparison of our debt to that of other companies that do not
    consolidate their joint ventures. Our share of total debt is not
    intended to reflect our actual liability should there be a
    default under any or all of such loans or a liquidation of the
    joint ventures. The above table reconciles our share of total
    debt to total consolidated debt, a GAAP financial measure.

|                                    |       |             |            |            |  |          |       |  |  |   |           |           | 
|----------------------------------- | ----- | ----------- | ---------- | ---------- |  | -------- | ----- |  |  | - | --------- | --------- | 
|                                   
|Market Capital                     
|                                   
|                                    |       | Units       |            | Market     |  | Market  
|Security                            |       | Outstanding |            | Price(1)   |  | Value(1)
|                                    |       |             |            |            |  |         
|Common units                        |       |             | 82,689,635 |            |  | $        | 37.02 |  |  | $ | 3,061,170 |          
|Common limited partnership units(2) |       |             | 4,750,458  |            |  | $        | 37.02 |  |  |   | 175,862   |          
|                                    |       |             |            |            |  |          |       |  |  |   |           |          
|                                    | Total |             |            | 87,440,093 |  |          |       |  |  |   | $         | 3,237,032 | 
|                                    |       |             |            |            |  |          |       |  |  |   |           |          

45



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##### Table of Contents





---



|    |                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Assumes that our common limited partnership units
    and the class B common limited partnership units of AMB
    Property II, L.P. are exchanged for AMB Property
    Corporations common stock on a one-for-one basis because
    there is no public market for these units.
|   
|(2) | Includes 145,548 class B common limited
    partnership units issued by AMB Property II, L.P. in
    November 2003.                                                                                                                                                            

|                         |                        |              |      |             |   |                       |        |         |  |  |                                 |  | 
|------------------------ | ---------------------- | ------------ | ---- | ----------- | - | --------------------- | ------ | ------- |  |  | ------------------------------- |  | 
|                        
|Preferred Units         
|                        
|                         |                        | Distribution |      | Liquidation |   |                      
|Security                 |                        | Rate         |      | Preference  |   | Redemption Provisions
|                         |                        |              |      |             |   |                      
|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 | %           |   |                       | 10,057 |         |  |  | March 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  September 2009 | 
|Series K preferred units |                        |              | 7.95 | %           |   |                       | 40,000 |         |  |  | April 2007                      | 
|Series N preferred units |                        |              | 5.00 | %           |   |                       | 36,479 |         |  |  | September 2009                  | 
|Series L preferred units |                        |              | 6.50 | %           |   |                       | 50,000 |         |  |  | June 2008                       | 
|Series M preferred units |                        |              | 6.75 | %           |   |                       | 57,500 |         |  |  | November 2008                   | 
|                         |                        |              |      |             |   |                       |        |         |  |  |                                 | 
|                         | Weighted average/total |              |      | 7.29        | % |                       | $      | 392,325 |  |  |                                 |  | 
|                         |                        |              |      |             |   |                       |        |         |  |  |                                 | 

|                                                                             |  |  |      |  
|---------------------------------------------------------------------------- |  |  | ---- | -
|                                                                             |  | 
|                                                                            
|Capitalization Ratios                                                       
|                                                                            
|Total debt-to-total market capitalization                                    |  |  | 47.8 | %
|Our share of total debt-to-total market
    capitalization(1)                |  |  | 41.5 | %
|Total debt plus preferred-to-total market
    capitalization                 |  |  | 53.4 | %
|Our share of total debt plus preferred-to-total
    market capitalization(1) |  |  | 47.8 | %
|Our share of total debt-to-total book
    capitalization(1)                  |  |  | 56.3 | %



---



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Our share of total debt is the pro rata portion
    of the total debt based on our percentage of equity interest in
    each of the consolidated ventures holding the debt. We believe
    that our share of total debt is a meaningful supplemental
    measure, which enables both management and investors to analyze
    our leverage and to compare our leverage to that of other
    companies. In addition, it allows for a more meaningful
    comparison of our debt to that of other companies that do not
    consolidate their joint ventures. Our share of total debt is not
    intended to reflect our actual liability should there be a
    default under any or all of such loans or a liquidation of the
    joint ventures. For a reconciliation of our share of total debt
    to total consolidated debt, a GAAP financial measure, please see
    the table of debt maturities and capitalization on the preceding
    page in Part I, Item 2: Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Liquidity and Capital
    Resources  Capital Resources.



| |          
| | ---------
| | Liquidity

As of September 30, 2004, we had
$116.4 million in cash and cash equivalents (of which
$68.8 million was held by our consolidated co-investment
joint ventures), and $170.1 million of additional available
borrowings under our credit facilities. As of September 30,
2004, we had $57.9 million in restricted cash (of which
$21.5 million was held by our consolidated co-investment
joint ventures).

We announced our intention to pay a regular cash
distribution for the quarter ended September 30, 2004 of
$0.425 per common unit. The distributions were payable on
October 15, 2004 to unitholders of record on
October 5, 2004. The series L and M preferred unit
distributions were payable on October 15, 2004 to

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unitholders of record on October 5, 2004.
The series E, F, J and K preferred unit quarterly
distributions were payable on October 15, 2004. The
series D, H and I preferred unit quarterly
distributions were payable on September 25, 2004.


The following table sets forth the distributions
paid or payable per unit for the three and nine months ended
September 30, 2004 and 2003:

|                      |  |          |                                          |               |  |               |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|--------------------- |  | -------- | ---------------------------------------- | ------------- |  | ------------- | ----- | ---- |  | ---- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                      |  |          |                                          |               |  |              
|                      |  |          |                                          | For the Three |  | For the Nine 
|                      |  |          |                                          | Months Ended  |  | Months Ended 
|                      |  |          |                                          | September 30, |  | September 30,
|                      |  |          |                                          |               |  |              
|Paying Entity         |  | Security |                                          | 2004          |  | 2003          |       | 2004 |  | 2003
|                      |  |          |                                          |               |  |               |       |      |  |     
|Operating Partnership |  |          | Common limited partnership units         |               |  | $             | 0.425 |      |  | $    | 0.415 |  |  | $ | 1.275 |  |  | $ | 1.245 | 
|Operating Partnership |  |          | Series B preferred units                 |               |  |               | n/a   |      |  | $    | 1.078 |  |  |   | n/a   |  |  | $ | 3.234 | 
|Operating Partnership |  |          | Series J preferred units                 |               |  | $             | 0.994 |      |  | $    | 0.994 |  |  | $ | 2.981 |  |  | $ | 2.981 | 
|Operating Partnership |  |          | Series K preferred units                 |               |  | $             | 0.994 |      |  | $    | 0.994 |  |  | $ | 2.981 |  |  | $ | 2.981 | 
|AMB Property II, L.P. |  |          | Class B common limited partnership units |               |  | $             | 0.425 |      |  |      | n/a   |  |  | $ | 1.275 |  |  |   | n/a   | 
|AMB Property II, L.P. |  |          | Series D preferred units                 |               |  | $             | 0.969 |      |  | $    | 0.969 |  |  | $ | 2.906 |  |  | $ | 2.906 | 
|AMB Property II, L.P. |  |          | Series E preferred units                 |               |  | $             | 0.969 |      |  | $    | 0.969 |  |  | $ | 2.906 |  |  | $ | 2.906 | 
|AMB Property II, L.P. |  |          | Series F preferred units                 |               |  | $             | 0.994 |      |  | $    | 0.994 |  |  | $ | 2.981 |  |  | $ | 2.981 | 
|AMB Property II, L.P. |  |          | Series H preferred units                 |               |  | $             | 1.016 |      |  | $    | 1.016 |  |  | $ | 3.047 |  |  | $ | 3.047 | 
|AMB Property II, L.P. |  |          | Series I preferred units                 |               |  | $             | 1.000 |      |  | $    | 1.000 |  |  | $ | 3.000 |  |  | $ | 3.000 | 
|AMB Property II, L.P. |  |          | Series N preferred units                 |               |  | $             | 0.042 |      |  |      | n/a   |  |  | $ | 0.042 |  |  |   | 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, as well as property divestitures.
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, during the three months ended
September 30, 2004, we initiated four new industrial
development projects in the United States and Mexico with a
total expected investment of $59.4 million, aggregating
approximately 0.7 million square feet, and three new
industrial development projects in Japan and Singapore with a
total expected investment of $286.3 million, aggregating
approximately 2.0 million square feet. During the nine
months ended September 30, 2004, we initiated nine new
industrial development projects in the United States and Mexico
with a total estimated investment of $128.9 million at
completion, aggregating an estimated 1.8 million square
feet, and four new industrial developments in Japan and
Singapore with a total expected investment of
$368.8 million, aggregating approximately 2.7 million
square feet. As of September 30, 2004, we had
27 projects in our development pipeline representing a
total estimated investment of $689.3 million upon
completion, of which five industrial projects with a total of
2.2 million square feet and an aggregate estimated
investment of $90.9 million upon completion are held in
unconsolidated joint ventures. In addition, we held five
development projects available for sale, representing a total
estimated investment of $44.5 million upon completion. Of
this total, $384.2 million had been funded as of
September 30, 2004 and an estimated $349.6 million was
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, net proceeds from property divestitures and private
capital from co-investment partners, which could have an adverse
effect on our cash flow.

Acquisitions.During
the three months ended September 30, 2004, we acquired two
industrial buildings, aggregating approximately 0.6 million
square feet for a total expected investment of
$51.6 million, of which we

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acquired one industrial building aggregating
approximately 0.1 million square feet through one of our
co-investment joint ventures, for a total expected investment of
$5.7 million. During the nine months ended
September 30, 2004, we acquired 48 industrial
buildings, aggregating approximately 4.6 million square
feet for a total expected investment of $490.8 million, of
which we acquired 36 industrial buildings aggregating
approximately 2.0 million square feet through three of our
co-investment joint ventures, for a total expected investment of
$137.7 million. We generally fund our acquisitions through
private capital contributions, borrowings under our credit
facility, cash, debt issuances and net proceeds from property
divestitures.


Lease Commitments.We have entered into operating ground leases on certain land
parcels, primarily on-tarmac facilities and office space with
remaining lease terms from one to 64 years.

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 private capital income. As of
September 30, 2004, we had investments in co-investment
joint ventures with a gross book value of $2.5 billion,
which are consolidated for financial reporting purposes. As of
September 30, 2004, we may make additional capital
contributions to current and planned co-investment joint
ventures of up to $21.9 million. We expect to fund these
contributions with cash from operations, borrowings under our
credit facilities, debt or limited partnership unit issuances or
net proceeds from property divestitures, which could adversely
affect our cash flow.

Captive Insurance
Company.In December 2001, we formed a
wholly-owned captive insurance company, Arcata National
Insurance Ltd., which provides insurance coverage for all or a
portion of losses below the deductible under our third-party
policies. We capitalized Arcata National Insurance Ltd. in
accordance with the applicable regulatory requirements. Arcata
National Insurance Ltd. established annual premiums based on
projections derived from the past loss experience of our
properties. Annually, we engage an independent third party to
perform an actuarial estimate of future projected claims,
related deductibles and projected expenses necessary to fund
associated risk management programs. Premiums paid to Arcata
National Insurance Ltd. may be adjusted based on this estimate.
Premiums paid to Arcata National Insurance Ltd. have a
retrospective component, so that if expenses, including losses,
deductibles and reserves, are less than premiums collected, the
excess may be returned to the property owners (and, in turn, as
appropriate, to the customers) and conversely, subject to
certain limitations, if expenses, including losses, deductibles
and reserves, are greater than premiums collected, an additional
premium will be charged. As with all recoverable expenses,
differences between estimated and actual insurance premiums are
recognized in the subsequent year. Through this structure, we
believe that we have more comprehensive insurance coverage at an
overall lower cost than would otherwise be available in the
market.

Potential Unknown
Liabilities.Unknown liabilities may
include the following:



| |   |                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | liabilities for clean-up or remediation of
    undisclosed environmental conditions;                                                                                                       
|
| |  | 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;
|
| |  | accrued but unpaid liabilities incurred in the
    ordinary course of business;                                                                                                            
|
| |  | tax liabilities; and                                                                                                                                                                       
|
| |  | claims for indemnification by the officers and
    directors of our general partners predecessors and others
    indemnified by these entities.                                           

OFF-BALANCE SHEET ARRANGEMENTS

Standby Letters of
Credit.As of September 30, 2004,
we had provided approximately $33.9 million in letters of
credit, of which $14.1 million was provided under our
$500.0 million unsecured credit facility. The letters of
credit were required to be issued under certain ground lease
provisions, bank guarantees and other commitments.

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Guarantees.Other
than as disclosed elsewhere in this report, as of
September 30, 2004, we had outstanding guarantees in the
aggregate amount of $30.1 million in connection with
certain acquisitions and lease obligations of which
$7.6 million was backed by standby letters of credit. As of
September 30, 2004, we guaranteed $2.3 million and
$4.7 million on outstanding construction loans for one of
our consolidated joint ventures and two of our unconsolidated
joint ventures, respectively. Additionally, we provided a take
out guarantee after completion of construction on the aggregate
construction loan amount of $66.2 million for another of
our unconsolidated joint ventures, of which $35.5 million
was outstanding as of September 30, 2004. In connection
with this construction loan, our joint venture partner provides
an underlying construction loan guarantee up to the completion
of construction.

Performance and Surety
Bonds.As of September 30, 2004,
we, together with AMB Property Corporation, had outstanding
performance and surety bonds in an aggregate amount of
$1.2 million. These bonds were issued in connection with
certain of our development projects and were posted to guarantee
certain tax obligations and the construction of certain real
property improvements and infrastructure, such as grading,
sewers and streets. Performance and surety bonds are commonly
required by public agencies from real estate developers.
Performance and surety bonds are renewable and expire upon the
payment of the taxes due or the completion of the improvements
and infrastructure.

Promoted Interests and Other Contractual
Obligations.Upon the achievement of
certain return thresholds and the occurrence of certain events,
we may be obligated to make payments to certain of our joint
venture partners pursuant to the terms and provisions of their
contractual agreements with us. From time to time in the normal
course of our business, we enter into various contracts with
third parties that may obligate us to make payments or perform
other obligations upon the occurrence of certain events.

SUPPLEMENTAL EARNINGS MEASURES

FFO.We believe that
net income, as defined by GAAP, is the most appropriate earnings
measure. However, we consider funds from operations, or FFO, as
defined by the National Association of Real Estate Investment
Trusts (NAREIT), to be a useful supplemental measure
of our operating performance. FFO is defined as net income,
calculated in accordance with GAAP, less gains (or losses) from
dispositions of real estate held for investment purposes and
real estate-related depreciation, and adjustments to derive our
pro rata share of FFO of consolidated and unconsolidated joint
ventures. Further, we do not adjust FFO to eliminate the effects
of non-recurring charges. We believe that FFO, as defined by
NAREIT, is a meaningful supplemental measure of our operating
performance because historical cost accounting for real estate
assets in accordance with GAAP implicitly assumes that the value
of real estate assets diminishes predictably over time, as
reflected through depreciation and amortization expenses.
However, since real estate values have historically risen or
fallen with market and other conditions, many industry investors
and analysts have considered presentation of operating results
for real estate companies that use historical cost accounting to
be insufficient. Thus, NAREIT created FFO as a supplemental
measure of operating performance for real estate investment
trusts that excludes historical cost depreciation and
amortization, among other items, from net income, as defined by
GAAP. We believe that the use of FFO, combined with the required
GAAP presentations, has been beneficial in improving the
understanding of operating results of real estate investment
trusts, such as AMB Property Corporation, our general partner,
among the investing public and making comparisons of operating
results among such companies more meaningful. We consider FFO to
be a useful measure for reviewing our comparative operating and
financial performance because, by excluding gains or losses
related to sales of previously depreciated operating real estate
assets and real estate depreciation and amortization, FFO can
help the investing public compare the operating performance of a
companys real estate between periods or as compared to
other companies.

While FFO 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 GAAP and should not be considered as an alternative
to those measures in evaluating our liquidity or operating
performance. FFO also does not consider the costs associated
with capital expenditures related to our real estate assets nor
is FFO necessarily indicative of cash available to fund our
future cash requirements. Further, our computation of FFO

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may not be comparable to FFO reported by other
real estate investment trusts that do not define the term in
accordance with the current NAREIT definition or that interpret
the current NAREIT definition differently than we do.


The following table reflects the calculation of
FFO reconciled from net income for the three and nine months
ended September 30, 2004 and 2003 (dollars in thousands):

|                                                                            |                                                                               |                            |         |                           |   |      |        |            |   |   |         |         |   |   |         |         |  
|--------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | -------------------------- | ------- | ------------------------- | - | ---- | ------ | ---------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                            |                                                                               |                            |         |                          
|                                                                            |                                                                               | For the Three Months Ended |         | For the Nine Months Ended
|                                                                            |                                                                               | September 30,              |         | September 30,            
|                                                                            |                                                                               |                            |         |                          
|                                                                            |                                                                               | 2004                       |         | 2003(1)                   |   | 2004 |        | 2003(1)   
|                                                                            |                                                                               |                            |         |                           |   |      |        |           
|                                                                            |                                                                               |                            |         | (Restated)                |   |      |        | (Restated)
|Net income                                                                  |                                                                               | $                          | 35,315  |                           |   | $    | 29,844 |            |   | $ | 75,766  |         |   | $ | 115,191 |        
|Income available to common unitholders
    attributable to limited partners |                                                                               |                            | (1,676  | )                         |   |      | (1,164 | )          |   |   | (3,459  | )       |   |   | (5,366  | )      
|Gain from dispositions of real estate                                       |                                                                               |                            | (10,450 | )                         |   |      | (7,888 | )          |   |   | (12,325 | )       |   |   | (47,008 | )      
|Real estate related depreciation and amortization:                          |                                                                               |                            |         |                           |   |      |        |            |   |   |         |         |   |   |         |        
|                                                                            | Total depreciation and amortization                                           |                            |         | 42,099                    |   |      |        | 33,734     |   |   |         | 120,998 |   |   |         | 102,847 |  
|                                                                            | Discontinued operations depreciation                                         |                            |         | 525                       |   |      |        | 597        |   |   |         | 1,733   |   |   |         | 2,346   |  
|                                                                            | Furniture, fixtures and equipment depreciation                                |                            |         | (172                      | ) |      |        | (170       | ) |   |         | (508    | ) |   |         | (548    | )
|Adjustments to derive FFO from consolidated joint
    ventures:             |                                                                               |                            |         |                           |   |      |        |            |   |   |         |         |   |   |         |        
|                                                                            | Joint venture partners minority interests
    (NI)                           |                            |         | 10,302                    |   |      |        | 9,546      |   |   |         | 28,978  |   |   |         | 24,712  |  
|                                                                            | Limited partnership unitholders minority
    interests (NI)                  |                            |         | 1,012                     |   |      |        | 488        |   |   |         | 2,618   |   |   |         | 2,200   |  
|                                                                            | Limited partnership unitholders minority
    interests (Development profits) |                            |         | 79                        |   |      |        | 115        |   |   |         | 222     |   |   |         | 115     |  
|                                                                            | Discontinued operations minority interests
    (NI)                          |                            |         | 2,218                     |   |      |        | 1,140      |   |   |         | 2,464   |   |   |         | 3,195   |  
|                                                                            | FFO attributable to minority interests                                        |                            |         | (22,193                   | ) |      |        | (17,345    | ) |   |         | (58,172 | ) |   |         | (47,847 | )
|Adjustments to derive FFO from unconsolidated
    joint ventures:           |                                                                               |                            |         |                           |   |      |        |            |   |   |         |         |   |   |         |        
|                                                                            | Our share of net income                                                       |                            |         | (603                      | ) |      |        | (1,365     | ) |   |         | (3,256  | ) |   |         | (4,222  | )
|                                                                            | Our share of FFO                                                              |                            |         | 1,661                     |   |      |        | 2,345      |   |   |         | 6,089   |   |   |         | 7,620   |  
|Preferred unit distributions                                                |                                                                               |                            | (3,373  | )                         |   |      | (4,462 | )          |   |   | (10,119 | )       |   |   | (14,763 | )      
|Preferred unit redemption                                                   |                                                                               |                            |        |                           |   |      | (3,671 | )          |   |   |        |         |   |   | (3,671  | )      
|                                                                            |                                                                               |                            |         |                           |   |      |        |            |   |   |         |         |   |   |         |        
|                                                                            | Funds from operations                                                         |                            | $       | 54,744                    |   |      | $      | 41,744     |   |   | $       | 151,029 |   |   | $       | 134,801 |  
|                                                                            |                                                                               |                            |         |                           |   |      |        |            |   |   |         |         |   |   |         |        

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|                               |         |                            |      |                           |  |      |      |            |  |   |      |            |  |   |      |            | 
|------------------------------ | ------- | -------------------------- | ---- | ------------------------- |  | ---- | ---- | ---------- |  | - | ---- | ---------- |  | - | ---- | ---------- | 
|                               |         |                            |      |                          
|                               |         | For the Three Months Ended |      | For the Nine Months Ended
|                               |         | September 30,              |      | September 30,            
|                               |         |                            |      |                          
|                               |         | 2004                       |      | 2003(1)                   |  | 2004 |      | 2003(1)   
|                               |         |                            |      |                           |  |      |      |           
|                               |         |                            |      | (Restated)                |  |      |      | (Restated)
|Basic FFO per common unit      |         | $                          | 0.63 |                           |  | $    | 0.49 |            |  | $ | 1.74 |            |  | $ | 1.57 |           
|                               |         |                            |      |                           |  |      |      |            |  |   |      |            |  |   |      |           
|Diluted FFO per common unit    |         | $                          | 0.61 |                           |  | $    | 0.48 |            |  | $ | 1.68 |            |  | $ | 1.54 |           
|                               |         |                            |      |                           |  |      |      |            |  |   |      |            |  |   |      |           
|Weighted average common units: |         |                            |      |                           |  |      |      |            |  |   |      |            |  |   |      |           
|                               | Basic   |                            |      | 86,943,931                |  |      |      | 85,776,251 |  |   |      | 86,749,022 |  |   |      | 85,874,579 | 
|                               |         |                            |      |                           |  |      |      |            |  |   |      |            |  |   |      |           
|                               | Diluted |                            |      | 90,146,245                |  |      |      | 87,399,544 |  |   |      | 89,764,633 |  |   |      | 87,342,075 | 
|                               |         |                            |      |                           |  |      |      |            |  |   |      |            |  |   |      |           



---



| |     |                                                                                                                                                                                                                                                                                                                
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Effective January 1, 2003, we discontinued
    our practice of deducting amortization of investments in
    leasehold interests from FFO as such an adjustment is not
    provided for in NAREITs FFO definition. As a result, FFO
    for the periods presented has been adjusted to reflect the
    changes.

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 and nine months ended September 30, 2004
(dollars in thousands):

|                                           |                                                 |                    |                  |                    |      |      |            |           |      |      | 
|------------------------------------------ | ----------------------------------------------- | ------------------ | ---------------- | ------------------ | ---- | ---- | ---------- | --------- | ---- | ---- | 
|                                           |                                                 | Three Months       |                  | Nine Months       
|                                           |                                                 | Ended              |                  | Ended             
|Operating Portfolio(1)                     |                                                 | September 30, 2004 |                  | September 30, 2004
|                                           |                                                 |                    |                  |                   
|Square feet owned at September 30, 2004(2) |                                                 |                    | 91,143,270       |                    |      |      | 91,143,270 |          
|Occupancy percentage at September 30, 2004 |                                                 |                    | 94.6             | %                  |      |      | 94.6       | %        
|Weighted average lease terms:              |                                                 |                    |                  |                    |      |      |            |          
|                                           | Original                                        |                    |                  | 6.2 years          |      |      |            | 6.2 years |     
|                                           | Remaining                                       |                    |                  | 3.3 years          |      |      |            | 3.3 years |     
|Tenant retention(3)                        |                                                 |                    | 63.3             | %                  |      |      | 65.9       | %        
|Same Space Leasing Activity:(4)            |                                                 |                    |                  |                    |      |      |            |          
|                                           | Rent decreases on renewals and rollovers        |                    |                  | (13.2              | )%   |      |            | (13.6     | )%  
|                                           | Same space square footage commencing (millions) |                    |                  | 4.2                |      |      |            | 13.3      |     
|2nd Generation Leasing Activity:           |                                                 |                    |                  |                    |      |      |            |          
|                                           | TIs and LCs per square foot:                    |                    |                  |                    |      |      |            |           |     
|                                           |                                                 | Retained           |                  | $                  | 1.46 |      |            | $         | 1.63 |     
|                                           |                                                 | Re-tenanted        |                  |                    | 2.25 |      |            |           | 2.27 |     
|                                           |                                                 |                    |                  |                    |      |      |            |          
|                                           |                                                 |                    | Weighted average |                    | $    | 1.97 |            |           | $    | 2.00 | 
|                                           |                                                 |                    |                  |                    |      |      |            |          
|                                           | Square footage commencing (millions)            |                    |                  | 5.5                |      |      |            | 17.2      |     



---



| |     |                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Includes all consolidated industrial operating
    properties and excludes industrial development and renovation
    projects. Excludes retail and other properties square feet
    of 474,368 with occupancy of 27.9% and annualized base rent of
    $3.1 million.                                                                                                                                        
|
| | (2) | In addition to owned square feet as of
    September 30, 2004, we managed, through our subsidiary, AMB
    Capital Partners, LLC, approximately 0.5 million additional
    square feet of industrial, retail and other properties. We also
    have investments in approximately 8.0 million square feet
    of industrial operating properties through our investments in
    unconsolidated joint ventures.
|
| | (3) | Tenant retention is the square footage of all
    leases renewed by existing tenants divided by the square footage
    of all expiring and renewed leases during the reporting period,
    excluding the square footage of tenants that default or buy-out
    prior to expiration of their lease, short-term tenants and the
    square footage of month-to-month leases.                                   

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| |     |                                                                                                                                    
| | --- | -----------------------------------------------------------------------------------------------------------------------------------
| | (4) | Consists of all second-generation leases renewing
    or re-tenanting with current and prior lease terms greater than
    one year.

The following summarizes key same store
properties operating statistics for our industrial
properties as of and for the three and nine months ended
September 30, 2004:

|                                                         |                                                 |                    |            |                    |   |  |            |      |   
|-------------------------------------------------------- | ----------------------------------------------- | ------------------ | ---------- | ------------------ | - |  | ---------- | ---- | --
|                                                         |                                                 | Three Months       |            | Nine Months       
|                                                         |                                                 | Ended              |            | Ended             
|Same Store Pool(1)                                       |                                                 | September 30, 2004 |            | September 30, 2004
|                                                         |                                                 |                    |            |                   
|Square feet in same store pool at
    September 30, 2004 |                                                 |                    | 77,941,898 |                    |   |  | 77,941,898 |     
|                                                         | % of total industrial square feet               |                    |            | 85.5               | % |  |            | 85.5 | % 
|Occupancy percentage at period end:                      |                                                 |                    |            |                    |   |  |            |     
|                                                         | September 30, 2004                              |                    |            | 94.8               | % |  |            | 94.8 | % 
|                                                         | September 30, 2003                              |                    |            | 92.5               | % |  |            | 92.5 | % 
|Tenant retention(2)                                      |                                                 |                    | 59.8       | %                  |   |  | 63.8       | %   
|Rent decreases on renewals and rollovers                 |                                                 |                    | (14.3      | )%                 |   |  | (15.1      | )%  
|                                                         | Same space square footage commencing (millions) |                    |            | 3.9                |   |  |            | 12.3 |   
|Cash basis NOI growth % increase (decrease):             |                                                 |                    |            |                    |   |  |            |     
|                                                         | Revenues                                        |                    |            | 3.7                | % |  |            | (0.7 | )%
|                                                         | Expenses                                        |                    |            | 0.8                | % |  |            | 0.6  | % 
|                                                         | NOI                                             |                    |            | 4.8                | % |  |            | (1.1 | )%
|                                                         | NOI without lease termination fees              |                    |            | 0.6                | % |  |            | (1.0 | )%



---



|    |                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The same store pool excludes properties purchased
    and developments stabilized after December 31, 2002.                                                                                                                                                                                                                                                                
|   
|(2) | Tenant retention is the square footage of all
    leases renewed by existing tenants divided by the square footage
    of all expiring and renewed leases during the reporting period,
    excluding the square footage of tenants that default or buy-out
    prior to expiration of their lease, short-term tenants and the
    square footage of month-to-month leases.

BUSINESS RISKS

Our operations involve various risks that could
have adverse consequences to us. In addition to the risks
discussed in our Annual Report on Form 10-K for the year
ended December 31, 2003, these risks include:

There was a material weakness in our internal
control over financial reporting, and our business could have
been adversely impacted if we had failed to remedy the
deficiencies in our controls.

The design and effectiveness of our disclosure
controls and procedures and internal control over financial
reporting may not prevent all errors, misstatements or
misrepresentations. As part of managements on-going review
of our accounting policies and internal control over financial
reporting, on October 12, 2004, management determined that
there was a material weakness in our internal control over
financial reporting related to ground lease depreciation. This
weakness resulted in an understatement of depreciation expense
and resulted in a restatement of depreciation expense for our
results in previously issued financial statements for the years
ended December 31, 2003, 2002 and 2001 filed on Forms 10-K
and 10-K/A for the year ended December 31, 2003, and for
the quarters ended March 31, 2004 and June 30, 2004
filed on Forms 10-Q for the quarters then ended. In connection
with correcting this error, management has taken appropriate
action to modify our system of internal control over financial
reporting to remediate the material weakness. While management
will continue to review the effectiveness of our disclosure
controls and procedures and internal control over financial
reporting, there can be no guarantee that our internal control
over financial reporting will be effective in accomplishing all
control objectives all of the time. Other deficiencies,
particularly a material weakness in internal control over
financial reporting which may occur in the future, could result
in misstatements of our results of operations, restatements of
our financial statements, a decline in our general
partners stock price, or otherwise materially adversely
affect our business, reputation, results of operation, financial
condition or liquidity.

52



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|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures
    About Market Risk

Market risk is the risk of loss from adverse
changes in market prices, interest rates and foreign exchange
rates. Our future earnings and cash flows are dependent upon
prevailing 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 payments 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 interest rate
fluctuations in connection with our credit facilities and other
variable rate borrowings and our ability to incur more debt
without noteholder approval, thereby increasing our debt service
obligations, which could adversely affect our cash flows. As of
September 30, 2004, we had no interest rate caps or swaps.
See Part I, 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 rate debt outstanding
before unamortized debt premiums of $12.6 million as of
September 30, 2004 (dollars in thousands):

|                               |  |      |       |      |  |      |         |      |  |      |         |            |  |       |         |   |  |   |         |   |  |   |           |   |  |   |           |  
|------------------------------ |  | ---- | ----- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | ---------- |  | ----- | ------- | - |  | - | ------- | - |  | - | --------- | - |  | - | --------- | -
|                               |  | 2004 |       | 2005 |  | 2006 |         | 2007 |  | 2008 |         | Thereafter |  | Total
|                               |  |      |       |      |  |      |         |      |  |      |         |            |  |      
|Fixed rate debt(1)             |  | $    | 8,219 |      |  | $    | 359,011 |      |  | $    | 171,791 |            |  | $     | 144,781 |   |  | $ | 374,940 |   |  | $ | 1,461,383 |   |  | $ | 2,520,125 |  
|Weighted average interest rate |  |      | 7.2   | %    |  |      | 7.1     | %    |  |      | 7.1     | %          |  |       | 7.3     | % |  |   | 7.2     | % |  |   | 7.4       | % |  |   | 7.3       | %
|Variable rate debt(2)          |  | $    | 468   |      |  | $    | 1,958   |      |  | $    | 83,259  |            |  | $     | 573,862 |   |  | $ | 5,669   |   |  | $ | 38,050    |   |  | $ | 703,266   |  
|Weighted average interest rate |  |      | 4.6   | %    |  |      | 4.3     | %    |  |      | 2.4     | %          |  |       | 2.1     | % |  |   | 4.7     | % |  |   | 4.5       | % |  |   | 2.3       | %
|Interest Payments              |  | $    | 613   |      |  | $    | 25,574  |      |  | $    | 14,195  |            |  | $     | 22,620  |   |  | $ | 27,262  |   |  | $ | 109,855   |   |  | $ | 200,119   |  



---



|    |                                          
|--- | -----------------------------------------
|(1) | Represents 78.2% of all outstanding debt.
|   
|(2) | Represents 21.8% of all outstanding debt.

If market rates of interest on our variable rate
debt increased by 10%, then the increase in interest expense on
the variable rate debt would be $1.6 million annually. As
of September 30, 2004, the estimated fair value of our
fixed rate debt was $2,737.1 million based on our estimate
of current market interest rates.

As of September 30, 2004 and
December 31, 2003, variable rate debt comprised 23.1% and
14.7%, respectively, of all our outstanding debt. Variable rate
debt was $744.2 million and $378.0 million,
respectively, as of September 30, 2004 and
December 31, 2003. The increase is primarily due to higher
outstanding balances on our credit facilities. This increase in
our variable rate debt increases our risk associated with
unfavorable interest rate fluctuations.

Financial
Instruments.We record all derivatives
on the balance sheet at fair value as an asset or liability,
with an offset to accumulated other comprehensive income or
income. For revenues or expenses denominated in non-functional
currencies, we may use derivative financial instruments to
manage foreign currency exchange rate risk. Our derivative
financial instruments in effect at September 30, 2004 were
three put options (buy USD/sell MXN) hedging against adverse
foreign exchange fluctuations of the Mexican peso against the
U.S. dollar. The following table summarizes our financial
instruments as of September 30, 2004:

|                                                  |  |                |       |             |  |       |       |            |  |   |       |  |  |   |    | 
|------------------------------------------------- |  | -------------- | ----- | ----------- |  | ----- | ----- | ---------- |  | - | ----- |  |  | - | -- | 
|                                                  |  |                |       |             |  |      
|                                                  |  | Maturity Dates |       |             |  |      
|                                                  |  |                |       |             |  |      
|Related Derivatives (in thousands)                |  | October-04     |       | December-04 |  | Total |       | Fair Value
|                                                  |  |                |       |             |  |       |       |           
|Foreign Exchange Agreements:                      |  |                |       |             |  |       |       |            |  |   |       |  |  |   |    | 
|Option to Sell MXN/ Buy USD Contract Amount (USD) |  | $              | 1,794 |             |  | $     | 1,467 |            |  | $ | 3,261 |  |  |   |    | 
|Contract FX Rate                                  |  |                | 11.5  |             |  |       | 11.6  |            |  |   | 11.5  |  |  |   |    | 
|Contract Premium                                  |  | $              | 15    |             |  | $     | 25    |            |  | $ | 40    |  |  | $ | 10 | 

Foreign Operations.Our exposure to market risk also includes foreign currency
exchange rate risk. The U.S. dollar is the functional
currency for our subsidiaries operating in the United States and
Mexico. The

53



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##### Table of Contents



functional currency for our subsidiaries
operating outside North America is generally the local currency
of the country in which the entity is located, mitigating the
effect of foreign exchange gains and losses. Our subsidiaries
whose functional currency is not the U.S. dollar translate
their financial statements into U.S. dollars. Assets and
liabilities are translated at the exchange rate in effect as of
the financial statement date. We translate income statement
accounts using the average exchange rate for the period and
significant nonrecurring transactions using the rate on the
transaction date. Losses resulting from the translation are
included in accumulated other comprehensive income as a separate
component of partners capital and totaled
$0.2 million for the nine months ended September 30,
2004.


Our foreign subsidiaries may have transactions
denominated in currencies other than their functional currency.
In these instances, non-monetary assets and liabilities are
reflected at the historical exchange rate, monetary assets and
liabilities are remeasured at the exchange rate in effect at the
end of the period and income statement accounts are remeasured
at the average exchange rate for the period. For the three and
nine months ended September 30, 2004, gains from
remeasurement included in our results of operations were
$0.1 million and $0.2 million, respectively.

We also record gains or losses in the income
statement when a transaction with a third party, denominated in
a currency other than the entitys functional currency, is
settled and the functional currency cash flows realized are more
or less than expected based upon the exchange rate in effect
when the transaction was initiated. We believe that these gains
or losses are immaterial.






|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

On October 12, 2004, our general partner
announced a restatement of depreciation expense for our prior
period results relating to 39 buildings in our portfolio, 38 of
which are located on-tarmac, which is land owned by federal,
state or local airport authorities. As part of managements
on-going review of our accounting policies and internal control
over financial reporting, management determined that we should
have depreciated certain of our investments in buildings that
reside on land subject to ground leases over the remaining terms
of the ground leases, rather than over 40 years, which is
the period used to depreciate buildings that we hold in fee
simple. Management determined that the cause for this
depreciation error was that there was no mechanism in place to
segregate and apply appropriate depreciable lives to assets
subject to ground leases. Our general ledger did not have a
separate account designation for assets subject to ground leases
so these assets were not segregated into a separate expected
useful life category for depreciation purposes.

Management also determined that the internal
control deficiency that resulted in this restatement represents
a material weakness, as defined by the Public Company Accounting
Oversight Boards Auditing Standard No. 2. The Public
Company Accounting Oversight Board has defined material weakness
as a significant deficiency, or combination of significant
deficiencies, that results in more than a remote likelihood that
a material misstatement of the annual or interim financial
statements will not be prevented or detected. Our
conclusion that the control issues surrounding ground lease
depreciation constituted a material weakness means that, absent
remediation of these issues, there would exist a reasonable
possibility of a material misstatement in our financial
statements for future periods.

Going forward, these assets will be depreciated
over the lesser of 40 years or the contractual term of the
underlying ground lease. In connection with correcting this
error, management has taken appropriate action to modify our
system of internal control over financial reporting to remediate
this internal control deficiency.

Specifically, we have implemented the following
remediation measures with respect to this material weakness:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Management modified our existing property
    acquisition accounting checklist system to identify ground
    leases to the appropriate accounting and finance personnel who
    create journal entries in the general ledger and to communicate
    certain information regarding such ground leases, including
    lease commencement and termination dates and any contractual
    extension options.

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| |   |                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Management created new general ledger accounts to
    segregate ground lease assets from fee simple assets and
    reclassified all investments in buildings that reside on land
    subject to ground leases into the new general ledger accounts.                                                                
|
| |  | Management modified our existing property
    depreciation accounting policy to include a separate category
    for buildings residing on land subject to ground leases, which
    under the policy will be depreciated over the lesser of
    40 years or the contractual term of the underlying ground
    lease.
|
| |  | Management designated certain finance personnel
    to review our quarterly depreciation calculations, which will
    include a review for the correct depreciable lives of ground
    lease assets.                                                                                                               

To reflect additional depreciation expense,
management has restated our previously issued consolidated
financial statements for the years ended December 31, 2003,
2002 and 2001 filed on Forms 10-K and 10-K/A for the year ended
December 31, 2003, and for the quarters ended
March 31, 2004 and June 30, 2004 filed on Forms 10-Q
for the quarters then ended. Management and the audit committee
of our general partners board of directors discussed with
our independent auditors, PricewaterhouseCoopers LLP, and
determined that this was the proper approach. On
October 12, 2004, management and the audit committee of our
general partners board of directors concluded that our
financial statements for the years ended December 31, 2003,
2002 and 2001 filed on Forms 10-K and 10-K/A for the year ended
December 31, 2003, and for the quarters ended
March 31, 2004 and June 30, 2004 filed on Forms 10-Q
for the quarters then ended should no longer be relied upon
because of this error in such financial statements as addressed
in Accounting Principles Board Opinion No. 20.

As required by Rule 13a-15(b) of the
Securities Exchange Act of 1934, as amended, we carried out an
evaluation, under the supervision and with the participation of
our management, including the chief executive officer, president
and chief financial officer of our general partner, of the
effectiveness of the design and operation of our disclosure
controls and procedures that were in effect as of the end of the
quarter covered by this report. Based on the material weakness
described above, the chief executive officer, president and
chief financial officer of our general partner each concluded
that our disclosure controls and procedures were not effective
at a reasonable assurance level as of September 30, 2004,
the end of the quarter covered by this report. However, in light
of the implementation of the new remediation measures described
above, the chief executive officer, president and chief
financial officer of our general partner believe, as of the date
of this report, management has taken appropriate action to
modify our internal control over financial reporting relating to
ground lease depreciation and remediate this material weakness.
The changes in our internal control over financial reporting
discussed above materially affected our internal control over
financial reporting.

Except as stated above, there have been no other
changes in our internal control over financial reporting during
our most recent fiscal quarter that have materially affected, or
are reasonably likely to materially affect, our internal control
over financial reporting.




PART II






|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

As of September 30, 2004, 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.

55



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##### Table of Contents








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

None.






|        |                                    
|------- | -----------------------------------
|Item 3. | Defaults Upon Senior
    Securities

None.






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

None.






|        |                  
|------- | -----------------
|Item 5. | Other Information

None.






|        |         
|------- | --------
|Item 6. | Exhibits

|        |      |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------- | ---- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 10.1 |             |  | Thirteenth Amended and Restated Agreement of
    Limited Partnership of AMB Property II, L.P., dated
    September 24, 2004 (incorporated by reference to
    Exhibit 10.1 of AMB Property, L.P.s Current Report on
    Form 8-K filed on September 30, 2004).                                                                                                                                                                                                                                      
|        | 10.2 |             |  | Put Agreement, dated September 24, 2004, by
    and between Robert Pattillo Properties, Inc. and AMB Property,
    L.P. (incorporated by reference to Exhibit 10.2 of AMB
    Property, L.P.s Current Report on Form 8-K filed on
    September 30, 2004).                                                                                                                                                                                                                                          
|        | 10.3 |             |  | Amendment No. 1 to the 2002 Stock Option and
    Incentive Plan of AMB Property Corporation and AMB Property,
    L.P., dated September 23, 2004.                                                                                                                                                                                                                                                                                                                                                    
|        | 10.4 |             |  | Amendment No. 2 to the Third Amended and
    Restated 1997 Stock Option and Incentive Plan of AMB Property
    Corporation and AMB Property, L.P., dated September 23,
    2004.                                                                                                                                                                                                                                                                                                                     
|        | 31.1 |             |  | Rule 13a-14 (a)/15d-14
    (a) Certifications dated November 9, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 32.1 |             |  | 18 U.S.C.§ 1350 Certifications
    dated November 9, 2004. The certifications in this exhibit
    are being furnished solely to accompany this report pursuant to
    18 U.S.C. sec. 1350, and are not being filed for purposes
    of Section 18 of the Securities Exchange Act of 1934, as
    amended, and are not to be incorporated by reference into any of
    our filings, whether made before or after the date hereof,
    regardless of any general incorporation language in such filing.

56



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##### Table of Contents



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 and CEO            
| | (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                           
| | CFO and Executive Vice President          
| | (Duly Authorized Officer and
    Principal
| | Financial and Accounting Officer)         

Date: November 9, 2004

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##### Table of Contents



EXHIBIT INDEX

|        |      |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------- | ---- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 10.1 |             |  | Thirteenth Amended and Restated Agreement of
    Limited Partnership of AMB Property II, L.P., dated
    September 24, 2004 (incorporated by reference to
    Exhibit 10.1 of AMB Property, L.P.s Current Report on
    Form 8-K filed on September 30, 2004).                                                                                                                                                                                                                                      
|        | 10.2 |             |  | Put Agreement, dated September 24, 2004, by
    and between Robert Pattillo Properties, Inc. and AMB Property,
    L.P. (incorporated by reference to Exhibit 10.2 of AMB
    Property, L.P.s Current Report on Form 8-K filed on
    September 30, 2004).                                                                                                                                                                                                                                          
|        | 10.3 |             |  | Amendment No. 1 to the 2002 Stock Option and
    Incentive Plan of AMB Property Corporation and AMB Property,
    L.P., dated September 23, 2004.                                                                                                                                                                                                                                                                                                                                                    
|        | 10.4 |             |  | Amendment No. 2 to the Third Amended and
    Restated 1997 Stock Option and Incentive Plan of AMB Property
    Corporation and AMB Property, L.P., dated September 23,
    2004.                                                                                                                                                                                                                                                                                                                     
|        | 31.1 |             |  | Rule 13a-14 (a)/15d-14
    (a) Certifications dated November 9, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 32.1 |             |  | 18 U.S.C.§ 1350 Certifications
    dated November 9, 2004. The certifications in this exhibit
    are being furnished solely to accompany this report pursuant to
    18 U.S.C. sec. 1350, and are not being filed for purposes
    of Section 18 of the Securities Exchange Act of 1934, as
    amended, and are not to be incorporated by reference into any of
    our filings, whether made before or after the date hereof,
    regardless of any general incorporation language in such filing.

58