##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549




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FORM 10-Q



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|           |  |                                                                                            
|---------- |  | -------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                            
|þ          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the quarterly period ended March 31,
    2003                                          
|          
|or        
|          
|o          |  | REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934          

Commission File Number: 001-13545

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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TABLE OF CONTENTS



|                                            |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                     
|                                            | Item 1. Financial Statements                                                                 
|AMB PROPERTY, L.P.                         
|CONSOLIDATED STATEMENTS OF CASH FLOWS      
|CONSOLIDATED STATEMENT OF PARTNERS CAPITAL
|                                            | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                            | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                            | Item 4. Controls and Procedures                                                              
|PART II                                    
|                                            | Item 1. Legal Proceedings                                                                    
|                                            | Item 2. Changes in Securities and Use of Proceeds                                            
|                                            | Item 3. Defaults Upon Senior Securities                                                      
|                                            | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                                            | Item 5. Other Information                                                                    
|                                            | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                 
|CERTIFICATIONS                             



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##### Table of Contents



AMB PROPERTY, L.P.

INDEX

|                              |  |                                                                                              |  |      |    | 
|----------------------------- |  | -------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                              |  |                                                                                              |  | Page
|                              |  |                                                                                              |  |     
|PART I. FINANCIAL INFORMATION
|Item 1.                       |  | Financial Statements (unaudited)                                                             |  |      |    | 
|                              |  | Consolidated Balance Sheets as of March 31,
    2003, and December 31, 2002                  |  |      | 1  | 
|                              |  | Consolidated Statements of Operations for the
    three months ended March 31, 2003 and 2002 |  |      | 2  | 
|                              |  | Consolidated Statements of Cash Flows for the
    three months ended March 31, 2003 and 2002 |  |      | 3  | 
|                              |  | Consolidated Statement of Partners Capital
    for the three months ended March 31, 2003    |  |      | 4  | 
|                              |  | Notes to Consolidated Financial Statements                                                   |  |      | 5  | 
|Item 2.                       |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations    |  |      | 19 | 
|Item 3.                       |  | Quantitative and Qualitative Disclosures About
    Market Risk                               |  |      | 37 | 
|Item 4.                       |  | Controls and Procedures                                                                      |  |      | 37 | 
|PART II. OTHER INFORMATION   
|Item 1.                       |  | Legal Proceedings                                                                            |  |      | 38 | 
|Item 2.                       |  | Changes in Securities and Use of Proceeds                                                    |  |      | 38 | 
|Item 3.                       |  | Defaults Upon Senior Securities                                                              |  |      | 38 | 
|Item 4.                       |  | Submission of Matters to a Vote of Security
    Holders                                      |  |      | 38 | 
|Item 5.                       |  | Other Information                                                                            |  |      | 38 | 
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                             |  |      | 48 | 



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##### Table of Contents






PART I






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




AMB PROPERTY, L.P.

CONSOLIDATED BALANCE SHEETS

As of March 31, 2003 and
December 31, 2002


|                                                                      |                                                                                                                                                                                                                                                                                   |                                         |                                |              |           |           |         |           |           |           | 
|--------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------- | ------------------------------ | ------------ | --------- | --------- | ------- | --------- | --------- | --------- | 
|                                                                      |                                                                                                                                                                                                                                                                                   | March 31,                               |                                | December 31,
|                                                                      |                                                                                                                                                                                                                                                                                   | 2003                                    |                                | 2002        
|                                                                      |                                                                                                                                                                                                                                                                                   |                                         |                                |             
|                                                                      |                                                                                                                                                                                                                                                                                   |                                        
|                                                                      |                                                                                                                                                                                                                                                                                   | (Unaudited,                            
|                                                                      |                                                                                                                                                                                                                                                                                   | dollars in thousands)                  
|ASSETS                                                               
|Investments in real estate:                                           |                                                                                                                                                                                                                                                                                   |                                         |                                |              |           |           |         |          
|                                                                      | Land                                                                                                                                                                                                                                                                              |                                         | $                              | 1,213,631    |           |           | $       | 1,236,406 |          
|                                                                      | Buildings and improvements                                                                                                                                                                                                                                                        |                                         |                                | 3,475,523    |           |           |         | 3,557,086 |          
|                                                                      | Construction in progress                                                                                                                                                                                                                                                          |                                         |                                | 180,587      |           |           |         | 132,490   |          
|                                                                      |                                                                                                                                                                                                                                                                                   |                                         |                                |              |           |           |         |          
|                                                                      |                                                                                                                                                                                                                                                                                   | Total investments in properties         |                                |              | 4,869,741 |           |         |           | 4,925,982 |          
|                                                                      | Accumulated depreciation and amortization                                                                                                                                                                                                                                         |                                         |                                | (382,900     | )         |           |         | (362,540  | )        
|                                                                      |                                                                                                                                                                                                                                                                                   |                                         |                                |              |           |           |         |          
|                                                                      |                                                                                                                                                                                                                                                                                   | Net investments in properties           |                                |              | 4,486,841 |           |         |           | 4,563,442 |          
|Investments in unconsolidated joint ventures                          |                                                                                                                                                                                                                                                                                   |                                         | 67,754                         |              |           |           | 64,428  |          
|Properties held for divestiture, net                                  |                                                                                                                                                                                                                                                                                   |                                         | 59,742                         |              |           |           | 107,871 |          
|                                                                      |                                                                                                                                                                                                                                                                                   |                                         |                                |              |           |           |         |          
|                                                                      |                                                                                                                                                                                                                                                                                   |                                         | Net investments in real estate |              |           | 4,614,337 |         |           |           | 4,735,741 | 
|Cash and cash equivalents                                             |                                                                                                                                                                                                                                                                                   |                                         | 134,793                        |              |           |           | 89,332  |          
|Restricted cash                                                       |                                                                                                                                                                                                                                                                                   |                                         | 15,115                         |              |           |           | 27,882  |          
|Mortgage receivable                                                   |                                                                                                                                                                                                                                                                                   |                                         | 13,112                         |              |           |           | 13,133  |          
|Accounts receivable, net of allowance for
    doubtful accounts       |                                                                                                                                                                                                                                                                                   |                                         | 76,056                         |              |           |           | 74,207  |          
|Other assets                                                          |                                                                                                                                                                                                                                                                                   |                                         | 51,909                         |              |           |           | 52,199  |          
|                                                                      |                                                                                                                                                                                                                                                                                   |                                         |                                |              |           |           |         |          
|                                                                      |                                                                                                                                                                                                                                                                                   | Total assets                            |                                | $            | 4,905,322 |           |         | $         | 4,992,494 |          
|                                                                      |                                                                                                                                                                                                                                                                                   |                                         |                                |              |           |           |         |          
|LIABILITIES AND PARTNERS
    CAPITAL                                
|Debt:                                                                 |                                                                                                                                                                                                                                                                                   |                                         |                                |              |           |           |         |          
|                                                                      | Secured debt                                                                                                                                                                                                                                                                      |                                         | $                              | 1,250,528    |           |           | $       | 1,284,675 |          
|                                                                      | Unsecured senior debt securities                                                                                                                                                                                                                                                  |                                         |                                | 800,000      |           |           |         | 800,000   |          
|                                                                      | Alliance Fund II credit facility                                                                                                                                                                                                                                                  |                                         |                                | 51,500       |           |           |         | 45,500    |          
|                                                                      | Unsecured debt                                                                                                                                                                                                                                                                    |                                         |                                | 10,050       |           |           |         | 10,186    |          
|                                                                      | Unsecured credit facility                                                                                                                                                                                                                                                         |                                         |                                | 17,464       |           |           |         | 95,000    |          
|                                                                      |                                                                                                                                                                                                                                                                                   |                                         |                                |              |           |           |         |          
|                                                                      |                                                                                                                                                                                                                                                                                   | Total debt                              |                                |              | 2,129,542 |           |         |           | 2,235,361 |          
|Distributions payable                                                 |                                                                                                                                                                                                                                                                                   |                                         | 41,441                         |              |           |           | 41,213  |          
|Accounts payable and other liabilities                                |                                                                                                                                                                                                                                                                                   |                                         | 146,609                        |              |           |           | 140,503 |          
|                                                                      |                                                                                                                                                                                                                                                                                   |                                         |                                |              |           |           |         |          
|                                                                      |                                                                                                                                                                                                                                                                                   | Total liabilities                       |                                |              | 2,317,592 |           |         |           | 2,417,077 |          
|Commitments and contingencies (Notes 3 and 12)
    Minority interests |                                                                                                                                                                                                                                                                                   |                                         | 665,026                        |              |           |           | 655,790 |          
|Partners capital:                                                    |                                                                                                                                                                                                                                                                                   |                                         |                                |              |           |           |         |          
|                                                                      | General partner, 81,304,915 and 81,800,038 units,
    respectively and 3,995,800 Series A preferred units
    outstanding with a $99,895 liquidation preference                                                                                                                   |                                         |                                | 1,687,101    |           |           |         | 1,684,150 |          
|                                                                      | Limited partners, 4,846,387 units, 1,300,000
    Series B preferred units with a $65,000 liquidation
    preference and 800,000 Series J preferred units with a
    $40,000 liquidation preference and 800,000 Series K
    preferred units with a $40,000 liquidation preference |                                         |                                | 235,603      |           |           |         | 235,477   |          
|                                                                      |                                                                                                                                                                                                                                                                                   |                                         |                                |              |           |           |         |          
|                                                                      |                                                                                                                                                                                                                                                                                   | Total partners capital                 |                                |              | 1,922,704 |           |         |           | 1,919,627 |          
|                                                                      |                                                                                                                                                                                                                                                                                   |                                         |                                |              |           |           |         |          
|                                                                      |                                                                                                                                                                                                                                                                                   | Total liabilities and partners capital |                                | $            | 4,905,322 |           |         | $         | 4,992,494 |          
|                                                                      |                                                                                                                                                                                                                                                                                   |                                         |                                |              |           |           |         |          

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

1



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##### Table of Contents



AMB PROPERTY, L.P.

CONSOLIDATED STATEMENTS OF
OPERATIONS

For the three months ended March 31, 2003
and 2002


|                                                            |                                                                                |                            |                               |                                                                             |        |        |         |            |        |       |         |  
|----------------------------------------------------------- | ------------------------------------------------------------------------------ | -------------------------- | ----------------------------- | --------------------------------------------------------------------------- | ------ | ------ | ------- | ---------- | ------ | ----- | ------- | -
|                                                            |                                                                                |                           
|                                                            |                                                                                | For the Three Months Ended
|                                                            |                                                                                | March 31,                 
|                                                            |                                                                                |                           
|                                                            |                                                                                | 2003                       |                               | 2002                                                                       
|                                                            |                                                                                |                            |                               |                                                                            
|                                                            |                                                                                |                           
|                                                            |                                                                                | (Unaudited,               
|                                                            |                                                                                | dollars in thousands,     
|                                                            |                                                                                | except per unit amounts)  
|REVENUES AND OTHER INCOME                                   |                                                                                |                            |                               |                                                                             |        |        |         |           
|                                                            | Rental revenues                                                                |                            | $                             | 158,036                                                                     |        |        | $       | 141,781    |       
|                                                            | Equity in earnings of unconsolidated joint
    ventures                        |                            |                               | 1,235                                                                       |        |        |         | 1,483      |       
|                                                            | Private capital income                                                         |                            |                               | 2,361                                                                       |        |        |         | 2,588      |       
|                                                            | Interest and other income                                                      |                            |                               | 1,393                                                                       |        |        |         | 2,850      |       
|                                                            |                                                                                |                            |                               |                                                                             |        |        |         |           
|                                                            |                                                                                |                            |                               | Total revenues and other income                                             |        |        | 163,025 |            |        |       | 148,702 |  
|EXPENSES                                                    |                                                                                |                            |                               |                                                                             |        |        |         |           
|                                                            | Property operating expenses                                                    |                            |                               | 22,138                                                                      |        |        |         | 17,459     |       
|                                                            | Real estate taxes                                                              |                            |                               | 18,249                                                                      |        |        |         | 17,044     |       
|                                                            | Interest, including amortization                                               |                            |                               | 37,180                                                                      |        |        |         | 35,004     |       
|                                                            | Depreciation and amortization                                                  |                            |                               | 35,022                                                                      |        |        |         | 27,832     |       
|                                                            | General and administrative                                                     |                            |                               | 12,174                                                                      |        |        |         | 10,137     |       
|                                                            |                                                                                |                            |                               |                                                                             |        |        |         |           
|                                                            |                                                                                |                            |                               | Total expenses                                                              |        |        | 124,763 |            |        |       | 107,476 |  
|                                                            |                                                                                |                            |                               |                                                                             |        |        |         |           
|                                                            |                                                                                |                            |                               | Income before minority interests                                            |        |        | 38,262  |            |        |       | 41,226  |  
|                                                            | Minority interests share of income
    Preferred units                        |                            |                               | (3,388                                                                      | )      |        |         | (3,537     | )     
|                                                            |                                                                                | Minority interests         |                               |                                                                             | (7,781 | )      |         |            | (7,966 | )    
|                                                            |                                                                                |                            |                               |                                                                             |        |        |         |           
|                                                            |                                                                                |                            |                               | Total minority interests share of income                                   |        |        | (11,169 | )          |        |       | (11,503 | )
|                                                            |                                                                                |                            |                               |                                                                             |        |        |         |           
|                                                            |                                                                                |                            |                               | Income from continuing operations before
    gains/(losses) on dispositions |        |        | 27,093  |            |        |       | 29,723  |  
|                                                            | Gains/(losses) from dispositions of real estate,
    net of minority interests |                            |                               | 7,429                                                                       |        |        |         | (288       | )     
|                                                            |                                                                                |                            |                               |                                                                             |        |        |         |           
|                                                            |                                                                                |                            |                               | Income from continuing operations                                           |        |        | 34,522  |            |        |       | 29,435  |  
|Discontinued operations, net of minority
    interests:     |                                                                                |                            |                               |                                                                             |        |        |         |           
|                                                            | Income attributable to discontinued operations                                 |                            |                               | 1,606                                                                       |        |        |         | 4,988      |       
|                                                            | Gains from dispositions of real estate,
    discontinued operations            |                            |                               | 29,644                                                                      |        |        |         |           |       
|                                                            |                                                                                |                            |                               |                                                                             |        |        |         |           
|                                                            |                                                                                |                            | Total discontinued operations |                                                                             |        | 31,250 |         |            |        | 4,988 |        
|                                                            |                                                                                |                            |                               |                                                                             |        |        |         |           
|                                                            |                                                                                |                            |                               | Net income                                                                  |        |        | 65,772  |            |        |       | 34,423  |  
|                                                            | Series A preferred unit distributions                                          |                            |                               | (2,123                                                                      | )      |        |         | (2,125     | )     
|                                                            | Series B preferred unit distributions                                          |                            |                               | (1,402                                                                      | )      |        |         | (1,402     | )     
|                                                            | Series J preferred unit distributions                                          |                            |                               | (795                                                                        | )      |        |         | (918       | )     
|                                                            | Series K preferred unit distributions                                          |                            |                               | (795                                                                        | )      |        |         |           |       
|                                                            |                                                                                |                            |                               |                                                                             |        |        |         |           
|                                                            |                                                                                |                            |                               | Net income available to common unitholders                                  |        | $      | 60,657  |            |        | $     | 29,978  |  
|                                                            |                                                                                |                            |                               |                                                                             |        |        |         |           
|Income available to common unitholders
    attributable to: |                                                                                |                            |                               |                                                                             |        |        |         |           
|                                                            | General partner                                                                |                            |                               | 57,255                                                                      |        |        |         | 28,178     |       
|                                                            | Limited partners                                                               |                            |                               | 3,402                                                                       |        |        |         | 1,800      |       
|                                                            |                                                                                |                            |                               |                                                                             |        |        |         |           
|                                                            |                                                                                |                            |                               | Net income available to common unitholders                                  |        | $      | 60,657  |            |        | $     | 29,978  |  
|                                                            |                                                                                |                            |                               |                                                                             |        |        |         |           
|BASIC INCOME PER COMMON UNIT                                |                                                                                |                            |                               |                                                                             |        |        |         |           
|                                                            | Income from continuing operations available to
    common unitholders          |                            | $                             | 0.34                                                                        |        |        | $       | 0.28       |       
|                                                            | Discontinued operations                                                        |                            |                               | 0.37                                                                        |        |        |         | 0.06       |       
|                                                            |                                                                                |                            |                               |                                                                             |        |        |         |           
|                                                            |                                                                                |                            |                               | Net income available to common unitholders                                  |        | $      | 0.71    |            |        | $     | 0.34    |  
|                                                            |                                                                                |                            |                               |                                                                             |        |        |         |           
|DILUTED INCOME PER COMMON UNIT                              |                                                                                |                            |                               |                                                                             |        |        |         |           
|                                                            | Income from continuing operations available to
    common unitholders          |                            | $                             | 0.33                                                                        |        |        | $       | 0.27       |       
|                                                            | Discontinued operations                                                        |                            |                               | 0.36                                                                        |        |        |         | 0.06       |       
|                                                            |                                                                                |                            |                               |                                                                             |        |        |         |           
|                                                            |                                                                                |                            |                               | Net income available to common unitholders                                  |        | $      | 0.69    |            |        | $     | 0.33    |  
|                                                            |                                                                                |                            |                               |                                                                             |        |        |         |           
|WEIGHTED AVERAGE COMMON UNITS OUTSTANDING                   |                                                                                |                            |                               |                                                                             |        |        |         |           
|                                                            | Basic                                                                          |                            |                               | 85,944,112                                                                  |        |        |         | 88,262,128 |       
|                                                            |                                                                                |                            |                               |                                                                             |        |        |         |           
|                                                            | Diluted                                                                        |                            |                               | 87,360,543                                                                  |        |        |         | 89,724,953 |       
|                                                            |                                                                                |                            |                               |                                                                             |        |        |         |           

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

2



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##### Table of Contents



AMB PROPERTY, L.P.






CONSOLIDATED STATEMENTS OF CASH
FLOWS


For the three months ended March 31, 2003
and 2002


|                                                                                      |                                                                                 |                                        |                                                          |                                                  |        |          |         |        |         |         |        | 
|------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | -------------------------------------- | -------------------------------------------------------- | ------------------------------------------------ | ------ | -------- | ------- | ------ | ------- | ------- | ------ | 
|                                                                                      |                                                                                 | 2003                                   |                                                          | 2002                                            
|                                                                                      |                                                                                 |                                        |                                                          |                                                 
|                                                                                      |                                                                                 |                                       
|                                                                                      |                                                                                 | (Unaudited, dollars in                
|                                                                                      |                                                                                 | thousands)                            
|CASH FLOWS FROM OPERATING ACTIVITIES                                                  |                                                                                 |                                        |                                                          |                                                  |        |          |         |       
|Net income                                                                            |                                                                                 | $                                      | 65,772                                                   |                                                  |        | $        | 34,423  |       
|Adjustments to net income:                                                            |                                                                                 |                                        |                                                          |                                                  |        |          |         |       
|                                                                                      | Equity in earnings of unconsolidated joint
    ventures                         |                                        |                                                          | (1,235                                           | )      |          |         | (1,483 | )      
|                                                                                      | Straight-line rents                                                             |                                        |                                                          | (2,380                                           | )      |          |         | (3,961 | )      
|                                                                                      | Debt premiums, discounts and finance cost
    amortization, net                 |                                        |                                                          | (99                                              | )      |          |         | (482   | )      
|                                                                                      | Depreciation and amortization, including
    discontinued operations            |                                        |                                                          | 35,173                                           |        |          |         | 29,675 |        
|                                                                                      | Stock-based compensation amortization                                           |                                        |                                                          | 1,942                                            |        |          |         | 859    |        
|                                                                                      | Minority interests, including discontinued
    operations                       |                                        |                                                          | 11,169                                           |        |          |         | 11,503 |        
|                                                                                      | Gains/ (losses) from dispositions of real estate,
    net of minority interests |                                        |                                                          | (37,073                                          | )      |          |         | 288    |        
|                                                                                      | Changes in assets and liabilities:                                              |                                        |                                                          |                                                  |        |          |         |        |        
|                                                                                      |                                                                                 | Accounts receivable and other assets   |                                                          |                                                  | (2,570 | )        |         |        | (3,076  | )      
|                                                                                      |                                                                                 | Accounts payable and other liabilities |                                                          |                                                  | 6,106  |          |         |        | (19,502 | )      
|                                                                                      |                                                                                 |                                        |                                                          |                                                  |        |          |         |       
|                                                                                      |                                                                                 |                                        | Net cash provided by operating activities                |                                                  |        | 76,805   |         |        |         | 48,244  |       
|CASH FLOWS FROM INVESTING ACTIVITIES                                                  |                                                                                 |                                        |                                                          |                                                  |        |          |         |       
|Change in restricted cash                                                             |                                                                                 |                                        | 12,767                                                   |                                                  |        |          | (4,002  | )     
|Cash paid for property acquisitions                                                   |                                                                                 |                                        | (10,494                                                  | )                                                |        |          | (30,486 | )     
|Additions to buildings, development costs and
    other first generation improvements |                                                                                 |                                        | (56,058                                                  | )                                                |        |          | (13,991 | )     
|Additions to second generation building
    improvements and lease costs              |                                                                                 |                                        | (10,880                                                  | )                                                |        |          | (11,223 | )     
|Additions to interests in unconsolidated joint
    ventures                           |                                                                                 |                                        | (809                                                     | )                                                |        |          |        |       
|Distributions received from unconsolidated joint
    ventures                         |                                                                                 |                                        | 2,116                                                    |                                                  |        |          | 1,433   |       
|Net proceeds from divestiture of real estate                                          |                                                                                 |                                        | 200,522                                                  |                                                  |        |          | 36,923  |       
|                                                                                      |                                                                                 |                                        |                                                          |                                                  |        |          |         |       
|                                                                                      |                                                                                 |                                        | Net cash provided by/ (used in) investing
    activities |                                                  |        | 137,164  |         |        |         | (21,346 | )     
|CASH FLOWS FROM FINANCING ACTIVITIES                                                  |                                                                                 |                                        |                                                          |                                                  |        |          |         |       
|Issuance of common stock, proceeds from stock
    option exercises                    |                                                                                 |                                        | 1,179                                                    |                                                  |        |          | 868     |       
|Retirement of common stock                                                            |                                                                                 |                                        | (20,562                                                  | )                                                |        |          |        |       
|Borrowings on secured debt                                                            |                                                                                 |                                        | 7,913                                                    |                                                  |        |          | 41,166  |       
|Payments on secured debt                                                              |                                                                                 |                                        | (40,688                                                  | )                                                |        |          | (33,979 | )     
|Borrowings on unsecured credit facility                                               |                                                                                 |                                        | 112,464                                                  |                                                  |        |          |        |       
|Payments on unsecured credit facility                                                 |                                                                                 |                                        | (190,000                                                 | )                                                |        |          | (12,000 | )     
|Borrowings on Alliance Fund II credit
    facility                                    |                                                                                 |                                        | 6,000                                                    |                                                  |        |          | 23,500  |       
|Payments on Alliance Fund II credit facility                                          |                                                                                 |                                        |                                                         |                                                  |        |          | (31,000 | )     
|Payment of financing fees                                                             |                                                                                 |                                        | (36                                                      | )                                                |        |          | (1,662  | )     
|Net proceeds from issuances of senior debt
    securities                             |                                                                                 |                                        |                                                         |                                                  |        |          | 19,883  |       
|Contributions from co-investment partners                                             |                                                                                 |                                        | 7,039                                                    |                                                  |        |          |        |       
|Distributions paid to general partner and
    preferred unitholders                   |                                                                                 |                                        | (40,720                                                  | )                                                |        |          | (4,445  | )     
|Distributions to minority interests, including
    preferred units                    |                                                                                 |                                        | (11,097                                                  | )                                                |        |          | (15,471 | )     
|                                                                                      |                                                                                 |                                        |                                                          |                                                  |        |          |         |       
|                                                                                      |                                                                                 |                                        | Net cash used in financing activities                    |                                                  |        | (168,508 | )       |        |         | (13,140 | )     
|                                                                                      |                                                                                 |                                        |                                                          |                                                  |        |          |         |       
|                                                                                      |                                                                                 |                                        |                                                          | Net increase in cash and cash equivalents        |        |          | 45,461  |        |         |         | 13,758 | 
|                                                                                      |                                                                                 |                                        |                                                          | Cash and cash equivalents at beginning of period |        |          | 89,332  |        |         |         | 73,071 | 
|                                                                                      |                                                                                 |                                        |                                                          |                                                  |        |          |         |       
|                                                                                      |                                                                                 |                                        |                                                          | Cash and cash equivalents at end of period       |        | $        | 134,793 |        |         | $       | 86,829 | 
|                                                                                      |                                                                                 |                                        |                                                          |                                                  |        |          |         |       
|Supplemental Disclosures of Cash Flow
    Information                                 |                                                                                 |                                        |                                                          |                                                  |        |          |         |       
|Cash paid for interest, net of capitalized
    interest                               |                                                                                 | $                                      | 29,756                                                   |                                                  |        | $        | 20,328  |       
|Non-cash transactions:                                                                |                                                                                 |                                        |                                                          |                                                  |        |          |         |       
|                                                                                      |                                                                                 |                                        | Acquisition of properties                                |                                                  | $      | 10,867   |         |        | $       | 34,063  |       
|                                                                                      |                                                                                 |                                        | Assumption of debt                                       |                                                  |        |         |         |        |         | (3,577  | )     
|                                                                                      |                                                                                 |                                        | Acquisition capital                                      |                                                  |        | (373     | )       |        |         |        |       
|                                                                                      |                                                                                 |                                        |                                                          |                                                  |        |          |         |       
|                                                                                      |                                                                                 |                                        |                                                          | Net cash paid                                    |        | $        | 10,494  |        |         | $       | 30,486 | 
|                                                                                      |                                                                                 |                                        |                                                          |                                                  |        |          |         |       

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

3



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##### Table of Contents



AMB PROPERTY, L.P.






CONSOLIDATED STATEMENT OF PARTNERS
CAPITAL


For the three months ended March 31,
2003


|                                                                                                             |                                 |                                   |           |                  |  |                 |        |              |  |       |            |        |  |       |           |        |  |       |           |   |  |   |         |       |  |  |           |   |  |   |        |       |  |   |           |   |        | 
|------------------------------------------------------------------------------------------------------------ | ------------------------------- | --------------------------------- | --------- | ---------------- |  | --------------- | ------ | ------------ |  | ----- | ---------- | ------ |  | ----- | --------- | ------ |  | ----- | --------- | - |  | - | ------- | ----- |  |  | --------- | - |  | - | ------ | ----- |  | - | --------- | - | ------ | 
|                                                                                                             |                                 |                                   |           |                 
|                                                                                                             |                                 | 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, 2002                                                                                 |                                 |                                   | 3,995,800 |                  |  | $               | 95,994 |              |  |       | 81,800,038 |        |  | $     | 1,588,156 |        |  |       | 2,900,000 |   |  | $ | 141,103 |       |  |  | 4,846,387 |   |  | $ | 94,374 |       |  | $ | 1,919,627 |  
|Comprehensive income:                                                                                        |                                 |                                   |           |                  |  |                 |        |              |  |       |            |        |  |       |           |        |  |       |           |   |  |   |         |       |  |  |           |   |  |   |        |       |  |   |           |  
|                                                                                                             | Net Income                      |                                   |           |                 |  |                 |        | 2,123        |  |       |            |       |  |       |           | 57,255 |  |       |           |  |  |   |         | 2,992 |  |  |           |  |  |   |        | 3,402 |  |   |           |   |       
|                                                                                                             | Currency translation adjustment |                                   |           |                 |  |                 |        |             |  |       |            |       |  |       |           | 103    |  |       |           |  |  |   |         |      |  |  |           |  |  |   |        |      |  |   |           |   |       
|                                                                                                             |                                 | Total comprehensive income        |           |                  |  |                 |        |              |  |       |            |        |  |       |           |        |  |       |           |   |  |   |         |       |  |  |           |   |  |   |        |       |  |   |           |   | 65,875 | 
|Issuance of common limited partnership units in
    connection with issuance of restricted stock and options |                                 |                                   |          |                  |  |                 |       |              |  |       | 238,010    |        |  |       | 10,755    |        |  |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | 10,755    |  
|Issuance of common limited partnership units in
    connection with the exercise of stock options            |                                 |                                   |          |                  |  |                 |       |              |  |       | 54,667     |        |  |       | 1,179     |        |  |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | 1,179     |  
|Retirement of units                                                                                          |                                 |                                   |          |                  |  |                 |       |              |  |       | (787,800   | )      |  |       | (20,562   | )      |  |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | (20,562   | )
|Deferred compensation                                                                                        |                                 |                                   |          |                  |  |                 |       |              |  |       |           |        |  |       | (10,753   | )      |  |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | (10,753   | )
|Deferred compensation amortization                                                                           |                                 |                                   |          |                  |  |                 |       |              |  |       |           |        |  |       | 1,942     |        |  |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | 1,942     |  
|Reallocation of interests                                                                                    |                                 |                                   |          |                  |  |                 |       |              |  |       |           |        |  |       | (1,452    | )      |  |       |          |   |  |   |        |       |  |  |          |   |  |   | (1,265 | )     |  |   | (2,717    |  
|Distributions                                                                                                |                                 |                                   |          |                  |  |                 | (2,123 | )            |  |       |           |        |  |       | (35,516   | )      |  |       |          |   |  |   | (2,992  | )     |  |  |          |   |  |   | (2,011 | )     |  |   | (42,642   | )
|                                                                                                             |                                 |                                   |           |                  |  |                 |        |              |  |       |            |        |  |       |           |        |  |       |           |   |  |   |         |       |  |  |           |   |  |   |        |       |  |   |           |  
|Balance at March 31, 2003                                                                                    |                                 |                                   | 3,995,800 |                  |  | $               | 95,994 |              |  |       | 81,304,915 |        |  | $     | 1,591,107 |        |  |       | 2,900,000 |   |  | $ | 141,103 |       |  |  | 4,846,387 |   |  | $ | 94,500 |       |  | $ | 1,922,704 |  
|                                                                                                             |                                 |                                   |           |                  |  |                 |        |              |  |       |            |        |  |       |           |        |  |       |           |   |  |   |         |       |  |  |           |   |  |   |        |       |  |   |           |  

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

4



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##### Table of Contents



AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2003


(Unaudited)




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

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

As of March 31, 2003, the Company owned an
approximate 94.4% general partner interest in the Operating
Partnership, excluding preferred units. The remaining 5.6%
limited partner interest is owned by non-affiliated investors
and certain current and former directors and officers of the
Company. For local law purposes, certain properties are owned
through limited partnerships and limited liability companies.
The ownership of such properties through such entities does not
materially affect the Operating Partnerships overall
ownership interests in the properties. As the sole general
partner of the Operating Partnership, the Company has full,
exclusive and complete responsibility and discretion in the
day-to-day management and control of the Operating Partnership.
Net operating results of the Operating Partnership are allocated
after preferred unit distributions based on the respective
partners ownership interests.

The Operating Partnership enters into
co-investment joint ventures with institutional investors. These
co-investment joint ventures provide the Operating Partnership
with an additional source of capital and income. As of
March 31, 2003, the Operating Partnership had investments
in five co-investment joint ventures, which are consolidated for
financial reporting purposes.

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

As of March 31, 2003, the Operating
Partnership owned 873 industrial buildings and nine retail
and other properties, located in 27 markets throughout
North America and France. The Operating Partnerships
strategy is to become a leading provider of distribution
properties in supply-constrained, infill submarkets located near
key international passenger and cargo airports, highway systems
and seaports in major metropolitan areas of North America,
Europe and Asia. As of March 31, 2003, the industrial
buildings, principally warehouse distribution buildings,
encompassed approximately 80.4 million rentable square feet
and were 92.5% leased. As of March 31, 2003, the retail
centers, principally grocer-anchored community shopping centers,
encompassed approximately 1.0 million rentable square feet
and were 87.9% leased to 113 customers.

As of December 31, 2002, through AMB Capital
Partners, the Operating Partnership also managed, but did not
have an ownership interest in, industrial, retail and other
properties, totaling approximately 1.7 million rentable
square feet. In addition, the Operating Partnership has
investments in industrial operating and development properties,
totaling approximately 8.2 million rentable square feet,
through unconsolidated joint ventures.

5



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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

In the opinion of management, the accompanying
unaudited consolidated financial statements contain all
adjustments, of a normal recurring nature, necessary for a fair
presentation of the Operating Partnerships consolidated
financial position and results of operations for the interim
periods. The interim results for the three months ended
March 31, 2003, 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, 2002.

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.

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 $65.6 million and
$34.4 million for the three months ended March 31,
2003 and 2002, respectively.

Financial Instruments.For its lease denominated in Mexican
pesos, the Operating Partnership used derivative financial
instruments to manage foreign currency exchange rate risk. The
Operating Partnership adopted Statement of Financial Accounting
Standard (SFAS) No. 133, Accounting for
Derivative Instruments and for Hedging Activities, as
amended, on January 1, 2001. SFAS No. 133 provides
comprehensive guidelines for the recognition and measurement of
derivatives and hedging activities and, specifically, requires
all derivatives to be recorded on the balance sheet at fair
value as an asset or liability, with an offset to accumulated
other comprehensive income or income. The Operating
Partnerships only derivative financial instruments in
effect at December 31, 2002, were a combination of foreign
currency option contracts. These derivative instruments were
closed-out when the Operating Partnership sold its property
holding the lease denominated in Mexican pesos. The Operating
Partnership had no derivative financial instruments in effect at
March 31, 2003.

Foreign Operations.The U.S. dollar is the functional
currency for the Operating Partnerships subsidiaries
operating in the United States and Mexico. The functional
currency for the Operating Partnerships subsidiaries
operating outside North America is generally the local currency
of the country in which the entity is located. The Operating
Partnerships subsidiaries whose functional currency is not
the U.S. dollar translate their financial statements into
U.S. dollars. Assets and liabilities are translated at the
exchange rate in effect as of the financial statement date. The
Operating Partnership translates income statement accounts using
the average exchange rate for the period and significant
nonrecurring transactions using the rate on the transaction
date. Gains and losses resulting from the translation are
included in accumulated other comprehensive income as a separate
component of partners capital.

The Operating Partnerships foreign
subsidiaries may have transactions denominated in currencies
other than their functional currency. In these instances,
nonmonetary 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.

6



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Gains and losses from remeasurement are generally
included in the Operating Partnerships results of
operations.

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

New Accounting Pronouncements.In January 2003, Financial Accounting
Standards Board (FASB) issued Interpretation
No. 46, Consolidation of Variable Interest Entities(FIN 46). FIN 46 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 46 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 of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation
requirements apply to existing entities in the first fiscal year
or interim period beginning after June 15, 2003. Certain of
the disclosure requirements apply to all financial statements
issued after January 31, 2003, regardless of when the
variable interest entity was established. The Operating
Partnership will adopt the consolidation requirements of this
statement in the third quarter of 2003, and it does not expect
the adoption of this statement to have a material impact on its
financial position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others(FIN 45).
FIN 45 requires disclosure of obligations under guarantee
contracts be disclosed. The Operating Partnership has no
off-balance sheet transactions, arrangements, obligations,
guarantees or other relationships with unconsolidated entities
or other persons that have, or are reasonably likely to have, a
material effect on its financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures
or capital resources.



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

During the three months ended March 31,
2003, the Operating Partnership invested $10.9 million in
two industrial buildings, aggregating approximately
0.2 million square feet, through two of the Operating
Partnerships co-investment joint ventures. During the
quarter ended March 31, 2002, the Operating Partnership
invested $35.0 million in eight industrial buildings,
aggregating approximately 0.7 million square feet, through
two of the Operating Partnerships co-investment joint
ventures.

During the three months ended March 31,
2003, the Operating Partnership completed two industrial
buildings valued at $12.6 million, aggregating
approximately 0.2 million square feet. The Operating
Partnership also initiated four new industrial projects valued
at $36.4 million, aggregating approximately
0.6 million square feet. The Operating Partnership acquired
438 acres of land for development in Miamis Airport
West submarket for $29.7 million. The master planned park,
called Beacon Lakes, is fully entitled for 6.8 million
square feet of properties for lease or sale. During the quarter,
the Operating Partnership and its partner began development of
the first two buildings at Beacon Lakes, which will aggregate
approximately 0.4 million square feet and have an estimated
investment of $20.3 million. New development projects
during the quarter include the two Beacon Lakes buildings as
well as two additional projects.

As of March 31, 2003, the Operating
Partnership had in its development pipeline: (1) 13
industrial projects, which will total approximately
2.2 million square feet and will have an aggregate
estimated investment of $133.2 million upon completion and
(2) three development projects available for sale, which
will total approximately 0.6 million square feet and will
have an aggregate estimated investment of $47.3 million
upon completion. As of March 31, 2003, the Operating
Partnership and its Development Alliance Partners had funded an
aggregate of $102.1 million and needed to fund an estimated
additional

7



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

$78.4 million in order to complete current
and planned projects. The Operating Partnerships
development pipeline includes projects to be completed through
June 2005.



|   |                                                              
|-- | -------------------------------------------------------------
|4. | Property Divestitures and Properties Held for
    Divestiture

Property Divestitures.During the three months ended
March 31, 2003, the Operating Partnership divested itself
of ten industrial buildings, aggregating approximately
1.6 million square feet, for an aggregate price of
$127.0 million, with a resulting net gain of
$29.6 million. The Operating Partnership reported the
divestitures as discontinued operations separately as prescribed
under the provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. On
February 19, 2003, the Operating Partnership also
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 gain on the contributed
properties acquired by the third-party investors.

Properties Held for Divestiture.As of March 31, 2003, the
Operating Partnership had decided to divest itself of one
industrial building and two retail centers with a net book value
of $59.7 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 for the three months ended March 31, (dollars
in thousands):

|                                 |                                                |               |       |       |  |   |        |       | 
|-------------------------------- | ---------------------------------------------- | ------------- | ----- | ----- |  | - | ------ | ----- | 
|                                 |                                                |              
|                                 |                                                | For the Three
|                                 |                                                | Months Ended 
|                                 |                                                | March 31,    
|                                 |                                                |              
|                                 |                                                | 2003          |       | 2002 
|                                 |                                                |               |       |      
|Rental revenues                  |                                                | $             | 2,618 |       |  | $ | 10,201 |      
|Straight-line rents              |                                                |               | 88    |       |  |   | 259    |      
|Property operating expenses      |                                                |               | (550  | )     |  |   | (1,021 | )    
|Real estate taxes                |                                                |               | (357  | )     |  |   | (1,545 | )    
|Interest, including amortization |                                                |               | (42   | )     |  |   | (1,063 | )    
|Depreciation and amortization    |                                                |               | (151  | )     |  |   | (1,843 | )    
|                                 |                                                |               |       |       |  |   |        |      
|                                 | Income attributable to discontinued operations |               | $     | 1,606 |  |   | $      | 4,988 | 
|                                 |                                                |               |       |       |  |   |        |      

As of March 31, 2003 and December 31,
2002, assets and liabilities of properties held for divestiture
under the provisions of SFAS No. 144 consisted of the
following (dollars in thousands):

|                                       |  |           |       |              |  |   |       | 
|-------------------------------------- |  | --------- | ----- | ------------ |  | - | ----- | 
|                                       |  | March 31, |       | December 31,
|                                       |  | 2003      |       | 2002        
|                                       |  |           |       |             
|Accounts receivable, net               |  | $         | 1,743 |              |  | $ | 3,986 | 
|Other assets                           |  | $         | 115   |              |  | $ | 82    | 
|Secured debt                           |  | $         |      |              |  | $ | 9,544 | 
|Accounts payable and other liabilities |  | $         | 1,110 |              |  | $ | 1,912 | 



|   |                    
|-- | -------------------
|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 note bears interest at
13.0% and matures in May 2026. As of March 31, 2003, the
outstanding balance on the note was $13.1 million.

8



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

6.     Debt

As of March 31, 2003, and December 31,
2002, debt consisted of the following (dollars in thousands):

|                                                                                                                                                                                                                             |                                        |                         |         |              |           |   |         |           |           | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ----------------------- | ------- | ------------ | --------- | - | ------- | --------- | --------- | 
|                                                                                                                                                                                                                             |                                        | March 31,               |         | December 31,
|                                                                                                                                                                                                                             |                                        | 2003                    |         | 2002        
|                                                                                                                                                                                                                             |                                        |                         |         |             
|Operating Partnership secured debt, varying
    interest rates from 4.0% to 10.4%, due June 2003 to January 2014
    (weighted average interest rate of 8.1% at March 31, 2003
    and December 31, 2002)                    |                                        | $                       | 348,348 |              |           | $ | 381,764 |          
|Joint venture secured debt, varying interest
    rates from 2.9% to 12.0%, due April 2004 to April 2023 (weighted
    average interest rate of 7.0% at March 31, 2003, and
    December 31, 2002)                            |                                        |                         | 893,734 |              |           |   | 893,093 |          
|Unsecured senior debt securities, varying
    interest rates from 5.9% to 8.0%, (weighted average interest
    rate of 7.2% at March 31, 2003, and December 31, 2002)
    due June 2005 to June 2018                         |                                        |                         | 800,000 |              |           |   | 800,000 |          
|Alliance Fund II credit facility, variable
    interest at LIBOR plus 87.5 basis points (weighted average
    interest rate of 2.2% and 2.3% at March 31, 2003 and
    December 31, 2002, respectively), due August 2003     |                                        |                         | 51,500  |              |           |   | 45,500  |          
|Unsecured debt, interest rate of 7.5%, due June
    2013 and November 2015                                                                                                                                                   |                                        |                         | 10,050  |              |           |   | 10,186  |          
|Unsecured credit facility, variable interest at
    LIBOR or EURIBOR plus 60 basis points (weighted average interest
    rate of 3.2% and 2.0% at March 31, 2003 and
    December 31, 2002, respectively), due December 2005 |                                        |                         | 17,464  |              |           |   | 95,000  |          
|                                                                                                                                                                                                                             |                                        |                         |         |              |           |   |         |          
|                                                                                                                                                                                                                             | Total debt before unamortized premiums |                         |         | 2,121,096    |           |   |         | 2,225,543 |          
|                                                                                                                                                                                                                             | Unamortized premiums                   |                         |         | 8,446        |           |   |         | 9,818     |          
|                                                                                                                                                                                                                             |                                        |                         |         |              |           |   |         |          
|                                                                                                                                                                                                                             |                                        | Total consolidated debt |         | $            | 2,129,542 |   |         | $         | 2,235,361 | 
|                                                                                                                                                                                                                             |                                        |                         |         |              |           |   |         |          

Secured debt generally requires monthly principal
and interest payments. The secured debt is secured by deeds of
trust on certain properties and is generally non-recourse. As of
March 31, 2003 and December 31, 2002, the total gross
investment book value of those properties securing the debt was
$2.5 billion and $2.6 billion, respectively, including
$1.6 billion and $1.6 billion, respectively, in
consolidated joint ventures. All of the secured debt bears
interest at fixed rates, except for seven loans with an
aggregate principal amount of $65.6 million as of
March 31, 2003, which bear interest at variable rates
(weighted average interest rate of 3.5% as of March 31,
2003). The secured debt has various covenants. Management
believes that the Operating Partnership was in compliance with
its financial covenants as of March 31, 2003. As of
March 31, 2003, the Operating Partnership had 28
non-recourse secured loans, which are cross-collateralized by
62 properties, totaling $719.5 million (not including
unamortized debt premiums).

In June 1998, the Operating Partnership issued
$400.0 million of unsecured senior debt securities.
Interest on the unsecured senior debt securities is payable
semi-annually. The 2015 notes are putable and callable in
September 2005. The senior debt securities are subject to
various covenants. Management believes that the Operating
Partnership was in compliance with its financial covenants as of
March 31, 2003. In August 2000, the Operating Partnership
commenced a medium-term note program and subsequently issued
$400.0 million of medium-term notes, which are guaranteed
by the Company.

In May 2002, the Operating Partnership commenced
a new medium-term note program for the issuance of up to
$400.0 million in principal amount of medium-term notes
(unsecured senior debt securities), which will be guaranteed by
the Company. As of March 31, 2003, the Operating
Partnership had issued no medium-term notes under this program.

9



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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In December 2002, the Operating Partnership
renewed its $500.0 million unsecured revolving line of
credit. The Company guarantees the Operating Partnerships
obligations under the credit facility. The credit facility
matures in December 2005, has a one-year extension option and
currently is subject to a 20 basis point annual facility fee.
Borrowings under the credit facility currently bear interest at
LIBOR plus 60 basis points. Euro borrowings under the credit
facility currently bear interest at EURIBOR plus 60 basis
points. Both the facility fee and the interest rate are based on
the Operating Partnerships credit rating, which is
currently investment grade. The credit facility includes a
multi-currency component under which up to $150.0 million
may be drawn in either British pounds sterling, euros or yen
(provided that such currency is readily available and freely
transferable and convertible to U.S. dollars, the Reuters
Monitor Money Rates Service reports LIBOR for such currency in
interest periods of 1, 2, 3 or 6 months and the Operating
Partnership has an investment grade credit rating). The
Operating Partnership has the ability to increase available
borrowings to $700.0 million by adding additional banks to
the facility or obtaining the agreement of existing banks to
increase their commitments. The Operating Partnership uses its
unsecured credit facility principally for acquisitions and for
general working capital requirements. Monthly debt service
payments on the credit facility are interest only. The total
amount available under the credit facility fluctuates based upon
the borrowing base, as defined in the agreement governing the
credit facility, generally the value of the Operating
Partnerships unencumbered properties. As of March 31,
2003, the outstanding balance on the credit facility was
$17.5 million and the remaining amount available was
$459.2 million, net of outstanding letters of credit
(excluding the additional $200.0 million of potential
additional capacity). The outstanding balance was denominated in
Euros and converted to U.S. dollars at March 31, 2003. The
credit facility has various covenants. Management believes that
the Operating Partnership was in compliance with its financial
covenants at March 31, 2003.

In July 2001, AMB Institutional Alliance Fund II,
L.P. (Alliance Fund II) obtained a
$150.0 million credit facility secured by the unfunded
capital commitments of the investors in AMB Institutional
Alliance REIT II, Inc. (Alliance REIT II) and
the Alliance Fund II. Borrowings currently bear interest at
LIBOR plus 87.5 basis points (2.2% at March 31, 2003). As
of March 31, 2003, the outstanding balance was
$51.5 million and the remaining amount available was
$25.2 million, net of outstanding letters of credit and the
previously funded capital contributions from third-party
investors. The Operating Partnership repaid the credit facility
in April with capital contributions and secured debt proceeds.
The credit facility has various covenants. Management believes
that the Alliance Fund II and the Alliance REIT II were in
compliance with their financial covenants as of March 31,
2003.

10



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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of March 31, 2003, the scheduled
maturities of the Operating Partnerships total debt,
excluding unamortized debt premiums, were as follows (dollars in
thousands):

|           |       |             |        |              |  |            |         |           |  |            |         |         |  |   |       |        |  |   |        |        |  |   |         |           | 
|---------- | ----- | ----------- | ------ | ------------ |  | ---------- | ------- | --------- |  | ---------- | ------- | ------- |  | - | ----- | ------ |  | - | ------ | ------ |  | - | ------- | --------- | 
|           |       | Operating   |        | Consolidated |  | Unsecured  |         |           |  |            |         |        
|           |       | Partnership |        | Joint        |  | Senior     |         |           |  |            |         |        
|           |       | Secured     |        | Venture      |  | Debt       |         | Unsecured |  | Credit     |         |        
|           |       | Debt        |        | Debt         |  | Securities |         | Debt      |  | Facilities |         | Total  
|           |       |             |        |              |  |            |         |           |  |            |         |        
|2003       |       | $           | 56,160 |              |  | $          | 12,650  |           |  | $          |        |         |  | $ | 422   |        |  | $ | 51,500 |        |  | $ | 120,732 |          
|2004       |       |             | 62,516 |              |  |            | 65,261  |           |  |            |        |         |  |   | 601   |        |  |   |       |        |  |   | 128,378 |          
|2005       |       |             | 44,427 |              |  |            | 59,496  |           |  |            | 250,000 |         |  |   | 647   |        |  |   | 17,464 |        |  |   | 372,034 |          
|2006       |       |             | 82,693 |              |  |            | 65,996  |           |  |            | 25,000  |         |  |   | 698   |        |  |   |       |        |  |   | 174,387 |          
|2007       |       |             | 14,495 |              |  |            | 43,341  |           |  |            | 75,000  |         |  |   | 752   |        |  |   |       |        |  |   | 133,588 |          
|2008       |       |             | 31,665 |              |  |            | 154,879 |           |  |            | 175,000 |         |  |   | 810   |        |  |   |       |        |  |   | 362,354 |          
|2009       |       |             | 4,147  |              |  |            | 77,032  |           |  |            |        |         |  |   | 873   |        |  |   |       |        |  |   | 82,052  |          
|2010       |       |             | 50,948 |              |  |            | 105,766 |           |  |            | 75,000  |         |  |   | 941   |        |  |   |       |        |  |   | 232,655 |          
|2011       |       |             | 409    |              |  |            | 179,525 |           |  |            | 75,000  |         |  |   | 1,014 |        |  |   |       |        |  |   | 255,948 |          
|2012       |       |             | 407    |              |  |            | 107,524 |           |  |            | 75,000  |         |  |   | 1,092 |        |  |   |       |        |  |   | 109,023 |          
|Thereafter |       |             | 481    |              |  |            | 22,264  |           |  |            | 125,000 |         |  |   | 2,200 |        |  |   |       |        |  |   | 149,945 |          
|           |       |             |        |              |  |            |         |           |  |            |         |         |  |   |       |        |  |   |        |        |  |   |         |          
|           | Total |             | $      | 348,348      |  |            | $       | 893,734   |  |            | $       | 800,000 |  |   | $     | 10,050 |  |   | $      | 68,964 |  |   | $       | 2,121,096 | 
|           |       |             |        |              |  |            |         |           |  |            |         |         |  |   |       |        |  |   |        |        |  |   |         |          

7.     Minority
Interests in Consolidated Joint Ventures and Preferred
Units

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

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

The Operating Partnerships co-investment
joint ventures at March 31, 2003 (dollars in thousands)
were:

|                                         |       |                       |                                             |               |  |                   |     |  |  |   |         |           | 
|---------------------------------------- | ----- | --------------------- | ------------------------------------------- | ------------- |  | ----------------- | --- |  |  | - | ------- | --------- | 
|                                         |       |                       |                                             | Operating     |  |                  
|                                         |       |                       |                                             | Partnerships |  |                  
|                                         |       |                       |                                             | Ownership     |  | Total            
|Co-investment Joint Venture              |       | Joint Venture Partner |                                             | Percentage    |  | Capitalization(1)
|                                         |       |                       |                                             |               |  |                  
|AMB/ Erie, L.P.                          |       |                       | Erie Insurance Company and affiliates       |               |  |                   | 50% |  |  | $ | 170,257 |          
|AMB Institutional Alliance Fund I, L.P.  |       |                       | AMB Institutional Alliance REIT I, Inc.(2)  |               |  |                   | 21% |  |  |   | 394,409 |          
|AMB Partners II, L.P.                    |       |                       | City and County of San Francisco            |               |  |                   | 20% |  |  |   | 260,326 |          
|                                         |       |                       | Employees Retirement System                |               |  |                   |     |  |  |   |         |          
|AMB-SGP, L.P.                            |       |                       | Industrial JV Pte Ltd.(3)                   |               |  |                   | 50% |  |  |   | 367,623 |          
|AMB Institutional Alliance Fund II, L.P. |       |                       | AMB Institutional Alliance REIT II, Inc.(4) |               |  |                   | 20% |  |  |   | 356,105 |          
|                                         |       |                       |                                             |               |  |                   |     |  |  |   |         |          
|                                         | Total |                       |                                             |               |  |                   |     |  |  |   | $       | 1,548,720 | 
|                                         |       |                       |                                             |               |  |                   |     |  |  |   |         |          

11



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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



---



|    |                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------
|(1) | Includes total equity and debt.                                                                                      
|   
|(2) | Included 15 institutional investors as
    stockholders as of March 31, 2003.                                        
|   
|(3) | A subsidiary of the real estate investment
    subsidiary of the Government of Singapore Investment Corporation.     
|   
|(4) | Included 13 institutional investors as
    stockholders and one third-party limited partner as of
    March 31, 2003.

The following table distinguishes the minority
interest liability as of March 31, 2003 and
December 31, 2002 (dollars in thousands):

|                                    |                                                                  |                          |         |              |         |   |         |        |         | 
|----------------------------------- | ---------------------------------------------------------------- | ------------------------ | ------- | ------------ | ------- | - | ------- | ------ | ------- | 
|                                    |                                                                  | March 31,                |         | December 31,
|                                    |                                                                  | 2003                     |         | 2002        
|                                    |                                                                  |                          |         |             
|Joint venture partners              |                                                                  | $                        | 497,760 |              |         | $ | 488,524 |       
|Held through AMB Property II, L.P.: |                                                                  |                          |         |              |         |   |         |       
|                                    | 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 $13,372) |                          |         | 13,082       |         |   |         | 13,082 |        
|                                    | 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 |         | $            | 665,026 |   |         | $      | 655,790 | 
|                                    |                                                                  |                          |         |              |         |   |         |       

The following table distinguishes the minority
interests share of income, excluding minority interests
share of gains from dispositions of real estate (dollars in
thousands):

|                                    |                                                                  |                                               |       |       |        |   |       |       |        | 
|----------------------------------- | ---------------------------------------------------------------- | --------------------------------------------- | ----- | ----- | ------ | - | ----- | ----- | ------ | 
|                                    |                                                                  |                                              
|                                    |                                                                  | For the Three Months                         
|                                    |                                                                  | Ended March 31,                              
|                                    |                                                                  |                                              
|                                    |                                                                  | 2003                                          |       | 2002 
|                                    |                                                                  |                                               |       |      
|Joint Venture Partners              |                                                                  | $                                             | 7,781 |       |        | $ | 7,966 |      
|Held through AMB Property II, L.P.: |                                                                  |                                               |       |       |        |   |       |      
|                                    | Series D preferred units (liquidation
    preference of $79,767) |                                               |       | 1,545 |        |   |       | 1,545 |       
|                                    | Series E preferred units (liquidation
    preference of $11,022) |                                               |       | 214   |        |   |       | 214   |       
|                                    | Series F preferred units (liquidation
    preference of $13,372) |                                               |       | 266   |        |   |       | 395   |       
|                                    | Series G preferred units (repurchased in
    July 2002)          |                                               |       |      |        |   |       | 20    |       
|                                    | Series H preferred units (liquidation
    preference of $42,000) |                                               |       | 853   |        |   |       | 853   |       
|                                    | Series I preferred units (liquidation
    preference of $25,500) |                                               |       | 510   |        |   |       | 510   |       
|                                    |                                                                  |                                               |       |       |        |   |       |      
|                                    |                                                                  | Total minority interests share of net income |       | $     | 11,169 |   |       | $     | 11,503 | 
|                                    |                                                                  |                                               |       |       |        |   |       |      

12



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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

8.     Investments in
Unconsolidated Joint Ventures

The Operating Partnerships unconsolidated
joint ventures at March 31, 2003 (dollars in thousands)
were:

|                                       |                                        |                       |                                   |             |  |               |           |            |  |  |    |    |   |   |        |        | 
|-------------------------------------- | -------------------------------------- | --------------------- | --------------------------------- | ----------- |  | ------------- | --------- | ---------- |  |  | -- | -- | - | - | ------ | ------ | 
|                                       |                                        |                       |                                   |             |  | Operating     |           |           
|                                       |                                        |                       |                                   |             |  | Partnerships |           | Net       
|                                       |                                        |                       |                                   |             |  | Ownership     |           | Equity    
|Co-investment Joint Venture            |                                        | Joint Venture Partner |                                   | Square Feet |  | Percentage    |           | Investment
|                                       |                                        |                       |                                   |             |  |               |           |           
|Elk Grove Du Page                      |                                        |                       | Hamilton Partners                 |             |  |               | 4,046,721 |            |  |  | 56 | %  |   | $ | 58,883 |       
|Pico Rivera                            |                                        |                       | Majestic Realty                   |             |  |               | 855,600   |            |  |  | 50 | %  |   |   | 1,503  |       
|Monte Vista Spectrum                   |                                        |                       | Majestic Realty                   |             |  |               | 576,852   |            |  |  | 50 | %  |   |   | 2,223  |       
|Industrial Fund I, LLC                 |                                        |                       | Citigroup Alternative Investments |             |  |               | 2,446,334 |            |  |  | 15 | %  |   |   | 4,301  |       
|Airport Logistics Park of Singapore(1) |                                        |                       | Boustead Projects                 |             |  |               | 233,773   |            |  |  | 50 | %  |   |   | 844    |       
|                                       |                                        |                       |                                   |             |  |               |           |            |  |  |    |    |   |   |        |       
|                                       | Total investment in unconsolidated JVs |                       |                                   |             |  |               |           | 8,159,280  |  |  |    | 47 | % |   | $      | 67,754 | 
|                                       |                                        |                       |                                   |             |  |               |           |            |  |  |    |    |   |   |        |       



---



|    |                                              
|--- | ---------------------------------------------
|(1) | This is a development alliance joint venture.

On February 19, 2003, the Operating
Partnership formed Industrial Fund I, LLC, a joint venture
with Citigroup Global Investments Real Estate LP, LLC, a
Delaware limited liability company, and certain of its private
investor clients. The Operating Partnership contributed
$94.0 million in operating properties, consisting of 24
industrial buildings, aggregating approximately 2.4 million
square feet, to Industrial Fund I, LLC in which it retained
a 15% interest. The Operating Partnership recognized a gain of
$7.4 million on the contribution, representing the gain on
the contributed properties acquired by the third-party investors.

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. As of March 31, 2003,
the Operating Partnerships share of unconsolidated joint
venture debt was $49.1 million.

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 own a majority interest and does not exercise
significant control over major operating decisions such as
approval of budgets, selection of property managers, investment
activity and changes in financing. The Operating Partnership has
an option to purchase the remaining equity interest beginning
January 1, 2007, and expiring December 31, 2009, based
on the fair market value as stipulated in the operating
agreement.

9.     Partners
Capital

Holders of common limited partnership units of
the Operating Partnership have the right, commencing generally
on or after the first anniversary of the holder becoming a
limited partner of the Operating Partnership (or such other date
agreed to by the Operating Partnership and the applicable unit
holders), to require the Operating Partnership to redeem part or
all of their common units for cash (based upon the fair market
value, as defined in the partnership agreement, of an equivalent
number of shares of common stock at the time of redemption) or
the Operating Partnership may, in its sole and absolute
discretion (subject to the limits on ownership and transfer of
common stock set forth in the Companys charter), elect to
have the Company exchange those common units for shares of the
Companys common stock on a one-for-one basis, subject to
adjustment in the event of stock splits, stock dividends,
issuance of certain rights, certain extraordinary distributions
and similar events. The Operating Partnership presently
anticipates that it will

13



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

generally elect to have the Company issue shares
of its common stock in exchange for common units in connection
with a redemption request; however, the Operating Partnership
has paid cash, and may in the future pay cash, for a redemption
of common units. With each redemption or exchange, the
Companys percentage ownership in the Operating Partnership
will increase. Common limited partners may exercise this
redemption right from time to time, in whole or in part, subject
to the limitations that limited partners may not exercise this
right if such exercise would result in any person actually or
constructively owning shares of common stock in excess of the
ownership limit or any other amount specified by the
Companys board of directors, assuming common stock was
issued in the exchange. During the three months ended
March 31, 2003, the Operating Partnership did not redeem
any of its common limited partnership units for shares of the
Companys common stock.

In December 2001, the Companys board of
directors approved a new stock repurchase program for the
repurchase of up to $100.0 million worth of common and
preferred stock. In December 2002, the Companys board of
directors increased the repurchase program to
$200.0 million. The new stock repurchase program expires in
December 2003 and, as of March 31, 2003,
$110.0 million of repurchase capacity remained under the
Companys stock repurchase program. In January 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.

As of March 31, 2003, the Operating
Partnership had outstanding 81,304,915 common general
partnership units, 4,846,387 common limited partnership units,
3,995,800 8 1/2% Series A Cumulative Redeemable
Partnership Units, 1,300,000 8 5/8% Series B
Cumulative Redeemable Partnership Units, 800,000 7.95%
Series J Cumulative Redeemable Partnership Units, and
800,000 7.95% Series K Cumulative Redeemable Partnership
Units.

The following table sets forth the distributions
paid per unit:

|                      |  |          |                                  |               |  |      |       |  |  |   |       | 
|--------------------- |  | -------- | -------------------------------- | ------------- |  | ---- | ----- |  |  | - | ----- | 
|                      |  |          |                                  |              
|                      |  |          |                                  | For the Three
|                      |  |          |                                  | Months Ended 
|                      |  |          |                                  | March 31,    
|                      |  |          |                                  |              
|Paying Entity         |  | Security |                                  | 2003          |  | 2002
|                      |  |          |                                  |               |  |     
|Operating Partnership |  |          | Common limited partnership units |               |  | $    | 0.415 |  |  | $ | 0.410 | 
|Operating Partnership |  |          | Series A preferred units         |               |  | $    | 0.531 |  |  | $ | 0.531 | 
|Operating Partnership |  |          | Series B preferred units         |               |  | $    | 1.078 |  |  | $ | 1.078 | 
|Operating Partnership |  |          | Series J preferred units         |               |  | $    | 0.994 |  |  | $ | 0.994 | 
|Operating Partnership |  |          | Series K preferred units         |               |  | $    | 0.994 |  |  |   |      | 
|AMB Property II, L.P. |  |          | Series D preferred units         |               |  | $    | 0.969 |  |  | $ | 0.969 | 
|AMB Property II, L.P. |  |          | Series E preferred units         |               |  | $    | 0.969 |  |  | $ | 0.969 | 
|AMB Property II, L.P. |  |          | Series F preferred units         |               |  | $    | 0.994 |  |  | $ | 0.994 | 
|AMB Property II, L.P. |  |          | Series G preferred units         |               |  |      |      |  |  | $ | 0.994 | 
|AMB Property II, L.P. |  |          | Series H preferred units         |               |  | $    | 1.016 |  |  | $ | 1.016 | 
|AMB Property II, L.P. |  |          | Series I preferred units         |               |  | $    | 1.000 |  |  | $ | 1.000 | 

10.     Income Per
Unit

The Operating Partnerships only dilutive
securities outstanding for the three months ended March 31,
2003 and 2002, were stock options and restricted stock granted
under the Companys 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.

14



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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                              |                                       |                            |  |            |  |  |  |            | 
|----------------------------- | ------------------------------------- | -------------------------- |  | ---------- |  |  |  | ---------- | 
|                              |                                       |                           
|                              |                                       | For the Three Months Ended
|                              |                                       | March 31,                 
|                              |                                       |                           
|                              |                                       | 2003                       |  | 2002      
|                              |                                       |                            |  |           
|WEIGHTED AVERAGE COMMON UNITS |                                       |                            |  |            |  |  |  |           
|                              | Basic                                 |                            |  | 85,944,112 |  |  |  | 88,262,128 | 
|                              | Stock options and restricted stock    |                            |  | 1,416,431  |  |  |  | 1,462,825  | 
|                              |                                       |                            |  |            |  |  |  |           
|                              | Diluted weighted average common units |                            |  | 87,360,543 |  |  |  | 89,724,953 | 
|                              |                                       |                            |  |            |  |  |  |           

11.     Segment
Information

The Operating Partnership operates industrial and
retail properties in North America and France and manages its
business both by property type and by market. Industrial
properties represent more than 98% of the Operating
Partnerships portfolio by rentable square feet and consist
primarily of warehouse distribution facilities suitable for
single or multiple customers and are typically comprised of
multiple buildings that are leased to customers engaged in
various types of businesses. The Operating Partnerships
geographic markets for industrial properties are managed
separately because each market requires different operating,
pricing and leasing strategies. As of March 31, 2003, the
Operating Partnership operated retail properties in Southeast
Florida, Atlanta, Chicago, the San Francisco Bay Area, Boston
and Baltimore. The Operating Partnership does not separately
manage its retail operations by market. Retail properties are
generally leased to one or more anchor customers, such as
grocery and drug stores, and various retail businesses. The
accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The
Operating Partnership evaluates performance based upon property
net operating income of the combined properties in each segment.

The industrial domestic target markets category
includes Austin, Baltimore/ Washington D.C. and Boston. The
industrial domestic non-target markets category captures all of
the Operating Partnerships other

15



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

U.S. markets, except for those markets
listed individually in the table. Summary information for the
reportable segments is as follows (dollars in thousands):

|                                             |                               |                                       |        |                      |         |      |         |        |         |  |        |        |         |  |        |        |         | 
|-------------------------------------------- | ----------------------------- | ------------------------------------- | ------ | -------------------- | ------- | ---- | ------- | ------ | ------- |  | ------ | ------ | ------- |  | ------ | ------ | ------- | 
|                                             |                               |                                       |        |                     
|                                             |                               | Rental Revenues                       |        | Property NOI(1)     
|                                             |                               |                                       |        |                     
|                                             |                               |                                       |        |                     
|                                             |                               | For the Three Months                  |        | For the Three Months
|                                             |                               | Ended March 31,                       |        | Ended March 31,     
|                                             |                               |                                       |        |                     
|Segments                                     |                               | 2003                                  |        | 2002                 |         | 2003 |         | 2002  
|                                             |                               |                                       |        |                      |         |      |         |       
|Industrial domestic hub and gateway markets: |                               |                                       |        |                      |         |      |         |        |         |  |        |        |         |  |        |       
|                                             | Atlanta                       |                                       | $      | 7,246                |         |      | $       | 7,313  |         |  | $      | 5,700  |         |  | $      | 5,880  |        
|                                             | Chicago                       |                                       |        | 11,216               |         |      |         | 11,885 |         |  |        | 7,840  |         |  |        | 8,331  |        
|                                             | Dallas/ Fort Worth            |                                       |        | 4,080                |         |      |         | 6,617  |         |  |        | 2,728  |         |  |        | 4,835  |        
|                                             | Los Angeles                   |                                       |        | 23,135               |         |      |         | 18,645 |         |  |        | 18,646 |         |  |        | 14,707 |        
|                                             | Northern New Jersey/ New York |                                       |        | 13,330               |         |      |         | 10,826 |         |  |        | 8,662  |         |  |        | 7,259  |        
|                                             | San Francisco Bay Area        |                                       |        | 32,771               |         |      |         | 29,994 |         |  |        | 27,988 |         |  |        | 25,285 |        
|                                             | Miami                         |                                       |        | 8,053                |         |      |         | 8,296  |         |  |        | 5,657  |         |  |        | 6,232  |        
|                                             | Seattle                       |                                       |        | 6,887                |         |      |         | 5,492  |         |  |        | 5,500  |         |  |        | 4,375  |        
|                                             | On-Tarmac                     |                                       |        | 11,493               |         |      |         | 4,842  |         |  |        | 6,075  |         |  |        | 2,781  |        
|                                             |                               |                                       |        |                      |         |      |         |        |         |  |        |        |         |  |        |       
|                                             |                               | Total industrial domestic hub markets |        |                      | 118,211 |      |         |        | 103,910 |  |        |        | 88,796  |  |        |        | 79,685  | 
|Total industrial domestic target markets     |                               |                                       | 20,332 |                      |         |      | 18,768  |        |         |  | 14,809 |        |         |  | 14,836 |       
|Total industrial domestic non-target markets |                               |                                       | 14,790 |                      |         |      | 20,180  |        |         |  | 9,967  |        |         |  | 13,154 |       
|International target markets                 |                               |                                       | 1,120  |                      |         |      |        |        |         |  | 902    |        |         |  |       |       
|Straight-line rents                          |                               |                                       | 2,380  |                      |         |      | 3,961   |        |         |  | 2,380  |        |         |  | 3,961  |       
|Total retail markets                         |                               |                                       | 3,909  |                      |         |      | 5,422   |        |         |  | 2,594  |        |         |  | 3,536  |       
|Discontinued operations                      |                               |                                       | (2,706 | )                    |         |      | (10,460 | )      |         |  | (1,799 | )      |         |  | (7,894 | )     
|                                             |                               |                                       |        |                      |         |      |         |        |         |  |        |        |         |  |        |       
|                                             |                               | Total rental revenues                 |        | $                    | 158,036 |      |         | $      | 141,781 |  |        | $      | 117,649 |  |        | $      | 107,278 | 
|                                             |                               |                                       |        |                      |         |      |         |        |         |  |        |        |         |  |        |       



---



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

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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                             |                               |                                       |         |              |           |  |          |         |           | 
|-------------------------------------------- | ----------------------------- | ------------------------------------- | ------- | ------------ | --------- |  | -------- | ------- | --------- | 
|                                             |                               |                                      
|                                             |                               | Total Gross Investment(1)            
|                                             |                               | As of                                
|                                             |                               |                                      
|                                             |                               | March 31,                             |         | December 31,
|                                             |                               | 2003                                  |         | 2002        
|                                             |                               |                                       |         |             
|Industrial domestic hub and gateway markets: |                               |                                       |         |              |           |  |          |        
|                                             | Atlanta                       |                                       | $       | 265,545      |           |  | $        | 289,398 |          
|                                             | Chicago                       |                                       |         | 371,821      |           |  |          | 370,139 |          
|                                             | Dallas/ Fort Worth            |                                       |         | 148,526      |           |  |          | 140,616 |          
|                                             | Los Angeles                   |                                       |         | 828,033      |           |  |          | 760,640 |          
|                                             | Northern New Jersey/ New York |                                       |         | 479,091      |           |  |          | 486,644 |          
|                                             | San Francisco Bay Area        |                                       |         | 800,901      |           |  |          | 828,975 |          
|                                             | Miami                         |                                       |         | 347,100      |           |  |          | 305,399 |          
|                                             | Seattle                       |                                       |         | 250,640      |           |  |          | 249,500 |          
|                                             | On-Tarmac                     |                                       |         | 224,931      |           |  |          | 223,215 |          
|                                             |                               |                                       |         |              |           |  |          |        
|                                             |                               | Total industrial domestic hub markets |         |              | 3,716,588 |  |          |         | 3,654,526 | 
|Total industrial domestic target markets     |                               |                                       | 600,959 |              |           |  | 599,165  |        
|Total industrial domestic non-target markets |                               |                                       | 439,784 |              |           |  | 585,939  |        
|International target markets                 |                               |                                       | 52,827  |              |           |  | 81,112   |        
|Properties held for divestiture              |                               |                                       | (62,007 | )            |           |  | (115,175 | )      
|Total retail markets                         |                               |                                       | 121,590 |              |           |  | 120,415  |        
|                                             |                               |                                       |         |              |           |  |          |        
|                                             |                               | Total investments in properties       |         | $            | 4,869,741 |  |          | $       | 4,925,982 | 
|                                             |                               |                                       |         |              |           |  |          |        



---



|    |                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes construction in progress of
    $180.6 million and $132.5 million as of March 31,
    2003, and December 31, 2002, respectively.

12.     Commitments
and Contingencies



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

Lease Commitments.The Operating Partnership holds
operating ground leases on certain land parcels, primarily
on-tarmac facilities, and leases on office spaces in
San Francisco and Boston. The Operating Partnership also
holds a lease on office space in New York City, which it
holds for investment purposes. The remaining lease terms are
from one to 38 years. Future minimum rental payments
required under non-cancelable operating leases in effect as of
March 31, 2003, were as follows (dollars in thousands):

|           |                         |   |         |         | 
|---------- | ----------------------- | - | ------- | ------- | 
|2003       |                         | $ | 14,941  |        
|2004       |                         |   | 19,753  |        
|2005       |                         |   | 19,819  |        
|2006       |                         |   | 20,553  |        
|2007       |                         |   | 20,772  |        
|Thereafter |                         |   | 283,574 |        
|           |                         |   |         |        
|           | Total lease commitments |   | $       | 379,412 | 
|           |                         |   |         |        

These operating lease payments are being
amortized ratably over the terms of the related leases.

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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Contingencies

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

Environmental Matters.The Operating Partnership monitors its
properties for the presence of hazardous or toxic substances.
The Operating Partnership is not aware of any environmental
liability with respect to the properties that would have a
material adverse effect on the Operating Partnerships
business, assets or results of operations. However, there can be
no assurance that such a material environmental liability does
not exist. The existence of any such material environmental
liability would have an adverse effect on the Operating
Partnerships results of operations and cash flow.

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

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

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##### Table of Contents








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

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

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



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

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

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

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GENERAL

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

We generate revenue primarily from rent received
from customers under long-term operating leases at our
properties, including reimbursements from customers for certain
operating costs, and our private capital business. In addition,
our growth is, dependent on our ability to increase occupancy
rates or increase rental rates at our properties and our ability
to continue to acquire and develop additional properties. Our
income would be adversely affected if a significant number of
customers were unable to pay rent or if we were unable to rent
our industrial space on favorable terms. Certain significant
expenditures associated with an investment in real estate (such
as mortgage payments, real estate taxes and maintenance costs)
generally do not decline when circumstances cause a reduction in
income from the property. Although the weak economy has
decreased customer demand for new space and has limited or in
some cases lowered rent growth, many types of investors are
acquiring industrial real estate. We have capitalized on this
opportunity by accelerating our portfolio repositioning program
through the disposition of properties. While property
dispositions result in reinvestment capacity and trigger
gain/loss recognition, they also create near-term earnings
dilution. However, we believe that, in the long-term, the
repositioning of our portfolio will benefit our unitholders. As
the general partner of the co-investment joint ventures, we
generally will be liable for all of the joint ventures
unsatisfied obligations other than non-recourse obligations. Any
such liabilities could adversely affect our financial condition,
results of operations, cash flow and ability to make
distributions to our unitholders and payments to our noteholders.

Critical Accounting Policies

Our discussion and analysis of financial
condition and results of operations is based on our consolidated
financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United
States of America (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. Carrying values for financial
reporting purposes are reviewed for impairment on a
property-by-property basis whenever events or changes in
circumstances indicate that the carrying value of a property may
not be recoverable. Impairment is recognized when estimated
expected future cash flows (undiscounted and without interest
charges) are less than the carrying amount of the property. The
estimation of expected future net cash flows is inherently
uncertain and relies on assumptions regarding current and future
market conditions and the availability of capital. If impairment
analysis assumptions change, then an adjustment to the carrying
amount of our long-lived assets could occur in the future period
in which the assumptions change. To the extent that a property
is impaired, the excess of the carrying amount of the property
over its estimated fair value is charged to earnings.

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

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


Consolidated Joint Ventures.Minority interests represent the
limited partnership interests in the operating partnership and
interests held by certain third parties in several real estate
joint ventures, aggregating approximately 33.8 million
square feet, which are consolidated for financial reporting
purposes. Such investments are consolidated because we own a
majority interest or we exercise significant control over major
operating decisions such as approval of budgets, selection of
property managers, investment activity and changes in financing.
When we contribute properties to our joint ventures, we
recognize a gain on the contributed properties acquired by the
third-party co-investors.

Investments in Unconsolidated Joint Ventures.We have non-controlling limited
partnership interests in five separate unconsolidated joint
ventures. These investments are not consolidated because we do
not exercise significant control over major operating decisions
such as approval of budgets, selection of property managers,
investment activity and changes in financing. We account for the
joint ventures using the equity method of accounting. When we
contribute properties to our joint ventures, we recognize a gain
on the contributed properties acquired by the third-party
investors.

Stock-based Compensation Expense.In 2002, we adopted the expense
recognition provisions of Statement of Financial Accounting
Standard (SFAS) No. 123, Accounting for
Stock-Based Compensation. We value stock options issued by
AMB Property Corporation, our general partner, using the
Black-Scholes option-pricing model and recognize this value as
an expense over the period in which the options vest. Under this
standard, recognition of expense for stock options is
retroactively applied to all options granted after the beginning
of the year of adoption. Prior to 2002, we followed the
intrinsic method set forth in APB Opinion 25, Accounting
for Stock Issued to Employees. The expense is included in
general and administrative expenses in the accompanying
consolidated statements of operations.

THE COMPANY

AMB Property, L.P., a Delaware limited
partnership, acquires, develops and operates industrial property
in key distribution markets throughout North America, Europe and
Asia. We commenced operations as a fully integrated real estate
company effective with the completion of AMB Property
Corporations initial public offering on November 26,
1997. Increasingly, our properties are designed for customers
who value the efficient movement of goods in the worlds
busiest distribution markets: large, supply-constrained
locations with close proximity to airports, seaports and major
freeway systems. We currently serve 2,546 customers in a
portfolio (owned, managed or under development) totaling 987
buildings, encompassing approximately 93.7 million square
feet (8.7 million square meters), in 29 global markets.

We are engaged in the acquisition, ownership,
operation, management, renovation, expansion and development of
primarily industrial properties in target markets in North
America, Europe and Asia. As of March 31, 2003, AMB
Property Corporation owned an approximate 94.4% general
partnership interest in us, excluding preferred units. As our
sole general partner, AMB Property Corporation has the full,
exclusive and complete responsibility and discretion in our
day-to-day management and control.

Our investment strategy targets customers whose
businesses are growing at a faster rate than world gross
domestic product (GDP)  specifically, participants in
global trade. To serve the facilities needs of these customers,
we invest in major markets: transportation hubs and gateways in
the U.S., and targeted distribution and airport markets
internationally. Our target markets are characterized by large
population densities and typically offer substantial consumer
bases, proximity to large clusters of distribution-facility
users and significant labor pools. When measured by annual base
rents, approximately 70% of our assets are concentrated in eight
domestic hub distribution markets: Atlanta, Chicago, Dallas/
Fort Worth, Los Angeles, Northern New Jersey/ New York City, San
Francisco Bay Area, Miami and Seattle.

By focusing on an investment strategy that
benefits from high customer demand and limited competition from
new supply, we believe that over time our net operating income
will grow and our property values will increase. We work to
implement this strategy by investing in locations that have
geographic or regulatory

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supply constraints, high barriers to entry and
close proximity to large population centers, and in buildings
with customer-preferred characteristics.


Our portfolio is comprised of strategically
located industrial buildings in in-fill submarkets; in-fill
locations are characterized by supply constraints on the
availability of land for competing projects as well as physical,
political or economic barriers to new development. A majority of
our owned or managed buildings function as High Throughput
Distribution®, or HTD® facilities; buildings designed
to quickly distribute our customers products, rather than
store them. Our investment focus on HTD assets is based on the
secular change toward lower inventory levels and expedited
supply chains.

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

As of March 31, 2003, we owned and operated
(exclusive of properties that we managed for third parties) 873
industrial buildings and nine retail and other properties,
totaling approximately 81.4 million rentable square feet,
located in 27 markets throughout North America and in France. As
of March 31, 2003, our industrial and retail properties
were 92.5% and 87.9% leased, respectively. As of March 31,
2003, 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
1.7 million rentable square feet. In addition, as of
March 31, 2003, we had investments in 67 operating
industrial buildings, totaling approximately 7.9 million
rentable square feet, through unconsolidated joint ventures.

As of March 31, 2003, we had two retail
centers and one industrial building held for divestiture. Over
the next few years, we intend to dispose of non-strategic assets
and redeploy the resulting capital into industrial properties in
supply-constrained markets in the U.S. and internationally that
better fit our current investment focus.

Our principal executive office is located at Pier
1, Bay 1, San Francisco, California 94111; our telephone number
is (415) 394-9000. We also maintain regional offices in
Boston, Massachusetts and Amsterdam, the Netherlands. As of
March 31, 2003, we employed 175 individuals, 131 at our San
Francisco headquarters, 43 in our Boston office and one in our
Amsterdam office. 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 Exchange Act 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 Securities and
Exchange Commission. We have adopted a code of business conduct
that applies to our principal executive officer, principal
financial officer, principal accounting officer or controller,
and persons performing similar functions, which is available
free of charge on our website. We will promptly disclose on our
website any amendments to, and waivers from, our code of
business conduct relating to any of these specified officers.

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, which enhances our returns. As
of March 31, 2003, we had investments in five co-investment
joint ventures with a gross book value of $1.6 billion,
which are consolidated for financial reporting purposes.

Acquisition, Development and Disposition
Activity

During the three months ended March 31,
2003, we invested $10.9 million in two operating
properties, aggregating approximately 0.2 million square
feet, through two of our co-investment joint ventures.

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During the three months ended March 31,
2003, we stabilized two industrial buildings valued at
$12.6 million, aggregating approximately 0.2 million
square feet. We also initiated four new industrial development
projects valued at $36.4 million, aggregating approximately
0.6 million square feet. We acquired 438 acres of land for
development in Miamis Airport West submarket for
$29.7 million. The master planned park, called Beacon
Lakes, is fully entitled for 6.8 million square feet of
properties for lease or sale. During the quarter, we began
development of the first two buildings at Beacon Lakes, which
will aggregate approximately 0.4 million square feet and
have an estimated investment of $20.3 million. New
development projects during the quarter include the two Beacon
Lakes buildings as well as two additional projects.

As of March 31, 2003, we had in our
development pipeline 13 industrial projects, which will total
approximately 2.2 million square feet and have an aggregate
estimated investment of $133.2 million upon completion and
three development projects available for sale, which will total
approximately 0.6 million square feet and have an aggregate
estimated investment of $47.3 million upon completion. As
of March 31, 2003, we and our partners had funded an
aggregate of $102.1 million and needed to fund an estimated
additional $78.4 million in order to complete current and
planned projects.

During the three months ended March 31,
2003, we disposed of ten industrial buildings, aggregating
approximately 1.6 million rentable square feet, for an
aggregate price of $127.0 million. On February 19,
2003, we also contributed $94.0 million in operating
properties, consisting of 24 industrial buildings aggregating
approximately 2.4 million square feet, to our newly formed
co-investment joint venture with Citigroup Global Investments
Real Estate LP, LLC, Industrial Fund I, LLC, in which we
retained an unconsolidated 15% ownership interest.

Operating Strategy

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

We believe that real estate is fundamentally a
local business and best operated by forging alliances with
service providers in each target market. We believe that this
strategy results in a mutually beneficial relationship as these
alliance partners provide us with high-quality, local market
expertise and intelligence. We, in turn, contribute value to the
alliance relationship through national and global customer
relationship development, industry knowledge, perspective and
financial strength.

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

Growth Strategies

Growth
Through Operations

We seek to generate internal growth through rent
increases on existing space and renewals on rollover space. We
do this by seeking to maintain a high occupancy rate at our
properties and by seeking to control expenses by capitalizing on
the economies of owning, operating and growing a large global
portfolio. As of March 31, 2003, our industrial properties
and retail centers were 92.5% leased and 87.9% leased,
respectively. During the three months ended March 31, 2003,
average industrial base rental rates decreased by 6.6% from the
expiring rent for that space, on leases entered into or renewed
during the period. This amount excludes expense reimbursements,
rental abatements, percentage rents and straight-line rents.
During the three months ended March 31, 2003, we increased
cash-basis same-store net operating income by 3.8% (1.6%
including straight-line rents) on our industrial properties.
Since AMB Property Corporations initial public offering in
November 1997, we have experienced average annual increases in
industrial base rental rates of 11.0%. While

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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.


Growth
Through Acquisitions and Capital Redeployment

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

We are generally in various stages of
negotiations for a number of acquisitions and dispositions that
may include acquisitions and dispositions of individual
properties, acquisitions of large multi-property portfolios and
acquisitions of other real estate companies. There can be no
assurance that we will consummate any of these transactions.
Such transactions, if we consummate them, may be material
individually or in the aggregate. Sources of capital for
acquisitions may include undistributed cash flow from
operations, borrowings under our unsecured credit facility,
other forms of secured or unsecured debt financing, issuances of
debt or limited partnership unit offerings (including issuances
of limited partnership units by our subsidiaries), 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 renovation and expansion of
properties and development of well-located, high-quality
industrial properties should continue to provide us with
attractive opportunities for increased cash flow and a higher
rate of return than we may obtain from the purchase of
fully-leased, renovated properties. Value-added properties are
typically characterized as properties with available space or
near-term leasing exposure, undeveloped land acquired in
connection with another property that provides an opportunity
for development or properties that are well-located but require
redevelopment or renovation. Value-added properties require
significant management attention or capital investment to
maximize their return. We believe that we have developed the
in-house expertise to create value through acquiring and
managing value-added properties and believe that our global
market presence and expertise will enable us to continue to
generate and capitalize on these opportunities. In addition to
our in-house development staff, we have established strategic
alliances with global and regional developers to enhance our
development capabilities.

The multidisciplinary backgrounds of our
employees should provide us with the skills and experience to
capitalize on strategic renovation, expansion and development
opportunities. Several of our general partners officers
have specific experience in real estate development, both with
us and with national development firms. We generally pursue
development projects in joint ventures with our Development
Alliance Partners®; however, if a Development Alliance
Partner® is not available for a project, then we will
pursue the opportunity with our in-house development staff. This
way, we leverage the development skill, access to opportunities
and capital of such developers, and we eliminate the need and
expense of an extensive in-house development staff. Under a
typical joint venture agreement with a Development Alliance
Partner, we would fund 95% of the construction costs and our
partner would fund 5%; however, in certain cases we may own as
little as 50% or as much as 98% of the joint venture. Upon
completion, we generally would purchase our partners
interest in the joint venture. We may also structure
developments where 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 Co-Investments

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

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. As of
March 31, 2003, we were developing three projects for sale
to third parties.

Growth
Through Global Expansion

Over the next three-to-five years, we expect to
have from 12% to 15% of our assets invested in international
markets. Our Mexican target markets currently include Mexico
City, Guadalajara and Monterrey. Our European target markets
currently include Paris, Amsterdam, London, Frankfurt and
Madrid. Our Asian target markets currently include Singapore,
Hong Kong, and Tokyo. During the three months ended
March 31, 2003, we earned $1.1 million in rental
revenues from our Guadalajara and Paris properties and
recognized a gain of $4.9 million from the sale of a
property in Mexico City. 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 Business Risks in this report.

We believe that expansion into target
international markets represents a natural extension of our
well-established 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 the global supply chain. Our expansion strategy
mirrors our domestic focus on in-fill locations, which are
supply-constrained submarkets with political, economic or
physical constraints to new development; and, land, as a high
percentage of total asset value, becoming more valuable for
higher and better use over time. Our international investments
will extend our offering of High Throughput Distribution
facilities for customers who value speed-to-market over storage.
Specifically, we are focused on customers whose business is
derived from world air-cargo flows, a sector expected to grow
significantly faster than world GDP growth. 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, diligent underwriting of markets and investment
considerations and our strategic alliance partnerships with
knowledgeable, local-market property brokers, developers and
managers will assist us in competing internationally.

RESULTS OF OPERATIONS

The analysis below includes changes attributable
to acquisitions, development activity and divestitures and the
changes resulting from properties that we owned during both the
current and prior year reporting periods, excluding development
properties prior to being stabilized (generally defined as 90%
leased or 12 months after we receive a certificate of
occupancy for the building). We refer to these properties as the
same store properties. For the comparison between the three
months ended March 31, 2003 and 2002, the same store
industrial properties consisted of properties aggregating
approximately 73.0 million square feet. The properties
acquired during the three months ended March 31, 2003,
consisted of two buildings, aggregating approximately
0.2 million square feet. The properties acquired during
2002 consisted of 43 buildings,

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aggregating approximately 5.4 million square
feet. During the three months ended March 31, 2003,
property divestitures and contributions consisted of 34
industrial buildings, aggregating approximately 4.0 million
square feet. In 2002, property divestitures consisted of 58
industrial and two retail buildings, aggregating approximately
5.7 million square feet. Our future financial condition and
results of operations, including rental revenues, may be
impacted by the acquisition of additional properties and
dispositions. Our future revenues and expenses may vary
materially from historical rates.


Occupancy levels in our industrial portfolio and
rents on lease renewals and rollovers were lower in 2003 as the
general contraction in business activity nationwide reduced
demand for industrial warehouse facilities. This reduction in
demand was evidenced by decreases in national industrial
occupancy levels and negative net absorption of industrial
facility space. According to Torto Wheaton Research, these
factors combined to reduce market rents for industrial
properties by approximately 15% to 20% nationally from peak
levels at the beginning of 2001. While the level of rental rate
reduction varied by market, we strove to maintain high occupancy
by pricing lease renewals and new leases with sensitivity to
local market conditions. Occupancy in our operating industrial
portfolio decreased 2.1% from December 31, 2002, to 92.5%
at March 31, 2003.

For the Three
Months Ended March 31, 2003 and 2002(dollars in millions)

|                        |                   |       |      |       |       |          |       |          |       |  |      |      |      |  |       |       |      |  
|----------------------- | ----------------- | ----- | ---- | ----- | ----- | -------- | ----- | -------- | ----- |  | ---- | ---- | ---- |  | ----- | ----- | ---- | -
|Rental Revenues         |                   | 2003  |      | 2002  |       | $ Change |       | % Change
|                        |                   |       |      |       |       |          |       |         
|Industrial:             |                   |       |      |       |       |          |       |          |       |  |      |      |      |  |       |      
|                        | Same store        |       | $    | 134.7 |       |          | $     | 128.0    |       |  | $    | 6.7  |      |  |       | 5.2   | %   
|                        | 2002 acquisitions |       |      | 14.8  |       |          |       | 0.7      |       |  |      | 14.1 |      |  |       |      |     
|                        | Developments      |       |      | 2.7   |       |          |       | 2.7      |       |  |      | 0.0  |      |  |       |      |     
|                        | Divestitures      |       |      | 2.2   |       |          |       | 11.5     |       |  |      | (9.3 | )    |  |       | (80.9 | )%  
|Retail                  |                   |       | 3.9  |       |       |          | 5.4   |          |       |  | (1.5 | )    |      |  | (27.8 | )%   
|Discontinued operations |                   |       | (2.7 | )     |       |          | (10.5 | )        |       |  | 7.8  |      |      |  | 74.3  | %    
|Straight-line rents     |                   |       | 2.4  |       |       |          | 4.0   |          |       |  | (1.6 | )    |      |  | (40.0 | )%   
|                        |                   |       |      |       |       |          |       |          |       |  |      |      |      |  |       |      
|                        |                   | Total |      | $     | 158.0 |          |       | $        | 141.8 |  |      | $    | 16.2 |  |       |       | 11.4 | %
|                        |                   |       |      |       |       |          |       |          |       |  |      |      |      |  |       |      

The growth in rental revenues in same store
properties resulted primarily from increased lease termination
fees, fixed rent increases on existing leases and reimbursement
of expenses, partially offset by lower average occupancies and
bad debt expense. Industrial same store occupancy was 92.6% at
March 31, 2003, and 94.9% at March 31, 2002. For the
three months ended March 31, 2003, the same store rents
declined 7.3% on industrial renewals and rollovers (cash basis)
on 4.7 million square feet leased. The decrease in
straight-line rents was partially due to write-offs associated
with lease terminations.

|                                                        |       |      |     |      |  |          |     |          |  |   |      |      |   |  |       |       |   
|------------------------------------------------------- | ----- | ---- | --- | ---- |  | -------- | --- | -------- |  | - | ---- | ---- | - |  | ----- | ----- | --
|Private Capital and Other Income                        |       | 2003 |     | 2002 |  | $ Change |     | % Change
|                                                        |       |      |     |      |  |          |     |         
|Equity in earnings of unconsolidated joint
    ventures |       | $    | 1.2 |      |  | $        | 1.5 |          |  | $ | (0.3 | )    |   |  | (20.0 | )%   
|Private capital income                                  |       |      | 2.4 |      |  |          | 2.6 |          |  |   | (0.2 | )    |   |  | (7.7  | )%   
|Interest and other income                               |       |      | 1.4 |      |  |          | 2.8 |          |  |   | (1.4 | )    |   |  | (50.0 | )%   
|                                                        |       |      |     |      |  |          |     |          |  |   |      |      |   |  |       |      
|                                                        | Total |      | $   | 5.0  |  |          | $   | 6.9      |  |   | $    | (1.9 | ) |  |       | (27.5 | )%
|                                                        |       |      |     |      |  |          |     |          |  |   |      |      |   |  |       |      

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

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|                                                                |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |       |      |  
|--------------------------------------------------------------- | --------------------------- | ----- | ---- | ---- | ---- | -------- | ---- | -------- | ---- | - | ---- | ---- | --- |  | ----- | ----- | ---- | -
|Property Operating Expenses and Real Estate Taxes (Exclusive of |                             |       |      |      |      |          |      |         
|depreciation and amortization)                                  |                             | 2003  |      | 2002 |      | $ Change |      | % Change
|                                                                |                             |       |      |      |      |          |      |         
|Rental expenses                                                 |                             | $     | 22.1 |      |      | $        | 17.5 |          |      | $ | 4.6  |      |     |  | 26.3  | %    
|Real estate taxes                                               |                             |       | 18.3 |      |      |          | 17.0 |          |      |   | 1.3  |      |     |  | 7.6   | %    
|                                                                |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      
|                                                                | Property operating expenses |       | $    | 40.4 |      |          | $    | 34.5     |      |   | $    | 5.9  |     |  |       | 17.1  | %   
|                                                                |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      
|Industrial:                                                     |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      
|                                                                | Same store                  |       | $    | 32.9 |      |          | $    | 29.9     |      |   | $    | 3.0  |     |  |       | 9.9   | %   
|                                                                | 2002 acquisitions           |       |      | 4.7  |      |          |      | 0.1      |      |   |      | 4.6  |     |  |       |      |     
|                                                                | Developments                |       |      | 1.6  |      |          |      | 2.1      |      |   |      | (0.5 | )   |  |       | 100.0 | %   
|                                                                | Divestitures                |       |      | 0.8  |      |          |      | 3.1      |      |   |      | (2.3 | )   |  |       | (74.2 | )%  
|Retail                                                          |                             |       | 1.3  |      |      |          | 1.9  |          |      |   | (0.6 | )    |     |  | (31.6 | )%   
|Discontinued operations                                         |                             |       | (0.9 | )    |      |          | (2.6 | )        |      |   | 1.7  |      |     |  | 65.4  | %    
|                                                                |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      
|                                                                |                             | Total |      | $    | 40.4 |          |      | $        | 34.5 |   |      | $    | 5.9 |  |       |       | 17.1 | %
|                                                                |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |       |      

The $3.0 million increase in same store
properties operating expenses was primarily due to
increases in common area maintenance expenses, including snow
removal, of $1.8 million, real estate taxes of
$0.6 million and insurance expenses of $0.4 million.

|                                 |       |      |      |      |  |          |      |          |  |   |     |      |  |  |      |      |  
|-------------------------------- | ----- | ---- | ---- | ---- |  | -------- | ---- | -------- |  | - | --- | ---- |  |  | ---- | ---- | -
|Other Expenses                   |       | 2003 |      | 2002 |  | $ Change |      | % Change
|                                 |       |      |      |      |  |          |      |         
|Interest, including amortization |       | $    | 37.2 |      |  | $        | 35.0 |          |  | $ | 2.2 |      |  |  | 6.3  | %   
|Depreciation and amortization    |       |      | 35.0 |      |  |          | 27.8 |          |  |   | 7.2 |      |  |  | 25.9 | %   
|General and administrative       |       |      | 12.2 |      |  |          | 10.1 |          |  |   | 2.1 |      |  |  | 20.8 | %   
|                                 |       |      |      |      |  |          |      |          |  |   |     |      |  |  |      |     
|                                 | Total |      | $    | 84.4 |  |          | $    | 72.9     |  |   | $   | 11.5 |  |  |      | 15.8 | %
|                                 |       |      |      |      |  |          |      |          |  |   |     |      |  |  |      |     

The increase in interest expense was primarily
due to the issuance of additional unsecured senior debt
securities and an increase in secured debt balances, partially
offset by decreased borrowings on our unsecured credit facility.
The secured debt issuances were primarily for our co-investment
joint ventures properties and were partially offset by
debt repayments on our wholly-owned properties. The increase in
depreciation expense was due to the increase in our net
investment in real estate. The increase in general and
administrative expenses was due to increased stock-based
compensation expense, additional staffing and expenses for new
initiatives, including our international expansion.

LIQUIDITY AND CAPITAL RESOURCES

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



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

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.

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Capital Resources

Property Divestitures.During the three months ended
March 31, 2003, we divested ourselves of ten industrial
buildings for an aggregate price of $127.0 million, with a
resulting net gain of $29.6 million. On February 19,
2003, we also contributed $94.0 million in operating
properties, consisting of 24 industrial buildings, aggregating
approximately 2.4 million square feet, to our newly formed
unconsolidated joint venture with Citigroup Global Investments
Real Estate LP, LLC, a Delaware limited liability company,
Industrial Fund I, LLC, and recognized a gain of
$7.4 million on the contribution, representing the gain on
the contributed properties acquired by the third-party
co-investors.

Properties Held for Divestiture.We have decided to divest ourselves of
two retail centers and one industrial building, which are not in
our core markets or which do not meet our current strategic
objectives. The divestitures of the properties are subject to
negotiation of acceptable terms and other customary conditions.
As of March 31, 2003, the net carrying value of the
properties held for divestiture was $59.7 million.

Co-investment Joint Ventures.We consolidate the financial position,
results of operations and cash flows of our five co-investment
joint ventures. Our five 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. We
consolidate these joint ventures for financial reporting
purposes because we are the sole managing general partner and,
as a result, control all major operating decisions. Third-party
equity interests in the joint ventures are reflected as minority
interests in the consolidated financial statements. As of
March 31, 2003, we owned approximately 28.5 million
square feet of our properties through these five co-investment
joint ventures and 5.3 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
March 31, 2003 (dollars in thousands):

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



---



|    |                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------
|(1) | Planned capitalization is based on anticipated
    debt and both partners expected equity contributions.            
|   
|(2) | Included 15 institutional investors as
    stockholders as of March 31, 2003.                                        
|   
|(3) | A subsidiary of the real estate investment
    subsidiary of the Government of Singapore Investment Corporation.     
|   
|(4) | Included 13 institutional investors as
    stockholders and one third-party limited partner as of
    March 31, 2003.

Partners Capital.As of March 31, 2003, we had
outstanding 81,304,915 common general partnership units,
4,846,387 common limited partnership units, 3,995,800
8 1/2% Series A Cumulative Redeemable Partnership
Units, 1,300,000 8 5/8% Series B Cumulative Redeemable
Partnership Units, 800,000 7.95% Series J Cumulative
Redeemable Partnership Units and 800,000 7.95% Series K
Cumulative Redeemable Partnership Units.

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In December 2001, AMB Property Corporations
board of directors approved a new stock repurchase program for
the repurchase of up to $100.0 million worth of its common
and preferred stock. In December 2002, AMB Property
Corporations board of directors increased the repurchase
program to $200.0 million. The current stock repurchase
program expires in December 2003 and, as of March 31, 2003,
$110.0 million of repurchase capacity remained under the
program. During the three months ended March 31, 2003, AMB
Property Corporation repurchased 787,800 shares of its common
stock for $20.6 million, including commissions, and we
retired the same number of common general partnership units.

Debt.In order to
maintain financial flexibility and facilitate the deployment of
capital through market cycles, we presently intend to operate
with a debt-to-total market capitalization ratio (our share) of
approximately 45% or less. As of March 31, 2003, our share
of total debt-to-total market capitalization ratio was 35.6%.
Additionally, we currently intend to manage our capitalization
in order to maintain an investment grade rating on our senior
unsecured debt. In spite of these policies, our organizational
documents do not contain any limitation on the amount of
indebtedness that we may incur. Accordingly, our general
partners board of directors could alter or eliminate these
policies without unitholder or noteholder approval or
circumstances could arise that could render us unable to comply
with these policies.

As of March 31, 2003, the aggregate
principal amount of our secured debt was $1.2 billion,
excluding unamortized debt premiums of $8.4 million. Of the
$1.2 billion of secured debt, $0.9 billion is secured
by properties in our joint ventures. The secured debt is
generally non-recourse and bears interest at rates varying from
2.9% to 12.0% per annum (with a weighted average rate of 7.3%)
and final maturity dates ranging from June 2003 to April 2023.
All of the secured debt bears interest at fixed rates, except
for seven loans with an aggregate principal amount of
$65.6 million as of March 31, 2003, which bear
interest at variable rates (with a weighted average interest
rate of 3.5% as of March 31, 2003). Over time, we intend to
repay the secured debt on our 100%-owned assets and may prepay
if market conditions warrant.

In June 1998, we issued $400.0 million of
unsecured senior debt securities. Interest on the unsecured
senior debt securities is payable semi-annually. The 2015 notes
are putable and callable in September 2005. In August 2000, we
commenced a medium-term note program and subsequently issued
$400.0 million of medium-term notes with an average
interest rate of 7.3%. These notes are guaranteed by AMB
Property Corporation. In May 2002, we commenced a new
medium-term note program for the issuance of up to
$400.0 million in principal amount of medium-term notes,
which will be guaranteed by AMB Property Corporation. As of
March 31, 2003, we had issued no medium-term notes under
this program.

If we are unable to refinance or extend principal
payments due at maturity or pay them with proceeds from other
capital transactions, then our cash flow may be insufficient to
pay distributions to our unitholders in all years, to make
payments to our noteholders and to repay debt upon maturity.
Furthermore, if prevailing interest rates or other factors at
the time of refinancing (such as the reluctance of lenders to
make commercial real estate loans) result in higher interest
rates upon refinancing, then the interest expense relating to
that refinanced indebtedness would increase. This increased
interest expense would adversely affect our financial condition,
results of operations, cash flow and ability to make
distributions to our unitholders and payments to our noteholders

Credit Facilities.In December 2002, we renewed our
$500.0 million unsecured revolving line of credit. AMB
Property Corporation guarantees our obligations under the credit
facility. The credit facility matures in December 2005, has a
one-year extension option and currently is subject to a 20 basis
point annual facility fee. Borrowings under our credit facility
currently bear interest at LIBOR plus 60 basis points. Euro
borrowings under the credit facility currently bear interest at
EURIBOR plus 60 basis points. Both the facility fee and the
interest rate are based on our credit rating, which is currently
investment grade. However, if our credit rating falls below
investment grade, then our facility fee and interest rate may
increase. The credit facility includes a multi-currency
component under which up to $150.0 million may be drawn in
either British pounds sterling, euros or yen (provided that such
currency is readily available and freely transferable and
convertible to U.S. dollars, the Reuters Monitor Money
Rates Service reports LIBOR for such currency in interest
periods of 1, 2, 3 or 6 months and the we have an
investment grade credit rating). We have the ability to increase
available borrowings to $700.0 million by adding additional
banks to the facility or obtaining the agreement of existing

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banks to increase their commitments. We use our
unsecured credit facility principally for acquisitions and for
general working capital requirements. Monthly debt service
payments on our credit facility are interest only. The total
amount available under our credit facility fluctuates based upon
the borrowing base, as defined in the agreement governing the
credit facility, generally the value of our unencumbered
properties. As of March 31, 2003, the outstanding balance
on our unsecured credit facility was $17.5 million and the
remaining amount available was $459.2 million, net of
outstanding letters of credit (excluding the $200.0 million
of potential additional capacity). The outstanding balance was
denominated in Euros and converted to U.S. dollars at
March 31, 2003.


In July 2001, AMB Institutional Alliance
Fund II, L.P. obtained a $150.0 million credit
facility secured by the unfunded capital commitments of the
investors in AMB Institutional Alliance REIT II, Inc. and
AMB Institutional Alliance Fund II, L.P. Borrowings
currently bear interest at LIBOR plus 87.5 basis points. As
of March 31, 2003, the outstanding balance was
$51.5 million and the remaining amount available was
$25.2 million, net of outstanding letters of credit and the
funded capital contributions from third-party investors. We
repaid the credit facility in April with capital contributions
and secured debt proceeds.

Mortgage Receivable.Through a wholly-owned subsidiary, we
hold a mortgage loan receivable on AMB Pier One, LLC, an
unconsolidated joint venture. The note bears interest at 13.0%
and matures in May 2026. As of March 31, 2003, the
outstanding balance on the note was $13.1 million.

The tables below summarize our debt maturities
and capitalization as of March 31, 2003 (dollars in
thousands):

Debt

|                                                                     |                      |                         |        |         |         |             |          |           |         |            |         |            |         |   |       |        |        |   |         |        |        |   |          |           |           | 
|-------------------------------------------------------------------- | -------------------- | ----------------------- | ------ | ------- | ------- | ----------- | -------- | --------- | ------- | ---------- | ------- | ---------- | ------- | - | ----- | ------ | ------ | - | ------- | ------ | ------ | - | -------- | --------- | --------- | 
|                                                                     |                      | Our                     |        | Joint   |         | Unsecured   |          |           |         |            |         |           
|                                                                     |                      | Secured                 |        | Venture |         | Senior Debt |          | Unsecured |         | Credit     |         |           
|                                                                     |                      | Debt                    |        | Debt    |         | Securities  |          | Debt      |         | Facilities |         | Total Debt
|                                                                     |                      |                         |        |         |         |             |          |           |         |            |         |           
|2003                                                                 |                      | $                       | 56,160 |         |         | $           | 12,650   |           |         | $          |        |            |         | $ | 422   |        |        | $ | 51,500  |        |        | $ | 120,732  |          
|2004                                                                 |                      |                         | 62,516 |         |         |             | 65,261   |           |         |            |        |            |         |   | 601   |        |        |   |        |        |        |   | 128,378  |          
|2005                                                                 |                      |                         | 44,427 |         |         |             | 59,496   |           |         |            | 250,000 |            |         |   | 647   |        |        |   | 17,464  |        |        |   | 372,034  |          
|2006                                                                 |                      |                         | 82,693 |         |         |             | 65,996   |           |         |            | 25,000  |            |         |   | 698   |        |        |   |        |        |        |   | 174,387  |          
|2007                                                                 |                      |                         | 14,495 |         |         |             | 43,341   |           |         |            | 75,000  |            |         |   | 752   |        |        |   |        |        |        |   | 133,588  |          
|2008                                                                 |                      |                         | 31,665 |         |         |             | 154,879  |           |         |            | 175,000 |            |         |   | 810   |        |        |   |        |        |        |   | 362,354  |          
|2009                                                                 |                      |                         | 4,147  |         |         |             | 77,032   |           |         |            |        |            |         |   | 873   |        |        |   |        |        |        |   | 82,052   |          
|2010                                                                 |                      |                         | 50,948 |         |         |             | 105,766  |           |         |            | 75,000  |            |         |   | 941   |        |        |   |        |        |        |   | 232,655  |          
|2011                                                                 |                      |                         | 409    |         |         |             | 179,525  |           |         |            | 75,000  |            |         |   | 1,014 |        |        |   |        |        |        |   | 255,948  |          
|2012                                                                 |                      |                         | 407    |         |         |             | 107,524  |           |         |            |        |            |         |   | 1,092 |        |        |   |        |        |        |   | 109,023  |          
|Thereafter                                                           |                      |                         | 481    |         |         |             | 22,264   |           |         |            | 125,000 |            |         |   | 2,200 |        |        |   |        |        |        |   | 149,945  |          
|                                                                     |                      |                         |        |         |         |             |          |           |         |            |         |            |         |   |       |        |        |   |         |        |        |   |          |          
|                                                                     | Subtotal             |                         |        | 348,348 |         |             |          | 893,734   |         |            |         | 800,000    |         |   |       | 10,050 |        |   |         | 68,964 |        |   |          | 2,121,096 |          
|                                                                     | Unamortized premiums |                         |        | 8,114   |         |             |          | 332       |         |            |         |           |         |   |       |       |        |   |         |       |        |   |          | 8,446     |          
|                                                                     |                      |                         |        |         |         |             |          |           |         |            |         |            |         |   |       |        |        |   |         |        |        |   |          |          
|                                                                     |                      | Total consolidated debt |        |         | 356,462 |             |          |           | 894,066 |            |         |            | 800,000 |   |       |        | 10,050 |   |         |        | 68,964 |   |          |           | 2,129,542 | 
|Our share of unconsolidated joint venture debt(1)                    |                      |                         |       |         |         |             | 49,064   |           |         |            |        |            |         |   |      |        |        |   |        |        |        |   | 49,064   |          
|                                                                     |                      |                         |        |         |         |             |          |           |         |            |         |            |         |   |       |        |        |   |         |        |        |   |          |          
|                                                                     |                      | Total debt              |        |         | 356,462 |             |          |           | 943,130 |            |         |            | 800,000 |   |       |        | 10,050 |   |         |        | 68,964 |   |          |           | 2,178,606 | 
|Joint venture partners share of
    consolidated joint venture debt |                      |                         |       |         |         |             | (556,864 | )         |         |            |        |            |         |   |      |        |        |   | (41,200 | )      |        |   | (598,064 | )        
|                                                                     |                      |                         |        |         |         |             |          |           |         |            |         |            |         |   |       |        |        |   |         |        |        |   |          |          
|                                                                     |                      | Our share of total debt |        | $       | 356,462 |             |          | $         | 386,266 |            |         | $          | 800,000 |   |       | $      | 10,050 |   |         | $      | 27,764 |   |          | $         | 1,580,542 | 
|                                                                     |                      |                         |        |         |         |             |          |           |         |            |         |            |         |   |       |        |        |   |         |        |        |   |          |          

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|                                    |  |         |     |         |  |             |     |           |  |            |     |            |  |  |      |   |  |  |     |   |  |  |     |  
|----------------------------------- |  | ------- | --- | ------- |  | ----------- | --- | --------- |  | ---------- | --- | ---------- |  |  | ---- | - |  |  | --- | - |  |  | --- | -
|                                    |  | Our     |     | Joint   |  | Unsecured   |     |           |  |            |     |           
|                                    |  | Secured |     | Venture |  | Senior Debt |     | Unsecured |  | Credit     |     |           
|                                    |  | Debt    |     | Debt    |  | Securities  |     | Debt      |  | Facilities |     | Total Debt
|                                    |  |         |     |         |  |             |     |           |  |            |     |           
|Weighed average interest rate       |  |         | 8.1 | %       |  |             | 7.0 | %         |  |            | 7.2 | %          |  |  | 7.5  | % |  |  | 2.4 | % |  |  | 7.0 | %
|Weighed average maturity (in years) |  |         | 3.6 |         |  |             | 6.8 |           |  |            | 6.2 |            |  |  | 11.5 |   |  |  | 2.7 |   |  |  | 5.9 |  



---



|    |                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|(1) | The weighted average interest and maturity for
    the unconsolidated joint venture debt were 5.6% and
    5.3 years, respectively.

Market Capital

|                                 |       |             |            |            |  |          |       |  |  |   |           |           | 
|-------------------------------- | ----- | ----------- | ---------- | ---------- |  | -------- | ----- |  |  | - | --------- | --------- | 
|                                 |       | Units       |            | Market     |  | Market  
|Security                         |       | Outstanding |            | Price(1)   |  | Value(1)
|                                 |       |             |            |            |  |         
|Common general partnership units |       |             | 81,304,915 |            |  | $        | 28.25 |  |  | $ | 2,296,864 |          
|Common limited partnership units |       |             | 4,846,387  |            |  |          | 28.25 |  |  |   | 136,910   |          
|                                 |       |             |            |            |  |          |       |  |  |   |           |          
|                                 | Total |             |            | 86,151,302 |  |          |       |  |  |   | $         | 2,433,774 | 
|                                 |       |             |            |            |  |          |       |  |  |   |           |          



---



|    |                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Assumes that the general partnership units are
    exchanged for AMB Property Corporations common stock
    because there is no public market for the units.

Preferred Units

|                         |                        |              |      |             |   |            |        |         |  |                | 
|------------------------ | ---------------------- | ------------ | ---- | ----------- | - | ---------- | ------ | ------- |  | -------------- | 
|                         |                        | Distribution |      | Liquidation |   | Redemption
|Security                 |                        | Rate         |      | Preference  |   | Provisions
|                         |                        |              |      |             |   |           
|Series A preferred units |                        |              | 8.50 | %           |   | $          | 99,895 |         |  | July 2003     
|Series B preferred units |                        |              | 8.63 | %           |   |            | 65,000 |         |  | November 2003 
|Series D preferred units |                        |              | 7.75 | %           |   |            | 79,767 |         |  | May 2004      
|Series E preferred units |                        |              | 7.75 | %           |   |            | 11,022 |         |  | August 2004   
|Series F preferred units |                        |              | 7.95 | %           |   |            | 13,372 |         |  | March 2005    
|Series H preferred units |                        |              | 8.13 | %           |   |            | 42,000 |         |  | September 2005
|Series I preferred units |                        |              | 8.00 | %           |   |            | 25,500 |         |  | March 2006    
|Series J preferred units |                        |              | 7.95 | %           |   |            | 40,000 |         |  | September 2006
|Series K preferred units |                        |              | 7.95 | %           |   |            | 40,000 |         |  | April 2007    
|                         |                        |              |      |             |   |            |        |         |  |               
|                         | Weighted average/total |              |      | 8.17        | % |            | $      | 416,556 |  |                | 
|                         |                        |              |      |             |   |            |        |         |  |               

Capitalization Ratios

|                                                                          |  |  |      |  
|------------------------------------------------------------------------- |  |  | ---- | -
|Total debt-to-total market capitalization                                 |  |  | 43.3 | %
|Our share of total debt-to-total market
    capitalization                |  |  | 35.6 | %
|Total debt plus preferred-to-total market
    capitalization              |  |  | 51.5 | %
|Our share of total debt plus preferred-to-total
    market capitalization |  |  | 45.0 | %
|Our share of total debt-to-total book
    capitalization                  |  |  | 44.2 | %

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Liquidity

As of March 31, 2003, we had
$149.9 million in cash, restricted cash and cash
equivalents, and $459.2 million of additional available
borrowings under our credit facility. To fund acquisitions,
development activities and capital expenditures, and to provide
for general working capital requirements, we intend to use:



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

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

We declared a regular cash distribution for the
quarter ended March 31, 2003, of $0.415 per common unit.
The distribution was payable on April 15, 2003, to common
unitholders of record on April 4, 2003. The Series A,
B, E, F, J and K preferred unit distributions were payable on
April 15, 2003, . The Series D, H and I preferred unit
distributions were payable on March 25, 2003. The following
table sets forth the distributions paid or payable per unit for
the three months ended March 31, 2003 and 2002:

|                      |  |                                  |  |        |  |       
|--------------------- |  | -------------------------------- |  | ------ |  | ------
|Paying Entity         |  | Security                         |  | 2003   |  | 2002  
|                      |  |                                  |  |        |  |       
|AMB Property, L.P.    |  | Common limited partnership units |  | $0.415 |  | $0.410
|AMB Property, L.P.    |  | Series A preferred units         |  | $0.531 |  | $0.531
|AMB Property, L.P.    |  | Series B preferred units         |  | $1.078 |  | $1.078
|AMB Property, L.P.    |  | Series J preferred units         |  | $0.994 |  | $0.994
|AMB Property, L.P.    |  | Series K preferred units         |  | $0.994 |  | n/a   
|AMB Property II, L.P. |  | Series D preferred units         |  | $0.969 |  | $0.969
|AMB Property II, L.P. |  | Series E preferred units         |  | $0.969 |  | $0.969
|AMB Property II, L.P. |  | Series F preferred units         |  | $0.994 |  | $0.994
|AMB Property II, L.P. |  | Series G preferred units         |  | $0.994 |  | $0.994
|AMB Property II, L.P. |  | Series H preferred units         |  | $1.016 |  | $1.016
|AMB Property II, L.P. |  | Series I preferred units         |  | $1.000 |  | $1.000

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



| |                    
| | -------------------
| | Capital Commitments

Developments.In
addition to recurring capital expenditures, which consist of
building improvements and leasing costs incurred to renew or
re-tenant space, as of March 31, 2003, were developing 13
projects representing a total estimated investment of
$133.2 million upon completion and three development
projects available for sale representing a total estimated
investment of $47.3 million upon completion. Of this total,
$102.1 million had been funded as of March 31, 2003,
and an estimated $78.4 million is required to complete
current and planned projects. We expect to fund these
expenditures with cash from operations, borrowings

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under our credit facility, debt or limited
partnership unit issuances, net proceeds from property
divestitures, and private capital from co-investment partners,
which could have an adverse effect on our cash flow.


Acquisitions.During
the three months ended March 31, 2003, we invested
$10.9 million in two operating industrial buildings,
aggregating approximately 0.2 million rentable square feet.
We generally fund our acquisitions and development and
renovation projects through private capital contributions,
borrowings under our credit facility, cash, debt issuances and
net proceeds from property divestitures.

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, which enhances our
returns. As of March 31, 2003, we may make additional
capital contributions to current and planned co-investment joint
ventures up to $72.0 million.

Lease Commitments.We hold operating ground leases on
certain land parcels, primarily on-tarmac facilities, and leases
on office space in San Francisco and Boston. We also hold a
lease on office space in New York City, which we hold for
investment purposes. The remaining lease terms are from one to
38 years. Future minimum rental payments required under
non-cancelable operating leases in effect as of March 31,
2003, were as follows (dollars in thousands):

|           |                         |   |         |         | 
|---------- | ----------------------- | - | ------- | ------- | 
|2003       |                         | $ | 14,941  |        
|2004       |                         |   | 19,753  |        
|2005       |                         |   | 19,819  |        
|2006       |                         |   | 20,553  |        
|2007       |                         |   | 20,772  |        
|Thereafter |                         |   | 283,574 |        
|           |                         |   |         |        
|           | Total lease commitments |   | $       | 379,412 | 
|           |                         |   |         |        

These operating lease payments are being
amortized ratably over the terms of the related leases.

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

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| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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

We have no off-balance sheet transactions,
arrangements, obligations, guarantees or other relationships
with unconsolidated entities or other persons that have, or are
reasonably likely to have, a material effect on our financial
condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.

Supplemental Earning Measures

We believe that net income, as defined by GAAP,
is the most appropriate earnings measure. However, the real
estate industry has adopted a supplemental earnings measure,
funds from operations, or FFO, as defined by the National
Association of Real Estate Investment Trusts
(NAREIT), that is widely used by investors and
analysts. While FFO is a relevant and widely used measure of
operating performance of real estate investment trusts, such as
AMB Property Corporation, our general partner, it does not
represent cash flow from operations or net income as defined by
GAAP and it should not be considered as an alternative to those
indicators in evaluating liquidity or operating performance.
Further, FFO as disclosed by other real estate investment trusts
may not be comparable.

FFO is income available to common unitholders
less gains 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. In accordance with the NAREIT
White Paper on FFO, we include the effects of straight-line
rents in FFO. Further, we do not adjust FFO to eliminate the
effects of non-recurring charges.

The following table reflects the calculation of
FFO for the three months ended March 31, (dollars in
thousands):

|                                                                               |                                                                                     |                       |         |         |        |   |        |         |        | 
|------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------- | --------------------- | ------- | ------- | ------ | - | ------ | ------- | ------ | 
|                                                                               |                                                                                     | 2003                  |         | 2002   
|                                                                               |                                                                                     |                       |         |        
|Net income available to common unitholders
    attributable to general partner |                                                                                     | $                     | 57,255  |         |        | $ | 28,178 |        
|(Gains)/losses from dispositions of real estate                                |                                                                                     |                       | (37,073 | )       |        |   | 288    |        
|Real estate related depreciation and amortization:                             |                                                                                     |                       |         |         |        |   |        |        
|                                                                               | Total depreciation and amortization                                                 |                       |         | 35,022  |        |   |        | 27,832  |       
|                                                                               | Discontinued operations depreciation                                               |                       |         | 151     |        |   |        | 1,843   |       
|                                                                               | Furniture, fixtures and equipment depreciation
    and ground lease amortization(1) |                       |         | (1,033  | )      |   |        | (674    | )     
|Adjustments to derive FFO in consolidated joint
    ventures:                  |                                                                                     |                       |         |         |        |   |        |        
|                                                                               | Minority interests                                                                  |                       |         | 11,183  |        |   |        | 9,766   |       
|                                                                               | FFO attributable to minority interests                                              |                       |         | (14,983 | )      |   |        | (12,844 | )     
|Adjustments to derive FFO in unconsolidated joint
    ventures:                |                                                                                     |                       |         |         |        |   |        |        
|                                                                               | Our share of net income                                                             |                       |         | (1,235  | )      |   |        | (1,483  | )     
|                                                                               | Our share of FFO                                                                    |                       |         | 2,491   |        |   |        | 2,129   |       
|                                                                               |                                                                                     |                       |         |         |        |   |        |        
|                                                                               |                                                                                     | Funds from operations |         | $       | 51,778 |   |        | $       | 55,035 | 
|                                                                               |                                                                                     |                       |         |         |        |   |        |        



---



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

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We believe that earnings before interest, tax,
depreciation and amortization, or EBITDA, is also an appropriate
supplemental earnings measure that is widely used by investors
and analysts. While EBITDA is a relevant and widely used measure
of operating performance, it does not represent cash flow from
operations or net income as defined by GAAP and it should not be
considered as an alternative to those indicators in evaluating
liquidity or operating performance. Further, EBITDA as disclosed
by other companies not be comparable.

EBITDA is income before minority interests and
gains plus interest, depreciation, stock-based compensation
amortization and adjustments to derive our pro rata share of
EBITDA from unconsolidated joint ventures.

The following table reflects the calculation of
EBITDA for the three months ended March 31, (dollars in
thousands):

|                                                                     |                               |        |        |        |         |   |        |        |         | 
|-------------------------------------------------------------------- | ----------------------------- | ------ | ------ | ------ | ------- | - | ------ | ------ | ------- | 
|                                                                     |                               | 2003   |        | 2002  
|                                                                     |                               |        |        |       
|Income before minority interests                                     |                               | $      | 38,262 |        |         | $ | 41,226 |       
|Interest, including amortization                                     |                               |        | 37,180 |        |         |   | 35,004 |       
|Depreciation and amortization                                        |                               |        | 35,022 |        |         |   | 27,832 |       
|Stock-based compensation amortization                                |                               |        | 1,941  |        |         |   | 859    |       
|Discontinued operations EBITDA                                      |                               |        | 1,799  |        |         |   | 7,894  |       
|Adjustments to derive EBITDA from unconsolidated
    joint ventures: |                               |        |        |        |         |   |        |       
|                                                                     | Our share of net income       |        |        | (1,235 | )       |   |        | (1,483 | )      
|                                                                     | Our share of FFO              |        |        | 2,491  |         |   |        | 2,129  |        
|                                                                     | Our share of interest expense |        |        | 577    |         |   |        | 515    |        
|                                                                     |                               |        |        |        |         |   |        |       
|                                                                     |                               | EBITDA |        | $      | 116,037 |   |        | $      | 113,976 | 
|                                                                     |                               |        |        |        |         |   |        |       

The following table reflects supplemental cash
flow information and recurring capital expenditures for the
three months ended March 31, (dollars in thousands):

|                                                                             |                                                           |                                             |        |        |        |   |        |        |        | 
|---------------------------------------------------------------------------- | --------------------------------------------------------- | ------------------------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                             |                                                           | 2003                                        |        | 2002  
|                                                                             |                                                           |                                             |        |       
|Straight-line rents                                                          |                                                           | $                                           | 2,380  |        |        | $ | 3,961  |       
|Our share of unconsolidated joint venture
    partners net operating income |                                                           | $                                           | 3,068  |        |        | $ | 2,644  |       
|Joint venture partners share of cash basis
    net operating income         |                                                           | $                                           | 24,192 |        |        | $ | 19,735 |       
|Discontinued operations net operating
    income, held for sale             |                                                           | $                                           | 1,474  |        |        | $ | 1,269  |       
|Discontinued operations net operating
    income, sold                      |                                                           | $                                           | 325    |        |        | $ | 6,625  |       
|Stock-based compensation amortization                                        |                                                           | $                                           | 1,942  |        |        | $ | 859    |       
|Capitalized interest                                                         |                                                           | $                                           | 1,597  |        |        | $ | 1,791  |       
|Recurring capital expenditures:                                              |                                                           |                                             |        |        |        |   |        |       
|                                                                             | Tenant improvements                                       |                                             | $      | 3,017  |        |   | $      | 3,919  |       
|                                                                             | Lease commissions and other lease costs                   |                                             |        | 5,190  |        |   |        | 4,963  |       
|                                                                             | Building improvements                                     |                                             |        | 2,673  |        |   |        | 2,341  |       
|                                                                             |                                                           |                                             |        |        |        |   |        |       
|                                                                             |                                                           | Subtotal                                    |        |        | 10,880 |   |        |        | 11,223 | 
|                                                                             | Joint venture partners share of capital
    expenditures |                                             |        | (3,867 | )      |   |        | (2,842 | )     
|                                                                             |                                                           |                                             |        |        |        |   |        |       
|                                                                             |                                                           | Our share of recurring capital expenditures |        | $      | 7,013  |   |        | $      | 8,381  | 
|                                                                             |                                                           |                                             |        |        |        |   |        |       

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OPERATING AND LEASING STATISTICS
SUMMARY

The following table summarizes key operating and
leasing statistics for all of our industrial properties as of
and for the three month period ended March 31, 2003
(dollars in thousands):

|                                    |                                                             |                |                  |           |      |      | 
|----------------------------------- | ----------------------------------------------------------- | -------------- | ---------------- | --------- | ---- | ---- | 
|                                    |                                                             | Three Months  
|                                    |                                                             | Ended         
|                                    |                                                             | March 31, 2003
|                                    |                                                             |               
|Square feet owned(1)(2)             |                                                             |                | 80,431,776       |          
|Occupancy percentage(1)             |                                                             |                | 92.5             | %        
|Weighted average lease terms:       |                                                             |                |                  |          
|                                    | Original                                                    |                |                  | 6.1 years |     
|                                    | Remaining                                                   |                |                  | 3.3 years |     
|Tenant retention                    |                                                             |                | 68.4             | %        
|Same Space Leasing Activity(3):     |                                                             |                |                  |          
|                                    | Rent decreases on renewals and rollovers                    |                |                  | (6.6      | )%  
|                                    | Same space square footage commencing (millions)             |                |                  | 4.9       |     
|Second Generation Leasing Activity: |                                                             |                |                  |          
|                                    | Tenant improvements and leasing commissions
    per sq ft.: |                |                  |           |     
|                                    |                                                             | Renewals       |                  | $         | 1.22 |     
|                                    |                                                             | Re-tenanted    |                  |           | 1.45 |     
|                                    |                                                             |                |                  |          
|                                    |                                                             |                | Weighted average |           | $    | 1.30 | 
|                                    |                                                             |                |                  |          
|                                    | Square footage commencing (millions)                        |                |                  | 6.2       |     



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes all industrial consolidated operating
    properties and excludes development and renovation projects.
    Excludes retail and other properties square feet of
    1,003,638, occupancy of 87.9%, and annualized base rent of
    $12.0 million.                                                                                                                                                    
|   
|(2) | In addition to owned square feet as of
    March 31, 2003, we managed, through our subsidiary, AMB
    Capital Partners, LLC, approximately 1.7 million additional
    square feet of industrial, retail, and other properties. We also
    have investments in approximately 7.9 million square feet
    of industrial operating properties through our investments in
    the unconsolidated joint ventures.
|   
|(3) | Consists of all second-generation leases renewing
    or re-tenanting with current and prior lease terms greater than
    one year.                                                                                                                                                                                                                                                                           

The following summarizes key same store
properties operating statistics for our industrial
properties as of and for the three-month periods ended
March 31, 2003:

|                                                   |                                   |                      |            |      |      |  
|-------------------------------------------------- | --------------------------------- | -------------------- | ---------- | ---- | ---- | -
|                                                   |                                   | Three Months        
|                                                   |                                   | Ended               
|                                                   |                                   | March 31, 2003      
|                                                   |                                   |                     
|Square feet in same store pool(1)                  |                                   |                      | 73,032,118 |     
|                                                   | % of total industrial square feet |                      |            | 90.8 | %   
|Occupancy percentage at period end                 |                                   |                      |            |     
|                                                   |                                   | March 31, 2003.      |            |      | 92.6 | %
|                                                   |                                   | March 31, 2002.      |            |      | 94.9 | %
|Tenant retention                                   |                                   |                      | 74.2       | %   
|Rent decreases on renewals and rollovers           |                                   |                      | (7.3       | )%  
|                                                   | Square feet leased                |                      |            | 4.7  |     
|Growth % increase (excluding straight-line rents): |                                   |                      |            |     
|                                                   |                                   | Revenues             |            |      | 5.2  | %
|                                                   |                                   | Expenses             |            |      | 9.9  | %
|                                                   |                                   | Net operating income |            |      | 3.8  | %

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|                                                   |                      |                |  |     |  
|-------------------------------------------------- | -------------------- | -------------- |  | --- | -
|                                                   |                      | Three Months  
|                                                   |                      | Ended         
|                                                   |                      | March 31, 2003
|                                                   |                      |               
|Growth % increase (including straight-line rents): |                      |                |  |    
|                                                   | Revenues             |                |  | 3.5 | %
|                                                   | Expenses             |                |  | 9.9 | %
|                                                   | Net operating income |                |  | 1.6 | %



---



|    |                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------
|(1) | The same store pool excludes properties purchased
    and developments stabilized after December 31, 2001.






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

Market risk is the risk of loss from adverse
changes in market prices and interest rates. Our future earnings
and cash flows are dependent upon prevailing market rates.
Accordingly, we manage our market risk by matching projected
cash inflows from operating, investing and financing activities
with projected cash outflows for debt service, acquisitions,
capital expenditures, distributions to unitholders and payments
to noteholders, and other cash requirements. The majority of our
outstanding debt has fixed interest rates, which minimizes the
risk of fluctuating interest rates. Our exposure to market risk
includes interest rate fluctuations in connection with our
credit facilities and other variable rate borrowings and our
ability to incur more debt without unitholder or noteholder
approval, thereby increasing our debt service obligations, which
could adversely affect our cash flows. As of March 31,
2003, we had no interest rate caps or swaps. See
Item 2: Managements Discussion and Analysis of
Financial Condition and Results of Operations 
Liquidity and Capital Resources  Capital
Resources  Market Capitalization.

The table below summarizes the market risks
associated with our fixed and variable rated debt outstanding
before unamortized debt premiums of $8.4 million as of
March 31, 2003 (dollars in thousands):

|                      |  |                        |        |       |  |      |        |      |  |      |         |            |  |      |         |  |  |   |         |  |  |   |           |  |  |   |           | 
|--------------------- |  | ---------------------- | ------ | ----- |  | ---- | ------ | ---- |  | ---- | ------- | ---------- |  | ---- | ------- |  |  | - | ------- |  |  | - | --------- |  |  | - | --------- | 
|                      |  |                       
|                      |  | Expected Maturity Date
|                      |  |                       
|                      |  |                        |        | Total
|                      |  | 2003                   |        | 2004  |  | 2005 |        | 2006 |  | 2007 |         | Thereafter |  | Debt
|                      |  |                        |        |       |  |      |        |      |  |      |         |            |  |     
|Fixed rate debt(1)    |  | $                      | 67,771 |       |  | $    | 97,698 |      |  | $    | 351,127 |            |  | $    | 165,649 |  |  | $ | 126,727 |  |  | $ | 1,177,611 |  |  | $ | 1,986,583 | 
|Average interest rate |  |                        | 7.8%   |       |  |      | 8.0%   |      |  |      | 7.3%    |            |  |      | 7.4%    |  |  |   | 7.4%    |  |  |   | 7.3%      |  |  |   | 7.4%      | 
|Variable rate debt(2) |  | $                      | 52,961 |       |  | $    | 30,680 |      |  | $    | 20,907  |            |  | $    | 8,738   |  |  | $ | 6,861   |  |  | $ | 14,366    |  |  | $ | 134,513   | 
|Average interest rate |  |                        | 2.2%   |       |  |      | 3.3%   |      |  |      | 3.8%    |            |  |      | 3.1%    |  |  |   | 3.0%    |  |  |   | 4.3%      |  |  |   | 3.0%      | 



---



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

If market rates of interest on our variable rate
debt increased by 10% (or approximately 30 basis points), then
the increase in interest expense on the variable rate debt would
be $0.4 million annually. As of March 31, 2003, the
estimated fair value of our fixed rate debt was
$2,156.0 million based on our estimate of current market
interest rates.






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

We maintain disclosure controls and procedures
that are designed to ensure that information required to be
disclosed in our reports filed under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commissions rules and forms, and that such
information is accumulated and communicated to our management,
including our general partners chief executive officer,
president and chief financial officer, as appropriate, to allow
timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, our
management recognized that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control
objectives, and our management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Also, we have investments in
certain unconsolidated entities, which are

37



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##### Table of Contents



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.


Within 90 days prior to the date of this
report filing, we carried out an evaluation, under the
supervision and with the participation of our management,
including our general partners chief executive officer,
president and chief financial officer, of the effectiveness of
the design and operation of our disclosure controls and
procedures. Based on the foregoing, our general partners
chief executive officer, president and chief financial officer
each concluded that our disclosure controls and procedures were
effective.

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




PART II






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

As of March 31, 2003, there were no pending
legal proceedings to which we are a party or of which any of our
properties is the subject, the adverse determination of which we
anticipate would have a material adverse effect upon our
financial condition and results of operations.






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

In January 2003, we repurchased 787,800 shares of
our common general partnership units in connection with AMB
Property Corporations stock repurchase program.






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

None.






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

None.






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

BUSINESS RISKS

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

General Real Estate Risks



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

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

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or an increased occurrence of defaults under
existing leases, which would adversely affect our financial
condition and results of operations.


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



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

We are subject to the risks that leases may not
be renewed, space may not be relet, or the terms of renewal or
reletting (including the cost of required renovations) may be
less favorable than current lease terms. Leases on a total of
11.9% of our industrial properties (based on annualized base
rent) as of March 31, 2003, will expire on or prior to
December 31, 2003. In addition, numerous properties compete
with our properties in attracting customers to lease space,
particularly with respect to retail centers. The number of
competitive commercial properties in a particular area could
have a material adverse effect on our ability to lease space in
our properties and on the rents that we are able to charge. Our
financial condition, results of operations, cash flow and our
ability to make distributions to our unitholders and payments to
our noteholders could be adversely affected if we are unable to
promptly relet or renew the leases for all or a substantial
portion of expiring leases, if the rental rates upon renewal or
reletting is significantly lower than expected, or if our
reserves for these purposes prove inadequate.



| |                                          
| | -----------------------------------------
| | Real Estate Investments are
    Illiquid.

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



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

Our industrial properties located in California
as of March 31, 2003, represented 29.3% of the aggregate
square footage of our industrial operating properties as of
March 31, 2003, and 33.6% of our industrial annualized base
rent. Annualized base rent means the monthly contractual amount
under existing leases as of March 31, 2003, multiplied
by 12. This amount excludes expense reimbursements and
rental abatements. Our revenue from, and the value of, our
properties located in California may be affected by a number of
factors, including local real estate conditions (such as
oversupply of or reduced demand for industrial properties) and
the local economic climate. Business layoffs, downsizing,
industry slowdowns, changing demographics, and other factors may
adversely impact the local economic climate. A downturn in
Californias economy, fiscal situation or real estate
conditions could adversely affect our financial condition,
results of operations, cash flow

39



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and ability to make distributions to our
unitholders and payments to our noteholders. Certain of our
properties are also subject to possible loss from seismic
activity. See Some Potential Losses are not Covered by
Insurance.


Some Potential Losses are not Covered by
Insurance.

We carry commercial liability, property and
rental loss insurance covering all properties owned and managed
by us, with policy specifications and insured limits that we
believe are adequate and appropriate under the circumstances
given relative risks, the cost of such coverage and industry
practice. Certain losses such as losses due to terrorism,
windstorms, floods or seismic activity may be insured subject to
certain limitations, including large deductibles or co-payments
and policy limits. Although we have obtained coverage for
certain acts of terrorism, with policy specifications and
insured limits that we believe are commercially reasonable, it
is not certain that we will be able to renew coverage or collect
under such policies. From time to time, we evaluate the amount
of earthquake coverage that we carry for all properties owned
and managed by us, to assess whether, in our good faith
discretion, the coverage is adequate. We may incur material
losses in excess of insurance proceeds and we may not be able to
continue to obtain insurance at commercially reasonable rates.
In addition, there are certain losses that are not generally
insured because it is not economically feasible to insure
against them, including losses due to riots or acts of war. If
an uninsured loss or a loss in excess of insured limits occurs
with respect to one or more of our properties, then we could
lose the capital we invested in the properties, as well as the
anticipated future revenue from the properties and, in the case
of debt, which is with recourse to us, we would remain obligated
for any mortgage debt or other financial obligations related to
the properties. Moreover, as the general partner of the joint
ventures, we generally will be liable for all of the joint
ventures unsatisfied obligations other than non-recourse
obligations. Any such liabilities could adversely affect our
financial condition, results of operations, cash flow and
ability to make distributions to our unitholders and payments to
our noteholders.

A number of our properties are located in areas
that are known to be subject to earthquake activity, including
California where, as of March 31, 2003, 290 industrial
buildings, aggregating approximately 23.6 million square
feet (representing 29.3% of our industrial operating properties
based on aggregate square footage and 33.6% based on industrial
annualized base rent), are located. We carry replacement-cost
earthquake insurance on all of our properties located in areas
historically subject to seismic activity, subject to coverage
limitations and deductibles that we believe are commercially
reasonable. This insurance coverage also applies to the
properties managed by AMB Capital Partners, LLC, with a single
aggregate policy limit and deductible applicable to those
properties and our properties. Through an annual analysis
prepared by outside consultants, we evaluate our earthquake
insurance coverage in light of current industry practice and
determine the appropriate amount of earthquake insurance to
carry, which we believe is commercially reasonable. We may incur
material losses in excess of insurance proceeds and we may not
be able to continue to obtain insurance at commercially
reasonable rates.

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

As of March 31, 2003, we had ownership
interests in several joint ventures, limited liability companies
or partnerships with third parties, as well as interests in
three unconsolidated entities. As of March 31, 2003, we
owned approximately 33.8 million square feet (excluding
five unconsolidated joint ventures) of our properties through
these entities. We may make additional investments through these
ventures in the future and presently plan to do so. Such
partners may share certain approval rights over major decisions.
Partnership, limited liability company or joint venture
investments may involve risks such as the following:



| |   |                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our partners, co-members or joint venturers might
    become bankrupt (in which event we and any other remaining
    general partners, members, or joint venturers would generally
    remain liable for the liabilities of the partnership, limited
    liability company, or joint venture);
|
| |  | our partners, co-members or joint venturers might
    at any time have economic or other business interests or goals
    that are inconsistent with our business interests or goals;                                                                                                          

40



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| |   |                                                                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our partners, co-members or joint venturers may
    be in a position to take action contrary to our instructions,
    requests, policies, or objectives; and                                                                                                                                                                                         
|
| |  | agreements governing joint ventures, limited
    liability companies and partnerships often contain restrictions
    on the transfer of a joint venturers, members or
    partners interest or buy-sell or other
    provisions that may result in a purchase or sale of the interest
    at a disadvantageous time or on disadvantageous terms.

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

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

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

We May be Unable to Complete Divestitures on
Advantageous Terms.

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

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

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



| |   |                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we may not be able to obtain financing on
    favorable terms for development projects and we may not complete
    construction on schedule or within budget, resulting in
    increased debt service expense and construction costs and delays
    in leasing such properties and generating cash flow;
|
| |  | we may not be able to obtain, or we may
    experience delays in obtaining, all necessary zoning, land-use,
    building, occupancy and other governmental permits and
    authorizations;                                                                                                              

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| |   |                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | new or renovated properties may perform below
    anticipated levels, producing cash flow below budgeted amounts;                                                                                                                                          
|
| |  | substantial renovation as well as new development
    activities, regardless of their ultimate success, typically
    require a substantial portion of managements time and
    attention, diverting our attention from our day-to-day
    operations; and
|
| |  | upon completion of construction, we may not be
    able to obtain permanent financing, or obtain permanent
    financing on advantageous terms, for activities that we have
    financed through construction loans.                                       

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

Debt Financing



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

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



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

We are subject to risks normally associated with
debt financing, including that cash flow will be insufficient to
make distributions to our unitholders and payments to our
noteholders, that we will be unable to refinance existing
indebtedness on our properties (which in all cases will not have
been fully amortized at maturity), and that the terms of
refinancing will not be as favorable as the terms of existing
indebtedness. As of March 31, 2003, we had total debt
outstanding of $2.1 billion.

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



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

As of March 31, 2003, we had
$51.5 million outstanding under our Alliance Fund II
secured credit facility, $17.5 million outstanding on our
unsecured credit facility, and we had seven secured loans with
an aggregate principal amount of $65.6 million that bear
interest at variable rates (with weighted average interest

42



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rate of 3.5% as of March 31, 2003). In
addition, we may incur other variable rate indebtedness in the
future. Increases in interest rates on this indebtedness could
increase our interest expense, which would adversely affect our
financial condition, results of operations, cash flow and
ability to make distributions to our unitholders and payments to
our noteholders. Accordingly, in the future, we may engage in
transactions to limit our exposure to rising interest rates.




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

In order for our general partner, AMB Property
Corporation, to qualify as a real estate investment trust under
the Internal Revenue Code, we are required each year to make
distributions to enable our general partner to distribute to its
stockholders at least 90% of our real estate investment trust
taxable income (determined without regard to the dividends-paid
deduction and by excluding any net capital gain) and it is
subject to tax on its income to the extent it is not
distributed. Because of this distribution requirement, we may
not be able to fund all future capital needs, including capital
needs in connection with acquisitions, from cash retained from
operations. As a result, to fund capital needs we rely on
third-party sources of capital, which we may not be able to
obtain on favorable terms or at all. Our access to third-party
sources of capital depends upon a number of factors, including:



| |   |                                                                          
| | - | -------------------------------------------------------------------------
| |  | general market conditions;                                               
|
| |  | the markets perception of our growth
    potential;                     
|
| |  | our current and potential future earnings and
    cash distributions; and
|
| |  | the market price of AMB Property
    Corporations capital stock.        

Additional debt financing may substantially
increase our debt-to-total capitalization ratio.



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

As of March 31, 2003, we had 28 non-recourse
secured loans that are cross-collateralized by
62 properties, totaling $719.5 million (not including
unamortized debt premium). If we default on any of these loans,
then we could be required to repay the aggregate of all
indebtedness, together with applicable prepayment charges, to
avoid foreclosure on all the cross-collateralized properties
within the applicable pool. Foreclosure on our properties, or
our inability to refinance our loans on favorable terms, could
adversely impact our financial condition, results of operations,
cash flow and ability to make distributions to our unitholders
and payments to our noteholders. In addition, our credit
facilities and senior debt securities contain certain
cross-default provisions, which are triggered in the event that
our other material indebtedness is in default. These
cross-default provisions may require us to repay or restructure
the credit facilities and the senior debt securities in addition
to any mortgage or other debt that is in default, which could
adversely affect our financial condition, results of operations,
cash flow and ability to make distributions to our unitholders
and payments to our noteholders.

Contingent or Unknown Liabilities Could
Adversely Affect Our Financial Condition.

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

43



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or against any individual account investors with
respect to any unknown liabilities. Unknown liabilities might
include the following:




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

Certain customers may claim that the formation
transactions gave rise to a right to purchase the premises that
they occupy. We do not believe any such claims would be material
and, to date, no such claims have been filed. See
 Government Regulations  We Could
Encounter Costly Environmental Problems below regarding
the possibility of undisclosed environmental conditions
potentially affecting the value of our properties. Undisclosed
material liabilities in connection with the acquisition of
properties, entities and interests in properties, or entities
could adversely affect our financial condition, results of
operations, cash flow, and ability to make distributions to our
unitholders and payments to our noteholders.

Conflicts of Interest



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

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



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

As of March 31, 2003, Aspire Development,
L.P. owned interests in several retail development projects in
the U.S., which are individually less than 10,000 feet. In
addition, Messrs. Moghadam and Burke, each a founder and
director, own less than 1% interests in two partnerships that
own office buildings in various markets; these interests have
negligible value. Luis A. Belmonte, an executive officer of AMB
Property Corporation, owns less than a 10% interest,
representing an estimated value of $150,000, in a limited
partnership, which owns an office building located in Oakland,
California.

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



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

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Thomas W. Tusher, a member of AMB Property
Corporations board of directors and chair of the
boards compensation committee, is a limited partner in a
venture in which Messrs. Moghadam and Burke are two of
three members in the controlling general partner. The venture
owns an office building. Mr. Tusher owns a 20% interest in
the venture and Messrs. Moghadam and Burke each have a
26.7% interest in the venture. These interests in the venture
have negligible value. The venture was formed in 1985, prior to
the time of our initial public offering, and we continue
currently to act as property and asset manager of the office
building, for which services the venture pays us a fee. In our
capacity as property and asset manager, we oversee the
management and operation of the property, including the
obtaining of financing and negotiating with third party lenders
in connection therewith. The largest tenant, which occupies 68%
of the building, filed for bankruptcy in January 2003.

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



| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | AMB Property Corporations Duty to its
    Stockholders May Conflict with the Interest of Our Limited
    Partners and Noteholders.

AMB Property Corporation has fiduciary
obligations to its stockholders, the discharge of which may
conflict with the interests of our limited partners and
noteholders.



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

As of December 31, 2002, AMB Property
Corporations two largest stockholders, Morgan Stanley
Investment Management, Inc. (with respect to various client
accounts for which Morgan Stanley Investment Management, Inc.
serves as investment advisor) and ABP Investments U.S. (with
respect to various client accounts for which ABP Investments
U.S. serves as investment advisor) together beneficially owned
12.8% of AMB Property Corporations outstanding common
stock. In addition, AMB Property Corporations executive
officers and directors beneficially owned 4.3% of AMB Property
Corporations outstanding common stock as of April 30,
2003, and will have influence on AMB Property Corporations
management and operation and, as stockholders, will have
influence on the outcome of any matters submitted to a vote of
AMB Property Corporations stockholders. This influence
might be exercised in a manner that is inconsistent with the
interests of our limited partners and noteholders. Although
there is no understanding or arrangement for these directors,
officers, and stockholders and their affiliates to act in
concert, these parties would be in a position to exercise
significant influence over AMB Property Corporations
affairs if they choose to do so.

Government Regulations

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



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

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

45



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uncertain. If we are required to make
unanticipated expenditures to comply with the Americans with
Disabilities Act, then our cash flow and the amounts available
for distribution to our unitholders and payments to our
noteholders may be adversely affected.




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

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

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

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

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

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

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liabilities of which we are unaware or that known
environmental conditions may give rise to liabilities that are
materially greater than anticipated. Moreover, the current
environmental condition of our properties may be affected by
customers, the condition of land, operations in the vicinity of
the properties (such as releases from underground storage
tanks), or by third-parties unrelated to us. If the costs of
compliance with existing or future environmental laws and
regulations exceed our budgets for these items, then our
financial condition, results of operations, cash flow, and
ability to make distributions to our unitholders and payments to
our noteholders could be adversely affected.




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

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

Certain Property Transfers May Generate
Prohibited Transaction Income

From time to time, we may transfer or otherwise
dispose of some of our properties. Under the Internal Revenue
Code, any gain resulting from transfers of properties that we
hold as inventory or primarily for sale to customers in the
ordinary course of business would be treated as income from a
prohibited transaction due to our general partners
election to be treated as a real estate investment trust. Our
general partner would be required to pay a 100% penalty tax on
that income. Since we acquire properties for investment
purposes, we believe that any transfer or disposal of property
by us would not be deemed by the Internal Revenue Service to be
a prohibited transaction with any resulting gain allocable to us
being subject to a 100% penalty tax. However, whether property
is held for investment purposes is a question of fact that
depends on all the facts and circumstances surrounding the
particular transaction. The Internal Revenue Service may contend
that certain transfers or disposals of properties by us are
prohibited transactions. While we believe that the Internal
Revenue Service would not prevail in any such dispute, if the
IRS were to argue successfully that a transfer or disposition of
property constituted a prohibited transaction, then our general
partner would be required to pay a 100% penalty tax on any gain
allocable to us from the prohibited transaction.

We May Be Unable to Manage Our
Growth

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

Our International Growth is Subject to Special
Political and Monetary Risks

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

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condition, results of operations, cash flow and
ability to make distributions to our unitholders and payments to
our noteholders could be adversely affected.


We Are Dependent On Our General Partners
Key Personnel

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






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

(a) Exhibits:

None

(b) Reports on Form 8-K:



| |   |     
| | - | ----
| |  | None

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SIGNATURES

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



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



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

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



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

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



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

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

Date: May 14, 2003

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CERTIFICATIONS

I, Hamid R. Moghadam, certify that:



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



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



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



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



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



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

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

Date: May 14, 2003

50



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##### Table of Contents



I, W. Blake Baird, certify that:



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



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



| |    |                                                                                                                                                                                
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | f) | presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;



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



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



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



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

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

Date: May 14, 2003

51



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##### Table of Contents



I, Michael A. Coke, certify that:



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



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



| |    |                                                                                                                                                                                
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i) | presented in this quarterly report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;



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



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | e) | all significant deficiencies in the design or
    operation of internal controls that could adversely affect the
    registrants ability to record, process, summarize, and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and



| |    |                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | f) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and



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



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

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

Date: May 14, 2003

52