##### 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 March 31,
    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 March 31, 2004, and December 31, 2003                      |  |      | 1  | 
|                                  |  | Consolidated Statements of
    Operations for the three months ended March 31, 2004 and
    2003 |  |      | 2  | 
|                                  |  | Consolidated Statements of
    Cash Flows for the three months ended March 31, 2004 and
    2003 |  |      | 3  | 
|                                  |  | Consolidated Statement of
    Partners Capital for the three months ended March 31,
    2004    |  |      | 4  | 
|                                  |  | Notes to Consolidated
    Financial Statements                                                   |  |      | 5  | 
|Item 2.                           |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations        |  |      | 20 | 
|Item 3.                           |  | Quantitative and Qualitative
    Disclosures About Market Risk                                   |  |      | 42 | 
|Item 4.                           |  | Controls and Procedures                                                                          |  |      | 43 | 
|PART II. OTHER
    INFORMATION   
|Item 1.                           |  | Legal Proceedings                                                                                |  |      | 44 | 
|Item 2.                           |  | Changes in Securities and
    Use of Proceeds                                                    |  |      | 44 | 
|Item 3.                           |  | Defaults Upon Senior
    Securities                                                              |  |      | 44 | 
|Item 4.                           |  | Submission of Matters to a
    Vote of Security Holders                                          |  |      | 44 | 
|Item 5.                           |  | Other Information                                                                                |  |      | 44 | 
|Item 6.                           |  | Exhibits and Reports on Form
    8-K                                                             |  |      | 44 | 
|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 March 31, 2004 and
December 31, 2003


|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |           |           |           | 
|--------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | --------------------------------------- | ------------ | --------- | --------- | ------- | --------- | --------- | --------- | 
|                                                                |                                                                                                                                                                                                                                                                                                     | March 31,                       |                                         | December 31,
|                                                                |                                                                                                                                                                                                                                                                                                     | 2004                            |                                         | 2003        
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |             
|                                                                |                                                                                                                                                                                                                                                                                                     |                                
|                                                                |                                                                                                                                                                                                                                                                                                     | (Unaudited, dollars in         
|                                                                |                                                                                                                                                                                                                                                                                                     | thousands)                     
|ASSETS                                                         
|Investments in real estate:                                     |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                | Land                                                                                                                                                                                                                                                                                                |                                 | $                                       | 1,408,936    |           |           | $       | 1,403,807 |          
|                                                                | Buildings and improvements                                                                                                                                                                                                                                                                          |                                 |                                         | 4,039,142    |           |           |         | 3,888,272 |          
|                                                                | Construction in progress                                                                                                                                                                                                                                                                            |                                 |                                         | 282,576      |           |           |         | 199,628   |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Total investments in properties |                                         |              | 5,730,654 |           |         |           | 5,491,707 |          
|                                                                | Accumulated depreciation and amortization                                                                                                                                                                                                                                                           |                                 |                                         | (511,611     | )         |           |         | (474,452  | )        
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Net investments in properties   |                                         |              | 5,219,043 |           |         |           | 5,017,255 |          
|Investments in unconsolidated joint ventures                    |                                                                                                                                                                                                                                                                                                     |                                 | 54,006                                  |              |           |           | 52,009  |          
|Properties held for divestiture, net                            |                                                                                                                                                                                                                                                                                                     |                                 | 9,628                                   |              |           |           | 11,751  |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Net investments in real estate  |                                         |              | 5,282,677 |           |         |           | 5,081,015 |          
|Cash and cash equivalents                                       |                                                                                                                                                                                                                                                                                                     |                                 | 123,747                                 |              |           |           | 127,678 |          
|Restricted cash                                                 |                                                                                                                                                                                                                                                                                                     |                                 | 27,156                                  |              |           |           | 28,985  |          
|Mortgages receivable                                            |                                                                                                                                                                                                                                                                                                     |                                 | 23,620                                  |              |           |           | 43,145  |          
|Accounts receivable, net of allowance for
    doubtful accounts |                                                                                                                                                                                                                                                                                                     |                                 | 92,081                                  |              |           |           | 88,452  |          
|Other assets                                                    |                                                                                                                                                                                                                                                                                                     |                                 | 69,669                                  |              |           |           | 51,391  |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Total assets                    |                                         | $            | 5,618,950 |           |         | $         | 5,420,666 |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                               
|LIABILITIES AND PARTNERS
    CAPITAL                          
|Debt:                                                           |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                | Secured debt                                                                                                                                                                                                                                                                                        |                                 | $                                       | 1,457,630    |           |           | $       | 1,363,890 |          
|                                                                | Unsecured senior debt securities                                                                                                                                                                                                                                                                    |                                 |                                         | 1,025,000    |           |           |         | 925,000   |          
|                                                                | Unsecured debt                                                                                                                                                                                                                                                                                      |                                 |                                         | 9,482        |           |           |         | 9,628     |          
|                                                                | Unsecured credit facility                                                                                                                                                                                                                                                                           |                                 |                                         | 261,369      |           |           |         | 275,739   |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Total debt                      |                                         |              | 2,753,481 |           |         |           | 2,574,257 |          
|Distributions payable                                           |                                                                                                                                                                                                                                                                                                     |                                 | 40,813                                  |              |           |           | 39,076  |          
|Accounts payable and other liabilities                          |                                                                                                                                                                                                                                                                                                     |                                 | 167,801                                 |              |           |           | 148,019 |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Total liabilities               |                                         |              | 2,962,095 |           |         |           | 2,761,352 |          
|Commitments and contingencies (Note 15)                         |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|Minority interests:                                             |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                | Joint venture partners                                                                                                                                                                                                                                                                              |                                 |                                         | 663,087      |           |           |         | 659,487   |          
|                                                                | Preferred unitholders                                                                                                                                                                                                                                                                               |                                 |                                         | 166,802      |           |           |         | 166,865   |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Total minority interests        |                                         |              | 829,889   |           |         |           | 826,352   |          
|Partners capital:                                              |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                | General partner, 82,366,298 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 |                                 |                                         | 1,662,207    |           |           |         | 1,666,899 |          
|                                                                | Limited partners, 4,607,910 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                                                                       |                                 |                                         | 164,759      |           |           |         | 166,063   |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Total partners capital         |                                         |              | 1,826,966 |           |         |           | 1,832,962 |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 | Total liabilities and partners capital |              | $         | 5,618,950 |         |           | $         | 5,420,666 | 
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          

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 Months Ended March 31, 2004
and 2003


|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |            |         |        | 
|----------------------------------------------------------- | ----------------------------------------------------------------------------- | ----------------------------------------------------- | ---------------------------------------------------------------- | ---------- | ------- | ------ | ------ | ---------- | ------- | ------ | 
|                                                            |                                                                               |                                                      
|                                                            |                                                                               | For the three months ended                           
|                                                            |                                                                               | March 31,                                            
|                                                            |                                                                               |                                                      
|                                                            |                                                                               | 2004                                                  |                                                                  | 2003      
|                                                            |                                                                               |                                                       |                                                                  |           
|                                                            |                                                                               |                                                      
|                                                            |                                                                               | (Unaudited, dollars in                               
|                                                            |                                                                               | thousands, except unit and                           
|                                                            |                                                                               | per unit amounts)                                    
|REVENUES                                                    |                                                                               |                                                       |                                                                  |            |         |        |        |           
|                                                            | Rental revenues                                                               |                                                       | $                                                                | 163,812    |         |        | $      | 148,523    |        
|                                                            | Private capital income                                                        |                                                       |                                                                  | 2,429      |         |        |        | 2,361      |        
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           
|                                                            |                                                                               | Total revenues                                        |                                                                  |            | 166,241 |        |        |            | 150,884 |       
|COSTS AND EXPENSES                                          |                                                                               |                                                       |                                                                  |            |         |        |        |           
|                                                            | Property operating expenses                                                   |                                                       |                                                                  | (24,045    | )       |        |        | (21,715    | )      
|                                                            | Real estate taxes                                                             |                                                       |                                                                  | (19,427    | )       |        |        | (17,941    | )      
|                                                            | Depreciation and amortization                                                 |                                                       |                                                                  | (38,234    | )       |        |        | (34,433    | )      
|                                                            | General and administrative                                                    |                                                       |                                                                  | (15,036    | )       |        |        | (12,186    | )      
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           
|                                                            |                                                                               | Total costs and expenses                              |                                                                  |            | (96,742 | )      |        |            | (86,275 | )     
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           
|OTHER INCOME AND EXPENSES                                   |                                                                               |                                                       |                                                                  |            |         |        |        |           
|                                                            | Equity in earnings of unconsolidated joint
    ventures                       |                                                       |                                                                  | 1,709      |         |        |        | 1,235      |        
|                                                            | Interest and other income                                                     |                                                       |                                                                  | 1,665      |         |        |        | 1,393      |        
|                                                            | Gains from dispositions of real estate                                        |                                                       |                                                                  |           |         |        |        | 7,429      |        
|                                                            | Interest, including amortization                                              |                                                       |                                                                  | (39,425    | )       |        |        | (35,914    | )      
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           
|                                                            |                                                                               | Total other income and expenses                       |                                                                  |            | (36,051 | )      |        |            | (25,857 | )     
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           
|                                                            |                                                                               |                                                       | Income before minority interests and discontinued
    operations |            |         | 33,448 |        |            |         | 38,752 | 
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           
|                                                            | Minority interests share of income:                                          |                                                       |                                                                  |            |         |        |        |            |        
|                                                            |                                                                               | Joint venture partners share of operating
    income |                                                                  |            | (9,229  | )      |        |            | (7,636  | )     
|                                                            |                                                                               | Preferred unitholders                                 |                                                                  |            | (3,351  | )      |        |            | (3,388  | )     
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           
|                                                            |                                                                               | Total minority interests share of income             |                                                                  |            | (12,580 | )      |        |            | (11,024 | )     
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           
|Income from continuing operations                           |                                                                               |                                                       | 20,868                                                           |            |         |        | 27,728 |           
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           
|Discontinued operations:                                    |                                                                               |                                                       |                                                                  |            |         |        |        |           
|                                                            | Income attributable to discontinued operations,
    net of minority interests |                                                       |                                                                  | (261       | )       |        |        | 8,400      |        
|                                                            | Gains from dispositions of real estate, net of
    minority interests         |                                                       |                                                                  | (302       | )       |        |        | 29,644     |        
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           
|                                                            |                                                                               | Total discontinued operations                         |                                                                  |            | (563    | )      |        |            | 38,044  |       
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           
|Net income                                                  |                                                                               |                                                       | 20,305                                                           |            |         |        | 65,772 |           
|                                                            | Series A, L and M preferred unit
    distributions                            |                                                       |                                                                  | (1,783     | )       |        |        | (2,123     | )      
|                                                            | Series B, J and K preferred unit
    distributions                            |                                                       |                                                                  | (1,590     | )       |        |        | (2,992     | )      
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           
|                                                            |                                                                               | Net income available to common unitholders            |                                                                  | $          | 16,932  |        |        | $          | 60,657  |       
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           
|INCOME AVAILABLE TO COMMON UNITHOLDERS
    ATTRIBUTABLE TO: |                                                                               |                                                       |                                                                  |            |         |        |        |           
|                                                            | General partner                                                               |                                                       | $                                                                | 16,037     |         |        | $      | 57,255     |        
|                                                            | Limited partners                                                              |                                                       |                                                                  | 895        |         |        |        | 3,402      |        
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           
|                                                            |                                                                               | Net income available to common unitholders            |                                                                  | $          | 16,932  |        |        | $          | 60,657  |       
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           
|BASIC INCOME PER COMMON UNIT                                |                                                                               |                                                       |                                                                  |            |         |        |        |           
|                                                            | Income from continuing operations (includes
    preferred unit distributions) |                                                       | $                                                                | 0.20       |         |        | $      | 0.27       |        
|                                                            | Discontinued operations                                                       |                                                       |                                                                  |           |         |        |        | 0.44       |        
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           
|                                                            |                                                                               | Net income available to common unitholders            |                                                                  | $          | 0.20    |        |        | $          | 0.71    |       
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           
|DILUTED INCOME PER COMMON UNIT                              |                                                                               |                                                       |                                                                  |            |         |        |        |           
|                                                            | Income from continuing operations (includes
    preferred unit distributions) |                                                       | $                                                                | 0.19       |         |        | $      | 0.26       |        
|                                                            | Discontinued operations                                                       |                                                       |                                                                  |           |         |        |        | 0.43       |        
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           
|                                                            |                                                                               | Net income available to common unitholders            |                                                                  | $          | 0.19    |        |        | $          | 0.69    |       
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           
|WEIGHTED AVERAGE COMMON UNITS
    OUTSTANDING               |                                                                               |                                                       |                                                                  |            |         |        |        |           
|                                                            | Basic                                                                         |                                                       |                                                                  | 86,447,303 |         |        |        | 85,944,112 |        
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           
|                                                            | Diluted                                                                       |                                                       |                                                                  | 89,617,834 |         |        |        | 87,360,543 |        
|                                                            |                                                                               |                                                       |                                                                  |            |         |        |        |           

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

2



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##### Table of Contents






AMB PROPERTY, L.P.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Three Months Ended March 31, 2004
and 2003


|                                                                                            |                                                                 |                                                                              |                                                         |                                                          |        |          |          |        |         |          |         | 
|------------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------------------------- | -------------------------------------------------------- | ------ | -------- | -------- | ------ | ------- | -------- | ------- | 
|                                                                                            |                                                                 | 2004                                                                         |                                                         | 2003                                                    
|                                                                                            |                                                                 |                                                                              |                                                         |                                                         
|                                                                                            |                                                                 |                                                                             
|                                                                                            |                                                                 | (Unaudited, dollars in                                                      
|                                                                                            |                                                                 | thousands)                                                                  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                        |                                                                 |                                                                              |                                                         |                                                          |        |          |          |       
|Net income                                                                                  |                                                                 | $                                                                            | 20,305                                                  |                                                          |        | $        | 65,772   |       
|Adjustments to net income:                                                                  |                                                                 |                                                                              |                                                         |                                                          |        |          |          |       
|                                                                                            | Straight-line rents                                             |                                                                              |                                                         | (3,963                                                   | )      |          |          | (2,380 | )      
|                                                                                            | Depreciation and amortization                                   |                                                                              |                                                         | 38,234                                                   |        |          |          | 34,433 |        
|                                                                                            | Stock-based compensation amortization                           |                                                                              |                                                         | 2,557                                                    |        |          |          | 1,941  |        
|                                                                                            | Recognition of below market leases                              |                                                                              |                                                         | (205                                                     | )      |          |          |        |        
|                                                                                            | Equity in earnings of unconsolidated joint
    ventures         |                                                                              |                                                         | (1,709                                                   | )      |          |          | (1,235 | )      
|                                                                                            | Gains from dispositions of real estate                          |                                                                              |                                                         |                                                         |        |          |          | (7,429 | )      
|                                                                                            | Debt premiums, discounts and finance cost
    amortization, net |                                                                              |                                                         | 339                                                      |        |          |          | (99    | )      
|                                                                                            | Total minority interests share of net income                   |                                                                              |                                                         | 12,580                                                   |        |          |          | 11,024 |        
|                                                                                            | Discontinued operations:                                        |                                                                              |                                                         |                                                          |        |          |          |        |        
|                                                                                            |                                                                 | Depreciation and amortization                                                |                                                         |                                                          | 17     |          |          |        | 740     |         
|                                                                                            |                                                                 | Joint venture partners share of net income                                  |                                                         |                                                          | (1     | )        |          |        | 145     |         
|                                                                                            |                                                                 | Loss (Gains) from dispositions of real estate,
    net of minority interests |                                                         |                                                          | 302    |          |          |        | (29,644 | )       
|                                                                                            | Changes in assets and liabilities:                              |                                                                              |                                                         |                                                          |        |          |          |        |        
|                                                                                            |                                                                 | Accounts receivable and other assets                                         |                                                         |                                                          | (2,456 | )        |          |        | (2,570  | )       
|                                                                                            |                                                                 | Accounts payable and other liabilities                                       |                                                         |                                                          | 1,259  |          |          |        | 6,107   |         
|                                                                                            |                                                                 |                                                                              |                                                         |                                                          |        |          |          |       
|                                                                                            |                                                                 |                                                                              | Net cash provided by operating activities               |                                                          |        | 67,259   |          |        |         | 76,805   |        
|CASH FLOWS FROM INVESTING ACTIVITIES                                                        |                                                                 |                                                                              |                                                         |                                                          |        |          |          |       
|Change in restricted cash                                                                   |                                                                 |                                                                              | 3,616                                                   |                                                          |        |          | 12,767   |       
|Cash paid for property acquisitions                                                         |                                                                 |                                                                              | (60,899                                                 | )                                                        |        |          | (10,494  | )     
|Additions to land, buildings, development costs
    and other first generation improvements |                                                                 |                                                                              | (97,702                                                 | )                                                        |        |          | (56,058  | )     
|Additions to second generation building
    improvements and lease costs                    |                                                                 |                                                                              | (15,650                                                 | )                                                        |        |          | (10,880  | )     
|Net proceeds from divestiture of real estate                                                |                                                                 |                                                                              | 4,731                                                   |                                                          |        |          | 200,522  |       
|Additions to interests in unconsolidated joint
    ventures                                 |                                                                 |                                                                              | (814                                                    | )                                                        |        |          | (809     | )     
|Distributions received from unconsolidated joint
    ventures                               |                                                                 |                                                                              | 568                                                     |                                                          |        |          | 2,116    |       
|Repayment of mortgage receivable                                                            |                                                                 |                                                                              | 19,525                                                  |                                                          |        |          |         |       
|                                                                                            |                                                                 |                                                                              |                                                         |                                                          |        |          |          |       
|                                                                                            |                                                                 |                                                                              | Net cash (used in) provided by investing
    activities |                                                          |        | (146,625 | )        |        |         | 137,164  |        
|CASH FLOWS FROM FINANCING ACTIVITIES                                                        |                                                                 |                                                                              |                                                         |                                                          |        |          |          |       
|Issuance of common units                                                                    |                                                                 |                                                                              | 12,048                                                  |                                                          |        |          | 1,179    |       
|Repurchase and retirement of common and preferred
    units                                 |                                                                 |                                                                              |                                                        |                                                          |        |          | (20,562  | )     
|Borrowings on secured debt                                                                  |                                                                 |                                                                              | 29,953                                                  |                                                          |        |          | 7,913    |       
|Payments on secured debt                                                                    |                                                                 |                                                                              | (8,735                                                  | )                                                        |        |          | (40,688  | )     
|Payments on unsecured debt                                                                  |                                                                 |                                                                              | (146                                                    | )                                                        |        |          |         |       
|Borrowings on unsecured credit facility                                                     |                                                                 |                                                                              | 94,684                                                  |                                                          |        |          | 112,464  |       
|Payments on unsecured credit facility                                                       |                                                                 |                                                                              | (111,063                                                | )                                                        |        |          | (190,000 | )     
|Borrowings on Alliance Fund II credit
    facility                                          |                                                                 |                                                                              |                                                        |                                                          |        |          | 6,000    |       
|Payment of financing fees                                                                   |                                                                 |                                                                              | (199                                                    | )                                                        |        |          | (36      | )     
|Net proceeds from issuances of senior debt
    securities                                   |                                                                 |                                                                              | 99,390                                                  |                                                          |        |          |         |       
|Issuance costs on preferred units                                                           |                                                                 |                                                                              | (161                                                    | )                                                        |        |          |         |       
|Contributions from co-investment partners                                                   |                                                                 |                                                                              | 3,890                                                   |                                                          |        |          | 7,039    |       
|Distributions paid to partners                                                              |                                                                 |                                                                              | (36,739                                                 | )                                                        |        |          | (40,720  | )     
|Distributions to minority interests, including
    preferred units                          |                                                                 |                                                                              | (9,169                                                  | )                                                        |        |          | (11,097  | )     
|                                                                                            |                                                                 |                                                                              |                                                         |                                                          |        |          |          |       
|                                                                                            |                                                                 |                                                                              | Net cash provided by/(used in) financing
    activities |                                                          |        | 73,753   |          |        |         | (168,508 | )      
|                                                                                            |                                                                 |                                                                              |                                                         |                                                          |        |          |          |       
|                                                                                            |                                                                 |                                                                              |                                                         | Effect of exchange rate changes on cash                  |        |          | 1,682    |        |         |          |        | 
|                                                                                            |                                                                 |                                                                              |                                                         |                                                          |        |          |          |       
|                                                                                            |                                                                 |                                                                              |                                                         | Net (decrease) increase in cash and cash
    equivalents |        |          | (3,931   | )      |         |          | 45,461  | 
|                                                                                            |                                                                 |                                                                              |                                                         | Cash and cash equivalents at beginning of period         |        |          | 127,678  |        |         |          | 89,332  | 
|                                                                                            |                                                                 |                                                                              |                                                         |                                                          |        |          |          |       
|                                                                                            |                                                                 |                                                                              |                                                         | Cash and cash equivalents at end of period               |        | $        | 123,747  |        |         | $        | 134,793 | 
|                                                                                            |                                                                 |                                                                              |                                                         |                                                          |        |          |          |       
|Supplemental Disclosures of Cash Flow
    Information                                       |                                                                 |                                                                              |                                                         |                                                          |        |          |          |       
|Cash paid for interest, net of capitalized
    interest                                     |                                                                 | $                                                                            | 29,109                                                  |                                                          |        | $        | 29,756   |       
|Acquisition of properties                                                                   |                                                                 | $                                                                            | 134,160                                                 |                                                          |        | $        | 10,867   |       
|Non-cash transactions:                                                                      |                                                                 |                                                                              |                                                         |                                                          |        |          |          |       
|                                                                                            | Assumption of secured debt                                      |                                                                              |                                                         | (67,026                                                  | )      |          |          |       |        
|                                                                                            | Assumption of other assets and liabilities                      |                                                                              |                                                         | (4,802                                                   | )      |          |          |       |        
|                                                                                            | Acquisition capital                                             |                                                                              |                                                         | (1,433                                                   | )      |          |          | (373   | )      
|                                                                                            |                                                                 |                                                                              |                                                         |                                                          |        |          |          |       
|                                                                                            |                                                                 |                                                                              | Net cash paid                                           |                                                          | $      | 60,899   |          |        | $       | 10,494   |        
|                                                                                            |                                                                 |                                                                              |                                                         |                                                          |        |          |          |       

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

3



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##### Table of Contents






AMB PROPERTY, L.P.

CONSOLIDATED STATEMENT OF PARTNERS
CAPITAL

For the Three Months Ended March 31,
2004


|                             |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |       |            |         |  |       |           |         |   |       |           |   |  |   |        |        |   |  |           |         |   |   |        |        |   |   |           |         |        | 
|---------------------------- | ---------------------------------------------------------------------------------------------------------------- | --------------------------------- | --------- | ---------------- |  | --------------- | ------- | ------------ | - | ----- | ---------- | ------- |  | ----- | --------- | ------- | - | ----- | --------- | - |  | - | ------ | ------ | - |  | --------- | ------- | - | - | ------ | ------ | - | - | --------- | ------- | ------ | 
|                             |                                                                                                                  |                                   |           |                  |  |                
|                             |                                                                                                                  | General Partner                   |           | Limited Partners |  |                
|                             |                                                                                                                  |                                   |           |                  |  |                
|                             |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |      
|                             |                                                                                                                  | Preferred Units                   |           | Common Units     |  | Preferred Units |         | Common Units |   |      
|                             |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |      
|                             |                                                                                                                  | Units                             |           | Amount           |  | Units           |         | Amount       |   | Units |            | Amount  |  | Units |           | Amount  |   | Total
|                             |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |       |            |         |  |       |           |         |   |      
|                             |                                                                                                                  |                                  
|                             |                                                                                                                  | (Unaudited, dollars in thousands)
|Balance at December 31, 2003 |                                                                                                                  |                                   | 4,300,000 |                  |  | $               | 103,373 |              |   |       | 81,563,502 |         |  | $     | 1,563,526 |         |   |       | 1,600,000 |   |  | $ | 77,815 |        |   |  | 4,618,242 |         |   | $ | 88,248 |        |   | $ | 1,832,962 |        
|Comprehensive income:        |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |       |            |         |  |       |           |         |   |       |           |   |  |   |        |        |   |  |           |         |   |   |        |        |   |   |           |        
|                             | Net income                                                                                                       |                                   |           |                 |  |                 |         | 1,783        |   |       |            |        |  |       |           | 16,037  |   |       |           |  |  |   |        | 1,590  |   |  |           |        |   |   |        | 895    |   |   |           |         |       
|                             | Unrealized gain on securities                                                                                    |                                   |           |                 |  |                 |         |             |   |       |            |        |  |       |           | (812    | ) |       |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           |         |       
|                             | Currency translation adjustment                                                                                  |                                   |           |                 |  |                 |         |             |   |       |            |        |  |       |           | (153    | ) |       |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           |         |       
|                             |                                                                                                                  | Total comprehensive income        |           |                  |  |                 |         |              |   |       |            |         |  |       |           |         |   |       |           |   |  |   |        |        |   |  |           |         |   |   |        |        |   |   |           |         | 19,340 | 
|                             | Issuance of common limited partnership units in
    connection with the issuance of restricted stock and options |                                   |           |                 |  |                 |         |             |   |       |            | 192,138 |  |       |           | 11,290  |   |       |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           | 11,290  |       
|                             | Issuance of common limited partnership units in
    connection with the exercise of stock options                |                                   |           |                 |  |                 |         |             |   |       |            | 600,326 |  |       |           | 12,048  |   |       |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           | 12,048  |       
|                             | Conversion of operating partnership units to
    common stock                                                    |                                   |           |                 |  |                 |         |             |   |       |            | 10,332  |  |       |           | 352     |   |       |           |  |  |   |        |       |   |  |           | (10,332 | ) |   |        | (197   | ) |   |           | 155     |       
|                             | Deferred compensation                                                                                            |                                   |           |                 |  |                 |         |             |   |       |            |        |  |       |           | (11,290 | ) |       |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           | (11,290 | )     
|                             | Deferred compensation amortization                                                                               |                                   |           |                 |  |                 |         |             |   |       |            |        |  |       |           | 2,557   |   |       |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           | 2,557   |       
|                             | Reallocation of interests                                                                                        |                                   |           |                 |  |                 |         |             |   |       |            |        |  |       |           | 543     |   |       |           |  |  |   |        |       |   |  |           |        |   |   |        | 18     |   |   |           | 561     |       
|                             | Issuance costs                                                                                                   |                                   |           |                 |  |                 |         | (161         | ) |       |            |        |  |       |           |        |   |       |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           | (161    | )     
|                             | Distributions                                                                                                    |                                   |           |                 |  |                 |         | (1,783       | ) |       |            |        |  |       |           | (35,103 | ) |       |           |  |  |   |        | (1,590 | ) |  |           |        |   |   |        | (2,020 | ) |   |           | (40,496 | )     
|                             |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |       |            |         |  |       |           |         |   |       |           |   |  |   |        |        |   |  |           |         |   |   |        |        |   |   |           |        
|Balance as of March 31, 2004 |                                                                                                                  |                                   | 4,300,000 |                  |  | $               | 103,212 |              |   |       | 82,366,298 |         |  | $     | 1,558,995 |         |   |       | 1,600,000 |   |  | $ | 77,815 |        |   |  | 4,607,910 |         |   | $ | 86,944 |        |   | $ | 1,826,966 |        
|                             |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |       |            |         |  |       |           |         |   |       |           |   |  |   |        |        |   |  |           |         |   |   |        |        |   |   |           |        

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

4



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##### Table of Contents






AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 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 March 31, 2004, the Company owned an
approximate 94.6% general partnership interest in the Operating
Partnership, excluding preferred units. The remaining 5.4%
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
March 31, 2004, the Operating Partnership had investments
in six 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 and co-investment
joint venture 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, Headlands Realty
Corporation and IMD Holding Corporation are wholly-owned
subsidiaries of the Operating Partnership and/or the Company.

As of March 31, 2004, the Operating
Partnership owned 954 operating industrial buildings, as well as
retail and other properties, aggregating approximately
88.8 million rentable square feet, located in
34 markets throughout North America and in France, Germany
and Japan. 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 markets are generally tied to global trade. As of
March 31, 2004, the Operating Partnerships industrial
buildings, principally warehouse distribution buildings,
encompassed approximately 88.3 million rentable square feet
and were 92.7% leased. As of March 31, 2004, the Operating
Partnerships retail centers, principally grocer-anchored
community shopping centers, and other properties encompassed
approximately 0.5 million rentable square feet and were
75.9% leased.

As of March 31, 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

5



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

rentable square feet. In addition, the Operating
Partnership had investments in industrial operating properties,
totaling approximately 7.9 million rentable square feet,
through unconsolidated joint ventures. As of March 31,
2004, the Operating Partnership also had investments in
industrial development projects throughout North America, and in
Spain, Singapore and Japan, totaling approximately
7.3 million square feet. Some of the development projects
in the U.S. were available for sale.



|   |                             
|-- | ----------------------------
|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
Unites 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 months ended
March 31, 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
Form 10-K for the year ended December 31, 2003.

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

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 when deemed material.
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 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
March 31, 2004.

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

Comprehensive
Income.The Operating Partnership
reports comprehensive income in its Statement of Partners
Capital. Comprehensive income was $19.4 million and
$65.9 million for the three months ended March 31,
2004 and 2003, respectively.

Foreign Operations.The U.S. dollar is the functional currency for the
Operating Partnerships subsidiaries operating in the
United States and Mexico. The functional currency for the
Operating Partnerships subsidiaries operating outside
North America is generally the local currency of the country in
which the entity is located. The Operating Partnerships
subsidiaries whose functional currency is not the

6



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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. The Operating Partnership translates income
statement accounts using the average exchange rate for the
period and significant nonrecurring transactions using the rate
on the transaction date. Gains and losses resulting from the
translation are included in accumulated other comprehensive
income as a separate component of stockholders equity.

The Operating Partnerships foreign
subsidiaries whose functional currency is the U.S. dollar
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. Gains and losses from remeasurement are generally
included in the Operating Partnerships results of
operations.

The Operating Partnership also records 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.

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 three to five-year 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-based
compensation expense was $2.6 million and $1.9 million
during the three months ended March 31, 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.

New Accounting
Pronouncements.In December 2003, the
FASB issued Interpretation No. 46R, Consolidation of
Variable Interest Entities(FIN 46R).
FIN 46R requires a variable interest entity to be
consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest
entitys activities or entitled to receive a majority of
the entitys residual returns or both. FIN 46R
requires disclosures about variable interest entities that a
company is not required to consolidate, but in which it has a
significant variable interest. The consolidation requirements
apply to existing entities in the first reporting period that
ends after March 15, 2004. The Operating Partnership
adopted the consolidation requirements of FIN 46R in the
first quarter of 2004 and determined that none of its
consolidated or unconsolidated joint ventures are variable
interest entities under the provisions of FIN 46R.



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

During the three months ended March 31,
2004, the Operating Partnership acquired seven industrial
buildings, aggregating approximately 1.3 million square
feet for a total expected investment of $134.2 million, of
which the Operating Partnership acquired two industrial
buildings aggregating approximately 0.3 million square feet
through two of the Operating Partnerships co-investment
joint ventures, for a total expected investment of
$32.7 million. During the three months ended March 31,
2003, the Operating Partnership acquired two industrial
buildings, aggregating approximately 0.2 million square
feet, through two of its co-investment joint ventures for a
total expected investment of $10.9 million.

During the three months ended March 31,
2004, the Operating Partnership initiated five new industrial
development projects in North America with a total expected
investment of $69.5 million, aggregating approximately
1.1 million square feet and one new industrial development
in Japan with a total expected investment of $82.5 million,
aggregating approximately 0.7 million square feet. During
the three months ended

7



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

March 31, 2003, the Operating Partnership
completed two industrial buildings with a total expected
investment at $12.6 million, aggregating approximately
0.2 million square feet. The Operating Partnership also
initiated four new industrial development projects in North
America with a total expected investment of $36.4 million,
aggregating approximately 0.6 million square feet during
the three months ended March 31, 2003.

As of March 31, 2004, the Operating
Partnership had in its development pipeline: (1) 22
industrial projects, which will total approximately
6.7 million square feet and will have an aggregate
estimated investment of $385.2 million upon completion and
(2) four development projects available for sale, which
will total approximately 0.6 million square feet and will
have an aggregate estimated investment of $38.8 million
upon completion. As of March 31, 2004, the Operating
Partnership and its Development Alliance Partners had funded an
aggregate of $195.3 million and needed to fund an estimated
additional $228.7 million in order to complete current and
planned projects. The Operating Partnerships development
pipeline includes projects expected to be completed through the
second quarter of 2006.



|   |                                                                                           
|-- | ------------------------------------------------------------------------------------------
|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
newly formed unconsolidated joint venture, Industrial
Fund I, LLC. For the three months ended, March 31,
2003, 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 months ended
March 31, 2004, no such gain was recognized by the
Operating Partnership.

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. During the three months ended
March 31, 2004, the Operating Partnership divested itself
of one industrial building, aggregating approximately
48,000 square feet, for an aggregate price of
$5.0 million, with a resulting net loss of
$0.3 million. During the three months ended March 31,
2003, the Operating Partnership divested itself of ten
industrial buildings, aggregating approximately 1.6 million
square feet, for an aggregate price of $127.0 million, with
a resulting net gain of $29.6 million.

Properties Held for
Divestiture.As of March 31,
2004, the Operating Partnership had decided to divest itself of
one industrial building and one undeveloped land parcel with an
aggregate net book value of $9.6 million. The properties
either are not in the Operating Partnerships core markets
or do not meet its current strategic objectives. The
divestitures of the properties are subject to negotiation of
acceptable terms and other customary conditions. Properties held
for divestiture are stated at the lower of cost or estimated
fair value less costs to sell.

8



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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):

|                                        |                                                |      |      |      |   |   |        |       | 
|--------------------------------------- | ---------------------------------------------- | ---- | ---- | ---- | - | - | ------ | ----- | 
|                                        |                                                | 2004 |      | 2003
|                                        |                                                |      |      |     
|Rental revenues                         |                                                | $    | 86   |      |   | $ | 11,956 |      
|Straight-line rents                     |                                                |      |     |      |   |   | 263    |      
|Property operating expenses             |                                                |      | (49  | )    |   |   | (973   | )    
|Real estate taxes                       |                                                |      | (80  | )    |   |   | (653   | )    
|Depreciation and amortization           |                                                |      | (17  | )    |   |   | (740   | )    
|Interest, including amortization        |                                                |      | (202 | )    |   |   | (1,308 | )    
|Joint venture partners share of income |                                                |      | 1    |      |   |   | (145   | )    
|                                        |                                                |      |      |      |   |   |        |      
|                                        | Income attributable to discontinued operations |      | $    | (261 | ) |   | $      | 8,400 | 
|                                        |                                                |      |      |      |   |   |        |      

As of March 31, 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):

|                                       |  |           |     |              |  |   |     | 
|-------------------------------------- |  | --------- | --- | ------------ |  | - | --- | 
|                                       |  | March 31, |     | December 31,
|                                       |  | 2004      |     | 2003        
|                                       |  |           |     |             
|Accounts receivable, net               |  | $         |    |              |  | $ |    | 
|Other assets                           |  | $         | 126 |              |  | $ | 116 | 
|Secured debt                           |  | $         |    |              |  | $ |    | 
|Accounts payable and other liabilities |  | $         | 61  |              |  | $ | 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
March 31, 2004 and December 31, 2003, consisted of the
following (dollars in thousands):

|                                         |                            |                        |  |               |  |           |        |              |  |      |        |               |  |  |      |   |  |  |     |   | 
|---------------------------------------- | -------------------------- | ---------------------- |  | ------------- |  | --------- | ------ | ------------ |  | ---- | ------ | ------------- |  |  | ---- | - |  |  | --- | - | 
|                                         |                            |                        |  |               |  | March 31, |        | December 31, |  |      |        | Ownership    
|Mortgage Receivable                      |                            | Market                 |  | Maturity      |  | 2004      |        | 2003         |  | Rate |        | Percentage(1)
|                                         |                            |                        |  |               |  |           |        |              |  |      |        |              
|1. Pier 1                                |                            | San Francisco Bay Area |  | May 2026      |  | $         | 13,018 |              |  | $    | 13,042 |               |  |  | 13.0 | % |  |  | 100 | %
|2. Platinum Distribution Center          |                            | No. New Jersey         |  | February 2004 |  |           |       |              |  |      | 19,500 |               |  |  | 6.0  | % |  |  | 20  | %
|3. Platinum Distribution Center          |                            | No. New Jersey         |  | November 2006 |  |           | 1,300  |              |  |      | 1,300  |               |  |  | 12.0 | % |  |  | 20  | %
|4. North Bay Distribution Center/BAB     |                            | San Francisco Bay Area |  | December 2004 |  |           | 7,040  |              |  |      | 7,040  |               |  |  | 5.5  | % |  |  | 100 | %
|5. North Bay Distribution Center/Corovan |                            | San Francisco Bay Area |  | December 2004 |  |           | 2,262  |              |  |      | 2,263  |               |  |  | 7.3  | % |  |  | 100 | %
|                                         |                            |                        |  |               |  |           |        |              |  |      |        |               |  |  |      |   |  |  |     |  
|                                         | Total Mortgages Receivable |                        |  |               |  |           | $      | 23,620       |  |      | $      | 43,145        |  |  |      |   |  |  |     |   | 
|                                         |                            |                        |  |               |  |           |        |              |  |      |        |               |  |  |      |   |  |  |     |  



---



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

9



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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

|                                                                                                                                                                                                                                  |                                        |                         |           |              |           |   |           |           |           | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ----------------------- | --------- | ------------ | --------- | - | --------- | --------- | --------- | 
|                                                                                                                                                                                                                                  |                                        | March 31,               |           | December 31,
|                                                                                                                                                                                                                                  |                                        | 2004                    |           | 2003        
|                                                                                                                                                                                                                                  |                                        |                         |           |             
|Operating Partnership secured debt, varying
    interest rates from 4.0% to 10.4%, due June 2004 to January 2014
    (weighted average interest rates of 7.6% and 8.1% at
    March 31, 2004 and December 31, 2003, respectively) |                                        | $                       | 362,142   |              |           | $ | 291,516   |          
|Consolidated joint venture secured debt, varying
    interest rates from 2.5% to 9.5%, due July 2004 to June 2023
    (weighted average interest rate of 6.7% at March 31, 2004
    and December 31, 2003)                        |                                        |                         | 1,079,283 |              |           |   | 1,061,585 |          
|Unsecured senior debt securities, varying
    interest rates from 1.5% to 8.0%, due June 2005 to June 2018
    (weighted average interest rates of 6.5% and 6.8% at
    March 31, 2004 and December 31, 2003, respectively)       |                                        |                         | 1,025,000 |              |           |   | 925,000   |          
|Unsecured debt, due June 2013 and November 2015,
    interest rate of 7.5%                                                                                                                                                        |                                        |                         | 9,482     |              |           |   | 9,628     |          
|Unsecured credit facility, variable interest
    rate, due December 2005 (weighted average interest rates of 1.1%
    and 1.9% at March 31, 2004 and December 31, 2003,
    respectively)                                         |                                        |                         | 261,369   |              |           |   | 275,739   |          
|                                                                                                                                                                                                                                  |                                        |                         |           |              |           |   |           |          
|                                                                                                                                                                                                                                  | Total debt before unamortized premiums |                         |           | 2,737,276    |           |   |           | 2,563,468 |          
|                                                                                                                                                                                                                                  | Unamortized premiums                   |                         |           | 16,205       |           |   |           | 10,789    |          
|                                                                                                                                                                                                                                  |                                        |                         |           |              |           |   |           |          
|                                                                                                                                                                                                                                  |                                        | Total consolidated debt |           | $            | 2,753,481 |   |           | $         | 2,574,257 | 
|                                                                                                                                                                                                                                  |                                        |                         |           |              |           |   |           |          

Secured debt generally requires monthly principal
and interest payments. The secured debt is secured by deeds of
trust on certain properties and is generally non-recourse. As of
March 31, 2004 and December 31, 2003, the total gross
investment book value of those properties securing the debt was
$2.7 billion and $2.6 billion, respectively, including
$1.8 billion and $1.8 billion, respectively, in
consolidated joint ventures. All of the secured debt bears
interest at fixed rates, except for five loans with an aggregate
principal amount of $51.8 million as of March 31,
2004, which bear interest at variable rates (weighted average
interest rate of 4.0% as of March 31, 2004). The secured
debt has various covenants. Management believes that the
Operating Partnership was in compliance with its financial
covenants as of March 31, 2004 and December 31, 2003.
As of March 31, 2004, the Operating Partnership had
46 non-recourse, secured loans, which are
cross-collateralized by 90 properties, totaling
$1.0 billion (not including unamortized debt premiums).

As of March 31, 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 5.4 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 March 31, 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 March 31, 2004.

10



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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.

The Operating Partnerships
$500.0 million unsecured credit facility matures in
December 2005, has a one-year extension option and is subject to
a 20 basis point annual facility fee. The Company
guarantees the Operating Partnerships obligations under
the credit facility. The credit facility includes a
multi-currency component, which was amended effective
July 10, 2003, to increase from $150.0 million to
$250.0 million the amount that may be drawn in either
British pounds sterling, Euros or Yen (provided that such
currency is readily available and freely transferable and
convertible to U.S. dollars, the Reuters Monitor Money
Rates Service reports LIBOR for such currency in interest
periods of 1, 2, 3 or 6 months and the Operating
Partnership has an investment grade credit rating).
U.S. dollar borrowings under the credit facility currently
bear interest at LIBOR plus 60 basis points. Euro
borrowings under the credit facility currently bear interest at
EURIBOR plus 60 basis points. Yen borrowings under the
credit facility currently bear interest at the Japanese Yen
TIBOR rate plus 60 basis points. Both the facility fee and
the interest rate are based on the Operating Partnerships
credit rating, which is currently investment grade. The
Operating Partnership has the ability to increase available
borrowings to $700.0 million by adding additional banks to
the facility or obtaining the agreement of existing banks to
increase their commitments. The Operating Partnership uses its
unsecured credit facility principally for acquisitions, funding
our development activity and for general working capital
requirements. Monthly debt service payments on the credit
facility are interest only. The total amount available under the
credit facility fluctuates based upon the borrowing base, as
defined in the agreement governing the credit facility,
generally the value of the Operating Partnerships
unencumbered properties. As of March 31, 2004, the
outstanding balance on the credit facility was
$261.4 million and the remaining amount available was
$205.9 million, net of outstanding letters of credit of
$32.7 million (excluding the additional $200.0 million
of potential additional capacity). The outstanding balance
included borrowings denominated in Euros and Yen and translated
to U.S. dollars at March 31, 2004, of
$60.3 million and $131.0 million, respectively.
Management believes that the Operating Partnership was in
compliance with its financial covenants at March 31, 2004.

As of March 31, 2004, the scheduled
maturities of the Operating Partnerships total debt,
excluding unamortized debt premiums, were as follows (dollars in
thousands):

|           |       |             |        |         |  |            |         |           |  |            |         |           |  |   |       |       |  |   |         |         |  |   |         |           | 
|---------- | ----- | ----------- | ------ | ------- |  | ---------- | ------- | --------- |  | ---------- | ------- | --------- |  | - | ----- | ----- |  | - | ------- | ------- |  | - | ------- | --------- | 
|           |       | Operating   |        |         |  | Unsecured  |         |           |  |            |         |          
|           |       | Partnership |        | Joint   |  | Senior     |         |           |  |            |         |          
|           |       | Secured     |        | Venture |  | Debt       |         | Unsecured |  | Credit     |         |          
|           |       | Debt        |        | Debt    |  | Securities |         | Debt      |  | Facilities |         | Total    
|           |       |             |        |         |  |            |         |           |  |            |         |          
|2004       |       | $           | 53,605 |         |  | $          | 36,694  |           |  | $          |        |           |  | $ | 454   |       |  | $ | 261,369 |         |  | $ | 352,122 |          
|2005       |       |             | 46,093 |         |  |            | 62,967  |           |  |            | 250,000 |           |  |   | 647   |       |  |   |        |         |  |   | 359,707 |          
|2006       |       |             | 84,444 |         |  |            | 64,534  |           |  |            | 75,000  |           |  |   | 698   |       |  |   |        |         |  |   | 224,676 |          
|2007       |       |             | 16,313 |         |  |            | 53,197  |           |  |            | 75,000  |           |  |   | 752   |       |  |   |        |         |  |   | 145,262 |          
|2008       |       |             | 34,644 |         |  |            | 162,296 |           |  |            | 175,000 |           |  |   | 810   |       |  |   |        |         |  |   | 372,750 |          
|2009       |       |             | 6,041  |         |  |            | 107,164 |           |  |            | 100,000 |           |  |   | 873   |       |  |   |        |         |  |   | 214,078 |          
|2010       |       |             | 52,930 |         |  |            | 133,093 |           |  |            | 75,000  |           |  |   | 941   |       |  |   |        |         |  |   | 261,964 |          
|2011       |       |             | 19,690 |         |  |            | 275,536 |           |  |            | 75,000  |           |  |   | 1,014 |       |  |   |        |         |  |   | 371,240 |          
|2012       |       |             | 3,853  |         |  |            | 161,538 |           |  |            |        |           |  |   | 1,093 |       |  |   |        |         |  |   | 166,484 |          
|2013       |       |             | 44,490 |         |  |            | 2,045   |           |  |            | 75,000  |           |  |   | 920   |       |  |   |        |         |  |   | 122,455 |          
|Thereafter |       |             | 39     |         |  |            | 20,219  |           |  |            | 125,000 |           |  |   | 1,280 |       |  |   |        |         |  |   | 146,538 |          
|           |       |             |        |         |  |            |         |           |  |            |         |           |  |   |       |       |  |   |         |         |  |   |         |          
|           | Total |             | $      | 362,142 |  |            | $       | 1,079,283 |  |            | $       | 1,025,000 |  |   | $     | 9,482 |  |   | $       | 261,369 |  |   | $       | 2,737,276 | 
|           |       |             |        |         |  |            |         |           |  |            |         |           |  |   |       |       |  |   |         |         |  |   |         |          

11



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

Minority interests in the Operating Partnership
represent limited partnership interests in AMB Property II,
L.P. and interests held by certain third parties in several real
estate joint ventures, aggregating approximately
38.8 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 markets nationwide.

The Operating Partnerships co-investment
joint ventures total investments in properties at
March 31, 2004 and December 31, 2003 (dollars in
thousands) were:

|                                            |  |                                             |            |               |    |           |           |              |         |  |  |   |         | 
|------------------------------------------- |  | ------------------------------------------- | ---------- | ------------- | -- | --------- | --------- | ------------ | ------- |  |  | - | ------- | 
|                                            |  |                                             |            | Operating     |    |           |           |             
|                                            |  |                                             |            | Partnerships |    |           |           |             
|                                            |  |                                             |            | Ownership     |    | March 31, |           | December 31,
|Co-investment Joint Venture                 |  | Joint Venture Partner                       |            | Percentage    |    | 2004      |           | 2003        
|                                            |  |                                             |            |               |    |           |           |             
|AMB/ Erie, L.P.                             |  | Erie Insurance Company and affiliates       |            |               | 50 | %         |           | $            | 157,803 |  |  | $ | 156,174 | 
|AMB Institutional Alliance Fund I,
    L.P. |  | AMB Institutional Alliance REIT I, Inc.(1)  |            |               | 21 | %         |           |              | 421,708 |  |  |   | 417,902 | 
|AMB Partners II, L.P.                       |  | City and County of San Francisco            |            |               | 20 | %         |           |              | 468,009 |  |  |   | 428,837 | 
|                                            |  | Employees Retirement System                |            |               |    |           |           |              |         |  |  |   |         | 
|AMB-SGP, L.P.                               |  | Industrial JV Pte Ltd(2)                    |            |               | 50 | %         |           |              | 409,603 |  |  |   | 408,507 | 
|AMB Institutional Alliance Fund II, L.P.    |  | AMB Institutional Alliance REIT II, Inc.(3) |            |               | 20 | %         |           |              | 460,256 |  |  |   | 449,709 | 
|AMB-AMS, L.P.(4)                            |  | BPMT and TNO(5)                             |            |               | 39 | %         |           |              |        |  |  |   |        | 
|                                            |  |                                             |            |               |    |           |           |              |         |  |  |   |         | 
|Total                                       |  |                                             | $1,917,379 |               |    | $         | 1,861,129 |             
|                                            |  |                                             |            |               |    |           |           |             



---



|    |                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|(1) | Included 15 institutional investors as
    stockholders as of March 31, 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
    March 31, 2004.              
|   
|(4) | AMB-AMS, L.P. is a commitment to form a
    co-investment partnership with two Dutch pension funds advised
    by Mn Services NV.  
|   
|(5) | BPMT is Stichting Bedrijfspensioenfonds voor de
    Metaal en Technische Bedrijfstakken and TNO is Stichting
    Pensioenfonds TNO.

12



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                    |                                                                  |                          |         |                   |         |   |         |        |         | 
|----------------------------------- | ---------------------------------------------------------------- | ------------------------ | ------- | ----------------- | ------- | - | ------- | ------ | ------- | 
|                                    |                                                                  | March 31, 2004           |         | December 31, 2003
|                                    |                                                                  |                          |         |                  
|Joint venture partners              |                                                                  | $                        | 663,087 |                   |         | $ | 659,487 |       
|Held through AMB Property II, L.P.: |                                                                  |                          |         |                   |         |   |         |       
|                                    | Class B common limited partnership units                         |                          |         | 2,744             |         |   |         | 2,781  |        
|                                    | Series D preferred units (liquidation
    preference of $79,767) |                          |         | 77,658            |         |   |         | 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 |        
|                                    |                                                                  |                          |         |                   |         |   |         |       
|                                    |                                                                  | Total minority interests |         | $                 | 829,889 |   |         | $      | 826,352 | 
|                                    |                                                                  |                          |         |                   |         |   |         |       

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                     
|                                    |                                                                  | Ended March 31,                          
|                                    |                                                                  |                                          
|                                    |                                                                  | 2004                                      |       | 2003 
|                                    |                                                                  |                                           |       |      
|Joint Venture Partners              |                                                                  | $                                         | 9,229 |       |        | $ | 7,636 |      
|Held through AMB Property II, L.P.: |                                                                  |                                           |       |       |        |   |       |      
|                                    | Class B common limited partnership units                         |                                           |       | 29    |        |   |       |      |       
|                                    | Series D preferred units (liquidation
    preference of $79,767) |                                           |       | 1,545 |        |   |       | 1,545 |       
|                                    | Series E preferred units (liquidation
    preference of $11,022) |                                           |       | 214   |        |   |       | 214   |       
|                                    | Series F preferred units (liquidation
    preference of $10,057) |                                           |       | 200   |        |   |       | 266   |       
|                                    | Series H preferred units (liquidation
    preference of $42,000) |                                           |       | 853   |        |   |       | 853   |       
|                                    | Series I preferred units (liquidation
    preference of $25,500) |                                           |       | 510   |        |   |       | 510   |       
|                                    |                                                                  |                                           |       |       |        |   |       |      
|                                    |                                                                  | Total minority interests share of income |       | $     | 12,580 |   |       | $     | 11,024 | 
|                                    |                                                                  |                                           |       |       |        |   |       |      

For a discussion of the redemption rights of the
holders of the class B common limited partnership units,
see Footnote 9. Partners Capital to these
Consolidated Financial Statements.

13



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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 March 31,
2004 and December 31, 2003 (dollars in thousands) were:

|                                                   |  |        |             |          |  |        |                   |           |  |              |           |            |  |   |        |  |  |   |        |  |  |  |    |  
|-------------------------------------------------- |  | ------ | ----------- | -------- |  | ------ | ----------------- | --------- |  | ------------ | --------- | ---------- |  | - | ------ |  |  | - | ------ |  |  |  | -- | -
|                                                   |  |        |             | Alliance |  | Square |                   | March 31, |  | December 31, |           | Ownership 
|Unconsolidated Joint Ventures                      |  | Market |             | Partner  |  | Feet   |                   | 2004      |  | 2003         |           | Percentage
|                                                   |  |        |             |          |  |        |                   |           |  |              |           |           
|1. Elk Grove Du Page                               |  |        | Chicago     |          |  |        | Hamilton Partners |           |  |              | 4,046,721 |            |  | $ | 32,429 |  |  | $ | 31,548 |  |  |  | 56 | %
|2. Pico Rivera                                     |  |        | Los Angeles |          |  |        | Majestic Realty   |           |  |              | 855,600   |            |  |   | 928    |  |  |   | 1,091  |  |  |  | 50 | %
|3. Monte Vista Spectrum                            |  |        | Los Angeles |          |  |        | Majestic Realty   |           |  |              | 576,852   |            |  |   | 462    |  |  |   | 487    |  |  |  | 50 | %
|4. Industrial Fund I, LLC                          |  |        | Various     |          |  |        | Citigroup         |           |  |              | 2,446,334 |            |  |   | 4,137  |  |  |   | 4,173  |  |  |  | 15 | %
|5. Sterling Distribution Center                    |  |        | Los Angeles |          |  |        | Majestic Realty   |           |  |              | 1,880,000 |            |  |   | 10,229 |  |  |   | 12,643 |  |  |  | 50 | %
|6. Airport Logistics Park of
    Singapore Phase I |  |        | Singapore   |          |  |        | Boustead Projects |           |  |              | 230,460   |            |  |   | 2,233  |  |  |   | 2,067  |  |  |  | 50 | %
|7. Nash Logistics Center                           |  |        | Los Angeles |          |  |        | AMB - IAC         |           |  |              | 75,000    |            |  |   | 3,588  |  |  |   |       |  |  |  | 50 | %
|                                                   |  |        |             |          |  |        |                   |           |  |              |           |            |  |   |        |  |  |   |        |  |  |  |    |  
|Total Unconsolidated Joint
    Ventures            |  |        | 10,110,967  |          |  | $      | 54,006            |           |  | $            | 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 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 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 the limitations that
limited partners may not exercise this right if such exercise
would result in any person actually or constructively owning
shares of common stock in excess of the ownership limit or any
other amount specified by the board of directors of the Company,
assuming common stock was issued in the exchange. During the
three months

14



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

ended March 31, 2004, the Operating
Partnership redeemed 10,332 of its common limited partnership
units for an equivalent number of shares of the Companys
common stock.

During the three months ended March 31,
2003, the Company repurchased and retired 787,800 shares of
its common stock for an aggregate purchase price of
$20.6 million, including commissions, and the Operating
Partnership retired the same number of common general
partnership units. 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 three months ended March 31, 2004,
the Company did not repurchase any of its common stock and
accordingly, the Operating Partnership did not redeem any of its
common general partnership units during the three months ended
March 31, 2004.

As of March 31, 2004, the Operating
Partnership had outstanding 82,366,298 common general
partnership units, 4,607,910 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. The following table
sets forth the distributions paid per unit:

|                      |  |                                          |  |                      |  |       
|--------------------- |  | ---------------------------------------- |  | -------------------- |  | ------
|                      |  |                                          |  |                     
|                      |  |                                          |  | For the Three Months
|                      |  |                                          |  | Ended March 31,     
|                      |  |                                          |  |                     
|Paying Entity         |  | Security                                 |  | 2004                 |  | 2003  
|                      |  |                                          |  |                      |  |       
|Operating Partnership |  | Common limited partnership units         |  | $0.425               |  | $0.415
|Operating Partnership |  | Series A preferred units                 |  | n/a                  |  | $0.531
|Operating Partnership |  | Series B preferred units                 |  | n/a                  |  | $1.078
|Operating Partnership |  | Series J preferred units                 |  | $0.994               |  | $0.994
|Operating Partnership |  | Series K preferred units                 |  | $0.994               |  | $0.994
|Operating Partnership |  | Series L preferred units                 |  | $0.406               |  | n/a   
|Operating Partnership |  | Series M preferred units                 |  | $0.422               |  | n/a   
|AMB Property II, L.P. |  | Class B common limited partnership units |  | $0.425               |  | n/a   
|AMB Property II, L.P. |  | Series D preferred units                 |  | $0.969               |  | $0.969
|AMB Property II, L.P. |  | Series E preferred units                 |  | $0.969               |  | $0.969
|AMB Property II, L.P. |  | Series F preferred units                 |  | $0.994               |  | $0.994
|AMB Property II, L.P. |  | Series H preferred units                 |  | $1.016               |  | $1.016
|AMB Property II, L.P. |  | Series I preferred units                 |  | $1.000               |  | $1.000



|    |                
|--- | ---------------
|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 months ended March 31, 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.

|                              |                                       |      |  |            |  |  |  |            | 
|----------------------------- | ------------------------------------- | ---- |  | ---------- |  |  |  | ---------- | 
|                              |                                       | 2004 |  | 2003      
|                              |                                       |      |  |           
|WEIGHTED AVERAGE COMMON UNITS |                                       |      |  |            |  |  |  |           
|                              | Basic                                 |      |  | 86,447,303 |  |  |  | 85,944,112 | 
|                              | Stock options and restricted stock    |      |  | 3,170,531  |  |  |  | 1,416,431  | 
|                              |                                       |      |  |            |  |  |  |           
|                              | Diluted weighted average common units |      |  | 89,617,834 |  |  |  | 87,360,543 | 
|                              |                                       |      |  |            |  |  |  |           

15



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

The Operating Partnership mainly operates
industrial properties and manages its business by markets.
Industrial properties represent more than 98% of the Operating
Partnerships portfolio by rentable square feet and consist
primarily of warehouse distribution facilities suitable for
single or multiple customers and are typically comprised of
multiple buildings that are leased to customers engaged in
various types of businesses. The Operating Partnerships
geographic markets for industrial properties are managed
separately because each market requires different operating,
pricing and leasing strategies. The remaining 2% of the
Operating Partnerships portfolio is comprised of retail
and other properties located in Southeast Florida, Atlanta,
Boston and Baltimore. The Operating Partnership does not
separately manage its retail operations by market. Retail
properties are generally leased to one or more anchor customers,
such as grocery and drug stores, and various retail businesses.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The
Operating Partnership evaluates performance based upon property
net operating income of the combined properties in each segment.

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 and Mexico. 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 March 31,                       |        | Ended March 31,     
|                                             |                               |                                       |        |                     
|Segments                                     |                               | 2004                                  |        | 2003                 |         | 2004 |         | 2003  
|                                             |                               |                                       |        |                      |         |      |         |       
|Industrial domestic hub and gateway markets: |                               |                                       |        |                      |         |      |         |        |         |  |        |        |         |  |         |       
|                                             | Atlanta                       |                                       | $      | 7,687                |         |      | $       | 6,839  |         |  | $      | 6,143  |         |  | $       | 5,452  |        
|                                             | Chicago                       |                                       |        | 11,061               |         |      |         | 10,904 |         |  |        | 7,364  |         |  |         | 7,627  |        
|                                             | Dallas/ Fort Worth            |                                       |        | 4,140                |         |      |         | 4,097  |         |  |        | 2,805  |         |  |         | 2,818  |        
|                                             | Los Angeles                   |                                       |        | 24,935               |         |      |         | 22,298 |         |  |        | 20,105 |         |  |         | 18,038 |        
|                                             | Northern New Jersey/ New York |                                       |        | 13,687               |         |      |         | 13,047 |         |  |        | 9,444  |         |  |         | 9,133  |        
|                                             | San Francisco Bay Area        |                                       |        | 23,219               |         |      |         | 24,472 |         |  |        | 18,561 |         |  |         | 19,848 |        
|                                             | Miami                         |                                       |        | 8,305                |         |      |         | 8,055  |         |  |        | 5,908  |         |  |         | 5,659  |        
|                                             | Seattle                       |                                       |        | 10,379               |         |      |         | 6,887  |         |  |        | 8,158  |         |  |         | 5,500  |        
|                                             | On-Tarmac                     |                                       |        | 14,130               |         |      |         | 11,627 |         |  |        | 7,802  |         |  |         | 6,209  |        
|                                             |                               |                                       |        |                      |         |      |         |        |         |  |        |        |         |  |         |       
|                                             |                               | Total industrial domestic hub markets |        |                      | 117,543 |      |         |        | 108,226 |  |        |        | 86,290  |  |         |        | 80,284  | 
|Total industrial domestic target markets     |                               |                                       | 26,881 |                      |         |      | 26,078  |        |         |  | 19,285 |        |         |  | 18,351  |       
|Total industrial domestic non-target markets |                               |                                       | 9,030  |                      |         |      | 18,455  |        |         |  | 5,879  |        |         |  | 14,324  |       
|International target markets                 |                               |                                       | 4,782  |                      |         |      | 1,431   |        |         |  | 3,918  |        |         |  | 1,264   |       
|Straight-line rents                          |                               |                                       | 3,963  |                      |         |      | 2,380   |        |         |  | 3,963  |        |         |  | 2,380   |       
|Total retail and other markets               |                               |                                       | 1,699  |                      |         |      | 3,909   |        |         |  | 962    |        |         |  | 2,594   |       
|Discontinued operations                      |                               |                                       | (86    | )                    |         |      | (11,956 | )      |         |  | 43     |        |         |  | (10,330 | )     
|                                             |                               |                                       |        |                      |         |      |         |        |         |  |        |        |         |  |         |       
|                                             |                               | Total                                 |        | $                    | 163,812 |      |         | $      | 148,523 |  |        | $      | 120,340 |  |         | $      | 108,867 | 
|                                             |                               |                                       |        |                      |         |      |         |        |         |  |        |        |         |  |         |       



---



|    |                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

16



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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:

|                                                        |            |      |         |        |  |   |         |        | 
|------------------------------------------------------- | ---------- | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                                        |            | 2004 |         | 2003  
|                                                        |            |      |         |       
|Property NOI                                            |            | $    | 120,340 |        |  | $ | 108,867 |       
|Private capital income                                  |            |      | 2,429   |        |  |   | 2,361   |       
|Depreciation and amortization                           |            |      | (38,234 | )      |  |   | (34,433 | )     
|General and administrative                              |            |      | (15,036 | )      |  |   | (12,186 | )     
|Equity in earnings of unconsolidated joint
    ventures |            |      | 1,709   |        |  |   | 1,235   |       
|Interest and other income                               |            |      | 1,665   |        |  |   | 1,393   |       
|Gains from dispositions of real estate                  |            |      |        |        |  |   | 7,429   |       
|Interest, including amortization                        |            |      | (39,425 | )      |  |   | (35,914 | )     
|Total minority interests share of income               |            |      | (12,580 | )      |  |   | (11,024 | )     
|Total discontinued operations                           |            |      | (563    | )      |  |   | 38,044  |       
|                                                        |            |      |         |        |  |   |         |       
|                                                        | Net income |      | $       | 20,305 |  |   | $       | 65,772 | 
|                                                        |            |      |         |        |  |   |         |       

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

|                                                 |                               |                                       |         |                   |           |  |         |         |           | 
|------------------------------------------------ | ----------------------------- | ------------------------------------- | ------- | ----------------- | --------- |  | ------- | ------- | --------- | 
|                                                 |                               |                                      
|                                                 |                               | Total Gross Investment as of         
|                                                 |                               |                                      
|                                                 |                               | March 31, 2004                        |         | December 31, 2003
|                                                 |                               |                                       |         |                  
|Industrial domestic hub and gateway markets:     |                               |                                       |         |                   |           |  |         |        
|                                                 | Atlanta                       |                                       | $       | 276,981           |           |  | $       | 275,810 |          
|                                                 | Chicago                       |                                       |         | 383,423           |           |  |         | 381,364 |          
|                                                 | Dallas/ Fort Worth            |                                       |         | 154,443           |           |  |         | 152,661 |          
|                                                 | Los Angeles                   |                                       |         | 886,553           |           |  |         | 854,896 |          
|                                                 | Northern New Jersey/ New York |                                       |         | 528,331           |           |  |         | 516,712 |          
|                                                 | San Francisco Bay Area        |                                       |         | 867,684           |           |  |         | 862,173 |          
|                                                 | Miami                         |                                       |         | 335,128           |           |  |         | 329,107 |          
|                                                 | Seattle                       |                                       |         | 395,983           |           |  |         | 393,160 |          
|                                                 | On-Tarmac                     |                                       |         | 263,253           |           |  |         | 262,046 |          
|                                                 |                               |                                       |         |                   |           |  |         |        
|                                                 |                               | Total industrial domestic hub markets |         |                   | 4,091,779 |  |         |         | 4,027,929 | 
|Total industrial domestic target markets         |                               |                                       | 833,774 |                   |           |  | 764,097 |        
|Industrial domestic non-target markets and other |                               |                                       | 290,202 |                   |           |  | 290,982 |        
|International target markets                     |                               |                                       | 184,096 |                   |           |  | 160,974 |        
|Total retail and other markets                   |                               |                                       | 48,227  |                   |           |  | 48,097  |        
|Construction in progress                         |                               |                                       | 282,576 |                   |           |  | 199,628 |        
|                                                 |                               |                                       |         |                   |           |  |         |        
|                                                 |                               | Total investments in properties       |         | $                 | 5,730,654 |  |         | $       | 5,491,707 | 
|                                                 |                               |                                       |         |                   |           |  |         |        

17



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                                |                                           |                                |           |                   |           |   |           |          |           | 
|--------------------------------------------------------------- | ----------------------------------------- | ------------------------------ | --------- | ----------------- | --------- | - | --------- | -------- | --------- | 
|                                                                |                                           | March 31, 2004                 |           | December 31, 2003
|                                                                |                                           |                                |           |                  
|Total investments in properties                                 |                                           | $                              | 5,730,654 |                   |           | $ | 5,491,707 |         
|                                                                | Accumulated depreciation and amortization |                                |           | (511,611          | )         |   |           | (474,452 | )        
|                                                                |                                           |                                |           |                   |           |   |           |         
|                                                                |                                           | Net investments in properties  |           |                   | 5,219,043 |   |           |          | 5,017,255 | 
|Investments in unconsolidated joint ventures                    |                                           |                                | 54,006    |                   |           |   | 52,009    |         
|Properties held for divestiture, net                            |                                           |                                | 9,628     |                   |           |   | 11,751    |         
|                                                                |                                           |                                |           |                   |           |   |           |         
|                                                                |                                           | Net investments in real estate |           |                   | 5,282,677 |   |           |          | 5,081,015 | 
|Cash and cash equivalents                                       |                                           |                                | 123,747   |                   |           |   | 127,678   |         
|Restricted cash                                                 |                                           |                                | 27,156    |                   |           |   | 28,985    |         
|Mortgages receivable                                            |                                           |                                | 23,620    |                   |           |   | 43,145    |         
|Accounts receivable, net of allowance for
    doubtful accounts |                                           |                                | 92,081    |                   |           |   | 88,452    |         
|Other assets                                                    |                                           |                                | 69,669    |                   |           |   | 51,391    |         
|                                                                |                                           |                                |           |                   |           |   |           |         
|                                                                |                                           | Total assets                   |           | $                 | 5,618,950 |   |           | $        | 5,420,666 | 
|                                                                |                                           |                                |           |                   |           |   |           |         



|    |                              
|--- | -----------------------------
|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
45 years. Operating lease payments are being amortized
ratably over the terms of the related leases.

Standby Letters of
Credit.As of March 31, 2004, the
Operating Partnership had provided approximately
$39.0 million in letters of credit, of which
$32.7 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 disclosed elsewhere in this report, as of March 31,
2004, the Company and the Operating Partnership had outstanding
guarantees in the aggregate amount of $5.8 million in
connection with certain acquisitions, which are currently
expected to close in 2004. As of March 31, 2004 the
Operating Partnership has also guaranteed $2.2 million and
$26.5 million of outstanding construction loans on one of
its consolidated joint ventures and one of its unconsolidated
joint ventures, respectively. The maximum borrowing capacity of
these construction loans were $30.0 million and
$69.0 million, respectively, as of March 31, 2004.

Performance and Surety
Bonds.As of March 31, 2004, the
Operating Partnership had outstanding performance and surety
bonds in an aggregate amount of $0.9 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 of 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

18



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 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, it is not certain 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
and deductibles, 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, 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.

19



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##### Table of Contents








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

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

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



| |   |                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 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.

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®.

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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 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.

Although the weak economy over the past three
years has decreased customer demand for space and has limited or
in most cases lowered rental rates, many types of investors are
acquiring industrial real estate. We believe that we have
capitalized on this opportunity by accelerating the
repositioning of our portfolio through the disposition of
properties. While we continue to sell assets on an opportunistic
basis, we believe that we have substantially achieved our
near-term strategic disposition goals. Property dispositions
result in reinvestment capacity and trigger gain/loss
recognition, but they also create near-term earnings dilution.
However, we believe that, in the long-term, the repositioning of
our portfolio will benefit our stockholders.

The table below summarizes our leasing activity
for industrial operating properties for the three months ended
March 31, 2004 and 2003:

|                                           |                                                          |              |  |             |    |                |  |           |   |  |  |           |   
|------------------------------------------ | -------------------------------------------------------- | ------------ |  | ----------- | -- | -------------- |  | --------- | - |  |  | --------- | --
|                                           |                                                          | U.S. Hub and |  |             |    |               
|                                           |                                                          | Gateway      |  | Total Other |    | Total/Weighted
|Property Data                              |                                                          | Markets(1)   |  | Markets     |    | Average       
|                                           |                                                          |              |  |             |    |               
|For the three months ended March 31, 2004: |                                                          |              |  |             |    |                |  |           |   |  |  |          
|                                           | % of total rentable square feet                          |              |  | 74.6        | %  |                |  | 25.4      | % |  |  | 100.0     | % 
|                                           | Occupancy percentage at period end                       |              |  | 93.2        | %  |                |  | 91.2      | % |  |  | 92.7      | % 
|                                           | Same space square footage leased                         |              |  | 3,842,026   |    |                |  | 617,077   |   |  |  | 4,459,103 |   
|                                           | Rent increases/(decreases) on renewals and
    rollovers |              |  | (15.7       | )% |                |  | 8.0       | % |  |  | (14.7     | )%
|For the three months ended March 31, 2003: |                                                          |              |  |             |    |                |  |           |   |  |  |          
|                                           | % of total rentable square feet                          |              |  | 74.9        | %  |                |  | 25.1      | % |  |  | 100.0     | % 
|                                           | Occupancy percentage at period end                       |              |  | 92.9        | %  |                |  | 91.2      | % |  |  | 92.5      | % 
|                                           | Same space square footage leased                         |              |  | 3,019,803   |    |                |  | 1,889,483 |   |  |  | 4,909,286 |   
|                                           | Rent increases/(decreases) on renewals and
    rollovers |              |  | (12.6       | )% |                |  | 5.9       | % |  |  | (6.6      | )%



---



|    |                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

During the quarter ended March 31, 2004, we
observed two positive trends nationally for industrial real
estate, supported by data provided by Torto Wheaton Research.
First, national industrial space availability remained
essentially unchanged for the third consecutive quarter at
approximately 11.7%. This leveling of space availability is a
positive change from the preceding 11 quarters when national
availability increased on average 45 basis points per
quarter. According to Torto Wheaton Research, the overall
industrial market deteriorated rapidly from its peak levels at
the end of 2000, when availability was 6.6%, through the second
quarter of 2002, when availability reached 10.8%. Subsequently,
national industrial availability has deteriorated at a more
modest rate, declining an average of 13 basis points per
quarter, reaching 11.7% at March 31, 2004. Second, national
absorption of industrial space, defined as the net change in
occupied stock as measured

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by square feet of completions less the change in
vacant square feet, totaled approximately 15-20 million
square feet in the quarter ended March 31, 2004. This
represented the third consecutive quarter of positive
absorption, following ten quarters in which absorption averaged
a negative 17.2 million square feet per quarter.


Against this backdrop, occupancy levels in our
industrial portfolio decreased to 92.7% at March 31, 2004
from 93.1% at December 31, 2003 reflecting higher levels of
lease expiration activity in our portfolio. During this period,
our lease expirations totaled approximately 6.3 million
square feet while commencements of new or renewed leases totaled
approximately 5.7 million square feet, resulting in a
decrease in our occupancy of approximately 40 basis points.
Our March 31, 2004 occupancy was 20 basis points
higher than at March 31, 2003 and was approximately
440 basis points greater than the overall industrial market
at March 31, 2004, according to Torto Wheaton Research.

Rents on industrial renewals and rollovers in our
portfolio decreased 14.7% during the first quarter of 2004 as
leases were entered into or renewed at rates consistent with
current market levels. We believe this decline in rents on lease
renewals and rollovers reflects trends in national availability
for industrial space. 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 March 31,
2004 than in the prior quarter, which we think indicates a
stabilization of market rental rate levels. While the level of
rental rate reduction varied by market, we maintained occupancy
in our portfolio approximately 440 basis points in excess
of the national industrial market, by pricing lease renewals and
new leases with sensitivity to local market conditions. In
periods of decreasing 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 modest tenant improvement
packages, appropriate to the lease term. We generally followed
this practice during the quarter ended March 31, 2004.

During the first quarter of 2004, we continued to
expand our development pipeline, because 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 have increased our development pipeline from a
low of $107.0 million at the end of 2002 to
$385.2 million at March 31, 2004. In addition to our
committed development pipeline, we hold over 600 acres of
land, which could support approximately 10.8 million square
feet of additional development.

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. We also expect
to contribute certain development properties to co-investment
joint ventures upon stabilization. Through these co-investment
joint ventures we earn acquisition 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, and in certain cases, development
fees; 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, AMB Property
Corporation must pay dividends to its stockholders aggregating
annually at least 90% of its taxable income, which is
substantially the same as our taxable income. As a result, we
cannot rely on retained earnings to fund our on-going operations
to the same extent that other companies whose parent companies
are not real estate investment trusts 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.

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Summary of Key Transactions

During the three months ended March 31,
2004, we completed the following capital deployment transactions:



| |   |                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Acquired seven buildings in the U.S., Mexico and
    Japan, aggregating approximately 1.3 million square feet,
    for an aggregate of $134.2 million, including
    $32.7 million invested through two of our co-investment
    joint ventures;                                                                                    
|
| |  | Expanded our development pipeline, which at
    March 31, 2004, included projects in the U.S., Mexico,
    Singapore, Spain and Japan totaling 6.7 million square feet
    with an expected total investment of $385.2 million, of
    which $171.5 million was funded as of March 31, 2004
    and of which 27% was pre-leased; and
|
| |  | Divested ourselves of one industrial building,
    aggregating 48,384 square feet, for $5.0 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 March 31,
2004, we completed the following capital markets transactions:



| |   |                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Issued $100.0 million of fixed-rate senior
    unsecured notes under our medium-term note program. AMB Property
    Corporation guarantees the notes, which mature on March 1,
    2009 and bear an annual interest rate of 3.5%;
|
| |  | Obtained long-term secured debt financings for
    our co-investment joint ventures totaling $5.4 million at
    an average rate of 4.7%;                                                                                        
|
| |  | Assumed $67.0 million of debt for our
    co-investment joint ventures at a weighted average interest rate
    of 6.6%; and                                                                                                      
|
| |  | Obtained $22.4 million of debt with a 4.7%
    interest rate for an international acquisition.                                                                                                                                   

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:

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

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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.

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.
We also 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 with 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 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 be subject to the
taxes of the host country. An income tax allocation is required
to be estimated on the taxable income arising from our general
partners 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, deferred tax is an immaterial component of
our consolidated balance sheet because of our general
partners status as a real estate investment trust.

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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 properties
are designed 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 March 31, 2004,
we owned, managed and had renovation and development projects
totaling 104.5 million square feet (9.7 million square
meters) and 1,070 buildings in 36 markets within seven countries.

As of March 31, 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 targets customers whose
businesses are tied to global trade, which, according to the
World Trade Organization, has grown more than 3.0 times the
world gross domestic product (GDP) growth rate
during the last 20 years. To serve the facilities needs of
these customers, we invest in major distribution markets,
transportation hubs and gateways in both the U.S. and
internationally. Our target markets are 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, 66.2% 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 8.7% of
our annualized base rents.

By focusing on an investment strategy that
targets areas of high customer demand and limited competition
from new supply, we believe that over time our net operating
income (rental revenues less property operating expenses and
real estate taxes) will grow and our property values will
increase. Much of our portfolio is comprised of strategically
located 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 the 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 an important success factor for
time-sensitive customers such as air express, logistics and
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 March 31, 2004, we owned and operated
(exclusive of properties that we managed for third parties) 954
industrial buildings, as well as retail and other properties,
totaling approximately 88.8 million rentable square feet,
located in 34 markets throughout North America and in France,
Germany and Japan. As of March 31, 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 March 31, 2004, we had
investments in operating industrial buildings, totaling
approximately 7.9 million rentable square feet, through
investments in unconsolidated joint ventures. As of
March 31, 2004, we also had investments in industrial
development projects, some of which are part of our
development-for-sale program, totaling approximately
7.3 million square feet. As of March 31, 2004, we had
one retail land parcel and one industrial building held for
divestiture.

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

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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 Boston, Chicago, Amsterdam, and Tokyo. As of
March 31, 2004, we employed 189 individuals, 129 at our
San Francisco headquarters, 46 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 extensive
operational and service offerings, including in-house
acquisitions, development, redevelopment, asset management,
leasing, finance, accounting and market research. We leverage
our expertise across a large customer base and have
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 forging alliances with
service providers in each target market. We believe that this
strategy results in a mutually beneficial relationship as these
alliance partners provide us with high-quality, local market
expertise and intelligence. We believe that we, in turn,
contribute value to the alliances through our global customer
relationships, industry knowledge, perspective and financial
strength. We actively manage our portfolio, including the
establishment of leasing strategies, negotiation of lease terms,
pricing, and level and timing of property improvements.

We believe our alliances give us both local
market benefits and flexibility to focus on our core
competencies, which are developing and executing our strategic
approach to real estate investment and management and raising
private capital to finance growth.

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 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
March 31, 2004, our average industrial base rental rates
decreased by 14.7%, from the expiring rent 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.
During the three months ended March 31, 2004, cash-basis
same-store net operating income (rental revenues less property
operating expenses and real estate taxes) decreased by 3.1% on
our industrial properties. For the six full calendar years
following our initial public offering, our cash-basis same-store
net operating income growth has outperformed our industrial peer
average by approximately 180 basis points. Since AMB
Property Corporations initial public offering in November
1997, we have experienced average annual increases in industrial
base rental rates of 9.3% and maintained an average occupancy of
94.9%. 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.

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

We believe that our significant acquisition
experience, our alliance-based operating strategy and our
extensive network of property acquisition sources will continue
to provide opportunities for external growth. We have forged
relationships with third-party local property management firms
through our Management Alliance Program®. We believe that
these alliances will create additional acquisition
opportunities, as such managers frequently market properties on
behalf of sellers. Our operating structure also enables us to
acquire properties through our UPREIT Alliance Program® in
exchange for our limited partnership units (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 facility, other forms of
secured or unsecured debt financing, issuances of debt or
limited partnership unit offerings (including issuances of
limited partnership units by our subsidiaries), proceeds from
divestitures of properties, 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 through 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.

The multidisciplinary backgrounds of our
employees should provide us with the skills and experience to
capitalize on strategic renovation, expansion and development
opportunities. Several of our general partners officers
have specific experience in real estate development, both with
us and with national development firms, and over the past year
we have expanded our development staff. We pursue 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 Developments for
    Sale

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

27



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

By 2007 we expect to have approximately 15% of
our portfolio (based on consolidated annualized base rent)
invested in international markets. As of March 31, 2004,
our international operating properties comprised 3.8% of our
total annualized industrial base rent. Our Mexican target
markets currently include Mexico City, Guadalajara and
Monterrey. Our European target markets currently include France,
The Netherlands, Germany, Spain and the United Kingdom. Our
Asian target markets currently include Singapore, Japan and
China. 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. Specifically, we are 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 March 31, 2004, we owned
approximately 32.9 million square feet of our properties
(34.9% of the total consolidated operating and development
portfolio) through our co-investment joint ventures. In
addition, we expect to fund, in part, our international
expansion 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
March 31, 2004, same store industrial properties consisted
of properties aggregating approximately 79.0 million square
feet. The properties acquired during the three months ended
March 31, 2004, consisted of seven buildings, aggregating
approximately 1.3 million square feet. The properties
acquired during the three months ended March 31, 2003,
consisted of two buildings, aggregating approximately
0.2 million square feet. During the three months ended
March 31, 2004, property divestitures and consisted of one
industrial building, aggregating 48,384 square feet. During
the three months ended March 31, 2003, property
divestitures and contributions consisted of

28



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34 industrial buildings, aggregating
approximately 4.0 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 March 31,
    2004 and 2003 (dollars in millions)

|                       |                          |                   |                       |                |       |          |       |          |       |       |       |     |      |      |      |       |       |      |      |  
|---------------------- | ------------------------ | ----------------- | --------------------- | -------------- | ----- | -------- | ----- | -------- | ----- | ----- | ----- | --- | ---- | ---- | ---- | ----- | ----- | ---- | ---- | -
|Revenues               |                          | 2004              |                       | 2003           |       | $ Change |       | % Change
|                       |                          |                   |                       |                |       |          |       |         
|Rental revenues        |                          |                   |                       |                |       |          |       |          |       |       |       |     |      |      |      |      
|                       | U.S. industrial:         |                   |                       |                |       |          |       |          |       |       |       |     |      |      |      |       |      
|                       |                          | Same store        |                       | $              | 140.0 |          |       | $        | 142.8 |       |       | $   | (2.8 | )    |      |       | (2.0  | )%  
|                       |                          | 2003 acquisitions |                       |                | 12.0  |          |       |          |      |       |       |     | 12.0 |      |      |       |      | %   
|                       |                          | 2004 acquisitions |                       |                | 1.5   |          |       |          |      |       |       |     | 1.5  |      |      |       |      | %   
|                       |                          | Development       |                       |                | 0.9   |          |       |          | 0.6   |       |       |     | 0.3  |      |      |       | 50.0  | %   
|                       |                          | Other industrial  |                       |                | 1.7   |          |       |          | 2.3   |       |       |     | (0.6 | )    |      |       | (26.1 | )%  
|                       | International industrial |                   |                       | 6.0            |       |          |       | 1.1      |       |       |       | 4.9 |      |      |      | 445.5 | %    
|                       | Retail                   |                   |                       | 1.7            |       |          |       | 1.7      |       |       |       |    |      |      |      |      | %    
|                       |                          |                   |                       |                |       |          |       |          |       |       |       |     |      |      |      |      
|                       |                          |                   | Total rental revenues |                |       | 163.8    |       |          |       | 148.5 |       |     |      | 15.3 |      |       |       | 10.3 | %   
|Private capital income |                          |                   | 2.4                   |                |       |          | 2.4   |          |       |       |      |     |      |      |     | %    
|                       |                          |                   |                       |                |       |          |       |          |       |       |       |     |      |      |      |      
|                       |                          |                   |                       | Total revenues |       | $        | 166.2 |          |       | $     | 150.9 |     |      | $    | 15.3 |       |       |      | 10.1 | %
|                       |                          |                   |                       |                |       |          |       |          |       |       |       |     |      |      |      |      

The decrease in industrial same store rental
revenues was primarily driven by lower average occupancies in
the San Francisco Bay Area, New Jersey and Chicago
sub-markets, as well as decreased rental rates, both of which
accounted for approximately $4.0 million of the change from
prior year. The decrease was positively offset by a decrease in
allowances for doubtful accounts of $1.0 million.
Industrial same store occupancy was 92.6% at March 31,
2004, and 92.7% at March 31, 2003. For the three months
ended March 31, 2004, rents in the same store portfolio
decreased 16.4% on industrial renewals and rollovers (cash
basis) on 4.2 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 seven buildings, aggregating
approximately 1.3 million square feet. Other industrial
includes rental revenues from divested properties not classified
as discontinued operations. In 2003 and 2004, we acquired
properties in Mexico, France, Japan, and Germany resulting in
increased international industrial revenues.

|                              |                          |                                |      |      |      |          |      |          |      |  |     |     |      |   |      |       |       |   
|----------------------------- | ------------------------ | ------------------------------ | ---- | ---- | ---- | -------- | ---- | -------- | ---- |  | --- | --- | ---- | - | ---- | ----- | ----- | --
|Costs and Expenses            |                          | 2004                           |      | 2003 |      | $ Change |      | % Change
|                              |                          |                                |      |      |      |          |      |         
|Property operating costs:     |                          |                                |      |      |      |          |      |          |      |  |     |     |      |   |      |      
|                              | Rental expenses          |                                | $    | 24.0 |      |          | $    | 21.7     |      |  | $   | 2.3 |      |   |      | 10.6  | %    
|                              | Real estate taxes        |                                |      | 19.5 |      |          |      | 17.9     |      |  |     | 1.6 |      |   |      | 8.9   | %    
|                              |                          |                                |      |      |      |          |      |          |      |  |     |     |      |   |      |      
|                              |                          | Total property operating costs |      | $    | 43.5 |          |      | $        | 39.6 |  |     | $   | 3.9  |   |      |       | 9.8   | % 
|                              |                          |                                |      |      |      |          |      |          |      |  |     |     |      |   |      |      
|Property operating costs      |                          |                                |      |      |      |          |      |          |      |  |     |     |      |   |      |      
|                              | U.S. industrial:         |                                |      |      |      |          |      |          |      |  |     |     |      |   |      |       |      
|                              |                          | Same store                     |      | $    | 37.4 |          |      | $        | 37.4 |  |     | $   |     |   |      |       |      | % 
|                              |                          | 2003 acquisitions              |      |      | 2.7  |          |      |          |     |  |     |     | 2.7  |   |      |       |      | % 
|                              |                          | 2004 acquisitions              |      |      | 0.4  |          |      |          |     |  |     |     | 0.4  |   |      |       |      | % 
|                              |                          | Development                    |      |      | 0.7  |          |      |          | 0.8  |  |     |     | (0.1 | ) |      |       | (12.5 | )%
|                              |                          | Other industrial               |      |      | 0.4  |          |      |          | 0.7  |  |     |     | (0.3 | ) |      |       | (42.9 | )%
|                              | International industrial |                                |      | 1.2  |      |          |      | 0.2      |      |  |     | 1.0 |      |   |      | 500.0 | %    
|                              | Retail                   |                                |      | 0.7  |      |          |      | 0.5      |      |  |     | 0.2 |      |   |      | 40.0  | %    
|                              |                          |                                |      |      |      |          |      |          |      |  |     |     |      |   |      |      
|                              |                          | Total property operating costs |      |      | 43.5 |          |      |          | 39.6 |  |     |     | 3.9  |   |      |       | 9.8   | % 
|Depreciation and amortization |                          |                                | 38.2 |      |      |          | 34.4 |          |      |  | 3.8 |     |      |   | 10.9 | %    
|General and administrative    |                          |                                | 15.0 |      |      |          | 12.2 |          |      |  | 2.8 |     |      |   | 23.1 | %    
|                              |                          |                                |      |      |      |          |      |          |      |  |     |     |      |   |      |      
|                              |                          | Total costs and expenses       |      | $    | 96.7 |          |      | $        | 86.2 |  |     | $   | 10.5 |   |      |       | 12.2  | % 
|                              |                          |                                |      |      |      |          |      |          |      |  |     |     |      |   |      |      

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Same store properties operating expenses
remained relatively unchanged from March 31, 2003 to
March 31, 2004. The 2003 acquisitions consist of 82
buildings, aggregating approximately 6.5 million square
feet. Other industrial includes expenses 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. In 2003 and
2004, we continued to acquire properties in Mexico, France,
Japan, and Germany 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 $0.6 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 |                                   | $    | 1.7   |       |   | $        | 1.2   |          |   | $ | 0.5  |      |  |  | 37.7   | %   
|Interest and other income                               |                                   |      | 1.7   |       |   |          | 1.4   |          |   |   | 0.3  |      |  |  | 22.0   | %   
|Gains from dispositions of real estate                  |                                   |      |      |       |   |          | 7.4   |          |   |   | (7.4 | )    |  |  | (100.0 | )%  
|Interest, including amortization                        |                                   |      | (39.4 | )     |   |          | (35.9 | )        |   |   | 3.5  |      |  |  | 9.8    | %   
|                                                        |                                   |      |       |       |   |          |       |          |   |   |      |      |  |  |        |     
|                                                        | Total other income and (expenses) |      | $     | (36.0 | ) |          | $     | (25.9    | ) |   | $    | 10.1 |  |  |        | 38.9 | %
|                                                        |                                   |      |       |       |   |          |       |          |   |   |      |      |  |  |        |     

The increase in equity in earnings of
unconsolidated joint ventures was primarily due to an increase
in the number of unconsolidated investments from March 31,
2003 to 2004, as well as the receipt of a lease termination fee
at one of the properties held by a joint venture in Chicago. The
decrease in gains from dispositions of real estate pertains to
gains recognized in 2003 from divested properties, which were
contributed to an unconsolidated joint venture and accordingly
are not classified as discontinued operations in our
consolidated financial statements. The increase in interest and
other income was primarily due to a gain from the sale of stock
of a technology company in which we had an investment. 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
|                                                                                     |                               |      |      |      |   |          |      |         
|(Loss) Income attributable to discontinued
    operations, net of minority interests |                               | $    | (0.3 | )    |   | $        | 8.4  |          |  | $ | (8.7  | )     |   |  | (103.1 | )%    
|(Loss) Gains from dispositions of real estate,
    net of minority interests         |                               |      | (0.3 | )    |   |          | 29.6 |          |  |   | (29.9 | )     |   |  | (101.0 | )%    
|                                                                                     |                               |      |      |      |   |          |      |          |  |   |       |       |   |  |        |       
|                                                                                     | Total discontinued operations |      | $    | (0.6 | ) |          | $    | 38.0     |  |   | $     | (38.6 | ) |  |        | (101.5 | )%
|                                                                                     |                               |      |      |      |   |          |      |          |  |   |       |       |   |  |        |       

During the three months ended March 31,
2004, we divested ourselves of one industrial building of
48,384 square feet for $5.0 million, with a resulting
net loss of less than $0.3 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 $45.4 million.

|                             |  |      |      |      |  |          |      |          |  |   |     |  |  |  |      |  
|---------------------------- |  | ---- | ---- | ---- |  | -------- | ---- | -------- |  | - | --- |  |  |  | ---- | -
|Preferred Units              |  | 2004 |      | 2003 |  | $ Change |      | % Change
|                             |  |      |      |      |  |          |      |         
|Preferred unit distributions |  | $    | (3.4 | )    |  | $        | (5.1 | )        |  | $ | 1.7 |  |  |  | 33.3 | %

In 2003, we redeemed all 3,995,800 outstanding
units of our 8.5% Series A Cumulative Redeemable Preferred
Units and redeemed all 1,300,000 outstanding units of our
8 5/8% Series B Cumulative Redeemable Preferred Units.
In 2003, we issued 2,000,000 units of 6.5% Series L
Cumulative Redeemable Preferred Units and 2,300,000 units
of 6.75% Series M Cumulative Redeemable Preferred Units.
The lower coupon rate on the newly issued units contributed to
the decrease in preferred unit distributions.

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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES

Balance Sheet
Strategy.In general, we use unsecured
lines of credit, unsecured notes, preferred limited partnership
units and common limited partnership 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;                                                                                              
|
| |  | borrowings under our unsecured credit facility;                                                                                               
|
| |  | 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 facility and our ability to access
private and public debt and equity capital, are adequate for us
to meet our liquidity requirements for the foreseeable future.
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 March 31, 2004, we divested ourselves of one
industrial building, for a price of $5.0 million, with a
resulting net loss of $0.3 million.

Properties Held for
Divestiture.As of March 31,
2004, we had decided to divest ourselves of one retail land
parcel and one industrial building, which are not in our core
markets or which do not meet our current strategic objectives.
The divestitures of the properties are subject to negotiation of
acceptable terms and other customary conditions. As of
March 31, 2004, the net carrying value of the properties
held for divestiture was $9.6 million.

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 March 31, 2004, we owned approximately
32.9 million square feet of our properties (34.9% of the
total consolidated operating and development portfolio) through
our co-investment joint ventures and 5.9 million

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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
March 31, 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)                             |  | BPMT and TNO(6)                                                   |  |             | 39% |                   |  | $ | 200,000 | 



---



|    |                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|(1) | Planned capitalization includes anticipated debt
    and both partners expected equity contributions.                             
|   
|(2) | Included 15 institutional investors as
    stockholders as of March 31, 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 March 31, 2004.                  
|   
|(5) | AMB-AMS, L.P. is a commitment to form a
    co-investment partnership with two Dutch pension funds advised
    by Mn Services NV.  
|   
|(6) | BPMT is Stichting Bedrijfspensioenfonds voor de
    Metaal en Technische Bedrijfstakken and TNO is Stichting
    Pensioenfonds TNO.

Partners
Capital.As of March 31, 2004, we
had outstanding 82,366,298 common general partnership units,
4,607,910 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.

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
common general partnership units during the three months ended
March 31, 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 March 31, 2004, our share
of total debt-to-total market capitalization ratio was 37.1%.
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, our organizational documents do not limit the
amount of indebtedness that we may incur. Accordingly, our
management could alter or eliminate these policies without
unitholder or noteholder approval or circumstances could arise
that could render us unable to comply with these policies.

As of March 31, 2004, the aggregate
principal amount of our secured debt was $1.4 billion,
excluding unamortized debt premiums of $16.2 million. Of
the $1.4 billion of secured debt, $1.1 billion is
secured by properties in our joint ventures. The secured debt is
generally non-recourse and bears interest at rates varying from
2.5% to 10.4% per annum (with a weighted average rate of
6.9%) and final maturity dates ranging from

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June 2004 to June 2023. All of the
secured debt bears interest at fixed rates, except for five
loans with an aggregate principal amount of $51.8 million
as of March 31, 2004, which bear interest at variable rates
(with a weighted average interest rate of 4.0% as of
March 31, 2004).


As of March 31, 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 5.4 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 its 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 make
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.Our $500.0 million unsecured revolving line of credit
matures in December 2005, has a one-year extension option
and is subject to a 20 basis point annual facility fee.
AMB Property Corporation guarantees our obligations under
the credit facility. The credit facility includes a
multi-currency component, which was amended effective
July 10, 2003, to increase from $150.0 million to
$250.0 million the amount that may be drawn in either
British pounds sterling, Euros or Yen (provided that such
currency is readily available and freely transferable and
convertible to U.S. dollars, the Reuters Monitor Money
Rates Service reports LIBOR for such currency in interest
periods of 1, 2, 3 or 6 months and we have an investment
grade credit rating). U.S. dollar borrowings under the
credit facility currently bear interest at LIBOR plus
60 basis points. Euro borrowings under the credit facility
currently bear interest at EURIBOR plus 60 basis points.
Yen borrowings under the credit facility currently bear interest
at the Japanese Yen TIBOR rate plus 60 basis points. Both
the facility fee and the interest rate are based on our credit
rating, which is currently investment grade. However, depending
on our credit rating, the facility fee and interest rate may
increase. We have the ability to increase available borrowings
to $700.0 million by adding additional banks to the
facility or obtaining the agreement of existing banks to
increase their commitments. We use the unsecured credit facility
principally for acquisitions, funding our development activity
and for general working capital requirements. Monthly debt
service payments on the credit facility are interest only. The
total amount available under the credit facility fluctuates
based upon the borrowing base, as defined in the agreement
governing the credit facility, generally the value of our
unencumbered properties. As of March 31, 2004, the
outstanding balance on our unsecured credit facility was
$261.4 million and the remaining amount available was
$205.9 million, net of outstanding letters of credit of
$32.7 million (excluding the $200.0 million of
potential additional capacity). The outstanding balance included
borrowings denominated in Euros and Yen and translated to
U.S. dollars at March 31, 2004, of $60.3 million
and $131.0 million, respectively.

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 2026. As of
March 31, 2004, the outstanding balance on the note was
$13.0 million. We also hold short-term mortgages on sold
properties totaling $10.6 million with a weighted average
interest rate of 6.7%. The mortgages mature between
December 2004 and November 2006.

33



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The tables below summarize our debt maturities
and capitalization as of March 31, 2004 (dollars in
thousands):

|                                                                     |                      |                            |                         |         |         |             |          |           |         |            |         |            |           |           |       |       |       |       |         |         |         |         |          |           |           |           | 
|-------------------------------------------------------------------- | -------------------- | -------------------------- | ----------------------- | ------- | ------- | ----------- | -------- | --------- | ------- | ---------- | ------- | ---------- | --------- | --------- | ----- | ----- | ----- | ----- | ------- | ------- | ------- | ------- | -------- | --------- | --------- | --------- | 
|                                                                    
|Debt                                                                
|                                                                    
|                                                                     |                      | Wholly Owned               |                         | Joint   |         | Unsecured   |          |          
|                                                                     |                      | Secured                    |                         | Venture |         | Senior Debt |          | Unsecured |         | Credit     |         |           
|                                                                     |                      | Debt                       |                         | Debt    |         | Securities  |          | Debt      |         | Facilities |         | Total Debt
|                                                                     |                      |                            |                         |         |         |             |          |           |         |            |         |           
|2004                                                                 |                      | $                          | 53,605                  |         |         | $           | 36,694   |           |         | $          |        |            |           | $         | 454   |       |       | $     | 261,369 | (2)     |         | $       | 352,122  |          
|2005                                                                 |                      |                            | 46,093                  |         |         |             | 62,967   |           |         |            | 250,000 |            |           |           | 647   |       |       |       |        |         |         |         | 359,707  |          
|2006                                                                 |                      |                            | 84,444                  |         |         |             | 64,534   |           |         |            | 75,000  |            |           |           | 698   |       |       |       |        |         |         |         | 224,676  |          
|2007                                                                 |                      |                            | 16,313                  |         |         |             | 53,197   |           |         |            | 75,000  |            |           |           | 752   |       |       |       |        |         |         |         | 145,262  |          
|2008                                                                 |                      |                            | 34,644                  |         |         |             | 162,296  |           |         |            | 175,000 |            |           |           | 810   |       |       |       |        |         |         |         | 372,750  |          
|2009                                                                 |                      |                            | 6,041                   |         |         |             | 107,164  |           |         |            | 100,000 |            |           |           | 873   |       |       |       |        |         |         |         | 214,078  |          
|2010                                                                 |                      |                            | 52,930                  |         |         |             | 133,093  |           |         |            | 75,000  |            |           |           | 941   |       |       |       |        |         |         |         | 261,964  |          
|2011                                                                 |                      |                            | 19,690                  |         |         |             | 275,536  |           |         |            | 75,000  |            |           |           | 1,014 |       |       |       |        |         |         |         | 371,240  |          
|2012                                                                 |                      |                            | 3,853                   |         |         |             | 161,538  |           |         |            |        |            |           |           | 1,093 |       |       |       |        |         |         |         | 166,484  |          
|2013                                                                 |                      |                            | 44,490                  |         |         |             | 2,045    |           |         |            | 75,000  |            |           |           | 920   |       |       |       |        |         |         |         | 122,455  |          
|Thereafter                                                           |                      |                            | 39                      |         |         |             | 20,219   |           |         |            | 125,000 |            |           |           | 1,280 |       |       |       |        |         |         |         | 146,538  |          
|                                                                     |                      |                            |                         |         |         |             |          |           |         |            |         |            |           |           |       |       |       |       |         |         |         |         |          |          
|                                                                     | Subtotal             |                            |                         | 362,142 |         |             |          | 1,079,283 |         |            |         | 1,025,000  |           |           |       | 9,482 |       |       |         | 261,369 |         |         |          | 2,737,276 |          
|                                                                     | Unamortized premiums |                            |                         | 9,923   |         |             |          | 6,282     |         |            |         |           |           |           |       |      |       |       |         |        |         |         |          | 16,205    |          
|                                                                     |                      |                            |                         |         |         |             |          |           |         |            |         |            |           |           |       |       |       |       |         |         |         |         |          |          
|                                                                     |                      |                            | Total consolidated debt |         |         | 372,065     |          |           |         | 1,085,565  |         |            |           | 1,025,000 |       |       |       | 9,482 |         |         |         | 261,369 |          |           |           | 2,753,481 | 
|Our share of unconsolidated joint venture debt(1)                    |                      |                            |                        |         |         |             | 90,070   |           |         |            |        |            |           |           |      |       |       |       |        |         |         |         | 90,070   |          
|                                                                     |                      |                            |                         |         |         |             |          |           |         |            |         |            |           |           |       |       |       |       |         |         |         |         |          |          
|                                                                     |                      |                            | Total debt              |         |         | 372,065     |          |           |         | 1,175,635  |         |            |           | 1,025,000 |       |       |       | 9,482 |         |         |         | 261,369 |          |           |           | 2,843,551 | 
|Joint venture partners share of
    consolidated joint venture debt |                      |                            |                        |         |         |             | (715,087 | )         |         |            |        |            |           |           |      |       |       |       |        |         |         |         | (715,087 | )        
|                                                                     |                      |                            |                         |         |         |             |          |           |         |            |         |            |           |           |       |       |       |       |         |         |         |         |          |          
|                                                                     |                      | Our share of total debt(3) |                         | $       | 372,065 |             |          | $         | 460,548 |            |         | $          | 1,025,000 |           |       | $     | 9,482 |       |         | $       | 261,369 |         |          | $         | 2,128,464 |          
|                                                                     |                      |                            |                         |         |         |             |          |           |         |            |         |            |           |           |       |       |       |       |         |         |         |         |          |          
|Weighted average interest rate                                       |                      |                            | 7.6                     | %       |         |             | 6.7      | %         |         |            | 6.5     | %          |           |           | 7.5   | %     |       |       | 1.1     | %       |         |         | 6.2      | %        
|Weighted average maturity (in years)                                 |                      |                            | 4.3                     |         |         |             | 6.3      |           |         |            | 5.4     |            |           |           | 10.6  |       |       |       |        |         |         |         | 5.1      |          



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The weighted average interest and maturity for
    the unconsolidated joint venture debt were 6.0% and
    5.5 years, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(2) | Includes Euro and Yen based borrowings translated
    to U.S. dollars using the foreign exchange rates at
    March 31, 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                        |       |             | 82,366,298 |            |  | $        | 37.17 |  |  | $ | 3,061,555 |          
|Common limited partnership units(2) |       |             | 4,753,458  |            |  | $        | 37.17 |  |  |   | 176,686   |          
|                                    |       |             |            |            |  |          |       |  |  |   |           |          
|                                    | Total |             |            | 87,119,756 |  |          |       |  |  |   | $         | 3,238,241 | 
|                                    |       |             |            |            |  |          |       |  |  |   |           |          

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---



| |     |                                                                                                                                                                                                                                                                                
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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 |   | Redemption
|Security                 |                        | Rate         |      | Preference  |   | 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 | 
|Series K preferred units |                        |              | 7.95 | %           |   |            | 40,000 |         |  |  | April 2007      | 
|Series L preferred units |                        |              | 6.50 | %           |   |            | 50,000 |         |  |  | June 2008       | 
|Series M preferred units |                        |              | 6.75 | %           |   |            | 57,500 |         |  |  | November 2008   | 
|                         |                        |              |      |             |   |            |        |         |  |  |                 | 
|                         | Weighted average/total |              |      | 7.53        | % |            | $      | 355,846 |  |  |                 |  | 
|                         |                        |              |      |             |   |            |        |         |  |  |                 | 

|                                                                             |  |  |      |  
|---------------------------------------------------------------------------- |  |  | ---- | -
|                                                                            
|Capitalization Ratios                                                       
|                                                                            
|Total debt-to-total market capitalization                                    |  |  | 44.1 | %
|Our share of total debt-to-total market
    capitalization(1)                |  |  | 37.1 | %
|Total debt plus preferred-to-total market
    capitalization                 |  |  | 49.6 | %
|Our share of total debt plus preferred-to-total
    market capitalization(1) |  |  | 43.3 | %
|Our share of total debt-to-total book
    capitalization(1)                  |  |  | 51.6 | %



---



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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 March 31, 2004, we had
$123.7 million in cash (of which $75.4 million was
held by our consolidated co-investment joint ventures) and cash
equivalents, and $205.9 million of additional available
borrowings under our credit facility. As of March 31, 2004,
we had $27.2 million in restricted cash (of which
$6.1 million was held by our consolidated co-investment
joint ventures).

We announced our intention to pay a regular cash
distribution for the quarter ended March 31, 2004, of
$0.425 per common unit. The distributions were payable on
April 15, 2004, to unitholders of record on April 5,
2004. The series L and M preferred unit distributions were
payable on April 15, 2004, to unitholders of record on
April 5, 2004. The series E, F, J and K preferred unit
distributions were payable on April 15, 2004 in

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respect of the period commencing on and including
January 15, 2004, and ending on and including
April 14, 2004. The series D, H and I preferred unit
distributions were payable on March 26, 2004, in respect of
the period commencing on and including January 15, 2004,
and ending on and including April 14, 2004. The following
table sets forth the distributions paid or payable per unit for
the three months ended March 31, 2004 and 2003:


|                      |  |          |                                          |               |  |      |       |  |  |   |       | 
|--------------------- |  | -------- | ---------------------------------------- | ------------- |  | ---- | ----- |  |  | - | ----- | 
|                      |  |          |                                          |              
|                      |  |          |                                          | For the Three
|                      |  |          |                                          | Months Ended 
|                      |  |          |                                          | March 31,    
|                      |  |          |                                          |              
|Paying Entity         |  | Security |                                          | 2004          |  | 2003
|                      |  |          |                                          |               |  |     
|Operating Partnership |  |          | Common limited partnership units         |               |  | $    | 0.425 |  |  | $ | 0.415 | 
|Operating Partnership |  |          | Series A preferred units                 |               |  |      | n/a   |  |  | $ | 0.531 | 
|Operating Partnership |  |          | Series B preferred units                 |               |  |      | n/a   |  |  | $ | 1.078 | 
|Operating Partnership |  |          | Series J preferred units                 |               |  | $    | 0.994 |  |  | $ | 0.994 | 
|Operating Partnership |  |          | Series K preferred units                 |               |  | $    | 0.994 |  |  | $ | 0.994 | 
|Operating Partnership |  |          | Series L preferred units                 |               |  | $    | 0.406 |  |  |   | n/a   | 
|Operating Partnership |  |          | Series M preferred units                 |               |  | $    | 0.422 |  |  |   | n/a   | 
|AMB Property II, L.P. |  |          | Class B common limited partnership units |               |  | $    | 0.425 |  |  |   | n/a   | 
|AMB Property II, L.P. |  |          | Series D preferred units                 |               |  | $    | 0.969 |  |  | $ | 0.969 | 
|AMB Property II, L.P. |  |          | Series E preferred units                 |               |  | $    | 0.969 |  |  | $ | 0.969 | 
|AMB Property II, L.P. |  |          | Series F preferred units                 |               |  | $    | 0.994 |  |  | $ | 0.994 | 
|AMB Property II, L.P. |  |          | Series H preferred units                 |               |  | $    | 1.016 |  |  | $ | 1.016 | 
|AMB Property II, L.P. |  |          | Series I preferred units                 |               |  | $    | 1.000 |  |  | $ | 1.000 | 

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 March 31,
2004, we initiated six new industrial development projects with
a total estimated investment of $152.0 million at
completion, aggregating an estimated 1.8 million square
feet. As of March 31, 2004, we had 22 projects in our
development pipeline representing a total estimated investment
of $385.2 million upon completion and four development
projects available for sale representing a total estimated
investment of $38.8 million upon completion. Of this total,
$195.3 million had been funded as of March 31, 2004,
and an estimated $228.7 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 March 31, 2004, we acquired seven
industrial buildings, aggregating approximately 1.3 million
square feet for a total expected investment of
$134.2 million, of which we acquired two industrial
buildings aggregating approximately 0.3 million square feet
through two of our co-investment joint ventures, for a total
expected investment of $32.7 million. We generally fund our
acquisitions through private capital contributions, borrowings
under our credit facility, cash, debt issuances and net proceeds
from property divestitures. In addition, in October 2003, we
entered into an Agreement of Sale with privately-held
International Airport Centers L.L.C. and certain of its
affiliated entities, pursuant to which, if fully consummated, we
will acquire a 3.4 million square foot portfolio consisting
of 37 airfreight buildings

36



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##### Table of Contents



located adjacent to seven international airports
in the U.S. for approximately $481.0 million,
including $119.0 million of assumed debt. Pursuant to the
Agreement of Sale, we will acquire the buildings in separate
tranches, as construction is completed and certain other
customary closing conditions, including acquiring the necessary
consents, are met. The first closings occurred in October and
December of 2003 and February of 2004, and we currently expect
the balance of the portfolio to close by the third quarter of
2004. Some of the properties in this portfolio have been
allocated to one or more of our co-investment joint ventures. We
financed the first closings, and expect to finance the remainder
of the purchase price, through additional debt financings and
proceeds from property dispositions.


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 45 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
March 31, 2004, we had investments in co-investment joint
ventures with a gross book value of $1.9 billion, which are
consolidated for financial reporting purposes. As of
March 31, 2004, we may make additional capital
contributions to current and planned co-investment joint
ventures of up to $27.9 million. We expect to fund these
contributions with cash from operations, borrowings under our
credit facility, 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
and deductibles, 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, are greater
than premiums collected, an additional premium will be charged.
As with all recoverable expenses, differences between estimated
and actual insurance premiums will be recognized in the
subsequent year. Through this structure, we believe that we have
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 March 31, 2004, we
had provided approximately $39.0 million in letters of
credit, of which $32.7 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.

37



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##### Table of Contents



Guarantees.Other
than disclosed elsewhere in this report, as of March 31,
2004, we and AMB Property Corporation had outstanding guarantees
in the aggregate amount of $5.8 million in connection with
certain acquisitions, which are currently expected to close in
2004. As of March 31, 2004 we have also guaranteed
$2.2 million and $26.5 million of outstanding
construction loans on one of our consolidated joint ventures and
one of our unconsolidated joint ventures, respectively. The
maximum borrowing capacity of these construction loans were
$30.0 million and $69.0 million, respectively, as of
March 31, 2004.

Performance and Surety
Bonds.As of March 31, 2004, we
and AMB Property Corporation had outstanding performance and
surety bonds in an aggregate amount of $0.9 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 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 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.

38



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The following table reflects the calculation of
FFO reconciled from net income for the three months ended
March 31, (dollars in thousands, except per unit amounts):

|                                                                            |                                                              |      |        |            |   |   |         |            |  
|--------------------------------------------------------------------------- | ------------------------------------------------------------ | ---- | ------ | ---------- | - | - | ------- | ---------- | -
|                                                                            |                                                              | 2004 |        | 2003(1)   
|                                                                            |                                                              |      |        |           
|Net income                                                                  |                                                              | $    | 20,305 |            |   | $ | 65,772  |           
|Income available to common unitholders
    attributable to limited partners |                                                              |      | (895   | )          |   |   | (3,402  | )         
|Loss (Gains) from dispositions of real estate                               |                                                              |      | 286    |            |   |   | (35,458 | )         
|Real estate related depreciation and amortization:                          |                                                              |      |        |            |   |   |         |           
|                                                                            | Total depreciation and amortization                          |      |        | 38,234     |   |   |         | 34,433     |  
|                                                                            | Discontinued operations depreciation                        |      |        | 17         |   |   |         | 740        |  
|                                                                            | Furniture, fixtures and equipment depreciation               |      |        | (175       | ) |   |         | (189       | )
|Adjustments to derive FFO from consolidated joint
    ventures:             |                                                              |      |        |            |   |   |         |           
|                                                                            | Joint venture partners minority interests
    (NI)          |      |        | 9,229      |   |   |         | 7,636      |  
|                                                                            | Limited partnership unitholders minority
    interests (NI) |      |        | 955        |   |   |         | 1,328      |  
|                                                                            | Discontinued operations minority interests
    (NI)         |      |        | (16        | ) |   |         | 604        |  
|                                                                            | FFO attributable to minority interests                       |      |        | (17,861    | ) |   |         | (14,983    | )
|Adjustments to derive FFO from unconsolidated
    joint ventures:           |                                                              |      |        |            |   |   |         |           
|                                                                            | Our share of net income                                      |      |        | (1,709     | ) |   |         | (1,235     | )
|                                                                            | Our share of FFO                                             |      |        | 2,493      |   |   |         | 2,491      |  
|Preferred unit distributions                                                |                                                              |      | (3,373 | )          |   |   | (5,115  | )         
|                                                                            |                                                              |      |        |            |   |   |         |           
|                                                                            | Funds from operations                                        |      | $      | 47,490     |   |   | $       | 52,622     |  
|                                                                            |                                                              |      |        |            |   |   |         |           
|Basic FFO per common unit                                                   |                                                              | $    | 0.55   |            |   | $ | 0.61    |           
|                                                                            |                                                              |      |        |            |   |   |         |           
|Diluted FFO per common unit                                                 |                                                              | $    | 0.53   |            |   | $ | 0.60    |           
|                                                                            |                                                              |      |        |            |   |   |         |           
|Weighted average common units:                                              |                                                              |      |        |            |   |   |         |           
|                                                                            | Basic                                                        |      |        | 86,447,303 |   |   |         | 85,944,112 |  
|                                                                            |                                                              |      |        |            |   |   |         |           
|                                                                            | Diluted                                                      |      |        | 89,617,834 |   |   |         | 87,360,543 |  
|                                                                            |                                                              |      |        |            |   |   |         |           



---



| |     |                                                                                                                                                                                                                                                                                                                
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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.

EBITDA.We use
earnings before interest, tax, depreciation and amortization, or
EBITDA, to measure both our operating performance and liquidity.
We consider EBITDA to provide investors relevant and useful
information because it permits fixed income investors to view
income from our operations on an unleveraged basis before the
effects of non-cash depreciation and amortization expense. By
excluding interest expense, EBITDA allows investors to measure
our operating performance independent of our capital structure
and indebtedness and, therefore, allows for a more meaningful
comparison of our operating performance between quarters as well
as annual periods and to compare our operating performance to
that of other companies, both in the real estate industry and in
other industries. We consider EBITDA to be a useful supplemental
measure for reviewing our comparative performance with other
companies because, by excluding non-cash depreciation expense,
EBITDA can help the investing public compare the performance of
a real estate company to that of companies in other industries.
As a liquidity measure, we believe that EBITDA helps fixed
income and equity investors to analyze our ability to meet our
debt service obligations and to make our quarterly preferred
unit distributions. Management uses EBITDA in the same manner as
we expect investors to when measuring our operating performance
and our liquidity; specifically when assessing our operating
performance, and comparing that performance to other companies,
both in the real estate industry and in other industries, and
when evaluating our ability to meet our debt service obligations
and to make our quarterly preferred unit

39



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##### Table of Contents



distributions. We believe investors should
consider EBITDA, in conjunction with net income (the primary
measure of our performance) and the other required GAAP measures
of our performance and liquidity, to improve their understanding
of our operating results and liquidity, and to make more
meaningful comparisons of the performance of our assets between
periods and as against other companies.


By excluding interest, taxes, depreciation and
amortization when assessing our financial performance, an
investor is assessing the earnings generated by our operations,
but not taking into account the eliminated expenses incurred in
connection with such operations. As a result, EBITDA has
limitations as an analytical tool and should be used in
conjunction with our required GAAP presentations. EBITDA does
not reflect our historical cash expenditures or our future cash
requirements for working capital, capital expenditures or
contractual commitments. EBITDA also does not reflect the cash
required to make interest and principal payments on our
outstanding debt. While EBITDA is a relevant and widely used
measure of operating performance and liquidity, it does not
represent net income or cash flow from operations as defined by
GAAP and it should not be considered as an alternative to those
indicators in evaluating operating performance or liquidity.
Further, our computation of EBITDA may not be comparable to
EBITDA reported by other companies.

The following table reflects the calculation of
EBITDA reconciled to net income, a GAAP financial measure, for
the three months ended March 31, (dollars in thousands):

|                                                                     |                                  |        |        |        |         |   |         |        |         | 
|-------------------------------------------------------------------- | -------------------------------- | ------ | ------ | ------ | ------- | - | ------- | ------ | ------- | 
|                                                                     |                                  | 2004   |        | 2003  
|                                                                     |                                  |        |        |       
|Net income                                                           |                                  | $      | 20,305 |        |         | $ | 65,772  |       
|Depreciation and amortization                                        |                                  |        | 38,234 |        |         |   | 34,433  |       
|Stock-based compensation amortization                                |                                  |        | 2,557  |        |         |   | 1,941   |       
|Adjustments to derive EBITDA from unconsolidated
    joint ventures: |                                  |        |        |        |         |   |         |       
|                                                                     | Our share of net income(1)       |        |        | (1,709 | )       |   |         | (1,235 | )      
|                                                                     | Our share of FFO(2)              |        |        | 2,493  |         |   |         | 2,491  |        
|                                                                     | Our share of interest expense(3) |        |        | 703    |         |   |         | 577    |        
|Gains from dispositions of real estate                               |                                  |        |       |        |         |   | (7,429  | )     
|Interest, including amortization                                     |                                  |        | 39,425 |        |         |   | 35,914  |       
|Total minority interests share of income                            |                                  |        | 12,580 |        |         |   | 11,024  |       
|Total discontinued operations                                        |                                  |        | 563    |        |         |   | (38,044 | )     
|Discontinued operations EBITDA                                      |                                  |        | (43    | )      |         |   | 10,593  |       
|                                                                     |                                  |        |        |        |         |   |         |       
|                                                                     |                                  | EBITDA |        | $      | 115,108 |   |         | $      | 116,037 | 
|                                                                     |                                  |        |        |        |         |   |         |       

The following table reflects the calculation of
EBITDA reconciled to net cash provided by operating activities,
a GAAP financial measure, for the three months ended
March 31, (dollars in thousands):

|                                                                     |                                        |        |        |        |         |   |        |        |         | 
|-------------------------------------------------------------------- | -------------------------------------- | ------ | ------ | ------ | ------- | - | ------ | ------ | ------- | 
|                                                                     |                                        | 2004   |        | 2003  
|                                                                     |                                        |        |        |       
|Net cash provided by operating activities                            |                                        | $      | 67,259 |        |         | $ | 76,805 |       
|Straight-line rents                                                  |                                        |        | 3,963  |        |         |   | 2,380  |       
|Adjustments to derive EBITDA from unconsolidated
    joint ventures: |                                        |        |        |        |         |   |        |       
|                                                                     | Our share of FFO(2)                    |        |        | 2,493  |         |   |        | 2,491  |        
|                                                                     | Our share of interest expense(3)       |        |        | 703    |         |   |        | 577    |        
|Interest, including amortization                                     |                                        |        | 39,425 |        |         |   | 35,914 |       
|Debt premiums, discounts and finance cost
    amortization, net      |                                        |        | (339   | )      |         |   | 99     |       
|Recognition of below market leases                                   |                                        |        | 205    |        |         |   |       |       
|Discontinued operations interest, including
    amortization        |                                        |        | 202    |        |         |   | 1,308  |       
|Changes in assets and liabilities:                                   |                                        |        |        |        |         |   |        |       
|                                                                     | Accounts receivable and other assets   |        |        | 2,456  |         |   |        | 2,570  |        
|                                                                     | Accounts payable and other liabilities |        |        | (1,259 | )       |   |        | (6,107 | )      
|                                                                     |                                        |        |        |        |         |   |        |       
|                                                                     |                                        | EBITDA |        | $      | 115,108 |   |        | $      | 116,037 | 
|                                                                     |                                        |        |        |        |         |   |        |       

40



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---



| |     |                                                                                                                                                                                      
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Our share of net income is the pro rata portion
    of net income based on our percentage of equity interest in each
    of the unconsolidated ventures contributing to net income.  
|
| | (2) | Our share of FFO is the pro rata portion of FFO
    based on our percentage of equity interest in each of the
    unconsolidated ventures contributing to FFO.                       
|
| | (3) | Our share of interest expense is the pro rata
    portion of interest expense based on our percentage of equity
    interest in each of the unconsolidated ventures holding the debt.

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 months ended March 31, 2004 (dollars in
thousands):

|                                       |                                                 |             |                  |           |      |      | 
|-------------------------------------- | ----------------------------------------------- | ----------- | ---------------- | --------- | ---- | ---- | 
|Operating Portfolio(1)                 |                                                 | Quarter    
|                                       |                                                 |            
|Square feet owned at March 31, 2004(2) |                                                 |             | 88,344,321       |          
|Occupancy percentage at March 31, 2004 |                                                 |             | 92.7             | %        
|Weighted average lease terms:          |                                                 |             |                  |          
|                                       | Original                                        |             |                  | 6.1 years |     
|                                       | Remaining                                       |             |                  | 3.3 years |     
|Tenant retention(3)                    |                                                 |             | 56.3             | %        
|Same Space Leasing Activity(4):        |                                                 |             |                  |          
|                                       | Rent decreases on renewals and rollovers        |             |                  | (14.7     | )%  
|                                       | Same space square footage commencing (millions) |             |                  | 4.5       |     
|2nd Generation Leasing Activity:       |                                                 |             |                  |          
|                                       | TIs and LCs per square foot:                    |             |                  |           |     
|                                       |                                                 | Retained    |                  | $         | 2.07 |     
|                                       |                                                 | Re-tenanted |                  |           | 2.29 |     
|                                       |                                                 |             |                  |          
|                                       |                                                 |             | Weighted average |           | $    | 2.19 | 
|                                       |                                                 |             |                  |          
|                                       | Square footage commencing (millions)            |             |                  | 5.7       |     



---



| |     |                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Includes all consolidated industrial operating
    properties and excludes industrial development and renovation
    projects. Excludes retail and other properties square feet
    of 465,184 with occupancy of 75.9%, and annualized base rent of
    $5.6 million.                                                                                                                                   
|
| | (2) | In addition to owned square feet as of
    March 31, 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 7.9 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.                               
|
| | (4) | Consists of all second-generation leases renewing
    or re-tenanting with current and prior lease terms greater than
    one year.                                                                                                                                                                                                                                                                      

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##### Table of Contents



The following summarizes key same store
properties operating statistics for our industrial
properties as of and for the three months ended March 31,
2004:

|                                                     |                                                 |         |            |      |   
|---------------------------------------------------- | ----------------------------------------------- | ------- | ---------- | ---- | --
|Same Store Pool(1)                                   |                                                 | Quarter
|                                                     |                                                 |        
|Square feet in same store pool at March 31,
    2004 |                                                 |         | 79,037,135 |     
|                                                     | % of total industrial square feet               |         |            | 89.5 | % 
|Occupancy percentage at period end:                  |                                                 |         |            |     
|                                                     | March 31, 2004                                  |         |            | 92.6 | % 
|                                                     | March 31, 2003                                  |         |            | 92.7 | % 
|Tenant retention(2)                                  |                                                 |         | 54.7       | %   
|Rent decreases on renewals and rollovers             |                                                 |         | (16.4      | )%  
|                                                     | Same space square footage commencing (millions) |         |            | 4.2  |   
|Cash basis NOI growth % increase/(decrease):         |                                                 |         |            |     
|                                                     | Revenues                                        |         |            | (2.3 | )%
|                                                     | Expenses                                        |         |            | (0.1 | )%
|                                                     | NOI                                             |         |            | (3.1 | )%
|                                                     | NOI without lease termination fees              |         |            | (3.6 | )%



---



|    |                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.






|        |                                                               
|------- | --------------------------------------------------------------
|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 facility and other
variable rate borrowings and our ability to incur more debt
without unitholder or noteholder approval, thereby increasing
our debt service obligations, which could adversely affect our
cash flows. As of March 31, 2004, we had no interest rate
caps or swaps. See Item 2: Managements
Discussion and Analysis of Financial Condition and Results of
Operations  Liquidity and Capital
Resources  Capital Resources  Market
Capitalization.

The table below summarizes the market risks
associated with our fixed and variable rate debt outstanding
before unamortized debt premiums of $16.2 million as of
March 31, 2004 (dollars in thousands):

|                      |  |      |         |      |  |      |         |      |  |      |         |            |  |       |         |   |  |   |         |   |  |   |           |   |  |   |           |  
|--------------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | ---------- |  | ----- | ------- | - |  | - | ------- | - |  | - | --------- | - |  | - | --------- | -
|                      |  | 2004 |         | 2005 |  | 2006 |         | 2007 |  | 2008 |         | Thereafter |  | Total
|                      |  |      |         |      |  |      |         |      |  |      |         |            |  |      
|Fixed rate debt(1)    |  | $    | 89,506  |      |  | $    | 357,885 |      |  | $    | 170,558 |            |  | $     | 139,724 |   |  | $ | 367,113 |   |  | $ | 1,249,394 |   |  | $ | 2,374,180 |  
|Average interest rate |  |      | 6.8     | %    |  |      | 7.0     | %    |  |      | 6.7     | %          |  |       | 7.1     | % |  |   | 6.8     | % |  |   | 6.4       | % |  |   | 6.6       | %
|Variable rate debt(2) |  | $    | 262,616 |      |  | $    | 1,822   |      |  | $    | 54,118  |            |  | $     | 5,538   |   |  | $ | 5,637   |   |  | $ | 33,365    |   |  | $ | 363,096   |  
|Average interest rate |  |      | 1.1     | %    |  |      | 3.7     | %    |  |      | 1.7     | %          |  |       | 3.7     | % |  |   | 4.1     | % |  |   | 4.1       | % |  |   | 1.6       | %



---



|    |                                          
|--- | -----------------------------------------
|(1) | Represents 86.7% of all outstanding debt.
|   
|(2) | Represents 13.3% of all outstanding debt.

If market rates of interest on our variable rate
debt increased by 10% (or approximately 11 basis points),
then the increase in interest expense on the variable rate debt
would be $0.4 million annually. As of March 31,

42



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##### Table of Contents



2004, the estimated fair value of our fixed rate
debt was $2,681.6 million based on our estimate of current
market interest rates.


As of March 31, 2004 and December 31,
2003, variable rate debt comprised 13.3% and 14.7%,
respectively, of all our outstanding debt. Variable rate debt
was $363.1 million and $378.0 million, respectively,
as of March 31, 2004 and December 31, 2003. The
decrease is due to a lower outstanding balance on our credit
facility. Outstanding variable rate debt increases the risk
associated with unfavorable interest 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. We did not have any
derivative financial instruments in effect at March 31,
2004.

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 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 stockholders equity and totaled
$0.2 million for the three months ended March 31, 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
months ended March 31, 2004, losses from remeasurement
included in our results of operations were $12,000.

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.






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

We maintain disclosure controls and procedures
that are designed to ensure that information required to be
disclosed in our reports filed under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the
U.S. Securities and Exchange Commissions rules and
forms, and that such information is accumulated and communicated
to our management, including our general partners chief
executive officer, president and chief financial officer, as
appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls
and procedures, our management recognized that any controls and
procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired
control objectives, and our management was required to apply its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Also, we have investments in certain
unconsolidated entities, which are accounted for using the
equity method of accounting. As we do not control or manage
these entities, our disclosure controls and procedures with
respect to such entities are necessarily substantially more
limited than those we maintain with respect to our consolidated
subsidiaries.

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 our general partners chief
executive officer, president and chief financial officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the quarter covered by
this report. Based

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##### Table of Contents



on the foregoing, our general partners
chief executive officer, president and chief financial officer
each concluded that our disclosure controls and procedures were
effective at the reasonable assurance level.


There have been no 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 March 31, 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.






|        |                                              
|------- | ---------------------------------------------
|Item 2. | Changes in 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 and Reports on
    Form 8-K

(a) Exhibits:

|        |      |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- | ---- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 4.1  |             |  | $100,000,000 Fixed Rate Note No. B-2 dated
    March 16, 2004, attaching the Parent Guarantee dated
    March 16, 2004 (incorporated by reference to
    Exhibit 4.1 of AMB Property L.P.s Current Report on
    Form 8-K filed on March 17, 2004).                                                                                                                                                                                                                                             
|        | 31.1 |             |  | Rule 13a-14
    (a)/15d-14(a) Certifications dated May 7, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 32.1 |             |  | 18 U.S.C. § 1350 Certifications
    dated May 7, 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.

(b) Reports on Form 8-K:

AMB Property, L.P. filed a Current Report on
Form 8-K/2004 on February 25, 2004, to file audited
financial statements and unaudited pro forma financial
information in connection with certain of its 2003 property
acquisitions.

AMB Property, L.P. filed a Current Report on
Form 8-K on March 17, 2004, in connection with the
issuance of $100.0 million in senior unsecured notes by AMB
Property, L.P. under its medium-term note program.

44



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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: May 7, 2004

45