##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549




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Form 10-Q



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

Commission File Number: 001-14245

AMB Property, L.P.

(Exact Name of Registrant as Specified in Its
Charter)


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

(415) 394-9000

(Registrants Telephone Number, Including
Area Code)


Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o



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TABLE OF CONTENTS



|                                             |                                                                                               |                                             |  |  |  |  |  | 
|-------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------- |  |  |  |  |  | 
|PART I                                      
|                                             | Item 1. Financial Statements                                                                 
|                                             |                                                                                               | CONSOLIDATED BALANCE SHEETS                
|                                             |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS      
|                                             |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS      
|                                             |                                                                                               | CONSOLIDATED STATEMENT OF PARTNERS CAPITAL
|                                             |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
|                                             | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                             | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                             | Item 4. Controls and Procedures                                                              
|PART II                                     
|                                             | Item 1. Legal Proceedings                                                                    
|                                             | Item 2. Changes in Securities and Use of Proceeds                                            
|                                             | Item 3. Defaults upon Senior Securities                                                      
|                                             | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                             | Item 5. Other Information                                                                    
|                                             | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                  
|CERTIFICATIONS                              
|Quarterly Report for Period Ended 09-30-2002
|Exhibit 3.1                                 



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##### Table of Contents



AMB PROPERTY, L.P.

INDEX

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

1



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##### Table of Contents






PART I




Item 1.     Financial
Statements

AMB PROPERTY, L.P.






CONSOLIDATED BALANCE SHEETS


As of September 30, 2002 and
December 31, 2001


|                                                           |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |           |           | 
|---------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------- | ------- | ------------ | --------- |  | ------- | --------- | --------- | 
|                                                           |                                                                                                                                                                                                                                                                                                                   | September 30,                           |         | December 31,
|                                                           |                                                                                                                                                                                                                                                                                                                   | 2002                                    |         | 2001        
|                                                           |                                                                                                                                                                                                                                                                                                                   |                                         |         |             
|                                                           |                                                                                                                                                                                                                                                                                                                   |                                        
|                                                           |                                                                                                                                                                                                                                                                                                                   | (Unaudited)                            
|                                                           |                                                                                                                                                                                                                                                                                                                   | (Dollars in thousands)                 
|ASSETS                                                    
|Investments in real estate:                                |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                           | Land                                                                                                                                                                                                                                                                                                              |                                         | $       | 1,151,700    |           |  | $       | 1,064,422 |          
|                                                           | Buildings and improvements                                                                                                                                                                                                                                                                                        |                                         |         | 3,567,994    |           |  |         | 3,285,110 |          
|                                                           | Construction in progress                                                                                                                                                                                                                                                                                          |                                         |         | 163,803      |           |  |         | 181,179   |          
|                                                           |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                           |                                                                                                                                                                                                                                                                                                                   | Total investments in properties         |         |              | 4,883,497 |  |         |           | 4,530,711 | 
|                                                           | Accumulated depreciation and amortization                                                                                                                                                                                                                                                                         |                                         |         | (344,949     | )         |  |         | (265,653  | )        
|                                                           |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                           |                                                                                                                                                                                                                                                                                                                   | Net investments in properties           |         |              | 4,538,548 |  |         |           | 4,265,058 | 
|Investments in unconsolidated joint ventures               |                                                                                                                                                                                                                                                                                                                   |                                         | 64,822  |              |           |  | 71,097  |          
|Properties held for divestiture, net                       |                                                                                                                                                                                                                                                                                                                   |                                         | 105,613 |              |           |  | 157,174 |          
|                                                           |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                           |                                                                                                                                                                                                                                                                                                                   | Net investments in real estate          |         |              | 4,708,983 |  |         |           | 4,493,329 | 
|Cash and cash equivalents                                  |                                                                                                                                                                                                                                                                                                                   |                                         | 76,094  |              |           |  | 73,071  |          
|Restricted cash                                            |                                                                                                                                                                                                                                                                                                                   |                                         | 14,746  |              |           |  | 8,661   |          
|Mortgages receivable                                       |                                                                                                                                                                                                                                                                                                                   |                                         | 13,155  |              |           |  | 87,214  |          
|Accounts receivable, including discontinued
    operations |                                                                                                                                                                                                                                                                                                                   |                                         | 81,003  |              |           |  | 70,794  |          
|Other assets, including discontinued operations            |                                                                                                                                                                                                                                                                                                                   |                                         | 48,608  |              |           |  | 35,874  |          
|                                                           |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                           |                                                                                                                                                                                                                                                                                                                   | Total assets                            |         | $            | 4,942,589 |  |         | $         | 4,768,943 | 
|                                                           |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|LIABILITIES AND PARTNERS
    CAPITAL                     
|Debt:                                                      |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                           | Secured debt, including discontinued operations                                                                                                                                                                                                                                                                   |                                         | $       | 1,305,320    |           |  | $       | 1,228,214 |          
|                                                           | Unsecured senior debt securities                                                                                                                                                                                                                                                                                  |                                         |         | 800,000      |           |  |         | 780,000   |          
|                                                           | Alliance Fund II credit facility                                                                                                                                                                                                                                                                                  |                                         |         | 72,500       |           |  |         | 123,500   |          
|                                                           | Unsecured debt                                                                                                                                                                                                                                                                                                    |                                         |         | 10,319       |           |  |         |          |          
|                                                           | Unsecured credit facility                                                                                                                                                                                                                                                                                         |                                         |         | 12,000       |           |  |         | 12,000    |          
|                                                           |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                           |                                                                                                                                                                                                                                                                                                                   | Total debt                              |         |              | 2,200,139 |  |         |           | 2,143,714 | 
|Distributions payable                                      |                                                                                                                                                                                                                                                                                                                   |                                         | 42,151  |              |           |  | 4,960   |          
|Other liabilities, including discontinued
    operations   |                                                                                                                                                                                                                                                                                                                   |                                         | 146,925 |              |           |  | 133,641 |          
|                                                           |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                           |                                                                                                                                                                                                                                                                                                                   | Total liabilities                       |         |              | 2,389,215 |  |         |           | 2,282,315 | 
|Commitments and contingencies (Note 12)                    |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|Minority interests                                         |                                                                                                                                                                                                                                                                                                                   |                                         | 578,810 |              |           |  | 534,276 |          
|Partners capital:                                         |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                           | General partner, 84,012,282 and 83,592,418 units,
    respectively, and 3,995,800 and 4,000,000 Series A
    preferred units outstanding with a $99,895 and $100,000
    liquidation preference, respectively                                                                                                     |                                         |         | 1,738,453    |           |  |         | 1,752,342 |          
|                                                           | Limited partners, 4,846,387 and 4,969,027 units,
    respectively, 1,300,000 Series B preferred units with a
    $65,000 liquidation preference and 800,000 Series J
    preferred units with a $40,000 liquidation preference and
    800,000 Series K preferred units with a $40,000 liquidation
    preference |                                         |         | 236,111      |           |  |         | 200,010   |          
|                                                           |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                           |                                                                                                                                                                                                                                                                                                                   | Total partners capital                 |         |              | 1,974,564 |  |         |           | 1,952,352 | 
|                                                           |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                           |                                                                                                                                                                                                                                                                                                                   | Total liabilities and partners capital |         | $            | 4,942,589 |  |         | $         | 4,768,943 | 
|                                                           |                                                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          

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
OPERATIONS


For the Three and Nine Months Ended
September 30, 2002 and 2001


|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |            |         |         |        | 
|----------------------------------------------------------- | ------------------------------------------------------------------------------ | ----------------------------------------------- | ------------------------------------------ | --------------------------------------------------------------------- | ------ | ------- | ------ | ---------- | ------ | ------- | ------ | ---------- | ------- | ------- | ------ | ---------- | ------- | ------- | ------ | 
|                                                            |                                                                                |                                                 |                                            |                                                                      
|                                                            |                                                                                | For the Three Months                            |                                            | For the Nine Months                                                  
|                                                            |                                                                                | Ended September 30,                             |                                            | Ended September 30,                                                  
|                                                            |                                                                                |                                                 |                                            |                                                                      
|                                                            |                                                                                | 2002                                            |                                            | 2001                                                                  |        | 2002    |        | 2001      
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |           
|                                                            |                                                                                |                                                
|                                                            |                                                                                | (Unaudited)                                    
|                                                            |                                                                                | (Dollars in thousands, except per unit amounts)
|REVENUES AND OTHER INCOME                                   |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            | Rental revenues                                                                |                                                 | $                                          | 158,283                                                               |        |         | $      | 145,140    |        |         | $      | 459,505    |         |         | $      | 418,519    |        
|                                                            | Equity in earnings of unconsolidated joint
    ventures                        |                                                 |                                            | 1,322                                                                 |        |         |        | 1,636      |        |         |        | 4,443      |         |         |        | 4,365      |        
|                                                            | Private capital income                                                         |                                                 |                                            | 2,766                                                                 |        |         |        | 2,340      |        |         |        | 8,468      |         |         |        | 8,022      |        
|                                                            | Interest and other income                                                      |                                                 |                                            | 2,609                                                                 |        |         |        | 5,392      |        |         |        | 9,921      |         |         |        | 12,505     |        
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            |                                                                                |                                                 | Total revenues and other income            |                                                                       |        | 164,980 |        |            |        | 154,508 |        |            |         | 482,337 |        |            |         | 443,411 |       
|EXPENSES                                                    |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            | Property operating expenses                                                    |                                                 |                                            | 21,738                                                                |        |         |        | 17,877     |        |         |        | 58,770     |         |         |        | 50,687     |        
|                                                            | Real estate taxes                                                              |                                                 |                                            | 18,920                                                                |        |         |        | 17,274     |        |         |        | 55,670     |         |         |        | 50,535     |        
|                                                            | Interest, including amortization                                               |                                                 |                                            | 38,661                                                                |        |         |        | 32,842     |        |         |        | 112,044    |         |         |        | 94,314     |        
|                                                            | Depreciation and amortization                                                  |                                                 |                                            | 33,749                                                                |        |         |        | 28,835     |        |         |        | 95,186     |         |         |        | 82,758     |        
|                                                            | General and administrative                                                     |                                                 |                                            | 12,376                                                                |        |         |        | 8,796      |        |         |        | 34,207     |         |         |        | 26,180     |        
|                                                            | Loss on investments in other companies                                         |                                                 |                                            |                                                                      |        |         |        |           |        |         |        |           |         |         |        | 20,758     |        
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            |                                                                                |                                                 | Total expenses                             |                                                                       |        | 125,444 |        |            |        | 105,624 |        |            |         | 355,877 |        |            |         | 325,232 |       
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            |                                                                                |                                                 | Income before minority interests           |                                                                       |        | 39,536  |        |            |        | 48,884  |        |            |         | 126,460 |        |            |         | 118,179 |       
|                                                            | Minority interests share of income                                            |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |            |        
|                                                            |                                                                                | Preferred units                                 |                                            |                                                                       | (3,411 | )       |        |            | (5,943 | )       |        |            | (10,485 | )       |        |            | (17,342 | )      
|                                                            |                                                                                | Minority interests                             |                                            |                                                                       | (9,469 | )       |        |            | (8,756 | )       |        |            | (24,864 | )       |        |            | (20,166 | )      
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            |                                                                                |                                                 | Total minority interests share of income  |                                                                       |        | (12,880 | )      |            |        | (14,699 | )      |            |         | (35,349 | )      |            |         | (37,508 | )     
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            |                                                                                |                                                 |                                            | Income from continuing operations available to
    common unitholders |        |         | 26,656 |            |        |         | 34,185 |            |         |         | 91,111 |            |         |         | 80,671 | 
|Gains/(losses) on developments and dispositions             |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            | Gains on developments held for sale                                            |                                                 |                                            | 618                                                                   |        |         |        | 1,341      |        |         |        | 618        |         |         |        | 1,341      |        
|                                                            | Gains/(losses) from dispositions of real estate,
    net of minority interests |                                                 |                                            |                                                                      |        |         |        | (1,227     | )      |         |        | 2,480      |         |         |        | 33,332     |        
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            |                                                                                | Total gains on developments and dispositions    |                                            |                                                                       | 618    |         |        |            | 114    |         |        |            | 3,098   |         |        |            | 34,673  |        
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            |                                                                                |                                                 | Income before discontinued operations      |                                                                       |        | 27,274  |        |            |        | 34,299  |        |            |         | 94,209  |        |            |         | 115,344 |       
|Discontinued operations                                     |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            | Discontinued operations                                                        |                                                 |                                            | 330                                                                   |        |         |        | 471        |        |         |        | 1,349      |         |         |        | 1,399      |        
|                                                            | Gains from dispositions of real estate, net of
    minority interests          |                                                 |                                            | 3,944                                                                 |        |         |        |           |        |         |        | 3,944      |         |         |        |           |        
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            |                                                                                | Total discontinued operations                   |                                            |                                                                       | 4,274  |         |        |            | 471    |         |        |            | 5,293   |         |        |            | 1,399   |        
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            |                                                                                |                                                 | Income before extraordinary items          |                                                                       |        | 31,548  |        |            |        | 34,770  |        |            |         | 99,502  |        |            |         | 116,743 |       
|                                                            | Extraordinary items                                                            |                                                 |                                            | (88                                                                   | )      |         |        | 87         |        |         |        | (356       | )       |         |        | (351       | )      
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            |                                                                                |                                                 | Net income                                 |                                                                       |        | 31,460  |        |            |        | 33,857  |        |            |         | 99,146  |        |            |         | 116,392 |       
|                                                            | Series A preferred unit distributions                                          |                                                 |                                            | (2,123                                                                | )      |         |        | (2,125     | )      |         |        | (6,373     | )       |         |        | (6,375     | )      
|                                                            | Series B preferred unit distributions                                          |                                                 |                                            | (1,402                                                                | )      |         |        | (1,402     | )      |         |        | (4,205     | )       |         |        | (4,206     | )      
|                                                            | Series J preferred unit distributions                                          |                                                 |                                            | (795                                                                  | )      |         |        | (78        | )      |         |        | (2,508     | )       |         |        | (78        | )      
|                                                            | Series K preferred unit distributions                                          |                                                 |                                            | (795                                                                  | )      |         |        |           |        |         |        | (1,572     | )       |         |        |           |        
|                                                            | Preferred unit redemption discount                                             |                                                 |                                            | 412                                                                   |        |         |        |           |        |         |        | 412        |         |         |        |           |        
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            |                                                                                |                                                 | Net income available to common unitholders |                                                                       | $      | 26,757  |        |            | $      | 31,252  |        |            | $       | 84,900  |        |            | $       | 105,733 |       
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|Income available to common unitholders
    attributable to: |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            | General partner                                                                |                                                 | $                                          | 25,363                                                                |        |         | $      | 29,452     |        |         | $      | 80,266     |         |         | $      | 99,575     |        
|                                                            | Limited partner                                                                |                                                 |                                            | 1,394                                                                 |        |         |        | 1,800      |        |         |        | 4,634      |         |         |        | 6,158      |        
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            |                                                                                |                                                 | Net income available to common unitholders |                                                                       | $      | 26,757  |        |            | $      | 31,252  |        |            | $       | 84,900  |        |            | $       | 105,733 |       
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|BASIC INCOME PER COMMON UNIT                                |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            | Income from continuing operations available to
    common unitholders          |                                                 | $                                          | 0.24                                                                  |        |         | $      | 0.34       |        |         | $      | 0.86       |         |         | $      | 0.76       |        
|                                                            | Gains on developments and dispositions                                         |                                                 |                                            | 0.01                                                                  |        |         |        |           |        |         |        | 0.04       |         |         |        | 0.41       |        
|                                                            | Discontinued operations                                                        |                                                 |                                            | 0.05                                                                  |        |         |        | 0.01       |        |         |        | 0.06       |         |         |        | 0.01       |        
|                                                            | Extraordinary items                                                            |                                                 |                                            |                                                                      |        |         |        |           |        |         |        |           |         |         |        |           |        
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            |                                                                                |                                                 | Net income available to common unitholders |                                                                       | $      | 0.30    |        |            | $      | 0.35    |        |            | $       | 0.96    |        |            | $       | 1.18    |       
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|DILUTED INCOME PER COMMON UNIT                              |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            | Income from continuing operations available to
    common unitholders          |                                                 | $                                          | 0.24                                                                  |        |         | $      | 0.33       |        |         | $      | 0.84       |         |         | $      | 0.75       |        
|                                                            | Gains on developments and dispositions                                         |                                                 |                                            | 0.01                                                                  |        |         |        |           |        |         |        | 0.04       |         |         |        | 0.41       |        
|                                                            | Discontinued operations                                                        |                                                 |                                            | 0.05                                                                  |        |         |        | 0.01       |        |         |        | 0.06       |         |         |        | 0.01       |        
|                                                            | Extraordinary items                                                            |                                                 |                                            |                                                                      |        |         |        |           |        |         |        |           |         |         |        |           |        
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            |                                                                                |                                                 | Net income available to common unitholders |                                                                       | $      | 0.30    |        |            | $      | 0.34    |        |            | $       | 0.94    |        |            | $       | 1.17    |       
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|WEIGHTED AVERAGE COMMON UNITS OUTSTANDING                   |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            | Basic                                                                          |                                                 |                                            | 88,575,091                                                            |        |         |        | 89,550,154 |        |         |        | 88,634,134 |         |         |        | 89,300,512 |        
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           
|                                                            | Diluted                                                                        |                                                 |                                            | 90,379,023                                                            |        |         |        | 90,799,887 |        |         |        | 90,239,149 |         |         |        | 90,263,046 |        
|                                                            |                                                                                |                                                 |                                            |                                                                       |        |         |        |            |        |         |        |            |         |         |        |           

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 STATEMENTS OF CASH
FLOWS


For the Nine Months Ended September 30,
2002 and 2001


|                                                                                       |                                                                       |                                        |                                           |         |         |          |          |         |        |          |  
|-------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | -------------------------------------- | ----------------------------------------- | ------- | ------- | -------- | -------- | ------- | ------ | -------- | -
|                                                                                       |                                                                       | 2002                                   |                                           | 2001   
|                                                                                       |                                                                       |                                        |                                           |        
|                                                                                       |                                                                       |                                       
|                                                                                       |                                                                       | (Unaudited)                           
|                                                                                       |                                                                       | (Dollars in thousands)                
|CASH FLOWS FROM OPERATING ACTIVITIES                                                   |                                                                       |                                        |                                           |         |         |          |          |        
|Net income                                                                             |                                                                       | $                                      | 99,146                                    |         |         | $        | 116,392  |        
|Adjustments to reconcile net income to net cash
    provided by operating activities:  |                                                                       |                                        |                                           |         |         |          |          |        
|                                                                                       | Depreciation and amortization                                         |                                        |                                           | 95,186  |         |          |          | 82,758  |       
|                                                                                       | Loss on investments in other companies                                |                                        |                                           |        |         |          |          | 20,758  |       
|                                                                                       | Straight-line rents                                                   |                                        |                                           | (10,385 | )       |          |          | (7,579  | )     
|                                                                                       | Amortization of debt premiums, discounts and
    financing costs, net |                                        |                                           | 1,772   |         |          |          | 342     |       
|                                                                                       | Amortization of stock-based compensation                              |                                        |                                           | 3,949   |         |          |          | 1,928   |       
|                                                                                       | Minority interests                                                    |                                        |                                           | 35,349  |         |          |          | 37,508  |       
|                                                                                       | Gains on developments held for sale                                   |                                        |                                           | (618    | )       |          |          | (1,341  | )     
|                                                                                       | Discontinued operations depreciation                                 |                                        |                                           | 285     |         |          |          | 380     |       
|                                                                                       | Gains from dispositions of real estate, net of
    minority interests |                                        |                                           | (6,424  | )       |          |          | (33,332 | )     
|                                                                                       | Non-cash portion of extraordinary items                               |                                        |                                           | (330    | )       |          |          | 351     |       
|                                                                                       | Equity in earnings of unconsolidated joint
    ventures               |                                        |                                           | (4,443  | )       |          |          | (4,322  | )     
|                                                                                       | Changes in assets and liabilities:                                    |                                        |                                           |         |         |          |          |         |       
|                                                                                       |                                                                       | Accounts receivable and other assets   |                                           |         | (14,320 | )        |          |         | 23,900 |         
|                                                                                       |                                                                       | Accounts payable and other liabilities |                                           |         | 13,284  |          |          |         | 14,205 |         
|                                                                                       |                                                                       |                                        |                                           |         |         |          |          |        
|                                                                                       |                                                                       |                                        | Net cash provided by operating activities |         |         | 212,451  |          |         |        | 251,948  |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                   |                                                                       |                                        |                                           |         |         |          |          |        
|Change in restricted cash                                                              |                                                                       |                                        | (6,085                                    | )       |         |          | 8,919    |        
|Cash paid for property acquisitions                                                    |                                                                       |                                        | (216,850                                  | )       |         |          | (275,138 | )      
|Additions to buildings, development costs, and
    other first generation improvements |                                                                       |                                        | (110,583                                  | )       |         |          | (151,583 | )      
|Additions to second generation building
    improvements and lease costs               |                                                                       |                                        | (41,956                                   | )       |         |          | (33,198  | )      
|Contributions to unconsolidated joint ventures                                         |                                                                       |                                        |                                          |         |         |          | (4,965   | )      
|Distributions received from unconsolidated joint
    ventures                          |                                                                       |                                        | 10,718                                    |         |         |          | 4,055    |        
|Net proceeds from divestiture of real estate                                           |                                                                       |                                        | 94,706                                    |         |         |          | 194,691  |        
|                                                                                       |                                                                       |                                        |                                           |         |         |          |          |        
|                                                                                       |                                                                       |                                        | Net cash used in investing activities     |         |         | (270,050 | )        |         |        | (257,219 | )

4



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##### Table of Contents



|                                                                        |                            |                                           |          |         |         |   |          |   |         | 
|----------------------------------------------------------------------- | -------------------------- | ----------------------------------------- | -------- | ------- | ------- | - | -------- | - | ------- | 
|                                                                        |                            | 2002                                      |          | 2001   
|                                                                        |                            |                                           |          |        
|                                                                        |                            |                                          
|                                                                        |                            | (Unaudited)                              
|                                                                        |                            | (Dollars in thousands)                   
|CASH FLOWS FROM FINANCING ACTIVITIES                                    |                            |                                           |          |         |         |   |          |  
|Issuance of common units                                                |                            |                                           | 14,674   |         |         |   | 2,087    |  
|Retirement of common units                                              |                            |                                           | (11,563  | )       |         |   | (22,062  | )
|Borrowings on secured debt                                              |                            |                                           | 167,960  |         |         |   | 232,723  |  
|Payments on secured debt                                                |                            |                                           | (111,060 | )       |         |   | (67,869  | )
|Borrowings on unsecured credit facility                                 |                            |                                           | 12,000   |         |         |   | 198,000  |  
|Payments on unsecured credit facility                                   |                            |                                           | (12,000  | )       |         |   | (414,000 | )
|Borrowings on Alliance Fund II credit facility                          |                            |                                           | 44,000   |         |         |   | 125,000  |  
|Payments on Alliance Fund II credit facility                            |                            |                                           | (95,000  | )       |         |   |         |  
|Payment of financing fees                                               |                            |                                           | (2,611   | )       |         |   | (4,385   | )
|Repayment of mortgage receivables                                       |                            |                                           | 74,059   |         |         |   |         |  
|Net proceeds from issuances of senior debt
    securities               |                            |                                           | 19,883   |         |         |   | 99,406   |  
|Net proceeds from issuances of preferred units
    (minority interests) |                            |                                           | 38,934   |         |         |   | 63,781   |  
|Repurchase of preferred units (minority interests)                      |                            |                                           | (7,088   | )       |         |   |         |  
|Contributions from co-investment partners
    (minority interests)      |                            |                                           | 63,712   |         |         |   | 134,090  |  
|Distributions paid to general partner and
    preferred unitholders     |                            |                                           | (83,666  | )       |         |   | (77,809  | )
|Distributions to minority interests, including
    preferred units      |                            |                                           | (51,612  | )       |         |   | (40,622  | )
|                                                                        |                            |                                           |          |         |         |   |          |  
|                                                                        |                            | Net cash provided by financing activities |          |         | 60,622  |   |          |   | 228,340 | 
|                                                                        |                            |                                           |          |         |         |   |          |  
|Net increase in cash and cash equivalents                               |                            |                                           | 3,023    |         |         |   | 223,069  |  
|Cash and cash equivalents at beginning of period                        |                            |                                           | 73,071   |         |         |   | 20,358   |  
|                                                                        |                            |                                           |          |         |         |   |          |  
|Cash and cash equivalents at end of period                              |                            | $                                         | 76,094   |         |         | $ | 243,427  |  
|                                                                        |                            |                                           |          |         |         |   |          |  
|Supplemental Disclosures                                                |                            |                                           |          |         |         |   |          |  
|Cash paid for interest, net of amounts capitalized                      |                            | $                                         | 114,856  |         |         | $ | 102,562  |  
|Acquisition of properties                                               |                            | $                                         | 239,037  |         |         | $ | 275,138  |  
|Non-cash transactions:                                                  |                            |                                           |          |         |         |   |          |  
|                                                                        | Assumption of secured debt |                                           |          | (22,187 | )       |   |          |  |        
|                                                                        |                            |                                           |          |         |         |   |          |  
|                                                                        |                            | Net cash paid                             |          | $       | 216,850 |   |          | $ | 275,138 | 
|                                                                        |                            |                                           |          |         |         |   |          |  

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

5



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##### Table of Contents



AMB PROPERTY, L.P.






CONSOLIDATED STATEMENT OF PARTNERS
CAPITAL


For the Nine Months Ended September 30,
2002


|                                                                                                             |                                 |                            |           |                  |  |                 |        |              |  |       |            |        |  |       |           |        |   |       |           |   |  |   |         |       |  |  |           |   |  |   |        |       |  |   |           |   |        | 
|------------------------------------------------------------------------------------------------------------ | ------------------------------- | -------------------------- | --------- | ---------------- |  | --------------- | ------ | ------------ |  | ----- | ---------- | ------ |  | ----- | --------- | ------ | - | ----- | --------- | - |  | - | ------- | ----- |  |  | --------- | - |  | - | ------ | ----- |  | - | --------- | - | ------ | 
|                                                                                                             |                                 |                            |           |                  |  |                
|                                                                                                             |                                 | General Partner            |           | Limited Partners |  |                
|                                                                                                             |                                 |                            |           |                  |  |                
|                                                                                                             |                                 |                            |           |                  |  |                 |        |              |  |      
|                                                                                                             |                                 | Preferred Units            |           | Common Units     |  | Preferred Units |        | Common Units |  |      
|                                                                                                             |                                 |                            |           |                  |  |                 |        |              |  |      
|                                                                                                             |                                 | Units                      |           | Amount           |  | Units           |        | Amount       |  | Units |            | Amount |  | Units |           | Amount |   | Total
|                                                                                                             |                                 |                            |           |                  |  |                 |        |              |  |       |            |        |  |       |           |        |   |      
|                                                                                                             |                                 |                           
|                                                                                                             |                                 | (Unaudited)               
|                                                                                                             |                                 | (Dollars in thousands)    
|Balance at December 31, 2001                                                                                 |                                 |                            | 4,000,000 |                  |  | $               | 96,100 |              |  |       | 83,592,418 |        |  | $     | 1,656,242 |        |   |       | 2,100,000 |   |  | $ | 101,225 |       |  |  | 4,969,027 |   |  | $ | 98,785 |       |  | $ | 1,952,352 |  
|Contributions                                                                                                |                                 |                            |          |                  |  |                 |       |              |  |       |           |        |  |       |          |        |   |       | 800,000   |   |  |   | 38,939  |       |  |  |          |   |  |   |       |       |  |   | 38,939    |  
|Comprehensive income:                                                                                        |                                 |                            |           |                  |  |                 |        |              |  |       |            |        |  |       |           |        |   |       |           |   |  |   |         |       |  |  |           |   |  |   |        |       |  |   |           |  
|                                                                                                             | Net Income                      |                            |           |                 |  |                 |        | 6,373        |  |       |            |       |  |       |           | 79,854 |   |       |           |  |  |   |         | 8,285 |  |  |           |  |  |   |        | 4,634 |  |   |           |   |       
|                                                                                                             | Currency translation adjustment |                            |           |                 |  |                 |        |             |  |       |            |       |  |       |           | (8     | ) |       |           |  |  |   |         |      |  |  |           |  |  |   |        |      |  |   |           |   |       
|                                                                                                             |                                 | Total comprehensive income |           |                  |  |                 |        |              |  |       |            |        |  |       |           |        |   |       |           |   |  |   |         |       |  |  |           |   |  |   |        |       |  |   |           |   | 99,138 | 
|Preferred unit redemption discount                                                                           |                                 |                            |          |                  |  |                 |       |              |  |       |           |        |  |       | 412       |        |   |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | 412       |  
|Issuance of common limited partnership units in
    connection with issuance of restricted stock and options |                                 |                            |          |                  |  |                 |       |              |  |       | 170,948    |        |  |       | 7,478     |        |   |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | 7,478     |  
|Issuance of common limited partnership units in
    connection with the exercise of stock options            |                                 |                            |          |                  |  |                 |       |              |  |       | 559,476    |        |  |       | 14,674    |        |   |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | 14,674    |  
|Conversion of common limited partnership units to
    common stock                                           |                                 |                            |          |                  |  |                 |       |              |  |       | 122,640    |        |  |       | 2,382     |        |   |       |          |   |  |   |        |       |  |  | (122,640  | ) |  |   | (2,382 | )     |  |   |          |  
|Retirement of units                                                                                          |                                 |                            | (4,200    | )                |  |                 | (106   | )            |  |       | (433,200   | )      |  |       | (11,457   | )      |   |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | (11,563   | )
|Deferred compensation                                                                                        |                                 |                            |          |                  |  |                 |       |              |  |       |           |        |  |       | (7,478    | )      |   |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | (7,478    | )
|Deferred compensation amortization                                                                           |                                 |                            |          |                  |  |                 |       |              |  |       |           |        |  |       | 3,949     |        |   |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | 3,949     |  
|Reallocation of interests                                                                                    |                                 |                            |          |                  |  |                 |       |              |  |       |           |        |  |       |          |        |   |       |          |   |  |   | 942     |       |  |  |          |   |  |   |       |       |  |   | 942       |  
|Distributions                                                                                                |                                 |                            |          |                  |  |                 | (6,373 | )            |  |       |           |        |  |       | (103,589  | )      |   |       |          |   |  |   | (8,285  | )     |  |  |          |   |  |   | (6,032 | )     |  |   | (124,279  | )
|                                                                                                             |                                 |                            |           |                  |  |                 |        |              |  |       |            |        |  |       |           |        |   |       |           |   |  |   |         |       |  |  |           |   |  |   |        |       |  |   |           |  
|Balance at September 30, 2002                                                                                |                                 |                            | 3,995,800 |                  |  | $               | 95,994 |              |  |       | 84,012,282 |        |  | $     | 1,642,459 |        |   |       | 2,900,000 |   |  | $ | 141,106 |       |  |  | 4,846,387 |   |  | $ | 95,005 |       |  | $ | 1,974,564 |  
|                                                                                                             |                                 |                            |           |                  |  |                 |        |              |  |       |            |        |  |       |           |        |   |       |           |   |  |   |         |       |  |  |           |   |  |   |        |       |  |   |           |  

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

6



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##### Table of Contents



AMB PROPERTY, L.P.






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


September 30, 2002


(Unaudited)


1.     Organization
and Formation of the Operating Partnership

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

As of September 30, 2002, the Company owned
an approximate 94.5% general partner interest in the Operating
Partnership, excluding preferred units. The remaining 5.5%
limited partner interest is owned by non-affiliated investors
and certain current and former directors and officers of the
Company. For local law purposes, certain properties are owned
through limited partnerships and limited liability companies.
The ownership of such properties through such entities does not
materially affect the Operating Partnerships overall
ownership interests in the properties. As the sole general
partner of the Operating Partnership, the Company has full,
exclusive and complete responsibility and discretion in the
day-to-day management and control of the Operating Partnership.
Net operating results of the Operating Partnership are allocated
after preferred unit distributions based on the respective
partners ownership interests.

The Operating Partnership enters into
co-investment joint ventures with institutional investors. These
co-investment joint ventures provide the Operating Partnership
with an additional source of capital to fund certain
acquisitions and development and renovation projects. As of
September 30, 2002, the Operating Partnership had
investments in five co-investment joint ventures, which are
consolidated for financial reporting purposes.

AMB Capital Partners, LLC, a Delaware limited
liability company (AMB Capital Partners), the
successor-in-interest to AMB Investment Management, Inc.
(AMB Investment Management), provides real estate
investment services to clients on a fee basis. Headlands Realty
Corporation, a Maryland corporation, conducts a variety of
businesses that include incremental income programs, such as the
Operating Partnerships CustomerAssist Program, and
development projects available for sale to third parties. IMD
Holding Corporation, a Delaware corporation, also conducts a
variety of businesses that include development projects
available for sale to third parties. On December 31, 2001,
AMB Investment Management was reorganized through a series of
related transactions into AMB Capital Partners. The Operating
Partnership is the managing member of AMB Capital Partners. On
May 31, 2001, the Operating Partnership acquired 100% of
the common stock of AMB Investment Management and Headlands
Realty Corporation from current and former executive officers of
the Company, a former executive officer of AMB Investment
Management, and a director of Headlands Realty Corporation,
thereby acquiring 100% of both entities capital stock. The
Operating Partnership began consolidating its investments in AMB
Investment Management and Headlands Realty Corporation on
May 31, 2001. Prior to May 31, 2001, the Operating
Partnership reflected its investment using the equity method.
The impact of consolidating AMB Investment Management and
Headlands Realty Corporation was not material.

As of September 30, 2002, the Operating
Partnership owned 941 industrial buildings and seven retail
centers, located in 27 markets throughout North America. The
Operating Partnerships strategy is to become

7



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

a leading provider of distribution properties in
supply-constrained, in fill submarkets located near key
international passenger and cargo airports, highway systems, and
sea ports in major metropolitan areas. As of September 30,
2002, the industrial buildings, principally warehouse
distribution buildings, encompassed approximately
85.7 million rentable square feet and were 94.4% leased to
over 3,000 customers. As of September 30, 2002, the retail
centers, principally grocer-anchored community shopping centers,
encompassed approximately 1.0 million rentable square feet
and were 83.8% leased to 117 customers.

As of September 30, 2002, through AMB
Capital Partners, the Operating Partnership also managed, but
did not have an ownership interest in, industrial, retail and
other properties, totaling approximately 1.8 million
rentable square feet on behalf of various clients.

In addition, the Operating Partnership has
investments in industrial buildings, totaling approximately
5.3 million rentable square feet, through unconsolidated
joint ventures.

2.     Interim
Financial Statements

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

In the opinion of management, the accompanying
unaudited consolidated financial statements contain all
adjustments, of a normal recurring nature, necessary for a fair
presentation of the Operating Partnerships consolidated
financial position and results of operations for the interim
periods. The interim results for the three and nine months ended
September 30, 2002 and 2001, are not necessarily indicative
of future results. These financial statements should be read in
conjunction with the financial statements and the notes thereto
included in the Operating Partnerships Annual Report on
Form 10-K for the year ended December 31, 2001.

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

The consolidation of AMB Investment Management
(predecessor-in-interest to AMB Capital Partners) and Headlands
Realty Corporation on May 31, 2001, contributed to the
increase in general and administrative expenses. Prior to
May 31, 2001,the Operating Partnership did not include
expenses incurred by two unconsolidated preferred stock
subsidiaries, Headlands Realty Corporation and AMB Investment
Management, in general and administrative expenses, they were
netted with private capital income. General and administrative
expenses for the nine months ended September 30, 2001,
would have been $29.7 million had the subsidiaries been
consolidated beginning January 1, 2001.

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

Investments in other companies.Investments in other companies were
accounted for on a cost basis and realized gains and losses were
included in current earnings. During the nine months ended
September 30, 2001, the Operating Partnership recognized a
loss on its investments in other companies, including Webvan
Group, Inc., totaling $20.8 million. The Operating
Partnership had previously recognized gains and losses on its
investment in Webvan Group, Inc. as a component of other
comprehensive income. The loss reflects a 100% write-down of the
investments. No gains or losses have been recognized in 2002.

Stock-based compensation expense.In the second quarter of 2002 and
effective beginning in the first quarter of 2002, the Operating
Partnership adopted the expense recognition provisions of
Statement of

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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation.
The Operating Partnership values stock options issued by the
Company, its general partner, using the Black-Scholes
option-pricing model and recognizes this value as an expense
over the period in which the options vest. Under this standard,
recognition of expense for stock options is applied to all
options granted after the beginning of the year of adoption.
Prior to the second quarter of 2002, the Operating Partnership
followed the intrinsic method set forth in APB Opinion 25,
Accounting for Stock Issued to Employees. In the first
quarter of 2002, the Company awarded approximately
1.8 million stock options to employees. In accordance with
SFAS No. 123, the Operating Partnership will recognize
the associated expense over the three to five-year vesting
periods. Related stock-based compensation expense was
$0.3 million and $0.7 million for the three and nine
month periods ended September 30, 2002, respectively. The
expense is included in general and administrative expenses in
the accompanying Consolidated Statements of Operations. The
Operating Partnership revised results for the three months ended
March 31, 2002, to include $0.2 million of stock-based
compensation expense. The adoption of SFAS No. 123 is
prospective and the 2002 expense relates only to stock options
granted in 2002.

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

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

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

9



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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

3.     Real Estate
Acquisition and Development Activity

During the three months ended September 30,
2002, the Operating Partnership invested $89.2 million in
eight industrial buildings aggregating approximately
1.4 million square feet, which included the investment of
$17.4 million in four industrial buildings aggregating
approximately 0.2 million square feet through two of the
Operating Partnerships co-investment joint ventures.
During the nine months ended September 30, 2002, the
Operating Partnership invested $246.1 million in 33
industrial buildings aggregating approximately 4.1 million
square feet, which included $132.4 million in
28 industrial buildings aggregating 2.6 million square
feet through two of the Operating Partnerships
co-investment joint ventures.

During the three months ended September 30,
2002, the Operating Partnership completed industrial
developments valued at $50.4 million, aggregating
approximately 0.9 million square feet. The Operating
Partnership also initiated a new industrial renovation project
valued at $17.7 million aggregating approximately
0.3 million square feet. During the nine months ended
September 30, 2002, the Operating Partnership completed
industrial developments valued at $77.6 million,
aggregating approximately 1.4 million square feet. The
Operating Partnership also initiated new industrial development
projects valued at $54.5 million aggregating approximately
1.3 million square feet, including a new industrial
development project valued at $30.8 million aggregating
approximately 0.8 million square feet in Mexico.

During the three months ended September 30,
2001, the Operating Partnership invested $118.1 million in
operating properties, consisting of 16 industrial buildings
aggregating approximately 1.7 million square feet, which
included the investment of $41.3 million in operating
properties, consisting of seven industrial buildings aggregating
approximately 0.7 million square feet for two of the
Operating Partnerships joint ventures. During the nine
months ended September 30, 2001, the Operating Partnership
invested $283.4 million in operating properties, consisting
of 42 industrial buildings aggregating approximately
4.5 million square feet, which included the investment of
$126.1 million in operating properties, consisting of 21
industrial buildings aggregating approximately 2.3 million
square feet for three of the Operating Partnerships joint
ventures.

As of September 30, 2002, the Operating
Partnership had in its development pipeline: (1) ten
industrial projects, which will total approximately
2.9 million square feet and have an aggregate estimated
investment of $128.1 million upon completion and
(2) three development projects available for sale, which
will total approximately 0.7 million square feet and have
an aggregate estimated investment of $54.4 million upon
completion. As of September 30, 2002, the Operating
Partnership and its Development Alliance Partners had funded an
aggregate of $134.1 million and needed to fund an estimated
additional $48.4 million in order to complete current and
planned projects. The Operating Partnerships development
pipeline includes projects to be completed through March 2004.

4.     Property
Divestitures and Properties Held for Divestiture

Property Divestitures.During the three months ended
September 30, 2002, the Operating Partnership divested
itself of five industrial and one retail center, aggregating
approximately 0.6 million square feet, for an aggregate
price of $33.6 million, with a resulting net gain of
$3.9 million. During the nine months ended
September 30, 2002, the Operating Partnership divested
itself of seven industrial and two retail centers, aggregating
approximately 1.3 million square feet, for an aggregate
price of $84.2 million, with a resulting net gain of
$6.4 million.

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

During the nine months ended September 30,
2001, the Operating Partnership contributed $539.2 million
in operating properties, consisting of 111 industrial
buildings, aggregating approximately 10.8 million square

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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

feet, to three of its co-investment joint
ventures. The Operating Partnership recognized a gain of
$19.4 million on the contributions, representing the
portion of the contributed properties acquired by the
third-party co-investors.

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

Properties Held for Divestiture under the
Provisions of SFAS No. 121.As of
September 30, 2002, the Operating Partnership had decided
to divest itself of four retail centers and one retail
undeveloped land parcel with a net book value of
$98.2 million. The retail centers do not meet the Operating
Partnerships strategic objectives. The divestitures of the
properties are subject to negotiation of acceptable terms and
other customary conditions. Properties held for divestiture are
stated at the lower of cost or estimated fair value less costs
to sell and may be classified as held for sale under SFAS
No. 121 for up to 12 months. The following summarizes
the condensed results of operations of the properties held for
divestiture under SFAS No. 121 at September 30, 2002
(dollars in thousands):

|                                 |                                                                 |               |       |                     |  |      |       |      |  |   |        |       |  |   |        |       | 
|-------------------------------- | --------------------------------------------------------------- | ------------- | ----- | ------------------- |  | ---- | ----- | ---- |  | - | ------ | ----- |  | - | ------ | ----- | 
|                                 |                                                                 |               |       |                     |  |     
|                                 |                                                                 | For the Three |       |                    
|                                 |                                                                 | Months Ended  |       | For the Nine Months
|                                 |                                                                 | September 30, |       | Ended September 30,
|                                 |                                                                 |               |       |                    
|                                 |                                                                 | 2002          |       | 2001                |  | 2002 |       | 2001
|                                 |                                                                 |               |       |                     |  |      |       |     
|Rental revenues                  |                                                                 | $             | 3,156 |                     |  | $    | 2,673 |      |  | $ | 8,982  |       |  | $ | 8,328  |      
|Straight-line rents              |                                                                 |               | 41    |                     |  |      | 169   |      |  |   | 89     |       |  |   | 398    |      
|Property operating expenses      |                                                                 |               | (710  | )                   |  |      | (732  | )    |  |   | (2,149 | )     |  |   | (2,273 | )    
|Real estate taxes                |                                                                 |               | (515  | )                   |  |      | (588  | )    |  |   | (1,439 | )     |  |   | (1,372 | )    
|Interest, including amortization |                                                                 |               | (677  | )                   |  |      | (733  | )    |  |   | (1,670 | )     |  |   | (2,309 | )    
|Depreciation and amortization    |                                                                 |               |      |                     |  |      | (356  | )    |  |   |       |       |  |   | (1,072 | )    
|                                 |                                                                 |               |       |                     |  |      |       |      |  |   |        |       |  |   |        |      
|                                 | Income from continuing operations before minority
    interests |               | $     | 1,295               |  |      | $     | 433  |  |   | $      | 3,813 |  |   | $      | 1,700 | 
|                                 |                                                                 |               |       |                     |  |      |       |      |  |   |        |       |  |   |        |      

Properties Held for Divestiture under the
provisions of SFAS No. 144.As of
September 30, 2002, the Operating Partnership had decided
to divest itself of one industrial property and two development
properties with a net book value of $7.3 million. The
industrial property is not in the Operating Partnerships
core markets and does not meet its strategic objectives and the
development properties are being developed under the Operating
Partnerships development for sale program. The
divestitures of the properties are subject to negotiation of
acceptable terms and other customary conditions. Properties held
for divestiture are stated at the lower of cost or estimated
fair value less costs to sell. The following summarizes the
condensed results of

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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

operations of the properties held for divestiture
and sold under SFAS No. 144 at September 30, 2002
(dollars in thousands):

|                                 |                         |               |     |               |  |      |       |      |  |   |       |       |  |   |       |       | 
|-------------------------------- | ----------------------- | ------------- | --- | ------------- |  | ---- | ----- | ---- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                                 |                         |               |     |              
|                                 |                         | For the Three |     | For the Nine 
|                                 |                         | Months Ended  |     | Months Ended 
|                                 |                         | September 30, |     | September 30,
|                                 |                         |               |     |              
|                                 |                         | 2002          |     | 2001          |  | 2002 |       | 2001
|                                 |                         |               |     |               |  |      |       |     
|Rental revenues                  |                         | $             | 478 |               |  | $    | 1,011 |      |  | $ | 2,276 |       |  | $ | 2,959 |      
|Straight-line rents              |                         |               | 41  |               |  |      | (62   | )    |  |   | 80    |       |  |   | (53   | )    
|Property operating expenses      |                         |               | (91 | )             |  |      | (93   | )    |  |   | (296  | )     |  |   | (329  | )    
|Real estate taxes                |                         |               | (23 | )             |  |      | (105  | )    |  |   | (278  | )     |  |   | (358  | )    
|Interest, including amortization |                         |               |    |               |  |      | (154  | )    |  |   | (148  | )     |  |   | (440  | )    
|Depreciation and amortization    |                         |               | (75 | )             |  |      | (126  | )    |  |   | (285  | )     |  |   | (380  | )    
|                                 |                         |               |     |               |  |      |       |      |  |   |       |       |  |   |       |      
|                                 | Discontinued operations |               | $   | 330           |  |      | $     | 471  |  |   | $     | 1,349 |  |   | $     | 1,399 | 
|                                 |                         |               |     |               |  |      |       |      |  |   |       |       |  |   |       |      

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

|                         |  |               |     |              |  |   |       | 
|------------------------ |  | ------------- | --- | ------------ |  | - | ----- | 
|                         |  | September 30, |     | December 31,
|                         |  | 2002          |     | 2001        
|                         |  |               |     |             
|Accounts receivable, net |  | $             | 168 |              |  | $ | 208   | 
|Other assets             |  | $             | 65  |              |  | $ | 32    | 
|Secured debt             |  | $             |    |              |  | $ | 7,308 | 
|Other liabilities        |  | $             | 644 |              |  | $ | 347   | 

5.     Mortgages
Receivable

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

Through a wholly-owned subsidiary, the Operating
Partnership holds a mortgage loan receivable on AMB Pier One,
LLC, an unconsolidated joint venture. The note bears interest at
13.0% and matures in May 2026. As of September 30, 2002,
the outstanding balance on the note was $13.2 million.

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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

6.     Debt

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

|                                                                                                                                                                                                      |                       |                         |         |              |           |   |         |           |           | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | ----------------------- | ------- | ------------ | --------- | - | ------- | --------- | --------- | 
|                                                                                                                                                                                                      |                       | September 30,           |         | December 31,
|                                                                                                                                                                                                      |                       | 2002                    |         | 2001        
|                                                                                                                                                                                                      |                       |                         |         |             
|Operating Partnership secured debt, varying
    interest rates from 4.0% to 10.4%, due January 2003 to April
    2014 (weighted average interest rate of 8.0% at
    September 30, 2002)              |                       | $                       | 394,995 |              |           | $ | 453,954 |          
|Joint venture secured debt, varying interest
    rates from 3.4% to 9.5%, due April 2004 to June 2023 (weighted
    average interest rate of 7.1% at September 30, 2002)                              |                       |                         | 897,420 |              |           |   | 759,374 |          
|Unsecured senior debt securities (medium-term
    notes), varying interest rates from 5.9% to 8.0%, (weighted
    average interest rate of 7.2% at September 30, 2002) due
    June 2005 to June 2018 |                       |                         | 800,000 |              |           |   | 780,000 |          
|Unsecured debt, interest rate of 7.5%, due June
    2013 and November 2015                                                                                                                            |                       |                         | 10,319  |              |           |   |        |          
|Unsecured credit facility, variable interest at
    LIBOR plus 75 basis points (weighted average interest rate of
    2.7% at September 30, 2002), due May 2003                                       |                       |                         | 12,000  |              |           |   | 12,000  |          
|Alliance Fund II credit facility, variable
    interest at LIBOR plus 87.5 basis points (weighted average
    interest rate of 2.7% at September 30, 2002), due August
    2003                       |                       |                         | 72,500  |              |           |   | 123,500 |          
|                                                                                                                                                                                                      |                       |                         |         |              |           |   |         |          
|                                                                                                                                                                                                      | Total before premiums |                         |         | 2,187,234    |           |   |         | 2,128,828 |          
|                                                                                                                                                                                                      | Unamortized premiums  |                         |         | 12,905       |           |   |         | 14,886    |          
|                                                                                                                                                                                                      |                       |                         |         |              |           |   |         |          
|                                                                                                                                                                                                      |                       | Total consolidated debt |         | $            | 2,200,139 |   |         | $         | 2,143,714 | 
|                                                                                                                                                                                                      |                       |                         |         |              |           |   |         |          

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
September 30, 2002, and December 31, 2001, the total
gross investment book value of those properties securing the
debt was $2.5 billion and $2.3 billion, respectively,
including $1.3 billion and $1.2 billion, respectively,
in consolidated joint ventures. All of the secured debt bears
interest at fixed rates, except for six loans with an aggregate
principal amount of $48.2 million as of September 30,
2002, which bear interest at variable rates (weighted average
interest rate of 3.5% as of September 30, 2002). The
secured debt has various covenants. Management believes that the
Operating Partnership was in compliance with its financial
covenants as of September 30, 2002. As of
September 30, 2002, the Operating Partnership had 25
non-recourse secured loans, which are cross-collateralized by 59
properties, totaling $695.9 million (not including
unamortized debt premiums).

Interest on the unsecured senior debt securities
is payable semi-annually. The 2015 notes are putable and
callable in September 2005. The senior debt securities are
subject to various covenants. Management believes that the
Operating Partnership was in compliance with its financial
covenants at September 30, 2002.

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

In August 2000, the Operating Partnership
commenced a medium-term note program for the issuance of up to
$400.0 million in principal amount of medium-term notes,
which are guaranteed by the Company. On

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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

January 14, 2002, the Operating Partnership
completed this program when it issued and sold the remaining
$20.0 million of the notes to Lehman Brothers, Inc., as
principal. The Company has guaranteed the notes, which mature on
January 17, 2007, and bear interest at 5.90% per annum. The
Operating Partnership used the net proceeds of
$19.9 million for general corporate purposes, to partially
repay indebtedness and to acquire and develop additional
properties.

In May 2000, the Operating Partnership entered
into a $500.0 million unsecured revolving credit agreement.
The Company guarantees the Operating Partnerships
obligations under the credit facility. Borrowings under the
credit facility currently bear interest at LIBOR plus 75 basis
points, which is based on the Operating Partnerships
credit rating. The credit facility matures in May 2003, has a
one-year extension option, and is subject to a 15 basis
point annual facility fee based on the Operating
Partnerships credit rating. The credit facility has
various covenants. Management believes that the Operating
Partnership was in compliance with its financial covenants at
September 30, 2002. The Operating Partnership has the
ability to increase available borrowings to $700.0 million
by adding additional banks to the facility or obtaining the
agreement of existing banks to increase their commitments.
Monthly debt service payments on the credit facility are
interest only. The total amount available under the credit
facility fluctuates based upon the borrowing base, as defined in
the agreement governing the credit facility, generally the value
of the Operating Partnerships unencumbered properties. As
of September 30, 2002, the outstanding balance on the
credit facility was $12.0 million and the amount available
under the credit facility was $485.1 million, net of
outstanding letters of credit (excluding the additional
$200.0 million of potential additional capacity).

In July 2001, AMB Institutional Alliance Fund II,
L.P. (Alliance Fund II) obtained a
$150.0 million credit facility secured by the unfunded
capital commitments of the investors in AMB Institutional
Alliance REIT II, Inc. (Alliance REIT II) and
the Alliance Fund II. Borrowings currently bear interest at
LIBOR plus 87.5 basis points. As of September 30, 2002, the
outstanding balance was $72.5 million and the remaining
amount available was $36.3 million, net of outstanding
letters of credit and capital contributions from third-party
investors. The credit facility has various covenants. Management
believes that the Alliance Fund II and the Alliance
REIT II were in compliance with their financial covenants
at September 30, 2002.

During the three months ended September 30,
2002, the Operating Partnership retired $55.3 million of
secured debt. During the nine months ended September 30,
2002, the Operating Partnership retired $95.7 million of
secured debt.

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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|           |  |         |         |              |  |            |         |           |  |            |         |       |  |   |        |  |  |   |        |  |  |   |           | 
|---------- |  | ------- | ------- | ------------ |  | ---------- | ------- | --------- |  | ---------- | ------- | ----- |  | - | ------ |  |  | - | ------ |  |  | - | --------- | 
|           |  |         |         | Consolidated |  | Unsecured  |         |           |  |            |         |      
|           |  |         |         | Joint        |  | Senior     |         |           |  |            |         |      
|           |  | Secured |         | Venture      |  | Debt       |         | Unsecured |  | Credit     |         |      
|           |  | Debt    |         | Debt         |  | Securities |         | Debt      |  | Facilities |         | Total
|           |  |         |         |              |  |            |         |           |  |            |         |      
|2002       |  | $       | 3,534   |              |  | $          | 4,566   |           |  | $          |        |       |  | $ | 133    |  |  | $ |       |  |  | $ | 8,233     | 
|2003       |  |         | 75,714  |              |  |            | 17,556  |           |  |            |        |       |  |   | 558    |  |  |   | 84,500 |  |  |   | 178,328   | 
|2004       |  |         | 64,657  |              |  |            | 64,413  |           |  |            |        |       |  |   | 601    |  |  |   |       |  |  |   | 129,671   | 
|2005       |  |         | 46,070  |              |  |            | 58,918  |           |  |            | 250,000 |       |  |   | 647    |  |  |   |       |  |  |   | 355,635   | 
|2006       |  |         | 85,619  |              |  |            | 83,541  |           |  |            | 25,000  |       |  |   | 698    |  |  |   |       |  |  |   | 194,858   | 
|2007       |  |         | 24,721  |              |  |            | 42,472  |           |  |            | 75,000  |       |  |   | 752    |  |  |   |       |  |  |   | 142,945   | 
|2008       |  |         | 33,373  |              |  |            | 153,903 |           |  |            | 175,000 |       |  |   | 810    |  |  |   |       |  |  |   | 363,086   | 
|2009       |  |         | 4,911   |              |  |            | 63,239  |           |  |            |        |       |  |   | 873    |  |  |   |       |  |  |   | 69,023    | 
|2010       |  |         | 51,778  |              |  |            | 105,854 |           |  |            | 75,000  |       |  |   | 941    |  |  |   |       |  |  |   | 233,573   | 
|2011       |  |         | 1,311   |              |  |            | 179,295 |           |  |            | 75,000  |       |  |   | 1,014  |  |  |   |       |  |  |   | 256,620   | 
|Thereafter |  |         | 3,307   |              |  |            | 123,663 |           |  |            | 125,000 |       |  |   | 3,292  |  |  |   |       |  |  |   | 255,262   | 
|           |  |         |         |              |  |            |         |           |  |            |         |       |  |   |        |  |  |   |        |  |  |   |           | 
|           |  | $       | 394,995 |              |  | $          | 897,420 |           |  | $          | 800,000 |       |  | $ | 10,319 |  |  | $ | 84,500 |  |  | $ | 2,187,234 | 
|           |  |         |         |              |  |            |         |           |  |            |         |       |  |   |        |  |  |   |        |  |  |   |           | 

7.     Minority
Interests in Consolidated Joint Ventures and Preferred
Units

Minority interests in the Operating Partnership
represent interests held by certain third parties in several
real estate joint ventures, aggregating approximately
34.4 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,
investment activity, and changes in financing.

The Operating Partnership enters into
co-investment joint ventures with institutional investors. As of
September 30, 2002, the Operating Partnership had
investments in five co-investment joint ventures with a gross
book value of $1.6 billion, which are consolidated for
financial reporting purposes and which are discussed below.

AMB/ Erie, L.P. (Erie) is a
co-investment partnership between the Operating Partnership and
various entities related to Erie Insurance Company, and is
engaged in the acquisition, ownership, operation, management,
renovation, expansion and development of industrial buildings.
As of September 30, 2002, Erie had a total capitalization
(defined as total book equity and total book debt) of
$202.0 million. The Operating Partnership, together with
one of its other affiliates, owned, as of September 30,
2002, approximately 50% of Erie.

AMB Institutional Alliance Fund I, L.P.
(Alliance Fund I) is a co-investment
partnership between the Operating Partnership and AMB
Institutional Alliance REIT I, Inc. (Alliance
REIT I), which includes 15 institutional
investors as stockholders, and is engaged in the acquisition,
ownership, operation, management, renovation, expansion and
development of industrial buildings. As of September 30,
2002, the Alliance Fund I had a total capitalization of
$392.7 million. The Operating Partnership is the managing
general partner of the Alliance Fund I. The Operating
Partnership, together with one of its other affiliates, owned,
as of September 30, 2002, approximately 21% of the
partnership interests in the Alliance Fund I.

The Operating Partnership, together with one of
its other affiliates, formed AMB Partners II, L.P.
(Partners II) with the City and County of San
Francisco Employees Retirement System (CCSFERS)

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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

to acquire, manage, develop, and redevelop
industrial buildings nationwide. As of September 30, 2002,
Partners II had a total capitalization of $230.4 million.
The Operating Partnership is the managing general partner of
Partners II and owned, together with one of the Companys
other affiliates, as of September 30, 2002, approximately
50% of Partners II.

The Operating Partnership, together with one of
its other affiliates, formed AMB-SGP, L.P. (AMB-SGP)
with a subsidiary of GIC Real Estate Pte Ltd., the real estate
investment subsidiary of the Government of Singapore Investment
Corporation, to own and operate, through a private real estate
investment trust, industrial buildings nationwide. As of
September 30, 2002, AMB-SGP had a total capitalization of
$368.8 million. The Operating Partnership is the managing
general partner of AMB-SGP and owned, together with one of the
Companys other affiliates, as of September 30, 2002,
approximately 50.3% of AMB-SGP.

AMB Institutional Alliance Fund II, L.P.
(Alliance Fund II) is a co-investment partnership
between the Operating Partnership, AMB Institutional Alliance
REIT II, Inc. (Alliance REIT II), and a third-party
limited partner. The Alliance REIT II included 14 institutional
investors as stockholders as of September 30, 2002. The
Alliance Fund II is engaged in the acquisition, ownership,
operation, management, renovation, expansion, and development of
industrial buildings in target markets nationwide. As of
September 30, 2002, the Alliance Fund II had a total
capitalization of $327.7 million. The Operating Partnership
is the managing general partner of the Alliance Fund II.
The Operating Partnership owned, as of September 30, 2002,
approximately 20% of the partnership interests in the Alliance
Fund II.

On July 31, 2002, AMB Property II, L.P., one
of the Operating Partnerships subsidiaries, repurchased
130,000 of its 7.95% Series F Cumulative Redeemable
Preferred Limited Partnership Units and all 20,000 of its
outstanding 7.95% Series G Cumulative Redeemable Preferred
Limited Partnership Units from a single institutional investor.
AMB Property II, L.P. redeemed the units for an aggregate cost
of $7.1 million, including accrued and unpaid dividends and
a redemption discount of $0.4 million.

On April 17, 2002, the Operating Partnership
issued and sold 800,000 7.95% Series K Cumulative
Redeemable Partnership Units at a price of $50.00 per unit in a
private placement. Distributions are cumulative from the date of
issuance and payable quarterly in arrears. The Series K
preferred units are redeemable by the Operating Partnership on
or after April 17, 2007, subject to certain conditions, for
cash at a redemption price equal to $50.00 per unit, plus
accumulated and unpaid distributions thereon, if any, to the
redemption date. The Series K preferred units are
exchangeable, at specified times and subject to certain
conditions, on a one-for-one basis, for shares of the
Companys Series K preferred stock. The Operating
Partnership used the net proceeds of $39.0 million for
general corporate purposes, which included the partial repayment
of indebtedness and the acquisition and development of
additional properties.

16



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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 September 30, 2002, and
December 31, 2001 (dollars in thousands):

|                                    |                                                                  |               |         |              |         |   |         |        |         | 
|----------------------------------- | ---------------------------------------------------------------- | ------------- | ------- | ------------ | ------- | - | ------- | ------ | ------- | 
|                                    |                                                                  | September 30, |         | December 31,
|                                    |                                                                  | 2002          |         | 2001        
|                                    |                                                                  |               |         |             
|Joint Venture Partners              |                                                                  | $             | 411,528 |              |         | $ | 359,514 |       
|Held through AMB Property II, L.P.: |                                                                  |               |         |              |         |   |         |       
|                                    | Series D preferred units (liquidation
    preference of $79,767) |               |         | 77,685       |         |   |         | 77,687 |        
|                                    | Series E preferred units (liquidation
    preference of $11,022) |               |         | 10,788       |         |   |         | 10,788 |        
|                                    | Series F preferred units (liquidation
    preference of $13,372) |               |         | 13,097       |         |   |         | 19,597 |        
|                                    | Series G preferred units (repurchased in
    July 2002)          |               |         |             |         |   |         | 954    |        
|                                    | Series H preferred units (liquidation
    preference of $42,000) |               |         | 40,912       |         |   |         | 40,915 |        
|                                    | Series I preferred units (liquidation
    preference of $25,500) |               |         | 24,800       |         |   |         | 24,821 |        
|                                    |                                                                  |               |         |              |         |   |         |       
|                                    |                                                                  | Total         |         | $            | 578,810 |   |         | $      | 534,276 | 
|                                    |                                                                  |               |         |              |         |   |         |       

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

|                                    |                                                                  |               |       |               |        |      |       |       |        |   |        |       |        |   |        |       |        | 
|----------------------------------- | ---------------------------------------------------------------- | ------------- | ----- | ------------- | ------ | ---- | ----- | ----- | ------ | - | ------ | ----- | ------ | - | ------ | ----- | ------ | 
|                                    |                                                                  |               |       |              
|                                    |                                                                  | For the Three |       | For the Nine 
|                                    |                                                                  | Months Ended  |       | Months Ended 
|                                    |                                                                  | September 30, |       | September 30,
|                                    |                                                                  |               |       |              
|                                    |                                                                  | 2002          |       | 2001          |        | 2002 |       | 2001 
|                                    |                                                                  |               |       |               |        |      |       |      
|Joint Venture Partners              |                                                                  | $             | 9,469 |               |        | $    | 8,756 |       |        | $ | 24,864 |       |        | $ | 20,166 |      
|Held through AMB Property II, L.P.: |                                                                  |               |       |               |        |      |       |       |        |   |        |       |        |   |        |      
|                                    | Series C preferred units (repurchased in
    December 2001)      |               |       |              |        |      |       | 2,406 |        |   |        |      |        |   |        | 7,218 |       
|                                    | Series D preferred units (liquidation
    preference of $79,767) |               |       | 1,545         |        |      |       | 1,545 |        |   |        | 4,636 |        |   |        | 4,635 |       
|                                    | Series E preferred units (liquidation
    preference of $11,022) |               |       | 214           |        |      |       | 214   |        |   |        | 641   |        |   |        | 642   |       
|                                    | Series F preferred units (liquidation
    preference of $13,372) |               |       | 286           |        |      |       | 395   |        |   |        | 1,076 |        |   |        | 1,185 |       
|                                    | Series G preferred units (repurchased in
    July 2002)          |               |       | 3             |        |      |       | 20    |        |   |        | 43    |        |   |        | 60    |       
|                                    | Series H preferred units (liquidation
    preference of $42,000) |               |       | 853           |        |      |       | 853   |        |   |        | 2,559 |        |   |        | 2,559 |       
|                                    | Series I preferred units (liquidation
    preference of $25,500) |               |       | 510           |        |      |       | 510   |        |   |        | 1,530 |        |   |        | 1,043 |       
|                                    |                                                                  |               |       |               |        |      |       |       |        |   |        |       |        |   |        |      
|                                    |                                                                  | Total         |       | $             | 12,880 |      |       | $     | 14,699 |   |        | $     | 35,349 |   |        | $     | 37,508 | 
|                                    |                                                                  |               |       |               |        |      |       |       |        |   |        |       |        |   |        |      

8.     Investments in
Unconsolidated Joint Ventures

The Operating Partnership has non-controlling
limited partnership interests in three separate unconsolidated
joint ventures. These investments are not consolidated because
the Operating Partnership does not exercise significant control
over major operating decisions such as approval of budgets,
selection of property managers, investment activity and changes
in financing. The Operating Partnership accounts for the joint
ventures using the equity method of accounting. Under the
agreements governing the joint ventures, the Operating
Partnership and the other parties to the joint venture may be
required to make additional capital contributions and, subject
to certain limitations, the joint ventures may incur additional
debt. The Operating Partnership has a 56.1% interest in one of
the joint ventures, which owns an aggregate of 36 industrial
buildings totaling approximately 4.0 million square feet.
The Operating Partnership has a 50% interest in two other
operating and development alliance joint ventures. The Operating
Partnerships net equity investment in these joint ventures
is shown as investment in unconsolidated joint ventures on the
accompanying Consolidated Balance Sheets. For the three months
ended September 30, 2002 and 2001, the Operating
Partnerships share of net operating income from these
joint ventures was $2.6 million and $2.7 million,
respectively. For the

17



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

nine months ended September 30, 2002 and
2001, the Operating Partnerships share of net operating
income from these joint ventures was $8.3 million and
$7.8 million, respectively.

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

9.     Partners
Capital

During the three and nine months ended
September 30, 2002, the Operating Partnership redeemed
86,529 and 122,640 of its common limited partnership units,
respectively, for shares of the Companys common stock.
Holders of common limited partnership units of the Operating
Partnership have the right, commencing generally on or after the
first anniversary of the holder becoming a limited partner of
the Operating Partnership (or such other date agreed to by the
Operating Partnership and the applicable unit holders), to
require the Operating Partnership to redeem part or all of their
common units for cash (based upon the fair market value of an
equivalent number of shares of common stock at the time of
redemption) or the Operating Partnership may, in its sole and
absolute discretion (subject to the limits on ownership and
transfer of common stock set forth in the Companys
charter), elect to have the Company exchange those common units
for shares of the Companys common stock on a one-for-one
basis, subject to adjustment in the event of stock splits, stock
dividends, issuance of certain rights, certain extraordinary
distributions and similar events. The Operating Partnership
presently anticipates that it will generally elect to have the
Company issue shares of its common stock in exchange for common
units in connection with a redemption request; however, the
Operating Partnership has paid cash, and may in the future pay
cash, for a redemption of common units. With each redemption or
exchange, the Companys percentage ownership in the
Operating Partnership will increase. Common limited partners may
exercise this redemption right from time to time, in whole or in
part, subject to the limitations that limited partners may not
exercise this right if such exercise would result in any person
actually or constructively owning shares of common stock in
excess of the ownership limit or any other amount specified by
the board of directors, assuming common stock was issued in the
exchange.

In December 2001, the Companys board of
directors approved a new stock repurchase program for the
repurchase of up to $100.0 million worth of common and
preferred stock. The new stock repurchase program expires in
December 2003. In July 2002, the Company repurchased 433,200
shares of its common stock for $11.5 million, including
commissions, and the Operating Partnership retired the same
number of common general partnership units.

As of September 30, 2002, the Operating
Partnership had outstanding 84,012,282 common general
partnership units, 4,846,387 common limited partnership units,
3,995,800 8 1/2% Series A Cumulative Redeemable
Partnership Units, 1,300,000 8 5/8% Series B
Cumulative Redeemable Partnership Units, 800,000 7.95%
Series J Cumulative Redeemable Partnership Units, and
800,000 7.95% Series K Cumulative Redeemable Partnership
Units.

In July 2002, AMB Property Corporation
repurchased 4,200 shares of its Series A Preferred Stock
for an aggregate cost of $0.1 million, including accrued
and unpaid dividends and the Operating Partnership retired the
same number of preferred units.

18



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table sets forth the distributions
paid per unit:

|                      |  |                                  |  |               |  |               |  |        |  |       
|--------------------- |  | -------------------------------- |  | ------------- |  | ------------- |  | ------ |  | ------
|                      |  |                                  |  |               |  |              
|                      |  |                                  |  | For the Three |  | For the Nine 
|                      |  |                                  |  | Months Ended  |  | Months Ended 
|                      |  |                                  |  | September 30, |  | September 30,
|                      |  |                                  |  |               |  |              
|Paying Entity         |  | Security                         |  | 2002          |  | 2001          |  | 2002   |  | 2001  
|                      |  |                                  |  |               |  |               |  |        |  |       
|Operating Partnership |  | Common limited partnership units |  | $0.410        |  | $0.395        |  | $1.230 |  | $1.185
|Operating Partnership |  | Series A preferred units         |  | $0.531        |  | $0.531        |  | $1.594 |  | $1.594
|Operating Partnership |  | Series B preferred units         |  | $1.078        |  | $1.078        |  | $3.234 |  | $3.234
|Operating Partnership |  | Series J preferred units         |  | $0.994        |  | $0.097        |  | $2.982 |  | $0.097
|Operating Partnership |  | Series K preferred units         |  | $0.994        |  | n/a           |  | $1.965 |  | n/a   
|AMB Property II, L.P. |  | Series C preferred units         |  | n/a           |  | $1.094        |  | n/a    |  | $3.281
|AMB Property II, L.P. |  | Series D preferred units         |  | $0.969        |  | $0.969        |  | $2.906 |  | $2.906
|AMB Property II, L.P. |  | Series E preferred units         |  | $0.969        |  | $0.969        |  | $2.906 |  | $2.906
|AMB Property II, L.P. |  | Series F preferred units(1)      |  | $0.994        |  | $0.994        |  | $2.982 |  | $2.982
|AMB Property II, L.P. |  | Series G preferred units(1)      |  | $0.155        |  | $0.994        |  | $2.142 |  | $2.982
|AMB Property II, L.P. |  | Series H preferred units         |  | $1.016        |  | $1.016        |  | $3.048 |  | $3.048
|AMB Property II, L.P. |  | Series I preferred units         |  | $1.000        |  | $1.000        |  | $3.000 |  | $2.044



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On July 31, 2002, AMB Property II, L.P., one
    of the Operating Partnerships subsidiaries, repurchased
    130,000 of its 7.95% Series F Cumulative Redeemable
    Preferred Limited Partnership Units and all 20,000 of its
    outstanding 7.95% Series G Cumulative Redeemable Preferred
    Limited Partnership Units from a single institutional investor.
    On July 31, 2002, AMB Property II, L.P. paid a
    distribution, which accrued during the period from July 15,
    2002, to July 31, 2002, of $0.155 per unit on the 130,000
    Series F preferred units that were redeemed.



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

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

|                              |                                    |                      |  |                     |  |      |  |            |  |  |  |            |  |  |  |            | 
|----------------------------- | ---------------------------------- | -------------------- |  | ------------------- |  | ---- |  | ---------- |  |  |  | ---------- |  |  |  | ---------- | 
|                              |                                    |                      |  |                    
|                              |                                    | For the Three Months |  | For the Nine Months
|                              |                                    | Ended September 30,  |  | Ended September 30,
|                              |                                    |                      |  |                    
|                              |                                    | 2002                 |  | 2001                |  | 2002 |  | 2001      
|                              |                                    |                      |  |                     |  |      |  |           
|WEIGHTED AVERAGE COMMON UNITS |                                    |                      |  |                     |  |      |  |            |  |  |  |            |  |  |  |           
|                              | Basic                              |                      |  | 88,575,091          |  |      |  | 89,550,154 |  |  |  | 88,634,134 |  |  |  | 89,300,512 | 
|                              | Stock options and restricted stock |                      |  | 1,803,932           |  |      |  | 1,249,733  |  |  |  | 1,605,015  |  |  |  | 962,534    | 
|                              |                                    |                      |  |                     |  |      |  |            |  |  |  |            |  |  |  |           
|                              | Diluted                            |                      |  | 90,379,023          |  |      |  | 90,799,887 |  |  |  | 90,239,149 |  |  |  | 90,263,046 | 
|                              |                                    |                      |  |                     |  |      |  |            |  |  |  |            |  |  |  |           



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

The Operating Partnership operates industrial and
retail properties in North America and manages its business both
by property type and by market. Industrial properties represent
more than 98% of the Operating Partnerships portfolio by
rentable square feet and consist primarily of warehouse
distribution facilities suitable for single or multiple
customers and are typically comprised of multiple buildings that
are leased to customers engaged in various types of businesses.
As of September 30, 2002, the Operating Partnership
operated industrial properties in eight hub and gateway markets
in addition to 19 other markets nationwide. The

19



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Operating Partnerships geographic markets
for industrial properties are managed separately because each
market requires different operating, pricing, and leasing
strategies. As of September 30, 2002, the Operating
Partnership operated retail properties in Southeast Florida,
Atlanta, Chicago, the San Francisco Bay Area, Boston and
Baltimore. The Operating Partnership does not separately manage
its retail operations by market. Retail properties are generally
leased to one or more anchor customers, such as grocery and drug
stores and various retail businesses. The accounting policies of
the segments are the same as those described in the summary of
significant accounting policies. The Operating Partnership
evaluates performance based upon property net operating income
of the combined properties in each segment.

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

|                                  |                          |                             |                  |                     |         |         |         |        |        |         |         |        |         |         |         |        |         |         | 
|--------------------------------- | ------------------------ | --------------------------- | ---------------- | ------------------- | ------- | ------- | ------- | ------ | ------ | ------- | ------- | ------ | ------- | ------- | ------- | ------ | ------- | ------- | 
|                                  |                          |                             |                  |                    
|                                  |                          | Rental Revenues(1)          |                  | Rental Revenues(1) 
|                                  |                          |                             |                  |                    
|                                  |                          |                             |                  |                    
|                                  |                          | For the Three Months        |                  | For the Nine Months
|                                  |                          | Ended September 30,         |                  | Ended September 30,
|                                  |                          |                             |                  |                    
|                                  |                          | 2002                        |                  | 2001                |         | 2002    |         | 2001  
|                                  |                          |                             |                  |                     |         |         |         |       
|Industrial Hub & Gateway Markets: |                          |                             |                  |                     |         |         |         |        |        |         |         |        |         |         |         |       
|                                  | Atlanta                  |                             | $                | 7,984               |         |         | $       | 7,218  |        |         | $       | 22,712 |         |         | $       | 21,207 |        
|                                  | Chicago                  |                             |                  | 11,326              |         |         |         | 10,231 |        |         |         | 34,275 |         |         |         | 30,142 |        
|                                  | Dallas/ Ft. Worth        |                             |                  | 6,748               |         |         |         | 6,404  |        |         |         | 19,994 |         |         |         | 19,169 |        
|                                  | No. New Jersey/ New York |                             |                  | 12,399              |         |         |         | 10,846 |        |         |         | 34,406 |         |         |         | 33,379 |        
|                                  | San Francisco Bay Area   |                             |                  | 30,413              |         |         |         | 28,033 |        |         |         | 91,852 |         |         |         | 77,993 |        
|                                  | Southern California      |                             |                  | 19,660              |         |         |         | 15,705 |        |         |         | 57,189 |         |         |         | 44,936 |        
|                                  | Miami                    |                             |                  | 8,362               |         |         |         | 7,877  |        |         |         | 25,604 |         |         |         | 24,695 |        
|                                  | Seattle                  |                             |                  | 6,636               |         |         |         | 5,926  |        |         |         | 18,668 |         |         |         | 17,319 |        
|                                  |                          |                             |                  |                     |         |         |         |        |        |         |         |        |         |         |         |       
|                                  |                          | Total hub & gateway markets |                  |                     | 103,528 |         |         |        | 92,240 |         |         |        | 304,700 |         |         |        | 268,840 |        
|Total other industrial markets    |                          |                             | 47,350           |                     |         |         | 43,569  |        |        |         | 133,096 |        |         |         | 126,034 |       
|Discontinued operations           |                          |                             | (478             | )                   |         |         | (1,011  | )      |        |         | (2,276  | )      |         |         | (2,959  | )     
|                                  |                          |                             |                  |                     |         |         |         |        |        |         |         |        |         |         |         |       
|Total industrial markets          |                          |                             | 150,400          |                     |         |         | 134,798 |        |        |         | 435,520 |        |         |         | 391,915 |       
|Total retail markets              |                          |                             | 4,245            |                     |         |         | 6,229   |        |        |         | 13,600  |        |         |         | 19,025  |       
|                                  |                          |                             |                  |                     |         |         |         |        |        |         |         |        |         |         |         |       
|                                  |                          |                             | Total properties |                     | $       | 154,645 |         |        | $      | 141,027 |         |        | $       | 449,120 |         |        | $       | 410,940 | 
|                                  |                          |                             |                  |                     |         |         |         |        |        |         |         |        |         |         |         |       



---



|    |                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes straight-line rents of $3.6 million
    and $4.1 million for the three months ended
    September 30, 2002 and 2001, respectively, and $10.4
    million and $7.6 million for the nine months ended
    September 30, 2002 and 2001, respectively.

20



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                  |                               |                                        |                  |                     |        |                           |        |              |        |         |        |        |         |         |        |        |         |         |           |         |           |           |           |         |           |           | 
|--------------------------------- | ----------------------------- | -------------------------------------- | ---------------- | ------------------- | ------ | ------------------------- | ------ | ------------ | ------ | ------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | ------- | --------- | ------- | --------- | --------- | --------- | ------- | --------- | --------- | 
|                                  |                               |                                        |                  |                     |        |                           |        |             
|                                  |                               | Property NOI(1)(2)                     |                  | Property NOI(1)(2)  |        |                           |        |             
|                                  |                               |                                        |                  |                     |        |                          
|                                  |                               | For the Three Months                   |                  | For the Nine Months |        | Total Gross Investment(3)
|                                  |                               | Ended September 30,                    |                  | Ended September 30, |        |                          
|                                  |                               |                                        |                  |                     |        | September 30,             |        | December 31,
|                                  |                               | 2002                                   |                  | 2001                |        | 2002                      |        | 2001         |        | 2002    |        | 2001  
|                                  |                               |                                        |                  |                     |        |                           |        |              |        |         |        |       
|Industrial Hub & Gateway Markets: |                               |                                        |                  |                     |        |                           |        |              |        |         |        |        |         |         |        |        |         |         |           |         |           |           |           |        
|                                  | Atlanta                       |                                        | $                | 6,344               |        |                           | $      | 5,775        |        |         | $      | 17,971 |         |         | $      | 17,031 |         |         | $         | 287,761 |           |           | $         | 271,663 |          
|                                  | Chicago                       |                                        |                  | 7,782               |        |                           |        | 7,316        |        |         |        | 23,670 |         |         |        | 20,617 |         |         |           | 357,500 |           |           |           | 345,446 |          
|                                  | Dallas/ Fort Worth            |                                        |                  | 4,713               |        |                           |        | 4,211        |        |         |        | 14,195 |         |         |        | 13,234 |         |         |           | 197,365 |           |           |           | 179,157 |          
|                                  | Northern New Jersey/ New York |                                        |                  | 8,218               |        |                           |        | 7,367        |        |         |        | 22,857 |         |         |        | 23,628 |         |         |           | 467,817 |           |           |           | 406,077 |          
|                                  | San Francisco Bay Area        |                                        |                  | 24,958              |        |                           |        | 23,374       |        |         |        | 76,535 |         |         |        | 65,668 |         |         |           | 823,338 |           |           |           | 806,528 |          
|                                  | Southern California           |                                        |                  | 15,458              |        |                           |        | 12,387       |        |         |        | 44,971 |         |         |        | 36,256 |         |         |           | 742,649 |           |           |           | 694,602 |          
|                                  | Miami                         |                                        |                  | 6,075               |        |                           |        | 6,108        |        |         |        | 18,699 |         |         |        | 18,541 |         |         |           | 290,762 |           |           |           | 288,046 |          
|                                  | Seattle                       |                                        |                  | 5,266               |        |                           |        | 4,705        |        |         |        | 14,894 |         |         |        | 13,838 |         |         |           | 247,885 |           |           |           | 193,154 |          
|                                  |                               |                                        |                  |                     |        |                           |        |              |        |         |        |        |         |         |        |        |         |         |           |         |           |           |           |        
|                                  |                               | Total industrial hub & gateway markets |                  |                     | 78,814 |                           |        |              | 71,243 |         |        |        | 233,792 |         |        |        | 208,813 |         |           |         | 3,415,077 |           |           |         | 3,184,673 |          
|Total other industrial markets    |                               |                                        | 32,896           |                     |        |                           | 31,500 |              |        |         | 94,092 |        |         |         | 90,589 |        |         |         | 1,444,731 |         |           |           | 1,321,959 |        
|Discontinued operations           |                               |                                        | (364             | )                   |        |                           | (813   | )            |        |         | (1,702 | )      |         |         | (2,272 | )      |         |         | (109,521  | )       |           |           | (164,831  | )      
|Total retail markets              |                               |                                        | 2,641            |                     |        |                           | 3,946  |              |        |         | 8,498  |        |         |         | 12,588 |        |         |         | 133,210   |         |           |           | 188,910   |        
|                                  |                               |                                        |                  |                     |        |                           |        |              |        |         |        |        |         |         |        |        |         |         |           |         |           |           |           |        
|                                  |                               |                                        | Total properties |                     | $      | 113,987                   |        |              | $      | 105,876 |        |        | $       | 334,680 |        |        | $       | 309,718 |           |         | $         | 4,883,497 |           |         | $         | 4,530,711 | 
|                                  |                               |                                        |                  |                     |        |                           |        |              |        |         |        |        |         |         |        |        |         |         |           |         |           |           |           |        



---



|    |                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes straight-line rents of $3.6 million
    and $4.1 million for the three months ended
    September 30, 2002 and 2001, respectively, and
    $10.4 million and $7.6 million for the nine months
    ended September 30, 2002 and 2001, respectively.                     
|   
|(2) | Property net operating income is defined as
    rental revenue, including reimbursements and excluding
    straight-line rents, less property level operating expenses,
    excluding depreciation, amortization, general and administrative
    expenses, and interest expense.
|   
|(3) | Includes Construction in progress of
    $163.8 million as of September 30, 2002, and
    $181.2 million as of December 31, 2001.                                                                                                                                               

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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                                |                                        |                                                                 |         |                     |         |      |         |         |         |   |         |          |         |   |         |         |         | 
|--------------------------------------------------------------- | -------------------------------------- | --------------------------------------------------------------- | ------- | ------------------- | ------- | ---- | ------- | ------- | ------- | - | ------- | -------- | ------- | - | ------- | ------- | ------- | 
|                                                                |                                        |                                                                 |         |                    
|                                                                |                                        | For the Three Months                                            |         | For the Nine Months
|                                                                |                                        | Ended September 30,                                             |         | Ended September 30,
|                                                                |                                        |                                                                 |         |                    
|                                                                |                                        | 2002                                                            |         | 2001                |         | 2002 |         | 2001   
|                                                                |                                        |                                                                 |         |                     |         |      |         |        
|Rental Revenues                                                 |                                        |                                                                 |         |                     |         |      |         |         |         |   |         |          |         |   |         |        
|Total rental revenues for reportable segments                   |                                        | $                                                               | 154,645 |                     |         | $    | 141,027 |         |         | $ | 449,120 |          |         | $ | 410,940 |        
|Straight-line rents                                             |                                        |                                                                 | 3,638   |                     |         |      | 4,113   |         |         |   | 10,385  |          |         |   | 7,579   |        
|                                                                |                                        |                                                                 |         |                     |         |      |         |         |         |   |         |          |         |   |         |        
|                                                                |                                        | Total rental revenues                                           |         | $                   | 158,283 |      |         | $       | 145,140 |   |         | $        | 459,505 |   |         | $       | 418,519 | 
|                                                                |                                        |                                                                 |         |                     |         |      |         |         |         |   |         |          |         |   |         |        
|Income from continuing operations before
    minority interests |                                        |                                                                 |         |                     |         |      |         |         |         |   |         |          |         |   |         |        
|Property net operating income for reportable
    segments       |                                        | $                                                               | 113,987 |                     |         | $    | 105,876 |         |         | $ | 334,680 |          |         | $ | 309,718 |        
|Straight-line rents                                             |                                        |                                                                 | 3,638   |                     |         |      | 4,113   |         |         |   | 10,385  |          |         |   | 7,579   |        
|Equity in earnings of unconsolidated joint
    ventures         |                                        |                                                                 | 1,322   |                     |         |      | 1,636   |         |         |   | 4,443   |          |         |   | 4,365   |        
|Private capital income                                          |                                        |                                                                 | 2,766   |                     |         |      | 2,340   |         |         |   | 8,468   |          |         |   | 8,022   |        
|Interest and other income                                       |                                        |                                                                 | 2,609   |                     |         |      | 5,392   |         |         |   | 9,921   |          |         |   | 12,505  |        
|Less:                                                           |                                        |                                                                 |         |                     |         |      |         |         |         |   |         |          |         |   |         |        
|                                                                | Interest, including amortization       |                                                                 |         | (38,661             | )       |      |         | (32,842 | )       |   |         | (112,044 | )       |   |         | (94,314 | )      
|                                                                | Depreciation and amortization          |                                                                 |         | (33,749             | )       |      |         | (28,835 | )       |   |         | (95,186  | )       |   |         | (82,758 | )      
|                                                                | General, administrative, and other     |                                                                 |         | (12,376             | )       |      |         | (8,796  | )       |   |         | (34,207  | )       |   |         | (26,180 | )      
|                                                                | Loss on investments in other companies |                                                                 |         |                    |         |      |         |        |         |   |         |         |         |   |         | (20,758 | )      
|                                                                |                                        |                                                                 |         |                     |         |      |         |         |         |   |         |          |         |   |         |        
|                                                                |                                        | Income from continuing operations before minority
    interests |         | $                   | 39,536  |      |         | $       | 48,884  |   |         | $        | 126,460 |   |         | $       | 118,179 | 
|                                                                |                                        |                                                                 |         |                     |         |      |         |         |         |   |         |          |         |   |         |        



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

Litigation.In the
normal course of business, from time to time, the Operating
Partnership may be involved in legal actions relating to the
ownership and operations of its properties. 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.

General Uninsured Losses.The Operating Partnership carries
property and rental loss, liability, flood, environmental and
terrorism insurance. The Operating Partnership believes that the
policy terms and conditions, limits and deductibles are adequate
and appropriate under the circumstances, given the relative risk
of loss, the cost of such coverage and industry practice. In
addition, certain of the Operating Partnerships properties
are located in areas that are subject to earthquake activity;
therefore, the Operating Partnership has obtained limited
earthquake insurance on those properties. There are, however,
certain types of extraordinary losses, such as those due to acts
of war that may be either uninsurable or not economically
insurable. Although

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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

we have obtained coverage for certain acts of
terrorism, with policy specifications and insured limits that we
believe are commercially reasonable, it is not certain that we
will be able to collect under such policies. Should an uninsured
loss occur, the Operating Partnership could lose its investment
in, and anticipated profits and cash flows from, a property.

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

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

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##### 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:



| |   |                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | defaults or non-renewal of leases by
    customers;                                                                                                                                                                      
|
| |  | increased interest rates and operating
    costs;                                                                                                                                                                        
|
| |  | our failure to obtain necessary outside
    financing;                                                                                                                                                                   
|
| |  | difficulties in identifying properties to
    acquire and in effecting acquisitions;                                                                                                                                     
|
| |  | our failure to successfully integrate acquired
    properties and operations;                                                                                                                                            
|
| |  | our failure to divest of properties that we
    have contracted to sell or to timely reinvest proceeds from any
    such divestitures;                                                                                   
|
| |  | risks and uncertainties affecting property
    development and construction (including construction delays,
    cost overruns, our inability to obtain necessary permits, and
    public opposition to these activities);
|
| |  | environmental uncertainties;                                                                                                                                                                                             
|
| |  | risks related to natural disasters;                                                                                                                                                                                      
|
| |  | financial market fluctuations;                                                                                                                                                                                           
|
| |  | changes in real estate and zoning
    laws;                                                                                                                                                                              
|
| |  | increases in real property tax rates;
    and                                                                                                                                                                            
|
| |  | risks of doing business internationally,
    including currency risks.                                                                                                                                                   

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

Unless the context otherwise requires, the terms
we, us and our refer to AMB
Property, L.P., a Delaware limited partnership, and our other
controlled subsidiaries. The following marks are the registered
trademarks of AMB Property Corporation, our general partner:
AMB®; Broker Alliance Partners®; Broker Alliance
Program®; Customer Alliance Partners®; Customer
Alliance Program®; Development Alliance Partners®;
Development Alliance Program®; HTD®; High Throughput
Distribution®; Institutional Alliance Partners®;
Institutional Alliance Program®; Management Alliance
Partners®; Management Alliance Program®; Strategic
Alliance Partners®; UPREIT Alliance Partners®; and
UPREIT Alliance Program®. The following mark is the
unregistered trademark of AMB Property Corporation: Strategic
Alliance ProgramsTM.

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GENERAL

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

We generate revenue primarily from rent received
from customers under long-term operating leases at our
properties, including reimbursements from customers for certain
operating costs, the disposition of non-core properties and our
private capital business. In addition, our growth is, in part,
dependent on our ability to increase occupancy rates or increase
rental rates at our properties and our ability to continue the
acquisition and development of additional properties. Although
the weak economy has decreased customer demand for new space and
has limited rent growth, many types of investors are acquiring
industrial real estate. We intend to capitalize on this
opportunity by accelerating our portfolio repositioning program
through the disposition of properties that do not meet the
geographic or product type requirements of our investment
strategy. Our income would be adversely affected if a
significant number of customers were unable to pay rent or if we
were unable to rent our industrial space on favorable terms.
Certain significant expenditures associated with an investment
in real estate (such as mortgage payments, real estate taxes,
and maintenance costs) generally do not decline when
circumstances cause a reduction in income from the property.
Moreover, as the general partner of the co-investment joint
ventures, we generally will be liable for all of the joint
ventures unsatisfied obligations other than non-recourse
obligations. Any such liabilities could adversely affect our
financial condition, results of operations, cash flow and
ability to make distributions to our unitholders and payments to
our noteholders.

Critical Accounting Policies

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

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

Rental Revenues.We
record rental revenue from operating leases on a straight-line
basis over the term of the leases and maintain an allowance for
estimated losses that may result from the inability of our
customers to make required payments. If customers fail to make
contractual lease payments that are greater than our bad-debt
reserves, security deposits and letters of credit, then we may
have to recognize additional bad debt charges in future periods.
Each period we review our outstanding accounts receivable,
including

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straight-line rents, for doubtful accounts and
provide allowances as needed. Historically, our bad debt expense
has been between 50 and 150 basis points of total revenues.


Consolidated Joint Ventures.Minority interests represent the
limited partnership interests in the Operating Partnership and
interests held by certain third parties in several real estate
joint ventures, aggregating approximately 34.4 million
square feet, which are consolidated for financial reporting
purposes. Such investments are consolidated because we own a
majority interest or we exercise significant control over major
operating decisions such as approval of budgets, selection of
property managers, investment activity and changes in financing.

Stock-based compensation expense.In the second quarter of 2002 and
effective beginning in the first quarter of 2002, we adopted the
expense recognition provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation. We value stock options issued by
AMB Property Corporation, our general partner, using the
Black-Scholes option-pricing model and recognize this value as
an expense over the period in which the options vest. Under this
standard, recognition of expense for stock options is
retroactively applied to all options granted after the beginning
of the year of adoption. Prior to the second quarter of 2002, we
followed the intrinsic method set forth in APB Opinion 25,
Accounting for Stock Issued to Employees. In the first
quarter of 2002, AMB Property Corporation awarded approximately
1.8 million stock options to employees. In accordance with
SFAS No. 123, we will recognize the associated expense over
the three to five-year vesting periods. The expense is included
in general and administrative expenses in the accompanying
Consolidated Statements of Operations.

THE COMPANY

AMB Property, L.P., a Delaware limited
partnership, acquires, develops and operates industrial
warehouse properties primarily located in large,
supply-constrained distribution markets near airports, seaports
and major freeway systems. We currently own, manage, or are
developing 96.6 million square feet in 27 North American
metropolitan markets.

Approximately 70% of these assets are
concentrated in eight hub and gateway distribution markets:
Atlanta, Chicago, Dallas, Northern New Jersey/ New York City,
San Francisco Bay Area, Southern California, Miami and Seattle.
We consider these markets attractive for their high population
densities, which represent a large consumer base, close
proximity to customer clusters and large labor pools.

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. A substantial
majority of our owned or managed buildings function as High
Throughput Distribution, or HTD® facilities; buildings
designed to quickly distribute our customers products,
rather than store them. Our investment focus on HTD® assets
is based on the secular change toward lower inventory levels and
expedited supply chains.

HTD® facilities have a variety of
characteristics that allow the rapid transport of goods from
point-to-point; examples include numerous dock doors, shallower
building depths, fewer columns, large truck courts and more
space for trailer parking. These facilities function best when
located in convenient proximity to transportation
infrastructure. We believe that these building characteristics
represent an important success factor for time-sensitive tenants
such as air express, logistics and freight forwarding companies.

We believe that we can achieve superior rent
growth and increase property values over time by focusing on an
investment strategy that benefits from high customer demand and
limited competition. We implement this strategy by investing in
locations that have natural supply constraints, high barriers to
entry and close proximity to large population centers, and in
buildings with customer-preferred characteristics.

As of September 30, 2002, we owned and
operated 941 industrial buildings and seven retail centers,
totaling approximately 86.7 million rentable square feet,
located in 27 markets in North America. As of September 30,
2002, our industrial and retail properties were 94.4% and 83.8%
leased, respectively. As of September 30, 2002, through our
subsidiary, AMB Capital Partners, LLC, we also managed, but did
not have

26



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##### Table of Contents



an ownership interest in, industrial buildings
and retail centers, totaling approximately 1.8 million
rentable square feet, on behalf of various clients. In addition,
as of September 30, 2002, we had investments in
42 industrial buildings, totaling approximately
5.3 million rentable square feet, through unconsolidated
joint ventures.


As of September 30, 2002, we had four retail
centers, one undeveloped retail land parcel, one industrial
property and two development properties that we are holding for
divestiture. Over the next few years, we intend to dispose of
non-strategic assets and redeploy the resulting capital into
industrial properties in supply-constrained markets in the U.S.
and internationally that better fit our current investment focus.

We are engaged in the acquisition, ownership,
operation, management, renovation, expansion and development of
primarily industrial properties in target markets in North
America. As of September 30, 2002, AMB Property Corporation
owned an approximate 94.5% general partnership interest in us,
excluding preferred units. As our sole general partner, AMB
Property Corporation has the full, exclusive and complete
responsibility and discretion in our day-to-day management and
control.

AMB Property Corporation is self-administered and
self-managed and, as a result, our own employees perform its
administrative and management functions, rather than it relying
on an outside manager for these services. Our principal
executive office is located at Pier 1, Bay 1, San Francisco, CA
94111, and our telephone number is (415) 394-9000. We also
maintain a regional office in Boston, Massachusetts.

Co-Investment Joint Ventures

We enter into co-investment joint ventures with
institutional investors. These co-investment joint ventures
provide us with an additional source of capital to fund certain
acquisitions, development projects and renovation projects, as
well as private capital income. As of September 30, 2002,
we had investments in five co-investment joint ventures with a
gross book value of $1.6 billion, which are consolidated
for financial reporting purposes and which are discussed below.

Acquisition, Development, and Disposition
Activity

During the quarter, we invested
$89.2 million in operating properties, consisting of eight
industrial buildings aggregating approximately 1.4 million
square feet, which included the investment of $17.4 million
in four buildings aggregating approximately 0.2 million
square feet, through two of our co-investment joint ventures.
Year to date, we have invested $246.1 million in operating
properties, consisting of 33 industrial buildings, aggregating
approximately 4.1 million square feet, which included the
investment of $132.4 million in 28 buildings, aggregating
approximately 2.6 million square feet, through two of our
co-investment joint ventures.

During the quarter, we completed industrial
developments valued at $50.4 million, aggregating
approximately 0.9 million square feet. We also initiated a
new industrial development project valued at $17.7 million,
aggregating approximately 0.3 million square feet. Year to
date, we have completed industrial developments valued at
$77.6 million, aggregating approximately 1.4 million
square feet. We also have initiated three new industrial
development projects valued at $54.5 million, aggregating
approximately 1.3 million square feet, including a new
industrial development project valued at $30.8 million,
aggregating approximately 0.8 million square feet in Mexico.

As of September 30, 2002, we had in our
development pipeline: (1) ten industrial projects, which
will total approximately 2.9 million square feet and have
an aggregate estimated investment of $128.1 million upon
completion and (2) three development projects available for
sale, which will total approximately 0.7 million square
feet and have an aggregate estimated investment of
$54.4 million upon completion. As of September 30,
2002, we and our Development Alliance Partners had funded an
aggregate of $134.1 million and needed to fund an estimated
additional $48.4 million in order to complete current and
planned projects.

During the quarter, we disposed of five
industrial buildings and one retail building, aggregating
approximately 0.6 million rentable square feet, for an
aggregate price of $33.6 million. Year to date, we have
disposed of seven industrial buildings, a retail center and a
retail building, aggregating approximately

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1.3 million rentable square feet, for an
aggregate price of $84.2 million. During the nine months
ended September 30, 2002, we also sold $76.9 million
in operating properties, consisting of 15 industrial buildings
aggregating approximately 1.9 million square feet, to one
of our co-investment joint ventures.


Operating Strategy

We 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, 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 market. We believe that this strategy
results in a mutually beneficial relationship as local partners
provide us with best-in-class, local market expertise and
intelligence. We, in turn, contribute value to the alliance
relationship through national customer development, industry
knowledge, perspective and financial strength.

While our alliance relationships give us local
market benefits, we retain flexibility to focus on our core
competencies: developing and executing our strategic approach to
real estate investment and management and raising private
capital to finance growth and enhance returns.



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



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

We seek to generate internal growth through rent
increases on existing space and renewals on re-tenanted space.
We do this by seeking to maintain a high occupancy rate at our
properties and by seeking to control expenses by capitalizing on
the economies of owning, operating and growing a large national
portfolio. As of September 30, 2002, our industrial
properties and retail centers were 94.4% leased and 83.8%
leased, respectively. Year to date, we increased average
industrial base rental rates (on a cash basis) by 0.1% from the
expiring rent for that space, on leases entered into or renewed
during the period. This amount excludes expense reimbursements,
rental abatements and percentage rents. Year to date, we also
increased cash-basis same-store net operating income by 1.1% on
our industrial properties. Since our initial public offering, we
have experienced average annual increases in industrial base
rental rates (on a cash basis) of 14.7% and average quarterly
increases in industrial same-store net operating income (on a
cash basis) of 6.0%.



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

We believe that our significant acquisition
experience, our alliance-based operating strategy and our
extensive network of property acquisition sources will continue
to provide opportunities for external growth. We believe that
our relationships with third-party local property management
firms through our Management Alliance Program also will create
acquisition opportunities, as such managers market properties on
behalf of sellers. Our operating structure also enables us to
acquire properties through our UPREIT Alliance Program in
exchange for our limited partnership units, thereby enhancing
our attractiveness to owners and developers seeking to transfer
properties on a tax-deferred basis. In addition to acquisitions,
we seek to redeploy capital from non-strategic assets into
properties that better fit our current investment focus.

We are generally in various stages of
negotiations for a number of acquisitions and dispositions 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 undistributed cash flow from
operations, borrowings under our unsecured credit facility,
other forms of secured or unsecured debt financing, issuances of
debt or limited partnership unit offerings (including issuances
of limited partnership units by our subsidiaries),

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proceeds from divestitures of properties,
assumption of debt related to the acquired properties and our
private capital program.




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

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

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



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

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



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

Through Headlands Realty Corporation and IMD
Holding Corporation, we conduct a variety of businesses that
include incremental income programs, such as our development
projects available for sale to third parties. Such development
properties include value-added conversion projects and
build-to-sell projects. During 2002, we completed and sold one
value-added conversion project for a net gain of
$0.6 million. As of September 30, 2002, we were
developing three projects for sale to third parties. During
2001, we completed and sold two value-added conversion projects
for a net gain of $13.2 million.

RESULTS OF OPERATIONS

The analysis below includes changes attributable
to acquisitions, development activity, divestitures and the
changes resulting from properties that we owned during both the
current and prior year reporting periods, excluding development
properties prior to being stabilized (generally defined as 90%
leased or 12 months after we receive a certificate of
occupancy for the building). We refer to these properties as the
same store properties. For the comparison between the years
ended September 30, 2002 and 2001, the same store
industrial properties consisted of properties aggregating
approximately 72.0 million square feet. The properties
acquired during the first nine months of 2002 consisted of 33
buildings, aggregating approximately 4.1 million

29



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##### Table of Contents



square feet. The properties acquired during 2001
consisted of 65 buildings, aggregating approximately
6.8 million square feet. In the first nine months of 2002,
the property divestitures consisted of seven industrial
buildings and two retail centers, aggregating approximately
1.3 million square feet. In 2001, property divestitures
consisted of 24 industrial and two retail buildings,
aggregating approximately 3.2 million square feet. Our
future financial condition and results of operations, including
rental revenues, may be impacted by the acquisition of
additional properties and dispositions. Our future revenues and
expenses may vary materially from historical rates.


For the Three Months Ended September 30,
2002 and 2001 (Dollars in Millions)

|                    |                         |       |     |       |       |          |     |          |       |  |      |      |      |  |       |       |     |  
|------------------- | ----------------------- | ----- | --- | ----- | ----- | -------- | --- | -------- | ----- |  | ---- | ---- | ---- |  | ----- | ----- | --- | -
|Rental Revenues     |                         | 2002  |     | 2001  |       | $ Change |     | % Change
|                    |                         |       |     |       |       |          |     |         
|Industrial          |                         |       |     |       |       |          |     |          |       |  |      |      |      |  |       |      
|                    | Same store              |       | $   | 126.1 |       |          | $   | 123.3    |       |  | $    | 2.8  |      |  |       | 2.3   | %  
|                    | 2001 acquisitions       |       |     | 16.0  |       |          |     | 10.1     |       |  |      | 5.9  |      |  |       | 58.4  | %  
|                    | 2002 acquisitions       |       |     | 8.3   |       |          |     |         |       |  |      | 8.3  |      |  |       |      |    
|                    | Developments            |       |     | 0.5   |       |          |     | 0.2      |       |  |      | 0.3  |      |  |       | 150.0 | %  
|                    | Divestitures            |       |     | 0.1   |       |          |     | 2.1      |       |  |      | (2.0 | )    |  |       | (95.2 | )% 
|                    | Discontinued operations |       |     | (0.5  | )     |          |     | (0.9     | )     |  |      | 0.4  |      |  |       |      |    
|Retail              |                         |       | 4.2 |       |       |          | 6.2 |          |       |  | (2.0 | )    |      |  | (32.3 | )%   
|Straight-line rents |                         |       | 3.6 |       |       |          | 4.1 |          |       |  | (0.5 | )    |      |  | (12.2 | )%   
|                    |                         |       |     |       |       |          |     |          |       |  |      |      |      |  |       |      
|                    |                         | Total |     | $     | 158.3 |          |     | $        | 145.1 |  |      | $    | 13.2 |  |       |       | 9.1 | %
|                    |                         |       |     |       |       |          |     |          |       |  |      |      |      |  |       |      

The growth in rental revenues in same store
properties resulted primarily from fixed rent increases on
existing leases, reimbursement of expenses, lease termination
fees and lower bad debt expenses, partially offset by lower
average occupancies and lower rents on new and renewal leases.
Industrial same store occupancy was 94.6% at September 30,
2002, and 96.4% at September 30, 2001. During the quarter,
the same store rent decreases on industrial renewals and
rollovers (cash basis) were (5.4%) on 2.9 million square
feet leased.

|                                                        |       |      |     |      |  |          |     |          |  |   |      |      |   |  |       |       |   
|------------------------------------------------------- | ----- | ---- | --- | ---- |  | -------- | --- | -------- |  | - | ---- | ---- | - |  | ----- | ----- | --
|Private Capital and Other Income                        |       | 2002 |     | 2001 |  | $ Change |     | % Change
|                                                        |       |      |     |      |  |          |     |         
|Equity in earnings of unconsolidated joint
    ventures |       | $    | 1.3 |      |  | $        | 1.6 |          |  | $ | (0.3 | )    |   |  | (18.8 | )%   
|Private capital income                                  |       |      | 2.8 |      |  |          | 2.4 |          |  |   | 0.4  |      |   |  | 16.7  | %    
|Interest and other income                               |       |      | 2.6 |      |  |          | 5.4 |          |  |   | (2.8 | )    |   |  | (51.9 | )%   
|                                                        |       |      |     |      |  |          |     |          |  |   |      |      |   |  |       |      
|                                                        | Total |      | $   | 6.7  |  |          | $   | 9.4      |  |   | $    | (2.7 | ) |  |       | (28.7 | )%
|                                                        |       |      |     |      |  |          |     |          |  |   |      |      |   |  |       |      

The decrease in interest and other income was
primarily due to the repayment of the $74.0 million
mortgage note. In September 2000, we sold a retail center
located in Southern California. We carried a 9.5% mortgage note
secured by the retail center in the principal amount of
$74.0 million, due September 30, 2002.

30



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##### Table of Contents





|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |       |      |  
|------------------------------------------------- | --------------------------- | ----- | ---- | ---- | ---- | -------- | ---- | -------- | ---- | - | ---- | ---- | --- |  | ----- | ----- | ---- | -
|Property Operating Expenses and Real Estate Taxes |                             | 2002  |      | 2001 |      | $ Change |      | % Change
|                                                  |                             |       |      |      |      |          |      |         
|(Exclusive of depreciation and amortization)      |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      
|                                                 
|Rental expenses                                   |                             | $     | 21.8 |      |      | $        | 17.9 |          |      | $ | 3.9  |      |     |  | 21.8  | %    
|Real estate taxes                                 |                             |       | 18.9 |      |      |          | 17.3 |          |      |   | 1.6  |      |     |  | 9.2   | %    
|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      
|                                                  | Property operating expenses |       | $    | 40.7 |      |          | $    | 35.2     |      |   | $    | 5.5  |     |  |       | 15.6  | %   
|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      
|Industrial                                        |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      
|                                                  | Same store                  |       | $    | 31.7 |      |          | $    | 29.1     |      |   | $    | 2.6  |     |  |       | 8.8   | %   
|                                                  | 2001 acquisitions           |       |      | 4.1  |      |          |      | 2.6      |      |   |      | 1.5  |     |  |       | 57.7  | %   
|                                                  | 2002 acquisitions           |       |      | 2.5  |      |          |      |         |      |   |      | 2.5  |     |  |       |      |     
|                                                  | Developments                |       |      | 0.8  |      |          |      | 0.6      |      |   |      | 0.2  |     |  |       | 33.3  | %   
|                                                  | Divestitures                |       |      | 0.1  |      |          |      | 1.2      |      |   |      | (1.1 | )   |  |       | (91.7 | )%  
|                                                  | Discontinued operations     |       |      | (0.1 | )    |          |      | (0.6     | )    |   |      | 0.5  |     |  |       |      |     
|Retail                                            |                             |       | 1.6  |      |      |          | 2.3  |          |      |   | (0.7 | )    |     |  | (30.4 | )%   
|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      
|                                                  |                             | Total |      | $    | 40.7 |          |      | $        | 35.2 |   |      | $    | 5.5 |  |       |       | 15.6 | %
|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      

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

|                                 |       |      |      |      |  |          |      |          |  |   |     |      |  |  |       |       | 
|-------------------------------- | ----- | ---- | ---- | ---- |  | -------- | ---- | -------- |  | - | --- | ---- |  |  | ----- | ----- | 
|Other Expenses                   |       | 2002 |      | 2001 |  | $ Change |      | % Change
|                                 |       |      |      |      |  |          |      |         
|Interest, including amortization |       | $    | 38.7 |      |  | $        | 32.9 |          |  | $ | 5.8 |      |  |  | 17.6% |      
|Depreciation and amortization    |       |      | 33.7 |      |  |          | 28.8 |          |  |   | 4.9 |      |  |  | 17.0% |      
|General and administrative       |       |      | 12.4 |      |  |          | 8.8  |          |  |   | 3.6 |      |  |  | 40.9% |      
|                                 |       |      |      |      |  |          |      |          |  |   |     |      |  |  |       |      
|                                 | Total |      | $    | 84.8 |  |          | $    | 70.5     |  |   | $   | 14.3 |  |  |       | 20.3% | 
|                                 |       |      |      |      |  |          |      |          |  |   |     |      |  |  |       |      

The increase in interest expense was primarily
due to the issuance of additional unsecured senior debt
securities and an increase in secured debt balances. The secured
debt issuances were primarily for our co-investment joint
ventures properties. The increase in depreciation expense
was due to the increase in our investment in real estate. The
increase in general and administrative expenses was primarily
due to increased stock-based compensation expense, additional
staffing and expenses for new initiatives and income taxes for
our subsidiaries.



For the Nine Months Ended September 30,
2002 and 2001 (Dollars in Millions)

|                    |                         |       |      |       |       |          |      |          |       |  |      |      |      |  |       |       |     |  
|------------------- | ----------------------- | ----- | ---- | ----- | ----- | -------- | ---- | -------- | ----- |  | ---- | ---- | ---- |  | ----- | ----- | --- | -
|Rental Revenues     |                         | 2002  |      | 2001  |       | $ Change |      | % Change
|                    |                         |       |      |       |       |          |      |         
|Industrial          |                         |       |      |       |       |          |      |          |       |  |      |      |      |  |       |      
|                    | Same store              |       | $    | 375.7 |       |          | $    | 367.9    |       |  | $    | 7.8  |      |  |       | 2.1   | %  
|                    | 2001 acquisitions       |       |      | 48.2  |       |          |      | 15.8     |       |  |      | 32.4 |      |  |       | 205.1 | %  
|                    | 2002 acquisitions       |       |      | 10.8  |       |          |      |         |       |  |      | 10.8 |      |  |       |      |    
|                    | Developments            |       |      | 1.1   |       |          |      | 0.5      |       |  |      | 0.6  |      |  |       | 120.0 | %  
|                    | Divestitures            |       |      | 2.1   |       |          |      | 10.6     |       |  |      | (8.5 | )    |  |       | (80.2 | )% 
|                    | Discontinued operations |       |      | (2.4  | )     |          |      | (2.9     | )     |  |      | 0.5  |      |  |       |      |    
|Retail              |                         |       | 13.6 |       |       |          | 19.0 |          |       |  | (5.4 | )    |      |  | (28.4 | )%   
|Straight-line rents |                         |       | 10.4 |       |       |          | 7.6  |          |       |  | 2.8  |      |      |  | 36.8  | %    
|                    |                         |       |      |       |       |          |      |          |       |  |      |      |      |  |       |      
|                    |                         | Total |      | $     | 459.5 |          |      | $        | 418.5 |  |      | $    | 41.0 |  |       |       | 9.8 | %
|                    |                         |       |      |       |       |          |      |          |       |  |      |      |      |  |       |      

The growth in rental revenues in same store
properties resulted primarily from fixed rent increases on
existing leases, reimbursement of expenses, and lease
termination fees, partially offset by lower average occupancies.
Industrial same store occupancy was 94.6% at September 30,
2002, and 96.4% at September 30,

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##### Table of Contents



2001. Year to date, the same store rent decrease
on industrial renewals and rollovers (cash basis) was (0.4%) on
11.0 million square feet leased.


|                                                        |       |      |     |      |  |          |      |          |  |   |      |      |   |  |       |      |   
|------------------------------------------------------- | ----- | ---- | --- | ---- |  | -------- | ---- | -------- |  | - | ---- | ---- | - |  | ----- | ---- | --
|Private Capital and Other Income                        |       | 2002 |     | 2001 |  | $ Change |      | % Change
|                                                        |       |      |     |      |  |          |      |         
|Equity in earnings of unconsolidated joint
    ventures |       | $    | 4.4 |      |  | $        | 4.4  |          |  | $ | 0.0  |      |   |  | 0.0   | %   
|Private capital income                                  |       |      | 8.5 |      |  |          | 8.0  |          |  |   | 0.5  |      |   |  | 6.3   | %   
|Interest and other income                               |       |      | 9.9 |      |  |          | 12.5 |          |  |   | (2.6 | )    |   |  | (20.8 | )%  
|                                                        |       |      |     |      |  |          |      |          |  |   |      |      |   |  |       |     
|                                                        | Total |      | $   | 22.8 |  |          | $    | 24.9     |  |   | $    | (2.1 | ) |  |       | (8.4 | )%
|                                                        |       |      |     |      |  |          |      |          |  |   |      |      |   |  |       |     

The increase in private capital income was due
primarily to increased priority distributions from our
co-investment joint ventures and the consolidation of AMB
Investment Management, Inc. (predecessor-in-interest to AMB
Capital Partners, LLC) and Headlands Realty Corporation on
May 31, 2001. The decrease in interest and other income was
primarily due to the repayment of the $74.0 million
mortgage note. In September 2000, we sold a retail center
located in Southern California. We carried a 9.5% mortgage note
secured by the retail center in the principal amount of
$74.0 million, due September 30, 2002.

|                                                  |                                              |       |      |       |       |          |      |          |       |   |      |      |      |  |       |       |      |  
|------------------------------------------------- | -------------------------------------------- | ----- | ---- | ----- | ----- | -------- | ---- | -------- | ----- | - | ---- | ---- | ---- |  | ----- | ----- | ---- | -
|Property Operating Expenses and Real Estate Taxes |                                              | 2002  |      | 2001  |       | $ Change |      | % Change
|                                                  |                                              |       |      |       |       |          |      |         
|                                                  | (Exclusive of depreciation and amortization) |       |      |       |       |          |      |          |       |   |      |      |      |  |       |       |     
|                                                 
|Rental expenses                                   |                                              | $     | 58.7 |       |       | $        | 50.7 |          |       | $ | 8.0  |      |      |  | 15.8  | %    
|Real estate taxes                                 |                                              |       | 55.7 |       |       |          | 50.5 |          |       |   | 5.2  |      |      |  | 10.3  | %    
|                                                  |                                              |       |      |       |       |          |      |          |       |   |      |      |      |  |       |      
|                                                  | Property operating expenses                  |       | $    | 114.4 |       |          | $    | 101.2    |       |   | $    | 13.2 |      |  |       | 13.0  | %   
|                                                  |                                              |       |      |       |       |          |      |          |       |   |      |      |      |  |       |      
|Industrial                                        |                                              |       |      |       |       |          |      |          |       |   |      |      |      |  |       |      
|                                                  | Same store                                   |       | $    | 92.3  |       |          | $    | 87.5     |       |   | $    | 4.8  |      |  |       | 5.5   | %   
|                                                  | 2001 acquisitions                            |       |      | 11.4  |       |          |      | 3.3      |       |   |      | 8.1  |      |  |       | 245.5 | %   
|                                                  | 2002 acquisitions                            |       |      | 2.9   |       |          |      |         |       |   |      | 2.9  |      |  |       |      |     
|                                                  | Developments                                 |       |      | 2.2   |       |          |      | 0.8      |       |   |      | 1.4  |      |  |       | 175.0 | %   
|                                                  | Divestitures                                 |       |      | 0.7   |       |          |      | 3.9      |       |   |      | (3.2 | )    |  |       | (82.1 | )%  
|                                                  | Discontinued operations                      |       |      | (0.2  | )     |          |      | (0.7     | )     |   |      | 0.5  |      |  |       |      |     
|Retail                                            |                                              |       | 5.1  |       |       |          | 6.4  |          |       |   | (1.3 | )    |      |  | (20.3 | )%   
|                                                  |                                              |       |      |       |       |          |      |          |       |   |      |      |      |  |       |      
|                                                  |                                              | Total |      | $     | 114.4 |          |      | $        | 101.2 |   |      | $    | 13.2 |  |       |       | 13.0 | %
|                                                  |                                              |       |      |       |       |          |      |          |       |   |      |      |      |  |       |      

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



|                                 |       |      |       |       |  |          |      |          |  |   |      |      |  |  |       |       | 
|-------------------------------- | ----- | ---- | ----- | ----- |  | -------- | ---- | -------- |  | - | ---- | ---- |  |  | ----- | ----- | 
|Other Expenses                   |       | 2002 |       | 2001  |  | $ Change |      | % Change
|                                 |       |      |       |       |  |          |      |         
|Interest, including amortization |       | $    | 112.0 |       |  | $        | 94.3 |          |  | $ | 17.7 |      |  |  | 18.8% |      
|Depreciation and amortization    |       |      | 95.2  |       |  |          | 82.8 |          |  |   | 12.4 |      |  |  | 15.0% |      
|General and administrative       |       |      | 34.2  |       |  |          | 26.2 |          |  |   | 8.0  |      |  |  | 30.5% |      
|                                 |       |      |       |       |  |          |      |          |  |   |      |      |  |  |       |      
|                                 | Total |      | $     | 241.4 |  |          | $    | 203.3    |  |   | $    | 38.1 |  |  |       | 18.7% | 
|                                 |       |      |       |       |  |          |      |          |  |   |      |      |  |  |       |      

The increase in interest expense was primarily
due to the issuance of additional unsecured senior debt
securities and an increase in secured debt balances, partially
offset by decreased borrowings on our unsecured credit facility.
The secured debt issuances were primarily for our co-investment
joint ventures properties. The increase in depreciation
expense was due to the increase in our net investment in real
estate. The increase in general and administrative expenses was
primarily due to the consolidation of AMB Investment
Management, Inc. (predecessor-in-interest to AMB Capital
Partners, LLC) and Headlands Realty Corporation on May 31,
2001. Prior to May 31, 2001, general and administrative
expenses did not include expenses incurred by two unconsolidated
preferred stock subsidiaries, Headlands Realty Corporation and
AMB Capital Partners, LLC. General and administrative expenses
would have been $29.7 million had the subsidiaries been
consolidated

32



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##### Table of Contents



beginning January 1, 2001. The increase in
general and administrative expenses was also due to increased
stock-based compensation expense, additional staffing and
expenses for new initiatives and income taxes for our
subsidiaries.


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

LIQUIDITY AND CAPITAL RESOURCES

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



| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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
    our subsidiaries); and
|
| |  | net proceeds from divestitures of properties.                                                                                               

Additionally, we believe that our private capital
co-investment program will also continue to serve as a source of
capital for acquisitions and developments. We believe that our
sources of working capital, specifically our cash flow from
operations and borrowings available under our unsecured credit
facility and our ability to access private and public debt and
equity capital, are adequate for us to meet our liquidity
requirements for the foreseeable future.

Capital Resources

Property Divestitures.During the quarter, we divested
ourselves of five industrial buildings and one retail building
for an aggregate price of $33.6 million, with a resulting
net gain of $3.9 million. Year to date, we divested
ourselves of seven industrial buildings and two retail centers
for an aggregate price of $84.2 million, with a resulting
net gain of $6.4 million.

Properties Held for Divestiture.We have decided to divest ourselves of
four retail centers, one undeveloped retail land parcel, one
industrial property and two development properties, which are
not in our core markets or which do not meet our strategic
objectives. The divestitures of the properties are subject to
negotiation of acceptable terms and other customary conditions.
As of September 30, 2002, the net carrying value of the
properties held for divestiture was $105.6 million.

Co-investment Joint Ventures.We consolidate the financial position,
results of operations and cash flows of our five co-investment
joint ventures. We consolidate these joint ventures for
financial reporting purposes because we are the sole managing
general partner and, as a result, control all major operating
decisions. Third-party equity interests in the joint ventures
are reflected as minority interests in the consolidated
financial statements. As of September 30, 2002, we owned
approximately 34.4 million square feet of our properties
through these entities. We may make additional investments
through these joint ventures or new joint ventures in the future
and presently plan to do so.

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

During the nine months ended September 30,
2001, we contributed $539.2 million in operating
properties, consisting of 111 industrial buildings aggregating
approximately 10.8 million square feet, to three of

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our co-investment joint ventures. We recognized a
gain of $15.8 million related to these contributions,
representing the portion of the contributed properties acquired
by the third-party co-investors.


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

AMB Institutional Alliance Fund I, L.P. is
our co-investment partnership with AMB Institutional Alliance
REIT I, Inc., which includes 15 institutional
investors as stockholders and is engaged in the acquisition,
ownership, operation, management, renovation, expansion and
development of industrial buildings in target markets
nationwide. As of September 30, 2002,
AMB Institutional Alliance Fund I, L.P. had received
equity contributions from third-party investors totaling
$169.0 million, which, when combined with debt financings
and our investment, created a total planned capitalization of
$420.0 million. We owned, as of September 30, 2002,
approximately 21% of the partnership interests in
AMB Institutional Alliance Fund I, L.P.

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

We formed AMB-SGP, L.P. with a subsidiary of
GIC Real Estate Pte Ltd., the real estate investment
subsidiary of the Government of Singapore Investment
Corporation, to own and operate, through a private real estate
investment trust, industrial facilities nationwide. On
March 23, 2001, AMB-SGP, L.P. received an equity
contribution from GIC of $75.0 million, which, when
combined with anticipated debt financings and our investment,
creates a total planned capitalization of $425.0 million.
We are the managing general partner of AMB-SGP, L.P. and owned,
as of September 30, 2002, approximately 50.3% of
AMB-SGP, L.P.

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

Credit Facilities.In May 2000, we entered into a
$500.0 million unsecured revolving credit agreement. AMB
Property Corporation guarantees our obligations under the credit
facility. The credit facility matures in May 2003, has a
one-year extension option, and is subject to a 15 basis
point annual facility fee, which is based on our credit rating.
We have the ability to increase available borrowings to
$700.0 million by adding additional banks to the facility
or obtaining the agreement of existing banks to increase its
commitments. We use our unsecured credit facility principally
for acquisitions and for general working capital requirements.
Borrowings under our credit facility currently bear interest at
LIBOR plus 75 basis points, which is based on our credit rating.
As of September 30, 2002, the outstanding balance on our
unsecured credit facility was $12.0 million. Monthly debt
service payments on our credit facility are interest only. The
total amount available under our credit facility fluctuates
based upon the borrowing base, as defined in the agreement
governing the credit facility, generally the value of our
unencumbered properties. At September 30, 2002, the
remaining amount available under our unsecured credit facility
was $485.1 million, net of outstanding letters of credit
(excluding the $200.0 million of potential additional
capacity).

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In July 2001, AMB Institutional Alliance
Fund II, L.P. obtained a $150.0 million credit
facility secured by the unfunded capital commitments of the
investors in AMB Institutional Alliance REIT II, Inc. and
AMB Institutional Alliance Fund II, L.P. Borrowings
currently bear interest at LIBOR plus 87.5 basis points. As
of September 30, 2002, the outstanding balance was
$72.5 million and the remaining amount available was
$36.3 million, net of outstanding letters of credit and
capital contributions from third-party investors.

Partners Capital.As of September 30, 2002, we had
outstanding 84,012,282 common general partnership units,
4,846,387 common limited partnership units,
4,000,000 8 1/2% Series A Cumulative Redeemable
Partnership Units, 1,300,000 8 5/8% Series B
Cumulative Redeemable Partnership Units, 800,000 7.95%
Series J Cumulative Redeemable Partnership Units, and
800,000 7.95% Series K Cumulative Redeemable Partnership
Units.

On April 17, 2002, we issued and sold
800,000 7.95% Series K Cumulative Redeemable
Partnership Units at a price of $50.00 per unit in a private
placement. Distributions are cumulative from the date of
issuance and payable quarterly in arrears. The Series K
preferred units are redeemable by us on or after April 17,
2007, subject to certain conditions, for cash at a redemption
price equal to $50.00 per unit, plus accumulated and unpaid
distributions thereon, if any, to the redemption date. The
Series K preferred units are exchangeable at specified
times and subject to certain conditions, on a one-for-one basis,
for shares of AMB Property Corporations Series K
preferred stock. We used the net proceeds of $39.0 million
for general corporate purposes, which included the partial
repayment of indebtedness and the acquisition and development of
additional properties.

During the three months ended September 30,
2002, we redeemed 86,529 of our common limited partnership units
for shares of AMB Property Corporations common stock.
During the nine months ended September 30, 2002, we
redeemed 122,640 of our common limited partnership units for
shares of AMB Property Corporations common stock.

In December 2001, AMB Property Corporations
board of directors approved a new stock repurchase program for
the repurchase of up to $100.0 million worth of its common
and preferred stock. The new stock repurchase program expires in
December 2003. In July 2002, AMB Property Corporation
repurchased 433,200 shares of its common stock for
$11.2 million, including commissions, and we retired the
same number of common general partnership units. In July 2002,
AMB Property Corporation also repurchased 4,200 shares of
its Series A preferred stock for an aggregate cost of
$0.1 million, including accrued and unpaid dividends and we
retired the same number of Series A preferred general
partnership units.

Debt.In order to
maintain financial flexibility and facilitate the deployment of
capital through market cycles, we presently intend to operate
with a debt-to-total market capitalization ratio of
approximately 45% or less. At September 30, 2002, our share
of total debt-to-total market capitalization ratio was 35.6%.
Additionally, we currently intend to manage our capitalization
in order to maintain an investment grade rating on our senior
unsecured debt. In spite of these policies, our organizational
documents do not contain any limitation on the amount of
indebtedness that we may incur. Accordingly, our general
partners board of directors could alter or eliminate these
policies without unitholder or noteholder approval or
circumstances could arise that could render us unable to comply
with these policies.

As of September 30, 2002, the aggregate
principal amount of our secured debt was $1.3 billion,
excluding unamortized debt premiums of $12.9 million. Of
the $1.3 billion of secured debt, $0.9 billion is
secured by properties in our joint ventures. The secured debt is
generally non-recourse and bears interest at rates varying from
3.4% to 10.4% per annum (with a weighted average rate of 7.4%)
and final maturity dates ranging from January 2003 to June 2023.
All of the secured debt bears interest at fixed rates, except
for six loans with an aggregate principal amount of
$48.2 million as of September 30, 2002, which bear
interest at variable rates (with a weighted average interest
rate of 3.5% at September 30, 2002).

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

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

If we are unable to refinance or extend principal
payments due at maturity or pay them with proceeds of other
capital transactions, then our cash flow may be insufficient to
pay distributions to our unitholders in all years, 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.

Mortgage Receivables.In September 2000, we sold a retail
center located in Southern California. We carried a 9.5%
mortgage note secured by the retail center in the principal
amount of $74.0 million, due September 30, 2002. On
July 3, 2002, we received a full repayment of the mortgage.
Through a wholly-owned subsidiary, we also hold a mortgage loan
receivable on AMB Pier One, LLC, an unconsolidated joint
venture. The note bears interest at 13.0% and matures in May
2026. As of September 30, 2002, the outstanding balance on
the note was $13.2 million.

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##### Table of Contents



Debt

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

|                                                                     |                      |                         |                         |         |         |             |          |           |         |            |         |         |         |         |       |        |        |        |         |        |        |        |          |           |           |           | 
|-------------------------------------------------------------------- | -------------------- | ----------------------- | ----------------------- | ------- | ------- | ----------- | -------- | --------- | ------- | ---------- | ------- | ------- | ------- | ------- | ----- | ------ | ------ | ------ | ------- | ------ | ------ | ------ | -------- | --------- | --------- | --------- | 
|                                                                     |                      |                         |                         | Joint   |         | Unsecured   |          |           |         |            |         |        
|                                                                     |                      | Secured                 |                         | Venture |         | Senior Debt |          | Unsecured |         | Credit     |         | Total  
|                                                                     |                      | Debt                    |                         | Debt    |         | Securities  |          | Debt      |         | Facilities |         | Debt   
|                                                                     |                      |                         |                         |         |         |             |          |           |         |            |         |        
|2002                                                                 |                      | $                       | 3,534                   |         |         | $           | 4,566    |           |         | $          |        |         |         | $       | 133   |        |        | $      |        |        |        | $      | 8,233    |          
|2003                                                                 |                      |                         | 75,714                  |         |         |             | 17,556   |           |         |            |        |         |         |         | 558   |        |        |        | 84,500  |        |        |        | 178,328  |          
|2004                                                                 |                      |                         | 64,657                  |         |         |             | 64,413   |           |         |            |        |         |         |         | 601   |        |        |        |        |        |        |        | 129,671  |          
|2005                                                                 |                      |                         | 46,070                  |         |         |             | 58,918   |           |         |            | 250,000 |         |         |         | 647   |        |        |        |        |        |        |        | 355,635  |          
|2006                                                                 |                      |                         | 85,619                  |         |         |             | 83,541   |           |         |            | 25,000  |         |         |         | 698   |        |        |        |        |        |        |        | 194,858  |          
|2007                                                                 |                      |                         | 24,721                  |         |         |             | 42,472   |           |         |            | 75,000  |         |         |         | 752   |        |        |        |        |        |        |        | 142,945  |          
|2008                                                                 |                      |                         | 33,373                  |         |         |             | 153,903  |           |         |            | 175,000 |         |         |         | 810   |        |        |        |        |        |        |        | 363,086  |          
|2009                                                                 |                      |                         | 4,911                   |         |         |             | 62,239   |           |         |            |        |         |         |         | 873   |        |        |        |        |        |        |        | 69,023   |          
|2010                                                                 |                      |                         | 51,778                  |         |         |             | 105,854  |           |         |            | 75,000  |         |         |         | 941   |        |        |        |        |        |        |        | 233,573  |          
|2011                                                                 |                      |                         | 1,311                   |         |         |             | 179,295  |           |         |            | 75,000  |         |         |         | 1,014 |        |        |        |        |        |        |        | 256,620  |          
|Thereafter                                                           |                      |                         | 3,307                   |         |         |             | 123,663  |           |         |            | 125,000 |         |         |         | 3,292 |        |        |        |        |        |        |        | 255,262  |          
|                                                                     |                      |                         |                         |         |         |             |          |           |         |            |         |         |         |         |       |        |        |        |         |        |        |        |          |          
|                                                                     | Subtotal             |                         |                         | 394,995 |         |             |          | 897,420   |         |            |         | 800,000 |         |         |       | 10,319 |        |        |         | 84,500 |        |        |          | 2,187,234 |          
|                                                                     | Unamortized premiums |                         |                         | 10,750  |         |             |          | 2,155     |         |            |         |        |         |         |       |       |        |        |         |       |        |        |          | 12,905    |          
|                                                                     |                      |                         |                         |         |         |             |          |           |         |            |         |         |         |         |       |        |        |        |         |        |        |        |          |          
|                                                                     |                      |                         | Total consolidated debt |         |         | 405,745     |          |           |         | 899,575    |         |         |         | 800,000 |       |        |        | 10,319 |         |        |        | 84,500 |          |           |           | 2,200,139 | 
|Our share of unconsolidated joint venture debt(1)                    |                      |                         |                        |         |         |             | 39,626   |           |         |            |        |         |         |         |      |        |        |        |        |        |        |        | 39,626   |          
|                                                                     |                      |                         |                         |         |         |             |          |           |         |            |         |         |         |         |       |        |        |        |         |        |        |        |          |          
|                                                                     |                      |                         | Total debt              |         |         | 405,745     |          |           |         | 939,201    |         |         |         | 800,000 |       |        |        | 10,319 |         |        |        | 84,500 |          |           |           | 2,239,765 | 
|Joint venture partners share of
    consolidated joint venture debt |                      |                         |                        |         |         |             | (526,799 | )         |         |            |        |         |         |         |      |        |        |        | (58,000 | )      |        |        | (584,799 | )        
|                                                                     |                      |                         |                         |         |         |             |          |           |         |            |         |         |         |         |       |        |        |        |         |        |        |        |          |          
|                                                                     |                      | Our share of total debt |                         | $       | 405,745 |             |          | $         | 412,402 |            |         | $       | 800,000 |         |       | $      | 10,319 |        |         | $      | 26,500 |        |          | $         | 1,654,966 |          
|                                                                     |                      |                         |                         |         |         |             |          |           |         |            |         |         |         |         |       |        |        |        |         |        |        |        |          |          
|Weighed average interest rate                                        |                      |                         | 8.0                     | %       |         |             | 7.1      | %         |         |            | 7.2     | %       |         |         | 7.5   | %      |        |        | 2.7     | %      |        |        | 7.1      | %        
|Weighed average maturity
    (in years)                              |                      |                         | 4.1                     |         |         |             | 7.3      |           |         |            | 6.8     |         |         |         | 12.0  |        |        |        | 0.8     |        |        |        | 6.3      |          



---



|    |                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The weighted average interest and weighted
    average maturity for the unconsolidated joint venture debt were
    6.2% and 6.2 years, respectively.

Market Capital

|                                 |       |             |            |              |  |              |       |  |  |   |           |           | 
|-------------------------------- | ----- | ----------- | ---------- | ------------ |  | ------------ | ----- |  |  | - | --------- | --------- | 
|                                 |       | Units       |            |              |  |             
|Security                         |       | Outstanding |            | Market Price |  | Market Value
|                                 |       |             |            |              |  |             
|Common general partnership units |       |             | 84,012,282 |              |  | $            | 28.90 |  |  | $ | 2,427,955 |          
|Common limited partnership units |       |             | 4,846,387  |              |  |              | 28.90 |  |  |   | 140,061   |          
|                                 |       |             |            |              |  |              |       |  |  |   |           |          
|                                 | Total |             |            | 88,858,669   |  |              |       |  |  |   | $         | 2,568,016 | 
|                                 |       |             |            |              |  |              |       |  |  |   |           |          

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Preferred Units

|                         |                         |          |       |             |  |            |        |         |  |                | 
|------------------------ | ----------------------- | -------- | ----- | ----------- |  | ---------- | ------ | ------- |  | -------------- | 
|                         |                         | Dividend |       | Liquidation |  | Redemption
|Security                 |                         | Rate     |       | Preference  |  | Provisions
|                         |                         |          |       |             |  |           
|Series A preferred units |                         |          | 8.50% |             |  | $          | 99,895 |         |  | July 2003     
|Series B preferred units |                         |          | 8.63% |             |  |            | 65,000 |         |  | November 2003 
|Series D preferred units |                         |          | 7.75% |             |  |            | 79,767 |         |  | May 2004      
|Series E preferred units |                         |          | 7.75% |             |  |            | 11,022 |         |  | August 2004   
|Series F preferred units |                         |          | 7.95% |             |  |            | 13,372 |         |  | 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    
|                         |                         |          |       |             |  |            |        |         |  |               
|                         | Weighted Average/ Total |          |       | 8.17%       |  |            | $      | 416,556 |  |                | 
|                         |                         |          |       |             |  |            |        |         |  |               

Capitalization Ratios

|                                                                          |  |  |      |  
|------------------------------------------------------------------------- |  |  | ---- | -
|Total debt-to-total market capitalization                                 |  |  | 42.8 | %
|Our share of total debt-to-total market
    capitalization                |  |  | 35.6 | %
|Total debt plus preferred-to-total market
    capitalization              |  |  | 50.8 | %
|Our share of total debt plus preferred-to-total
    market capitalization |  |  | 44.6 | %
|Our share of total debt-to-total book
    capitalization                  |  |  | 44.7 | %



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

As of September 30, 2002, we had
approximately $90.8 million in cash, restricted cash and
cash equivalents, and $485.1 million of additional
available borrowings under our credit facility. We also had
$36.3 million of additional available borrowings under our
AMB Institutional Alliance Fund II, L.P. credit facility.
To fund acquisitions, development activities and capital
expenditures, and to provide for general working capital
requirements, we intend to use:



| |   |                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |  | cash from operations;                                                                                                                              
|
| |  | borrowings under our credit facility;                                                                                                              
|
| |  | other forms of secured and unsecured financing;                                                                                                    
|
| |  | proceeds from any future debt or limited
    partnership unit offerings (including issuances of limited
    partnership units by our subsidiaries);
|
| |  | proceeds from divestitures of properties; and                                                                                                      
|
| |  | private capital.                                                                                                                                   

The unavailability of capital would adversely
affect our financial condition, results of operations, cash flow
and ability to make distributions to our unitholders and
payments to our noteholders.

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

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##### Table of Contents



October 25, 2002, to unitholders of record
on October 11, 2002. The following table sets forth the
distributions paid per unit for the three and nine months ended
September 30, 2002 and 2001:


|                      |  |          |                                  |               |  |               |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|--------------------- |  | -------- | -------------------------------- | ------------- |  | ------------- | ----- | ---- |  | ---- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                      |  |          |                                  |               |  |              
|                      |  |          |                                  | For the Three |  | For the Nine 
|                      |  |          |                                  | Months Ended  |  | Months Ended 
|                      |  |          |                                  | September 30, |  | September 30,
|                      |  |          |                                  |               |  |              
|Paying Entity         |  | Security |                                  | 2002          |  | 2001          |       | 2002 |  | 2001
|                      |  |          |                                  |               |  |               |       |      |  |     
|AMB Property, L.P.    |  |          | Common limited partnership units |               |  | $             | 0.410 |      |  | $    | 0.395 |  |  | $ | 1.230 |  |  | $ | 1.185 | 
|AMB Property, L.P.    |  |          | Series A preferred units         |               |  | $             | 0.531 |      |  | $    | 0.531 |  |  | $ | 1.594 |  |  | $ | 1.594 | 
|AMB Property, L.P.    |  |          | Series B preferred units         |               |  | $             | 1.078 |      |  | $    | 1.078 |  |  | $ | 3.234 |  |  | $ | 3.234 | 
|AMB Property, L.P.    |  |          | Series J preferred units         |               |  | $             | 0.994 |      |  | $    | 0.097 |  |  | $ | 2.982 |  |  | $ | 0.097 | 
|AMB Property, L.P.    |  |          | Series K preferred units         |               |  | $             | 0.994 |      |  |      | n/a   |  |  | $ | 1.965 |  |  |   | n/a   | 
|AMB Property II, L.P. |  |          | Series C preferred units         |               |  |               | n/a   |      |  | $    | 1.094 |  |  |   | n/a   |  |  | $ | 3.281 | 
|AMB Property II, L.P. |  |          | Series D preferred units         |               |  | $             | 0.969 |      |  | $    | 0.969 |  |  | $ | 2.906 |  |  | $ | 2.906 | 
|AMB Property II, L.P. |  |          | Series E preferred units         |               |  | $             | 0.969 |      |  | $    | 0.969 |  |  | $ | 2.906 |  |  | $ | 2.906 | 
|AMB Property II, L.P. |  |          | Series F preferred units(1)      |               |  | $             | 0.994 |      |  | $    | 0.994 |  |  | $ | 2.982 |  |  | $ | 2.982 | 
|AMB Property II, L.P. |  |          | Series G preferred units(1)      |               |  | $             | 0.155 |      |  | $    | 0.994 |  |  | $ | 2.142 |  |  | $ | 2.982 | 
|AMB Property II, L.P. |  |          | Series H preferred units         |               |  | $             | 1.016 |      |  | $    | 1.016 |  |  | $ | 3.048 |  |  | $ | 3.048 | 
|AMB Property II, L.P. |  |          | Series I preferred units         |               |  | $             | 1.000 |      |  | $    | 1.000 |  |  | $ | 3.000 |  |  | $ | 2.044 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On July 31, 2002, AMB Property II,
    L.P., one of our subsidiaries, repurchased 130,000 of its 7.95%
    Series F Cumulative Redeemable Preferred Limited
    Partnership Units and all 20,000 of its outstanding 7.95%
    Series G Cumulative Redeemable Preferred Limited
    Partnership Units from a single institutional investor. On
    July 31, 2002, AMB Property II, L.P. paid a
    distribution, which accrued during the period from July 15,
    2002, to July 31, 2002, of $0.155 per unit on the 130,000
    Series F preferred units that were redeemed.

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, as of September 30, 2002, we are
developing ten projects representing a total estimated
investment of $128.1 million upon completion and two
development projects available for sale representing a total
estimated investment of $30.2 million upon completion. Of
this total, $113.9 million had been funded as of
September 30, 2002, and an estimated $44.4 million is
required to complete current and planned projects. We expect to
fund these expenditures with cash from operations, borrowings
under our credit facility, debt or limited partnership unit
issuances and net proceeds from property divestitures, which
could have an adverse effect on our cash flow.

Acquisitions.During
the quarter, we invested $89.2 million in eight operating
industrial buildings, aggregating approximately 1.4 million
rentable square feet. Year to date, we have invested
$246.1 million in 33 operating industrial buildings,
aggregating approximately 4.1 million rentable square feet.
We funded these acquisitions and initiated development and
renovation projects through private capital contributions,
borrowings under our credit facility, cash, debt and limited
partnership unit issuances, and net proceeds from property
divestitures.

Captive Insurance Company.We have responded to recent trends
towards increasing costs and decreasing coverage availability in
the insurance markets by obtaining higher-deductible property
insurance

39



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##### Table of Contents



from third-party insurers and by forming a
wholly-owned captive insurance company, Arcata National
Insurance Ltd., in December 2001. Arcata provides insurance
coverage for all or a portion of losses below the increased
deductible under the third-party policies. We capitalized Arcata
in accordance with regulatory requirements. Arcata established
annual premiums based on projections derived from the past loss
experience of our properties. Annually, we intend to engage an
independent third party to perform an actuarial estimate of
future projected claims.


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

Potential Unknown Liabilities.Unknown liabilities may include the
following:



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

FUNDS FROM OPERATIONS

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

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

40



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##### Table of Contents



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

|                                                                |                                                                |                       |        |                     |        |      |        |         |        |   |         |         |         |   |         |         |         | 
|--------------------------------------------------------------- | -------------------------------------------------------------- | --------------------- | ------ | ------------------- | ------ | ---- | ------ | ------- | ------ | - | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                |                                                                |                       |        |                    
|                                                                |                                                                | For the Three Months  |        | For the Nine Months
|                                                                |                                                                | Ended September 30,   |        | Ended September 30,
|                                                                |                                                                |                       |        |                    
|                                                                |                                                                | 2002                  |        | 2001                |        | 2002 |        | 2001   
|                                                                |                                                                |                       |        |                     |        |      |        |        
|Income before minority interests and gains                      |                                                                | $                     | 39,536 |                     |        | $    | 48,884 |         |        | $ | 126,460 |         |         | $ | 118,179 |        
|Gains on developments held for sale                             |                                                                |                       | 618    |                     |        |      | 1,341  |         |        |   | 618     |         |         |   | 1,341   |        
|Real estate related depreciation and amortization:              |                                                                |                       |        |                     |        |      |        |         |        |   |         |         |         |   |         |        
|                                                                | Total depreciation and amortization                            |                       |        | 33,749              |        |      |        | 28,835  |        |   |         | 95,186  |         |   |         | 82,758  |        
|                                                                | FF&E depreciation, ground lease amortization,
    and other(1) |                       |        | (815                | )      |      |        | (483    | )      |   |         | (1,742  | )       |   |         | (1,456  | )      
|Discontinued operations                                         |                                                                |                       | 405    |                     |        |      | 597    |         |        |   | 1,634   |         |         |   | 1,779   |        
|FFO attributable to minority interests:                         |                                                                |                       |        |                     |        |      |        |         |        |   |         |         |         |   |         |        
|                                                                | Joint venture partners                                         |                       |        | (13,635             | )      |      |        | (13,393 | )      |   |         | (37,753 | )       |   |         | (29,119 | )      
|                                                                | Series C-I preferred unit distributions                        |                       |        | (3,411              | )      |      |        | (5,943  | )      |   |         | (10,485 | )       |   |         | (17,342 | )      
|Adjustments to derive FFO in unconsolidated joint
    ventures: |                                                                |                       |        |                     |        |      |        |         |        |   |         |         |         |   |         |        
|                                                                | Our share of net income                                        |                       |        | (1,322              | )      |      |        | (1,636  | )      |   |         | (4,443  | )       |   |         | (4,365  | )      
|                                                                | Our share of FFO                                               |                       |        | 2,048               |        |      |        | 2,235   |        |   |         | 6,611   |         |   |         | 6,488   |        
|Preferred unit distributions                                    |                                                                |                       | (5,115 | )                   |        |      | (3,605 | )       |        |   | (14,658 | )       |         |   | (10,659 | )      
|                                                                |                                                                |                       |        |                     |        |      |        |         |        |   |         |         |         |   |         |        
|                                                                |                                                                | Funds from operations |        | $                   | 52,058 |      |        | $       | 56,832 |   |         | $       | 161,428 |   |         | $       | 147,604 | 
|                                                                |                                                                |                       |        |                     |        |      |        |         |        |   |         |         |         |   |         |        



---



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

OPERATING AND LEASING STATISTICS
SUMMARY

The following table summarizes key operating and
leasing statistics for all of our industrial properties as of
and for the three month period ended September 30, 2002
(dollars in thousands):

|                                    |                                                              |               |                  |               |      |      |            |           |      |      | 
|----------------------------------- | ------------------------------------------------------------ | ------------- | ---------------- | ------------- | ---- | ---- | ---------- | --------- | ---- | ---- | 
|                                    |                                                              | Three Months  |                  | Nine Months  
|                                    |                                                              | Ended         |                  | Ended        
|                                    |                                                              | September 30, |                  | September 30,
|                                    |                                                              | 2002          |                  | 2002         
|                                    |                                                              |               |                  |              
|Square feet owned(1)(2)             |                                                              |               | 85,706,728       |               |      |      | 85,706,728 |          
|Occupancy percentage(1)             |                                                              |               | 94.4             | %             |      |      | 94.4       | %        
|Weighted average lease terms:       |                                                              |               |                  |               |      |      |            |          
|                                    | Original                                                     |               |                  | 6.1 years     |      |      |            | 6.1 years |     
|                                    | Remaining                                                    |               |                  | 3.2 years     |      |      |            | 3.2 years |     
|Tenant retention                    |                                                              |               | 67.9             | %             |      |      | 73.7       | %        
|Second Generation Leasing Activity: |                                                              |               |                  |               |      |      |            |          
|                                    | Tenant improvements and leasing commissions per
    sq. ft.: |               |                  |               |      |      |            |           |     
|                                    |                                                              | Renewals      |                  | $             | 1.21 |      |            | $         | 1.05 |     
|                                    |                                                              | Re-tenanted   |                  |               | 2.54 |      |            |           | 2.63 |     
|                                    |                                                              |               |                  |               |      |      |            |          
|                                    |                                                              |               | Weighted average |               | $    | 1.87 |            |           | $    | 1.88 | 
|                                    |                                                              |               |                  |               |      |      |            |          
|                                    | Square footage commencing (millions)                         |               |                  | 4.1           |      |      |            | 14.3      |     
|Same Space Leasing Activity:        |                                                              |               |                  |               |      |      |            |          
|                                    | Rent increases on renewals and rollovers                     |               |                  | (3.4          | )%   |      |            | 0.1       | %   
|                                    | Same space square footage commencing (millions)              |               |                  | 3.2           |      |      |            | 11.6      |     

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---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes all industrial consolidated operating
    properties and excludes development and renovation projects.
    Excludes retail and other properties square feet of
    1,000,080, occupancy of 83.8%, and annualized base rent of
    $11.1 million.                                                                                                                                                        
|   
|(2) | In addition to owned square feet as of
    September 30, 2002, we managed, through our subsidiary, AMB
    Capital Partners, LLC, approximately 1.8 million additional
    square feet of industrial, retail, and other properties. We also
    have investments in approximately 5.3 million square feet
    of industrial operating properties through our investments in
    the unconsolidated joint ventures.
|   
|(3) | Consists of all second-generation leases renewing
    or re-tenanting with current and prior lease terms greater than
    one year.                                                                                                                                                                                                                                                                               

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

|                                                   |                                   |                      |            |               |      |   |            |      |      |  
|-------------------------------------------------- | --------------------------------- | -------------------- | ---------- | ------------- | ---- | - | ---------- | ---- | ---- | -
|                                                   |                                   | Three Months         |            | Nine Months  
|                                                   |                                   | Ended                |            | Ended        
|                                                   |                                   | September 30,        |            | September 30,
|                                                   |                                   | 2002                 |            | 2002         
|                                                   |                                   |                      |            |              
|Square feet in same store pool(1)                  |                                   |                      | 71,996,131 |               |      |   | 71,996,131 |     
|                                                   | % of total industrial square feet |                      |            | 84.0          | %    |   |            | 84.0 | %   
|Occupancy percentage at period end                 |                                   |                      |            |               |      |   |            |     
|                                                   |                                   | September 30, 2002.  |            |               | 94.6 | % |            |      | 94.6 | %
|                                                   |                                   | September 30, 2001.  |            |               | 96.4 | % |            |      | 96.4 | %
|Tenant retention                                   |                                   |                      | 66.6       | %             |      |   | 73.5       | %   
|Rent increases on renewals and rollovers           |                                   |                      | (5.4       | )%            |      |   | (0.4       | )%  
|                                                   | Square feet leased                |                      |            | 2.9           |      |   |            | 11.0 |     
|Cash basis net operating income growth % increase: |                                   |                      |            |               |      |   |            |     
|                                                   |                                   | Revenues             |            |               | 2.3  | % |            |      | 2.1  | %
|                                                   |                                   | Expenses             |            |               | 8.8  | % |            |      | 5.5  | %
|                                                   |                                   | Net operating income |            |               | 0.2  | % |            |      | 1.1  | %



---



|    |                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------
|(1) | The same store pool excludes properties purchased
    or developments stabilized after December 31, 2000.




Item 3.     Quantitative
and Qualitative Disclosures About Market Risk

Market risk is the risk of loss from adverse
changes in market prices and interest rates. Our future earnings
and cash flows are dependent upon 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: (1) interest rate fluctuations in connection with
our credit facilities and other variable rate borrowings; and
(2) our ability to incur more debt without unitholder or
noteholder approval, thereby increasing our debt service
obligations, which could adversely affect our cash flows. As of
September 30, 2002, we had no interest rate caps or swaps.
See Item 2: Managements Discussion and Analysis
of Financial Condition and Results of Operations 
Liquidity and Capital Resources  Capital
Resources  Market Capitalization.

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##### Table of Contents



The table below summarizes the market risks
associated with our fixed and variable rated debt outstanding
before unamortized debt premiums of $12.9 million as of
September 30, 2002:

|                      |  |                        |       |       |  |      |        |      |  |      |        |            |  |      |         |   |  |   |         |   |  |   |           |   |  |   |           |  
|--------------------- |  | ---------------------- | ----- | ----- |  | ---- | ------ | ---- |  | ---- | ------ | ---------- |  | ---- | ------- | - |  | - | ------- | - |  | - | --------- | - |  | - | --------- | -
|                      |  |                       
|                      |  | Expected Maturity Date
|                      |  |                       
|                      |  |                        |       | Total
|                      |  | 2002                   |       | 2003  |  | 2004 |        | 2005 |  | 2006 |        | Thereafter |  | Debt
|                      |  |                        |       |       |  |      |        |      |  |      |        |            |  |     
|Fixed rate debt(1)    |  | $                      | 7,939 |       |  | $    | 92,615 |      |  | $    | 99,937 |            |  | $    | 352,877 |   |  | $ | 186,823 |   |  | $ | 1,314,332 |   |  | $ | 2,054,523 |  
|Average interest rate |  |                        | 7.3   | %     |  |      | 7.8    | %    |  |      | 8.0    | %          |  |      | 7.3     | % |  |   | 7.3     | % |  |   | 7.4       | % |  |   | 7.4       | %
|Variable rate debt(2) |  | $                      | 294   |       |  | $    | 85,713 |      |  | $    | 29,734 |            |  | $    | 2,758   |   |  | $ | 8,035   |   |  | $ | 6,177     |   |  | $ | 132,711   |  
|Average interest rate |  |                        | 3.7   | %     |  |      | 2.8    | %    |  |      | 3.6    | %          |  |      | 3.8     | % |  |   | 3.5     | % |  |   | 3.4       | % |  |   | 3.0       | %



---



|    |                                          
|--- | -----------------------------------------
|(1) | Represents 93.9% of all outstanding debt.
|   
|(2) | Represents 6.1% of all outstanding debt. 

If market rates of interest on our variable rate
debt increased by 10% (or approximately 30 basis points), then
the increase in interest expense on the variable rate debt would
be $0.4 million annually. As of September 30, 2002,
the estimated fair value of our fixed rate debt was
$2,196.2 million based on our estimate of current market
interest rates.




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 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 necessarily 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. 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.

Within 90 days prior to the date of this
report, 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. Based 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.

There have been no significant changes in our
internal controls or in other factors that could significantly
affect the internal controls subsequent to the date we completed
our evaluation.




PART II




Item 1.Legal
Proceedings

As of September 30, 2002, there were no
pending legal proceedings to which we are a party or of which
any of our properties is the subject, the adverse determination
of which we anticipate would have a material adverse effect upon
our financial condition and results of operations.




Item 2.Changes
in Securities and Use of Proceeds

In July 2002, we repurchased 433,200 common
general partnership units and 4,200 Series A preferred
general partnership units.

43



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##### Table of Contents



On July 31, 2002, AMB Property II,
L.P., one of our subsidiaries, repurchased 130,000 of its 7.95%
Series F Cumulative Redeemable Preferred Limited
Partnership Units and all 20,000 of its outstanding 7.95%
Series G Cumulative Redeemable Preferred Limited
Partnership Units from a single institutional investor. AMB
Property II, L.P. redeemed the units for an aggregate cost
of $7.1 million, including accrued and unpaid dividends and
a redemption discount of $0.4 million.




Item 3.Defaults
upon Senior Securities

None.




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

None.




Item 5.Other
Information

BUSINESS RISKS

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

General Real Estate Risks



| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | There Are Factors Outside of Our Control
    that Affect the Performance and Value of Our
    Properties.

Real property investments are subject to varying
degrees of risk. The yields available from equity investments in
real estate depend on the amount of income earned and capital
appreciation generated by the related properties as well as the
expenses incurred in connection with the properties. If our
properties do not generate income sufficient to meet operating
expenses, including debt service and capital expenditures, then
our ability to make distributions to our unitholders and
payments to our noteholders could be adversely affected. Income
from, and the value of, our properties may be adversely affected
by the general economic climate, local conditions, such as
oversupply of industrial space or a reduction in demand for
industrial space, the attractiveness of our properties to
potential customers, competition from other properties, our
ability to provide adequate maintenance and insurance and an
increase in operating costs. Periods of economic slowdown or
recession in the United States and in other countries, rising
interest rates or declining demand for real estate, or public
perception that any of these events may occur, would result in a
general decrease in rents or an increased occurrence of defaults
under existing leases, which would adversely affect our
financial condition and results of operations.

Our properties are currently concentrated
predominantly in the industrial real estate sector. Our
concentration in a certain property type exposes us to the risk
of economic downturns in this sector to a greater extent than if
our portfolio also included other property types. As a result of
such concentration, economic downturns in the industrial real
estate sector could adversely affect our financial condition,
results of operations, cash flow and ability to make
distributions to our unitholders and payments to our
noteholders. In addition, revenues from properties and real
estate values are also affected by factors such as the cost of
compliance with regulations, the potential for liability under
applicable laws (including changes in tax laws), interest rate
levels and the availability of financing. Our income would be
adversely affected if a significant number of customers were
unable to pay rent or if we were unable to rent our industrial
space on favorable terms. Certain significant expenditures
associated with an investment in real estate (such as mortgage
payments, real estate taxes, and maintenance costs) generally do
not decline when circumstances cause a reduction in income from
the property. Future terrorist attacks in the United States may
result in declining economic activity, which could harm the
demand for and the value of our properties. To the extent that
our customers are impacted by future attacks, their businesses
similarly could be adversely affected, including their ability
to continue to honor their existing leases.

44



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| |                                                                      
| | ---------------------------------------------------------------------
| | We May be Unable to Renew Leases or Relet
    Space as Leases Expire.

We are subject to the risks that leases may not
be renewed, space may not be relet, or the terms of renewal or
reletting (including the cost of required renovations) may be
less favorable than current lease terms. Leases on a total of
4.6% of our industrial properties (based on annualized base
rent) as of September 30, 2002, will expire on or prior to
December 31, 2002. In addition, numerous properties compete
with our properties in attracting customers to lease space,
particularly with respect to retail centers. The number of
competitive commercial properties in a particular area could
have a material adverse effect on our ability to lease space in
our properties and on the rents that we are able to charge. Our
financial condition, results of operations, cash flow and our
ability to make distributions to our unitholders and payments to
our noteholders could be adversely affected if we are unable to
promptly relet or renew the leases for all or a substantial
portion of expiring leases, if the rental rates upon renewal or
reletting is significantly lower than expected, or if our
reserves for these purposes prove inadequate.



| |                                          
| | -----------------------------------------
| | Real Estate Investments Are
    Illiquid.

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



| |                                                                      
| | ---------------------------------------------------------------------
| | A Significant Number of Our Properties Are
    Located in California.

Our industrial properties located in California
as of September 30, 2002, represented approximately 27.6%
of the aggregate square footage of our industrial operating
properties as of September 30, 2002, and 33.8% of our
industrial annualized base rent. Annualized base rent means the
monthly contractual amount under existing leases as of
September 30, 2002, multiplied by 12. This amount excludes
expense reimbursements and rental abatements. Our revenue from,
and the value of, our properties located in California may be
affected by a number of factors, including local real estate
conditions (such as oversupply of or reduced demand for
industrial properties) and the local economic climate. Business
layoffs, downsizing, industry slowdowns, changing demographics,
and other factors may adversely impact the local economic
climate. A downturn in either Californias economy or real
estate conditions could adversely affect our financial
condition, results of operations, cash flow and ability to make
distributions to our unitholders and payments to our
noteholders. Certain of our properties are also subject to
possible loss from seismic activity. See Some Potential
Losses are not Covered by Insurance.

Some Potential Losses Are Not Covered by
Insurance.

We carry commercial liability, property and
rental loss insurance covering all properties owned and managed
by us, with policy specifications and insured limits that we
believe are adequate and appropriate under the circumstances
given relative risks, the cost of such coverage and industry
practice. Certain losses such as losses due to terrorism,
windstorms, floods or seismic activity may be insured subject to
certain limitations, including large deductibles or co-payments
and policy limits. Although we have obtained coverage for
certain acts of terrorism, with policy specifications and
insured limits that we believe are commercially reasonable, it
is not certain that we will be able to renew coverage or collect
under such policies. From time to time, we evaluate the amount
of earthquake coverage that we carry for all properties owned
and managed by us, to assess whether, in our good faith
discretion, the coverage is adequate. We may incur material
losses in excess of insurance proceeds and we may not be able to
continue to obtain insurance at commercially reasonable rates.
In addition, there are certain losses that are not generally
insured because it is not economically feasible to insure
against them, including losses due to riots or acts of war. If
an uninsured loss or a loss in excess of insured limits occurs
with respect to one or more of our properties, then we could
lose the

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##### Table of Contents



capital we invested in the properties, as well as
the anticipated future revenue from the properties and, in the
case of debt, which is with recourse to us, we would remain
obligated for any mortgage debt or other financial obligations
related to the properties. Moreover, as the general partner of
the joint ventures, we generally will be liable for all of the
joint ventures unsatisfied obligations other than
non-recourse obligations. Any such liabilities could adversely
affect our financial condition, results of operations, cash flow
and ability to make distributions to our unitholders and
payments to our noteholders.


A number of our properties are located in areas
that are known to be subject to earthquake activity, including
California where, as of September 30, 2002, 294 industrial
buildings, aggregating approximately 23.6 million square
feet (representing 27.6% of our industrial operating properties
based on aggregate square footage and 33.8% based on industrial
annualized base rent), are located. We carry replacement-cost
earthquake insurance on all of our properties located in areas
historically subject to seismic activity, subject to coverage
limitations and deductibles that we believe are commercially
reasonable. This insurance coverage also applies to the
properties managed by AMB Capital Partners, LLC, with a single
aggregate policy limit and deductible applicable to those
properties and our properties. Through an annual analysis
prepared by outside consultants, we evaluate our earthquake
insurance coverage in light of current industry practice and
determine the appropriate amount of earthquake insurance to
carry, which we believe is commercially reasonable. We may incur
material losses in excess of insurance proceeds and we may not
be able to continue to obtain insurance at commercially
reasonable rates.

We Are Subject to Risks and Liabilities in
Connection With Properties Owned Through Joint Ventures, Limited
Liability Companies and Partnerships.

As of September 30, 2002, we had ownership
interests in several joint ventures, limited liability companies
or partnerships with third parties, as well as interests in
three unconsolidated entities. As of September 30, 2002, we
owned approximately 34.4 million square feet (excluding
three unconsolidated joint ventures) of our properties through
these entities. We may make additional investments through these
ventures in the future and presently plan to do so. Such
partners may share certain approval rights over major decisions.
Partnership, limited liability company or joint venture
investments may involve risks such as the following:



| |   |                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our partners, co-members or joint venturers might
    become bankrupt (in which event we and any other remaining
    general partners, members, or joint venturers would generally
    remain liable for the liabilities of the partnership, limited
    liability company, or joint venture);                                                       
|
| |  | our partners, co-members or joint venturers might
    at any time have economic or other business interests or goals
    that are inconsistent with our business interests or goals;                                                                                                                                                                 
|
| |  | our partners, co-members or joint venturers may
    be in a position to take action contrary to our instructions,
    requests, policies, or objectives; and                                                                                                                                                                                         
|
| |  | agreements governing joint ventures, limited
    liability companies and partnerships often contain restrictions
    on the transfer of a joint venturers, members or
    partners interest or buy-sell or other
    provisions that may result in a purchase or sale of the interest
    at a disadvantageous time or on disadvantageous terms.

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

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We May be Unable to Consummate Acquisitions on
Advantageous Terms or Acquisitions May Not Perform as We
Expect.

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

We May be Unable to Complete Divestitures on
Advantageous Terms.

We have decided to divest ourselves of retail
centers and industrial properties that are not in our core
markets or which do not meet our strategic objectives. The
divestitures of the properties are subject to negotiation of
acceptable terms and other customary conditions. Our ability to
dispose of properties on advantageous terms is dependent upon
factors beyond our control, including competition from other
owners (including other real estate investment trusts) that are
attempting to dispose of industrial and retail properties and
the availability of attractive financing for potential buyers of
our properties. Our inability to dispose of properties on
favorable terms or redeploy the proceeds of property
divestitures in accordance with our investment strategy could
adversely affect our financial condition, results of operations,
cash flow and ability to make distributions to our unitholders
and payments to our noteholders.

We May be Unable to Complete Renovation and
Development Projects on Advantageous Terms.

The real estate development business, including
the renovation and rehabilitation of existing properties,
involves significant risks that include the following:



| |   |                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we may not be able to obtain financing on
    favorable terms for development projects and we may not complete
    construction on schedule or within budget, resulting in
    increased debt service expense and construction costs and delays
    in leasing such properties and generating cash flow;
|
| |  | we may not be able to obtain, or we may
    experience delays in obtaining, all necessary zoning, land-use,
    building, occupancy and other governmental permits and
    authorizations;                                                                                                              
|
| |  | new or renovated properties may perform below
    anticipated levels, producing cash flow below budgeted amounts;                                                                                                                                                                                       
|
| |  | substantial renovation as well as new development
    activities, regardless of their ultimate success, typically
    require a substantial portion of managements time and
    attention, diverting our attention from our day-to-day
    operations; and                                             
|
| |  | upon completion of construction, we may not be
    able to obtain permanent financing, or obtain permanent
    financing on advantageous terms, for activities that we have
    financed through construction loans.                                                                                    

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

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Debt Financing



| |                          
| | -------------------------
| | We Could Incur More Debt.

It is our policy to incur debt, either directly
or through our subsidiaries, only if it will not cause our
debt-to-total market capitalization ratio to exceed
approximately 45%. The aggregate amount of indebtedness that we
may incur under our policy varies directly with the valuation of
AMB Property Corporations capital stock and the number of
shares of capital stock outstanding. Accordingly, we would be
able to incur additional indebtedness under our policy as a
result of increases in the market price per share of AMB
Property Corporations common stock or other outstanding
classes of capital stock, and future issuance of shares of AMB
Property Corporations capital stock. However, our
organizational documents do not contain any limitation on the
amount of indebtedness that we may incur. Accordingly, AMB
Property Corporation, as our general partner, could alter or
eliminate this policy without unitholder or noteholder consent.
If we change this policy, then we could become more highly
leveraged, resulting in an increase in debt service that could
adversely affect our financial condition, results of operations,
cash flow and ability to make distributions to our unitholders
and payments to our noteholders.



| |                                                                            
| | ---------------------------------------------------------------------------
| | Scheduled Debt Payments Could Adversely
    Affect Our Financial Condition.

We are subject to risks normally associated with
debt financing, including that cash flow will be insufficient to
make distributions to our unitholders and payments to our
noteholders, that we will be unable to refinance existing
indebtedness on our properties (which in all cases will not have
been fully amortized at maturity), and that the terms of
refinancing will not be as favorable as the terms of existing
indebtedness. As of September 30, 2002, we had total debt
outstanding of $2.2 billion.

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



| |                                                                
| | ---------------------------------------------------------------
| | Rising Interest Rates Could Adversely
    Affect Our Cash Flow.

As of September 30, 2002, we had
$72.5 million outstanding under our Alliance Fund II
secured credit facility, $12.0 million outstanding on our
unsecured credit facility, and we had seven secured loans with
an aggregate principal amount of $48.2 million that bear
interest at variable rates (with weighted average interest rate
of 3.5% as of September 30, 2002). In addition, we may
incur other variable rate indebtedness in the future. Increases
in interest rates on this indebtedness could increase our
interest expense, which would adversely affect our financial
condition, results of operations, cash flow and ability to make
distributions to our unitholders and payments to our
noteholders. Accordingly, in the future, we may engage in
transactions to limit our exposure to rising interest rates.



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

In order for our general partner, AMB Property
Corporation, to qualify as a real estate investment trust under
the Internal Revenue Code, we are required each year to make
distributions to enable our general partner to distribute to its
stockholders at least 90% of our real estate investment trust
taxable income (determined without regard to the dividends-paid
deduction and by excluding any net capital gain) and it is
subject to tax on its income to the extent it is not
distributed. Because of this distribution requirement, we may

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not be able to fund all future capital needs,
including capital needs in connection with acquisitions, from
cash retained from operations. As a result, to fund capital
needs we rely on third-party sources of capital, which we may
not be able to obtain on favorable terms or at all. Our access
to third-party sources of capital depends upon a number of
factors, including:




| |   |                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | general market conditions;                                                                                                                                        
|
| |  | the markets perception of our growth
    potential;                                                                                                              
|
| |  | our current and potential future earnings and
    cash distributions; and                                                                                         
|
| |  | the market price of AMB Property
    Corporations capital stock. Additional debt financing may
    substantially increase our debt-to-total capitalization ratio.



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

As of September 30, 2002, we had
25 non-recourse secured loans that are cross-collateralized
by 59 properties, totaling $695.9 million (not
including unamortized debt premium). If we default on any of
these loans, then we could be required to repay the aggregate of
all indebtedness, together with applicable prepayment charges,
to avoid foreclosure on all the cross-collateralized properties
within the applicable pool. Foreclosure on our properties, or
our inability to refinance our loans on favorable terms, could
adversely impact our financial condition, results of operations,
cash flow and ability to make distributions to our unitholders
and payments to our noteholders. In addition, our credit
facilities and senior debt securities contain certain
cross-default provisions, which are triggered in the event that
our other material indebtedness is in default. These
cross-default provisions may require us to repay or restructure
the credit facilities and the senior debt securities in addition
to any mortgage or other debt that is in default, which could
adversely affect our financial condition, results of operations,
cash flow and ability to make distributions to our unitholders
and payments to our noteholders.

Contingent or Unknown Liabilities Could
Adversely Affect Our Financial Condition.

AMB Property Corporations predecessors have
been in existence for varying lengths of time up to
19 years. At the time of our formation we acquired the
assets of these entities subject to all of their potential
existing liabilities. There may be current liabilities or future
liabilities arising from prior activities that we are not aware
of and therefore have not disclosed in this report.
AMB Property Corporation assumed these liabilities as the
surviving entity in the various merger and contribution
transactions that occurred at the time of our formation.
Existing liabilities for indebtedness generally were taken into
account in connection with the allocation of our limited
partnership units or shares of AMB Property Corporations
common stock in the formation transactions, but no other
liabilities were taken into account for these purposes. We do
not have recourse against AMB Property Corporations
predecessors or any of their respective stockholders or partners
or against any individual account investors with respect to any
unknown liabilities. Unknown liabilities might include the
following:



| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | liabilities for clean-up or remediation of
    undisclosed environmental conditions;                                                                                                        
|
| |  | claims of customers, vendors, or other persons
    dealing with our predecessors prior to the formation
    transactions that had not been asserted prior to the formation
    transactions;
|
| |  | accrued but unpaid liabilities incurred in the
    ordinary course of business;                                                                                                             
|
| |  | tax liabilities; and                                                                                                                                                                        
|
| |  | claims for indemnification by the officers and
    directors of AMB Property Corporations predecessors
    and others indemnified by these entities.                                       

Certain customers may claim that the formation
transactions gave rise to a right to purchase the premises that
they occupy. We do not believe any such claims would be material
and, to date, no such claims have been filed. See
 Government Regulations  We Could
Encounter Costly Environmental Problems below regarding
the possibility of undisclosed environmental conditions
potentially affecting the value of our

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properties. Undisclosed material liabilities in
connection with the acquisition of properties, entities and
interests in properties, or entities could adversely affect our
financial condition, results of operations, cash flow, and
ability to make distributions to our unitholders and payments to
our noteholders.


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

Although we dismissed Arthur Andersen, LLP as our
independent public accountants and engaged
PricewaterhouseCoopers LLP on May 8, 2002, our consolidated
financial statements as of and for each of the fiscal years
ended December 31, 2001, 2000 and 1999 included in our
Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 were audited by Arthur Andersen. In light
of the jury conviction of Arthur Andersen on obstruction of
justice charges and the underlying events, Arthur Andersen has
informed the Securities and Exchange Commission that it would
cease practicing before the Securities and Exchange Commission
by August 31, 2002, unless the Securities and Exchange
Commission determined another date was appropriate. A
spokesperson for Arthur Andersen announced that, as of
August 31, 2002, Arthur Andersen voluntarily relinquished,
or consented to revocation of, its firm permits in all states
where it was licensed to practice public accountancy with state
regulators. Substantially all of Arthur Andersens
personnel have left the firm, including the individuals
responsible for auditing our audited financial statements in our
Annual Report on Form 10-K for the fiscal year ended
December 31, 2001. As a result of these developments, our
security holders are unlikely to be able to exercise effective
remedies or collect judgments against Arthur Andersen. Moreover,
Arthur Andersen is no longer able to reissue its audit reports
because both the partner and the audit manager who were assigned
to our account have left the firm and because Arthur Andersen
has ceased practicing before the Securities and Exchange
Commission. In addition, Arthur Andersen is unable to perform
procedures to assure the continued accuracy of its report on our
audited financial statements in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2001,
or to provide other information or documents that would
customarily be received by us or underwriters in connection with
financings or other transactions, including consents and
comfort letters. As a result, we may encounter
delays, additional expense, and other difficulties in future
financings. Any resulting delay in accessing public capital
markets could adversely affect our financial condition and
results of operations. However, we believe that our sources of
working capital, specifically our cash flow from operations and
borrowings available under our unsecured credit facility, are
adequate for us to meet our liquidity requirements for the
foreseeable future.

Conflicts of Interest



| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | Some of AMB Property Corporations
    Directors and Executive Officers Are Involved in Other Real
    Estate Activities and Investments.

Some of AMB Property Corporations
executive officers own interests in real estate-related
businesses and investments. These interests include minority
ownership interests in Institutional Housing Partners, L.P., a
residential housing finance company, and Aspire Development,
Inc. and Aspire Development, L.P., developers of properties not
within our investment criteria. The continued involvement in
other real estate-related activities by some of AMB Property
Corporations executive officers and directors could divert
managements attention from our day-to-day operations.
AMB Property Corporations executive officers have
entered into non-competition agreements with AMB Property
Corporation pursuant to which they have agreed not to engage in
any activities, directly or indirectly, in respect of commercial
real estate, and not to make any investment in respect of any
industrial or retail real estate, other than through ownership
of not more than 5% of the outstanding shares of a public
company engaged in such activities or through the existing
investments referred to in this report. State law may limit our
ability to enforce these agreements.



| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Certain of AMB Property Corporations
    Executive Officers and Directors May Have Conflicts of Interest
    with Us in Connection with Other Properties that They Own or
    Control.

As of September 30, 2002, Aspire
Development, L.P. owned interests in several retail development
projects in the U.S., which are individually less than
10,000 feet. In addition, Messrs. Moghadam and Burke,
each a founder and director of AMB Property Corporation, own
less than 1% interests in two partnerships that

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own office buildings in various markets; these
interests have negligible value. Luis A. Belmonte, an
executive officer of AMB Property Corporation, owns less
than a 10% interest, representing an estimated value of
$150,000, in a limited partnership, which owns an office
building located in Oakland, California.


In addition, several of AMB Property
Corporations executive officers individually own:



| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | less than 1% interests in the stocks of certain
    publicly-traded real estate investment trusts;                   
|
| |  | certain interests in and rights to developed and
    undeveloped real property located outside the United States; and
|
| |  | certain other de minimus holdings in equity
    securities of real estate companies.                                 

Thomas W. Tusher, a member of AMB Property
Corporations board of directors, is a limited partner in a
partnership in which Messrs. Moghadam and Burke are general
partners and which owns a 75% interest in an office building.
Mr. Tusher owns a 20% interest in the partnership, with a
market value of approximately $2.2 million.
Messrs. Moghadam and Burke each have a 26.7% interest
in the partnership, each with a market value of approximately
$2.9 million. The partnership was formed in 1985, prior to
the time of our initial public offering.

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



| |                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | AMB Property Corporations Directors,
    Executive Officers, and Significant Stockholders Could Act in a
    Manner that is Not in the Best Interest of Our Limited Partners
    or Noteholders.

As of June 30, 2002, AMB Property
Corporations two largest stockholders, Morgan Stanley
Investment Management, Inc. (with respect to various client
accounts for which Morgan Stanley Investment Management, Inc.
serves as investment advisor) and ABP Investments U.S. (with
respect to various client accounts for which ABP Investments
U.S. serves as investment advisor) together beneficially owned
10.7% of AMB Property Corporations outstanding common
stock. In addition, AMB Property Corporations
executive officers and directors beneficially owned 4.3% of AMB
Property Corporations outstanding common stock as of
October 28, 2002, and will have influence on
AMB Property Corporations management and operation
and, as stockholders, will have influence on the outcome of any
matters submitted to a vote of AMB Property
Corporations stockholders. This influence might be
exercised in a manner that is inconsistent with the interests of
our limited partners and noteholders. Although there is no
understanding or arrangement for these directors, officers, and
stockholders and their affiliates to act in concert, these
parties would be in a position to exercise significant influence
over AMB Property Corporations affairs if they choose to
do so.

Government Regulations

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



| |                                                                       
| | ----------------------------------------------------------------------
| | We May Incur Costs to Comply with Americans
    with Disabilities Act.

Under the Americans with Disabilities Act, places
of public accommodation must meet certain federal requirements
related to access and use by disabled persons. Compliance with
the Americans with Disabilities Act might require us to remove
structural barriers to handicapped access in certain public
areas where such removal is readily achievable. If
we fail to comply with the Americans with Disabilities Act, then
we might be required to pay fines to the government or damages
to private litigants. The impact of application of the

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Americans with Disabilities Act to our
properties, including the extent and timing of required
renovations, is uncertain. If we are required to make
unanticipated expenditures to comply with the Americans with
Disabilities Act, then our cash flow and the amounts available
for distributions to our unitholders and payments to our
noteholders may be adversely affected.




| |                                               
| | ----------------------------------------------
| | We Could Encounter Environmental
    Problems.

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

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

Some of our properties are leased or have been
leased, in part, to owners and operators of businesses that use,
store, or otherwise handle petroleum products or other hazardous
or toxic substances. These operations create a potential for the
release of petroleum products or other hazardous or toxic
substances. Some of our properties are adjacent to or near other
properties that have contained or currently contain petroleum
products or other hazardous or toxic substances. In addition,
certain of our properties are on, are adjacent to, or are near
other properties upon which others, including former owners or
customers of the properties, have engaged or may in the future
engage in activities that may release petroleum products or
other hazardous or toxic substances. From time to time, we may
acquire properties, or interests in properties, with known
adverse environmental conditions where we believe that the
environmental liabilities associated with these conditions are
quantifiable and the acquisition will yield a superior
risk-adjusted return. Environmental issues for each property are
evaluated and quantified prior to acquisition. The costs of
environmental investigation, clean-up and monitoring are
underwritten into the cost of the acquisition and appropriate
environmental insurance is obtained for the property. In
connection with certain divested properties, we have agreed to
remain responsible for, and to bear the cost of, remediating or
monitoring certain environmental conditions on the properties.

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

None of the environmental assessments of our
properties has revealed any environmental liability that we
believe would have a material adverse effect on our financial
condition or results of operations taken as a whole.
Furthermore, we are not aware of any such material environmental
liability. Nonetheless, it is possible

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that the assessments do not reveal all
environmental liabilities and that there are material
environmental liabilities of which we are unaware or that known
environmental conditions may give rise to liabilities that are
materially greater than anticipated. Moreover, the current
environmental condition of our properties may be affected by
customers, the condition of land, operations in the vicinity of
the properties (such as releases from underground storage
tanks), or by third-parties unrelated to us. If the costs of
compliance with existing or future environmental laws and
regulations exceed our budgets for these items, then our
financial condition, results of operations, cash flow, and
ability to make distributions to our unitholders and payments to
our noteholders could be adversely affected.




| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Our Financial Condition Could be Adversely
    Affected if We Fail to Comply with Other
    Regulations.

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

We May be Unable to Manage Our
Growth.

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

Our International Growth Is Subject to Special
Political and Monetary Risks.

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

We Are Dependent on Our General Partners
Key Personnel.

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

53



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##### Table of Contents






Item 6.     Exhibits
and Reports on Form 8-K

(a) Exhibits:

|        |   |             |  |                                                                                                                                                                                                             
|------- | - | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |            
|Number  |   | Description
|        |   |            
|        | 3 | .1          |  | First Amendment to the Sixth Amended and Restated
    Partnership Agreement of Limited Partnership of AMB Property,
    L.P. dated October 30, 2002.                                                        
|        | 4 | .1          |  | Amended and Restated AMB Nonqualified Deferred
    Compensation Plan (incorporated by reference to
    Exhibit 4.17 of AMB Property, L.Ps Registration
    Statement on Form S-8 filed on October 1, 2002).

(b) Reports on Form 8-K:



| |   |                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | AMB Property, L.P. filed a Current Report on
    Form 8-K on August 14, 2002, in connection with its
    certification pursuant to 18 U.S.C. § 1350,
    as created by Section 906 of the Sarbanes-Oxley Act of
    2002, of its third Quarterly Report on Form 10-Q for the
    quarterly period ended June 30, 2002.

54



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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 of the Board and   
| | Chief Executive Officer     
| | (Duly Authorized Officer and
| | Principal Executive Officer)



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

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



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

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

Date: November 13, 2002

55



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##### Table of Contents






CERTIFICATIONS

I, Hamid R. Moghadam, certify that:



| |                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) I have reviewed this quarterly report on
    Form 10-Q of AMB Property, L.P.;                                                                                                                                                                                                                                                                     
|
| | (2) Based on my knowledge, this quarterly
    report does not contain any untrue statement of a material fact
    or omit to state a material fact necessary to make the
    statements made, in light of the circumstances under which such
    statements were made, not misleading with respect to the period
    covered by this quarterly report;
|
| | (3) Based on my knowledge, the financial
    statements, and other financial information included in this
    quarterly report, fairly present in all material respects the
    financial condition, results of operations, and cash flows of
    the registrant as of, and for, the periods presented in this
    quarterly report;                  
|
| | (4) The registrants other certifying
    officers and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                             



| |                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this quarterly report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) The registrants other certifying
    officers and I have disclosed, based on our most recent
    evaluation, to the registrants auditors and the audit
    committee of the board of directors of the registrants
    general partner (or persons performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls that could adversely
    affect the registrants ability to record, process,
    summarize, and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (6) The registrants other certifying
    officers and I have indicated in this quarterly report whether
    or not there were significant changes in internal controls or in
    other factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: November 13, 2002



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

| |                                         
| | ----------------------------------------
| |                                         
| | Hamid R. Moghadam                       
| | Chairman of the Board and               
| | Chief Executive Officer                 
| | of AMB Property Corporation, the general
| | partner of AMB Property, L.P.           

56



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##### Table of Contents



I, W. Blake Baird, certify that:



| |                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) I have reviewed this quarterly report on
    Form 10-Q of AMB Property, L.P.;                                                                                                                                                                                                                                                                     
|
| | (2) Based on my knowledge, this quarterly
    report does not contain any untrue statement of a material fact
    or omit to state a material fact necessary to make the
    statements made, in light of the circumstances under which such
    statements were made, not misleading with respect to the period
    covered by this quarterly report;
|
| | (3) Based on my knowledge, the financial
    statements, and other financial information included in this
    quarterly report, fairly present in all material respects the
    financial condition, results of operations, and cash flows of
    the registrant as of, and for, the periods presented in this
    quarterly report;                  
|
| | (4) The registrants other certifying
    officers and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                             



| |                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | d) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this quarterly report is being prepared;
|
| | e) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | f) presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) The registrants other certifying
    officers and I have disclosed, based on our most recent
    evaluation, to the registrants auditors and the audit
    committee of the board of directors of the registrants
    general partner (or persons performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c) all significant deficiencies in the
    design or operation of internal controls that could adversely
    affect the registrants ability to record, process,
    summarize, and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | d) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (6) The registrants other certifying
    officers and I have indicated in this quarterly report whether
    or not there were significant changes in internal controls or in
    other factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: November 13, 2002



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

| |                                         
| | ----------------------------------------
| |                                         
| | W. Blake Baird                          
| | President and Director                  
| | of AMB Property Corporation, the general
| | partner of AMB Property, L.P.           

57



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##### Table of Contents



I, Michael A. Coke, certify that:



| |                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) I have reviewed this quarterly report on
    Form 10-Q of AMB Property, L.P.;                                                                                                                                                                                                                                                                     
|
| | (2) Based on my knowledge, this quarterly
    report does not contain any untrue statement of a material fact
    or omit to state a material fact necessary to make the
    statements made, in light of the circumstances under which such
    statements were made, not misleading with respect to the period
    covered by this quarterly report;
|
| | (3) Based on my knowledge, the financial
    statements, and other financial information included in this
    quarterly report, fairly present in all material respects the
    financial condition, results of operations, and cash flows of
    the registrant as of, and for, the periods presented in this
    quarterly report;                  
|
| | (4) The registrants other certifying
    officers and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                             



| |                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | g) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this quarterly report is being prepared;
|
| | h) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | i) presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (5) The registrants other certifying
    officers and I have disclosed, based on our most recent
    evaluation, to the registrants auditors and the audit
    committee of the board of directors of the registrants
    general partner (or persons performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | e) all significant deficiencies in the
    design or operation of internal controls that could adversely
    affect the registrants ability to record, process,
    summarize, and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | f) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (6) The registrants other certifying
    officers and I have indicated in this quarterly report whether
    or not there were significant changes in internal controls or in
    other factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: November 13, 2002



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

| |                                         
| | ----------------------------------------
| |                                         
| | Michael A. Coke                         
| | Chief Financial Officer and             
| | Executive Vice President                
| | of AMB Property Corporation, the general
| | partner of AMB Property, L.P.           

58