##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, DC 20549




---

Form 10-Q





|                                  |  |                                                                                                
|--------------------------------- |  | -----------------------------------------------------------------------------------------------
|(Mark One)                       
|                                 
|þ                                 |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|                                 
|                                  |  | For the quarterly period ended June 30,
    2004                                               
|                                 
|OR                               
|                                 
|o                                 |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   
|                                 
|Commission File Number: 001-14245

AMB Property, L.P.

(Exact name of Registrant as Specified in Its
Charter)


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

(415) 394-9000

(Registrants Telephone Number, Including
Area Code)


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

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



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AMB PROPERTY, L.P.

INDEX

|                                  |  |                                                                                                                |  |      |    | 
|--------------------------------- |  | -------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                  |  |                                                                                                                |  | Page
|                                  |  |                                                                                                                |  |     
|PART I. FINANCIAL
    INFORMATION
|Item 1.                           |  | Financial Statements
    (unaudited)                                                                           |  |      |    | 
|                                  |  | Consolidated Balance Sheets
    as of June 30, 2004 and December 31, 2003                                      |  |      | 1  | 
|                                  |  | Consolidated Statements of
    Operations for the three months and six months ended
    June 30, 2004 and 2003 |  |      | 2  | 
|                                  |  | Consolidated Statements of
    Cash Flows for the six months ended June 30, 2004 and
    2003                  |  |      | 3  | 
|                                  |  | Consolidated Statement of
    Partners Capital for the six months ended June 30,
    2004                     |  |      | 4  | 
|                                  |  | Notes to Consolidated
    Financial Statements                                                                 |  |      | 5  | 
|Item 2.                           |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                      |  |      | 22 | 
|Item 3.                           |  | Quantitative and Qualitative
    Disclosures About Market Risk                                                 |  |      | 49 | 
|Item 4.                           |  | Controls and Procedures                                                                                        |  |      | 50 | 
|PART II. OTHER
    INFORMATION   
|Item 1.                           |  | Legal Proceedings                                                                                              |  |      | 51 | 
|Item 2.                           |  | Changes in Securities and
    Use of Proceeds                                                                  |  |      | 51 | 
|Item 3.                           |  | Defaults Upon Senior
    Securities                                                                            |  |      | 51 | 
|Item 4.                           |  | Submission of Matters to a
    Vote of Security Holders                                                        |  |      | 51 | 
|Item 5.                           |  | Other Information                                                                                              |  |      | 52 | 
|Item 6.                           |  | Exhibits and Reports on Form
    8-K                                                                           |  |      | 52 | 
|EXHIBIT 31.1                     
|Exhibit 32.1                     





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##### Table of Contents






PART I






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




AMB PROPERTY, L.P.

CONSOLIDATED BALANCE SHEETS

As of June 30, 2004 and December 31,
2003


|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |           |           |           | 
|--------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | --------------------------------------- | ------------ | --------- | --------- | ------- | --------- | --------- | --------- | 
|                                                                |                                                                                                                                                                                                                                                                                                     | June 30,                        |                                         | December 31,
|                                                                |                                                                                                                                                                                                                                                                                                     | 2004                            |                                         | 2003        
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |             
|                                                                |                                                                                                                                                                                                                                                                                                     |                                
|                                                                |                                                                                                                                                                                                                                                                                                     | (Unaudited, dollars in         
|                                                                |                                                                                                                                                                                                                                                                                                     | thousands)                     
|ASSETS                                                         
|Investments in real estate:                                     |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                | Land                                                                                                                                                                                                                                                                                                |                                 | $                                       | 1,511,583    |           |           | $       | 1,403,807 |          
|                                                                | Buildings and improvements                                                                                                                                                                                                                                                                          |                                 |                                         | 4,278,652    |           |           |         | 3,888,272 |          
|                                                                | Construction in progress                                                                                                                                                                                                                                                                            |                                 |                                         | 272,216      |           |           |         | 199,628   |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Total investments in properties |                                         |              | 6,062,451 |           |         |           | 5,491,707 |          
|                                                                | Accumulated depreciation and amortization                                                                                                                                                                                                                                                           |                                 |                                         | (546,881     | )         |           |         | (474,452  | )        
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Net investments in properties   |                                         |              | 5,515,570 |           |         |           | 5,017,255 |          
|Investments in unconsolidated joint ventures                    |                                                                                                                                                                                                                                                                                                     |                                 | 52,579                                  |              |           |           | 52,009  |          
|Properties held for divestiture, net                            |                                                                                                                                                                                                                                                                                                     |                                 | 39,246                                  |              |           |           | 11,751  |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Net investments in real estate  |                                         |              | 5,607,395 |           |         |           | 5,081,015 |          
|Cash and cash equivalents                                       |                                                                                                                                                                                                                                                                                                     |                                 | 116,757                                 |              |           |           | 127,678 |          
|Restricted cash                                                 |                                                                                                                                                                                                                                                                                                     |                                 | 29,379                                  |              |           |           | 28,985  |          
|Mortgages receivable                                            |                                                                                                                                                                                                                                                                                                     |                                 | 23,594                                  |              |           |           | 43,145  |          
|Accounts receivable, net of allowance for
    doubtful accounts |                                                                                                                                                                                                                                                                                                     |                                 | 96,524                                  |              |           |           | 88,452  |          
|Other assets                                                    |                                                                                                                                                                                                                                                                                                     |                                 | 76,958                                  |              |           |           | 51,391  |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Total assets                    |                                         | $            | 5,950,607 |           |         | $         | 5,420,666 |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                               
|LIABILITIES AND PARTNERS
    CAPITAL                          
|Debt:                                                           |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                | Secured debt including unamortized premium                                                                                                                                                                                                                                                          |                                 | $                                       | 1,552,084    |           |           | $       | 1,363,890 |          
|                                                                | Unsecured senior debt securities                                                                                                                                                                                                                                                                    |                                 |                                         | 1,025,000    |           |           |         | 925,000   |          
|                                                                | Unsecured debt                                                                                                                                                                                                                                                                                      |                                 |                                         | 9,334        |           |           |         | 9,628     |          
|                                                                | Unsecured credit facilities                                                                                                                                                                                                                                                                         |                                 |                                         | 428,502      |           |           |         | 275,739   |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Total debt                      |                                         |              | 3,014,920 |           |         |           | 2,574,257 |          
|Distributions payable                                           |                                                                                                                                                                                                                                                                                                     |                                 | 40,739                                  |              |           |           | 39,076  |          
|Accounts payable and other liabilities                          |                                                                                                                                                                                                                                                                                                     |                                 | 215,835                                 |              |           |           | 148,019 |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Total liabilities               |                                         |              | 3,271,494 |           |         |           | 2,761,352 |          
|Commitments and contingencies (Notes 3 and
    12)              |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|Minority interests:                                             |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                | Joint venture partners                                                                                                                                                                                                                                                                              |                                 |                                         | 699,521      |           |           |         | 659,487   |          
|                                                                | Preferred unitholders                                                                                                                                                                                                                                                                               |                                 |                                         | 166,808      |           |           |         | 166,865   |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Total minority interests        |                                         |              | 866,329   |           |         |           | 826,352   |          
|Partners capital:                                              |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                | General partner, 82,416,376 and
    81,563,502 units outstanding, respectively; 2,000,000
    Series L preferred units issued and outstanding with a
    $50,000 liquidation preference and 2,300,000 Series M
    preferred units issued and outstanding with a $57,500
    liquidation preference |                                 |                                         | 1,648,776    |           |           |         | 1,666,899 |          
|                                                                | Limited partners, 4,604,910 and
    4,618,242 units, respectively; 800,000 Series J
    preferred units with a $40,000 liquidation preference, 800,000
    Series K preferred units with a $40,000 liquidation
    preference                                                                       |                                 |                                         | 164,008      |           |           |         | 166,063   |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     | Total partners capital         |                                         |              | 1,812,784 |           |         |           | 1,832,962 |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 | Total liabilities and partners capital |              | $         | 5,950,607 |         |           | $         | 5,420,666 | 
|                                                                |                                                                                                                                                                                                                                                                                                     |                                 |                                         |              |           |           |         |          

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

1



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##### Table of Contents



AMB PROPERTY, L.P.




CONSOLIDATED STATEMENTS OF
OPERATIONS

For the Three and Six Months Ended
June 30, 2004 and 2003


|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |            |          |        | 
|----------------------------------------------------------- | ------------------------------------------------------------------------------------ | -------------------------------------------------------- | ---------------------------------------------------------------- | ------------------------ | ------- | ------ | ------ | ---------- | ------- | ------ | ------ | ---------- | -------- | ------ | ------ | ---------- | -------- | ------ | 
|                                                            |                                                                                      |                                                          |                                                                  |                         
|                                                            |                                                                                      | For the Three Months Ended                               |                                                                  | For the Six Months Ended
|                                                            |                                                                                      | June 30,                                                 |                                                                  | June 30,                
|                                                            |                                                                                      |                                                          |                                                                  |                         
|                                                            |                                                                                      | 2004                                                     |                                                                  | 2003                     |         | 2004   |        | 2003      
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |           
|                                                            |                                                                                      |                                                         
|                                                            |                                                                                      | (Unaudited, dollars in thousands,                       
|                                                            |                                                                                      | except unit and per unit amounts)                       
|REVENUES                                                    |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|                                                            | Rental revenues                                                                      |                                                          | $                                                                | 162,704                  |         |        | $      | 145,433    |         |        | $      | 326,300    |          |        | $      | 293,215    |         
|                                                            | Private capital income                                                               |                                                          |                                                                  | 2,922                    |         |        |        | 3,555      |         |        |        | 5,351      |          |        |        | 5,916      |         
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|                                                            |                                                                                      | Total revenues                                           |                                                                  |                          | 165,626 |        |        |            | 148,988 |        |        |            | 331,651  |        |        |            | 299,131  |       
|COSTS AND EXPENSES                                          |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|                                                            | Property operating expenses                                                          |                                                          |                                                                  | (23,204                  | )       |        |        | (20,681    | )       |        |        | (47,092    | )        |        |        | (42,260    | )       
|                                                            | Real estate taxes                                                                    |                                                          |                                                                  | (19,559                  | )       |        |        | (17,372    | )       |        |        | (38,889    | )        |        |        | (35,233    | )       
|                                                            | Depreciation and amortization                                                        |                                                          |                                                                  | (38,880                  | )       |        |        | (38,150    | )       |        |        | (76,487    | )        |        |        | (71,500    | )       
|                                                            | General and administrative                                                           |                                                          |                                                                  | (15,081                  | )       |        |        | (12,122    | )       |        |        | (29,959    | )        |        |        | (24,010    | )       
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|                                                            |                                                                                      | Total costs and expenses                                 |                                                                  |                          | (96,724 | )      |        |            | (88,325 | )      |        |            | (192,427 | )      |        |            | (173,003 | )     
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|OTHER INCOME AND EXPENSES                                   |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|                                                            | Equity in earnings of unconsolidated joint
    ventures                              |                                                          |                                                                  | 944                      |         |        |        | 1,622      |         |        |        | 2,653      |          |        |        | 2,857      |         
|                                                            | Interest and other income                                                            |                                                          |                                                                  | 486                      |         |        |        | 1,384      |         |        |        | 1,992      |          |        |        | 2,491      |         
|                                                            | Gains from dispositions of real estate                                               |                                                          |                                                                  |                         |         |        |        |           |         |        |        |           |          |        |        | 7,429      |         
|                                                            | Development profits, net of taxes                                                    |                                                          |                                                                  | 3,235                    |         |        |        |           |         |        |        | 3,235      |          |        |        |           |         
|                                                            | Interest, including amortization                                                     |                                                          |                                                                  | (39,961                  | )       |        |        | (36,242    | )       |        |        | (79,784    | )        |        |        | (72,157    | )       
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|                                                            |                                                                                      | Total other income and expenses, net                     |                                                                  |                          | (35,296 | )      |        |            | (33,236 | )      |        |            | (71,904  | )      |        |            | (59,380  | )     
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|                                                            |                                                                                      |                                                          | Income before minority interests and discontinued
    operations |                          |         | 33,606 |        |            |         | 27,427 |        |            |          | 67,320 |        |            |          | 66,748 | 
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|                                                            | Minority interests share of income:                                                 |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |            |         
|                                                            |                                                                                      | Joint venture partners share of operating
    income    |                                                                  |                          | (9,379  | )      |        |            | (8,242  | )      |        |            | (18,335  | )      |        |            | (15,779  | )     
|                                                            |                                                                                      | Joint venture partners share of development
    profits |                                                                  |                          | (606    | )      |        |            |        |        |        |            | (606     | )      |        |            |         |       
|                                                            |                                                                                      | Preferred unitholders                                    |                                                                  |                          | (3,347  | )      |        |            | (3,388  | )      |        |            | (6,698   | )      |        |            | (6,776   | )     
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|                                                            |                                                                                      | Total minority interests share of income                |                                                                  |                          | (13,332 | )      |        |            | (11,630 | )      |        |            | (25,639  | )      |        |            | (22,555  | )     
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|Income from continuing operations                           |                                                                                      |                                                          | 20,274                                                           |                          |         |        | 15,797 |            |         |        | 41,681 |            |          |        | 44,193 |           
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|Discontinued operations:                                    |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|                                                            | Income (loss) attributable to discontinued
    operations, net of minority interests |                                                          |                                                                  | 268                      |         |        |        | 2,389      |         |        |        | (532       | )        |        |        | 10,121     |         
|                                                            | Gains from dispositions of real estate, net of
    minority interests                |                                                          |                                                                  | 2,285                    |         |        |        | 3,867      |         |        |        | 1,983      |          |        |        | 33,511     |         
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|                                                            |                                                                                      | Total discontinued operations                            |                                                                  |                          | 2,553   |        |        |            | 6,256   |        |        |            | 1,451    |        |        |            | 43,632   |       
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|Net income                                                  |                                                                                      |                                                          | 22,827                                                           |                          |         |        | 22,053 |            |         |        | 43,132 |            |          |        | 87,825 |           
|                                                            | Series A, L and M preferred unit
    distributions                                   |                                                          |                                                                  | (1,783                   | )       |        |        | (2,195     | )       |        |        | (3,566     | )        |        |        | (4,318     | )       
|                                                            | Series B, J and K preferred unit
    distributions                                   |                                                          |                                                                  | (1,590                   | )       |        |        | (2,991     | )       |        |        | (3,180     | )        |        |        | (5,983     | )       
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|                                                            |                                                                                      | Net income available to common unitholders               |                                                                  | $                        | 19,454  |        |        | $          | 16,867  |        |        | $          | 36,386   |        |        | $          | 77,524   |       
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|INCOME AVAILABLE TO COMMON UNITHOLDERS
    ATTRIBUTABLE TO: |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|                                                            | General partner                                                                      |                                                          | $                                                                | 18,420                   |         |        | $      | 15,931     |         |        | $      | 34,457     |          |        | $      | 73,186     |         
|                                                            | Limited partners                                                                     |                                                          |                                                                  | 1,034                    |         |        |        | 936        |         |        |        | 1,929      |          |        |        | 4,338      |         
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|                                                            |                                                                                      | Net income available to common unitholders               |                                                                  | $                        | 19,454  |        |        | $          | 16,867  |        |        | $          | 36,386   |        |        | $          | 77,524   |       
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|BASIC INCOME PER COMMON UNIT                                |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|                                                            | Income from continuing operations (includes
    preferred unit distributions)        |                                                          | $                                                                | 0.19                     |         |        | $      | 0.12       |         |        | $      | 0.40       |          |        | $      | 0.39       |         
|                                                            | Discontinued operations                                                              |                                                          |                                                                  | 0.03                     |         |        |        | 0.08       |         |        |        | 0.02       |          |        |        | 0.51       |         
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|                                                            |                                                                                      | Net income available to common unitholders               |                                                                  | $                        | 0.22    |        |        | $          | 0.20    |        |        | $          | 0.42     |        |        | $          | 0.90     |       
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|DILUTED INCOME PER COMMON UNIT                              |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|                                                            | Income from continuing operations (includes
    preferred unit distributions)        |                                                          | $                                                                | 0.19                     |         |        | $      | 0.12       |         |        | $      | 0.39       |          |        | $      | 0.39       |         
|                                                            | Discontinued operations                                                              |                                                          |                                                                  | 0.03                     |         |        |        | 0.07       |         |        |        | 0.02       |          |        |        | 0.50       |         
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|                                                            |                                                                                      | Net income available to common unitholders               |                                                                  | $                        | 0.22    |        |        | $          | 0.19    |        |        | $          | 0.41     |        |        | $          | 0.89     |       
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|WEIGHTED AVERAGE COMMON UNITS
    OUTSTANDING               |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|                                                            | Basic                                                                                |                                                          |                                                                  | 86,824,795               |         |        |        | 85,852,418 |         |        |        | 86,653,067 |          |        |        | 85,904,056 |         
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           
|                                                            | Diluted                                                                              |                                                          |                                                                  | 89,288,954               |         |        |        | 87,302,896 |         |        |        | 89,520,249 |          |        |        | 87,364,056 |         
|                                                            |                                                                                      |                                                          |                                                                  |                          |         |        |        |            |         |        |        |            |          |        |        |           

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

2



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##### Table of Contents






AMB PROPERTY, L.P.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Six Months Ended June 30, 2004
and 2003


|                                                                                           |                                                                 |                                                                       |                                                         |                                                                  |        |          |          |        |         |          |         |  
|------------------------------------------------------------------------------------------ | --------------------------------------------------------------- | --------------------------------------------------------------------- | ------------------------------------------------------- | ---------------------------------------------------------------- | ------ | -------- | -------- | ------ | ------- | -------- | ------- | -
|                                                                                           |                                                                 | 2004                                                                  |                                                         | 2003                                                            
|                                                                                           |                                                                 |                                                                       |                                                         |                                                                 
|                                                                                           |                                                                 |                                                                      
|                                                                                           |                                                                 | (Unaudited, dollars in                                               
|                                                                                           |                                                                 | thousands)                                                           
|CASH FLOWS FROM OPERATING ACTIVITIES                                                       |                                                                 |                                                                       |                                                         |                                                                  |        |          |          |       
|Net income                                                                                 |                                                                 | $                                                                     | 43,132                                                  |                                                                  |        | $        | 87,825   |       
|Adjustments to net income:                                                                 |                                                                 |                                                                       |                                                         |                                                                  |        |          |          |       
|                                                                                           | Straight-line rents                                             |                                                                       |                                                         | (8,658                                                           | )      |          |          | (4,253 | )      
|                                                                                           | Depreciation and amortization                                   |                                                                       |                                                         | 76,487                                                           |        |          |          | 71,500 |        
|                                                                                           | Stock-based compensation amortization                           |                                                                       |                                                         | 5,476                                                            |        |          |          | 3,979  |        
|                                                                                           | Recognition of below market leases                              |                                                                       |                                                         | (448                                                             | )      |          |          |       |        
|                                                                                           | Equity in earnings of unconsolidated joint
    ventures         |                                                                       |                                                         | (2,653                                                           | )      |          |          | (2,857 | )      
|                                                                                           | Gains from dispositions of real estate                          |                                                                       |                                                         |                                                                 |        |          |          | (7,429 | )      
|                                                                                           | Development profits, net of taxes                               |                                                                       |                                                         | (3,235                                                           | )      |          |          |       |        
|                                                                                           | Debt premiums, discounts and finance cost
    amortization, net |                                                                       |                                                         | (726                                                             | )      |          |          | 728    |        
|                                                                                           | Total minority interests share of net income                   |                                                                       |                                                         | 25,639                                                           |        |          |          | 22,555 |        
|                                                                                           | Discontinued operations:                                        |                                                                       |                                                         |                                                                  |        |          |          |        |        
|                                                                                           |                                                                 | Depreciation and amortization                                         |                                                         |                                                                  | 731    |          |          |        | 2,007   |         
|                                                                                           |                                                                 | Joint venture partners share of net income                           |                                                         |                                                                  | 815    |          |          |        | 900     |         
|                                                                                           |                                                                 | Gains from dispositions of real estate, net of
    minority interests |                                                         |                                                                  | (1,983 | )        |          |        | (33,511 | )       
|                                                                                           | Changes in assets and liabilities:                              |                                                                       |                                                         |                                                                  |        |          |          |        |        
|                                                                                           |                                                                 | Accounts receivable and other assets                                  |                                                         |                                                                  | (9,654 | )        |          |        | (1,709  | )       
|                                                                                           |                                                                 | Accounts payable and other liabilities                                |                                                         |                                                                  | (826   | )        |          |        | (14,574 | )       
|                                                                                           |                                                                 |                                                                       |                                                         |                                                                  |        |          |          |       
|                                                                                           |                                                                 |                                                                       | Net cash provided by operating activities               |                                                                  |        | 124,097  |          |        |         | 125,161  |        
|CASH FLOWS FROM INVESTING ACTIVITIES                                                       |                                                                 |                                                                       |                                                         |                                                                  |        |          |          |       
|Change in restricted cash                                                                  |                                                                 |                                                                       | 1,210                                                   |                                                                  |        |          | 5,140    |       
|Cash paid for property acquisitions                                                        |                                                                 |                                                                       | (250,340                                                | )                                                                |        |          | (127,983 | )     
|Additions to land, buildings, development costs,
    building improvements and lease costs |                                                                 |                                                                       | (202,779                                                | )                                                                |        |          | (121,828 | )     
|Net proceeds from divestiture of real estate                                               |                                                                 |                                                                       | 30,175                                                  |                                                                  |        |          | 211,429  |       
|Additions to interests in unconsolidated joint
    ventures                                |                                                                 |                                                                       | (884                                                    | )                                                                |        |          | (6,163   | )     
|Distributions received from unconsolidated joint
    ventures                              |                                                                 |                                                                       | 3,328                                                   |                                                                  |        |          | 4,882    |       
|Repayment of mortgage receivable                                                           |                                                                 |                                                                       | 19,551                                                  |                                                                  |        |          |         |       
|                                                                                           |                                                                 |                                                                       |                                                         |                                                                  |        |          |          |       
|                                                                                           |                                                                 |                                                                       | Net cash used in investing activities                   |                                                                  |        | (399,739 | )        |        |         | (34,523  | )      
|CASH FLOWS FROM FINANCING ACTIVITIES                                                       |                                                                 |                                                                       |                                                         |                                                                  |        |          |          |       
|Issuance of common units                                                                   |                                                                 |                                                                       | 14,233                                                  |                                                                  |        |          | 3,982    |       
|Repurchase and retirement of common and preferred
    units                                |                                                                 |                                                                       |                                                        |                                                                  |        |          | (20,562  | )     
|Borrowings on secured debt                                                                 |                                                                 |                                                                       | 89,211                                                  |                                                                  |        |          | 11,450   |       
|Payments on secured debt                                                                   |                                                                 |                                                                       | (28,359                                                 | )                                                                |        |          | (79,361  | )     
|Payments on unsecured debt                                                                 |                                                                 |                                                                       | (294                                                    | )                                                                |        |          |         |       
|Borrowings on unsecured credit facilities                                                  |                                                                 |                                                                       | 370,323                                                 |                                                                  |        |          | 113,464  |       
|Payments on unsecured credit facilities                                                    |                                                                 |                                                                       | (216,389                                                | )                                                                |        |          | (190,000 | )     
|Borrowings on Alliance Fund II credit
    facility                                         |                                                                 |                                                                       |                                                        |                                                                  |        |          | 8,000    |       
|Payments on Alliance Fund II credit facility                                               |                                                                 |                                                                       |                                                        |                                                                  |        |          | (53,500  | )     
|Payment of financing fees                                                                  |                                                                 |                                                                       | (5,586                                                  | )                                                                |        |          | (1,006   | )     
|Net proceeds from issuances of senior debt
    securities                                  |                                                                 |                                                                       | 99,183                                                  |                                                                  |        |          |         |       
|Net proceeds from issuances of preferred units                                             |                                                                 |                                                                       |                                                        |                                                                  |        |          | 48,425   |       
|Issuance costs on preferred units                                                          |                                                                 |                                                                       | (169                                                    | )                                                                |        |          |         |       
|Contributions from co-investment partners                                                  |                                                                 |                                                                       | 39,090                                                  |                                                                  |        |          | 151,650  |       
|Distributions paid to partners                                                             |                                                                 |                                                                       | (75,309                                                 | )                                                                |        |          | (77,668  | )     
|Distributions to minority interests, including
    preferred units                         |                                                                 |                                                                       | (25,240                                                 | )                                                                |        |          | (26,425  | )     
|                                                                                           |                                                                 |                                                                       |                                                         |                                                                  |        |          |          |       
|                                                                                           |                                                                 |                                                                       | Net cash provided by/(used in) financing
    activities |                                                                  |        | 260,694  |          |        |         | (111,551 | )      
|                                                                                           |                                                                 |                                                                       |                                                         |                                                                  |        |          |          |       
|                                                                                           |                                                                 |                                                                       |                                                         | Effect of exchange rate changes on cash and cash
    equivalents |        |          | 4,027    |        |         |          |        |  
|                                                                                           |                                                                 |                                                                       |                                                         |                                                                  |        |          |          |       
|                                                                                           |                                                                 |                                                                       |                                                         | Net decrease in cash and cash equivalents                        |        |          | (10,921  | )      |         |          | (20,913 | )
|                                                                                           |                                                                 |                                                                       |                                                         | Cash and cash equivalents at beginning of period                 |        |          | 127,678  |        |         |          | 89,332  |  
|                                                                                           |                                                                 |                                                                       |                                                         |                                                                  |        |          |          |       
|                                                                                           |                                                                 |                                                                       |                                                         | Cash and cash equivalents at end of period                       |        | $        | 116,757  |        |         | $        | 68,419  |  
|                                                                                           |                                                                 |                                                                       |                                                         |                                                                  |        |          |          |       
|Supplemental Disclosures of Cash Flow
    Information                                      |                                                                 |                                                                       |                                                         |                                                                  |        |          |          |       
|Cash paid for interest, net of capitalized
    interest                                    |                                                                 | $                                                                     | 85,839                                                  |                                                                  |        | $        | 76,840   |       
|Acquisition of properties                                                                  |                                                                 | $                                                                     | 439,249                                                 |                                                                  |        | $        | 130,988  |       
|Non-cash transactions:                                                                     |                                                                 |                                                                       |                                                         |                                                                  |        |          |          |       
|                                                                                           | Assumption of secured debt                                      |                                                                       |                                                         | (130,588                                                         | )      |          |          |       |        
|                                                                                           | Assumption of other assets and liabilities                      |                                                                       |                                                         | (51,597                                                          | )      |          |          |       |        
|                                                                                           | Acquisition capital                                             |                                                                       |                                                         | (4,889                                                           | )      |          |          | (3,005 | )      
|                                                                                           | Minority interests contributions                               |                                                                       |                                                         | (1,835                                                           | )      |          |          |       |        
|                                                                                           |                                                                 |                                                                       |                                                         |                                                                  |        |          |          |       
|                                                                                           |                                                                 |                                                                       | Net cash paid                                           |                                                                  | $      | 250,340  |          |        | $       | 127,983  |        
|                                                                                           |                                                                 |                                                                       |                                                         |                                                                  |        |          |          |       

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

3



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##### Table of Contents






AMB PROPERTY, L.P.

CONSOLIDATED STATEMENT OF PARTNERS
CAPITAL

For the Six Months Ended June 30,
2004


|                             |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |       |            |         |  |       |           |         |   |       |           |   |  |   |        |        |   |  |           |         |   |   |        |        |   |   |           |         |        | 
|---------------------------- | ---------------------------------------------------------------------------------------------------------------- | --------------------------------- | --------- | ---------------- |  | --------------- | ------- | ------------ | - | ----- | ---------- | ------- |  | ----- | --------- | ------- | - | ----- | --------- | - |  | - | ------ | ------ | - |  | --------- | ------- | - | - | ------ | ------ | - | - | --------- | ------- | ------ | 
|                             |                                                                                                                  |                                   |           |                  |  |                
|                             |                                                                                                                  | General Partner                   |           | Limited Partners |  |                
|                             |                                                                                                                  |                                   |           |                  |  |                
|                             |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |      
|                             |                                                                                                                  | Preferred Units                   |           | Common Units     |  | Preferred Units |         | Common Units |   |      
|                             |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |      
|                             |                                                                                                                  | Units                             |           | Amount           |  | Units           |         | Amount       |   | Units |            | Amount  |  | Units |           | Amount  |   | Total
|                             |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |       |            |         |  |       |           |         |   |      
|                             |                                                                                                                  |                                  
|                             |                                                                                                                  | (Unaudited, dollars in thousands)
|Balance at December 31, 2003 |                                                                                                                  |                                   | 4,300,000 |                  |  | $               | 103,373 |              |   |       | 81,563,502 |         |  | $     | 1,563,526 |         |   |       | 1,600,000 |   |  | $ | 77,815 |        |   |  | 4,618,242 |         |   | $ | 88,248 |        |   | $ | 1,832,962 |        
|Comprehensive income:        |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |       |            |         |  |       |           |         |   |       |           |   |  |   |        |        |   |  |           |         |   |   |        |        |   |   |           |        
|                             | Net income                                                                                                       |                                   |           |                 |  |                 |         | 3,566        |   |       |            |        |  |       |           | 34,457  |   |       |           |  |  |   |        | 3,180  |   |  |           |        |   |   |        | 1,929  |   |   |           |         |       
|                             | Unrealized gain on securities                                                                                    |                                   |           |                 |  |                 |         |             |   |       |            |        |  |       |           | (812    | ) |       |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           |         |       
|                             | Currency translation adjustment                                                                                  |                                   |           |                 |  |                 |         |             |   |       |            |        |  |       |           | (94     | ) |       |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           |         |       
|                             |                                                                                                                  | Total comprehensive income        |           |                  |  |                 |         |              |   |       |            |         |  |       |           |         |   |       |           |   |  |   |        |        |   |  |           |         |   |   |        |        |   |   |           |         | 42,226 | 
|                             | Issuance of common limited partnership units in
    connection with the issuance of restricted stock and options |                                   |           |                 |  |                 |         |             |   |       |            | 199,913 |  |       |           | 12,512  |   |       |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           | 12,512  |       
|                             | Issuance of common limited partnership units in
    connection with the exercise of stock options                |                                   |           |                 |  |                 |         |             |   |       |            | 639,629 |  |       |           | 14,233  |   |       |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           | 14,233  |       
|                             | Conversion of operating partnership units to
    common stock                                                    |                                   |           |                 |  |                 |         |             |   |       |            | 13,332  |  |       |           | 457     |   |       |           |  |  |   |        |       |   |  |           | (13,332 | ) |   |        | (254   | ) |   |           | 203     |       
|                             | Forfeiture of restricted units                                                                                   |                                   |           |                 |  |                 |         |             |   |       |            |        |  |       |           | (646    | ) |       |           |   |  |   |        |        |   |  |           |         |   |   |        |        |   |   |           | (646    | )     
|                             | Deferred compensation                                                                                            |                                   |           |                 |  |                 |         |             |   |       |            |        |  |       |           | (12,512 | ) |       |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           | (12,512 | )     
|                             | Deferred compensation amortization                                                                               |                                   |           |                 |  |                 |         |             |   |       |            |        |  |       |           | 5,476   |   |       |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           | 5,476   |       
|                             | Reallocation of interests                                                                                        |                                   |           |                 |  |                 |         |             |   |       |            |        |  |       |           | (799    | ) |       |           |  |  |   |        |       |   |  |           |        |   |   |        | 309    |   |   |           | (490    | )     
|                             | Issuance costs                                                                                                   |                                   |           |                 |  |                 |         | (169         | ) |       |            |        |  |       |           |        |   |       |           |  |  |   |        |       |   |  |           |        |   |   |        |       |   |   |           | (169    | )     
|                             | Distributions                                                                                                    |                                   |           |                 |  |                 |         | (3,566       | ) |       |            |        |  |       |           | (70,226 | ) |       |           |  |  |   |        | (3,180 | ) |  |           |        |   |   |        | (4,039 | ) |   |           | (81,011 | )     
|                             |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |       |            |         |  |       |           |         |   |       |           |   |  |   |        |        |   |  |           |         |   |   |        |        |   |   |           |        
|Balance as of June 30, 2004  |                                                                                                                  |                                   | 4,300,000 |                  |  | $               | 103,204 |              |   |       | 82,416,376 |         |  | $     | 1,545,572 |         |   |       | 1,600,000 |   |  | $ | 77,815 |        |   |  | 4,604,910 |         |   | $ | 86,193 |        |   | $ | 1,812,784 |        
|                             |                                                                                                                  |                                   |           |                  |  |                 |         |              |   |       |            |         |  |       |           |         |   |       |           |   |  |   |        |        |   |  |           |         |   |   |        |        |   |   |           |        

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

4



---



##### Table of Contents



AMB PROPERTY, L.P.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


June 30, 2004


(Unaudited)




|   |                                                            
|-- | -----------------------------------------------------------
|1. | Organization and Formation of the Operating
    Partnership

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

As of June 30, 2004, the Company owned an
approximate 94.6% general partnership interest in the Operating
Partnership, excluding preferred units. The remaining
approximate 5.4% limited partnership interests are owned by
non-affiliated investors and certain current and former
directors and officers of the Company. Certain properties are
owned through limited partnerships, limited liability companies
and other entities. The ownership of such properties through
such entities does not materially affect the Operating
Partnerships overall ownership interests in the
properties. As the sole general partner of the Operating
Partnership, the Company has full, exclusive and complete
responsibility and discretion in the day-to-day management and
control of the Operating Partnership. Net operating results of
the Operating Partnership are allocated after preferred unit
distributions based on the respective partners ownership
interests.

The Operating Partnership enters into
co-investment joint ventures with institutional investors. These
co-investment joint ventures provide the Operating Partnership
with an additional source of capital and income. As of
June 30, 2004, the Operating Partnership had investments in
six co-investment joint ventures, which are consolidated for
financial reporting purposes.

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

As of June 30, 2004, the Operating
Partnership owned 994 operating industrial buildings and four
retail and other properties, aggregating approximately
91.7 million rentable square feet, located in
35 markets throughout North America and in France, Germany,
Japan and the Netherlands. The Operating Partnerships
strategy is to become a leading provider of distribution
properties in supply-constrained submarkets located near key
international passenger and cargo airports, highway systems and
seaports in major metropolitan areas of North America, Europe
and Asia. These submarkets are generally tied to global trade.
As of June 30, 2004, the Operating Partnerships
industrial buildings, principally warehouse distribution
buildings, encompassed approximately 91.3 million rentable
square feet and were 93.6% leased. As of June 30, 2004, the
Operating Partnerships retail centers, principally
grocer-anchored community shopping centers, and other properties
encompassed approximately 0.4 million rentable square feet
and were 85.2% leased.

As of June 30, 2004, through AMB Capital
Partners, the Operating Partnership also managed, but did not
have an ownership interest in, industrial, retail and other
properties, totaling approximately 0.5 million

5



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

rentable square feet. In addition, the Operating
Partnership had investments in industrial operating properties,
totaling approximately 7.8 million rentable square feet,
through unconsolidated joint ventures. As of June 30, 2004,
the Operating Partnership also had investments in industrial
development projects throughout North America and in Spain,
Singapore and Japan, totaling approximately 6.7 million
square feet. Some of the development projects in the
U.S. were available for sale.



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

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

In the opinion of management, the accompanying
unaudited consolidated financial statements contain all
adjustments of a normal, recurring nature, necessary for a fair
presentation of the Operating Partnerships consolidated
financial position and results of operations for the interim
periods. The interim results for the three and six months ended
June 30, 2004 are not necessarily indicative of future
results. These financial statements should be read in
conjunction with the financial statements and the notes thereto
included in the Operating Partnerships Annual Report on
Form 10-K for the year ended December 31, 2003.

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

Investments in Real
Estate.Investments in real estate and
leasehold interests are stated at cost unless circumstances
indicate that cost cannot be recovered, in which case, the
carrying value of the property is reduced to estimated fair
value. The Operating Partnership also regularly reviews the
impact of above or below-market leases, in-place leases and
lease origination costs for all new acquisitions, and records an
intangible asset or liability accordingly. Carrying values for
financial reporting purposes are reviewed for impairment on a
property-by-property basis whenever events or changes in
circumstances indicate that the carrying value of a property may
not be fully recoverable. Impairment is recognized when
estimated expected future cash flows (undiscounted and without
interest charges) are less than the carrying value of the
property. The estimation of expected future net cash flows is
inherently uncertain and relies on assumptions regarding current
and future economics and market conditions and the availability
of capital. If impairment analysis assumptions change, then an
adjustment to the carrying value of the Operating
Partnerships long-lived assets could occur in the future
period in which the assumptions change. To the extent that a
property is impaired, the excess of the carrying amount of the
property over its estimated fair value is charged to earnings.
The Operating Partnership believes that there are no impairments
of the carrying values of its investments in real estate as of
June 30, 2004.

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

Comprehensive
Income.The Operating Partnership
reports comprehensive income in its Statement of Partners
Capital. Comprehensive income was $22.8 million and
$22.4 million for the three months ended June 30, 2004
and 2003, respectively. Comprehensive income was
$42.2 million and $88.0 million for the six months
ended June 30, 2004 and 2003, respectively.

Stock-based Compensation
Expense.In 2002, the Operating
Partnership adopted the expense recognition provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation. The Operating Partnership values stock options
using the Black-Scholes option-pricing model and recognizes this
value as an expense

6



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

over the vesting periods. Under this standard,
recognition of expense for stock options is applied to all
options granted after the beginning of the year of adoption.
Under SFAS No. 123, related stock option expense was
$1.0 million and $0.6 million during the three months
ended June 30, 2004 and 2003, respectively, and
$2.0 million and $1.2 million during the six months
ended June 30, 2004 and 2003, respectively. Additionally,
the Operating Partnership awards restricted stock and recognizes
this value as an expense over the vesting periods. Related
restricted stock compensation expense was $1.9 million and
$1.4 million during the three months ended June 30,
2004 and 2003, respectively, and $3.5 million and
$2.8 million during the six months ended June 30, 2004
and 2003, respectively. The expense is included in general and
administrative expenses in the accompanying consolidated
statements of operations. Prior to 2002, the Operating
Partnership followed the intrinsic method set forth in APB
Opinion 25, Accounting for Stock Issued to Employees.

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

|                                                        |         |                      |        |                    |  |      |        |      |  |   |        |      |  |   |        |      | 
|------------------------------------------------------- | ------- | -------------------- | ------ | ------------------ |  | ---- | ------ | ---- |  | - | ------ | ---- |  | - | ------ | ---- | 
|                                                        |         |                      |        |                   
|                                                        |         | For the Three Months |        | For the Six Months
|                                                        |         | Ended June 30,       |        | Ended June 30,    
|                                                        |         |                      |        |                   
|                                                        |         | 2004                 |        | 2003               |  | 2004 |        | 2003
|                                                        |         |                      |        |                    |  |      |        |     
|Reduction to net income                                 |         | $                    | 262    |                    |  | $    | 406    |      |  | $ | 610    |      |  | $ | 818    |     
|Adjusted net income available to common
    unitholders |         | $                    | 19,192 |                    |  | $    | 16,461 |      |  | $ | 35,776 |      |  | $ | 76,706 |     
|Adjusted earnings per unit:                             |         |                      |        |                    |  |      |        |      |  |   |        |      |  |   |        |     
|                                                        | Basic   |                      |        | 0.22               |  |      |        | 0.19 |  |   |        | 0.41 |  |   |        | 0.89 | 
|                                                        | Diluted |                      |        | 0.21               |  |      |        | 0.19 |  |   |        | 0.40 |  |   |        | 0.88 | 

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



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

During the three months ended June 30, 2004,
the Operating Partnership acquired 39 industrial buildings,
aggregating approximately 2.7 million square feet for a
total expected investment of $305.1 million, of which the
Operating Partnership acquired 33 industrial buildings
aggregating approximately 1.6 million square feet through
three of the Operating Partnerships co-investment joint
ventures, for a total expected investment of $99.3 million.
Year-to-date through June 30, 2004, the Operating
Partnership acquired 46 industrial buildings, aggregating
approximately 4.0 million square feet for a total expected
investment of $439.2 million, of which the Operating
Partnership acquired 35 industrial buildings aggregating
approximately 1.9 million square feet through three of the
Operating Partnerships co-investment joint ventures, for a
total expected investment of $132.0 million. During the
three months ended June 30, 2003, the Operating Partnership
acquired 16 industrial buildings, aggregating approximately
2.1 million square feet for a total expected investment of
$120.1 million, of which the Operating Partnership acquired
15 industrial buildings aggregating approximately
2.0 million square feet through two of the Operating
Partnerships co-investment joint ventures, for a total
expected investment of $116.4 million. During the six
months ended June 30, 2003,

7



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the Operating Partnership acquired 18 industrial
buildings, aggregating approximately 2.3 million square
feet for a total expected investment of $131.0 million, of
which the Operating Partnership acquired 17 industrial buildings
aggregating approximately 2.3 million square feet through
two of the Operating Partnerships co-investment joint
ventures, for a total expected investment of $127.3 million.

For the quarter ended June 30, 2004, the
Operating Partnership did not initiate any new industrial
development projects. During the six months ended June 30,
2004, the Operating Partnership initiated five new industrial
development projects in North America with a total expected
investment of $69.5 million, aggregating approximately
1.1 million square feet, and one new industrial development
in Japan with a total expected investment of $82.5 million,
aggregating approximately 0.7 million square feet. During
the three months ended June 30, 2003, the Operating
Partnership initiated four new industrial development projects
in North America with a total expected investment of
$42.1 million, aggregating approximately 0.9 million
square feet. During the six months ended June 30, 2003, the
Operating Partnership initiated eight new industrial development
projects in North America with a total expected investment of
$78.5 million, aggregating approximately 1.5 million
square feet.

During the three and six months ended
June 30, 2004, the Operating Partnership completed two
industrial buildings with a total expected investment at
$26.9 million, aggregating approximately 0.5 million
square feet. During the three months ended June 30, 2003,
the Operating Partnership completed two industrial buildings
with a total expected investment at $15.3 million,
aggregating approximately 0.2 million square feet. During
the six months ended June 30, 2003, the Operating
Partnership completed four industrial buildings with a total
expected investment at $27.9 million, aggregating
approximately 0.4 million square feet.

As of June 30, 2004, the Operating
Partnership had in its development pipeline: (1) 20
industrial projects, which will total approximately
6.2 million square feet and will have an aggregate
estimated investment of $353.8 million upon completion, of
which five industrial projects with a total of 2.2 million
square feet and an aggregate estimated investment of
$89.2 million upon completion are held in unconsolidated
joint ventures, and (2) four development projects available
for sale, which will total approximately 0.5 million square
feet and will have an aggregate estimated investment of
$34.7 million upon completion. As of June 30, 2004,
the Operating Partnership and its Development Alliance Partners
had funded an aggregate of $198.8 million and needed to
fund an estimated additional $189.7 million in order to
complete current and planned projects. The Operating
Partnerships development pipeline includes projects
expected to be completed through the third quarter of 2006.



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

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

Development Sales.During the three and six months ended June 30, 2004, the
Operating Partnership sold four land parcels and one development
project as part of its development-for-sale pipeline,
aggregating approximately 0.1 million square feet, for an
aggregate price of $14.0 million, resulting in an after-tax
gain of $3.2 million. During the three and six months ended
June 30, 2003, no such sales were initiated by the
Operating Partnership.

Discontinued
Operations.The Operating Partnership
reported its property divestitures as discontinued operations
separately as prescribed under the provisions of
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. During the three months ended
June 30, 2004, the Operating Partnership

8



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

divested itself of one industrial building and
one office building, aggregating approximately 0.3 million
square feet, for an aggregate price of $12.9 million, with
a resulting net gain of $2.2 million. During the six months
ended June 30, 2004, the Operating Partnership divested
itself of two industrial buildings and one office building,
aggregating approximately 0.4 million square feet, for an
aggregate price of $17.9 million, with a resulting net gain
of $1.9 million. During the three months ended
June 30, 2003, the Operating Partnership divested itself of
two industrial buildings, aggregating approximately
0.2 million square feet, for an aggregate price of
$15.1 million, with a resulting net gain of
$3.7 million. During the six months ended June 30,
2003, the Operating Partnership divested itself of 12 industrial
buildings, aggregating approximately 1.8 million square
feet, for an aggregate price of $142.1 million, with a
resulting net gain of $31.7 million.

Properties Held for
Divestiture.As of June 30, 2004,
the Operating Partnership had decided to divest itself of five
industrial buildings and three undeveloped land parcels with an
aggregate net book value of $39.2 million. The properties
either are not in the Operating Partnerships core markets
or do not meet its current strategic objectives. The
divestitures of the properties are subject to negotiation of
acceptable terms and other customary conditions. Properties held
for divestiture are stated at the lower of cost or estimated
fair value less costs to sell. The following summarizes the
condensed results of operations of the properties held for
divestiture and sold under SFAS No. 144 (dollars in
thousands):

|                                                          |  |                      |      |                    |  |      |       |      |  |   |      |   |  |   |        |  
|--------------------------------------------------------- |  | -------------------- | ---- | ------------------ |  | ---- | ----- | ---- |  | - | ---- | - |  | - | ------ | -
|                                                          |  |                      |      |                   
|                                                          |  | For the Three Months |      | For the Six Months
|                                                          |  | Ended June 30,       |      | Ended June 30,    
|                                                          |  |                      |      |                   
|                                                          |  | 2004                 |      | 2003               |  | 2004 |       | 2003
|                                                          |  |                      |      |                    |  |      |       |     
|Rental revenues                                           |  | $                    | 351  |                    |  | $    | 5,205 |      |  | $ | 592  |   |  | $ | 18,424 |  
|Straight-line rents                                       |  |                      | 462  |                    |  |      | (56   | )    |  |   | 524  |   |  |   | (315   | )
|Property operating expenses                               |  |                      | (174 | )                  |  |      | (837  | )    |  |   | (380 | ) |  |   | (1,946 | )
|Real estate taxes                                         |  |                      | (166 | )                  |  |      | (603  | )    |  |   | (343 | ) |  |   | (1,348 | )
|Depreciation and amortization                             |  |                      | (87  | )                  |  |      | (184  | )    |  |   | (731 | ) |  |   | (2,007 | )
|Interest, including amortization                          |  |                      | 425  |                    |  |      | (480  | )    |  |   | 621  |   |  |   | (1,787 | )
|Joint venture partners share of income                   |  |                      | (543 | )                  |  |      | (656  | )    |  |   | (815 | ) |  |   | (900   | )
|                                                          |  |                      |      |                    |  |      |       |      |  |   |      |   |  |   |        |  
|Income (loss) attributable to discontinued
    operations |  | $                    | 268  |                    |  | $    | 2,389 |      |  | $ | (532 | ) |  | $ | 10,121 |  
|                                                          |  |                      |      |                    |  |      |       |      |  |   |      |   |  |   |        |  

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

|                                       |  |          |       |              |  |   |     | 
|-------------------------------------- |  | -------- | ----- | ------------ |  | - | --- | 
|                                       |  | June 30, |       | December 31,
|                                       |  | 2004     |       | 2003        
|                                       |  |          |       |             
|Accounts receivable, net               |  | $        | 90    |              |  | $ |    | 
|Other assets                           |  | $        | 611   |              |  | $ | 116 | 
|Secured debt                           |  | $        | 5,940 |              |  | $ |    | 
|Accounts payable and other liabilities |  | $        | 417   |              |  | $ | 7   | 



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

Through a wholly-owned subsidiary, the Operating
Partnership holds a mortgage loan receivable on AMB Pier One,
LLC, an unconsolidated joint venture. The Operating Partnership
also holds various other

9



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

mortgages receivable from property sales. The
Operating Partnerships mortgages receivable at
June 30, 2004 and December 31, 2003 consisted of the
following (dollars in thousands):

|                                         |                            |                        |  |               |  |          |        |              |  |      |        |               |  |  |      |   |  |  |       |   | 
|---------------------------------------- | -------------------------- | ---------------------- |  | ------------- |  | -------- | ------ | ------------ |  | ---- | ------ | ------------- |  |  | ---- | - |  |  | ----- | - | 
|                                         |                            |                        |  |               |  | June 30, |        | December 31, |  |      |        | Ownership    
|Mortgage Receivable                      |                            | Market                 |  | Maturity      |  | 2004     |        | 2003         |  | Rate |        | Percentage(1)
|                                         |                            |                        |  |               |  |          |        |              |  |      |        |              
|1. Pier 1                                |                            | San Francisco Bay Area |  | May 2026      |  | $        | 12,992 |              |  | $    | 13,042 |               |  |  | 13.0 | % |  |  | 0.1   | %
|2. Platinum Distribution Center          |                            | No. New Jersey         |  | February 2004 |  |          |       |              |  |      | 19,500 |               |  |  | 6.0  | % |  |  | 20.0  | %
|3. Platinum Distribution Center          |                            | No. New Jersey         |  | November 2006 |  |          | 1,300  |              |  |      | 1,300  |               |  |  | 12.0 | % |  |  | 20.0  | %
|4. North Bay Distribution Center/BAB     |                            | San Francisco Bay Area |  | December 2004 |  |          | 7,040  |              |  |      | 7,040  |               |  |  | 5.5  | % |  |  | 100.0 | %
|5. North Bay Distribution Center/Corovan |                            | San Francisco Bay Area |  | December 2004 |  |          | 2,262  |              |  |      | 2,263  |               |  |  | 7.3  | % |  |  | 100.0 | %
|                                         |                            |                        |  |               |  |          |        |              |  |      |        |               |  |  |      |   |  |  |       |  
|                                         | Total Mortgages Receivable |                        |  |               |  |          | $      | 23,594       |  |      | $      | 43,145        |  |  |      |   |  |  |       |   | 
|                                         |                            |                        |  |               |  |          |        |              |  |      |        |               |  |  |      |   |  |  |       |  



---



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



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

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

|                                                                                                                                                                                                                                   |                                        |                         |           |              |           |   |           |           |           | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ----------------------- | --------- | ------------ | --------- | - | --------- | --------- | --------- | 
|                                                                                                                                                                                                                                   |                                        | June 30,                |           | December 31,
|                                                                                                                                                                                                                                   |                                        | 2004                    |           | 2003        
|                                                                                                                                                                                                                                   |                                        |                         |           |             
|Operating Partnership secured debt, varying
    interest rates from 4.0% to 10.4%, due August 2004 to January
    2014 (weighted average interest rates of 7.2% and 8.1% at
    June 30, 2004 and December 31, 2003, respectively) |                                        | $                       | 425,085   |              |           | $ | 291,516   |          
|Consolidated joint venture secured debt, varying
    interest rates from 2.6% to 9.5%, due July 2004 to June 2023
    (weighted average interest rate of 6.8% and 6.7% at
    June 30, 2004 and December 31, 2003, respectively)   |                                        |                         | 1,114,221 |              |           |   | 1,061,585 |          
|Unsecured senior debt securities, varying
    interest rates from 2.0% to 8.0%, due June 2005 to June 2018
    (weighted average interest rates of 6.5% and 6.8% at
    June 30, 2004 and December 31, 2003, respectively)         |                                        |                         | 1,025,000 |              |           |   | 925,000   |          
|Unsecured debt, due June 2013 and November 2015,
    interest rate of 7.5%                                                                                                                                                         |                                        |                         | 9,334     |              |           |   | 9,628     |          
|Unsecured credit facilities, variable interest
    rate, due May 2006 through June 2007 (weighted average interest
    rates of 1.8% and 1.9% at June 30, 2004 and
    December 31, 2003, respectively)                            |                                        |                         | 428,502   |              |           |   | 275,739   |          
|                                                                                                                                                                                                                                   |                                        |                         |           |              |           |   |           |          
|                                                                                                                                                                                                                                   | Total debt before unamortized premiums |                         |           | 3,002,142    |           |   |           | 2,563,468 |          
|                                                                                                                                                                                                                                   | Unamortized premiums                   |                         |           | 12,778       |           |   |           | 10,789    |          
|                                                                                                                                                                                                                                   |                                        |                         |           |              |           |   |           |          
|                                                                                                                                                                                                                                   |                                        | Total consolidated debt |           | $            | 3,014,920 |   |           | $         | 2,574,257 | 
|                                                                                                                                                                                                                                   |                                        |                         |           |              |           |   |           |          

Secured debt generally requires monthly principal
and interest payments. The secured debt is secured by deeds of
trust on certain properties and is generally non-recourse. As of
June 30, 2004 and December 31, 2003, the total gross
investment book value of those properties securing the debt was
$3.0 billion and $2.6 billion, respectively, including
$1.9 billion and $1.8 billion, respectively, in
consolidated joint ventures. All of the secured debt bears
interest at fixed rates, except for eight loans with an
aggregate principal amount of $95.7 million as of
June 30, 2004, which bear interest at variable rates
(weighted average interest rate of 3.1% as of June 30,
2004). The secured debt has various covenants. Management
believes that the Operating Partnership was in compliance with
its financial covenants as of June 30, 2004 and
December 31, 2003. As of

10



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

June 30, 2004, the Operating Partnership had
57 non-recourse, secured loans, which are
cross-collateralized by 104 properties, totaling
$1.1 billion (not including unamortized debt premiums).

As of June 30, 2004, the Operating
Partnership had issued an aggregate of $1.0 billion in
unsecured senior debt securities, which bore a weighted average
interest rate of 6.5% and had an average term of 5.2 years.
These unsecured senior debt securities include
$100.0 million in notes, which are putable and callable in
September 2005, $400.0 million of medium-term notes, which
were issued under the Operating Partnerships 2000
medium-term note program, and $225.0 million of medium-term
notes, which were issued under the Operating Partnerships
2002 medium-term note program. As of June 30, 2004, the
Operating Partnerships 2002 medium-term note program had a
remaining capacity of $175.0 million. The Operating
Partnership intends to continue to issue medium-term notes,
guaranteed by the Company, under its 2002 program from time to
time and as market conditions permit. The unsecured senior debt
securities are subject to various covenants. Management believes
that the Operating Partnership was in compliance with its
financial covenants as of June 30, 2004.

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

On June 1, 2004, the Operating Partnership
completed the early renewal of its senior unsecured revolving
line of credit in the amount of $500.0 million. The Company
remains a guarantor of the Operating Partnerships
obligations under the credit facility. The three-year credit
facility includes a multi-currency component under which up to
$250.0 million can be drawn in Yen, Euros or British Pounds
Sterling. The line, which matures in June 2007 and carries a
one-year extension option, can be increased up to
$700.0 million upon certain conditions, and replaces the
Operating Partnerships previous $500.0 million credit
facility that was to mature in December 2005. The line is priced
at 60 basis points over the applicable LIBOR index, with an
annual facility fee of 20 basis points, based on the
current credit rating of the Operating Partnerships
long-term debt. The Operating Partnership uses its unsecured
credit facility principally for acquisitions, funding
development activity and general working capital requirements.
The total amount available under the credit facility fluctuates
based upon the borrowing base, as defined in the agreement
governing the credit facility, generally the value of the
Operating Partnerships unencumbered properties. As of
June 30, 2004, the outstanding balance on the credit
facility was $405.5 million and the remaining amount
available was $78.0 million, net of outstanding letters of
credit of $16.5 million (excluding the additional
$200.0 million of potential additional capacity). The
outstanding balance included borrowings denominated in Euros and
Yen, which, using the exchange rate in effect on June 30,
2004, would equal approximately $81.2 million and
$94.3 million in U.S. dollars, respectively. As of
June 30, 2004, the Operating Partnership had an additional
outstanding balance of $23.0 million on other credit
facilities. Management believes that the Operating Partnership
was in compliance with its financial covenants at June 30,
2004.

On June 29, 2004, AMB Japan Finance Y.K., a
subsidiary of the Operating Partnership, entered into an
unsecured revolving credit agreement providing for loans or
letters of credit in a maximum principal amount outstanding at
any time of up to 24 billion Yen, which, using the exchange
rate in effect on June 30, 2004, equals approximately
$221.0 million U.S. dollars. The Company and the
Operating Partnership guarantee the obligations of AMB Japan
Finance Y.K. under the revolving credit facility, as well as the
obligations of any other entity in which the Operating
Partnership directly or indirectly owns an ownership interest,
and which is selected from time to time to be a borrower under
and pursuant to the revolving credit agreement. Generally,
borrowers under the revolving credit facility have the option to
secure all or a portion of the borrowings under the revolving
credit facility with certain real estate assets or equity in
entities holding such real estate assets. The revolving credit
facility matures in June 2007 and has a one-year extension
option, which is subject to the satisfaction of certain
conditions and the payment of an extension fee equal to 0.25% of
the outstanding commitments under the facility at that time. The
rate on the borrowings will generally be TIBOR plus a

11



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

margin, which is based on the current credit
rating of the Operating Partnerships long-term debt and is
currently 60 basis points. In addition, there is an annual
facility fee, payable in quarterly amounts, which is based on
the credit rating of the Operating Partnerships long-term
debt, and is currently 20 basis points of the outstanding
commitments under the facility. The revolving credit facility
contains customary and other affirmative covenants, including
financial reporting requirements and maintenance of specified
financial ratios, and negative covenants, including limitations
on the incurrence of liens and limitations on mergers or
consolidations. The borrowers intend to use the proceeds from
the facility to fund the acquisition and development of
properties and for other real estate purposes in Japan. As of
June 30, 2004, there was no outstanding balance on this
credit facility.

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

|           |       |             |        |         |  |             |         |           |  |            |         |           |  |   |       |       |  |   |         |         |  |   |         |           | 
|---------- | ----- | ----------- | ------ | ------- |  | ----------- | ------- | --------- |  | ---------- | ------- | --------- |  | - | ----- | ----- |  | - | ------- | ------- |  | - | ------- | --------- | 
|           |       | Operating   |        |         |  |             |         |           |  |            |         |          
|           |       | Partnership |        | Joint   |  | Unsecured   |         |           |  |            |         |          
|           |       | Secured     |        | Venture |  | Senior Debt |         | Unsecured |  | Credit     |         |          
|           |       | Debt        |        | Debt    |  | Securities  |         | Debt      |  | Facilities |         | Total    
|           |       |             |        |         |  |             |         |           |  |            |         |          
|2004       |       | $           | 41,448 |         |  | $           | 28,326  |           |  | $          |        |           |  | $ | 306   |       |  | $ |        |         |  | $ | 70,080  |          
|2005       |       |             | 43,910 |         |  |             | 63,726  |           |  |            | 250,000 |           |  |   | 647   |       |  |   |        |         |  |   | 358,283 |          
|2006       |       |             | 82,055 |         |  |             | 66,902  |           |  |            | 75,000  |           |  |   | 698   |       |  |   | 23,000  |         |  |   | 247,655 |          
|2007       |       |             | 14,319 |         |  |             | 57,446  |           |  |            | 75,000  |           |  |   | 752   |       |  |   | 405,502 |         |  |   | 553,019 |          
|2008       |       |             | 32,604 |         |  |             | 169,230 |           |  |            | 175,000 |           |  |   | 810   |       |  |   |        |         |  |   | 377,644 |          
|2009       |       |             | 3,737  |         |  |             | 107,978 |           |  |            | 100,000 |           |  |   | 873   |       |  |   |        |         |  |   | 212,588 |          
|2010       |       |             | 69,583 |         |  |             | 136,341 |           |  |            | 75,000  |           |  |   | 941   |       |  |   |        |         |  |   | 281,865 |          
|2011       |       |             | 58,043 |         |  |             | 290,804 |           |  |            | 75,000  |           |  |   | 1,014 |       |  |   |        |         |  |   | 424,861 |          
|2012       |       |             | 4,076  |         |  |             | 162,004 |           |  |            |        |           |  |   | 1,093 |       |  |   |        |         |  |   | 167,173 |          
|2013       |       |             | 75,271 |         |  |             | 11,245  |           |  |            | 75,000  |           |  |   | 920   |       |  |   |        |         |  |   | 162,436 |          
|Thereafter |       |             | 39     |         |  |             | 20,219  |           |  |            | 125,000 |           |  |   | 1,280 |       |  |   |        |         |  |   | 146,538 |          
|           |       |             |        |         |  |             |         |           |  |            |         |           |  |   |       |       |  |   |         |         |  |   |         |          
|           | Total |             | $      | 425,085 |  |             | $       | 1,114,221 |  |            | $       | 1,025,000 |  |   | $     | 9,334 |  |   | $       | 428,502 |  |   | $       | 3,002,142 | 
|           |       |             |        |         |  |             |         |           |  |            |         |           |  |   |       |       |  |   |         |         |  |   |         |          



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

Minority interests in the Operating Partnership
represent limited partnership interests in AMB Property II,
L.P. and interests held by certain third parties in several real
estate joint ventures, aggregating approximately
40.4 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,
asset management, investment activity and changes in financing.
These joint venture investments do not meet the variable
interest entity criteria under FASB Interpretation No. 46R,
Consolidation of Variable Interest Entities.

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

12



---



##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                             |  |                                                                   |            |               |    |                     |           |               |         |          |           |              |         |   |         |   |         |  |  |   |         | 
|-------------------------------------------- |  | ----------------------------------------------------------------- | ---------- | ------------- | -- | ------------------- | --------- | ------------- | ------- | -------- | --------- | ------------ | ------- | - | ------- | - | ------- |  |  | - | ------- | 
|                                             |  |                                                                   |            |               |    |                     |           |               |         |         
|                                             |  |                                                                   |            |               |    | Total Investment in |           |              
|                                             |  |                                                                   |            | Operating     |    | Real Estate         |           | Property Debt
|                                             |  |                                                                   |            | Partnerships |    |                     |           |              
|                                             |  |                                                                   |            | Ownership     |    | June 30,            |           | December 31,  |         | June 30, |           | December 31,
|Co-investment Joint Venture                  |  | Joint Venture Partner                                             |            | Percentage    |    | 2004                |           | 2003          |         | 2004     |           | 2003        
|                                             |  |                                                                   |            |               |    |                     |           |               |         |          |           |             
|AMB/ Erie, L.P.                              |  | Erie Insurance Company and affiliates                             |            |               | 50 | %                   |           | $             | 159,163 |          |           | $            | 156,174 |   |         | $ | 56,437  |  |  | $ | 57,115  | 
|AMB Institutional Alliance Fund I,
    L.P.  |  | AMB Institutional Alliance REIT I,
    Inc.(1)                    |            |               | 21 | %                   |           |               | 424,143 |          |           |              | 417,902 |   |         |   | 212,965 |  |  |   | 214,538 | 
|AMB Partners II, L.P.                        |  | City and County of San Francisco
    Employees Retirement System |            |               | 20 | %                   |           |               | 484,185 |          |           |              | 428,837 |   |         |   | 271,194 |  |  |   | 253,942 | 
|AMB-SGP, L.P.                                |  | Industrial JV Pte Ltd(2)                                          |            |               | 50 | %                   |           |               | 412,554 |          |           |              | 408,507 |   |         |   | 247,591 |  |  |   | 249,861 | 
|AMB Institutional Alliance Fund II,
    L.P. |  | AMB Institutional Alliance REIT II,
    Inc.(3)                   |            |               | 20 | %                   |           |               | 481,132 |          |           |              | 449,709 |   |         |   | 233,735 |  |  |   | 204,542 | 
|AMB-AMS, L.P.(4)                             |  | PMT, SPW and TNO(5)                                               |            |               | 39 | %                   |           |               | 67,686  |          |           |              |        |   |         |   | 14,093  |  |  |   |        | 
|                                             |  |                                                                   |            |               |    |                     |           |               |         |          |           |              |         |   |         |   |         |  |  |   |         | 
|Total                                        |  |                                                                   | $2,028,863 |               |    | $                   | 1,861,129 |               |         | $        | 1,036,015 |              |         | $ | 979,998 |  
|                                             |  |                                                                   |            |               |    |                     |           |               |         |          |           |              |         |   |         |  



---



|    |                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Included 16 institutional investors as
    stockholders as of June 30, 2004.                                                                              
|   
|(2) | A subsidiary of the real estate investment
    subsidiary of the Government of Singapore Investment Corporation.                                          
|   
|(3) | Included 13 institutional investors as
    stockholders and one third-party limited partner as of
    June 30, 2004.                                      
|   
|(4) | AMB-AMS, L.P. is a co-investment partnership with
    three Dutch pension funds advised by Mn Services NV.                                                
|   
|(5) | PMT is Stichting Pensioenfond Metaal en Techniek,
    SPW is Stichting Pensioenfonds voor de Woningcorporaties and TNO
    is Stichting Pensioenfonds TNO.

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

|                                    |                                                                  |                          |         |              |         |   |         |        |         | 
|----------------------------------- | ---------------------------------------------------------------- | ------------------------ | ------- | ------------ | ------- | - | ------- | ------ | ------- | 
|                                    |                                                                  | June 30,                 |         | December 31,
|                                    |                                                                  | 2004                     |         | 2003        
|                                    |                                                                  |                          |         |             
|Joint venture partners              |                                                                  | $                        | 699,521 |              |         | $ | 659,487 |       
|Held through AMB Property II, L.P.: |                                                                  |                          |         |              |         |   |         |       
|                                    | Class B common limited partnership units                         |                          |         | 2,724        |         |   |         | 2,781  |        
|                                    | Series D preferred units (liquidation
    preference of $79,767) |                          |         | 77,684       |         |   |         | 77,684 |        
|                                    | Series E preferred units (liquidation
    preference of $11,022) |                          |         | 10,788       |         |   |         | 10,788 |        
|                                    | Series F preferred units (liquidation
    preference of $10,057) |                          |         | 9,900        |         |   |         | 9,900  |        
|                                    | Series H preferred units (liquidation
    preference of $42,000) |                          |         | 40,912       |         |   |         | 40,912 |        
|                                    | Series I preferred units (liquidation
    preference of $25,500) |                          |         | 24,800       |         |   |         | 24,800 |        
|                                    |                                                                  |                          |         |              |         |   |         |       
|                                    |                                                                  | Total minority interests |         | $            | 866,329 |   |         | $      | 826,352 | 
|                                    |                                                                  |                          |         |              |         |   |         |       

13



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                         |                                                                  |                                           |       |                    |        |      |       |       |        |   |        |       |        |   |        |       |        | 
|-------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------------------------- | ----- | ------------------ | ------ | ---- | ----- | ----- | ------ | - | ------ | ----- | ------ | - | ------ | ----- | ------ | 
|                                                         |                                                                  |                                           |       |                   
|                                                         |                                                                  | For the Three Months                      |       | For the Six Months
|                                                         |                                                                  | Ended June 30,                            |       | Ended June 30,    
|                                                         |                                                                  |                                           |       |                   
|                                                         |                                                                  | 2004                                      |       | 2003               |        | 2004 |       | 2003 
|                                                         |                                                                  |                                           |       |                    |        |      |       |      
|Joint Venture Partners                                   |                                                                  | $                                         | 9,379 |                    |        | $    | 8,242 |       |        | $ | 18,335 |       |        | $ | 15,779 |      
|Joint Venture Partners share of development
    profits |                                                                  |                                           | 606   |                    |        |      |      |       |        |   | 606    |       |        |   |       |      
|Held through AMB Property II, L.P.:                      |                                                                  |                                           |       |                    |        |      |       |       |        |   |        |       |        |   |        |      
|                                                         | Class B common limited partnership units                         |                                           |       | 25                 |        |      |       |      |        |   |        | 54    |        |   |        |      |       
|                                                         | Series D preferred units (liquidation
    preference of $79,767) |                                           |       | 1,546              |        |      |       | 1,546 |        |   |        | 3,091 |        |   |        | 3,091 |       
|                                                         | Series E preferred units (liquidation
    preference of $11,022) |                                           |       | 213                |        |      |       | 213   |        |   |        | 427   |        |   |        | 427   |       
|                                                         | Series F preferred units (liquidation
    preference of $10,057) |                                           |       | 200                |        |      |       | 266   |        |   |        | 400   |        |   |        | 532   |       
|                                                         | Series H preferred units (liquidation
    preference of $42,000) |                                           |       | 853                |        |      |       | 853   |        |   |        | 1,706 |        |   |        | 1,706 |       
|                                                         | Series I preferred units (liquidation
    preference of $25,500) |                                           |       | 510                |        |      |       | 510   |        |   |        | 1,020 |        |   |        | 1,020 |       
|                                                         |                                                                  |                                           |       |                    |        |      |       |       |        |   |        |       |        |   |        |      
|                                                         |                                                                  | Total minority interests share of income |       | $                  | 13,332 |      |       | $     | 11,630 |   |        | $     | 25,639 |   |        | $     | 22,555 | 
|                                                         |                                                                  |                                           |       |                    |        |      |       |       |        |   |        |       |        |   |        |      

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



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

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

|                                                   |  |        |             |          |  |        |                   |          |  |              |           |            |  |   |        |  |  |   |        |  |  |  |     | 
|-------------------------------------------------- |  | ------ | ----------- | -------- |  | ------ | ----------------- | -------- |  | ------------ | --------- | ---------- |  | - | ------ |  |  | - | ------ |  |  |  | --- | 
|                                                   |  |        |             | Alliance |  | Square |                   | June 30, |  | December 31, |           | Ownership 
|Unconsolidated Joint Ventures                      |  | Market |             | Partner  |  | Feet   |                   | 2004     |  | 2003         |           | Percentage
|                                                   |  |        |             |          |  |        |                   |          |  |              |           |           
|1. Elk Grove Du Page                               |  |        | Chicago     |          |  |        | Hamilton Partners |          |  |              | 4,046,721 |            |  | $ | 33,005 |  |  | $ | 31,548 |  |  |  | 56% | 
|2. Pico Rivera                                     |  |        | Los Angeles |          |  |        | Majestic Realty   |          |  |              | 855,600   |            |  |   | 834    |  |  |   | 1,091  |  |  |  | 50% | 
|3. Monte Vista Spectrum                            |  |        | Los Angeles |          |  |        | Majestic Realty   |          |  |              | 576,852   |            |  |   | 373    |  |  |   | 487    |  |  |  | 50% | 
|4. Industrial Fund I, LLC                          |  |        | Various     |          |  |        | Citigroup         |          |  |              | 2,326,334 |            |  |   | 3,598  |  |  |   | 4,173  |  |  |  | 15% | 
|5. Sterling Distribution
    Center 1 & 2          |  |        | Los Angeles |          |  |        | Majestic Realty   |          |  |              | 1,490,000 |            |  |   | 7,366  |  |  |   | 10,429 |  |  |  | 40% | 
|6. Sterling Distribution Center 3                  |  |        | Los Angeles |          |  |        | Majestic Realty   |          |  |              | 390,000   |            |  |   | 3,543  |  |  |   | 2,214  |  |  |  | 50% | 
|7. Airport Logistics Park of Singapore
    Phase I |  |        | Singapore   |          |  |        | Boustead Projects |          |  |              | 230,460   |            |  |   | 2,415  |  |  |   | 2,067  |  |  |  | 50% | 
|8. Nash Logistics Center                           |  |        | Los Angeles |          |  |        | AMB - IAC         |          |  |              | 75,000    |            |  |   | 1,445  |  |  |   |       |  |  |  | 50% | 
|                                                   |  |        |             |          |  |        |                   |          |  |              |           |            |  |   |        |  |  |   |        |  |  |  |     | 
|Total Unconsolidated Joint
    Ventures            |  |        | 9,990,967   |          |  | $      | 52,579            |          |  | $            | 52,009    |            |  |   |        | 
|                                                   |  |        |             |          |  |        |                   |          |  |              |           |            |  |   |        | 

Under the agreements governing the joint
ventures, the Operating Partnership and the other parties to the
joint venture may be required to make additional capital
contributions and, subject to certain limitations, the joint
ventures may incur additional debt.

The Operating Partnership also has a 0.1%
unconsolidated equity interest (with an approximate 33% economic
interest) in AMB Pier One, LLC, a joint venture to redevelop the
Operating Partnerships office space in San Francisco.
The investment is not consolidated because the Operating
Partnership does not exercise significant control over major
operating decisions such as approval of budgets, selection of
property managers, investment activity and changes in financing.
The Operating Partnership has an option, beginning

14



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

January 1, 2007 and expiring
December 31, 2009, to purchase the remaining equity
interest based on the fair market value as stipulated in the
operating agreement.



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

Holders of common limited partnership units of
the Operating Partnership and class B common limited
partnership units of AMB Property II, L.P. have the right,
commencing generally on or after the first anniversary of the
holder becoming a limited partner of the Operating Partnership
or AMB Property II, L.P., as applicable (or such other date
agreed to by the Operating Partnership or AMB Property II,
L.P. and the applicable unit holders), to require the Operating
Partnership or AMB Property II, L.P., as applicable, to
redeem part or all of their common units or class B common
limited partnership units, as applicable, for cash (based upon
the fair market value, as defined in the applicable partnership
agreement, of an equivalent number of shares of common stock of
the Company at the time of redemption) or the Operating
Partnership or AMB Property II, L.P. may, in its sole and
absolute discretion (subject to the limits on ownership and
transfer of common stock set forth in the Companys
charter), elect to have the Company exchange those common units
or class B common limited partnership units, as applicable,
for shares of the Companys common stock on a one-for-one
basis, subject to adjustment in the event of stock splits, stock
dividends, issuance of certain rights, certain extraordinary
distributions and similar events. With each redemption or
exchange of the Operating Partnerships common units, the
Companys percentage ownership in the Operating Partnership
will increase. Common limited partners and class B common
limited partners may exercise this redemption right from time to
time, in whole or in part, subject to the limitations that
limited partners may not exercise this right if such exercise
would result in any person actually or constructively owning
shares of common stock in excess of the ownership limit or any
other amount specified by the board of directors of the Company,
assuming common stock was issued in the exchange. During the
six months ended June 30, 2004, the Operating
Partnership redeemed 13,332 of its common limited partnership
units for an equivalent number of shares of the Companys
common stock.

During the six months ended June 30, 2003,
the Company repurchased and retired 787,800 shares of its
common stock for an aggregate purchase price of
$20.6 million, including commissions, and the Operating
Partnership retired the same number of common general
partnership units. In December 2003, the Companys board of
directors approved a new two-year common stock repurchase
program for the repurchase of up to $200.0 million worth of
common stock. During the six months ended June 30, 2004,
the Company did not repurchase any of its common stock and,
accordingly, the Operating Partnership did not redeem any common
limited partnership units.

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

As of June 30, 2004, the Operating
Partnership had outstanding 82,416,376 common general
partnership units, 4,604,910 common limited partnership units,
800,000 7.95% Series J Cumulative Redeemable

15



---



##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Partnership Units, 800,000 7.95% Series K
Cumulative Redeemable Partnership Units, 2,000,000 6.5%
Series L Cumulative Redeemable Partnership Units and
2,300,000 6.75% Series M Cumulative Redeemable Partnership
Units.

The following table sets forth the distributions
paid per unit:

|                      |  |                                          |  |                      |       |                    |  |      |       |      |  |   |       |  |  |   |       | 
|--------------------- |  | ---------------------------------------- |  | -------------------- | ----- | ------------------ |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                      |  |                                          |  |                      |       |                   
|                      |  |                                          |  | For the Three Months |       | For the Six Months
|                      |  |                                          |  | Ended June 30,       |       | Ended June 30,    
|                      |  |                                          |  |                      |       |                   
|Paying Entity         |  | Security                                 |  | 2004                 |       | 2003               |  | 2004 |       | 2003
|                      |  |                                          |  |                      |       |                    |  |      |       |     
|Operating Partnership |  | Common limited partnership units         |  | $                    | 0.425 |                    |  | $    | 0.415 |      |  | $ | 0.850 |  |  | $ | 0.830 | 
|Operating Partnership |  | Series A preferred units                 |  |                      | n/a   |                    |  | $    | 0.531 |      |  |   | n/a   |  |  | $ | 1.063 | 
|Operating Partnership |  | Series B preferred units                 |  |                      | n/a   |                    |  | $    | 1.078 |      |  |   | n/a   |  |  | $ | 2.156 | 
|Operating Partnership |  | Series J preferred units                 |  | $                    | 0.994 |                    |  | $    | 0.994 |      |  | $ | 1.988 |  |  | $ | 1.988 | 
|Operating Partnership |  | Series K preferred units                 |  | $                    | 0.994 |                    |  | $    | 0.994 |      |  | $ | 1.988 |  |  | $ | 1.988 | 
|Operating Partnership |  | Series L preferred units                 |  | $                    | 0.406 |                    |  | $    | 0.036 |      |  | $ | 0.813 |  |  | $ | 0.036 | 
|Operating Partnership |  | Series M preferred units                 |  | $                    | 0.422 |                    |  |      | n/a   |      |  | $ | 0.844 |  |  |   | n/a   | 
|AMB Property II, L.P. |  | Class B common limited partnership units |  | $                    | 0.425 |                    |  |      | n/a   |      |  | $ | 0.850 |  |  |   | n/a   | 
|AMB Property II, L.P. |  | Series D preferred units                 |  | $                    | 0.969 |                    |  | $    | 0.969 |      |  | $ | 1.938 |  |  | $ | 1.938 | 
|AMB Property II, L.P. |  | Series E preferred units                 |  | $                    | 0.969 |                    |  | $    | 0.969 |      |  | $ | 1.938 |  |  | $ | 1.938 | 
|AMB Property II, L.P. |  | Series F preferred units                 |  | $                    | 0.994 |                    |  | $    | 0.994 |      |  | $ | 1.988 |  |  | $ | 1.988 | 
|AMB Property II, L.P. |  | Series H preferred units                 |  | $                    | 1.016 |                    |  | $    | 1.016 |      |  | $ | 2.031 |  |  | $ | 2.031 | 
|AMB Property II, L.P. |  | Series I preferred units                 |  | $                    | 1.000 |                    |  | $    | 1.000 |      |  | $ | 2.000 |  |  | $ | 2.000 | 



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

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

|                              |                                    |                                       |  |                          |            |      |  |            |            |  |  |            |            |  |  |            |            | 
|----------------------------- | ---------------------------------- | ------------------------------------- |  | ------------------------ | ---------- | ---- |  | ---------- | ---------- |  |  | ---------- | ---------- |  |  | ---------- | ---------- | 
|                              |                                    |                                       |  |                         
|                              |                                    | For the Three Months Ended            |  | For the Six Months Ended
|                              |                                    | June 30,                              |  | June 30,                
|                              |                                    |                                       |  |                         
|                              |                                    | 2004                                  |  | 2003                     |            | 2004 |  | 2003      
|                              |                                    |                                       |  |                          |            |      |  |           
|Weighted Average Common Units |                                    |                                       |  |                          |            |      |  |            |            |  |  |            |            |  |  |           
|                              | Basic                              |                                       |  | 86,824,795               |            |      |  | 85,852,418 |            |  |  | 86,653,067 |            |  |  | 85,904,056 |           
|                              | Stock options and restricted stock |                                       |  | 2,464,159                |            |      |  | 1,450,478  |            |  |  | 2,867,182  |            |  |  | 1,460,000  |           
|                              |                                    |                                       |  |                          |            |      |  |            |            |  |  |            |            |  |  |           
|                              |                                    | Diluted weighted average common units |  |                          | 89,288,954 |      |  |            | 87,302,896 |  |  |            | 89,520,249 |  |  |            | 87,364,056 | 
|                              |                                    |                                       |  |                          |            |      |  |            |            |  |  |            |            |  |  |           



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

The Operating Partnership mainly operates
industrial properties and manages its business by markets.
Industrial properties represent more than 99.5% of the Operating
Partnerships portfolio by rentable square feet and consist
primarily of warehouse distribution facilities suitable for
single or multiple customers, and are typically comprised of
multiple buildings that are leased to customers engaged in
various types of businesses. The Operating Partnerships
geographic markets for industrial properties are managed
separately because each market requires different operating,
pricing and leasing strategies. The remaining 0.5% of the
Operating

16



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Partnerships portfolio is comprised of
retail and other properties located in Southeast Florida,
Atlanta and Boston. The Operating Partnership does not
separately manage its retail operations by market. Retail
properties are generally leased to one or more anchor customers,
such as grocery and drug stores, and various retail businesses.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The
Operating Partnership evaluates performance based upon property
net operating income of the combined properties in each segment.

The industrial domestic target markets category
includes Austin, Baltimore/ Washington D.C., Boston and
Minneapolis. The industrial domestic non-target markets category
captures all of the Operating Partnerships other
U.S. markets, except for those markets listed individually
in the table. The international target markets category includes
France, Germany, Japan, Mexico and the Netherlands. Summary
information for the reportable segments is as follows (dollars
in thousands):

|                                             |                               |                                       |        |                      |         |      |        |        |         |  |        |        |         |  |        |        |         | 
|-------------------------------------------- | ----------------------------- | ------------------------------------- | ------ | -------------------- | ------- | ---- | ------ | ------ | ------- |  | ------ | ------ | ------- |  | ------ | ------ | ------- | 
|                                             |                               |                                       |        |                     
|                                             |                               | Rental Revenues                       |        | Property NOI(1)     
|                                             |                               |                                       |        |                     
|                                             |                               |                                       |        |                     
|                                             |                               | For the Three Months                  |        | For the Three Months
|                                             |                               | Ended June 30,                        |        | Ended June 30,      
|                                             |                               |                                       |        |                     
|Segments                                     |                               | 2004                                  |        | 2003                 |         | 2004 |        | 2003  
|                                             |                               |                                       |        |                      |         |      |        |       
|Industrial domestic hub and gateway markets: |                               |                                       |        |                      |         |      |        |        |         |  |        |        |         |  |        |       
|                                             | Atlanta                       |                                       | $      | 7,454                |         |      | $      | 7,429  |         |  | $      | 5,739  |         |  | $      | 5,852  |        
|                                             | Chicago                       |                                       |        | 10,409               |         |      |        | 11,208 |         |  |        | 7,294  |         |  |        | 7,633  |        
|                                             | Dallas/ Fort Worth            |                                       |        | 3,461                |         |      |        | 4,166  |         |  |        | 2,148  |         |  |        | 2,638  |        
|                                             | Los Angeles                   |                                       |        | 25,721               |         |      |        | 23,687 |         |  |        | 19,954 |         |  |        | 18,785 |        
|                                             | Northern New Jersey/ New York |                                       |        | 14,769               |         |      |        | 13,804 |         |  |        | 9,915  |         |  |        | 8,743  |        
|                                             | San Francisco Bay Area        |                                       |        | 23,192               |         |      |        | 36,147 |         |  |        | 18,173 |         |  |        | 31,360 |        
|                                             | Miami                         |                                       |        | 8,294                |         |      |        | 7,987  |         |  |        | 5,702  |         |  |        | 5,586  |        
|                                             | Seattle                       |                                       |        | 10,021               |         |      |        | 6,660  |         |  |        | 7,788  |         |  |        | 5,209  |        
|                                             | On-Tarmac                     |                                       |        | 14,012               |         |      |        | 11,247 |         |  |        | 8,114  |         |  |        | 6,085  |        
|                                             |                               |                                       |        |                      |         |      |        |        |         |  |        |        |         |  |        |       
|                                             |                               | Total industrial domestic hub markets |        |                      | 117,333 |      |        |        | 122,335 |  |        |        | 84,827  |  |        |        | 91,891  | 
|Total industrial domestic target markets     |                               |                                       | 26,943 |                      |         |      | 12,915 |        |         |  | 19,948 |        |         |  | 10,609 |       
|Total industrial domestic non-target markets |                               |                                       | 5,964  |                      |         |      | 8,572  |        |         |  | 4,838  |        |         |  | 3,712  |       
|International target markets                 |                               |                                       | 6,739  |                      |         |      | 962    |        |         |  | 4,931  |        |         |  | 580    |       
|Straight-line rents                          |                               |                                       | 4,695  |                      |         |      | 1,873  |        |         |  | 4,695  |        |         |  | 1,873  |       
|Total retail and other markets               |                               |                                       | 1,843  |                      |         |      | 3,925  |        |         |  | 1,175  |        |         |  | 2,424  |       
|Discontinued operations                      |                               |                                       | (813   | )                    |         |      | (5,149 | )      |         |  | (473   | )      |         |  | (3,709 | )     
|                                             |                               |                                       |        |                      |         |      |        |        |         |  |        |        |         |  |        |       
|                                             |                               | Total                                 |        | $                    | 162,704 |      |        | $      | 145,433 |  |        | $      | 119,941 |  |        | $      | 107,380 | 
|                                             |                               |                                       |        |                      |         |      |        |        |         |  |        |        |         |  |        |       



---



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

17



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                             |                               |                                       |        |                    |         |      |         |        |         |  |        |        |         |  |         |        |         | 
|-------------------------------------------- | ----------------------------- | ------------------------------------- | ------ | ------------------ | ------- | ---- | ------- | ------ | ------- |  | ------ | ------ | ------- |  | ------- | ------ | ------- | 
|                                             |                               |                                       |        |                   
|                                             |                               | Rental Revenues                       |        | Property NOI(1)   
|                                             |                               |                                       |        |                   
|                                             |                               |                                       |        |                   
|                                             |                               | For the Six Months                    |        | For the Six Months
|                                             |                               | Ended June 30,                        |        | Ended June 30,    
|                                             |                               |                                       |        |                   
|Segments                                     |                               | 2004                                  |        | 2003               |         | 2004 |         | 2003  
|                                             |                               |                                       |        |                    |         |      |         |       
|Industrial domestic hub and gateway markets: |                               |                                       |        |                    |         |      |         |        |         |  |        |        |         |  |         |       
|                                             | Atlanta                       |                                       | $      | 15,141             |         |      | $       | 14,268 |         |  | $      | 11,882 |         |  | $       | 11,304 |        
|                                             | Chicago                       |                                       |        | 21,470             |         |      |         | 22,112 |         |  |        | 14,658 |         |  |         | 15,260 |        
|                                             | Dallas/ Fort Worth            |                                       |        | 7,601              |         |      |         | 8,263  |         |  |        | 4,953  |         |  |         | 5,456  |        
|                                             | Los Angeles                   |                                       |        | 50,656             |         |      |         | 45,985 |         |  |        | 40,059 |         |  |         | 36,823 |        
|                                             | Northern New Jersey/ New York |                                       |        | 28,456             |         |      |         | 26,851 |         |  |        | 19,359 |         |  |         | 17,876 |        
|                                             | San Francisco Bay Area        |                                       |        | 46,411             |         |      |         | 60,619 |         |  |        | 36,734 |         |  |         | 51,208 |        
|                                             | Miami                         |                                       |        | 16,599             |         |      |         | 16,042 |         |  |        | 11,610 |         |  |         | 11,245 |        
|                                             | Seattle                       |                                       |        | 20,400             |         |      |         | 13,547 |         |  |        | 15,946 |         |  |         | 10,709 |        
|                                             | On-Tarmac                     |                                       |        | 28,142             |         |      |         | 22,874 |         |  |        | 15,916 |         |  |         | 12,294 |        
|                                             |                               |                                       |        |                    |         |      |         |        |         |  |        |        |         |  |         |       
|                                             |                               | Total industrial domestic hub markets |        |                    | 234,876 |      |         |        | 230,561 |  |        |        | 171,117 |  |         |        | 172,175 | 
|Total industrial domestic target markets     |                               |                                       | 53,824 |                    |         |      | 38,993  |        |         |  | 39,233 |        |         |  | 28,960  |       
|Total industrial domestic non-target markets |                               |                                       | 14,995 |                    |         |      | 27,290  |        |         |  | 10,718 |        |         |  | 18,287  |       
|International target markets                 |                               |                                       | 11,521 |                    |         |      | 2,393   |        |         |  | 8,849  |        |         |  | 1,844   |       
|Straight-line rents                          |                               |                                       | 8,658  |                    |         |      | 4,253   |        |         |  | 8,658  |        |         |  | 4,253   |       
|Total retail and other markets               |                               |                                       | 3,542  |                    |         |      | 7,834   |        |         |  | 2,137  |        |         |  | 5,018   |       
|Discontinued operations                      |                               |                                       | (1,116 | )                  |         |      | (18,109 | )      |         |  | (393   | )      |         |  | (14,815 | )     
|                                             |                               |                                       |        |                    |         |      |         |        |         |  |        |        |         |  |         |       
|                                             |                               | Total                                 |        | $                  | 326,300 |      |         | $      | 293,215 |  |        | $      | 240,319 |  |         | $      | 215,722 | 
|                                             |                               |                                       |        |                    |         |      |         |        |         |  |        |        |         |  |         |       



---



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

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

18



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

reconciliation from NOI to reported net income, a
financial measure under generally accepted accounting principles
in the United States:

|                                                        |            |                      |         |                    |  |      |         |        |  |   |         |        |  |   |         |        | 
|------------------------------------------------------- | ---------- | -------------------- | ------- | ------------------ |  | ---- | ------- | ------ |  | - | ------- | ------ |  | - | ------- | ------ | 
|                                                        |            |                      |         |                   
|                                                        |            | For the Three Months |         | For the Six Months
|                                                        |            | Ended June 30,       |         | Ended June 30,    
|                                                        |            |                      |         |                   
|                                                        |            | 2004                 |         | 2003               |  | 2004 |         | 2003  
|                                                        |            |                      |         |                    |  |      |         |       
|Property NOI                                            |            | $                    | 119,941 |                    |  | $    | 107,380 |        |  | $ | 240,319 |        |  | $ | 215,722 |       
|Private capital income                                  |            |                      | 2,922   |                    |  |      | 3,555   |        |  |   | 5,351   |        |  |   | 5,916   |       
|Depreciation and amortization                           |            |                      | (38,880 | )                  |  |      | (38,150 | )      |  |   | (76,487 | )      |  |   | (71,500 | )     
|General and administrative                              |            |                      | (15,081 | )                  |  |      | (12,122 | )      |  |   | (29,959 | )      |  |   | (24,010 | )     
|Equity in earnings of unconsolidated joint
    ventures |            |                      | 944     |                    |  |      | 1,622   |        |  |   | 2,653   |        |  |   | 2,857   |       
|Interest and other income                               |            |                      | 486     |                    |  |      | 1,384   |        |  |   | 1,992   |        |  |   | 2,491   |       
|Gains from dispositions of real estate                  |            |                      |        |                    |  |      |        |        |  |   |        |        |  |   | 7,429   |       
|Development profits, net of taxes                       |            |                      | 3,235   |                    |  |      |        |        |  |   | 3,235   |        |  |   |        |       
|Interest, including amortization                        |            |                      | (39,961 | )                  |  |      | (36,242 | )      |  |   | (79,784 | )      |  |   | (72,157 | )     
|Total minority interests share of income               |            |                      | (13,332 | )                  |  |      | (11,630 | )      |  |   | (25,639 | )      |  |   | (22,555 | )     
|Total discontinued operations                           |            |                      | 2,553   |                    |  |      | 6,256   |        |  |   | 1,451   |        |  |   | 43,632  |       
|                                                        |            |                      |         |                    |  |      |         |        |  |   |         |        |  |   |         |       
|                                                        | Net income |                      | $       | 22,827             |  |      | $       | 22,053 |  |   | $       | 43,132 |  |   | $       | 87,825 | 
|                                                        |            |                      |         |                    |  |      |         |        |  |   |         |        |  |   |         |       

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

|                                                 |                               |                                       |         |                   |           |  |         |         |           | 
|------------------------------------------------ | ----------------------------- | ------------------------------------- | ------- | ----------------- | --------- |  | ------- | ------- | --------- | 
|                                                 |                               |                                      
|                                                 |                               | Total Gross Investment as of         
|                                                 |                               |                                      
|                                                 |                               | June 30, 2004                         |         | December 31, 2003
|                                                 |                               |                                       |         |                  
|Industrial domestic hub and gateway markets:     |                               |                                       |         |                   |           |  |         |        
|                                                 | Atlanta                       |                                       | $       | 273,146           |           |  | $       | 275,810 |          
|                                                 | Chicago                       |                                       |         | 386,447           |           |  |         | 381,364 |          
|                                                 | Dallas/ Fort Worth            |                                       |         | 145,027           |           |  |         | 152,661 |          
|                                                 | Los Angeles                   |                                       |         | 904,132           |           |  |         | 854,896 |          
|                                                 | Northern New Jersey/ New York |                                       |         | 758,618           |           |  |         | 516,712 |          
|                                                 | San Francisco Bay Area        |                                       |         | 873,428           |           |  |         | 862,173 |          
|                                                 | Miami                         |                                       |         | 333,318           |           |  |         | 329,107 |          
|                                                 | Seattle                       |                                       |         | 397,864           |           |  |         | 393,160 |          
|                                                 | On-Tarmac                     |                                       |         | 272,393           |           |  |         | 262,046 |          
|                                                 |                               |                                       |         |                   |           |  |         |        
|                                                 |                               | Total industrial domestic hub markets |         |                   | 4,344,373 |  |         |         | 4,027,929 | 
|Total industrial domestic target markets         |                               |                                       | 840,428 |                   |           |  | 764,097 |        
|Industrial domestic non-target markets and other |                               |                                       | 328,201 |                   |           |  | 290,982 |        
|International target markets                     |                               |                                       | 217,744 |                   |           |  | 160,974 |        
|Total retail and other markets                   |                               |                                       | 59,489  |                   |           |  | 48,097  |        
|Construction in progress                         |                               |                                       | 272,216 |                   |           |  | 199,628 |        
|                                                 |                               |                                       |         |                   |           |  |         |        
|                                                 |                               | Total investments in properties       |         | $                 | 6,062,451 |  |         | $       | 5,491,707 | 
|                                                 |                               |                                       |         |                   |           |  |         |        

19



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                                                |                                           |                                |           |                   |           |   |           |          |           | 
|--------------------------------------------------------------- | ----------------------------------------- | ------------------------------ | --------- | ----------------- | --------- | - | --------- | -------- | --------- | 
|                                                                |                                           | June 30, 2004                  |           | December 31, 2003
|                                                                |                                           |                                |           |                  
|Total investments in properties                                 |                                           | $                              | 6,062,451 |                   |           | $ | 5,491,707 |         
|                                                                | Accumulated depreciation and amortization |                                |           | (546,881          | )         |   |           | (474,452 | )        
|                                                                |                                           |                                |           |                   |           |   |           |         
|                                                                |                                           | Net investments in properties  |           |                   | 5,515,570 |   |           |          | 5,017,255 | 
|Investments in unconsolidated joint ventures                    |                                           |                                | 52,579    |                   |           |   | 52,009    |         
|Properties held for divestiture, net                            |                                           |                                | 39,246    |                   |           |   | 11,751    |         
|                                                                |                                           |                                |           |                   |           |   |           |         
|                                                                |                                           | Net investments in real estate |           |                   | 5,607,395 |   |           |          | 5,081,015 | 
|Cash and cash equivalents                                       |                                           |                                | 116,757   |                   |           |   | 127,678   |         
|Restricted cash                                                 |                                           |                                | 29,379    |                   |           |   | 28,985    |         
|Mortgages receivable                                            |                                           |                                | 23,594    |                   |           |   | 43,145    |         
|Accounts receivable, net of allowance for
    doubtful accounts |                                           |                                | 96,524    |                   |           |   | 88,452    |         
|Other assets                                                    |                                           |                                | 76,958    |                   |           |   | 51,391    |         
|                                                                |                                           |                                |           |                   |           |   |           |         
|                                                                |                                           | Total assets                   |           | $                 | 5,950,607 |   |           | $        | 5,420,666 | 
|                                                                |                                           |                                |           |                   |           |   |           |         



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



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

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

Standby Letters of
Credit.As of June 30, 2004, the
Operating Partnership had provided approximately
$24.9 million in letters of credit, of which
$16.5 million was provided under the Operating
Partnerships $500.0 million unsecured credit
facility. The letters of credit were required to be issued under
certain ground lease provisions, bank guarantees and other
commitments.

Guarantees.Other
than as disclosed elsewhere in this report, as of June 30,
2004, the Operating Partnership had outstanding guarantees in
the aggregate amount of $22.1 million in connection with
certain acquisitions. As of June 30, 2004, the Operating
Partnership guaranteed $3.6 million and $23.4 million
on outstanding construction loans for one of its consolidated
joint ventures and one of its unconsolidated joint ventures,
respectively. The maximum borrowing capacity of these
construction loans was $30.0 million and
$69.0 million, respectively, as of June 30, 2004.

Performance and Surety
Bonds.As of June 30, 2004, the
Operating Partnership had outstanding performance and surety
bonds in an aggregate amount of $1.5 million. These bonds
were issued in connection with certain of its development
projects and were posted to guarantee certain tax obligations
and the construction of certain real property improvements and
infrastructure, such as grading, sewers and streets. Performance
and surety bonds are commonly required by public agencies from
real estate developers. Performance and surety bonds are
renewable and expire upon the payment of the taxes due or the
completion of the improvements and infrastructure.

Promoted Interests and Other Contractual
Obligations.Upon the achievement of
certain return thresholds and the occurrence of certain events,
the Operating Partnership may be obligated to make payments to
certain joint venture partners pursuant to the terms and
provisions of their contractual agreements with the Operating
Partnership. From time to time in the normal course of the
Operating Partnerships

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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

business, the Operating Partnership enters into
various contracts with third parties that may obligate it to
make payments or perform other obligations upon the occurrence
of certain events.



| |              
| | -------------
| | Contingencies

Litigation.In the
normal course of business, from time to time, the Operating
Partnership may be involved in legal actions relating to the
ownership and operations of its properties. Management does not
expect that the liabilities, if any, that may ultimately result
from such legal actions will have a material adverse effect on
the consolidated financial position, results of operations or
cash flows of the Operating Partnership.

Environmental
Matters.The Operating Partnership
monitors its properties for the presence of hazardous or toxic
substances. The Operating Partnership is not aware of any
environmental liability with respect to the properties that
would have a material adverse effect on the Operating
Partnerships business, assets or results of operations.
However, there can be no assurance that such a material
environmental liability does not exist. The existence of any
such material environmental liability would have an adverse
effect on the Operating Partnerships results of operations
and cash flow. The Operating Partnership carries environmental
insurance and believes that the policy terms, conditions, limits
and deductibles are adequate and appropriate under the
circumstances, given the relative risk of loss, the cost of such
coverage and current industry practice.

General Uninsured
Losses.The Operating Partnership
carries property and rental loss, liability, flood and terrorism
insurance. The Operating Partnership believes that the policy
terms, conditions, limits and deductibles are adequate and
appropriate under the circumstances, given the relative risk of
loss, the cost of such coverage and current industry practice.
In addition, certain of the Operating Partnerships
properties are located in areas that are subject to earthquake
activity; therefore, the Operating Partnership has obtained
limited earthquake insurance on those properties. There are,
however, certain types of extraordinary losses, such as those
due to acts of war that may be either uninsurable or not
economically insurable. Although the Operating Partnership has
obtained coverage for certain acts of terrorism, with policy
specifications and insured limits that it believes are
commercially reasonable, it is not certain that the Operating
Partnership will be able to collect under such policies. Should
an uninsured loss occur, the Operating Partnership could lose
its investment in, and anticipated profits and cash flows from,
a property.

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

21



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##### Table of Contents








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

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

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



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

Our success also depends upon economic trends
generally, various market conditions and fluctuations and those
other risk factors discussed in the section entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Business
Risks in our Annual Report on Form 10-K for the year
ended December 31, 2003. We caution you not to place undue
reliance on forward-looking statements, which reflect our
analysis only and speak as of the date of this report or as of
the dates indicated in the statements. We assume no obligation
to update or supplement forward-looking statements.

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

22



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##### Table of Contents



GENERAL

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

Managements Overview

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

According to data from Torto Wheaton Research,
national demand for leased industrial space improved in the
quarter ended June 30, 2004, following 14 quarters of
negatively trending availability. While the period of rising
availability proved a difficult leasing environment, acquisition
demand for industrial property (as evidenced by our observation
of strong national sales volumes and declining acquisition
capitalization rates) has remained consistently strong. We
believe that we have capitalized on this opportunity by
accelerating the repositioning of our portfolio through the
disposition of properties. While we continue to sell assets on
an opportunistic basis, we believe that we have substantially
achieved our near-term strategic disposition goals. Property
dispositions result in reinvestment capacity and trigger
gain/loss recognition, but they also create near-term earnings
dilution. However, we believe that, in the long-term, the
repositioning of our portfolio will benefit our stockholders.

The table below summarizes our leasing activity
for industrial operating properties for the three and six months
ended June 30, 2004 and 2003:

|                                          |                                          |              |  |             |    |                |  |           |    |  |  |           |   
|----------------------------------------- | ---------------------------------------- | ------------ |  | ----------- | -- | -------------- |  | --------- | -- |  |  | --------- | --
|                                          |                                          | U.S. Hub and |  |             |    |               
|                                          |                                          | Gateway      |  | Total Other |    | Total/Weighted
|Property Data                             |                                          | Markets(1)   |  | Markets     |    | Average       
|                                          |                                          |              |  |             |    |               
|For the three months ended June 30, 2004: |                                          |              |  |             |    |                |  |           |    |  |  |          
|                                          | % of total rentable square feet          |              |  | 74.4        | %  |                |  | 25.6      | %  |  |  | 100.0     | % 
|                                          | Occupancy percentage at period end       |              |  | 93.8        | %  |                |  | 93.1      | %  |  |  | 93.6      | % 
|                                          | Same space square footage leased         |              |  | 3,806,876   |    |                |  | 673,895   |    |  |  | 4,480,771 |   
|                                          | Rent decreases on renewals and rollovers |              |  | (15.3       | )% |                |  | (4.0      | )% |  |  | (13.7     | )%
|For the three months ended June 30, 2003: |                                          |              |  |             |    |                |  |           |    |  |  |          
|                                          | % of total rentable square feet          |              |  | 75.7        | %  |                |  | 24.3      | %  |  |  | 100.0     | % 
|                                          | Occupancy percentage at period end       |              |  | 91.7        | %  |                |  | 91.0      | %  |  |  | 91.5      | % 
|                                          | Same space square footage leased         |              |  | 2,911,344   |    |                |  | 875,447   |    |  |  | 3,786,791 |   
|                                          | Rent decreases on renewals and rollovers |              |  | (3.6        | )% |                |  | (0.7      | )% |  |  | (3.1      | )%
|For the six months ended June 30, 2004:   |                                          |              |  |             |    |                |  |           |    |  |  |          
|                                          | % of total rentable square feet          |              |  | 74.4        | %  |                |  | 25.6      | %  |  |  | 100.0     | % 
|                                          | Occupancy percentage at period end       |              |  | 93.8        | %  |                |  | 93.1      | %  |  |  | 93.6      | % 
|                                          | Same space square footage leased         |              |  | 7,747,455   |    |                |  | 1,294,171 |    |  |  | 9,041,626 |   
|                                          | Rent decreases on renewals and rollovers |              |  | (15.0       | )% |                |  | (5.6      | )% |  |  | (13.8     | )%

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|                                        |                                                          |              |  |             |    |                |  |           |   |  |  |           |   
|--------------------------------------- | -------------------------------------------------------- | ------------ |  | ----------- | -- | -------------- |  | --------- | - |  |  | --------- | --
|                                        |                                                          | U.S. Hub and |  |             |    |               
|                                        |                                                          | Gateway      |  | Total Other |    | Total/Weighted
|Property Data                           |                                                          | Markets(1)   |  | Markets     |    | Average       
|                                        |                                                          |              |  |             |    |               
|For the six months ended June 30, 2003: |                                                          |              |  |             |    |                |  |           |   |  |  |          
|                                        | % of total rentable square feet                          |              |  | 75.7        | %  |                |  | 24.3      | % |  |  | 100.0     | % 
|                                        | Occupancy percentage at period end                       |              |  | 91.7        | %  |                |  | 91.0      | % |  |  | 91.5      | % 
|                                        | Same space square footage leased                         |              |  | 6,501,960   |    |                |  | 2,511,214 |   |  |  | 9,013,174 |   
|                                        | Rent (decreases) increases on renewals and
    rollovers |              |  | (7.9        | )% |                |  | 7.9       | % |  |  | (4.3      | )%



---



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

We observed two positive trends nationally for
industrial real estate during the quarter ended June 30,
2004, supported by data provided by Torto Wheaton Research.
First, national industrial space availability declined
30 basis points in the quarter from 11.7% to 11.4%. This
positive change in national industrial space availability is the
first such improvement in 14 quarters, during which time
national industrial space availability increased on
average 37 basis points per quarter. Second, national
absorption of industrial space, defined as the net change in
occupied stock as measured by square feet of completions less
the change in available vacant square feet, totaled
approximately 40-50 million square feet in the quarter
ended June 30, 2004, approximately triple the absorption of
14 million square feet in the quarter ended March 31,
2004. This represented the fourth consecutive quarter of
positive absorption, following ten quarters in which absorption
averaged a negative 16.6 million square feet per quarter.

In this improved environment, our industrial
portfolios occupancy levels increased to 93.6% at
June 30, 2004 from 92.7% at March 31, 2004, which we
believe reflects higher levels of demand for industrial space
generally and in our portfolio specifically. During the three
months ended June 30, 2004, our lease expirations totaled
approximately 5.2 million square feet while commencements
of new or renewed leases totaled approximately 5.9 million
square feet, resulting in an increase in our occupancy levels of
approximately 90 basis points. On June 30, 2004, our
occupancy levels were 210 basis points higher than at
June 30, 2003, and were approximately 500 basis points
greater than the overall industrial market at June 30,
2004, according to Torto Wheaton Research.

Rents on industrial renewals and rollovers in our
portfolio decreased 13.7% during the quarter ended June 30,
2004 as leases were entered into or renewed at rates consistent
with what we believe to be current market levels. We believe
this decline in rents on lease renewals and rollovers reflects
trends in national industrial space availability. We believe
that relatively high levels of national industrial space
availability have caused market rents for industrial properties
to decline between 10-20% from their peak levels in 2001. Rental
rates in our portfolio declined at a lower rate in the quarter
ended June 30, 2004 than in the prior quarter, which we
believe indicates a stabilization of market rental rate levels.
While the level of rental rate reduction varied by market, we
increased the occupancy levels in our portfolio 500 basis
points in excess of the national industrial market, as
determined by Torto Wheaton Research, by pricing lease renewals
and new leases with sensitivity to local market conditions. In
periods of decreasing or stabilizing rental rates, we strive to
sign leases with shorter terms to prevent locking in lower rent
levels for long periods and to be prepared to sign new,
longer-term leases during periods of growing rental rates. When
we sign leases of shorter duration, we attempt to limit overall
leasing costs and capital expenditures by offering different
grades of tenant improvement packages, appropriate to the lease
term. We generally followed this practice during the quarter
ended June 30, 2004.

We believe that development, renovation and
expansion of well-located, high-quality industrial properties
should generally continue to provide us with attractive
investment opportunities at a higher rate of return than we may
obtain from the purchase of existing properties. We find our
development opportunities in Mexico and Japan to be particularly
attractive given the current lack of supply of modern
distribution facilities. We have increased our development
pipeline from a low of $107.0 million at the end of 2002 to
$353.8 million at June 30, 2004. In addition to our
committed development pipeline, we hold 485 acres,
19 acres and six acres in

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North America, Asia and Europe, respectively,
which could support an aggregate of approximately
8.9 million square feet of additional development.
Additionally, we own approximately 267 acres of land in
North America as part of our development and land sales program.


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

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

Summary of Key Transactions

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Acquired 39 buildings in the U.S. and Europe,
    aggregating approximately 2.7 million square feet, for an
    aggregate price of approximately $305.1 million (using
    exchange rates in effect on June 30, 2004), including
    $99.3 million invested through three of our co-investment
    joint ventures; and                                                             
|
| |  | Our development pipeline at June 30, 2004
    included projects in the U.S., Mexico, Singapore, Spain and
    Japan, totaling 6.2 million square feet, of which 37% was
    pre-leased with an expected total investment of approximately
    $353.8 million (using exchange rates in effect on
    June 30, 2004), of which $171.2 million was funded as
    of June 30, 2004; and
|
| |  | Acquired 162 acres of land for industrial
    warehouse development in Mexico City for
    $31.6 million; and                                                                                                                                                                                                                                                                      
|
| |  | Sold five development projects available for
    sale, aggregating approximately 0.1 million square feet,
    for an aggregate price of $14.0 million; and                                                                                                                                                                                                                         
|
| |  | Divested ourselves of one industrial building and
    one office building, aggregating 0.3 million square feet,
    for an aggregate price of $12.9 million.                                                                                                                                                                                                                       

During the six months ended June 30, 2004,
we completed the following capital deployment transactions:



| |   |                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Acquired 46 buildings in the U.S., Mexico, Europe
    and Japan, aggregating approximately 4.0 million square
    feet, for an aggregate price of approximately
    $439.2 million (using exchanges rates in effect on
    June 30, 2004), including $132.0 million invested
    through three of our co-investment joint ventures; and
|
| |  | Acquired 162 acres of land for industrial
    warehouse development in Mexico City for
    $31.6 million; and                                                                                                                                                                                                                          
|
| |  | Sold five development projects available for
    sale, aggregating approximately 0.1 million square feet,
    for an aggregate price of $14.0 million; and                                                                                                                                                                             
|
| |  | Divested ourselves of two industrial buildings
    and one office building, aggregating 0.4 million square
    feet, for an aggregate price of $17.9 million.                                                                                                                                                                          

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

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



| |   |                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Obtained long-term secured debt financings for
    our co-investment joint ventures of $25.7 million at an
    average rate of 4.8%; and                                                                                                                                                                              
|
| |  | Assumed $49.3 million of debt for our
    co-investment joint ventures and our pre-specified co-investment
    properties at a weighted average interest rate of 6.0%; and                                                                                                                                            
|
| |  | Obtained $41.4 million of seven-year fixed
    rate debt with a 2.9% interest rate for our Japan
    acquisitions; and                                                                                                                                                                                                
|
| |  | Completed the early renewal of our senior
    unsecured revolving line of credit in the amount of
    $500.0 million. The three-year credit facility includes a
    multi-currency component under which up to $250.0 million
    can be drawn in Yen, Euros or British Pounds Sterling; and                          
|
| |  | Entered into an unsecured revolving credit
    agreement through AMB Japan Finance Y.K., a subsidiary of ours,
    providing for loans or letters of credit in a maximum principal
    amount outstanding at any time of up to 24 billion Yen
    (approximately $221.0 million in U.S. dollars at
    June 30, 2004).

During the six months ended June 30, 2004,
we completed the following capital markets transactions:



| |   |                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Obtained long-term secured debt financings for
    our co-investment joint ventures totaling $31.1 million at
    an average rate of 4.8%; and                                                                                                                                                                        
|
| |  | Assumed $116.3 million of debt for our
    co-investment joint ventures and our pre-specified co-investment
    properties at a weighted average interest rate of 6.4%; and                                                                                                                                           
|
| |  | Obtained $63.8 million of debt with a
    weighted average interest rate of 3.6% for international
    acquisitions; and                                                                                                                                                                                              
|
| |  | Completed the early renewal of our senior
    unsecured revolving line of credit in the amount of
    $500.0 million. The three-year credit facility includes a
    multi-currency component under which up to $250.0 million
    can be drawn in Yen, Euros or British Pounds Sterling; and                          
|
| |  | Entered into an unsecured revolving credit
    agreement through AMB Japan Finance Y.K., a subsidiary of ours,
    providing for loans or letters of credit in a maximum principal
    amount outstanding at any time of up to 24 billion Yen
    (approximately $221.0 million in U.S. dollars at
    June 30, 2004).

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

Critical Accounting Policies

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

Investments in Real
Estate.Investments in real estate are
stated at cost unless circumstances indicate that cost cannot be
recovered, in which case the carrying value of the property is
reduced to estimated fair value. We also record at acquisition
an intangible asset or liability for the value attributable to
above or below-

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market leases, in-place leases and lease
origination costs for all acquisitions subsequent to
July 1, 2001. Carrying values for financial reporting
purposes are reviewed for impairment on a property-by-property
basis whenever events or changes in circumstances indicate that
the carrying value of a property may not be recoverable.
Impairment is recognized when estimated expected future cash
flows (undiscounted and without interest charges) are less than
the carrying amount of the property. The estimation of expected
future net cash flows is inherently uncertain and relies on
assumptions regarding current and future market conditions and
the availability of capital. Examples of certain situations that
could affect future cash flows of a property may include, but
are not limited to: significant decreases in occupancy;
unforeseen bankruptcy, lease termination and move-out of a major
customer; or a significant decrease in annual base rents of that
property. If impairment analysis assumptions change, then an
adjustment to the carrying amount of our long-lived assets could
occur in the future period in which the assumptions change. To
the extent that a property is impaired, the excess of the
carrying amount of the property over its estimated fair value is
charged to earnings.


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

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

Joint Ventures.We
hold interests in both consolidated and unconsolidated joint
ventures. Our joint venture investments do not meet the variable
interest entity criteria under FASB Interpretation No. 46R,
Consolidation of Variable Interest Entities.Therefore,
we determine consolidation based on standards set forth in EITF
96-16, Investors Accounting for an Investee When the
Investor Has a Majority of the Voting Interest but the Minority
Shareholder or Shareholders Have Certain Approval or Veto
Rights,and Statement of Position 78-9, Accounting for
Investments in Real Estate Ventures. Based on the guidance
set forth in these pronouncements, we consolidate certain joint
venture investments because we own a majority interest or
exercise significant control over major operating decisions,
such as approval of budgets, selection of property managers,
asset management, investment activity and changes in financing.
For joint ventures where we do not own a majority interest or do
not exercise significant control over major operating and
management decisions, we use the equity method of accounting and
do not consolidate the joint venture for financial reporting
purposes.

Our General Partners Status as a Real
Estate Investment Trust.As a real
estate investment trust, AMB Property Corporation, our general
partner, generally will not be subject to corporate level
federal income taxes if it meets minimum distribution, income,
asset and shareholder tests. However, some of its subsidiaries,
which are also our subsidiaries, may be subject to federal and
state taxes. In addition, foreign entities may also be subject
to the taxes of the host country. An income tax allocation is
required to be estimated on our general

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partners taxable REIT subsidiaries and
foreign entities. A deferred tax component could arise based
upon the differences in GAAP versus tax income for items such as
depreciation and gain recognition. However, deferred tax is an
immaterial component of our consolidated balance sheet because
of our general partners status as a real estate investment
trust.


THE COMPANY

AMB Property, L.P., a Delaware limited
partnership, acquires, develops and operates primarily
industrial properties in key distribution markets throughout
North America, Europe and Asia. We commenced operations as a
fully integrated real estate company effective with the
completion of AMB Property Corporations initial public
offering on November 26, 1997. Increasingly, our strategy
focuses on providing properties for customers who value the
efficient movement of goods in the worlds busiest
distribution markets: large, supply-constrained locations with
close proximity to airports, seaports and major freeway systems.
As of June 30, 2004, we owned, managed and had renovation
and development projects totaling 106.7 million square feet
(9.9 million square meters) and 1,105 buildings in
37 markets within eight countries.

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

Our investment strategy generally targets
customers whose businesses are tied to global trade, which,
according to the World Trade Organization, has grown more than
three times the world gross domestic product growth rate during
the last 20 years. To serve the facilities needs of these
customers, we seek to invest in major distribution markets,
transportation hubs and gateways, both domestically and
internationally. Our investment strategy seeks target markets
that are generally characterized by large population densities
and typically offer substantial consumer bases, proximity to
large clusters of distribution-facility users and significant
labor pools. When measured by annualized base rents, 66.3% of
our industrial properties are concentrated in eight
U.S. hub and gateway distribution markets: Atlanta,
Chicago, Dallas/ Fort Worth, Los Angeles, Northern New
Jersey/ New York City, the San Francisco Bay Area, Miami
and Seattle. Our on-tarmac properties account for 8.1% of our
annualized base rents. Much of our portfolio is comprised of
industrial buildings in in-fill submarkets. In-fill locations
are characterized by supply constraints on the availability of
land for competing projects as well as physical, political or
economic barriers to new development.

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

As of June 30, 2004, we owned and operated
(exclusive of properties that we managed for third parties)
994 industrial buildings and four retail and other
properties, totaling approximately 91.7 million rentable
square feet, located in 35 markets throughout North America and
in France, Germany, Japan and the Netherlands. As of
June 30, 2004, through our subsidiary, AMB Capital
Partners, LLC, we also managed, but did not have an ownership
interest in, industrial buildings and retail centers totaling
approximately 0.5 million rentable square feet. In
addition, as of June 30, 2004, we had investments in
operating industrial buildings totaling approximately
7.8 million rentable square feet, through investments in
unconsolidated joint ventures. As of June 30, 2004, we also
had investments in industrial development projects, some of
which are part of our development-for-sale program, totaling
approximately 6.7 million square feet. As of June 30,
2004, we had five industrial buildings and three undeveloped
land parcels held for divestiture.

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

Our principal executive office is located at
Pier 1, Bay 1, San Francisco, California 94111;
our telephone number is (415) 394-9000. We also maintain
regional offices in Amsterdam, Boston, Chicago, Shanghai and
Tokyo. As of June 30, 2004, we employed 192 individuals:
127 at our San Francisco headquarters, 47 in our Boston
office, and the remainder in our other regional offices. Our
website address is www.amb.com. Our annual report on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and any amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 are available on our website
free of charge as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the
U.S. Securities and Exchange Commission. Information
contained on our website is not and should not be deemed a part
of this quarterly report.

Operating Strategy

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

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

We believe our alliances give us both local
market benefits and flexibility to focus on the development and
execution of our strategic approach to real estate investment,
management and the raising of private capital to finance growth.

Growth Strategies



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

We seek to generate long-term internal growth
through rent increases on existing space and renewals on
rollover space by working to maintain a high occupancy rate at
our properties and to control expenses by capitalizing on the
economies of scale inherent in owning, operating and growing a
large, global portfolio. However, during the three months ended
June 30, 2004, our average industrial base rental rates
decreased by 13.7% from the rent in place at expiration for that
space on leases entered into or renewed during the period. This
amount excludes expense reimbursements, rental abatements,
percentage rents and straight-line rents. Since 2001, as the
industrial market weakened, we have focused on maintaining
occupancy levels. During the three months ended June 30,
2004, cash-basis same-store net operating income (rental
revenues less straight-lined rents, property operating expenses
and real estate taxes) decreased by 6.1% on our industrial
properties. During the six months ended June 30, 2004,
cash-basis same-store net operating income decreased by 4.4% on
our industrial properties. From our initial public offering
through first quarter 2004 (the most recent reporting period for
our peer group), our cash-basis same-store net operating income
growth has outperformed our industrial peer average by
approximately 150 basis points. Since AMB Property
Corporations initial public offering in November 1997, we
have experienced average annual increases in industrial base
rental rates of 8.4% and maintained an average occupancy of
94.9%. While we believe that it is important to view real estate
as a long-term investment, past results are not necessarily an
indication of future performance. See Part I,

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Item 1: Note 11 of the Notes to
Consolidated Financial Statements for detailed segment
information, including revenue attributable to each segment,
gross investment in each segment and total assets.




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

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

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



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

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

We believe that the multidisciplinary backgrounds
of our employees should provide us with the skills and
experience to capitalize on strategic renovation, expansion and
development opportunities. Several of our general partners
officers have specific experience in real estate development,
both with us and with national development firms, and over the
past year we have expanded our development staff. We pursue
development projects directly and in joint ventures with our
Development Alliance Partners®, which provides us with the
flexibility to pursue development projects independently or in
partnerships, depending on market conditions, submarkets or
building sites. Under a typical joint venture agreement with a
Development Alliance Partner, we would fund 95% of the
construction costs and our partner would fund 5%; however, in
certain cases we may own as little as 50% or as much as 98% of
the joint venture. Upon completion, we generally would purchase
our partners interest in the joint venture. We may also
structure developments such that we would own 100% of the asset
with an incentive development fee to be paid upon completion to
our development partner.

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

We, through our taxable REIT subsidiaries,
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.



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

By 2007, we plan to have approximately 15% of our
portfolio (based on consolidated annualized base rent) invested
in international markets. As of June 30, 2004, our
international operating properties comprised 4.2% of our total
annualized industrial base rent. Our Mexican target markets
currently include Mexico City, Guadalajara and Monterrey. Our
European target markets currently include the Netherlands,
France, Germany, Spain and the United Kingdom. Our Asian target
markets currently include Singapore, Japan and China. There are
many factors that could cause our entry into target markets and
future capital allocation to differ from our current
expectations, which are discussed under the subheading Our
International Growth is Subject to Special Political and
Monetary Risks and elsewhere under the heading
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Business
Risks in our Annual Report on Form 10-K for the year
ended December 31, 2003. Further, it is possible that our
target markets will change over time to reflect experience,
market opportunities, customer needs and changes in global
distribution patterns. For a breakout of the amount of our
revenues attributable to the United States and to foreign
countries in total, please see Part I, Item 1:
Note 11 of the Notes to Consolidated Financial
Statements.

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

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



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

We co-invest in properties with private-capital
investors through partnerships, limited liability companies or
joint ventures. Our co-investment joint ventures typically
operate under the same investment strategy that we apply to our
other operations. Typically we will own a 20-50% interest in our
co-investment ventures. In general, we control all significant
operating and investment decisions of our co-investment
entities. We believe that our co-investment program will
continue to serve as a source of capital for acquisitions;
however, there can be no assurance that it will continue to do
so. In addition, our co-investment joint ventures earn
acquisition and development fees, asset management fees and
priority distributions, as well as promoted interests and
incentive fees based on the performance of the co-investment
joint ventures. As of June 30, 2004, we owned approximately
34.5 million square feet of our properties (35% of the
total consolidated operating and development portfolio) through
our co-investment joint ventures. In addition, we expect to
fund, in part, our international expansion with private capital.

RESULTS OF OPERATIONS

The analysis below includes changes attributable
to same store growth, acquisitions, development activity and
divestitures. Same store properties are those that we owned
during both the current and prior year reporting periods,
excluding development properties prior to being stabilized
subsequent to December 31, 2002

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(generally defined as properties that are 90%
leased or properties for which we have held a certificate of
occupancy or where building has been substantially complete for
at least 12 months).


As of June 30, 2004, same store industrial
properties consisted of properties aggregating approximately
78.8 million square feet. The properties acquired during
the three months ended June 30, 2004 consisted of
39 buildings, aggregating approximately 2.7 million
square feet. The properties acquired during the three months
ended June 30, 2003 consisted of 16 buildings,
aggregating approximately 2.1 million square feet. During
the three months ended June 30, 2004, property divestitures
consisted of one industrial building and one office building,
aggregating approximately 0.3 million square feet. During
the three months ended June 30, 2003, property divestitures
consisted of two industrial buildings, aggregating approximately
0.2 million square feet.

The properties acquired during the six months
ended June 30, 2004 consisted of 46 buildings, aggregating
approximately 4.0 million square feet. The properties
acquired during the six months ended June 30, 2003
consisted of 18 buildings, aggregating approximately
2.3 million square feet. During the six months ended
June 30, 2004, property divestitures consisted of two
industrial buildings and one office building, aggregating
approximately 0.4 million square feet. During the six
months ended June 30, 2003, property divestitures and
contributions consisted of 36 industrial buildings,
aggregating approximately 4.2 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 results.



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

|                       |                          |                       |                |      |       |          |     |          |       |       |      |      |      |      |       |       |         |      |  
|---------------------- | ------------------------ | --------------------- | -------------- | ---- | ----- | -------- | --- | -------- | ----- | ----- | ---- | ---- | ---- | ---- | ----- | ----- | ------- | ---- | -
|Revenues               |                          | 2004                  |                | 2003 |       | $ Change |     | % Change
|                       |                          |                       |                |      |       |          |     |         
|Rental revenues        |                          |                       |                |      |       |          |     |          |       |       |      |      |      |      |       |      
|                       | U.S. industrial:         |                       |                |      |       |          |     |          |       |       |      |      |      |      |       |       |        
|                       |                          | Same store            |                | $    | 136.6 |          |     | $        | 141.0 |       |      | $    | (4.4 | )    |       |       | (3.1    | )%  
|                       |                          | 2003 acquisitions     |                |      | 11.8  |          |     |          | 0.5   |       |      |      | 11.3 |      |       |       | 2,260.0 | %   
|                       |                          | 2004 acquisitions     |                |      | 4.1   |          |     |          |      |       |      |      | 4.1  |      |       |       |        | %   
|                       |                          | Development           |                |      | 0.5   |          |     |          | 0.5   |       |      |      |     |      |       |       |        | %   
|                       |                          | Other industrial      |                |      | 2.3   |          |     |          | (0.1  | )     |      |      | 2.4  |      |       |       | 2,400.0 | %   
|                       | International industrial |                       |                | 5.6  |       |          |     | 1.3      |       |       |      | 4.3  |      |      |       | 330.8 | %      
|                       | Retail                   |                       |                | 1.8  |       |          |     | 2.2      |       |       |      | (0.4 | )    |      |       | (18.2 | )%     
|                       |                          |                       |                |      |       |          |     |          |       |       |      |      |      |      |       |      
|                       |                          | Total rental revenues |                |      | 162.7 |          |     |          | 145.4 |       |      |      | 17.3 |      |       |       | 11.9    | %   
|Private capital income |                          |                       | 2.9            |      |       |          | 3.6 |          |       |       | (0.7 | )    |      |      | (19.4 | )%   
|                       |                          |                       |                |      |       |          |     |          |       |       |      |      |      |      |       |      
|                       |                          |                       | Total revenues |      | $     | 165.6    |     |          | $     | 149.0 |      |      | $    | 16.6 |       |       |         | 11.1 | %
|                       |                          |                       |                |      |       |          |     |          |       |       |      |      |      |      |       |      

The decrease in industrial same store rental
revenues was primarily driven by lower average occupancies in
the San Francisco Bay Area, New Jersey and Chicago
sub-markets, as well as decreased rental rates and prior year
termination fees. Across the portfolio, these and other factors
accounted for approximately $6.0 million of the change from
prior year. This decrease was positively offset by a decrease in
allowances for doubtful accounts of approximately
$1.6 million. Industrial same store occupancy was 93.5% at
June 30, 2004 and 91.6% at June 30, 2003. For the
three months ended June 30, 2004, rents in the same store
portfolio decreased 15.2% on industrial renewals and rollovers
(cash basis) on 4.0 million square feet leased. The
properties acquired during 2003 consisted of 82 buildings,
aggregating approximately 6.5 million square feet. The
properties acquired during 2004 consisted of 46 buildings,
aggregating approximately 4.0 million square feet. Other
industrial revenues include rental revenues from divested
properties not classified as discontinued operations, which
accordingly are not classified as discontinued operations in our
consolidated financial statements, and development projects
which have reached certain levels of operation and are not yet
part of

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the same store operating pool of properties. In
2003 and 2004, we acquired properties in the Netherlands,
France, Germany, Japan and Mexico resulting in increased
international industrial revenues.


|                              |                          |                                |      |      |      |          |      |          |      |  |     |     |      |   |      |       |         |   
|----------------------------- | ------------------------ | ------------------------------ | ---- | ---- | ---- | -------- | ---- | -------- | ---- |  | --- | --- | ---- | - | ---- | ----- | ------- | --
|Costs and Expenses            |                          | 2004                           |      | 2003 |      | $ Change |      | % Change
|                              |                          |                                |      |      |      |          |      |         
|Property operating costs:     |                          |                                |      |      |      |          |      |          |      |  |     |     |      |   |      |      
|                              | Rental expenses          |                                | $    | 23.2 |      |          | $    | 20.7     |      |  | $   | 2.5 |      |   |      | 12.1  | %      
|                              | Real estate taxes        |                                |      | 19.6 |      |          |      | 17.4     |      |  |     | 2.2 |      |   |      | 12.6  | %      
|                              |                          |                                |      |      |      |          |      |          |      |  |     |     |      |   |      |      
|                              |                          | Total property operating costs |      | $    | 42.8 |          |      | $        | 38.1 |  |     | $   | 4.7  |   |      |       | 12.3    | % 
|                              |                          |                                |      |      |      |          |      |          |      |  |     |     |      |   |      |      
|Property operating costs      |                          |                                |      |      |      |          |      |          |      |  |     |     |      |   |      |      
|                              | U.S. industrial:         |                                |      |      |      |          |      |          |      |  |     |     |      |   |      |       |        
|                              |                          | Same store                     |      | $    | 36.2 |          |      | $        | 35.9 |  |     | $   | 0.3  |   |      |       | 0.8     | % 
|                              |                          | 2003 acquisitions              |      |      | 2.7  |          |      |          | 0.1  |  |     |     | 2.6  |   |      |       | 2,600.0 | % 
|                              |                          | 2004 acquisitions              |      |      | 1.3  |          |      |          |     |  |     |     | 1.3  |   |      |       |        | % 
|                              |                          | Development                    |      |      | 0.1  |          |      |          | 0.8  |  |     |     | (0.7 | ) |      |       | (87.5   | )%
|                              |                          | Other industrial               |      |      | 0.4  |          |      |          | 0.3  |  |     |     | 0.1  |   |      |       | 33.3    | % 
|                              | International industrial |                                |      | 1.4  |      |          |      | 0.3      |      |  |     | 1.1 |      |   |      | 366.7 | %      
|                              | Retail                   |                                |      | 0.7  |      |          |      | 0.7      |      |  |     |    |      |   |      |      | %      
|                              |                          |                                |      |      |      |          |      |          |      |  |     |     |      |   |      |      
|                              |                          | Total property operating costs |      |      | 42.8 |          |      |          | 38.1 |  |     |     | 4.7  |   |      |       | 12.3    | % 
|Depreciation and amortization |                          |                                | 38.9 |      |      |          | 38.1 |          |      |  | 0.8 |     |      |   | 2.1  | %    
|General and administrative    |                          |                                | 15.0 |      |      |          | 12.1 |          |      |  | 2.9 |     |      |   | 24.0 | %    
|                              |                          |                                |      |      |      |          |      |          |      |  |     |     |      |   |      |      
|                              |                          | Total costs and expenses       |      | $    | 96.7 |          |      | $        | 88.3 |  |     | $   | 8.4  |   |      |       | 9.5     | % 
|                              |                          |                                |      |      |      |          |      |          |      |  |     |     |      |   |      |      

Same store properties operating expenses
remained relatively unchanged from June 30, 2003 to
June 30, 2004, showing an increase of $0.3 million
from prior year on a quarter-to-date basis. The 2003
acquisitions consist of 82 buildings, aggregating approximately
6.5 million square feet. The 2004 acquisitions consist of
46 buildings, aggregating approximately 4.0 million
square feet. Other industrial expenses include expenses from
divested properties, which have been contributed to an
unconsolidated joint venture, which accordingly are not
classified as discontinued operations in our consolidated
financial statements, and development properties, which have
reached certain levels of operation and are not yet part of the
same store operating pool of properties. In 2003 and 2004, we
continued to acquire properties in the Netherlands, France,
Germany, Japan and Mexico resulting in increased international
industrial property operating costs. The increase in
depreciation and amortization expense was due to the increase in
our net investment in real estate. The increase in general and
administrative expenses was primarily due to increased
stock-based compensation expense of $0.3 million and
additional staffing and expenses for new initiatives, including
our international and development expansions.

|                                                        |                                        |      |       |       |   |          |       |          |   |   |      |     |  |  |       |     |  
|------------------------------------------------------- | -------------------------------------- | ---- | ----- | ----- | - | -------- | ----- | -------- | - | - | ---- | --- |  |  | ----- | --- | -
|Other Income and (Expenses)                             |                                        | 2004 |       | 2003  |   | $ Change |       | % Change
|                                                        |                                        |      |       |       |   |          |       |         
|Equity in earnings of unconsolidated joint
    ventures |                                        | $    | 0.9   |       |   | $        | 1.6   |          |   | $ | (0.7 | )   |  |  | (43.8 | )% 
|Interest and other income                               |                                        |      | 0.5   |       |   |          | 1.4   |          |   |   | (0.9 | )   |  |  | (64.3 | )% 
|Development profits, net of taxes                       |                                        |      | 3.2   |       |   |          |      |          |   |   | 3.2  |     |  |  |      | %  
|Interest, including amortization                        |                                        |      | (39.9 | )     |   |          | (36.2 | )        |   |   | 3.7  |     |  |  | 10.2  | %  
|                                                        |                                        |      |       |       |   |          |       |          |   |   |      |     |  |  |       |    
|                                                        | Total other income and (expenses), net |      | $     | (35.3 | ) |          | $     | (33.2    | ) |   | $    | 2.1 |  |  |       | 6.3 | %
|                                                        |                                        |      |       |       |   |          |       |          |   |   |      |     |  |  |       |    

The $0.7 million decrease in equity in
earnings of unconsolidated joint ventures was primarily due to
increased non-reimbursable expenses and an early lease
termination in the first quarter at one of the properties held
by a joint venture in Chicago. The $0.9 million decrease in
interest and other income was primarily due to a gain from the
sale of a warrant in the second quarter of 2003. The increase in
interest expense, including amortization, was due to the
issuance of additional unsecured debt under our 2002 medium-term
note

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program, increased borrowings on the unsecured
credit facilities and additional secured debt borrowings in our
co-investment joint ventures.


|                                                                              |                               |      |     |      |  |          |     |          |  |   |      |      |   |  |       |       |   
|----------------------------------------------------------------------------- | ----------------------------- | ---- | --- | ---- |  | -------- | --- | -------- |  | - | ---- | ---- | - |  | ----- | ----- | --
|Discontinued Operations                                                       |                               | 2004 |     | 2003 |  | $ Change |     | % Change
|                                                                              |                               |      |     |      |  |          |     |         
|Income attributable to discontinued operations,
    net of minority interests |                               | $    | 0.3 |      |  | $        | 2.4 |          |  | $ | (2.1 | )    |   |  | (87.5 | )%   
|Gains from dispositions of real estate, net of
    minority interests         |                               |      | 2.3 |      |  |          | 3.9 |          |  |   | (1.6 | )    |   |  | (41.0 | )%   
|                                                                              |                               |      |     |      |  |          |     |          |  |   |      |      |   |  |       |      
|                                                                              | Total discontinued operations |      | $   | 2.6  |  |          | $   | 6.3      |  |   | $    | (3.7 | ) |  |       | (58.7 | )%
|                                                                              |                               |      |     |      |  |          |     |          |  |   |      |      |   |  |       |      

During the three months ended June 30, 2004,
we divested ourselves of one industrial building and one office
building, aggregating approximately 0.3 million square feet
for $12.9 million, with a resulting net gain of
approximately $2.1 million. During 2003, we divested
ourselves of 24 industrial buildings and two retail centers,
aggregating approximately 2.8 million square feet for an
aggregate price of $272.3 million, with a resulting net
gain of approximately $42.9 million.

|                             |  |      |      |      |  |          |      |          |  |   |     |  |  |  |      |  
|---------------------------- |  | ---- | ---- | ---- |  | -------- | ---- | -------- |  | - | --- |  |  |  | ---- | -
|Preferred Units              |  | 2004 |      | 2003 |  | $ Change |      | % Change
|                             |  |      |      |      |  |          |      |         
|Preferred unit distributions |  | $    | (3.4 | )    |  | $        | (5.2 | )        |  | $ | 1.8 |  |  |  | 34.6 | %

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



| |                                                                           
| | --------------------------------------------------------------------------
| | For the Six Months Ended June 30, 2004
    and 2003 (dollars in millions):

|                       |                          |                   |                       |      |       |          |     |          |       |       |      |      |      |      |      |       |         |      |  
|---------------------- | ------------------------ | ----------------- | --------------------- | ---- | ----- | -------- | --- | -------- | ----- | ----- | ---- | ---- | ---- | ---- | ---- | ----- | ------- | ---- | -
|Revenues               |                          | 2004              |                       | 2003 |       | $ Change |     | % Change
|                       |                          |                   |                       |      |       |          |     |         
|Rental revenues        |                          |                   |                       |      |       |          |     |          |       |       |      |      |      |      |      |      
|                       | U.S. industrial:         |                   |                       |      |       |          |     |          |       |       |      |      |      |      |      |       |        
|                       |                          | Same store        |                       | $    | 276.1 |          |     | $        | 283.3 |       |      | $    | (7.2 | )    |      |       | (2.5    | )%  
|                       |                          | 2003 acquisitions |                       |      | 23.8  |          |     |          | 0.6   |       |      |      | 23.2 |      |      |       | 3,866.7 | %   
|                       |                          | 2004 acquisitions |                       |      | 5.6   |          |     |          |      |       |      |      | 5.6  |      |      |       |        | %   
|                       |                          | Development       |                       |      | 1.1   |          |     |          | 1.0   |       |      |      | 0.1  |      |      |       | 10.0    | %   
|                       |                          | Other industrial  |                       |      | 4.7   |          |     |          | 1.5   |       |      |      | 3.2  |      |      |       | 213.3   | %   
|                       | International industrial |                   |                       | 11.5 |       |          |     | 2.4      |       |       |      | 9.1  |      |      |      | 379.2 | %      
|                       | Retail                   |                   |                       | 3.5  |       |          |     | 4.4      |       |       |      | (0.9 | )    |      |      | (20.5 | )%     
|                       |                          |                   |                       |      |       |          |     |          |       |       |      |      |      |      |      |      
|                       |                          |                   | Total rental revenues |      |       | 326.3    |     |          |       | 293.2 |      |      |      | 33.1 |      |       |         | 11.3 | %
|Private capital income |                          |                   | 5.4                   |      |       |          | 5.9 |          |       |       | (0.5 | )    |      |      | (8.5 | )%   
|                       |                          |                   |                       |      |       |          |     |          |       |       |      |      |      |      |      |      
|                       |                          |                   | Total revenues        |      | $     | 331.7    |     |          | $     | 299.1 |      |      | $    | 32.6 |      |       |         | 10.9 | %
|                       |                          |                   |                       |      |       |          |     |          |       |       |      |      |      |      |      |      

The decrease in industrial same store rental
revenues was primarily driven by lower average occupancies in
the San Francisco Bay Area, New Jersey and Chicago
sub-markets, as well as decreased rental rates and prior year
termination fees. Across the portfolio, these and other factors
accounted for approximately $9.4 million of the change from
the prior year. This decrease was positively offset by a
decrease in allowances for doubtful accounts of approximately
$2.2 million. Industrial same store occupancy was 93.5% at
June 30, 2004 and 91.6% at June 30, 2003. For the six
months ended June 30, 2004, rents in the same store
portfolio decreased 15.2% on industrial renewals and rollovers
(cash basis) on 8.3 million square feet leased. The
properties acquired during 2003 consisted of 82 buildings,
aggregating approximately 6.5 million square feet. The
properties acquired during 2004 consisted of 46 buildings,
aggregating approximately 4.0 million square feet. Other
industrial revenues include revenues from divested properties,
which have been contributed to an unconsolidated joint venture,
which accordingly are not classified as discontinued operations
in our consoli-

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##### Table of Contents



dated financial statements, and development
properties, which have reached certain levels of operation and
are not yet part of the same store operating pool of properties.
In 2003 and 2004, we acquired properties in the Netherlands,
France, Germany, Japan and Mexico, resulting in increased
international industrial revenues.


|                              |                          |                                |      |      |       |          |      |          |       |  |     |     |      |   |      |       |         |   
|----------------------------- | ------------------------ | ------------------------------ | ---- | ---- | ----- | -------- | ---- | -------- | ----- |  | --- | --- | ---- | - | ---- | ----- | ------- | --
|Costs and Expenses            |                          | 2004                           |      | 2003 |       | $ Change |      | % Change
|                              |                          |                                |      |      |       |          |      |         
|Property operating costs:     |                          |                                |      |      |       |          |      |          |       |  |     |     |      |   |      |      
|                              | Rental expenses          |                                | $    | 47.1 |       |          | $    | 42.3     |       |  | $   | 4.8 |      |   |      | 11.3  | %      
|                              | Real estate taxes        |                                |      | 38.9 |       |          |      | 35.2     |       |  |     | 3.7 |      |   |      | 10.5  | %      
|                              |                          |                                |      |      |       |          |      |          |       |  |     |     |      |   |      |      
|                              |                          | Total property operating costs |      | $    | 86.0  |          |      | $        | 77.5  |  |     | $   | 8.5  |   |      |       | 11.0    | % 
|                              |                          |                                |      |      |       |          |      |          |       |  |     |     |      |   |      |      
|Property operating costs:     |                          |                                |      |      |       |          |      |          |       |  |     |     |      |   |      |      
|                              | U.S. industrial:         |                                |      |      |       |          |      |          |       |  |     |     |      |   |      |       |        
|                              |                          | Same store                     |      | $    | 73.3  |          |      | $        | 73.0  |  |     | $   | 0.3  |   |      |       | 0.4     | % 
|                              |                          | 2003 acquisitions              |      |      | 5.4   |          |      |          | 0.1   |  |     |     | 5.3  |   |      |       | 5,300.0 | % 
|                              |                          | 2004 acquisitions              |      |      | 1.8   |          |      |          |      |  |     |     | 1.8  |   |      |       |        | % 
|                              |                          | Development                    |      |      | 0.7   |          |      |          | 1.6   |  |     |     | (0.9 | ) |      |       | (56.3   | )%
|                              |                          | Other industrial               |      |      | 0.8   |          |      |          | 1.0   |  |     |     | (0.2 | ) |      |       | (20.0   | )%
|                              | International industrial |                                |      | 2.7  |       |          |      | 0.6      |       |  |     | 2.1 |      |   |      | 350.0 | %      
|                              | Retail                   |                                |      | 1.3  |       |          |      | 1.2      |       |  |     | 0.1 |      |   |      | 8.3   | %      
|                              |                          |                                |      |      |       |          |      |          |       |  |     |     |      |   |      |      
|                              |                          | Total property operating costs |      |      | 86.0  |          |      |          | 77.5  |  |     |     | 8.5  |   |      |       | 11.0    | % 
|Depreciation and amortization |                          |                                | 76.4 |      |       |          | 71.5 |          |       |  | 4.9 |     |      |   | 6.8  | %    
|General and administrative    |                          |                                | 30.0 |      |       |          | 24.0 |          |       |  | 6.0 |     |      |   | 25.0 | %    
|                              |                          |                                |      |      |       |          |      |          |       |  |     |     |      |   |      |      
|                              |                          | Total costs and expenses       |      | $    | 192.4 |          |      | $        | 173.0 |  |     | $   | 19.4 |   |      |       | 11.2    | % 
|                              |                          |                                |      |      |       |          |      |          |       |  |     |     |      |   |      |      

Same store properties operating expenses
remained relatively unchanged from June 30, 2003 to
June 30, 2004, showing an increase of $0.3 million
from prior year on a year-to-date basis. The 2003 acquisitions
consist of 82 buildings, aggregating approximately
6.5 million square feet. The 2004 acquisitions consist of
46 buildings, aggregating approximately 4.0 million square
feet. Other industrial expenses include expenses from divested
properties, which have been contributed to an unconsolidated
joint venture, which accordingly are not classified as
discontinued operations in our consolidated financial
statements, and development properties, which have reached
certain levels of operation and are not yet part of the same
store operating pool of properties. In 2003 and 2004, we
continued to acquire properties in the Netherlands, France,
Germany, Japan and Mexico, resulting in increased international
industrial property operating costs. The increase in
depreciation and amortization expense was due to the increase in
our net investment in real estate. The increase in general and
administrative expenses was primarily due to increased
stock-based compensation expense of $0.3 million and
additional staffing and expenses for new initiatives, including
our international and development expansions.

|                                                        |                                        |      |       |       |   |          |       |          |   |   |      |      |  |  |        |      |  
|------------------------------------------------------- | -------------------------------------- | ---- | ----- | ----- | - | -------- | ----- | -------- | - | - | ---- | ---- |  |  | ------ | ---- | -
|Other Income and (Expenses)                             |                                        | 2004 |       | 2003  |   | $ Change |       | % Change
|                                                        |                                        |      |       |       |   |          |       |         
|Equity in earnings of unconsolidated joint
    ventures |                                        | $    | 2.7   |       |   | $        | 2.9   |          |   | $ | (0.2 | )    |  |  | (6.9   | )%  
|Interest and other income                               |                                        |      | 2.0   |       |   |          | 2.5   |          |   |   | (0.5 | )    |  |  | (20.0  | )%  
|Gains from dispositions of real estate                  |                                        |      |      |       |   |          | 7.4   |          |   |   | (7.4 | )    |  |  | (100.0 | )%  
|Development profits, net of taxes                       |                                        |      | 3.2   |       |   |          |      |          |   |   | 3.2  |      |  |  |       | %   
|Interest, including amortization                        |                                        |      | (79.8 | )     |   |          | (72.2 | )        |   |   | 7.6  |      |  |  | 10.5   | %   
|                                                        |                                        |      |       |       |   |          |       |          |   |   |      |      |  |  |        |     
|                                                        | Total other income and (expenses), net |      | $     | (71.9 | ) |          | $     | (59.4    | ) |   | $    | 12.5 |  |  |        | 21.0 | %
|                                                        |                                        |      |       |       |   |          |       |          |   |   |      |      |  |  |        |     

The $0.2 million decrease in equity in
earnings of unconsolidated joint ventures was primarily due to
an early lease termination at one of the properties held by a
joint venture in Chicago and increased non-reimbursable
expenses. This decrease was offset by the receipt of a lease
termination fee at the above-mentioned property in Chicago in
the first quarter. The $0.5 million decrease in interest
and other income was

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primarily due to the gain from the sale of a
warrant in the second quarter of 2003 partially offset by a gain
from the first quarter 2004 sale of stock of a technology
company in which we had an investment. In the first quarter of
2003, we contributed properties to an unconsolidated joint
venture and accordingly recognized a gain. The increase in
interest expense, including amortization, was due to the
issuance of additional unsecured debt under our 2002 medium-term
note program, increased borrowings on the unsecured credit
facilities, and additional secured debt borrowings in our
co-investment joint ventures.


|                                                                              |                               |      |      |      |  |          |      |          |  |   |       |       |   |  |        |       |   
|----------------------------------------------------------------------------- | ----------------------------- | ---- | ---- | ---- |  | -------- | ---- | -------- |  | - | ----- | ----- | - |  | ------ | ----- | --
|Discontinued Operations                                                       |                               | 2004 |      | 2003 |  | $ Change |      | % Change
|                                                                              |                               |      |      |      |  |          |      |         
|Income attributable to discontinued operations,
    net of minority interests |                               | $    | (0.5 | )    |  | $        | 10.1 |          |  | $ | (10.6 | )     |   |  | (105.0 | )%   
|Gains from dispositions of real estate, net of
    minority interests         |                               |      | 2.0  |      |  |          | 33.5 |          |  |   | (31.5 | )     |   |  | (94.0  | )%   
|                                                                              |                               |      |      |      |  |          |      |          |  |   |       |       |   |  |        |      
|                                                                              | Total discontinued operations |      | $    | 1.5  |  |          | $    | 43.6     |  |   | $     | (42.1 | ) |  |        | (96.6 | )%
|                                                                              |                               |      |      |      |  |          |      |          |  |   |       |       |   |  |        |      

During the six months ended June 30, 2004,
we divested ourselves of two industrial buildings and one office
building, aggregating approximately 0.4 million square feet
for $17.9 million, with a resulting net gain of
approximately $1.9 million. During 2003, we divested
ourselves of 24 industrial buildings and two retail centers,
aggregating approximately 2.8 million square feet, for an
aggregate price of $272.3 million, with a resulting net
gain of approximately $42.9 million.

|                             |  |      |      |      |  |          |       |          |  |   |     |  |  |  |      |  
|---------------------------- |  | ---- | ---- | ---- |  | -------- | ----- | -------- |  | - | --- |  |  |  | ---- | -
|Preferred Units              |  | 2004 |      | 2003 |  | $ Change |       | % Change
|                             |  |      |      |      |  |          |       |         
|Preferred unit distributions |  | $    | (6.7 | )    |  | $        | (10.3 | )        |  | $ | 3.6 |  |  |  | 35.0 | %

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

LIQUIDITY AND CAPITAL RESOURCES

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

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



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

We currently expect that our principal funding
requirements will include:



| |   |                                                         
| | - | --------------------------------------------------------
| |  | working capital;                                        
|
| |  | development, expansion and renovation of
    properties;

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| |   |                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------
| |  | acquisitions, including our global expansion;                                                           
|
| |  | debt service; and                                                                                       
|
| |  | dividends and distributions on outstanding common
    and preferred stock and limited partnership units.

We believe that our sources of working capital,
specifically our cash flow from operations, borrowings available
under our unsecured credit facility and our ability to access
private and public debt and equity capital, are adequate for us
to meet our liquidity requirements for the foreseeable future.
The unavailability of capital could adversely affect our
financial condition, results of operations, cash flow and
ability to make distributions to our unitholders and payments to
our noteholders.

Capital Resources

Property
Divestitures.During the three months
ended June 30, 2004, we divested ourselves of one
industrial building and one office building, aggregating
approximately 0.3 million square feet for an aggregate
price of $12.9 million, with a resulting net gain of
$2.2 million. During the six months ended June 30,
2004, we divested ourselves of two industrial buildings and one
office building, aggregating approximately 0.4 million
square feet for an aggregate price of $17.9 million, with a
resulting net gain of $1.9 million.

Development Sales.During the three and six months ended June 30, 2004, we
sold four land parcels and one development project as part of
our development-for-sale pipeline, aggregating approximately
0.1 million square feet for an aggregate price of
$14.0 million, resulting in an after-tax gain of
$3.2 million. During the three and six months ended
June 30, 2003, we made no such sales.

Properties Held for
Divestiture.As of June 30, 2004,
we had decided to divest ourselves of five industrial buildings
and three undeveloped land parcels which are not in our core
markets or which do not meet our current strategic objectives.
The divestitures of the properties are subject to negotiation of
acceptable terms and other customary conditions. As of
June 30, 2004, the net carrying value of the properties
held for divestiture was $39.6 million.

Co-investment Joint
Ventures.We enter into co-investment
joint ventures with institutional investors. These co-investment
joint ventures provide us with an additional source of capital
to fund certain acquisitions, development projects and
renovation projects, as well as private capital income. We
consolidate these joint ventures for financial reporting
purposes because they are not variable interest entities and
because we are the sole managing general partner and control all
major operating decisions. Third-party equity interests in the
joint ventures are reflected as minority interests in our
consolidated financial statements.

As of June 30, 2004, we owned approximately
34.5 million square feet of our properties (35% of the
total consolidated operating and development portfolio) through
our co-investment joint ventures and 5.9 million square
feet of our properties through our other consolidated joint
ventures. We may make additional investments through these joint
ventures or new joint ventures in the future and presently plan
to do so. Our co-investment joint ventures at June 30, 2004
(dollars in thousands):

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

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---



|    |                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Planned capitalization includes anticipated debt
    and both partners expected equity contributions.                                                    
|   
|(2) | Included 16 institutional investors as
    stockholders as of June 30, 2004.                                                                              
|   
|(3) | A subsidiary of the real estate investment
    subsidiary of the Government of Singapore Investment Corporation.                                          
|   
|(4) | Included 13 institutional investors and one
    third-party limited partner as stockholders as of June 30,
    2004.                                      
|   
|(5) | AMB-AMS, L.P. is a co-investment partnership with
    three Dutch pension funds advised by Mn Services NV.                                                
|   
|(6) | PMT is Stichting Pensioenfond Metaal en Techniek,
    SPW is Stichting Pensioenfonds voor de Woningcorporaties and TNO
    is Stichting Pensioenfonds TNO.

Partners
Capital.As of June 30, 2004, the
Operating Partnership had outstanding 82,416,376 common general
partnership units, 4,604,910 common limited partnership units,
800,000 7.95% Series J Cumulative Redeemable Partnership
Units, 800,000 7.95% Series K Cumulative Redeemable
Partnership Units, 2,000,000 6.5% Series L Cumulative
Redeemable Partnership Units and 2,300,000 6.75% Series M
Cumulative Redeemable Partnership Units.

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

Debt.In order to
maintain financial flexibility and facilitate the deployment of
capital through market cycles, we presently intend to operate
with a debt-to-total market capitalization ratio (our share) of
approximately 45% or less. As of June 30, 2004, our share
of total debt-to-total market capitalization ratio was 41.1%.
However, we typically finance our co-investment joint ventures
with secured debt at a loan-to-value ratio of 50-65% per
our joint venture partnership agreements. Additionally, we
currently intend to manage our capitalization in order to
maintain an investment grade rating on our senior unsecured
debt. Regardless of these policies, however, our organizational
documents do not limit the amount of indebtedness that we may
incur. Accordingly, our management could alter or eliminate
these policies without unitholder or noteholder approval or
circumstances could arise that could render us unable to comply
with these policies.

As of June 30, 2004, the aggregate principal
amount of our secured debt was $1.5 billion, excluding
unamortized debt premiums of $12.8 million. Of the
$1.5 billion of secured debt, $1.1 billion is secured
by properties in our joint ventures. The secured debt is
generally non-recourse and bears interest at rates varying from
2.6% to 10.4% per annum (with a weighted average rate of
6.8%) and final maturity dates ranging from July 2004 to June
2023. All of the secured debt bears interest at fixed rates,
except for six loans with an aggregate principal amount of
$54.3 million as of June 30, 2004, which bear interest
at variable rates (with a weighted average interest rate of 4.0%
as of June 30, 2004).

As of June 30, 2004, we had issued an
aggregate of $1.0 billion in unsecured senior debt
securities, which bore a weighted average interest rate of 6.5%
and had an average term of 5.2 years. These unsecured
senior debt securities include $100.0 million in notes,
which are putable and callable in September 2005,
$400.0 million of medium-term notes, which were issued
under our 2000 medium-term note program, and $225.0 million
of medium-term notes, which were issued under our 2002
medium-term note program. Our 2002 medium-term note program has
a remaining capacity of $175.0 million. We intend to
continue to issue medium-term notes, guaranteed by AMB Property
Corporation, under the 2002 program from time to time and as
market conditions permit.

AMB Property Corporation guarantees our
obligations with respect to our senior debt securities. If we
are unable to refinance or extend principal payments due at
maturity or pay them with proceeds from other capital
transactions, then our cash flow may be insufficient to pay
distributions to our unitholders in all years, to make payments
to our noteholders and to repay debt upon maturity. Furthermore,
if prevailing interest rates or other factors at the time of
refinancing (such as the reluctance of lenders to make
commercial real estate loans) result in higher interest rates
upon refinancing, then the interest expense relating to that
refinanced

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indebtedness would increase. This increased
interest expense would adversely affect our financial condition,
results of operations, cash flow and ability to make
distributions to our unitholders and payments to our noteholders.


Credit Facilities.On June 1, 2004, we completed the early renewal of our
senior unsecured revolving line of credit in the amount of
$500.0 million. AMB Property Corporation guarantees our
obligations under the credit facility. The three-year credit
facility includes a multi-currency component under which up to
$250.0 million can be drawn in Yen, Euros or British Pounds
Sterling. The line, which matures in June 2007 and carries a
one-year extension option, can be increased up to
$700.0 million upon certain conditions, and replaces our
previous $500.0 million credit facility that was to mature
in December 2005. The line is priced at 60 basis points
over the applicable LIBOR index, with an annual facility fee of
20 basis points, based on the current credit rating of our
long-term debt. We use our unsecured credit facility principally
for acquisitions, funding development activity and general
working capital requirements. The total amount available under
the credit facility fluctuates based upon the borrowing base, as
defined in the agreement governing the credit facility,
generally the value of our unencumbered properties. As of
June 30, 2004, the outstanding balance on the credit
facility was $405.5 million and the remaining amount
available was $78.0 million, net of outstanding letters of
credit of $16.5 million (excluding the additional
$200.0 million of potential additional capacity). The
outstanding balance included borrowings denominated in Euros and
Yen, which, using the exchange rate in effect on June 30,
2004, would equal approximately $81.2 million and
$94.3 million in U.S. dollars, respectively. As of
June 30, 2004, we had an additional outstanding balance of
$23.0 million on other credit facilities.

On June 29, 2004, AMB Japan Finance Y.K.,
one of our subsidiaries, entered into an unsecured revolving
credit agreement providing for loans or letters of credit in a
maximum principal amount outstanding at any time of up to
24 billion Yen, which, using the exchange rate in effect on
June 30, 2004, equals approximately $221.0 million
U.S. dollars. We, along with AMB Property Corporation,
guarantee the obligations of AMB Japan Finance Y.K. under the
revolving credit facility, as well as the obligations of any
other entity in which we directly or indirectly have an
ownership interest, and which is selected from time to time to
be a borrower under and pursuant to the revolving credit
agreement. The borrowers intend to use the proceeds from the
facility to fund the acquisition and development of properties
and for other real estate purposes in Japan. Generally,
borrowers under the revolving credit facility have the option to
secure all or a portion of the borrowings under the revolving
credit facility with certain real estate assets or equity in
entities holding such real estate assets. The revolving credit
facility matures in June 2007 and has a one-year extension
option, which is subject to the satisfaction of certain
conditions and the payment of an extension fee equal to 0.25% of
the outstanding commitments under the facility at that time. The
rate on the borrowings will generally be TIBOR plus a margin,
which is based on the current credit rating of our long-term
debt and is currently 60 basis points. In addition, there
is an annual facility fee, payable in quarterly amounts, which
is based on the credit rating of our long-term debt, and is
currently 20 basis points of the outstanding commitments
under the facility.

Mortgages
Receivable.Through a wholly-owned
subsidiary, we hold a mortgage loan receivable on AMB Pier One,
LLC, an unconsolidated joint venture. The note bears interest at
13.0% and matures in May 2026. As of June 30, 2004, the
outstanding balance on the note was $13.0 million. We also
hold short-term mortgages on sold properties totaling
$10.6 million with a weighted average interest rate of
6.7%. The mortgages mature between December 2004 and November
2006.

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

|                                                                     |                      |                            |                         |         |         |             |          |           |         |               |         |            |           |           |       |       |       |       |         |         |         |         |          |           |           |           | 
|-------------------------------------------------------------------- | -------------------- | -------------------------- | ----------------------- | ------- | ------- | ----------- | -------- | --------- | ------- | ------------- | ------- | ---------- | --------- | --------- | ----- | ----- | ----- | ----- | ------- | ------- | ------- | ------- | -------- | --------- | --------- | --------- | 
|                                                                     |                      | Wholly Owned               |                         | Joint   |         | Unsecured   |          |           |         |               |         |           
|                                                                     |                      | Secured                    |                         | Venture |         | Senior Debt |          | Unsecured |         | Credit        |         |           
|                                                                     |                      | Debt                       |                         | Debt    |         | Securities  |          | Debt      |         | Facilities(2) |         | Total Debt
|                                                                     |                      |                            |                         |         |         |             |          |           |         |               |         |           
|2004                                                                 |                      | $                          | 41,448                  |         |         | $           | 28,326   |           |         | $             |        |            |           | $         | 306   |       |       | $     |        |         |         | $       | 70,080   |          
|2005                                                                 |                      |                            | 43,910                  |         |         |             | 63,726   |           |         |               | 250,000 |            |           |           | 647   |       |       |       |        |         |         |         | 358,283  |          
|2006                                                                 |                      |                            | 82,055                  |         |         |             | 66,902   |           |         |               | 75,000  |            |           |           | 698   |       |       |       | 23,000  |         |         |         | 247,655  |          
|2007                                                                 |                      |                            | 14,319                  |         |         |             | 57,446   |           |         |               | 75,000  |            |           |           | 752   |       |       |       | 405,502 |         |         |         | 553,019  |          
|2008                                                                 |                      |                            | 32,604                  |         |         |             | 169,230  |           |         |               | 175,000 |            |           |           | 810   |       |       |       |        |         |         |         | 377,644  |          
|2009                                                                 |                      |                            | 3,737                   |         |         |             | 107,978  |           |         |               | 100,000 |            |           |           | 873   |       |       |       |        |         |         |         | 212,588  |          
|2010                                                                 |                      |                            | 69,583                  |         |         |             | 136,341  |           |         |               | 75,000  |            |           |           | 941   |       |       |       |        |         |         |         | 281,865  |          
|2011                                                                 |                      |                            | 58,043                  |         |         |             | 290,804  |           |         |               | 75,000  |            |           |           | 1,014 |       |       |       |        |         |         |         | 424,861  |          
|2012                                                                 |                      |                            | 4,076                   |         |         |             | 162,004  |           |         |               |        |            |           |           | 1,093 |       |       |       |        |         |         |         | 167,173  |          
|2013                                                                 |                      |                            | 75,271                  |         |         |             | 11,245   |           |         |               | 75,000  |            |           |           | 920   |       |       |       |        |         |         |         | 162,436  |          
|Thereafter                                                           |                      |                            | 39                      |         |         |             | 20,219   |           |         |               | 125,000 |            |           |           | 1,280 |       |       |       |        |         |         |         | 146,538  |          
|                                                                     |                      |                            |                         |         |         |             |          |           |         |               |         |            |           |           |       |       |       |       |         |         |         |         |          |          
|                                                                     | Subtotal             |                            |                         | 425,085 |         |             |          | 1,114,221 |         |               |         | 1,025,000  |           |           |       | 9,334 |       |       |         | 428,502 |         |         |          | 3,002,142 |          
|                                                                     | Unamortized premiums |                            |                         | 5,269   |         |             |          | 7,509     |         |               |         |           |           |           |       |      |       |       |         |        |         |         |          | 12,778    |          
|                                                                     |                      |                            |                         |         |         |             |          |           |         |               |         |            |           |           |       |       |       |       |         |         |         |         |          |          
|                                                                     |                      |                            | Total consolidated debt |         |         | 430,354     |          |           |         | 1,121,730     |         |            |           | 1,025,000 |       |       |       | 9,334 |         |         |         | 428,502 |          |           |           | 3,014,920 | 
|Our share of unconsolidated joint venture debt(1)                    |                      |                            |                        |         |         |             | 87,753   |           |         |               |        |            |           |           |      |       |       |       |        |         |         |         | 87,753   |          
|                                                                     |                      |                            |                         |         |         |             |          |           |         |               |         |            |           |           |       |       |       |       |         |         |         |         |          |          
|                                                                     |                      |                            | Total debt              |         |         | 430,354     |          |           |         | 1,209,483     |         |            |           | 1,025,000 |       |       |       | 9,334 |         |         |         | 428,502 |          |           |           | 3,102,673 | 
|Joint venture partners share of
    consolidated joint venture debt |                      |                            |                        |         |         |             | (739,137 | )         |         |               |        |            |           |           |      |       |       |       |        |         |         |         | (739,137 | )        
|                                                                     |                      |                            |                         |         |         |             |          |           |         |               |         |            |           |           |       |       |       |       |         |         |         |         |          |          
|                                                                     |                      | Our share of total debt(3) |                         | $       | 430,354 |             |          | $         | 470,346 |               |         | $          | 1,025,000 |           |       | $     | 9,334 |       |         | $       | 428,502 |         |          | $         | 2,363,536 |          
|                                                                     |                      |                            |                         |         |         |             |          |           |         |               |         |            |           |           |       |       |       |       |         |         |         |         |          |          
|Weighted average interest rate                                       |                      |                            | 7.2                     | %       |         |             | 6.8      | %         |         |               | 6.5     | %          |           |           | 7.5   | %     |       |       | 1.8     | %       |         |         | 6.0      | %        
|Weighted average maturity (in years)                                 |                      |                            | 4.1                     |         |         |             | 6.0      |           |         |               | 5.2     |            |           |           | 10.3  |       |       |       | 2.9     |         |         |         | 5.0      |          



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The weighted average interest and maturity for
    the unconsolidated joint venture debt were 5.1% and
    4.5 years, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(2) | Includes Euro and Yen based borrowings translated
    to U.S. dollars using the foreign exchange rates at
    June 30, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(3) | Our share of total debt is the pro rata portion
    of the total debt based on our percentage of equity interest in
    each of the consolidated ventures holding the debt. We believe
    that our share of total debt is a meaningful supplemental
    measure, which enables both management and investors to analyze
    our leverage and to compare our leverage to that of other
    companies. In addition, it allows for a more meaningful
    comparison of our debt to that of other companies that do not
    consolidate their joint ventures. Our share of total debt is not
    intended to reflect our actual liability should there be a
    default under any or all of such loans or a liquidation of the
    joint ventures. The above table reconciles our share of total
    debt to total consolidated debt, a GAAP financial measure.

|                                    |       |             |            |            |  |          |       |  |  |   |           |           | 
|----------------------------------- | ----- | ----------- | ---------- | ---------- |  | -------- | ----- |  |  | - | --------- | --------- | 
|                                   
|Market Capital                     
|                                   
|                                    |       | Units       |            | Market     |  | Market  
|Security                            |       | Outstanding |            | Price(1)   |  | Value(1)
|                                    |       |             |            |            |  |         
|Common units                        |       |             | 82,416,376 |            |  | $        | 34.63 |  |  | $ | 2,854,079 |          
|Common limited partnership units(2) |       |             | 4,750,458  |            |  | $        | 34.63 |  |  |   | 164,508   |          
|                                    |       |             |            |            |  |          |       |  |  |   |           |          
|                                    | Total |             |            | 87,166,834 |  |          |       |  |  |   | $         | 3,018,587 | 
|                                    |       |             |            |            |  |          |       |  |  |   |           |          

40



---



##### Table of Contents





---



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

|                         |                        |              |      |             |   |            |        |         |  |  |                 |  | 
|------------------------ | ---------------------- | ------------ | ---- | ----------- | - | ---------- | ------ | ------- |  |  | --------------- |  | 
|                        
|Preferred Units         
|                        
|                         |                        | Distribution |      | Liquidation |   | Redemption
|Security                 |                        | Rate         |      | Preference  |   | Provisions
|                         |                        |              |      |             |   |           
|Series D preferred units |                        |              | 7.75 | %           |   | $          | 79,767 |         |  |  | May 2004        | 
|Series E preferred units |                        |              | 7.75 | %           |   |            | 11,022 |         |  |  | August 2004     | 
|Series F preferred units |                        |              | 7.95 | %           |   |            | 10,057 |         |  |  | March 2005      | 
|Series H preferred units |                        |              | 8.13 | %           |   |            | 42,000 |         |  |  | September  2005 | 
|Series I preferred units |                        |              | 8.00 | %           |   |            | 25,500 |         |  |  | March 2006      | 
|Series J preferred units |                        |              | 7.95 | %           |   |            | 40,000 |         |  |  | September  2006 | 
|Series K preferred units |                        |              | 7.95 | %           |   |            | 40,000 |         |  |  | April 2007      | 
|Series L preferred units |                        |              | 6.50 | %           |   |            | 50,000 |         |  |  | June 2008       | 
|Series M preferred units |                        |              | 6.75 | %           |   |            | 57,500 |         |  |  | November 2008   | 
|                         |                        |              |      |             |   |            |        |         |  |  |                 | 
|                         | Weighted average/total |              |      | 7.53        | % |            | $      | 355,846 |  |  |                 |  | 
|                         |                        |              |      |             |   |            |        |         |  |  |                 | 

|                                                                             |  |  |      |  
|---------------------------------------------------------------------------- |  |  | ---- | -
|                                                                            
|Capitalization Ratios                                                       
|                                                                            
|Total debt-to-total market capitalization                                    |  |  | 47.8 | %
|Our share of total debt-to-total market
    capitalization(1)                |  |  | 41.1 | %
|Total debt plus preferred-to-total market
    capitalization                 |  |  | 53.3 | %
|Our share of total debt plus preferred-to-total
    market capitalization(1) |  |  | 47.3 | %
|Our share of total debt-to-total book
    capitalization(1)                  |  |  | 54.4 | %



---



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

Liquidity

As of June 30, 2004, we had
$116.8 million in cash and cash equivalents (of which
$67.5 million was held by our consolidated co-investment
joint ventures), and $326.0 million of additional available
borrowings under our credit facilities. As of June 30,
2004, we had $29.4 million in restricted cash (of which
$7.7 million was held by our consolidated co-investment
joint ventures).

We announced our intention to pay a regular cash
distribution for the quarter ended June 30, 2004 of
$0.425 per common unit. The distributions were payable on
July 15, 2004 to unitholders of record on July 5,
2004. The series L and M preferred unit distributions were
payable on July 15, 2004 to unitholders of record on
July 5, 2004. The series E, F, J and K preferred unit
distributions were payable on July 15, 2004 in respect of
the period commencing on and including April 15, 2004, and
ending on and including July 14, 2004. The

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series D, H and I preferred unit
distributions were payable on June 25, 2004, in respect of
the period commencing on and including April 15, 2004, and
ending on and including July 14, 2004. The following table
sets forth the distributions paid or payable per unit for the
three and six months ended June 30, 2004 and 2003:


|                      |  |                                          |  |               |       |              |  |      |       |      |  |   |       |  |  |   |       | 
|--------------------- |  | ---------------------------------------- |  | ------------- | ----- | ------------ |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                      |  |                                          |  |               |       |             
|                      |  |                                          |  | For the Three |       | For the Six 
|                      |  |                                          |  | Months Ended  |       | Months Ended
|                      |  |                                          |  | June 30,      |       | June 30,    
|                      |  |                                          |  |               |       |             
|Paying Entity         |  | Security                                 |  | 2004          |       | 2003         |  | 2004 |       | 2003
|                      |  |                                          |  |               |       |              |  |      |       |     
|Operating Partnership |  | Common limited partnership units         |  | $             | 0.425 |              |  | $    | 0.415 |      |  | $ | 0.850 |  |  | $ | 0.830 | 
|Operating Partnership |  | Series A preferred units                 |  |               | n/a   |              |  | $    | 0.531 |      |  |   | n/a   |  |  | $ | 1.063 | 
|Operating Partnership |  | Series B preferred units                 |  |               | n/a   |              |  | $    | 1.078 |      |  |   | n/a   |  |  | $ | 2.156 | 
|Operating Partnership |  | Series J preferred units                 |  | $             | 0.994 |              |  | $    | 0.994 |      |  | $ | 1.988 |  |  | $ | 1.988 | 
|Operating Partnership |  | Series K preferred units                 |  | $             | 0.994 |              |  | $    | 0.994 |      |  | $ | 1.988 |  |  | $ | 1.988 | 
|Operating Partnership |  | Series L preferred units                 |  | $             | 0.406 |              |  | $    | 0.036 |      |  | $ | 0.813 |  |  | $ | 0.036 | 
|Operating Partnership |  | Series M preferred units                 |  | $             | 0.422 |              |  |      | n/a   |      |  | $ | 0.844 |  |  |   | n/a   | 
|AMB Property II, L.P. |  | Class B common limited partnership units |  | $             | 0.425 |              |  |      | n/a   |      |  | $ | 0.850 |  |  |   | n/a   | 
|AMB Property II, L.P. |  | Series D preferred units                 |  | $             | 0.969 |              |  | $    | 0.969 |      |  | $ | 1.938 |  |  | $ | 1.938 | 
|AMB Property II, L.P. |  | Series E preferred units                 |  | $             | 0.969 |              |  | $    | 0.969 |      |  | $ | 1.938 |  |  | $ | 1.938 | 
|AMB Property II, L.P. |  | Series F preferred units                 |  | $             | 0.994 |              |  | $    | 0.994 |      |  | $ | 1.988 |  |  | $ | 1.988 | 
|AMB Property II, L.P. |  | Series H preferred units                 |  | $             | 1.016 |              |  | $    | 1.016 |      |  | $ | 2.031 |  |  | $ | 2.031 | 
|AMB Property II, L.P. |  | Series I preferred units                 |  | $             | 1.000 |              |  | $    | 1.000 |      |  | $ | 2.000 |  |  | $ | 2.000 | 

The anticipated size of our distributions, using
only cash from operations, will not allow us to retire all of
our debt as it comes due. Therefore, we intend to also repay
maturing debt with net proceeds from future debt or limited
partnership unit offerings, as well as property divestitures.
However, we may not be able to obtain future financings on
favorable terms or at all. Our inability to obtain future
financings on favorable terms or at all would adversely affect
our financial condition, results of operations, cash flow and
ability to make distributions to our unitholders and payments to
our noteholders.

Capital Commitments

Developments.In
addition to recurring capital expenditures, which consist of
building improvements and leasing costs incurred to renew or
re-tenant space, during the three months ended June 30,
2004, we did not initiate any new industrial development
projects. During the six months ended June 30, 2004, we
initiated five new industrial development projects in North
America with a total estimated investment of $69.5 million
at completion, aggregating an estimated 1.1 million square
feet, and one new industrial development in Japan with a total
expected investment of $82.5 million, aggregating
approximately 0.7 million square feet. As of June 30,
2004, we had 20 projects in our development pipeline
representing a total estimated investment of $353.8 million
upon completion, of which five industrial projects with a total
of 2.2 million square feet and an aggregate estimated
investment of $89.2 million upon completion are held in
unconsolidated joint ventures, and four development projects
available for sale representing a total estimated investment of
$34.7 million upon completion. Of this total,
$198.8 million had been funded as of June 30, 2004,
and an estimated $189.7 million was required to complete
current and planned projects. We expect to fund these
expenditures with cash from operations, borrowings under our
credit facility, debt or limited partnership unit issuances, net
proceeds from property divestitures and private capital from
co-investment partners, which could have an adverse effect on
our cash flow.

Acquisitions.During
the three months ended June 30, 2004, we acquired 39
industrial buildings, aggregating approximately 2.7 million
square feet for a total expected investment of
$305.1 million, of which we acquired 33 industrial
buildings aggregating approximately 1.6 million square feet
through three of our co-investment joint ventures, for a total
expected investment of $99.3 million. During the six months
ended June 30, 2004, we acquired 46 industrial buildings,
aggregating approximately 4.0 million square feet for a
total expected investment of $439.2 million, of which we
acquired 35 industrial buildings aggregating

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##### Table of Contents



approximately 1.9 million square feet
through three of our co-investment joint ventures, for a total
expected investment of $132.0 million. We generally fund
our acquisitions through private capital contributions,
borrowings under our credit facility, cash, debt issuances and
net proceeds from property divestitures.


Lease Commitments.We have entered into operating ground leases on certain land
parcels, primarily on-tarmac facilities and office space with
remaining lease terms from one to 45 years.

Co-investment Joint
Ventures.We enter into co-investment
joint ventures with institutional investors. These co-investment
joint ventures provide us with an additional source of capital
to fund certain acquisitions, development projects and
renovation projects, as well as private capital income. As of
June 30, 2004, we had investments in co-investment joint
ventures with a gross book value of $2.0 billion, which are
consolidated for financial reporting purposes. As of
June 30, 2004, we may make additional capital contributions
to current and planned co-investment joint ventures of up to
$9.4 million. We expect to fund these contributions with
cash from operations, borrowings under our credit facility, debt
or limited partnership unit issuances or net proceeds from
property divestitures, which could adversely affect our cash
flow.

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

Potential Unknown
Liabilities.Unknown liabilities may
include the following:



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

OFF-BALANCE SHEET ARRANGEMENTS

Standby Letters of
Credit.As of June 30, 2004, we
had provided approximately $24.9 million in letters of
credit, of which $16.5 million was provided under our
$500.0 million unsecured credit facility. The letters of
credit were required to be issued under certain ground lease
provisions, bank guarantees and other commitments.

Guarantees.Other
than as disclosed elsewhere in this report, as of June 30,
2004, we had outstanding guarantees in the aggregate amount of
$22.1 million in connection with certain acquisitions. As
of June 30, 2004, we guaranteed $3.6 million and
$23.4 million on outstanding construction loans on one of
our consolidated joint ventures and one of our unconsolidated
joint ventures, respectively. As of June 30, 2004, the
maximum borrowing capacity of these construction loans were
$30.0 million and $69.0 million, respectively.

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##### Table of Contents



Performance and Surety
Bonds.As of June 30, 2004, we,
along with AMB Property Corporation, had outstanding performance
and surety bonds in an aggregate amount of $1.5 million.
These bonds were issued in connection with certain of our
development projects and were posted to guarantee certain tax
obligations and the construction of certain real property
improvements and infrastructure, such as grading, sewers and
streets. Performance and surety bonds are commonly required by
public agencies from real estate developers. Performance and
surety bonds are renewable and expire upon the payment of the
taxes due or the completion of the improvements and
infrastructure.

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

SUPPLEMENTAL EARNINGS MEASURES

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

While FFO is a relevant and widely used measure
of operating performance of real estate investment trusts, it
does not represent cash flow from operations or net income as
defined by GAAP and should not be considered as an alternative
to those measures in evaluating our liquidity or operating
performance. FFO also does not consider the costs associated
with capital expenditures related to our real estate assets nor
is FFO necessarily indicative of cash available to fund our
future cash requirements. Further, our computation of FFO may
not be comparable to FFO reported by other real estate
investment trusts that do not define the term in accordance with
the current NAREIT definition or that interpret the current
NAREIT definition differently than we do.

44



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##### Table of Contents



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

|                                                                            |                                                                               |                      |        |                    |   |      |        |            |   |   |        |            |   |   |         |            |  
|--------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | -------------------- | ------ | ------------------ | - | ---- | ------ | ---------- | - | - | ------ | ---------- | - | - | ------- | ---------- | -
|                                                                            |                                                                               |                      |        |                   
|                                                                            |                                                                               | For the Three Months |        | For the Six Months
|                                                                            |                                                                               | Ended June 30,       |        | Ended June 30,    
|                                                                            |                                                                               |                      |        |                   
|                                                                            |                                                                               | 2004                 |        | 2003(1)            |   | 2004 |        | 2003(1)   
|                                                                            |                                                                               |                      |        |                    |   |      |        |           
|Net income                                                                  |                                                                               | $                    | 22,827 |                    |   | $    | 22,053 |            |   | $ | 43,132 |            |   | $ | 87,825  |           
|Income available to common unitholders
    attributable to limited partners |                                                                               |                      | (1,034 | )                  |   |      | (936   | )          |   |   | (1,929 | )          |   |   | (4,338  | )         
|Gain from dispositions of real estate                                       |                                                                               |                      | (2,161 | )                  |   |      | (3,662 | )          |   |   | (1,875 | )          |   |   | (39,120 | )         
|Real estate related depreciation and amortization:                          |                                                                               |                      |        |                    |   |      |        |            |   |   |        |            |   |   |         |           
|                                                                            | Total depreciation and amortization                                           |                      |        | 38,880             |   |      |        | 38,150     |   |   |        | 76,487     |   |   |         | 71,500     |  
|                                                                            | Discontinued operations depreciation                                         |                      |        | 87                 |   |      |        | 184        |   |   |        | 731        |   |   |         | 2,007      |  
|                                                                            | Furniture, fixtures and equipment depreciation                                |                      |        | (161               | ) |      |        | (189       | ) |   |        | (336       | ) |   |         | (378       | )
|Adjustments to derive FFO from consolidated joint
    ventures:             |                                                                               |                      |        |                    |   |      |        |            |   |   |        |            |   |   |         |           
|                                                                            | Joint venture partners minority interests
    (NI)                           |                      |        | 9,379              |   |      |        | 8,242      |   |   |        | 18,335     |   |   |         | 15,779     |  
|                                                                            | Limited partnership unitholders minority
    interests (NI)                  |                      |        | 777                |   |      |        | 601        |   |   |        | 1,761      |   |   |         | 1,967      |  
|                                                                            | Limited partnership unitholders minority
    interests (Development profits) |                      |        | 143                |   |      |        |           |   |   |        | 143        |   |   |         |           |  
|                                                                            | Discontinued operations minority interests
    (NI)                          |                      |        | 558                |   |      |        | 786        |   |   |        | 786        |   |   |         | 1,451      |  
|                                                                            | FFO attributable to minority interests                                        |                      |        | (18,118            | ) |      |        | (15,519    | ) |   |        | (35,979    | ) |   |         | (30,502    | )
|Adjustments to derive FFO from unconsolidated
    joint ventures:           |                                                                               |                      |        |                    |   |      |        |            |   |   |        |            |   |   |         |           
|                                                                            | Our share of net income                                                       |                      |        | (944               | ) |      |        | (1,622     | ) |   |        | (2,653     | ) |   |         | (2,857     | )
|                                                                            | Our share of FFO                                                              |                      |        | 1,935              |   |      |        | 2,645      |   |   |        | 4,428      |   |   |         | 5,275      |  
|Preferred unit distributions                                                |                                                                               |                      | (3,373 | )                  |   |      | (5,186 | )          |   |   | (6,746 | )          |   |   | (10,301 | )         
|                                                                            |                                                                               |                      |        |                    |   |      |        |            |   |   |        |            |   |   |         |           
|                                                                            | Funds from operations                                                         |                      | $      | 48,795             |   |      | $      | 45,547     |   |   | $      | 96,285     |   |   | $       | 98,308     |  
|                                                                            |                                                                               |                      |        |                    |   |      |        |            |   |   |        |            |   |   |         |           
|Basic FFO per common unit                                                   |                                                                               | $                    | 0.56   |                    |   | $    | 0.53   |            |   | $ | 1.11   |            |   | $ | 1.14    |           
|                                                                            |                                                                               |                      |        |                    |   |      |        |            |   |   |        |            |   |   |         |           
|Diluted FFO per common unit                                                 |                                                                               | $                    | 0.55   |                    |   | $    | 0.52   |            |   | $ | 1.08   |            |   | $ | 1.13    |           
|                                                                            |                                                                               |                      |        |                    |   |      |        |            |   |   |        |            |   |   |         |           
|Weighted average common units:                                              |                                                                               |                      |        |                    |   |      |        |            |   |   |        |            |   |   |         |           
|                                                                            | Basic                                                                         |                      |        | 86,824,795         |   |      |        | 85,852,418 |   |   |        | 86,653,067 |   |   |         | 85,904,056 |  
|                                                                            |                                                                               |                      |        |                    |   |      |        |            |   |   |        |            |   |   |         |           
|                                                                            | Diluted                                                                       |                      |        | 89,288,954         |   |      |        | 87,302,896 |   |   |        | 89,520,249 |   |   |         | 87,364,056 |  
|                                                                            |                                                                               |                      |        |                    |   |      |        |            |   |   |        |            |   |   |         |           



---



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

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

45



---



##### Table of Contents



distributions. Management uses EBITDA in the same
manner as we expect investors to when measuring our operating
performance and our liquidity; specifically when assessing our
operating performance, and comparing that performance to other
companies, both in the real estate industry and in other
industries, and when evaluating our ability to meet our debt
service obligations and to make our quarterly preferred unit
distributions. We believe investors should consider EBITDA, in
conjunction with net income (the primary measure of our
performance) and the other required GAAP measures of our
performance and liquidity, to improve their understanding of our
operating results and liquidity, and to make more meaningful
comparisons of the performance of our assets between periods and
as against other companies.


By excluding interest, taxes, depreciation and
amortization when assessing our financial performance, an
investor is assessing the earnings generated by our operations,
but not taking into account the eliminated expenses incurred in
connection with such operations. As a result, EBITDA has
limitations as an analytical tool and should be used in
conjunction with our required GAAP presentations. EBITDA does
not reflect our historical cash expenditures or our future cash
requirements for working capital, capital expenditures or
contractual commitments. EBITDA also does not reflect the cash
required to make interest and principal payments on our
outstanding debt. While EBITDA is a relevant and widely used
measure of operating performance and liquidity, it does not
represent net income or cash flow from operations as defined by
GAAP and it should not be considered as an alternative to those
indicators in evaluating operating performance or liquidity.
Further, our computation of EBITDA may not be comparable to
EBITDA reported by other companies. The following table reflects
the calculation of EBITDA reconciled to net income, a GAAP
financial measure, for the three and six months ended
June 30, 2004 and 2003 (dollars in thousands):

|                                                                     |                                  |                      |        |                    |         |      |        |        |         |   |        |        |         |   |         |        |         | 
|-------------------------------------------------------------------- | -------------------------------- | -------------------- | ------ | ------------------ | ------- | ---- | ------ | ------ | ------- | - | ------ | ------ | ------- | - | ------- | ------ | ------- | 
|                                                                     |                                  |                      |        |                   
|                                                                     |                                  | For the Three Months |        | For the Six Months
|                                                                     |                                  | Ended June 30,       |        | Ended June 30,    
|                                                                     |                                  |                      |        |                   
|                                                                     |                                  | 2004                 |        | 2003               |         | 2004 |        | 2003  
|                                                                     |                                  |                      |        |                    |         |      |        |       
|Net income                                                           |                                  | $                    | 22,827 |                    |         | $    | 22,053 |        |         | $ | 43,132 |        |         | $ | 87,825  |       
|Depreciation and amortization                                        |                                  |                      | 38,880 |                    |         |      | 38,150 |        |         |   | 76,487 |        |         |   | 71,500  |       
|Stock-based compensation amortization                                |                                  |                      | 2,919  |                    |         |      | 2,038  |        |         |   | 5,476  |        |         |   | 3,979   |       
|Adjustments to derive EBITDA from unconsolidated
    joint ventures: |                                  |                      |        |                    |         |      |        |        |         |   |        |        |         |   |         |       
|                                                                     | Our share of net income(1)       |                      |        | (944               | )       |      |        | (1,622 | )       |   |        | (2,653 | )       |   |         | (2,857 | )      
|                                                                     | Our share of FFO(2)              |                      |        | 1,935              |         |      |        | 2,645  |         |   |        | 4,428  |         |   |         | 5,275  |        
|                                                                     | Our share of interest expense(3) |                      |        | 955                |         |      |        | 697    |         |   |        | 1,658  |         |   |         | 1,274  |        
|Gains from dispositions of real estate                               |                                  |                      |       |                    |         |      |       |        |         |   |       |        |         |   | (7,429  | )     
|Interest, including amortization                                     |                                  |                      | 39,961 |                    |         |      | 36,242 |        |         |   | 79,784 |        |         |   | 72,157  |       
|Total minority interests share of income                            |                                  |                      | 13,332 |                    |         |      | 11,630 |        |         |   | 25,639 |        |         |   | 22,555  |       
|Total discontinued operations                                        |                                  |                      | (2,553 | )                  |         |      | (6,256 | )      |         |   | (1,451 | )      |         |   | (43,632 | )     
|Discontinued operations EBITDA                                      |                                  |                      | 473    |                    |         |      | 3,709  |        |         |   | 393    |        |         |   | 14,815  |       
|                                                                     |                                  |                      |        |                    |         |      |        |        |         |   |        |        |         |   |         |       
|                                                                     |                                  | EBITDA               |        | $                  | 117,785 |      |        | $      | 109,286 |   |        | $      | 232,893 |   |         | $      | 225,462 | 
|                                                                     |                                  |                      |        |                    |         |      |        |        |         |   |        |        |         |   |         |       



---



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

46



---



##### Table of Contents



The following table reflects the calculation of
EBITDA reconciled to net cash provided by operating activities,
a GAAP financial measure, for the three and six months ended
June 30, 2004 and 2003 (dollars in thousands):

|                                                                     |                                        |                      |        |                    |         |      |        |        |         |   |         |       |         |   |         |        |         | 
|-------------------------------------------------------------------- | -------------------------------------- | -------------------- | ------ | ------------------ | ------- | ---- | ------ | ------ | ------- | - | ------- | ----- | ------- | - | ------- | ------ | ------- | 
|                                                                     |                                        |                      |        |                   
|                                                                     |                                        | For the Three Months |        | For the Six Months
|                                                                     |                                        | Ended June 30,       |        | Ended June 30,    
|                                                                     |                                        |                      |        |                   
|                                                                     |                                        | 2004                 |        | 2003               |         | 2004 |        | 2003  
|                                                                     |                                        |                      |        |                    |         |      |        |       
|Net cash provided by operating activities                            |                                        | $                    | 56,838 |                    |         | $    | 48,356 |        |         | $ | 124,097 |       |         | $ | 125,161 |       
|Straight-line rents                                                  |                                        |                      | 4,695  |                    |         |      | 1,873  |        |         |   | 8,658   |       |         |   | 4,253   |       
|Adjustments to derive EBITDA from unconsolidated
    joint ventures: |                                        |                      |        |                    |         |      |        |        |         |   |         |       |         |   |         |       
|                                                                     | Our share of FFO(1)                    |                      |        | 1,935              |         |      |        | 2,645  |         |   |         | 4,428 |         |   |         | 5,275  |        
|                                                                     | Our share of interest expense(2)       |                      |        | 955                |         |      |        | 697    |         |   |         | 1,658 |         |   |         | 1,274  |        
|Development profits, net of taxes                                    |                                        |                      | 3,235  |                    |         |      |       |        |         |   | 3,235   |       |         |   |        |       
|Interest, including amortization                                     |                                        |                      | 39,961 |                    |         |      | 36,242 |        |         |   | 79,784  |       |         |   | 72,157  |       
|Debt premiums, discounts and finance cost
    amortization, net      |                                        |                      | 1,065  |                    |         |      | (827   | )      |         |   | 726     |       |         |   | (728    | )     
|Recognition of below market leases                                   |                                        |                      | 243    |                    |         |      |       |        |         |   | 448     |       |         |   |        |       
|Discontinued operations interest, including
    amortization        |                                        |                      | (425   | )                  |         |      | 480    |        |         |   | (621    | )     |         |   | 1,787   |       
|Changes in assets and liabilities:                                   |                                        |                      |        |                    |         |      |        |        |         |   |         |       |         |   |         |       
|                                                                     | Accounts receivable and other assets   |                      |        | 7,198              |         |      |        | (861   | )       |   |         | 9,654 |         |   |         | 1,709  |        
|                                                                     | Accounts payable and other liabilities |                      |        | 2,085              |         |      |        | 20,681 |         |   |         | 826   |         |   |         | 14,574 |        
|                                                                     |                                        |                      |        |                    |         |      |        |        |         |   |         |       |         |   |         |       
|                                                                     |                                        | EBITDA               |        | $                  | 117,785 |      |        | $      | 109,286 |   |         | $     | 232,893 |   |         | $      | 225,462 | 
|                                                                     |                                        |                      |        |                    |         |      |        |        |         |   |         |       |         |   |         |       



---



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

47



---



##### Table of Contents



OPERATING AND LEASING STATISTICS
SUMMARY

The following table summarizes key operating and
leasing statistics for all of our industrial properties as of
and for the three and six months ended June 30, 2004
(dollars in thousands):

|                                      |                                                 |               |                  |               |      |      |            |           |      |      | 
|------------------------------------- | ----------------------------------------------- | ------------- | ---------------- | ------------- | ---- | ---- | ---------- | --------- | ---- | ---- | 
|                                      |                                                 | Three Months  |                  | Six Months   
|                                      |                                                 | Ended         |                  | Ended        
|Operating Portfolio(1)                |                                                 | June 30, 2004 |                  | June 30, 2004
|                                      |                                                 |               |                  |              
|Square feet owned at June 30, 2004(2) |                                                 |               | 91,261,881       |               |      |      | 91,261,881 |          
|Occupancy percentage at June 30, 2004 |                                                 |               | 93.6             | %             |      |      | 93.6       | %        
|Weighted average lease terms:         |                                                 |               |                  |               |      |      |            |          
|                                      | Original                                        |               |                  | 6.2 years     |      |      |            | 6.2 years |     
|                                      | Remaining                                       |               |                  | 3.4 years     |      |      |            | 3.4 years |     
|Tenant retention(3)                   |                                                 |               | 71.3             | %             |      |      | 65.7       | %        
|Same Space Leasing Activity:(4)       |                                                 |               |                  |               |      |      |            |          
|                                      | Rent decreases on renewals and rollovers        |               |                  | (13.7         | )%   |      |            | (13.8     | )%  
|                                      | Same space square footage commencing (millions) |               |                  | 4.5           |      |      |            | 9.0       |     
|2nd Generation Leasing
    Activity:  |                                                 |               |                  |               |      |      |            |          
|                                      | TIs and LCs per square foot:                    |               |                  |               |      |      |            |           |     
|                                      |                                                 | Retained      |                  | $             | 1.35 |      |            | $         | 1.69 |     
|                                      |                                                 | Re-tenanted   |                  |               | 2.29 |      |            |           | 2.29 |     
|                                      |                                                 |               |                  |               |      |      |            |          
|                                      |                                                 |               | Weighted average |               | $    | 1.84 |            |           | $    | 2.01 | 
|                                      |                                                 |               |                  |               |      |      |            |          
|                                      | Square footage commencing (millions)            |               |                  | 5.9           |      |      |            | 11.7      |     



---



|    |                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes all consolidated industrial operating
    properties and excludes industrial development and renovation
    projects. Excludes retail and other properties square feet
    of 417,184 with occupancy of 85.2% and annualized base rent of
    $5.7 million.



|    |                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | In addition to owned square feet as of
    June 30, 2004, we managed, through our subsidiary, AMB
    Capital Partners, LLC, approximately 0.5 million additional
    square feet of industrial, retail and other properties. We also
    have investments in approximately 7.8 million square feet
    of industrial operating properties through our investments in
    unconsolidated joint ventures.



|    |                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Tenant retention is the square footage of all
    leases renewed by existing tenants divided by the square footage
    of all expiring and renewed leases during the reporting period,
    excluding the square footage of tenants that default or buy-out
    prior to expiration of their lease, short-term tenants and the
    square footage of month-to-month leases.
|   
|(4) | Consists of all second-generation leases renewing
    or re-tenanting with current and prior lease terms greater than
    one year.                                                                                                                                                                                                                                       

48



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##### Table of Contents



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

|                                                    |                                                 |               |            |               |    |  |            |      |   
|--------------------------------------------------- | ----------------------------------------------- | ------------- | ---------- | ------------- | -- |  | ---------- | ---- | --
|                                                    |                                                 | Three Months  |            | Six Months   
|                                                    |                                                 | Ended         |            | Ended        
|Same Store Pool (1)                                 |                                                 | June 30, 2004 |            | June 30, 2004
|                                                    |                                                 |               |            |              
|Square feet in same store pool at June 30,
    2004 |                                                 |               | 78,788,957 |               |    |  | 78,788,957 |     
|                                                    | % of total industrial square feet               |               |            | 86.3          | %  |  |            | 86.3 | % 
|Occupancy percentage at period end:                 |                                                 |               |            |               |    |  |            |     
|                                                    | June 30, 2004                                   |               |            | 93.5          | %  |  |            | 93.5 | % 
|                                                    | June 30, 2003                                   |               |            | 91.6          | %  |  |            | 91.6 | % 
|Tenant retention(2)                                 |                                                 |               | 68.8       | %             |    |  | 63.5       | %   
|Rent decreases on renewals and rollovers            |                                                 |               | (15.2      | )%            |    |  | (15.2      | )%  
|                                                    | Same space square footage commencing (millions) |               |            | 4.0           |    |  |            | 8.3  |   
|Cash basis NOI growth % increase (decrease):        |                                                 |               |            |               |    |  |            |     
|                                                    | Revenues                                        |               |            | (4.2          | )% |  |            | (3.1 | )%
|                                                    | Expenses                                        |               |            | 1.2           | %  |  |            | 0.6  | % 
|                                                    | NOI                                             |               |            | (6.1          | )% |  |            | (4.4 | )%
|                                                    | NOI without lease termination fees              |               |            | (1.6          | )% |  |            | (2.3 | )%



---



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






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

Market risk is the risk of loss from adverse
changes in market prices, interest rates and foreign exchange
rates. Our future earnings and cash flows are dependent upon
prevailing market rates. Accordingly, we manage our market risk
by matching projected cash inflows from operating, investing and
financing activities with projected cash outflows for debt
service, acquisitions, capital expenditures, distributions to
unitholders and payments to noteholders, and other cash
requirements. The majority of our outstanding debt has fixed
interest rates, which minimizes the risk of fluctuating interest
rates. Our exposure to market risk includes interest rate
fluctuations in connection with our credit facility and other
variable rate borrowings and our ability to incur more debt
without unitholder or noteholder approval, thereby increasing
our debt service obligations, which could adversely affect our
cash flows. As of June 30, 2004, we had no interest rate
caps or swaps. See Part I, Item 2:
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Liquidity and
Capital Resources  Capital Resources 
Market Capitalization. The table below summarizes the
market risks associated with our fixed and variable rate debt
outstanding before unamortized debt premiums of
$12.8 million as of June 30, 2004 (dollars in
thousands):

|                               |  |      |        |      |  |      |         |      |  |      |         |            |  |       |         |   |  |   |         |   |  |   |           |   |  |   |           |  
|------------------------------ |  | ---- | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ------- | ---------- |  | ----- | ------- | - |  | - | ------- | - |  | - | --------- | - |  | - | --------- | -
|                               |  | 2004 |        | 2005 |  | 2006 |         | 2007 |  | 2008 |         | Thereafter |  | Total
|                               |  |      |        |      |  |      |         |      |  |      |         |            |  |      
|Fixed rate debt(1)             |  | $    | 69,203 |      |  | $    | 356,466 |      |  | $    | 169,102 |            |  | $     | 141,962 |   |  | $ | 371,971 |   |  | $ | 1,360,632 |   |  | $ | 2,469,336 |  
|Weighted average interest rate |  |      | 6.8    | %    |  |      | 7.0     | %    |  |      | 6.7     | %          |  |       | 7.0     | % |  |   | 6.8     | % |  |   | 6.4       | % |  |   | 6.6       | %
|Variable rate debt(2)          |  | $    | 868    |      |  | $    | 1,817   |      |  | $    | 78,562  |            |  | $     | 411,058 |   |  | $ | 5,673   |   |  | $ | 34,828    |   |  | $ | 532,806   |  
|Weighted average interest rate |  |      | 3.7    | %    |  |      | 3.7     | %    |  |      | 2.0     | %          |  |       | 1.8     | % |  |   | 4.1     | % |  |   | 4.1       | % |  |   | 2.0       | %
|Interest Payments              |  | $    | 4,738  |      |  | $    | 25,020  |      |  | $    | 12,901  |            |  | $     | 17,336  |   |  | $ | 25,527  |   |  | $ | 88,508    |   |  | $ | 174,030   |  



---



|    |                                          
|--- | -----------------------------------------
|(1) | Represents 82.3% of all outstanding debt.
|   
|(2) | Represents 17.7% of all outstanding debt.

49



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##### Table of Contents



If market rates of interest on our variable rate
debt increased by 10% (or approximately 13 basis points),
then the increase in interest expense on the variable rate debt
would be $0.7 million annually. As of June 30, 2004,
the estimated fair value of our fixed rate debt was
$2,641.6 million based on our estimate of current market
interest rates.

As of June 30, 2004 and December 31,
2003, variable rate debt comprised 17.8% and 14.7%,
respectively, of all our outstanding debt. Variable rate debt
was $532.8 million and $378.0 million, respectively,
as of June 30, 2004 and December 31, 2003. The
increase is primarily due to higher outstanding balances on our
credit facilities. This increase in our variable rate debt
increases our risk associated with unfavorable interest rate
fluctuations.

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

|                                   |  |                   |       |           |  |       |      |            |  |   |       |  |  |   |    | 
|---------------------------------- |  | ----------------- | ----- | --------- |  | ----- | ---- | ---------- |  | - | ----- |  |  | - | -- | 
|                                   |  |                   |       |           |  |      
|                                   |  | Transaction Dates |       |           |  |      
|                                   |  |                   |       |           |  |      
|Related Derivatives (in thousands) |  | July-04           |       | August-04 |  | Total |      | Fair Value
|                                   |  |                   |       |           |  |       |      |           
|Foreign Exchange Agreements:       |  |                   |       |           |  |       |      |            |  |   |       |  |  |   |    | 
|Option to Sell MXN/ Buy USD        |  |                   |       |           |  |       |      |            |  |   |       |  |  |   |    | 
|Contract Amount (USD)              |  | $                 | 1,694 |           |  | $     | 804  |            |  | $ | 2,498 |  |  |   |    | 
|Contract FX Rate                   |  |                   | 11.9  |           |  |       | 11.6 |            |  |   | 11.8  |  |  |   |    | 
|Contract Premium                   |  | $                 | 28    |           |  | $     | 16   |            |  | $ | 44    |  |  | $ | 13 | 

Foreign Operations.Our exposure to market risk also includes foreign currency
exchange rate risk. The U.S. dollar is the functional
currency for our subsidiaries operating in the United States and
Mexico. The functional currency for our subsidiaries operating
outside North America is generally the local currency of the
country in which the entity is located, mitigating the effect of
foreign exchange gains and losses. Our subsidiaries whose
functional currency is not the U.S. dollar translate their
financial statements into U.S. dollars. Assets and
liabilities are translated at the exchange rate in effect as of
the financial statement date. We translate income statement
accounts using the average exchange rate for the period and
significant nonrecurring transactions using the rate on the
transaction date. Losses resulting from the translation are
included in accumulated other comprehensive income as a separate
component of stockholders equity and totaled
$0.1 million for the six months ended June 30, 2004.

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

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






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

We maintain disclosure controls and procedures
that are designed to ensure that information required to be
disclosed in our reports filed under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the
U.S. Securities and Exchange Commissions rules and
forms, and that such information is accumulated and communicated
to our

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management, including our general partners
chief executive officer, president and chief financial officer,
as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls
and procedures, our management recognized that any controls and
procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired
control objectives, and our management was required to apply its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Also, we have investments in certain
unconsolidated entities, which are accounted for using the
equity method of accounting. As we do not control or manage
these entities, our disclosure controls and procedures with
respect to such entities are necessarily substantially more
limited than those we maintain with respect to our consolidated
subsidiaries.


As required by Rule 13a-15(b) of the
Securities Exchange Act of 1934, as amended, we carried out an
evaluation, under the supervision and with the participation of
our management, including our general partners chief
executive officer, president and chief financial officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the quarter covered by
this report. Based on the foregoing, our general partners
chief executive officer, president and chief financial officer
each concluded that our disclosure controls and procedures were
effective at the reasonable assurance level.

There have been no changes in our internal
control over financial reporting during our most recent fiscal
quarter that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.




PART II






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

As of June 30, 2004, there were no pending
legal proceedings to which we are a party or of which any of our
properties is the subject, the adverse determination of which we
anticipate would have a material adverse effect upon our
financial condition and results of operations.






|        |                                              
|------- | ---------------------------------------------
|Item 2. | Changes in Securities and Use of
    Proceeds

None.






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

None.






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

AMB Property Corporation held its Annual Meeting
of Stockholders on May 20, 2004, at which its stockholders
voted to elect nine directors, who are listed below, to its
Board of Directors to serve until the next annual meeting of
stockholders and until their successors are duly elected and
qualified. The stockholders votes with respect to the
election of directors were as follows:

|                          |  |     |            |          |  |  |         | 
|------------------------- |  | --- | ---------- | -------- |  |  | ------- | 
|                          |  | For |            | Withheld
|                          |  |     |            |         
|Hamid R. Moghadam         |  |     | 61,958,000 |          |  |  | 885,109 | 
|W. Blake Baird            |  |     | 62,660,903 |          |  |  | 182,205 | 
|T. Robert Burke           |  |     | 62,664,592 |          |  |  | 178,516 | 
|David A. Cole             |  |     | 62,665,780 |          |  |  | 177,329 | 
|J. Michael Losh           |  |     | 62,059,207 |          |  |  | 783,902 | 
|Frederick W. Reid         |  |     | 62,661,336 |          |  |  | 181,773 | 
|Jeffrey L. Skelton, Ph.D. |  |     | 62,425,314 |          |  |  | 417,795 | 
|Thomas W. Tusher          |  |     | 62,665,093 |          |  |  | 178,015 | 
|Caryl B. Welborn, Esq.    |  |     | 62,425,718 |          |  |  | 417,391 | 

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At its Annual Meeting of Stockholders on
May 20, 2004, its stockholders also ratified the selection
of PricewaterhouseCoopers LLP as its independent auditors for
the fiscal year ending December 31, 2004. The
stockholders votes with respect to the ratification of
PricewaterhouseCoopers LLP as its independent auditors were as
follows:

|                                           |  |     |            |         |  |            |         |           |  |  |        |  |  |  |   | 
|------------------------------------------ |  | --- | ---------- | ------- |  | ---------- | ------- | --------- |  |  | ------ |  |  |  | - | 
|                                           |  |     |            |         |  |            |         | Broker   
|                                           |  | For |            | Against |  | Absentions |         | Non-votes
|                                           |  |     |            |         |  |            |         |          
|Ratification of PricewaterhouseCoopers LLP |  |     | 62,036,337 |         |  |            | 780,572 |           |  |  | 26,198 |  |  |  | 0 | 






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

None.






|        |                                     
|------- | ------------------------------------
|Item 6. | Exhibits and Reports on
    Form 8-K

(a) Exhibits:

|        |      |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | ---- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 10.1 |             |  | Second Amended and Restated Revolving Credit
    Agreement, dated as of June 1, 2004 by and among AMB
    Property L.P., the banks listed therein, JPMorgan Chase Bank, as
    administrative agent, J.P. Morgan Europe Limited, as
    administrative agent for alternate currencies, Bank of America,
    N.A., as syndication agent, J.P. Morgan Securities Inc. and
    Banc of America Securities LLC, as joint lead arrangers and
    joint bookrunners, Commerzbank Aktiengesellschaft New York and
    Grand Cayman Branches, PNC Bank National Association and
    Wachovia Bank, N.A., as documentation agents, KeyBank National
    Association, The Bank of Nova Scotia, acting through its
    San Francisco Agency, and Wells Fargo Bank, N.A., as
    managing agents, and ING Real Estate Finance (USA) LLC,
    Southtrust Bank and Union Bank of California, N.A., as co-agents
    (incorporated by reference to Exhibit 10.1 of AMB Property
    L.P.s Current Report on Form 8-K filed on
    June 10, 2004).
|        | 10.2 |             |  | Guaranty of Payment, dated as of June 1,
    2004 by AMB Property Corporation for the benefit of JPMorgan
    Chase Bank, as administrative agent, and J.P. Morgan Europe
    Limited, as administrative agent for alternate currencies, for
    the banks listed on the signature page to the Second Amended and
    Restated Revolving Credit Agreement (incorporated by reference
    to Exhibit 10.2 of AMB Property L.P.s Current Report
    on Form 8-K filed on June 10, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.3 |             |  | Qualified Borrower Guaranty, dated as of
    June 1, 2004 by AMB Property, L.P. for the benefit of
    JPMorgan Chase Bank and J.P. Morgan Europe Limited, as
    administrative agents for the banks listed on the signature page
    to the Second Amended and Restated Revolving Credit Agreement
    (incorporated by reference to Exhibit 10.3 of AMB Property
    L.P.s Current Report on Form 8-K filed on
    June 10, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10.4 |             |  | Revolving Credit Agreement, dated as of
    June 29, 2004, by and among AMB Japan Finance Y.K., as
    initial borrower, AMB Property, L.P., as guarantor, AMB Property
    Corporation, as guarantor, the banks listed on the signature
    pages thereof, and Sumitomo Mitsui Banking Corporation, as
    administrative agent and sole lead arranger and bookmanager
    (incorporated by reference to Exhibit 10.1 of AMB Property
    L.P.s Current Report on Form 8-K filed on
    July 2, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.5 |             |  | Guaranty of Payment, dated as of June 29,
    2004 by AMB Property, L.P. and AMB Property Corporation for the
    benefit of Sumitomo Mitsui Banking Corporation, as
    administrative agent and sole lead arranger and bookmanager, for
    the banks that are from time to time parties to the Revolving
    Credit Agreement (incorporated by reference to Exhibit 10.2
    of AMB Property L.P.s Current Report on Form 8-K
    filed on July 2, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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|        |      |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- | ---- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 31.1 |             |  | Rule 13a-14 (a)/15d-14
    (a) Certifications dated August 9, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 32.1 |             |  | 18 U.S.C.§ 1350 Certifications
    dated August 9, 2004. The certifications in this exhibit
    are being furnished solely to accompany this report pursuant to
    18 U.S.C. sec. 1350, and are not being filed for purposes
    of Section 18 of the Securities Exchange Act of 1934, as
    amended, and are not to be incorporated by reference into any of
    our filings, whether made before or after the date hereof,
    regardless of any general incorporation language in such filing.

(b) Reports on Form 8-K:

AMB Property, L.P. filed a Current Report on
Form 8-K on June 10, 2004, in connection with the
agreement to enter into a second amended and restated
$500 million unsecured revolving credit facility.

AMB Property, L.P. filed a Current Report on
Form 8-K on July 2, 2004, in connection with AMB Japan
Finance, Y.K., an affiliate of AMB Property, L.P., entering into
an unsecured revolving credit agreement.

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SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.



| |                                                  
| | -------------------------------------------------
| | AMB PROPERTY, L.P.                               
|
| | Registrant                                       
|
| | By: AMB Property Corporation, its General Partner



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

| |                             
| | ----------------------------
| |                             
| | Hamid R. Moghadam           
| | Chairman and CEO            
| | (Duly Authorized Officer and
| | Principal Executive Officer)



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

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



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

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

Date: August 9, 2004

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Exhibit Index ExhibitNumber
    
    Description10.1
    
    Second Amended and Restated Revolving Credit Agreement, dated as
of June 1, 2004 by and among AMB Property L.P., the banks listed
therein, JPMorgan Chase Bank, as administrative agent, J.P. Morgan
Europe Limited, as administrative agent for alternate currencies,
Bank of America, N.A., as syndication agent, J.P. Morgan
Securities Inc. and Banc of America Securities LLC, as joint lead
arrangers and joint bookrunners, Commerzbank Aktiengesellschaft
New York and Grand Cayman Branches, PNC Bank National Association
and Wachovia Bank, N.A., as documentation agents, KeyBank National
Association, The Bank of Nova Scotia, acting through its San
Francisco Agency, and Wells Fargo Bank, N.A., as managing agents,
and ING Real Estate Finance (USA) LLC, Southtrust Bank and Union
Bank of California, N.A., as co-agents (incorporated by reference
to Exhibit 10.1 of AMB Property L.P.s Current Report on Form 8-K
filed on June 10, 2004).10.2
    
    Guaranty of Payment, dated as of June 1, 2004 by AMB Property
Corporation for the benefit of JPMorgan Chase Bank, as
administrative agent, and J.P. Morgan Europe Limited, as
administrative agent for alternate currencies, for the banks
listed on the signature page to the Second Amended and Restated
Revolving Credit Agreement (incorporated by reference to Exhibit
10.2 of AMB Property L.P.s Current Report on Form 8-K filed on
June 10, 2004).10.3
    
    Qualified Borrower Guaranty, dated as of June 1, 2004 by AMB
Property, L.P. for the benefit of JPMorgan Chase Bank and J.P.
Morgan Europe Limited, as administrative agents for the banks
listed on the signature page to the Second Amended and Restated
Revolving Credit Agreement (incorporated by reference to Exhibit
10.3 of AMB Property L.P.s Current Report on Form 8-K filed on
June 10, 2004).10.4
    
    Revolving Credit Agreement, dated as of June 29, 2004, by and
among AMB Japan Finance Y.K., as initial borrower, AMB Property,
L.P., as guarantor, AMB Property Corporation, as guarantor, the
banks listed on the signature pages thereof, and Sumitomo Mitsui
Banking Corporation, as administrative agent and sole lead
arranger and bookmanager (incorporated by reference to Exhibit
10.1 of AMB Property L.P.s Current Report on Form 8-K filed on
July 2, 2004).10.5
    
    Guaranty of Payment, dated as of June 29, 2004 by AMB Property,
L.P. and AMB Property Corporation for the benefit of Sumitomo
Mitsui Banking Corporation, as administrative agent and sole lead
arranger and bookmanager, for the banks that are from time to time
parties to the Revolving Credit Agreement (incorporated by
reference to Exhibit 10.2 of AMB Property L.P.s Current Report on
Form 8-K filed on July 2, 2004).31.1
    
    Rule 13a-14 (a)/15d-14 (a) Certifications dated August 9, 2004.32.1
    
    18 U.S.C.§ 1350 Certifications dated August 9, 2004. The
certifications in this exhibit are being furnished solely to
accompany this report pursuant to 18 U.S.C. sec. 1350, and are not
being filed for purposes of Section 18 of the Securities Exchange
Act of 1934, as amended, and are not to be incorporated by
reference into any of our filings, whether made before or after
the date hereof, regardless of any general incorporation language
in such filing.