##### 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 June 30,
    2003                                            
|          
|or        
|          
|o          |  | TRANSITION 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                                                                 
|                                         |                                                                                               | CONSOLIDATED BALANCE SHEETS                                                                                                                                                
|                                         |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS                                                                                                                                      
|                                         |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                                                                                      
|                                         |                                                                                               | CONSOLIDATED STATEMENT OF PARTNERS CAPITAL                                                                                                                                
|                                         |                                                                                               | NOTES TO CONSOLIDATED STATEMENTS                                                                                                                                           
|                                         | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|GENERAL                                 
|THE COMPANY                             
|RESULTS OF OPERATIONS                   
|LIQUIDITY AND CAPITAL RESOURCES         
|OPERATING AND LEASING STATISTICS SUMMARY
|                                         | 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                                                                    
|BUSINESS RISKS                          
|                                         | Risks Associated With Our International Business                                             
|                                         |                                                                                               | Our international growth is subject to special risks and we may not be able to effectively manage our international growth.                                                
|                                         |                                                                                               | Acquired properties may be located in new markets, where we may face risks associated with investing in an unfamiliar market.                                              
|                                         |                                                                                               | We are subject to risks from potential fluctuations in exchange rates between the U.S. dollar and the currencies of the foreign countries in which we invest.              
|                                         |                                                                                               | We face risks associated with the use of debt to fund acquisitions and developments, including refinancing risk.                                                           
|                                         |                                                                                               | We are dependent on external sources of capital.                                                                                                                           
|                                         |                                                                                               | Covenants in our debt agreements could adversely affect our financial condition.                                                                                           
|                                         | Conflicts of Interest Risks                                                                  
|                                         |                                                                                               | Some of AMB Property Corporations directors and executive officers are involved in other real estate activities and investments.                                          
|                                         |                                                                                               | 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.
|                                         |                                                                                               | AMB Property Corporations duty to its stockholders may conflict with the interest of our limited partners and noteholders.                                                
|                                         | Risks Associated with Government Regulations                                                 
|                                         |                                                                                               | Compliance or failure to comply with the Americans with Disabilities Act and other similar regulations could result in substantial costs.                                  
|                                         | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                              
|EXHIBIT 3.1                             
|Exhibit 10.1                            
|Exhibit 10-2                            
|Certification                           
|Certification                           



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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 June 30,
    2003, and December 31, 2002                          |  |      |  | 
|                                   |  | Consolidated Statements of Operations for the
    three and six months ended June 30, 2003 and 2002 |  |      |  | 
|                                   |  | Consolidated Statements of Cash Flows for the six
    months ended June 30, 2003 and 2002           |  |      |  | 
|                                   |  | Consolidated Statement of Partners Capital
    for the six months ended June 30, 2003              |  |      |  | 
|                                   |  | Notes to Consolidated Financial Statements                                                          |  |      |  | 
|Item 2.                            |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations           |  |      |  | 
|Item 3.                            |  | Quantitative and Qualitative Disclosures About
    Market Risk                                      |  |      |  | 
|Item 4.                            |  | Controls and Procedures                                                                             |  |      |  | 
|PART II.  OTHER
    INFORMATION   
|Item 1.                            |  | Legal Proceedings                                                                                   |  |      |  | 
|Item 2.                            |  | Changes in Securities and Use of Proceeds                                                           |  |      |  | 
|Item 3.                            |  | Defaults Upon Senior Securities                                                                     |  |      |  | 
|Item 4.                            |  | Submission of Matters to a Vote of Security
    Holders                                             |  |      |  | 
|Item 5.                            |  | Other Information                                                                                   |  |      |  | 
|Item 6.                            |  | Exhibits and Reports on Form 8-K                                                                    |  |      |  | 



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##### Table of Contents






PART I






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

AMB PROPERTY, L.P.






CONSOLIDATED BALANCE SHEETS


As of June 30, 2003 and December 31,
2002


(Unaudited, dollars in thousands)


|                                                                |                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |           |           | 
|--------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------- | ------- | ------------ | --------- |  | ------- | --------- | --------- | 
|                                                                |                                                                                                                                                                                                                                                                                   | June 30,                                |         | December 31,
|                                                                |                                                                                                                                                                                                                                                                                   | 2003                                    |         | 2002        
|                                                                |                                                                                                                                                                                                                                                                                   |                                         |         |             
|ASSETS                                                         
|Investments in real estate:                                     |                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                                | Land                                                                                                                                                                                                                                                                              |                                         | $       | 1,264,364    |           |  | $       | 1,236,406 |          
|                                                                | Buildings and improvements                                                                                                                                                                                                                                                        |                                         |         | 3,536,930    |           |  |         | 3,557,086 |          
|                                                                | Construction in progress                                                                                                                                                                                                                                                          |                                         |         | 214,720      |           |  |         | 132,490   |          
|                                                                |                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                                |                                                                                                                                                                                                                                                                                   | Total investments in properties         |         |              | 5,016,014 |  |         |           | 4,925,982 | 
|                                                                | Accumulated depreciation and amortization                                                                                                                                                                                                                                         |                                         |         | (412,990     | )         |  |         | (362,540  | )        
|                                                                |                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                                |                                                                                                                                                                                                                                                                                   | Net investments in properties           |         |              | 4,603,024 |  |         |           | 4,563,442 | 
|Investments in unconsolidated joint ventures                    |                                                                                                                                                                                                                                                                                   |                                         | 68,566  |              |           |  | 64,428  |          
|Properties held for divestiture, net                            |                                                                                                                                                                                                                                                                                   |                                         | 73,000  |              |           |  | 107,871 |          
|                                                                |                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                                |                                                                                                                                                                                                                                                                                   | Net investments in real estate          |         |              | 4,744,590 |  |         |           | 4,735,741 | 
|Cash and cash equivalents                                       |                                                                                                                                                                                                                                                                                   |                                         | 68,419  |              |           |  | 89,332  |          
|Restricted cash                                                 |                                                                                                                                                                                                                                                                                   |                                         | 22,742  |              |           |  | 27,882  |          
|Mortgage receivable                                             |                                                                                                                                                                                                                                                                                   |                                         | 13,097  |              |           |  | 13,133  |          
|Accounts receivable, net of allowance for
    doubtful accounts |                                                                                                                                                                                                                                                                                   |                                         | 83,116  |              |           |  | 74,207  |          
|Other assets                                                    |                                                                                                                                                                                                                                                                                   |                                         | 44,300  |              |           |  | 52,199  |          
|                                                                |                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                                |                                                                                                                                                                                                                                                                                   | Total assets                            |         | $            | 4,976,264 |  |         | $         | 4,992,494 | 
|                                                                |                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                               
|LIABILITIES AND PARTNERS
    CAPITAL                          
|Debt:                                                           |                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                                | Secured debt                                                                                                                                                                                                                                                                      |                                         | $       | 1,215,135    |           |  | $       | 1,284,675 |          
|                                                                | Unsecured senior debt securities                                                                                                                                                                                                                                                  |                                         |         | 800,000      |           |  |         | 800,000   |          
|                                                                | Alliance Fund II credit facility                                                                                                                                                                                                                                                  |                                         |         |             |           |  |         | 45,500    |          
|                                                                | Unsecured debt                                                                                                                                                                                                                                                                    |                                         |         | 9,909        |           |  |         | 10,186    |          
|                                                                | Unsecured credit facility                                                                                                                                                                                                                                                         |                                         |         | 19,420       |           |  |         | 95,000    |          
|                                                                |                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                                |                                                                                                                                                                                                                                                                                   | Total debt                              |         |              | 2,044,464 |  |         |           | 2,235,361 | 
|Distributions payable                                           |                                                                                                                                                                                                                                                                                   |                                         | 41,692  |              |           |  | 41,213  |          
|Accounts payable and other liabilities                          |                                                                                                                                                                                                                                                                                   |                                         | 125,929 |              |           |  | 140,503 |          
|                                                                |                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                                |                                                                                                                                                                                                                                                                                   | Total liabilities                       |         |              | 2,212,085 |  |         |           | 2,417,077 | 
|Commitments and contingencies (Notes 3 and
    12)              |                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|Minority interests                                              |                                                                                                                                                                                                                                                                                   |                                         | 807,361 |              |           |  | 655,790 |          
|Partners capital:                                              |                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                                | General partner, 81,444,265 and
    81,800,038 units outstanding, respectively, 3,995,800
    Series A preferred units outstanding with a $99,895
    liquidation preference and 2,000,000 Series L preferred
    units outstanding with a $50,000 liquidation preference         |                                         |         | 1,722,506    |           |  |         | 1,684,150 |          
|                                                                | Limited partners, 4,834,863 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 |                                         |         | 234,312      |           |  |         | 235,477   |          
|                                                                |                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                                |                                                                                                                                                                                                                                                                                   | Total partners capital                 |         |              | 1,956,818 |  |         |           | 1,919,627 | 
|                                                                |                                                                                                                                                                                                                                                                                   |                                         |         |              |           |  |         |          
|                                                                |                                                                                                                                                                                                                                                                                   | Total liabilities and partners capital |         | $            | 4,976,264 |  |         | $         | 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 and six months ended
June 30, 2003 and 2002


(Unaudited, dollars in thousands, except per
unit amounts)


|                                                            |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |            |         |        |         |  
|----------------------------------------------------------- | --------------------------------------------------------------------- | -------------------- | ----------------------------- | ------------------------------------------------------------------ | ------ | ----- | ------- | ---------- | ------ | ----- | ------- | ---------- | ------- | ------ | ------- | ---------- | ------- | ------ | ------- | -
|                                                            |                                                                       |                      |                               |                                                                   
|                                                            |                                                                       | For the Three Months |                               | For the Six Months                                                
|                                                            |                                                                       | Ended June 30,       |                               | Ended June 30,                                                    
|                                                            |                                                                       |                      |                               |                                                                   
|                                                            |                                                                       | 2003                 |                               | 2002                                                               |        | 2003  |         | 2002      
|                                                            |                                                                       |                      |                               |                                                                    |        |       |         |           
|REVENUES AND OTHER INCOME                                   |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|                                                            | Rental revenues                                                       |                      | $                             | 147,961                                                            |        |       | $       | 139,124    |        |       | $       | 305,233    |         |        | $       | 279,179    |        
|                                                            | Equity in earnings of unconsolidated joint
    ventures               |                      |                               | 1,622                                                              |        |       |         | 1,638      |        |       |         | 2,857      |         |        |         | 3,121      |        
|                                                            | Private capital income                                                |                      |                               | 3,555                                                              |        |       |         | 3,114      |        |       |         | 5,916      |         |        |         | 5,702      |        
|                                                            | Interest and other income                                             |                      |                               | 1,549                                                              |        |       |         | 3,330      |        |       |         | 2,942      |         |        |         | 7,312      |        
|                                                            |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|                                                            |                                                                       |                      |                               | Total revenues and other income                                    |        |       | 154,687 |            |        |       | 147,206 |            |         |        | 316,948 |            |         |        | 295,314 |  
|EXPENSES                                                    |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|                                                            | Property operating expenses                                           |                      |                               | 21,004                                                             |        |       |         | 17,059     |        |       |         | 43,049     |         |        |         | 34,248     |        
|                                                            | Real estate taxes                                                     |                      |                               | 17,603                                                             |        |       |         | 16,612     |        |       |         | 35,754     |         |        |         | 33,372     |        
|                                                            | Interest, including amortization                                      |                      |                               | 36,645                                                             |        |       |         | 36,484     |        |       |         | 73,750     |         |        |         | 71,177     |        
|                                                            | Depreciation and amortization                                         |                      |                               | 38,094                                                             |        |       |         | 29,967     |        |       |         | 72,893     |         |        |         | 57,678     |        
|                                                            | General and administrative                                            |                      |                               | 12,170                                                             |        |       |         | 10,762     |        |       |         | 24,344     |         |        |         | 21,831     |        
|                                                            |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|                                                            |                                                                       |                      |                               | Total expenses                                                     |        |       | 125,516 |            |        |       | 110,884 |            |         |        | 249,790 |            |         |        | 218,306 |  
|                                                            |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|                                                            |                                                                       |                      |                               | Income before minority interests                                   |        |       | 29,171  |            |        |       | 36,322  |            |         |        | 67,158  |            |         |        | 77,008  |  
|                                                            | Minority interests share of income                                   |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |            |        
|                                                            |                                                                       | Preferred units      |                               |                                                                    | (3,388 | )     |         |            | (3,537 | )     |         |            | (6,776  | )      |         |            | (7,074  | )     
|                                                            |                                                                       | Minority interests   |                               |                                                                    | (8,907 | )     |         |            | (7,320 | )     |         |            | (16,603 | )      |         |            | (15,282 | )     
|                                                            |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|                                                            |                                                                       |                      |                               | Total minority interests share of income                          |        |       | (12,295 | )          |        |       | (10,857 | )          |         |        | (23,379 | )          |         |        | (22,356 | )
|                                                            |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|                                                            |                                                                       |                      |                               | Income from continuing operations before gains on
    dispositions |        |       | 16,876  |            |        |       | 25,465  |            |         |        | 43,779  |            |         |        | 54,652  |  
|                                                            | Gains from dispositions of real estate, net of
    minority interests |                      |                               |                                                                   |        |       |         | 2,768      |        |       |         | 7,429      |         |        |         | 2,480      |        
|                                                            |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|                                                            |                                                                       |                      |                               | Income from continuing operations                                  |        |       | 16,876  |            |        |       | 28,233  |            |         |        | 51,208  |            |         |        | 57,132  |  
|Discontinued operations, net of minority
    interests:     |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|                                                            | Income attributable to discontinued operations                        |                      |                               | 1,310                                                              |        |       |         | 5,030      |        |       |         | 3,106      |         |        |         | 10,554     |        
|                                                            | Gains from dispositions of real estate,
    discontinued operations   |                      |                               | 3,867                                                              |        |       |         |           |        |       |         | 33,511     |         |        |         |           |        
|                                                            |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|                                                            |                                                                       |                      | Total discontinued operations |                                                                    |        | 5,177 |         |            |        | 5,030 |         |            |         | 36,617 |         |            |         | 10,554 |        
|                                                            |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|                                                            |                                                                       |                      |                               | Net income                                                         |        |       | 22,053  |            |        |       | 33,263  |            |         |        | 87,825  |            |         |        | 67,686  |  
|Preferred unit distributions                                |                                                                       |                      | (5,186                        | )                                                                  |        |       | (5,098  | )          |        |       | (10,301 | )          |         |        | (9,543  | )         
|                                                            |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|                                                            |                                                                       |                      |                               | Net income available to common unitholders                         |        | $     | 16,867  |            |        | $     | 28,165  |            |         | $      | 77,524  |            |         | $      | 58,143  |  
|                                                            |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|Income available to common unitholders
    attributable to: |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|                                                            | General partner                                                       |                      |                               | 15,931                                                             |        |       |         | 26,725     |        |       |         | 73,186     |         |        |         | 54,903     |        
|                                                            | Limited partners                                                      |                      |                               | 936                                                                |        |       |         | 1,440      |        |       |         | 4,338      |         |        |         | 3,240      |        
|                                                            |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|                                                            |                                                                       |                      |                               | Net income available to common unitholders                         |        | $     | 16,867  |            |        | $     | 28,165  |            |         | $      | 77,524  |            |         | $      | 58,143  |  
|                                                            |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|BASIC INCOME PER COMMON UNIT                                |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|                                                            | Income from continuing operations available to
    common unitholders |                      | $                             | 0.14                                                               |        |       | $       | 0.26       |        |       | $       | 0.45       |         |        | $       | 0.53       |        
|                                                            | Discontinued operations                                               |                      |                               | 0.06                                                               |        |       |         | 0.06       |        |       |         | 0.45       |         |        |         | 0.13       |        
|                                                            |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|                                                            |                                                                       |                      |                               | Net income available to common unitholders                         |        | $     | 0.20    |            |        | $     | 0.32    |            |         | $      | 0.90    |            |         | $      | 0.66    |  
|                                                            |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|DILUTED INCOME PER COMMON UNIT                              |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|                                                            | Income from continuing operations available to
    common unitholders |                      | $                             | 0.13                                                               |        |       | $       | 0.25       |        |       | $       | 0.45       |         |        | $       | 0.52       |        
|                                                            | Discontinued operations                                               |                      |                               | 0.06                                                               |        |       |         | 0.06       |        |       |         | 0.44       |         |        |         | 0.13       |        
|                                                            |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|                                                            |                                                                       |                      |                               | Net income available to common unitholders                         |        | $     | 0.19    |            |        | $     | 0.31    |            |         | $      | 0.89    |            |         | $      | 0.65    |  
|                                                            |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|WEIGHTED AVERAGE COMMON UNITS
    OUTSTANDING               |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|                                                            | Basic                                                                 |                      |                               | 85,852,418                                                         |        |       |         | 88,643,124 |        |       |         | 85,904,056 |         |        |         | 88,562,012 |        
|                                                            |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           
|                                                            | Diluted                                                               |                      |                               | 87,302,896                                                         |        |       |         | 90,462,332 |        |       |         | 87,364,056 |         |        |         | 90,055,320 |        
|                                                            |                                                                       |                      |                               |                                                                    |        |       |         |            |        |       |         |            |         |        |         |           

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

2



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##### Table of Contents



AMB PROPERTY, L.P.






CONSOLIDATED STATEMENTS OF CASH
FLOWS


For the Six Months Ended June 30, 2003
and 2002


(Unaudited, dollars in thousands)


|                                                                                            |                                                                       |                                        |                                                         |                                                          |         |          |          |        |         |          |         | 
|------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | -------------------------------------- | ------------------------------------------------------- | -------------------------------------------------------- | ------- | -------- | -------- | ------ | ------- | -------- | ------- | 
|                                                                                            |                                                                       | 2003                                   |                                                         | 2002                                                    
|                                                                                            |                                                                       |                                        |                                                         |                                                         
|CASH FLOWS FROM OPERATING ACTIVITIES                                                        |                                                                       |                                        |                                                         |                                                          |         |          |          |       
|Net income                                                                                  |                                                                       | $                                      | 87,825                                                  |                                                          |         | $        | 67,686   |       
|Adjustments to net income:                                                                  |                                                                       |                                        |                                                         |                                                          |         |          |          |       
|                                                                                            | Equity in earnings of unconsolidated joint
    ventures               |                                        |                                                         | (2,857                                                   | )       |          |          | (3,121 | )      
|                                                                                            | Straight-line rents                                                   |                                        |                                                         | (4,253                                                   | )       |          |          | (6,747 | )      
|                                                                                            | Debt premiums, discounts and finance cost
    amortization, net       |                                        |                                                         | 728                                                      |         |          |          | (954   | )      
|                                                                                            | Depreciation and amortization, including
    discontinued operations  |                                        |                                                         | 73,507                                                   |         |          |          | 61,647 |        
|                                                                                            | Stock-based compensation amortization                                 |                                        |                                                         | 3,979                                                    |         |          |          | 1,962  |        
|                                                                                            | Minority interests, including discontinued
    operations             |                                        |                                                         | 23,455                                                   |         |          |          | 22,469 |        
|                                                                                            | Gains from dispositions of real estate, net of
    minority interests |                                        |                                                         | (40,940                                                  | )       |          |          | (2,480 | )      
|                                                                                            | Changes in assets and liabilities:                                    |                                        |                                                         |                                                          |         |          |          |        |        
|                                                                                            |                                                                       | Accounts receivable and other assets   |                                                         |                                                          | (1,709  | )        |          |        | (3,089  | )       
|                                                                                            |                                                                       | Accounts payable and other liabilities |                                                         |                                                          | (14,574 | )        |          |        | (13,301 | )       
|                                                                                            |                                                                       |                                        |                                                         |                                                          |         |          |          |       
|                                                                                            |                                                                       |                                        | Net cash provided by operating activities               |                                                          |         | 125,161  |          |        |         | 124,072  |        
|CASH FLOWS FROM INVESTING ACTIVITIES                                                        |                                                                       |                                        |                                                         |                                                          |         |          |          |       
|Change in restricted cash                                                                   |                                                                       |                                        | 5,140                                                   |                                                          |         |          | (1,473   | )     
|Cash paid for property acquisitions                                                         |                                                                       |                                        | (127,983                                                | )                                                        |         |          | (136,477 | )     
|Additions to land, buildings, development costs
    and other first generation improvements |                                                                       |                                        | (95,064                                                 | )                                                        |         |          | (60,646  | )     
|Additions to second generation building
    improvements and lease costs                    |                                                                       |                                        | (26,764                                                 | )                                                        |         |          | (27,230  | )     
|Additions to interests in unconsolidated joint
    ventures                                 |                                                                       |                                        | (6,163                                                  | )                                                        |         |          |         |       
|Distributions received from unconsolidated joint
    ventures                               |                                                                       |                                        | 4,882                                                   |                                                          |         |          | 10,135   |       
|Net proceeds from divestiture of real estate                                                |                                                                       |                                        | 211,429                                                 |                                                          |         |          | 50,951   |       
|                                                                                            |                                                                       |                                        |                                                         |                                                          |         |          |          |       
|                                                                                            |                                                                       |                                        | Net cash used in investing activities                   |                                                          |         | (34,523  | )        |        |         | (164,740 | )      
|CASH FLOWS FROM FINANCING ACTIVITIES                                                        |                                                                       |                                        |                                                         |                                                          |         |          |          |       
|Issuance of common stock, proceeds from stock
    option exercises                          |                                                                       |                                        | 3,982                                                   |                                                          |         |          | 4,915    |       
|Repurchase and retirement of common stock                                                   |                                                                       |                                        | (20,562                                                 | )                                                        |         |          |         |       
|Borrowings on secured debt                                                                  |                                                                       |                                        | 11,450                                                  |                                                          |         |          | 166,976  |       
|Payments on secured debt                                                                    |                                                                       |                                        | (79,361                                                 | )                                                        |         |          | (50,455  | )     
|Borrowings on unsecured credit facility                                                     |                                                                       |                                        | 113,464                                                 |                                                          |         |          |         |       
|Payments on unsecured credit facility                                                       |                                                                       |                                        | (190,000                                                | )                                                        |         |          | (12,000  | )     
|Borrowings on Alliance Fund II credit
    facility                                          |                                                                       |                                        | 8,000                                                   |                                                          |         |          | 23,500   |       
|Payments on Alliance Fund II credit facility                                                |                                                                       |                                        | (53,500                                                 | )                                                        |         |          | (95,000  | )     
|Payment of financing fees                                                                   |                                                                       |                                        | (1,006                                                  | )                                                        |         |          | (2,191   | )     
|Net proceeds from issuances of senior debt
    securities                                   |                                                                       |                                        |                                                        |                                                          |         |          | 19,883   |       
|Net proceeds from issuances of preferred stock or
    units                                 |                                                                       |                                        | 48,425                                                  |                                                          |         |          | 38,939   |       
|Contributions from co-investment partners                                                   |                                                                       |                                        | 151,650                                                 |                                                          |         |          | 58,350   |       
|Distributions paid to general partner and
    preferred unitholders                         |                                                                       |                                        | (77,668                                                 | )                                                        |         |          | (44,009  | )     
|Distributions to minority interests, including
    preferred units                          |                                                                       |                                        | (26,425                                                 | )                                                        |         |          | (32,158  | )     
|                                                                                            |                                                                       |                                        |                                                         |                                                          |         |          |          |       
|                                                                                            |                                                                       |                                        | Net cash provided by/(used in) financing
    activities |                                                          |         | (111,551 | )        |        |         | 76,750   |        
|                                                                                            |                                                                       |                                        |                                                         |                                                          |         |          |          |       
|                                                                                            |                                                                       |                                        |                                                         | Net increase/(decrease) in cash and cash
    equivalents |         |          | (20,913  | )      |         |          | 36,082  | 
|                                                                                            |                                                                       |                                        |                                                         | Cash and cash equivalents at beginning of period         |         |          | 89,332   |        |         |          | 73,071  | 
|                                                                                            |                                                                       |                                        |                                                         |                                                          |         |          |          |       
|                                                                                            |                                                                       |                                        |                                                         | Cash and cash equivalents at end of period               |         | $        | 68,419   |        |         | $        | 109,153 | 
|                                                                                            |                                                                       |                                        |                                                         |                                                          |         |          |          |       
|Supplemental Disclosures of Cash Flow Information                                           |                                                                       |                                        |                                                         |                                                          |         |          |          |       
|Cash paid for interest, net of capitalized
    interest                                     |                                                                       | $                                      | 76,840                                                  |                                                          |         | $        | 70,058   |       
|Non-cash transactions:                                                                      |                                                                       |                                        |                                                         |                                                          |         |          |          |       
|                                                                                            |                                                                       |                                        | Acquisition of properties                               |                                                          | $       | 130,988  |          |        | $       | 154,259  |        
|                                                                                            |                                                                       |                                        | Assumption of debt                                      |                                                          |         |         |          |        |         | (17,782  | )      
|                                                                                            |                                                                       |                                        | Acquisition capital                                     |                                                          |         | (3,005   | )        |        |         |         |        
|                                                                                            |                                                                       |                                        |                                                         |                                                          |         |          |          |       
|                                                                                            |                                                                       |                                        |                                                         | Net cash paid                                            |         | $        | 127,983  |        |         | $        | 136,477 | 
|                                                                                            |                                                                       |                                        |                                                         |                                                          |         |          |          |       

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

3



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##### Table of Contents



AMB PROPERTY, L.P.






CONSOLIDATED STATEMENT OF PARTNERS
CAPITAL


For the Six Months Ended June 30,
2003


(Unaudited, dollars in thousands)


|                                                                                                             |                                 |                            |           |                  |  |                 |         |              |  |       |            |        |  |       |           |        |  |       |           |   |  |   |         |       |  |  |           |   |  |   |        |       |  |   |           |   |        | 
|------------------------------------------------------------------------------------------------------------ | ------------------------------- | -------------------------- | --------- | ---------------- |  | --------------- | ------- | ------------ |  | ----- | ---------- | ------ |  | ----- | --------- | ------ |  | ----- | --------- | - |  | - | ------- | ----- |  |  | --------- | - |  | - | ------ | ----- |  | - | --------- | - | ------ | 
|                                                                                                             |                                 |                            |           |                  |  |                
|                                                                                                             |                                 | General Partner            |           | Limited Partners |  |                
|                                                                                                             |                                 |                            |           |                  |  |                
|                                                                                                             |                                 |                            |           |                  |  |                 |         |              |  |      
|                                                                                                             |                                 | Preferred Units            |           | Common Units     |  | Preferred Units |         | Common Units |  |      
|                                                                                                             |                                 |                            |           |                  |  |                 |         |              |  |      
|                                                                                                             |                                 | Units                      |           | Amount           |  | Units           |         | Amount       |  | Units |            | Amount |  | Units |           | Amount |  | Total
|                                                                                                             |                                 |                            |           |                  |  |                 |         |              |  |       |            |        |  |       |           |        |  |      
|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                      |                            |           |                 |  |                 |         | 4,318        |  |       |            |       |  |       |           | 73,186 |  |       |           |  |  |   |         | 5,983 |  |  |           |  |  |   |        | 4,338 |  |   |           |   |       
|                                                                                                             | Currency translation adjustment |                            |           |                 |  |                 |         |             |  |       |            |       |  |       |           | 205    |  |       |           |  |  |   |         |      |  |  |           |  |  |   |        |      |  |   |           |   |       
|                                                                                                             |                                 | Total comprehensive income |           |                  |  |                 |         |              |  |       |            |        |  |       |           |        |  |       |           |   |  |   |         |       |  |  |           |   |  |   |        |       |  |   |           |   | 88,030 | 
|Contributions                                                                                                |                                 |                            | 2,000,000 |                  |  |                 | 48,425  |              |  |       |           |        |  |       |          |        |  |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | 48,425    |  
|Issuance of common limited partnership units in
    connection with issuance of restricted stock and options |                                 |                            |          |                  |  |                 |        |              |  |       | 246,968    |        |  |       | 11,207    |        |  |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | 11,207    |  
|Issuance of common limited partnership units in
    connection with the exercise of stock options            |                                 |                            |          |                  |  |                 |        |              |  |       | 185,059    |        |  |       | 3,982     |        |  |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | 3,982     |  
|Conversion of operating partnership units to cash                                                            |                                 |                            |          |                  |  |                 |        |              |  |       |           |        |  |       |          |        |  |       |          |   |  |   |        |       |  |  | (11,524   | ) |  |   | (221   | )     |  |   | (221      | )
|Retirement of units                                                                                          |                                 |                            |          |                  |  |                 |        |              |  |       | (787,800   | )      |  |       | (20,562   | )      |  |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | (20,562   | )
|Deferred compensation                                                                                        |                                 |                            |          |                  |  |                 |        |              |  |       |           |        |  |       | (11,204   | )      |  |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | (11,204   | )
|Deferred compensation amortization                                                                           |                                 |                            |          |                  |  |                 |        |              |  |       |           |        |  |       | 3,979     |        |  |       |          |   |  |   |        |       |  |  |          |   |  |   |       |       |  |   | 3,980     |  
|Reallocation of interests                                                                                    |                                 |                            |          |                  |  |                 |        |              |  |       |           |        |  |       | (1,451    | )      |  |       |          |   |  |   |        |       |  |  |          |   |  |   | (1,265 | )     |  |   | (2,717    | )
|Distributions                                                                                                |                                 |                            |          |                  |  |                 | (4,318  | )            |  |       |           |        |  |       | (69,411   | )      |  |       |          |   |  |   | (5,983  | )     |  |  |          |   |  |   | (4,017 | )     |  |   | (83,729   | )
|                                                                                                             |                                 |                            |           |                  |  |                 |         |              |  |       |            |        |  |       |           |        |  |       |           |   |  |   |         |       |  |  |           |   |  |   |        |       |  |   |           |  
|Balance as of June 30, 2003                                                                                  |                                 |                            | 5,995,800 |                  |  | $               | 144,419 |              |  |       | 81,444,265 |        |  | $     | 1,578,087 |        |  |       | 2,900,000 |   |  | $ | 141,103 |       |  |  | 4,834,863 |   |  | $ | 93,209 |       |  | $ | 1,956,818 |  
|                                                                                                             |                                 |                            |           |                  |  |                 |         |              |  |       |            |        |  |       |           |        |  |       |           |   |  |   |         |       |  |  |           |   |  |   |        |       |  |   |           |  

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 STATEMENTS


June 30, 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 primarily industrial properties in
key distribution markets throughout North America, Europe and
Asia. Unless the context otherwise requires, the
Company means AMB Property Corporation, the
Operating Partnership and their other controlled subsidiaries
and the Operating Partnership means AMB Property,
L.P. and its subsidiaries.

As of June 30, 2003, the Company owned an
approximate 94.4% general partnership interest in the Operating
Partnership, excluding preferred units. The remaining 5.6%
limited partnership interests are 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
June 30, 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 and co-investment
joint venture 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 June 30, 2003, the Operating
Partnership owned 889 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 June 30, 2003, the industrial buildings,
principally warehouse distribution buildings, encompassed
approximately 82.5 million rentable square feet and were
91.5% leased. As of June 30, 2003, the retail centers,
principally grocer-anchored community shopping centers,
encompassed approximately 1.0 million rentable square feet
and were 89.9% leased to 122 customers.

As of June 30, 2003, 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 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 and six months ended
June 30, 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.

Investments in Real
Estate.Investments in real estate and
leasehold interests are stated at cost unless circumstances
indicate that cost cannot be recovered, in which case, the
carrying value of the property is reduced to estimated fair
value. Carrying values for financial reporting purposes are
reviewed for impairment on a property-by-property basis whenever
events or changes in circumstances indicate that the carrying
value of a property may not be recoverable. Impairment is
recognized when estimated expected future cash flows
(undiscounted and without interest charges) are less than the
carrying value of the property. The estimation of expected
future net cash flows is inherently uncertain and relies on
assumptions regarding current and future economics and market
conditions and the availability of capital. If impairment
analysis assumptions change, then an adjustment to the carrying
value of the Operating Partnerships long-lived assets
could occur in the future period in which the assumptions
change. To the extent that a property is impaired, the excess of
the carrying amount of the property over its estimated fair
value is charged to earnings. The Operating Partnership includes
unrealized losses resulting from the impairment of the carrying
value of investments in real estate and leasehold interests that
continue to be held for long-term investment in depreciation and
amortization expense. As a result of recent leasing activity and
the current economic environment, the Operating Partnership
re-evaluated the carrying value of its investments and recorded
an impairment charge of $5.2 million for the quarter and
six months ended June 30, 2003. The Operating Partnership
believes that there are no additional impairments of the
carrying values of its investments in real estate as of
June 30, 2003. Also during the quarter ended June 30,
2003, the Operating Partnership recorded a reduction of
depreciation expense of $2.1 million to reflect the
recovery, through the settlement of a lawsuit, of capital
expenditures paid in prior years.

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

Comprehensive
Income.The Operating Partnership
reports comprehensive income in its Statement of Partners
Capital. Comprehensive income was $22.4 million and
$33.3 million for the three months ended June 30, 2003
and 2002, respectively. Comprehensive income was
$88.0 million and $67.7 million for the six months
ended June 30, 2003 and 2002, respectively.

Financial
Instruments.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. For

6



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED STATEMENTS 
(Continued)

revenues or expenses denominated in
non-functional currencies, the Operating Partnership may use
derivative financial instruments to manage foreign currency
exchange rate risk. The Operating Partnerships only
derivative financial instrument in effect at June 30, 2003
was a forward contract protecting against adverse foreign
exchange fluctuations in the Mexican peso against the
U.S. dollar.

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

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

Stock-based compensation
expense.In 2002, the Operating
Partnership adopted the expense recognition provisions of
SFAS No. 123, Accounting for Stock-Based
Compensation.The Operating Partnership values stock options
using the Black-Scholes option-pricing model and recognizes this
value as an expense over the period in which the options vest.
Under this standard, recognition of expense for stock options is
applied to all options granted after the beginning of the year
of adoption. Prior to 2002, the Operating Partnership followed
the intrinsic method set forth in APB Opinion 25, Accounting
for Stock Issued to Employees.The Company awards stock
options to its employees. In accordance with
SFAS No. 123, the Operating Partnership will recognize
the associated expense over the three to five-year vesting
periods. Related stock-based compensation expense was
$0.6 million and $0.2 million for the three months
ended June 30, 2003 and 2002, respectively, and
$1.2 million and $0.4 million for the six months ended
June 30, 2003 and 2002, respectively. The expense is
included in general and administrative expenses in the
accompanying consolidated statements of operations. The adoption
of SFAS No. 123 is prospective and the 2002 expense
relates only to stock options granted in 2002.

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 FIN 46 in the third quarter of 2003.
Certain of the Operating Partnerships consolidated
subsidiaries and

7



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED STATEMENTS 
(Continued)

unconsolidated joint ventures may be considered
variable interest entities under the provisions of FIN 46.
If the Operating Partnership determines any of its joint
ventures to be variable interest entities, then it is possible
that the application of FIN 46 would result in the
Operating Partnership deconsolidating certain subsidiaries that
are presently consolidated and consolidating a joint venture
that is presently accounted for using the equity method. The
implementation of FIN 46 may have a material impact on the
presentation of total assets and liabilities on the Operating
Partnerships balance sheet, but it will not have a
material impact on the Operating Partnerships net assets,
partners capital, results of operations or cash flows. At
June 30, 2003, total assets and total liabilities,
including minority interests of consolidated subsidiaries being
evaluated totaled $1.2 billion and $1.0 billion,
respectively, and investments in unconsolidated joint ventures
being evaluated totaled $60.0 million.

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. 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.

In April 2003, the FASB issued SFAS No. 149,
Amendment of Statement No. 133 on Derivative Instruments
and Hedging Activities (FAS 149). This
Statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities under
FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Operating
Partnership will adopt the requirements of FAS 149 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 May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity (FAS 150). This Statement
establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a
financial instrument that is within its scope as a liability (or
an asset in some circumstances). The Operating Partnership will
adopt the requirements of FAS 150 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. The Operating Partnership adopted the
requirements of FAS 150 in the second quarter of 2003 for
the issuance of its 6.5% Series L Cumulative Redeemable
Preferred Units, and the adoption of this statement did not have
an impact on its financial position, results of operations or
cash flows.



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

During the three months ended June 30, 2003,
the Operating Partnership invested $120.1 million in 16
industrial buildings, aggregating approximately 2.1 million
square feet, of which the Operating Partnership invested
$116.4 million in 15 industrial buildings, aggregating
approximately 2.0 million square feet through two of the
Operating Partnerships co-investment joint ventures.
During the six months ended June 30, 2003, the Operating
Partnership invested $131.0 million in 18 industrial
buildings, aggregating approximately 2.3 million square
feet, of which the Operating Partnership invested
$127.3 million in 17 industrial buildings, aggregating
approximately 2.3 million square feet through two of the
Operating Partnerships co-investment joint ventures.
During the quarter ended June 30, 2002, the Operating
Partnership invested $121.9 million in 17 industrial
buildings, aggregating approximately 2.0 million square
feet. During the six months ended June 30, 2002, the
Operating Partnership invested $156.9 million in 25
industrial buildings, aggregating approximately 2.7 million
square feet.

During the three months ended June 30, 2003,
the Operating Partnership completed two industrial building
projects valued at $15.3 million, aggregating approximately
0.2 million square feet. The Operating

8



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED STATEMENTS 
(Continued)

Partnership also initiated four new industrial
projects valued at $42.1 million, aggregating approximately
0.9 million square feet. As of June 30, 2003, the
Operating Partnership had in its development pipeline:
(1) 16 industrial projects, which will total approximately
2.8 million square feet and will have an aggregate
estimated investment of $157.3 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 $46.0 million
upon completion. As of June 30, 2003, the Operating
Partnership and its Development Alliance Partners had funded an
aggregate of $133.3 million and needed to fund an estimated
additional $70.0 million in order to complete current and
planned projects. The Operating Partnerships development
pipeline includes projects expected to be completed through June
2005.



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

Property Divestitures.During the three months ended
June 30, 2003, the Operating Partnership divested itself of
two industrial buildings, aggregating approximately
0.2 million square feet, for an aggregate price of
$15.1 million, with a resulting net gain of
$3.9 million. During the six months ended June 30,
2003, the Operating Partnership divested itself of 12 industrial
buildings, aggregating approximately 1.8 million square
feet, for an aggregate price of $142.1 million, with a
resulting net gain of $33.5 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 portion
of the contributed properties acquired by the third-party
investors.

During the three months ended June 30, 2002,
the Operating Partnership divested itself of one industrial
building, aggregating approximately 0.5 million square
feet, for an aggregate price of $12.1 million, with a
resulting net loss of $0.4 million. The disposed building
was classified as held for sale as of December 31, 2001.
During the six months ended June 30, 2002, the Operating
Partnership divested itself of two industrial buildings and one
retail building, aggregating approximately 0.8 million
square feet, for an aggregate price of $50.6 million, with
a resulting net loss of $0.7 million. The disposed
buildings were classified as held for sale as of
December 31, 2001.

Properties Held for Divestiture.As of June 30, 2003, the
Operating Partnership had decided to divest itself of three
industrial buildings and three retail centers with a net book
value of $73.0 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

9



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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED STATEMENTS 
(Continued)

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
and six months ended June 30, (dollars in thousands):

|                                    |                                                |                      |       |                    |  |      |        |       |  |   |        |       |  |   |        |        | 
|----------------------------------- | ---------------------------------------------- | -------------------- | ----- | ------------------ |  | ---- | ------ | ----- |  | - | ------ | ----- |  | - | ------ | ------ | 
|                                    |                                                |                      |       |                   
|                                    |                                                | For the Three Months |       | For the Six Months
|                                    |                                                | Ended June 30,       |       | Ended June 30,    
|                                    |                                                |                      |       |                   
|                                    |                                                | 2003                 |       | 2002               |  | 2003 |        | 2002 
|                                    |                                                |                      |       |                    |  |      |        |      
|Rental revenues                     |                                                | $                    | 2,448 |                    |  | $    | 11,262 |       |  | $ | 5,835  |       |  | $ | 23,299 |       
|Straight-line rents                 |                                                |                      | 56    |                    |  |      | 432    |       |  |   | 139    |       |  |   | 581    |       
|Property operating expenses         |                                                |                      | (514  | )                  |  |      | (1,698 | )     |  |   | (1,157 | )     |  |   | (2,989 | )     
|Real estate taxes                   |                                                |                      | (372  | )                  |  |      | (1,804 | )     |  |   | (827   | )     |  |   | (3,633 | )     
|Interest, including amortization    |                                                |                      | (77   | )                  |  |      | (1,048 | )     |  |   | (194   | )     |  |   | (2,622 | )     
|Depreciation and amortization       |                                                |                      | (240  | )                  |  |      | (2,005 | )     |  |   | (614   | )     |  |   | (3,969 | )     
|Minority interests share of income |                                                |                      | 9     |                    |  |      | (109   | )     |  |   | (76    | )     |  |   | (113   | )     
|                                    |                                                |                      |       |                    |  |      |        |       |  |   |        |       |  |   |        |       
|                                    | Income attributable to discontinued operations |                      | $     | 1,310              |  |      | $      | 5,030 |  |   | $      | 3,106 |  |   | $      | 10,554 | 
|                                    |                                                |                      |       |                    |  |      |        |       |  |   |        |       |  |   |        |       

As of June 30, 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):

|                                       |  |          |       |              |  |   |       | 
|-------------------------------------- |  | -------- | ----- | ------------ |  | - | ----- | 
|                                       |  | June 30, |       | December 31,
|                                       |  | 2003     |       | 2002        
|                                       |  |          |       |             
|Accounts receivable, net               |  | $        | 1,968 |              |  | $ | 1,844 | 
|Other assets                           |  |          | 107   |              |  |   | 55    | 
|Secured debt                           |  |          | 7,700 |              |  |   | 7,806 | 
|Accounts payable and other liabilities |  |          | 1,398 |              |  |   | 1,127 | 



|   |                    
|-- | -------------------
|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 June 30, 2003, the
outstanding balance on the note was $13.1 million.

10



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED STATEMENTS 
(Continued)



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

As of June 30, 2003, and December 31,
2002, debt consisted of the following (dollars in thousands):

|                                                                                                                                                                                                                            |                                        |                         |         |              |           |   |         |           |           | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ----------------------- | ------- | ------------ | --------- | - | ------- | --------- | --------- | 
|                                                                                                                                                                                                                            |                                        | June 30,                |         | December 31,
|                                                                                                                                                                                                                            |                                        | 2003                    |         | 2002        
|                                                                                                                                                                                                                            |                                        |                         |         |             
|Operating Partnership secured debt, varying
    interest rates from 4.0% to 10.4%, due December 2003 to January
    2014 (weighted average interest rate of 8.1% at June 30,
    2003 and December 31, 2002)                |                                        | $                       | 313,208 |              |           | $ | 381,764 |          
|Joint venture secured debt, varying interest
    rates from 2.7% to 12.0%, due April 2004 to June 2023 (weighted
    average interest rate of 6.9% and 7.0% at June 30, 2003,
    and December 31, 2002, respectively)      |                                        |                         | 893,737 |              |           |   | 893,093 |          
|Unsecured senior debt securities, varying
    interest rates from 5.9% to 8.0%, (weighted average interest
    rate of 7.2% at June 30, 2003, and December 31, 2002)
    due June 2005 to June 2018                         |                                        |                         | 800,000 |              |           |   | 800,000 |          
|Alliance Fund II credit facility                                                                                                                                                                                            |                                        |                         |        |              |           |   | 45,500  |          
|Unsecured debt, interest rate of 7.5%, due June
    2013 and November 2015                                                                                                                                                  |                                        |                         | 9,909   |              |           |   | 10,186  |          
|Unsecured credit facility, variable interest at
    LIBOR or EURIBOR plus 60 basis points (weighted average
    interest rate of 3.1% and 2.0% at June 30, 2003 and
    December 31, 2002, respectively), due December 2005 |                                        |                         | 19,420  |              |           |   | 95,000  |          
|                                                                                                                                                                                                                            |                                        |                         |         |              |           |   |         |          
|                                                                                                                                                                                                                            | Total debt before unamortized premiums |                         |         | 2,036,274    |           |   |         | 2,225,543 |          
|                                                                                                                                                                                                                            | Unamortized premiums                   |                         |         | 8,190        |           |   |         | 9,818     |          
|                                                                                                                                                                                                                            |                                        |                         |         |              |           |   |         |          
|                                                                                                                                                                                                                            |                                        | Total consolidated debt |         | $            | 2,044,464 |   |         | $         | 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
June 30, 2003 and December 31, 2002, the total gross
investment book value of those properties securing the debt was
$2.4 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 $68.4 million as of
June 30, 2003, which bear interest at variable rates
(weighted average interest rate of 3.3% as of June 30,
2003). The secured debt has various covenants. Management
believes that the Operating Partnership was in compliance with
its financial covenants as of June 30, 2003. As of
June 30, 2003, the Operating Partnership had 26
non-recourse secured loans, which are cross-collateralized by 60
properties, totaling $678.9 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
June 30, 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 June 30, 2003, the Operating Partnership
had issued no medium-term notes under this program.

11



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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED 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. Yen borrowings under the credit
facility currently bear interest at the Japan LIBOR fixing 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, which was amended effective
July 10, 2003 to increase from $150.0 million to
$250.0 million the amount that may be drawn in either
British pounds sterling, Euros or Yen (provided that such
currency is readily available and freely transferable and
convertible to U.S. dollars, the Reuters Monitor Money
Rates Service reports LIBOR for such currency in interest
periods of 1, 2, 3 or 6 months and the Operating
Partnership has an investment grade credit rating). 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 June 30,
2003, the outstanding balance on the credit facility was
$19.4 million and the remaining amount available was
$454.6 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 Yen and converted to U.S. dollars at
June 30, 2003. The credit facility has various covenants.
Management believes that the Operating Partnership was in
compliance with its financial covenants at June 30, 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. In April 2003, the Alliance
Fund II repaid the credit facility with capital
contributions and secured debt financing proceeds and terminated
the credit facility.

As of June 30, 2003, the scheduled
maturities of the Operating Partnerships total debt,
excluding unamortized debt premiums, were as follows (dollars in
thousands):

|           |       |             |        |         |  |            |         |           |  |            |         |         |  |   |       |       |  |   |        |        |  |   |         |           | 
|---------- | ----- | ----------- | ------ | ------- |  | ---------- | ------- | --------- |  | ---------- | ------- | ------- |  | - | ----- | ----- |  | - | ------ | ------ |  | - | ------- | --------- | 
|           |       | Operating   |        |         |  | Unsecured  |         |           |  |            |         |        
|           |       | Partnership |        | Joint   |  | Senior     |         |           |  |            |         |        
|           |       | Secured     |        | Venture |  | Debt       |         | Unsecured |  | Credit     |         |        
|           |       | Debt        |        | Debt    |  | Securities |         | Debt      |  | Facilities |         | Total  
|           |       |             |        |         |  |            |         |           |  |            |         |        
|2003       |       | $           | 21,021 |         |  | $          | 9,367   |           |  | $          |        |         |  | $ | 280   |       |  | $ |       |        |  | $ | 30,668  |          
|2004       |       |             | 62,516 |         |  |            | 68,501  |           |  |            |        |         |  |   | 601   |       |  |   |       |        |  |   | 131,618 |          
|2005       |       |             | 44,427 |         |  |            | 59,514  |           |  |            | 250,000 |         |  |   | 647   |       |  |   | 19,420 |        |  |   | 374,008 |          
|2006       |       |             | 82,693 |         |  |            | 66,040  |           |  |            | 25,000  |         |  |   | 698   |       |  |   |       |        |  |   | 174,431 |          
|2007       |       |             | 14,495 |         |  |            | 43,325  |           |  |            | 75,000  |         |  |   | 752   |       |  |   |       |        |  |   | 133,572 |          
|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 |           |  |            |        |         |  |   | 1,093 |       |  |   |       |        |  |   | 109,024 |          
|Thereafter |       |             | 480    |         |  |            | 22,264  |           |  |            | 125,000 |         |  |   | 2,200 |       |  |   |       |        |  |   | 149,944 |          
|           |       |             |        |         |  |            |         |           |  |            |         |         |  |   |       |       |  |   |        |        |  |   |         |          
|           | Total |             | $      | 313,208 |  |            | $       | 893,737   |  |            | $       | 800,000 |  |   | $     | 9,909 |  |   | $      | 19,420 |  |   | $       | 2,036,274 | 
|           |       |             |        |         |  |            |         |           |  |            |         |         |  |   |       |       |  |   |        |        |  |   |         |          

12



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AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED STATEMENTS 
(Continued)



|   |                                                                          
|-- | -------------------------------------------------------------------------
|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
36.7 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 June 30, 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% |                   |  | $ | 170,488 |          
|AMB Institutional Alliance Fund I, L.P.  |       | AMB Institutional Alliance REIT I,
    Inc.(2)                    |  |               | 21% |                   |  |   | 397,269 |          
|AMB Partners II, L.P.                    |       | City and County of San Francisco
    Employees Retirement System |  |               | 20% |                   |  |   | 317,174 |          
|AMB-SGP, L.P.                            |       | Industrial JV Pte Ltd.(3)                                         |  |               | 50% |                   |  |   | 366,775 |          
|AMB Institutional Alliance Fund II, L.P. |       | AMB Institutional Alliance REIT II,
    Inc.(4)                   |  |               | 20% |                   |  |   | 424,496 |          
|AMB-AMS, L.P.(5)                         |       | BPMT and TNO                                                      |  |               | 39% |                   |  |   |        |          
|                                         |       |                                                                   |  |               |     |                   |  |   |         |          
|                                         | Total |                                                                   |  |               |     |                   |  |   | $       | 1,676,202 | 
|                                         |       |                                                                   |  |               |     |                   |  |   |         |          



---



|    |                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes total equity and debt.                                                                                                  
|   
|(2) | Included 15 institutional investors as
    stockholders as of June 30, 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
    June 30, 2003.             
|   
|(5) | AMB-AMS, L.P. is a commitment to form a
    co-investment partnership with two Dutch pension funds advised
    by Mn Services NV.

13



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED STATEMENTS 
(Continued)

The following table distinguishes the minority
interest liability as of June 30, 2003 and
December 31, 2002 (dollars in thousands):

|                                    |                                                                  |                          |         |                   |         |   |         |        |         | 
|----------------------------------- | ---------------------------------------------------------------- | ------------------------ | ------- | ----------------- | ------- | - | ------- | ------ | ------- | 
|                                    |                                                                  | June 30, 2003            |         | December 31, 2002
|                                    |                                                                  |                          |         |                  
|Joint venture partners              |                                                                  | $                        | 640,095 |                   |         | $ | 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 |         | $                 | 807,361 |   |         | $      | 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                          |       | For the Six Months
|                                    |                                                                  | Ended June 30,                                |       | Ended June 30,    
|                                    |                                                                  |                                               |       |                   
|                                    |                                                                  | 2003                                          |       | 2002               |        | 2003 |       | 2002 
|                                    |                                                                  |                                               |       |                    |        |      |       |      
|Joint Venture Partners              |                                                                  | $                                             | 8,907 |                    |        | $    | 7,320 |       |        | $ | 16,603 |       |        | $ | 15,282 |      
|Held through AMB Property II, L.P.: |                                                                  |                                               |       |                    |        |      |       |       |        |   |        |       |        |   |        |      
|                                    | Series D preferred units (liquidation
    preference of $79,767) |                                               |       | 1,546              |        |      |       | 1,546 |        |   |        | 3,091 |        |   |        | 3,091 |       
|                                    | Series E preferred units (liquidation
    preference of $11,022) |                                               |       | 213                |        |      |       | 213   |        |   |        | 427   |        |   |        | 427   |       
|                                    | Series F preferred units (liquidation
    preference of $13,372) |                                               |       | 266                |        |      |       | 395   |        |   |        | 532   |        |   |        | 790   |       
|                                    | Series G preferred units (repurchased in
    July 2002)          |                                               |       |                   |        |      |       | 20    |        |   |        |      |        |   |        | 40    |       
|                                    | Series H preferred units (liquidation
    preference of $42,000) |                                               |       | 853                |        |      |       | 853   |        |   |        | 1,706 |        |   |        | 1,706 |       
|                                    | Series I preferred units (liquidation
    preference of $25,500) |                                               |       | 510                |        |      |       | 510   |        |   |        | 1,020 |        |   |        | 1,020 |       
|                                    |                                                                  |                                               |       |                    |        |      |       |       |        |   |        |       |        |   |        |      
|                                    |                                                                  | Total minority interests share of net income |       | $                  | 12,295 |      |       | $     | 10,857 |   |        | $     | 23,379 |   |        | $     | 22,356 | 
|                                    |                                                                  |                                               |       |                    |        |      |       |       |        |   |        |       |        |   |        |      



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

The Operating Partnerships unconsolidated
joint ventures at June 30, 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 | %  |   | $ | 59,983 |       
|Pico Rivera                            |                                        | Majestic Realty                   |  |             | 855,600   |               |  |            | 50 | %  |   |   | 1,351  |       
|Monte Vista Spectrum                   |                                        | Majestic Realty                   |  |             | 576,852   |               |  |            | 50 | %  |   |   | 1,045  |       
|Industrial Fund I, LLC                 |                                        | Citigroup Alternative Investments |  |             | 2,446,334 |               |  |            | 15 | %  |   |   | 4,244  |       
|Airport Logistics Park of Singapore(1) |                                        | Boustead Projects                 |  |             | 233,773   |               |  |            | 50 | %  |   |   | 1,943  |       
|                                       |                                        |                                   |  |             |           |               |  |            |    |    |   |   |        |       
|                                       | Total investment in unconsolidated JVs |                                   |  |             |           | 8,159,280     |  |            |    | 48 | % |   | $      | 68,566 | 
|                                       |                                        |                                   |  |             |           |               |  |            |    |    |   |   |        |       






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

14



---



##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED STATEMENTS 
(Continued)

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 June 30, 2003,
the Operating Partnerships share of unconsolidated joint
venture debt was $48.5 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 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. On April 16, 2003, the Operating
Partnership redeemed 11,524 of its common limited partnership
units for cash.

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 June 30, 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.

On June 23, 2003, the Company issued and
sold 2,000,000 shares of 6.5% Series L Cumulative
Redeemable Preferred Stock at a price of $25.00 per share.
Dividends are cumulative from the date of

15



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED STATEMENTS 
(Continued)

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

As of June 30, 2003, the Operating
Partnership had outstanding 81,444,265 common general
partnership units, 4,834,863 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 and 2,000,000 6.5% Series L Cumulative Redeemable
Partnership Units. The following table sets forth the
distributions paid per unit:

|                      |  |                                  |  |               |       |                    |  |      |       |      |  |   |       |  |  |   |       | 
|--------------------- |  | -------------------------------- |  | ------------- | ----- | ------------------ |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                      |  |                                  |  |               |       |                    |  |     
|                      |  |                                  |  | For the Three |       |                   
|                      |  |                                  |  | Months Ended  |       | For the Six Months
|                      |  |                                  |  | June 30,      |       | Ended June 30,    
|                      |  |                                  |  |               |       |                   
|Paying Entity         |  | Security                         |  | 2003          |       | 2002               |  | 2003 |       | 2002
|                      |  |                                  |  |               |       |                    |  |      |       |     
|Operating Partnership |  | Common limited partnership units |  | $             | 0.415 |                    |  | $    | 0.410 |      |  | $ | 0.830 |  |  | $ | 0.820 | 
|Operating Partnership |  | Series A preferred units         |  | $             | 0.531 |                    |  | $    | 0.531 |      |  | $ | 1.063 |  |  | $ | 1.063 | 
|Operating Partnership |  | Series B preferred units         |  | $             | 1.078 |                    |  | $    | 1.078 |      |  | $ | 2.156 |  |  | $ | 2.156 | 
|Operating Partnership |  | Series J preferred units         |  | $             | 0.994 |                    |  | $    | 0.994 |      |  | $ | 1.988 |  |  | $ | 1.988 | 
|Operating Partnership |  | Series K preferred units         |  | $             | 0.994 |                    |  | $    | 0.994 |      |  | $ | 1.988 |  |  | $ | 0.994 | 
|Operating Partnership |  | Series L preferred units         |  | $             | 0.036 |                    |  |      |      |      |  | $ | 0.036 |  |  |   |      | 
|AMB Property II, L.P. |  | Series D preferred units         |  | $             | 0.969 |                    |  | $    | 0.969 |      |  | $ | 1.938 |  |  | $ | 1.938 | 
|AMB Property II, L.P. |  | Series E preferred units         |  | $             | 0.969 |                    |  | $    | 0.969 |      |  | $ | 1.938 |  |  | $ | 1.938 | 
|AMB Property II, L.P. |  | Series F preferred units         |  | $             | 0.994 |                    |  | $    | 0.994 |      |  | $ | 1.988 |  |  | $ | 1.988 | 
|AMB Property II, L.P. |  | Series G preferred units         |  |               |      |                    |  | $    | 0.994 |      |  |   |      |  |  | $ | 1.988 | 
|AMB Property II, L.P. |  | Series H preferred units         |  | $             | 1.016 |                    |  | $    | 1.016 |      |  | $ | 2.031 |  |  | $ | 2.031 | 
|AMB Property II, L.P. |  | Series I preferred units         |  | $             | 1.000 |                    |  | $    | 1.000 |      |  | $ | 2.000 |  |  | $ | 2.000 | 



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

When the Company issues stock options or
restricted stock, the Operating Partnership issues corresponding
units. The Operating Partnerships only dilutive securities
outstanding for the three and six months ended June 30,
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.

|                              |                                       |                            |  |                          |  |      |  |            |  |  |  |            |  |  |  |            | 
|----------------------------- | ------------------------------------- | -------------------------- |  | ------------------------ |  | ---- |  | ---------- |  |  |  | ---------- |  |  |  | ---------- | 
|                              |                                       |                            |  |                         
|                              |                                       | For the Three Months Ended |  | For the Six Months Ended
|                              |                                       | June 30,                   |  | June 30,                
|                              |                                       |                            |  |                         
|                              |                                       | 2003                       |  | 2002                     |  | 2003 |  | 2002      
|                              |                                       |                            |  |                          |  |      |  |           
|WEIGHTED AVERAGE COMMON UNITS |                                       |                            |  |                          |  |      |  |            |  |  |  |            |  |  |  |           
|                              | Basic                                 |                            |  | 85,852,418               |  |      |  | 88,643,124 |  |  |  | 85,904,056 |  |  |  | 88,562,012 | 
|                              | Stock options and restricted stock    |                            |  | 1,450,478                |  |      |  | 1,819,208  |  |  |  | 1,460,000  |  |  |  | 1,493,308  | 
|                              |                                       |                            |  |                          |  |      |  |            |  |  |  |            |  |  |  |           
|                              | Diluted weighted average common units |                            |  | 87,302,896               |  |      |  | 90,462,332 |  |  |  | 87,364,056 |  |  |  | 90,055,320 | 
|                              |                                       |                            |  |                          |  |      |  |            |  |  |  |            |  |  |  |           

16



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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED STATEMENTS 
(Continued)



|    |                    
|--- | -------------------
|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 June 30, 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 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 June 30,                        |        | Ended June 30,      
|                                             |                              |                                       |        |                     
|Segments                                     |                              | 2003                                  |        | 2002                 |         | 2003 |         | 2002  
|                                             |                              |                                       |        |                      |         |      |         |       
|Industrial domestic hub and gateway markets: |                              |                                       |        |                      |         |      |         |        |         |  |        |        |         |  |        |       
|                                             | Atlanta                      |                                       | $      | 7,023                |         |      | $       | 7,415  |         |  | $      | 5,604  |         |  | $      | 5,746  |        
|                                             | Chicago                      |                                       |        | 10,896               |         |      |         | 11,062 |         |  |        | 7,420  |         |  |        | 7,554  |        
|                                             | Dallas/Fort Worth            |                                       |        | 4,184                |         |      |         | 6,625  |         |  |        | 2,728  |         |  |        | 4,642  |        
|                                             | Los Angeles                  |                                       |        | 22,850               |         |      |         | 18,877 |         |  |        | 18,177 |         |  |        | 14,798 |        
|                                             | Northern New Jersey/New York |                                       |        | 13,520               |         |      |         | 11,175 |         |  |        | 9,215  |         |  |        | 7,376  |        
|                                             | San Francisco Bay Area       |                                       |        | 27,848               |         |      |         | 31,429 |         |  |        | 23,220 |         |  |        | 26,277 |        
|                                             | Miami                        |                                       |        | 7,989                |         |      |         | 8,861  |         |  |        | 5,588  |         |  |        | 6,306  |        
|                                             | Seattle                      |                                       |        | 6,660                |         |      |         | 6,539  |         |  |        | 5,209  |         |  |        | 5,253  |        
|                                             | On-Tarmac                    |                                       |        | 11,381               |         |      |         | 4,874  |         |  |        | 6,218  |         |  |        | 2,650  |        
|                                             |                              |                                       |        |                      |         |      |         |        |         |  |        |        |         |  |        |       
|                                             |                              | Total industrial domestic hub markets |        |                      | 112,351 |      |         |        | 106,857 |  |        |        | 83,379  |  |        |        | 80,602  | 
|Total industrial domestic target markets     |                              |                                       | 18,661 |                      |         |      | 19,014  |        |         |  | 14,151 |        |         |  | 14,477 |       
|Total industrial domestic non-target markets |                              |                                       | 12,382 |                      |         |      | 18,251  |        |         |  | 8,204  |        |         |  | 13,480 |       
|International target markets                 |                              |                                       | 1,273  |                      |         |      |        |        |         |  | 942    |        |         |  |       |       
|Straight-line rents                          |                              |                                       | 1,873  |                      |         |      | 2,786   |        |         |  | 1,873  |        |         |  | 2,786  |       
|Total retail markets                         |                              |                                       | 3,925  |                      |         |      | 3,910   |        |         |  | 2,423  |        |         |  | 2,300  |       
|Discontinued operations                      |                              |                                       | (2,504 | )                    |         |      | (11,694 | )      |         |  | (1,618 | )      |         |  | (8,192 | )     
|                                             |                              |                                       |        |                      |         |      |         |        |         |  |        |        |         |  |        |       
|                                             |                              | Total                                 |        | $                    | 147,961 |      |         | $      | 139,124 |  |        | $      | 109,354 |  |        | $      | 105,453 | 
|                                             |                              |                                       |        |                      |         |      |         |        |         |  |        |        |         |  |        |       



---



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

17



---



##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED STATEMENTS 
(Continued)

|                                             |                              |                                       |        |                    |         |         |         |        |         |         |        |        |         |         |         |        |         |         | 
|-------------------------------------------- | ---------------------------- | ------------------------------------- | ------ | ------------------ | ------- | ------- | ------- | ------ | ------- | ------- | ------ | ------ | ------- | ------- | ------- | ------ | ------- | ------- | 
|                                             |                              |                                       |        |                   
|                                             |                              | Rental Revenues                       |        | Property NOI(1)   
|                                             |                              |                                       |        |                   
|                                             |                              |                                       |        |                   
|                                             |                              | For the Six Months                    |        | For the Six Months
|                                             |                              | Ended June 30,                        |        | Ended June 30,    
|                                             |                              |                                       |        |                   
|Segments                                     |                              | 2003                                  |        | 2002               |         | 2003    |         | 2002  
|                                             |                              |                                       |        |                    |         |         |         |       
|Industrial domestic hub and gateway markets: |                              |                                       |        |                    |         |         |         |        |         |         |        |        |         |         |         |       
|                                             | Atlanta                      |                                       | $      | 14,268             |         |         | $       | 14,729 |         |         | $      | 11,304 |         |         | $       | 11,627 |        
|                                             | Chicago                      |                                       |        | 22,112             |         |         |         | 22,947 |         |         |        | 15,260 |         |         |         | 15,885 |        
|                                             | Dallas/Fort Worth            |                                       |        | 8,263              |         |         |         | 13,242 |         |         |        | 5,456  |         |         |         | 9,478  |        
|                                             | Los Angeles                  |                                       |        | 45,985             |         |         |         | 37,521 |         |         |        | 36,823 |         |         |         | 29,505 |        
|                                             | Northern New Jersey/New York |                                       |        | 26,851             |         |         |         | 22,002 |         |         |        | 17,876 |         |         |         | 14,634 |        
|                                             | San Francisco Bay Area       |                                       |        | 60,619             |         |         |         | 61,422 |         |         |        | 51,208 |         |         |         | 51,561 |        
|                                             | Miami                        |                                       |        | 16,042             |         |         |         | 17,157 |         |         |        | 11,245 |         |         |         | 12,538 |        
|                                             | Seattle                      |                                       |        | 13,547             |         |         |         | 12,031 |         |         |        | 10,709 |         |         |         | 9,628  |        
|                                             | On-Tarmac                    |                                       |        | 22,874             |         |         |         | 9,716  |         |         |        | 12,294 |         |         |         | 5,431  |        
|                                             |                              |                                       |        |                    |         |         |         |        |         |         |        |        |         |         |         |       
|                                             |                              | Total industrial domestic hub markets |        |                    | 230,561 |         |         |        | 210,767 |         |        |        | 172,175 |         |         |        | 160,287 |        
|Total industrial domestic target markets     |                              |                                       | 38,993 |                    |         |         | 37,782  |        |         |         | 28,960 |        |         |         | 28,863  |       
|Total industrial domestic non-target markets |                              |                                       | 27,173 |                    |         |         | 38,431  |        |         |         | 18,170 |        |         |         | 27,085  |       
|International target markets                 |                              |                                       | 2,393  |                    |         |         |        |        |         |         | 1,844  |        |         |         |        |       
|Straight-line rents                          |                              |                                       | 4,253  |                    |         |         | 6,747   |        |         |         | 4,253  |        |         |         | 6,747   |       
|Total retail markets                         |                              |                                       | 7,834  |                    |         |         | 9,332   |        |         |         | 5,018  |        |         |         | 5,835   |       
|Discontinued operations                      |                              |                                       | (5,974 | )                  |         |         | (23,880 | )      |         |         | (3,990 | )      |         |         | (17,258 | )     
|                                             |                              |                                       |        |                    |         |         |         |        |         |         |        |        |         |         |         |       
|                                             |                              |                                       | Total  |                    | $       | 305,233 |         |        | $       | 279,179 |        |        | $       | 226,430 |         |        | $       | 211,559 | 
|                                             |                              |                                       |        |                    |         |         |         |        |         |         |        |        |         |         |         |       



---



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

18



---



##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED STATEMENTS 
(Continued)

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

|                                                        |            |                      |         |                    |  |      |         |        |  |   |         |        |  |   |          |        | 
|------------------------------------------------------- | ---------- | -------------------- | ------- | ------------------ |  | ---- | ------- | ------ |  | - | ------- | ------ |  | - | -------- | ------ | 
|                                                        |            |                      |         |                   
|                                                        |            | For the Three Months |         | For the Six Months
|                                                        |            | Ended June 30,       |         | Ended June 30,    
|                                                        |            |                      |         |                   
|                                                        |            | 2003                 |         | 2002               |  | 2003 |         | 2002  
|                                                        |            |                      |         |                    |  |      |         |       
|Property NOI                                            |            | $                    | 109,354 |                    |  | $    | 105,453 |        |  | $ | 226,430 |        |  | $ | 211,559  |       
|Equity in earnings of unconsolidated joint
    ventures |            |                      | 1,622   |                    |  |      | 1,638   |        |  |   | 2,857   |        |  |   | 3,121    |       
|Private capital income                                  |            |                      | 3,555   |                    |  |      | 3,114   |        |  |   | 5,916   |        |  |   | 5,702    |       
|Interest and other income                               |            |                      | 1,549   |                    |  |      | 3,330   |        |  |   | 2,942   |        |  |   | 7,312    |       
|Interest, including amortization                        |            |                      | (36,645 | )                  |  |      | (36,484 | )      |  |   | (73,750 | )      |  |   | (71,177  | )     
|Depreciation and amortization                           |            |                      | (38,094 | )                  |  |      | (29,967 | )      |  |   | (72,893 | )      |  |   | (57,678  | )     
|General and administrative                              |            |                      | (12,170 | )                  |  |      | (10,762 | )      |  |   | (24,344 | )      |  |   | (21,831  | )     
|Total minority interests share of income               |            |                      | (12,295 | )                  |  |      | (10,857 | )      |  |   | (23,379 | )      |  |   | (122,356 | )     
|Gains from dispositions of real estate, net             |            |                      |        |                    |  |      | 2,768   |        |  |   | 7,429   |        |  |   | 2,480    |       
|Total discontinued operations                           |            |                      | 5,177   |                    |  |      | 5,030   |        |  |   | 36,617  |        |  |   | 10,554   |       
|                                                        |            |                      |         |                    |  |      |         |        |  |   |         |        |  |   |          |       
|                                                        | Net Income |                      | $       | 22,053             |  |      | $       | 33,263 |  |   | $       | 87,825 |  |   | $        | 67,686 | 
|                                                        |            |                      |         |                    |  |      |         |        |  |   |         |        |  |   |          |       

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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED STATEMENTS 
(Continued)

|                                             |                              |                                       |                                 |              |           |           |          |         |           |           | 
|-------------------------------------------- | ---------------------------- | ------------------------------------- | ------------------------------- | ------------ | --------- | --------- | -------- | ------- | --------- | --------- | 
|                                             |                              |                                      
|                                             |                              | Total Gross Investment(1)            
|                                             |                              | As of                                
|                                             |                              |                                      
|                                             |                              | June 30,                              |                                 | December 31,
|                                             |                              | 2003                                  |                                 | 2002        
|                                             |                              |                                       |                                 |             
|Industrial domestic hub and gateway markets: |                              |                                       |                                 |              |           |           |          |        
|                                             | Atlanta                      |                                       | $                               | 267,702      |           |           | $        | 289,398 |          
|                                             | Chicago                      |                                       |                                 | 387,795      |           |           |          | 370,139 |          
|                                             | Dallas/Fort Worth            |                                       |                                 | 153,073      |           |           |          | 140,616 |          
|                                             | Los Angeles                  |                                       |                                 | 833,747      |           |           |          | 760,640 |          
|                                             | Northern New Jersey/New York |                                       |                                 | 468,056      |           |           |          | 486,644 |          
|                                             | San Francisco Bay Area       |                                       |                                 | 832,696      |           |           |          | 828,975 |          
|                                             | Miami                        |                                       |                                 | 357,913      |           |           |          | 305,399 |          
|                                             | Seattle                      |                                       |                                 | 325,645      |           |           |          | 249,500 |          
|                                             | On-Tarmac                    |                                       |                                 | 226,674      |           |           |          | 223,215 |          
|                                             |                              |                                       |                                 |              |           |           |          |        
|                                             |                              | Total industrial domestic hub markets |                                 |              | 3,853,301 |           |          |         | 3,654,526 |          
|Total industrial domestic target markets     |                              |                                       | 614,657                         |              |           |           | 599,165  |        
|Total industrial domestic non-target markets |                              |                                       | 439,586                         |              |           |           | 585,939  |        
|International target markets                 |                              |                                       | 61,885                          |              |           |           | 81,112   |        
|Properties held for divestiture              |                              |                                       | (76,115                         | )            |           |           | (115,175 | )      
|Total retail markets                         |                              |                                       | 122,700                         |              |           |           | 120,415  |        
|                                             |                              |                                       |                                 |              |           |           |          |        
|                                             |                              |                                       | Total investments in properties |              | $         | 5,016,014 |          |         | $         | 4,925,982 | 
|                                             |                              |                                       |                                 |              |           |           |          |        



---



|    |                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes construction in progress of
    $214.7 million and $132.5 million as of June 30,
    2003, and December 31, 2002, respectively.



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



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

Lease Commitments.The Operating Partnership holds:
operating ground leases on land parcels at its on-tarmac
facilities; leases on office spaces in San Francisco and
Boston for corporate use; and a leasehold interest that it holds
for investment purposes. The remaining lease terms are from one
to 38 years.



| |              
| | -------------
| | 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.

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##### Table of Contents



AMB PROPERTY, L.P.


NOTES TO CONSOLIDATED STATEMENTS 
(Continued)

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

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



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

On July 28, 2003, the Operating Partnership
redeemed all 3,995,800 of its 8.5% Series A Cumulative
Redeemable Preferred Units, held by the Company for
$100.2 million, including accumulated and unpaid
distributions through the redemption date, and the Company
redeemed all 3,995,800 shares of its 8.5% Series A
Cumulative Redeemable Preferred Stock for $100.2 million,
including accumulated and unpaid dividends through the
redemption date.

21



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##### Table of Contents








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

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

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



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

Our success also depends upon economic trends
generally, various market conditions and fluctuation 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. and its controlled subsidiaries. The following
marks are the registered trademarks of AMB Property Corporation,
our general partner: AMB®; Broker Alliance Partners®;
Broker Alliance Program®; Customer Alliance Partners®;
Customer Alliance Program®; Development Alliance
Partners®; Development Alliance Program®; HTD®;
High Throughput Distribution®; Institutional Alliance
Partners®; Institutional Alliance Program®; Management
Alliance Partners®; Management Alliance Program®;
Strategic Alliance Partners®; Strategic Alliance
Programs®; UPREIT Alliance Partners®; and UPREIT
Alliance Program®.

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GENERAL

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

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 our co-investment joint
ventures, we generally will be liable for all of the joint
ventures unsatisfied obligations other than non-recourse
obligations. Any such liabilities could adversely affect our
financial condition, results of operations, cash flow and
ability to make distributions to our unitholders and payments to
our noteholders.

Critical Accounting Policies

Our discussion and analysis of financial
condition and results of operations is based on our consolidated
financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United
States 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. We include
unrealized losses resulting from the impairment of the carrying
value of investments in real estate and leasehold interests that
continue to be held for long-term investment in depreciation and
amortization expense.

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

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bad debt charges in future periods. Each period
we review our outstanding accounts receivable, including
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
36.7 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 representing the portion of 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
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 adoption of SFAS No. 123
is prospective and the 2002 expense relates only to stock
options granted in 2002.




THE COMPANY

AMB Property, L.P., a Delaware limited
partnership, acquires, owns and operates, manages, renovates,
expands and develops primarily industrial properties in key
distribution markets throughout North America, Europe and Asia.
We commenced operations as a fully integrated real estate
company effective with the completion of AMB Property
Corporations initial public offering on November 26,
1997. Increasingly, our properties are designed for customers
who value the efficient movement of goods in the worlds
busiest distribution markets: large, supply-constrained
locations with close proximity to airports, seaports and major
freeway systems. We currently serve 2,590 customers in a
portfolio (owned, managed or under development) totaling 1,005
buildings, encompassing approximately 96.5 million square
feet (9.0 million square meters), in 30 global markets.

We are engaged in the acquisition, ownership,
operation, management, renovation, expansion and development of
primarily industrial properties in key distribution markets
throughout North America, Europe and Asia. As of June 30,
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 tied to global trade, which, according to the
World Trade Organization, has grown at approximately 2.5 times
the world gross domestic product (GDP) growth rate during
the last 10 years. 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, 69.3% of our assets are
concentrated in eight domestic hub distribution

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##### Table of Contents



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

Much of our portfolio is comprised of
strategically located industrial buildings in in-fill
submarkets; in-fill locations are characterized by supply
constraints on the availability of land for competing projects
as well as physical, political or economic barriers to new
development. 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 global trend toward lower
inventory levels and expedited supply chains.

HTD facilities generally have a variety of
characteristics that allow the rapid transport of goods from
point-to-point; examples of these characteristics 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 June 30, 2003, we owned and operated
(exclusive of properties that we managed for third parties) 889
industrial buildings and nine retail and other properties,
totaling approximately 82.5 million rentable square feet,
located in 27 markets throughout North America and in France. As
of June 30, 2003, our industrial and retail properties were
91.5% and 89.9% leased, respectively. As of June 30, 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
June 30, 2003, we had investments in operating and
development industrial buildings, totaling approximately
8.2 million rentable square feet, through unconsolidated
joint ventures.

As of June 30, 2003, we had three retail
centers and three industrial buildings 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, Chicago, Illinois and
Amsterdam, the Netherlands. Our Chicago office opened in July
2003. As of June 30, 2003, we employed 173 individuals, 127
at our San Francisco headquarters, 45 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
officers, 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 June 30, 2003, we had

25



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##### Table of Contents



investments in five co-investment joint ventures
with a gross book value of $1.7 billion, which are
consolidated for financial reporting purposes.


Acquisition, Development and Disposition
Activity

During the three months ended June 30, 2003,
we invested $120.1 million in 16 operating properties,
aggregating approximately 2.1 million square feet, of which
we invested $116.4 million in 15 operating properties,
aggregating approximately 2.0 million square feet through
two of our co-investment joint ventures. During the six months
ended June 30, 2003, we invested $131.0 million in 18
operating properties, aggregating approximately 2.3 million
square feet, of which we invested $127.3 million in 17
operating properties, aggregating approximately 2.3 million
square feet, through two of our co-investment joint ventures.

During the three months ended June 30, 2003,
we stabilized two industrial buildings valued at
$15.3 million, aggregating approximately 0.2 million
square feet. We also initiated four new industrial development
projects valued at $42.1 million, aggregating approximately
0.9 million square feet. During the six months ended
June 30, 2003, we stabilized four industrial buildings
valued at $27.9 million, aggregating approximately
0.4 million square feet. We also initiated eight new
industrial development projects valued at $78.5 million,
aggregating approximately 1.5 million square feet. During
the first quarter, 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 entitled for 6.8 million square feet of
properties for lease or sale. 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 $19.2 million. New development projects
during the six months ended June 30, 2003, included the two
Beacon Lakes buildings as well as six additional projects.

As of June 30, 2003, we had in our
development pipeline 16 industrial projects, which will total
approximately 2.8 million square feet and have an aggregate
estimated investment of $157.3 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 $46.0 million upon completion. As
of June 30, 2003, we and our partners had funded an
aggregate of $133.3 million and needed to fund an estimated
additional $70.0 million in order to complete current and
planned projects.

During the three months ended June 30, 2003,
we disposed of two industrial buildings, aggregating
approximately 0.2 million rentable square feet, for an
aggregate price of $15.1 million. During the six months
ended June 30, 2003, we disposed of 12 industrial
buildings, aggregating approximately 1.8 million rentable
square feet, for an aggregate price of $142.1 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.

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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 June 30, 2003, our industrial properties
and retail centers were 91.5% leased and 89.9% leased,
respectively. During the three and six months ended
June 30, 2003, average industrial base rental rates
decreased by 3.1% and 4.3%, respectively, 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 June 30, 2003, cash-basis same-store net
operating income decreased by 2.4% (2.8% including straight-line
rents) on our industrial properties. During the six months ended
June 30, 2003, cash-basis same-store net operating income
increased by 0.7% (decreased by 0.5% 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 11.4%. While we believe that it is important to
view real estate as a long-term investment, past results are not
necessarily an indication of future performance.



| |                                                         
| | --------------------------------------------------------
| | 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 and 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.

27



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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.



| |                              
| | -----------------------------
| | 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; however, there can be
no assurance that it will continue to do so.



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

Through our taxable REIT subsidiaries, we conduct
a variety of businesses that include incremental income
programs, such as our development projects available for sale to
third parties. Such development properties include value-added
conversion projects and build-to-sell projects. As of
June 30, 2003, we were developing three projects for sale
to third parties.



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

Over the next five years, we expect to have from
12% to 15% of our assets (based on consolidated annualized base
rent) 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 June 30, 2003, we earned
$1.3 million in rental revenues from our Guadalajara and
Paris properties. During the six months ended June 30,
2003, we earned $2.4 million in rental revenues from our
Guadalajara and Paris properties and recognized a net 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. 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 partner-

28



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##### Table of Contents



ships 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
same store properties. For the comparison between the three and
six months ended June 30, 2003 and 2002, same store
industrial properties consisted of properties aggregating
approximately 72.8 million square feet. The properties
acquired during the six months ended June 30, 2003,
consisted of 18 buildings, aggregating approximately
2.3 million square feet. The properties acquired during
2002 consisted of 43 buildings, aggregating approximately
5.4 million square feet. During the six months ended
June 30, 2003, property divestitures and contributions
consisted of 36 industrial buildings, aggregating approximately
4.2 million square feet. 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 results.

Occupancy levels in our industrial portfolio and
rents on lease renewals and rollovers were lower in the first
half of 2003 as the general contraction in business activity
nationwide reduced demand for industrial warehouse facilities.
According to Torto Wheaton Research, the overall industrial
market deteriorated rapidly from its peak levels at the end of
2000, when availability was 6.6%, through the second quarter of
2002, when availability reached 10.8%. Subsequently, national
industrial warehouse availability has deteriorated at a more
modest rate, declining an average of 18 basis points per
quarter to reach 11.5% at June 30, 2003. As a result of the
increase in availability, market rents for industrial properties
in most markets decreased over 10%, with some markets
experiencing decreases of over 25%. Over the same period, our
portfolio vacancy increased from 3.6% at December 31, 2000
to 8.5% at June 30, 2003, consistent with market trends.
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. In
periods of decreasing rental rates, we strive to sign leases
with shorter terms to prevent locking-in lower rent levels for
long periods and to be prepared to sign new, longer-term leases
during periods of growing rental rates. When we sign leases of
shorter duration, we strive to limit overall leasing costs and
capital expenditures by offering modest tenant improvement
packages, consistent with the lease term. We generally followed
this practice during the six months ended June 30, 2003.
Occupancy in our operating industrial portfolio was 91.5% at
June 30, 2003, 300 basis points greater than the
overall industrial market. The impact of declining occupancy was
further evidenced by decreases in rents as leases were renewed
or rolled over to new customers at lower rates. Rents on
industrial renewals and rollovers decreased 1.0% during 2002 and
4.3% for the six months ended June 30, 2003.

During the last four quarters, our dispositions
and contributions have totaled $429.5 million, including
assets in markets that no longer fit our investment strategy and
properties at valuations that we considered to be at premium
levels. Although these sales and contributions have diluted our
near-term results, we believe they position the company for
superior long-term growth and higher return on invested capital
with a portfolio increasingly aligned with our investment focus
and private capital model. Further, proceeds from these sales,
along with our balance sheet and private capital sources, create
significant capacity for future deployment. While we will
continue to sell assets on an opportunistic basis, weve
substantially achieved our near-term strategic disposition
goals. Therefore, in the coming quarters, we expect that our net
investment activity will begin to reflect the acquisition and
development opportunities that we are seeing in our targeted
global distribution markets.

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For the Three Months Ended June 30, 2003
and 2002 (dollars in millions)

|                        |                   |       |      |       |       |          |      |          |       |  |      |      |     |  |       |      |     |  
|----------------------- | ----------------- | ----- | ---- | ----- | ----- | -------- | ---- | -------- | ----- |  | ---- | ---- | --- |  | ----- | ---- | --- | -
|Rental Revenues         |                   | 2003  |      | 2002  |       | $ Change |      | % Change
|                        |                   |       |      |       |       |          |      |         
|Industrial:             |                   |       |      |       |       |          |      |          |       |  |      |      |     |  |       |     
|                        | Same store        |       | $    | 127.2 |       |          | $    | 130.1    |       |  | $    | (2.9 | )   |  |       | (2.2 | )% 
|                        | 2002 acquisitions |       |      | 14.0  |       |          |      | 1.9      |       |  |      | 12.1 |     |  |       |     |    
|                        | 2003 acquisitions |       |      | 0.5   |       |          |      |         |       |  |      | 0.5  |     |  |       |     |    
|                        | Developments      |       |      | 3.0   |       |          |      | 1.7      |       |  |      | 1.3  |     |  |       |     |    
|Retail                  |                   |       | 3.9  |       |       |          | 3.9  |          |       |  |     |      |     |  |      |     
|Discontinued operations |                   |       | (2.5 | )     |       |          | (1.3 | )        |       |  | (1.2 | )    |     |  |      |     
|Straight-line rents     |                   |       | 1.9  |       |       |          | 2.8  |          |       |  | (0.9 | )    |     |  | (32.1 | )%  
|                        |                   |       |      |       |       |          |      |          |       |  |      |      |     |  |       |     
|                        |                   | Total |      | $     | 148.0 |          |      | $        | 139.1 |  |      | $    | 8.9 |  |       |      | 6.4 | %
|                        |                   |       |      |       |       |          |      |          |       |  |      |      |     |  |       |     

The decrease in rental revenues in same store
properties resulted primarily from lower average occupancies and
increased bad debt expense, partially offset by an increase in
lease termination fees of $1.9 million, fixed rent
increases on existing leases and reimbursement of expenses.
Industrial same store occupancy was 91.3% at June 30, 2003,
and 94.7% at June 30, 2002. For the three months ended
June 30, 2003, the same store rents decreased 3.1% on
industrial renewals and rollovers (cash basis) on
3.6 million square feet leased. The 2002 acquisitions
consisted of 43 buildings, aggregating approximately
5.4 million square feet. Discontinued operations includes
revenues from properties held for divestiture reclassified to
discontinued operations on the statements of operations netted
with revenues from property divestitures not classified as
discontinued operations. The decrease in straight-line rents was
primarily due to write-offs associated with lease terminations.

|                                                        |       |      |     |      |  |          |     |          |  |   |      |      |   |  |       |       |   
|------------------------------------------------------- | ----- | ---- | --- | ---- |  | -------- | --- | -------- |  | - | ---- | ---- | - |  | ----- | ----- | --
|Private Capital and Other Income                        |       | 2003 |     | 2002 |  | $ Change |     | % Change
|                                                        |       |      |     |      |  |          |     |         
|Equity in earnings of unconsolidated joint
    ventures |       | $    | 1.6 |      |  | $        | 1.6 |          |  | $ |     |      |   |  |      |      
|Private capital income                                  |       |      | 3.6 |      |  |          | 3.1 |          |  |   | 0.5  |      |   |  | 16.1  | %    
|Interest and other income                               |       |      | 1.5 |      |  |          | 3.3 |          |  |   | (1.8 | )    |   |  | (54.5 | )%   
|                                                        |       |      |     |      |  |          |     |          |  |   |      |      |   |  |       |      
|                                                        | Total |      | $   | 6.7  |  |          | $   | 8.0      |  |   | $    | (1.3 | ) |  |       | (16.3 | )%
|                                                        |       |      |     |      |  |          |     |          |  |   |      |      |   |  |       |      

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

|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |      |      |      |  
|------------------------------------------------- | --------------------------- | ----- | ---- | ---- | ---- | -------- | ---- | -------- | ---- | - | ---- | ---- | --- |  | ---- | ---- | ---- | -
|Property Operating Expenses and Real Estate Taxes |                             |       |      |      |      |          |      |         
|(Exclusive of depreciation and amortization)      |                             | 2003  |      | 2002 |      | $ Change |      | % Change
|                                                  |                             |       |      |      |      |          |      |         
|Rental expenses                                   |                             | $     | 21.0 |      |      | $        | 17.1 |          |      | $ | 3.9  |      |     |  | 22.8 | %   
|Real estate taxes                                 |                             |       | 17.6 |      |      |          | 16.6 |          |      |   | 1.0  |      |     |  | 6.0  | %   
|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |      |     
|                                                  | Property operating expenses |       | $    | 38.6 |      |          | $    | 33.7     |      |   | $    | 4.9  |     |  |      | 14.5 | %   
|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |      |     
|Industrial:                                       |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |      |     
|                                                  | Same store                  |       | $    | 31.4 |      |          | $    | 31.9     |      |   | $    | (0.5 | )   |  |      | (1.5 | )%  
|                                                  | 2002 acquisitions           |       |      | 5.1  |      |          |      | 0.3      |      |   |      | 4.8  |     |  |      |     |     
|                                                  | 2003 acquisitions           |       |      | 0.1  |      |          |      |         |      |   |      | 0.1  |     |  |      |     |     
|                                                  | Developments                |       |      | 1.4  |      |          |      | 0.5      |      |   |      | 0.9  |     |  |      |     |     
|Retail                                            |                             |       | 1.5  |      |      |          | 1.6  |          |      |   | (0.1 | )    |     |  | (6.3 | )%  
|Discontinued operations                           |                             |       | (0.9 | )    |      |          | (0.6 | )        |      |   | (0.3 | )    |     |  |     |     
|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |      |     
|                                                  |                             | Total |      | $    | 38.6 |          |      | $        | 33.7 |   |      | $    | 4.9 |  |      |      | 14.5 | %
|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |     |  |      |     

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The $0.5 million decrease in same store
properties operating expenses was primarily due to a
decrease in insurance expense of $0.9 million, partially
offset by increases in common area maintenance expenses of
$0.2 million and real estate taxes of $0.3 million.
The 2002 acquisitions consisted of 43 buildings, aggregating
approximately 5.4 million square feet. Discontinued
operations includes expenses from properties held for
divestiture reclassified to discontinued operations on the
statements of operations netted with expenses from property
divestitures not classified as discontinued operations.

|                                 |       |      |      |      |  |          |      |          |  |   |     |     |  |  |      |      |  
|-------------------------------- | ----- | ---- | ---- | ---- |  | -------- | ---- | -------- |  | - | --- | --- |  |  | ---- | ---- | -
|Other Expenses                   |       | 2003 |      | 2002 |  | $ Change |      | % Change
|                                 |       |      |      |      |  |          |      |         
|Interest, including amortization |       | $    | 36.6 |      |  | $        | 36.5 |          |  | $ | 0.1 |     |  |  | 0.3  | %   
|Depreciation and amortization    |       |      | 38.1 |      |  |          | 30.0 |          |  |   | 8.1 |     |  |  | 27.0 | %   
|General and administrative       |       |      | 12.2 |      |  |          | 10.8 |          |  |   | 1.4 |     |  |  | 13.0 | %   
|                                 |       |      |      |      |  |          |      |          |  |   |     |     |  |  |      |     
|                                 | Total |      | $    | 86.9 |  |          | $    | 77.3     |  |   | $   | 9.6 |  |  |      | 12.4 | %
|                                 |       |      |      |      |  |          |      |          |  |   |     |     |  |  |      |     

The increase in depreciation and amortization
expense was due to the impairment of investments in real estate
and leasehold interests that continue to be held for long-term
investment of $5.2 million and the increase in our net
investment in real estate, partially offset by a reduction of
$2.1 million for the recovery, through the settlement of a
lawsuit, of capital expenditures paid in prior years. The
increase in general and administrative expenses was due to
increased stock-based compensation expense of $0.9 million
and expenses to comply with new U.S. Securities and
Exchange Commission rules and regulations.

For the Six Months Ended June 30, 2003
and 2002 (dollars in millions)

|                        |                   |       |      |       |       |          |      |          |       |  |      |      |      |  |       |     |     |  
|----------------------- | ----------------- | ----- | ---- | ----- | ----- | -------- | ---- | -------- | ----- |  | ---- | ---- | ---- |  | ----- | --- | --- | -
|Rental Revenues         |                   | 2003  |      | 2002  |       | $ Change |      | % Change
|                        |                   |       |      |       |       |          |      |         
|Industrial:             |                   |       |      |       |       |          |      |          |       |  |      |      |      |  |       |    
|                        | Same store        |       | $    | 261.5 |       |          | $    | 257.7    |       |  | $    | 3.8  |      |  |       | 1.5 | %  
|                        | 2002 acquisitions |       |      | 28.7  |       |          |      | 3.8      |       |  |      | 24.9 |      |  |       |    |    
|                        | 2003 acquisitions |       |      | 0.6   |       |          |      |         |       |  |      | 0.6  |      |  |       |    |    
|                        | Developments      |       |      | 5.7   |       |          |      | 3.0      |       |  |      | 2.7  |      |  |       |    |    
|Retail                  |                   |       | 7.8  |       |       |          | 9.3  |          |       |  | (1.5 | )    |      |  | (16.1 | )% 
|Discontinued operations |                   |       | (3.4 | )     |       |          | (1.3 | )        |       |  | (2.1 | )    |      |  |      |    
|Straight-line rents     |                   |       | 4.3  |       |       |          | 6.7  |          |       |  | (2.4 | )    |      |  | (35.8 | )% 
|                        |                   |       |      |       |       |          |      |          |       |  |      |      |      |  |       |    
|                        |                   | Total |      | $     | 305.2 |          |      | $        | 279.2 |  |      | $    | 26.0 |  |       |     | 9.3 | %
|                        |                   |       |      |       |       |          |      |          |       |  |      |      |      |  |       |    

The increase in rental revenues in same store
properties resulted primarily from an increase in lease
termination fees, fixed rent increases on existing leases and
reimbursement of expenses, partially offset by lower average
occupancies and increased bad debt expense. Industrial same
store occupancy was 91.3% at June 30, 2003, and 94.7% at
June 30, 2002. For the six months ended June 30, 2003,
the same store rents decreased 4.6% on industrial renewals and
rollovers (cash basis) on 8.6 million square feet leased.
The 2002 acquisitions consisted of 43 buildings, aggregating
approximately 5.4 million square feet. Discontinued
operations includes revenues from properties held for
divestiture reclassified to discontinued operations on the
statements of operations netted with revenues from property
divestitures not classified as discontinued operations. 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 |       | $    | 2.9 |      |  | $        | 3.1 |          |  | $ | (0.2 | )    |   |  | (6.5  | )%   
|Private capital income                                  |       |      | 5.9 |      |  |          | 5.7 |          |  |   | 0.2  |      |   |  | 3.5   | %    
|Interest and other income                               |       |      | 2.9 |      |  |          | 7.3 |          |  |   | (4.4 | )    |   |  | (60.3 | )%   
|                                                        |       |      |     |      |  |          |     |          |  |   |      |      |   |  |       |      
|                                                        | Total |      | $   | 11.7 |  |          | $   | 16.1     |  |   | $    | (4.4 | ) |  |       | (27.3 | )%
|                                                        |       |      |     |      |  |          |     |          |  |   |      |      |   |  |       |      

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

|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |      |  |       |      |      |  
|------------------------------------------------- | --------------------------- | ----- | ---- | ---- | ---- | -------- | ---- | -------- | ---- | - | ---- | ---- | ---- |  | ----- | ---- | ---- | -
|Property Operating Expenses and Real Estate Taxes |                             |       |      |      |      |          |      |         
|(Exclusive of depreciation and amortization)      |                             | 2003  |      | 2002 |      | $ Change |      | % Change
|                                                  |                             |       |      |      |      |          |      |         
|Rental expenses                                   |                             | $     | 43.0 |      |      | $        | 34.2 |          |      | $ | 8.8  |      |      |  | 25.7  | %   
|Real estate taxes                                 |                             |       | 35.8 |      |      |          | 33.4 |          |      |   | 2.4  |      |      |  | 7.2   | %   
|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |      |  |       |     
|                                                  | Property operating expenses |       | $    | 78.8 |      |          | $    | 67.6     |      |   | $    | 11.2 |      |  |       | 16.6 | %   
|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |      |  |       |     
|Industrial:                                       |                             |       |      |      |      |          |      |          |      |   |      |      |      |  |       |     
|                                                  | Same store                  |       | $    | 64.2 |      |          | $    | 61.8     |      |   | $    | 2.4  |      |  |       | 4.0  | %   
|                                                  | 2002 acquisitions           |       |      | 9.9  |      |          |      | 0.5      |      |   |      | 9.4  |      |  |       |     |     
|                                                  | 2003 acquisitions           |       |      | 0.1  |      |          |      |         |      |   |      | 0.1  |      |  |       |     |     
|                                                  | Developments                |       |      | 2.9  |      |          |      | 2.3      |      |   |      | 0.6  |      |  |       | 26.1 | %   
|Retail                                            |                             |       | 2.8  |      |      |          | 3.5  |          |      |   | (0.7 | )    |      |  | (20.0 | )%  
|Discontinued operations                           |                             |       | (1.1 | )    |      |          | (0.5 | )        |      |   | (0.6 | )    |      |  |      |     
|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |      |  |       |     
|                                                  |                             | Total |      | $    | 78.8 |          |      | $        | 67.6 |   |      | $    | 11.2 |  |       |      | 16.6 | %
|                                                  |                             |       |      |      |      |          |      |          |      |   |      |      |      |  |       |     

The $2.4 million increase in same store
properties operating expenses was due to increases in
common area maintenance expenses, including snow removal, of
$2.0 million and real estate taxes of $0.9 million,
offset by a decrease in insurance expenses of $0.5 million.
The 2002 acquisitions consisted of 43 buildings, aggregating
approximately 5.4 million square feet. Discontinued
operations includes expenses from properties held for
divestiture reclassified to discontinued operations on the
statements of operations netted with expenses from property
divestitures not classified as discontinued operations.

|                                 |       |      |      |       |  |          |      |          |  |   |      |      |  |  |      |      |  
|-------------------------------- | ----- | ---- | ---- | ----- |  | -------- | ---- | -------- |  | - | ---- | ---- |  |  | ---- | ---- | -
|Other Expenses                   |       | 2003 |      | 2002  |  | $ Change |      | % Change
|                                 |       |      |      |       |  |          |      |         
|Interest, including amortization |       | $    | 73.8 |       |  | $        | 71.2 |          |  | $ | 2.6  |      |  |  | 3.7  | %   
|Depreciation and amortization    |       |      | 72.9 |       |  |          | 57.7 |          |  |   | 15.2 |      |  |  | 26.3 | %   
|General and administrative       |       |      | 23.3 |       |  |          | 21.8 |          |  |   | 1.5  |      |  |  | 6.9  | %   
|                                 |       |      |      |       |  |          |      |          |  |   |      |      |  |  |      |     
|                                 | Total |      | $    | 170.0 |  |          | $    | 150.7    |  |   | $    | 19.3 |  |  |      | 12.8 | %
|                                 |       |      |      |       |  |          |      |          |  |   |      |      |  |  |      |     

The increase in depreciation and amortization
expense was due to the impairment of investments in real estate
and leasehold interests that continue to be held for long-term
investment of $5.2 million and the increase in our net
investment in real estate, partially offset by a reduction of
$2.1 million for the recovery, through the settlement of a
lawsuit, of capital expenditures paid in prior years. The
increase in general and administrative expenses was primarily
due to increased stock-based compensation expense.




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.                                                                                            

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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.

Capital Resources

Property
Divestitures.During the three months
ended June 30, 2003, we divested ourselves of two
industrial buildings for an aggregate price of
$15.1 million, with a resulting net gain of
$3.9 million. During the six months ended June 30,
2003, we divested ourselves of 12 industrial buildings for an
aggregate price of $142.1 million, with a resulting net
gain of $33.5 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, Industrial Fund I, LLC, with Citigroup
Global Investments Real Estate LP, LLC, a Delaware limited
liability company and recognized a gain of $7.4 million on
the contribution.

Properties Held for
Divestiture.We have decided to divest
ourselves of three retail centers and three industrial
buildings, which are not in our core markets or which do not
meet our current strategic objectives. The divestitures of the
properties are subject to negotiation of acceptable terms and
other customary conditions. As of June 30, 2003, the net
carrying value of the properties held for divestiture was
$73.0 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 June 30, 2003, we owned
approximately 31.0 million square feet of our properties
through these five co-investment joint ventures and
5.6 million square feet of our properties through our other
consolidated joint ventures. We may make additional investments
through these joint ventures or new joint ventures in the future
and presently plan to do so.

Our co-investment joint ventures at June 30,
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 | 
|AMB-AMS, L.P.(5)                         |  | BPMT and TNO                                                      |  |             | 39% |                   |  | $ | 200,000 | 



---



|    |                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------
|(1) | Planned capitalization is based on anticipated
    debt and both partners expected equity contributions.       
|   
|(2) | Included 15 institutional investors as
    stockholders as of June 30, 2003.                                    
|   
|(3) | A subsidiary of the real estate investment
    subsidiary of the Government of Singapore Investment Corporation.

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|    |                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------
|(4) | Included 13 institutional investors as
    stockholders and one third-party limited partner as of
    June 30, 2003.             
|   
|(5) | AMB-AMS, L.P. is a commitment to form a
    co-investment partnership with two Dutch pension funds advised
    by Mn Services NV.

Partners
Capital.As of June 30, 2003, we
had outstanding 81,444,265 common general partnership units,
4,834,863 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, 800,000 7.95% Series K
Cumulative Redeemable Partnership Units and 2,000,000 6.5%
Series L Cumulative Redeemable Partnership Units.

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

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 June 30, 2003,
$110.0 million of repurchase capacity remained under the
program. In January 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. In July 2003, AMB Property
Corporation repurchased 25,100 shares of its common stock
for $0.7 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 June 30, 2003, our share
of total debt-to-total market capitalization ratio was 34.6%.
Additionally, we currently intend to manage our capitalization
in order to maintain an investment grade rating on our senior
unsecured debt. Regardless of these policies, our organizational
documents do not limit the amount of indebtedness that we may
incur. Accordingly, our general partners management could
alter or eliminate these policies without unitholder or
noteholder approval or circumstances could arise that could
render us unable to comply with these policies.

As of June 30, 2003, the aggregate principal
amount of our secured debt was $1.2 billion, excluding
unamortized debt premiums of $8.2 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
2.7% to 12.0% per annum (with a weighted average rate of
7.2%) and final maturity dates ranging from December 2003 to
June 2023. All of the secured debt bears interest at fixed
rates, except for seven loans with an aggregate principal amount
of $68.4 million as of June 30, 2003, which bear
interest at variable rates (with a weighted average interest
rate of 3.3% as of June 30, 2003). Over time, we intend to
repay the secured debt on our wholly-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

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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
June 30, 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. Yen borrowings under the credit
facility currently bear interest at the Japan LIBOR fixing 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, which was amended effective July 10, 2003 to
increase from $150.0 million to $250.0 million the
amount that may be drawn in either British pounds sterling,
Euros or Yen (provided that such currency is readily available
and freely transferable and convertible to U.S. dollars,
the Reuters Monitor Money Rates Service reports LIBOR for such
currency in interest periods of 1, 2, 3 or 6 months and we
have an investment grade credit rating). We have the ability to
increase available borrowings to $700.0 million by adding
additional banks to the facility or obtaining the agreement of
existing banks to increase their commitments. We use 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 June 30, 2003, the outstanding balance on
our unsecured credit facility was $19.4 million and the
remaining amount available was $454.6 million, net of
outstanding letters of credit (excluding the $200.0 million
of potential additional capacity). The outstanding balance was
denominated in Euros and Yen and converted to U.S. dollars
at June 30, 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. We repaid the
credit facility in April 2003 with capital contributions and
secured debt financing 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 June 30, 2003, the outstanding balance on the
note was $13.1 million.

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The tables below summarize our debt maturities
and capitalization as of June 30, 2003 (dollars in
thousands):

|                                                                     |                      |                         |                         |         |         |             |          |           |         |            |         |            |         |         |       |       |       |       |        |        |        |        |          |           |           |           | 
|-------------------------------------------------------------------- | -------------------- | ----------------------- | ----------------------- | ------- | ------- | ----------- | -------- | --------- | ------- | ---------- | ------- | ---------- | ------- | ------- | ----- | ----- | ----- | ----- | ------ | ------ | ------ | ------ | -------- | --------- | --------- | --------- | 
|                                                                     |                      |                        
|                                                                     |                      | Debt                   
|                                                                     |                      |                        
|                                                                     |                      | Our                     |                         | Joint   |         | Unsecured   |          |          
|                                                                     |                      | Secured                 |                         | Venture |         | Senior Debt |          | Unsecured |         | Credit     |         |           
|                                                                     |                      | Debt                    |                         | Debt    |         | Securities  |          | Debt      |         | Facilities |         | Total Debt
|                                                                     |                      |                         |                         |         |         |             |          |           |         |            |         |           
|2003                                                                 |                      | $                       | 21,021                  |         |         | $           | 9,367    |           |         | $          |        |            |         | $       | 280   |       |       | $     |       |        |        | $      | 30,668   |          
|2004                                                                 |                      |                         | 62,516                  |         |         |             | 68,501   |           |         |            |        |            |         |         | 601   |       |       |       |       |        |        |        | 131,618  |          
|2005                                                                 |                      |                         | 44,427                  |         |         |             | 59,514   |           |         |            | 250,000 |            |         |         | 647   |       |       |       | 19,420 |        |        |        | 374,008  |          
|2006                                                                 |                      |                         | 82,693                  |         |         |             | 66,040   |           |         |            | 25,000  |            |         |         | 698   |       |       |       |       |        |        |        | 174,431  |          
|2007                                                                 |                      |                         | 14,495                  |         |         |             | 43,325   |           |         |            | 75,000  |            |         |         | 752   |       |       |       |       |        |        |        | 133,572  |          
|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  |           |         |            |        |            |         |         | 1,093 |       |       |       |       |        |        |        | 109,024  |          
|Thereafter                                                           |                      |                         | 480                     |         |         |             | 22,264   |           |         |            | 125,000 |            |         |         | 2,200 |       |       |       |       |        |        |        | 149,944  |          
|                                                                     |                      |                         |                         |         |         |             |          |           |         |            |         |            |         |         |       |       |       |       |        |        |        |        |          |          
|                                                                     | Subtotal             |                         |                         | 313,208 |         |             |          | 893,737   |         |            |         | 800,000    |         |         |       | 9,909 |       |       |        | 19,420 |        |        |          | 2,036,274 |          
|                                                                     | Unamortized premiums |                         |                         | 7,710   |         |             |          | 480       |         |            |         |           |         |         |       |      |       |       |        |       |        |        |          | 8,190     |          
|                                                                     |                      |                         |                         |         |         |             |          |           |         |            |         |            |         |         |       |       |       |       |        |        |        |        |          |          
|                                                                     |                      |                         | Total consolidated debt |         |         | 320,918     |          |           |         | 894,217    |         |            |         | 800,000 |       |       |       | 9,909 |        |        |        | 19,420 |          |           |           | 2,044,464 | 
|Our share of unconsolidated joint venture debt(1)                    |                      |                         |                        |         |         |             | 48,531   |           |         |            |        |            |         |         |      |       |       |       |       |        |        |        | 48,531   |          
|                                                                     |                      |                         |                         |         |         |             |          |           |         |            |         |            |         |         |       |       |       |       |        |        |        |        |          |          
|                                                                     |                      |                         | Total debt              |         |         | 320,918     |          |           |         | 942,748    |         |            |         | 800,000 |       |       |       | 9,909 |        |        |        | 19,420 |          |           |           | 2,092,995 | 
|Joint venture partners share of
    consolidated joint venture debt |                      |                         |                        |         |         |             | (558,176 | )         |         |            |        |            |         |         |      |       |       |       |       |        |        |        | (558,176 | )        
|                                                                     |                      |                         |                         |         |         |             |          |           |         |            |         |            |         |         |       |       |       |       |        |        |        |        |          |          
|                                                                     |                      | Our share of total debt |                         | $       | 320,918 |             |          | $         | 384,572 |            |         | $          | 800,000 |         |       | $     | 9,909 |       |        | $      | 19,420 |        |          | $         | 1,534,819 |          
|                                                                     |                      |                         |                         |         |         |             |          |           |         |            |         |            |         |         |       |       |       |       |        |        |        |        |          |          
|Weighed average interest rate                                        |                      |                         | 8.1                     | %       |         |             | 6.9      | %         |         |            | 7.2     | %          |         |         | 7.5   | %     |       |       | 3.1    | %      |        |        | 7.2      | %        
|Weighed average maturity (in years)                                  |                      |                         | 3.7                     |         |         |             | 6.6      |           |         |            | 6.0     |            |         |         | 11.3  |       |       |       | 2.4    |        |        |        | 5.9      |          



---



|    |                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|(1) | The weighted average interest and maturity for
    the unconsolidated joint venture debt were 5.9% and
    6.1 years, respectively.

|                                 |       |                |            |            |  |          |       |  |  |   |           |           | 
|-------------------------------- | ----- | -------------- | ---------- | ---------- |  | -------- | ----- |  |  | - | --------- | --------- | 
|                                 |       |               
|                                 |       | Market Capital
|                                 |       |               
|                                 |       | Shares/Units   |            | Market     |  | Market  
|Security                         |       | Outstanding    |            | Price(1)   |  | Value(1)
|                                 |       |                |            |            |  |         
|Common stock                     |       |                | 81,444,265 |            |  | $        | 28.17 |  |  | $ | 2,294,285 |          
|Common limited partnership units |       |                | 4,834,863  |            |  |          | 28.17 |  |  |   | 136,198   |          
|                                 |       |                |            |            |  |          |       |  |  |   |           |          
|                                 | Total |                |            | 86,279,128 |  |          |       |  |  |   | $         | 2,430,483 | 
|                                 |       |                |            |            |  |          |       |  |  |   |           |          



---



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

36



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##### Table of Contents



|                         |                        |                 |      |             |   |            |        |         |  |                | 
|------------------------ | ---------------------- | --------------- | ---- | ----------- | - | ---------- | ------ | ------- |  | -------------- | 
|                         |                        |                
|                         |                        | 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    
|Series L preferred units |                        |                 | 6.50 | %           |   |            | 50,000 |         |  | June 2008     
|                         |                        |                 |      |             |   |            |        |         |  |               
|                         | Weighted average/total |                 |      | 7.99        | % |            | $      | 466,556 |  |                | 
|                         |                        |                 |      |             |   |            |        |         |  |               

|                                                                          |  |                       |      |  
|------------------------------------------------------------------------- |  | --------------------- | ---- | -
|                                                                          |  | Capitalization Ratios
|                                                                          |  |                      
|Total debt-to-total market capitalization                                 |  |                       | 41.9 | %
|Our share of total debt-to-total market
    capitalization                |  |                       | 34.6 | %
|Total debt plus preferred-to-total market
    capitalization              |  |                       | 51.2 | %
|Our share of total debt plus preferred-to-total
    market capitalization |  |                       | 45.1 | %
|Our share of total debt-to-total book
    capitalization                  |  |                       | 43.0 | %



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

As of June 30, 2003, we had
$91.2 million in cash, restricted cash and cash
equivalents, and $454.6 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 June 30, 2003, of $0.415 per common
unit. The distribution was payable on July 15, 2003, to
common unitholders of record on July 3, 2003. The
Series A, B, E, F, J, K and L preferred unit distributions
were payable on July 15, 2003, to unitholders of record on
July 3, 2003. The Series D, H and I preferred unit
distributions were payable on June 25, 2003. The following

37



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table sets forth the distributions paid or
payable per unit for the three and six months ended
June 30, 2003 and 2002:


|                      |  |                                  |  |                |       |                |  |      |       |      |  |   |       |  |  |   |       | 
|--------------------- |  | -------------------------------- |  | -------------- | ----- | -------------- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                      |  |                                  |  |                |       |               
|                      |  |                                  |  | For the        |       | For the       
|                      |  |                                  |  | Three Months   |       | Six Months    
|                      |  |                                  |  | Ended June 30, |       | Ended June 30,
|                      |  |                                  |  |                |       |               
|Paying Entity         |  | Security                         |  | 2003           |       | 2002           |  | 2003 |       | 2002
|                      |  |                                  |  |                |       |                |  |      |       |     
|AMB Property, L.P.    |  | Common limited partnership units |  | $              | 0.415 |                |  | $    | 0.410 |      |  | $ | 0.830 |  |  | $ | 0.820 | 
|AMB Property, L.P.    |  | Series A preferred units         |  | $              | 0.531 |                |  | $    | 0.531 |      |  | $ | 1.063 |  |  | $ | 1.063 | 
|AMB Property, L.P.    |  | Series B preferred units         |  | $              | 1.078 |                |  | $    | 1.078 |      |  | $ | 2.156 |  |  | $ | 2.156 | 
|AMB Property, L.P.    |  | Series J preferred units         |  | $              | 0.994 |                |  | $    | 0.994 |      |  | $ | 1.988 |  |  | $ | 1.988 | 
|AMB Property, L.P.    |  | Series K preferred units         |  | $              | 0.994 |                |  | $    | 0.994 |      |  | $ | 1.988 |  |  | $ | 0.994 | 
|AMB Property, L.P.    |  | Series L preferred units         |  | $              | 0.036 |                |  |      |      |      |  | $ | 0.036 |  |  |   |      | 
|AMB Property II, L.P. |  | Series D preferred units         |  | $              | 0.969 |                |  | $    | 0.969 |      |  | $ | 1.938 |  |  | $ | 1.938 | 
|AMB Property II, L.P. |  | Series E preferred units         |  | $              | 0.969 |                |  | $    | 0.969 |      |  | $ | 1.938 |  |  | $ | 1.938 | 
|AMB Property II, L.P. |  | Series F preferred units         |  | $              | 0.994 |                |  | $    | 0.994 |      |  | $ | 1.988 |  |  | $ | 1.988 | 
|AMB Property II, L.P. |  | Series G preferred units         |  |                |      |                |  | $    | 0.994 |      |  |   |      |  |  | $ | 1.988 | 
|AMB Property II, L.P. |  | Series H preferred units         |  | $              | 1.016 |                |  | $    | 1.016 |      |  | $ | 2.031 |  |  | $ | 2.031 | 
|AMB Property II, L.P. |  | Series I preferred units         |  | $              | 1.000 |                |  | $    | 1.000 |      |  | $ | 2.000 |  |  | $ | 2.000 | 

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

On July 14, 2003, AMB Property II, L.P.
repurchased 66,300 of its series F preferred units for
$3.3 million, including accrued and unpaid dividends. On
July 28, 2003, we redeemed all 3,995,800 of our series A
preferred units and AMB Property Corporation redeemed all
3,995,800 shares of its outstanding 8.5% series A preferred
stock for $100.2 million, including accrued and unpaid
dividends.



| |                    
| | -------------------
| | 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 June 30, 2003, we are developing 16
projects representing a total estimated investment of
$157.3 million upon completion and three development
projects available for sale representing a total estimated
investment of $46.0 million upon completion. Of this total,
$133.3 million had been funded as of June 30, 2003,
and an estimated $70.0 million is required to complete
current and planned projects. We expect to fund these
expenditures with cash from operations, borrowings under our
credit facility, debt or limited partnership unit issuances, net
proceeds from property divestitures, and private capital from
co-investment partners, which could have an adverse effect on
our cash flow.

Acquisitions.During
the three months ended June 30, 2003, we invested
$120.1 million in 16 operating industrial buildings,
aggregating approximately 2.1 million rentable square feet.
During the six months ended June 30, 2003, we invested
$131.0 million in 18 operating industrial buildings,
aggregating approximately 2.3 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.

38



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As of June 30, 2003, we may make additional
capital contributions to current and planned co-investment joint
ventures of up to $31.3 million. We expect to fund these
contributions with cash from operations, borrowings under our
credit facility, debt or equity issuances or net proceeds from
property divestitures, which could have an adverse effect on our
cash flow.


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

Potential Unknown Liabilities.Unknown liabilities may include the
following:



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

OFF-BALANCE SHEET ARRANGEMENTS

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
U.S. GAAP, is the most appropriate earnings measure.
However, we consider funds from operations, or FFO, as defined
by the National Association of Real Estate Investment Trusts
(NAREIT), a key measure of our operating performance
that is not specifically defined by U.S. GAAP. We believe
FFO is an appropriate supplemental earnings measure because it
is a widely recognized measure of the performance of real estate
investment trusts and provides a relevant basis for comparison
among real estate investment trusts. 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 U.S. 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 necessarily be
comparable.

39



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##### Table of Contents



FFO is net income 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 and six months ended June 30, (dollars in
thousands) reconciled to net income, a comparable U.S. GAAP
financial measure:

|                                                                            |                                                |                                         |        |                    |            |      |        |         |            |   |         |         |            |   |        |         |            | 
|--------------------------------------------------------------------------- | ---------------------------------------------- | --------------------------------------- | ------ | ------------------ | ---------- | ---- | ------ | ------- | ---------- | - | ------- | ------- | ---------- | - | ------ | ------- | ---------- | 
|                                                                            |                                                |                                         |        |                   
|                                                                            |                                                | For the Three Months                    |        | For the Six Months
|                                                                            |                                                | Ended June 30,                          |        | Ended June 30,    
|                                                                            |                                                |                                         |        |                   
|                                                                            |                                                | 2003                                    |        | 2002(1)            |            | 2003 |        | 2002(1)
|                                                                            |                                                |                                         |        |                    |            |      |        |        
|Net income                                                                  |                                                | $                                       | 22,053 |                    |            | $    | 33,263 |         |            | $ | 87,825  |         |            | $ | 67,686 |        
|Income available to common unitholders
    attributable to limited partners |                                                |                                         | (936   | )                  |            |      | (1,440 | )       |            |   | (4,338  | )       |            |   | (3,240 | )      
|Gains from dispositions of real estate                                      |                                                |                                         | (3,867 | )                  |            |      | (2,768 | )       |            |   | (40,940 | )       |            |   | (2,480 | )      
|Real estate related depreciation and amortization:                          |                                                |                                         |        |                    |            |      |        |         |            |   |         |         |            |   |        |        
|                                                                            | Total depreciation and amortization            |                                         |        | 38,094             |            |      |        | 29,967  |            |   |         | 72,893  |            |   |        | 57,678  |           
|                                                                            | Discontinued operations depreciation          |                                         |        | 240                |            |      |        | 2,005   |            |   |         | 614     |            |   |        | 3,969   |           
|                                                                            | Furniture, fixtures and equipment depreciation |                                         |        | (189               | )          |      |        | (174    | )          |   |         | (378    | )          |   |        | (347    | )         
|                                                                            | Ground lease amortization(2)                   |                                         |        |                   |            |      |        | (345    | )          |   |         |        |            |   |        | (690    | )         
|Adjustments to derive FFO from consolidated joint
    ventures:             |                                                |                                         |        |                    |            |      |        |         |            |   |         |         |            |   |        |        
|                                                                            | Minority interests                             |                                         |        | 9,834              |            |      |        | 8,869   |            |   |         | 21,017  |            |   |        | 18,635  |           
|                                                                            | FFO attributable to minority interests         |                                         |        | (15,519            | )          |      |        | (11,274 | )          |   |         | (30,502 | )          |   |        | (24,118 | )         
|Adjustments to derive FFO from unconsolidated
    joint ventures:           |                                                |                                         |        |                    |            |      |        |         |            |   |         |         |            |   |        |        
|                                                                            | Our share of net income                        |                                         |        | (1,622             | )          |      |        | (1,638  | )          |   |         | (2,857  | )          |   |        | (3,121  | )         
|                                                                            | Our share of FFO                               |                                         |        | 2,645              |            |      |        | 2,700   |            |   |         | 5,275   |            |   |        | 4,673   |           
|Preferred unit distributions                                                |                                                |                                         | (5,186 | )                  |            |      | (5,098 | )       |            |   | (10,301 | )       |            |   | (9,543 | )      
|                                                                            |                                                |                                         |        |                    |            |      |        |         |            |   |         |         |            |   |        |        
|                                                                            |                                                | Funds from operations                   |        | $                  | 45,547     |      |        | $       | 54,067     |   |         | $       | 98,308     |   |        | $       | 109,102    | 
|                                                                            |                                                |                                         |        |                    |            |      |        |         |            |   |         |         |            |   |        |        
|                                                                            |                                                | FFO per common unit (diluted)           |        | $                  | 0.52       |      |        | $       | 0.60       |   |         | $       | 1.13       |   |        | $       | 1.21       | 
|                                                                            |                                                |                                         |        |                    |            |      |        |         |            |   |         |         |            |   |        |        
|                                                                            |                                                | Weighted average common units (diluted) |        |                    | 87,302,896 |      |        |         | 90,462,332 |   |         |         | 87,364,056 |   |        |         | 90,055,320 | 
|                                                                            |                                                |                                         |        |                    |            |      |        |         |            |   |         |         |            |   |        |        



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | FFO for the quarter and six months ended
    June 30, 2002, was adjusted for the retroactive adoption of
    SFAS No. 145 for the treatment of extraordinary items,
    resulting in a reduction of $0.1 million and
    $0.3 million, respectively, from previously reported FFO.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(2) | In the three and six months ended June 30,
    2003, and effective January 1, 2003, we discontinued our
    practice of deducting amortization of investments in leasehold
    interests from FFO as such an adjustment is not provided for in
    NAREITs FFO definition. As a result, FFO for the six
    months ended June 30, 2003, includes an adjustment of
    $0.9 million to reflect the change. Had we not made the
    change, reported FFO per share for the quarter and six months
    ended June 30, 2003, would have been $0.51 and $1.11,
    respectively. Had we made the change effective January 1,
    2002, reported FFO per share for the quarter and six months
    ended June 30, 2002, would have been $0.60 and $1.22,
    respectively.

We believe that earnings before interest, tax,
depreciation and amortization, or EBITDA, is also an appropriate
supplemental earnings measure that is widely used by fixed
income investors and analysts. We

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consider EBITDA to be an appropriate supplemental
measure of our performance because it permits investors to view
income from operations on an unleveraged basis before the
effects of non-cash depreciation expense. 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 U.S. 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 may not be comparable.


EBITDA is net income less discontinued operations
and gains from dispositions of real estate, plus minority
interests share of income, 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 and six months ended June 30, (dollars
in thousands) reconciled to net income, a U.S. GAAP
financial measure:

|                                                                      |                               |                      |        |                    |         |      |        |        |         |   |         |        |         |   |         |        |         | 
|--------------------------------------------------------------------- | ----------------------------- | -------------------- | ------ | ------------------ | ------- | ---- | ------ | ------ | ------- | - | ------- | ------ | ------- | - | ------- | ------ | ------- | 
|                                                                      |                               |                      |        |                   
|                                                                      |                               | For the Three Months |        | For the Six Months
|                                                                      |                               | Ended June 30,       |        | Ended June 30,    
|                                                                      |                               |                      |        |                   
|                                                                      |                               | 2003                 |        | 2002               |         | 2003 |        | 2002  
|                                                                      |                               |                      |        |                    |         |      |        |       
|Net income                                                            |                               | $                    | 22,053 |                    |         | $    | 33,263 |        |         | $ | 87,825  |        |         | $ | 67,686  |       
|Total discontinued operations                                         |                               |                      | (5,177 | )                  |         |      | (5,030 | )      |         |   | (36,617 | )      |         |   | (10,554 | )     
|Gains from dispositions or real estate, net of
    minority interests |                               |                      |       |                    |         |      | (2,768 | )      |         |   | (7,429  | )      |         |   | (2,480  | )     
|Total minority interests share of income                             |                               |                      | 12,295 |                    |         |      | 10,857 |        |         |   | 23,379  |        |         |   | 22,356  |       
|Interest, including amortization                                      |                               |                      | 36,645 |                    |         |      | 36,484 |        |         |   | 73,750  |        |         |   | 71,177  |       
|Depreciation and amortization                                         |                               |                      | 38,094 |                    |         |      | 29,967 |        |         |   | 72,893  |        |         |   | 57,678  |       
|Stock-based compensation amortization                                 |                               |                      | 2,038  |                    |         |      | 1,103  |        |         |   | 3,979   |        |         |   | 1,962   |       
|Discontinued operations EBITDA                                       |                               |                      | 1,618  |                    |         |      | 8,192  |        |         |   | 3,990   |        |         |   | 17,258  |       
|Adjustments to derive EBITDA from unconsolidated
    joint ventures:  |                               |                      |        |                    |         |      |        |        |         |   |         |        |         |   |         |       
|                                                                      | Our share of net income       |                      |        | (1,622             | )       |      |        | (1,638 | )       |   |         | (2,857 | )       |   |         | (3,121 | )      
|                                                                      | Our share of FFO              |                      |        | 2,645              |         |      |        | 2,700  |         |   |         | 5,275  |         |   |         | 4,673  |        
|                                                                      | Our share of interest expense |                      |        | 697                |         |      |        | 638    |         |   |         | 1,274  |         |   |         | 1,163  |        
|                                                                      |                               |                      |        |                    |         |      |        |        |         |   |         |        |         |   |         |       
|                                                                      |                               | EBITDA               |        | $                  | 109,286 |      |        | $      | 113,768 |   |         | $      | 225,462 |   |         | $      | 227,798 | 
|                                                                      |                               |                      |        |                    |         |      |        |        |         |   |         |        |         |   |         |       

The following table reflects supplemental cash
flow information and recurring capital expenditures for the
three and six months ended June 30, (dollars in thousands):

|                                                                             |                                                           |                                             |        |                    |        |      |        |        |        |   |        |        |        |   |        |        |        | 
|---------------------------------------------------------------------------- | --------------------------------------------------------- | ------------------------------------------- | ------ | ------------------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                                             |                                                           |                                             |        |                   
|                                                                             |                                                           | For the Three Months                        |        | For the Six Months
|                                                                             |                                                           | Ended June 30,                              |        | Ended June 30,    
|                                                                             |                                                           |                                             |        |                   
|                                                                             |                                                           | 2003                                        |        | 2002               |        | 2003 |        | 2002  
|                                                                             |                                                           |                                             |        |                    |        |      |        |       
|Straight-line rents                                                          |                                                           | $                                           | 1,873  |                    |        | $    | 2,786  |        |        | $ | 4,253  |        |        | $ | 6,747  |       
|Our share of unconsolidated joint venture
    partners net operating income |                                                           |                                             | 3,145  |                    |        |      | 3,063  |        |        |   | 6,213  |        |        |   | 5,707  |       
|Joint venture partners share of cash basis
    net operating income         |                                                           |                                             | 25,267 |                    |        |      | 19,657 |        |        |   | 49,459 |        |        |   | 39,392 |       
|Discontinued operations net operating
    income, held for sale             |                                                           |                                             | 1,599  |                    |        |      | 1,878  |        |        |   | 3,302  |        |        |   | 3,998  |       
|Discontinued operations net operating
    income, sold                      |                                                           |                                             | 19     |                    |        |      | 6,314  |        |        |   | 688    |        |        |   | 13,260 |       
|Stock-based compensation amortization                                        |                                                           |                                             | 2,038  |                    |        |      | 1,103  |        |        |   | 3,979  |        |        |   | 1,962  |       
|Capitalized interest                                                         |                                                           |                                             | 1,994  |                    |        |      | 1,633  |        |        |   | 3,591  |        |        |   | 3,424  |       
|Ground lease amortization                                                    |                                                           |                                             | 925    |                    |        |      | 345    |        |        |   | 1,908  |        |        |   | 690    |       
|Recurring capital expenditures:                                              |                                                           |                                             |        |                    |        |      |        |        |        |   |        |        |        |   |        |       
|                                                                             | Tenant improvements                                       |                                             |        | 6,179              |        |      |        | 7,017  |        |   |        | 9,196  |        |   |        | 10,936 |       
|                                                                             | Lease commissions and other lease costs                   |                                             |        | 5,515              |        |      |        | 5,404  |        |   |        | 10,705 |        |   |        | 10,367 |       
|                                                                             | Building improvements                                     |                                             |        | 4,190              |        |      |        | 3,586  |        |   |        | 6,863  |        |   |        | 5,927  |       
|                                                                             |                                                           |                                             |        |                    |        |      |        |        |        |   |        |        |        |   |        |       
|                                                                             |                                                           | Subtotal                                    |        |                    | 15,884 |      |        |        | 16,007 |   |        |        | 26,764 |   |        |        | 27,230 | 
|                                                                             | Joint venture partners share of capital
    expenditures |                                             |        | (4,388             | )      |      |        | (2,966 | )      |   |        | (8,255 | )      |   |        | (5,808 | )     
|                                                                             |                                                           |                                             |        |                    |        |      |        |        |        |   |        |        |        |   |        |       
|                                                                             |                                                           | Our share of recurring capital expenditures |        | $                  | 11,496 |      |        | $      | 13,041 |   |        | $      | 18,509 |   |        | $      | 21,422 | 
|                                                                             |                                                           |                                             |        |                    |        |      |        |        |        |   |        |        |        |   |        |       

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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 and six months ended June 30, 2003
(dollars in thousands):

|                                    |                                                              |               |                  |               |      |      |            |           |      |      | 
|----------------------------------- | ------------------------------------------------------------ | ------------- | ---------------- | ------------- | ---- | ---- | ---------- | --------- | ---- | ---- | 
|                                    |                                                              | Three Months  |                  | Six Months   
|                                    |                                                              | Ended         |                  | Ended        
|                                    |                                                              | June 30, 2003 |                  | June 30, 2003
|                                    |                                                              |               |                  |              
|Square feet owned(1)(2)             |                                                              |               | 82,527,773       |               |      |      | 82,527,773 |          
|Occupancy percentage(1)             |                                                              |               | 91.5             | %             |      |      | 91.5       | %        
|Weighted average lease terms:       |                                                              |               |                  |               |      |      |            |          
|                                    | Original                                                     |               |                  | 6.0 years     |      |      |            | 6.0 years |     
|                                    | Remaining                                                    |               |                  | 3.2 years     |      |      |            | 3.2 years |     
|Tenant retention                    |                                                              |               | 54.0             | %             |      |      | 64.0       | %        
|Same Space Leasing Activity(3):     |                                                              |               |                  |               |      |      |            |          
|                                    | Rent decreases on renewals and rollovers                     |               |                  | (3.1          | )%   |      |            | (4.3      | )%  
|                                    | Same space square footage commencing (millions)              |               |                  | 3.8           |      |      |            | 9.0       |     
|Second Generation Leasing Activity: |                                                              |               |                  |               |      |      |            |          
|                                    | Tenant improvements and leasing commissions per
    sq. ft.: |               |                  |               |      |      |            |           |     
|                                    |                                                              | Renewals      |                  | $             | 1.05 |      |            | $         | 1.17 |     
|                                    |                                                              | Re-tenanted   |                  |               | 2.41 |      |            |           | 2.03 |     
|                                    |                                                              |               |                  |               |      |      |            |          
|                                    |                                                              |               | Weighted average |               | $    | 1.88 |            |           | $    | 1.56 | 
|                                    |                                                              |               |                  |               |      |      |            |          
|                                    | Square footage commencing (millions)                         |               |                  | 5.1           |      |      |            | 11.3      |     



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes all consolidated industrial operating
    properties and excludes industrial development and renovation
    projects. Excludes retail and other properties square feet
    of 1,007,256, occupancy of 89.9%, and annualized base rent of
    $12.3 million.                                                                                                                                    
|   
|(2) | In addition to owned square feet as of
    June 30, 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 unconsolidated joint ventures.
|   
|(3) | Consists of all second-generation leases renewing
    or re-tenanting with current and prior lease terms greater than
    one year.                                                                                                                                                                                                                                                                      

The following summarizes key same store
properties operating statistics for our industrial
properties as of and for the three and six months ended
June 30, 2003:

|                                   |                                   |                    |            |                  |   |  |            |      |  
|---------------------------------- | --------------------------------- | ------------------ | ---------- | ---------------- | - |  | ---------- | ---- | -
|                                   |                                   | Three Months Ended |            | Six Months Ended
|                                   |                                   | June 30, 2003      |            | June 30, 2003   
|                                   |                                   |                    |            |                 
|Square feet in same store pool(1)  |                                   |                    | 72,785,038 |                  |   |  | 72,785,038 |     
|                                   | % of total industrial square feet |                    |            | 88.2             | % |  |            | 88.2 | %
|Occupancy percentage at period end |                                   |                    |            |                  |   |  |            |     
|                                   | June 30, 2003                     |                    |            | 91.3             | % |  |            | 91.3 | %
|                                   | June 30, 2002                     |                    |            | 94.7             | % |  |            | 94.7 | %
|Tenant retention                   |                                   |                    | 53.9       | %                |   |  | 64.3       | %   

42



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##### Table of Contents



|                                                   |                               |                      |      |                  |      |    |      |     |      |   
|-------------------------------------------------- | ----------------------------- | -------------------- | ---- | ---------------- | ---- | -- | ---- | --- | ---- | --
|                                                   |                               | Three Months Ended   |      | Six Months Ended
|                                                   |                               | June 30, 2003        |      | June 30, 2003   
|                                                   |                               |                      |      |                 
|Rent decreases on renewals and rollovers           |                               |                      | (3.1 | )%               |      |    | (4.6 | )% 
|                                                   | Square feet leased (millions) |                      |      | 3.6              |      |    |      | 8.6 |     
|Growth % increase (excluding straight-line rents): |                               |                      |      |                  |      |    |      |    
|                                                   |                               | Revenues             |      |                  | (2.2 | )% |      |     | 1.5  | % 
|                                                   |                               | Expenses             |      |                  | (1.5 | )% |      |     | 4.0  | % 
|                                                   |                               | Net operating income |      |                  | (2.4 | )% |      |     | 0.7  | % 
|Growth % increase (including straight-line rents): |                               |                      |      |                  |      |    |      |    
|                                                   |                               | Revenues             |      |                  | (2.5 | )% |      |     | 0.5  | % 
|                                                   |                               | Expenses             |      |                  | (1.5 | )% |      |     | 4.0  | % 
|                                                   |                               | Net operating income |      |                  | (2.8 | )% |      |     | (0.6 | )%



---



|    |                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------
|(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 June 30, 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 $8.2 million as of
June 30, 2003 (dollars in thousands):

|                      |  |                        |        |      |  |      |        |      |  |      |         |            |  |            |         |   |  |   |         |   |  |   |           |   |  |   |           |  
|--------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------- | ---------- |  | ---------- | ------- | - |  | - | ------- | - |  | - | --------- | - |  | - | --------- | -
|                      |  |                       
|                      |  | Expected Maturity Date
|                      |  |                       
|                      |  | Remainder of           |        |     
|                      |  | 2003                   |        | 2004 |  | 2005 |        | 2006 |  | 2007 |         | Thereafter |  | Total Debt
|                      |  |                        |        |      |  |      |        |      |  |      |         |            |  |           
|Fixed rate debt(1)    |  | $                      | 29,666 |      |  | $    | 97,698 |      |  | $    | 351,128 |            |  | $          | 165,649 |   |  | $ | 126,727 |   |  | $ | 1,177,609 |   |  | $ | 1,948,477 |  
|Average interest rate |  |                        | 7.3    | %    |  |      | 8.0    | %    |  |      | 7.3     | %          |  |            | 7.4     | % |  |   | 7.4     | % |  |   | 7.3       | % |  |   | 7.4       | %
|Variable rate debt(2) |  | $                      | 1,002  |      |  | $    | 33,920 |      |  | $    | 22,880  |            |  | $          | 8,782   |   |  | $ | 6,845   |   |  | $ | 14,368    |   |  | $ | 87,797    |  
|Average interest rate |  |                        | 3.4    | %    |  |      | 3.1    | %    |  |      | 3.5     | %          |  |            | 2.9     | % |  |   | 2.9     | % |  |   | 4.1       | % |  |   | 3.4       | %



---



|    |                                          
|--- | -----------------------------------------
|(1) | Represents 95.7% of all outstanding debt.
|   
|(2) | Represents 4.3% 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 $0.3 million annually. As of June 30, 2003,
the estimated fair value of our fixed rate debt was
$2,189.3 million based on our estimate of current market
interest rates.

As of December 31, 2002 and 2001, variable
rate debt comprised 9.3% and 8.8%, respectively, of all
outstanding debt. Variable rate debt was $206.1 million and
$187.9 million, respectively, as of December 31, 2002
and 2001. The decrease is due to a lower outstanding balance on
our credit facility and the repayment of AMB Institutional
Alliance Fund II, L.P.s credit facility. This
reduction in our outstanding variable rate debt reduces our risk
associated with unfavorable interest rate fluctuations.

43



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##### Table of Contents








|        |                        
|------- | -----------------------
|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 accounted for using
the equity method of accounting. As we do not control or manage
these entities, our disclosure controls and procedures with
respect to such entities are necessarily substantially more
limited than those we maintain with respect to our consolidated
subsidiaries.

As of June 30, 2003, the end of the quarter
covered by this report, as required by Rule 13a-15(b) of
the Securities Exchange Act of 1934, as amended, we carried out
an evaluation, under the supervision and with the participation
of our management, including our general partners chief
executive officer, president and chief financial officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures. Based on the foregoing, our general
partners chief executive officer, president and chief
financial officer each concluded that our disclosure controls
and procedures were effective at the reasonable assurance level.

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




PART II






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

As of June 30, 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

None.






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

None.






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

None.






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

44



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##### Table of Contents






BUSINESS RISKS

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

General Real Estate Risks



| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | Our performance and value are subject to
    general economic conditions and risks associated with our real
    estate assets.

The yields available from equity investments in
real estate depend on the amount of income earned and capital
appreciation generated by the 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. In
addition, there are significant expenditures associated with an
investment in real estate (such as mortgage payments, real
estate taxes and maintenance costs) that generally do not
decline when circumstances reduce the income from the property.
Income from, and the value of, our properties may be adversely
affected by:



| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | changes in the general economic climate;                                                  
|
| |  | local conditions, such as oversupply of 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;                            
|
| |  | increased operating costs;                                                                
|
| |  | increased cost of compliance with
    regulations; and                                    
|
| |  | the potential for liability under applicable laws
    (including changes in tax laws).    

In addition, periods of economic slowdown or
recession in the United States and in other countries, rising
interest rates or declining demand for real estate, or public
perception that any of these events may occur, would result in a
general decrease in rents or an increased occurrence of defaults
under existing leases, which would adversely affect our
financial condition and results of operations. Future terrorist
attacks may result in declining economic activity, which could
reduce the demand for and the value of our properties. To the
extent that future attacks impact our customers, their
businesses similarly could be adversely affected, including
their ability to continue to honor their existing leases.

Our properties are concentrated predominantly in
the industrial real estate sector. As a result of this
concentration, we would feel the impact of an economic downturn
in this sector more acutely than if our portfolio included other
property types.



| |                                                                      
| | ---------------------------------------------------------------------
| | We may be unable to renew leases or relet
    space as leases expire.

As of June 30, 2003, leases on a total of
6.5% of our industrial properties (based on annualized base
rent) will expire on or prior to December 31, 2003. We
derive most of our income from rent received from our tenants.
Accordingly, 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 these
expiring leases, if the rental rates upon renewal or reletting
are significantly lower than expected, or if our reserves for
these purposes prove inadequate. If a tenant experiences a
downturn in its business or other type of financial distress,
then it may be unable to make timely rental payments or renew
its lease. Further, our ability to rent space and the rents that
we can charge are impacted, not only by customer demand, but by
the number of other properties we have to compete with to appeal
to tenants.

45



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##### Table of Contents





| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | Real estate investments are relatively
    illiquid, making it difficult for us to respond promptly to
    changing conditions.

Real estate assets are not as liquid as other
types of assets. Further, our general partner is a real estate
investment trust and the Internal Revenue Code regulates the
number of properties that we can dispose of in a year, their tax
bases and the cost of improvements that we make to the
properties. These limitations may affect our ability to sell
properties. This lack of liquidity and the Internal Revenue Code
restrictions may limit our ability to vary our portfolio
promptly in response to changes in economic or other conditions
and, as a result, 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.



| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | We may be unable to consummate acquisitions
    on advantageous terms or acquisitions may not perform as we
    expect.

We acquire and intend to continue to acquire
primarily industrial properties. The acquisition of properties
entails various risks, including the risks that our investments
may not perform as we expect, that we may be unable to quickly
and efficiently integrate our new acquisitions into our existing
operations and that our cost estimates for bringing an acquired
property up to market standards may prove inaccurate. Further,
we face significant competition for attractive investment
opportunities from other well-capitalized real estate investors,
including both publicly-traded real estate investment trusts and
private institutional investment funds. This competition
increases as investments in real estate become increasingly
attractive relative to other forms of investment. As a result of
competition, we may be unable to acquire additional properties
as we desire or the purchase price may be significantly
elevated. 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 by us or our subsidiaries and proceeds from property
divestitures, which may not be available and which could
adversely affect our cash flow. Any of the above 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.



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | We may be unable to complete renovation and
    development projects on advantageous terms.

As part of our business, we develop new and
renovate existing properties. The real estate development and
renovation business involves significant risks 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, which include:



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



| |                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------
| | Our performance and value are impacted by
    the local economic conditions of and the risks associated with
    doing business in California.

As of June 30, 2003, our industrial
properties located in California represented 29.1% of the
aggregate square footage of our industrial operating properties
and 32.9% of our industrial annualized base rent. Our

46



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##### Table of Contents



revenue from, and the value of, our properties
located in California may be affected by local real estate
conditions (such as an 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 Californias
economic climate. Because of the number of properties we have
located in California, a downturn in Californias economy
or real estate conditions could adversely affect our financial
condition, results of operations, cash flow and ability to make
distributions to our unitholders and payments to our
noteholders. In addition, certain of our properties are subject
to possible loss from seismic activity.




| |                                                                
| | ---------------------------------------------------------------
| | We may experience losses that our insurance
    does not cover.

We carry commercial liability, property and
rental loss insurance covering all the properties that we own
and manage in types and amounts that we believe are adequate and
appropriate given the relative risks applicable to the property,
the cost of coverage and industry practice. Certain losses, such
as those 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
consider commercially reasonable given the cost and availability
of such coverage, we cannot be certain that we will be able to
renew coverage on comparable terms or collect under such
policies. In addition, there are other types of losses, such as
those from riots, bio-terrorism, or acts of war, that are not
generally insured in our industry because it is not economically
feasible to do so. 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. If we experience a
loss that is uninsured or that exceeds our insured limits with
respect to one or more of our properties, then we could lose the
capital invested in the damaged properties, as well as the
anticipated future revenue from those properties and, if there
is recourse debt, then 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 recourse obligations. Any such losses
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 June 30, 2003, we had 292
industrial buildings, aggregating approximately
24.0 million square feet and representing 29.1% of our
industrial operating properties based on aggregate square
footage and 32.9% based on industrial annualized base rent. 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. We evaluate our
earthquake insurance coverage annually in light of current
industry practice through an analysis prepared by outside
consultants.



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are subject to risks and liabilities in
    connection with properties owned through joint ventures, limited
    liability companies and partnerships.

As of June 30, 2003, we owned approximately
44.9 million square feet of our properties through several
joint ventures, limited liability companies or partnerships with
third parties. Our organizational documents do not limit the
amount of available funds that we may invest in partnerships,
limited liability companies or joint ventures and we intend to
continue to develop and acquire properties through joint
ventures, limited liability companies and partnerships with
other persons or entities when warranted by the circumstances.
Such partners may share certain approval rights over major
decisions. Partnership, limited liability company or joint
venture investments involve certain risks, including:



| |   |                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | if our partners, co-members or joint venturers go
    bankrupt, then we and any other remaining general partners,
    members, or joint venturers would generally remain liable for
    the partnerships, limited liability companys, or
    joint ventures liabilities;

47



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our partners, co-members or joint venturers might
    have economic or other business interests or goals that are
    inconsistent with our business interests or goals that would
    affect our ability to operate the property;                                                 
|
| |  | our partners, co-members or joint venturers may
    have the power to act contrary to our instructions, requests,
    policies, or objectives; and                                                                                                                                 
|
| |  | the joint venture, limited liability and
    partnership agreements often restrict the transfer of a joint
    venturers, members or partners interest or
    buy-sell or may otherwise restrict our ability to
    sell the interest when we desire or on advantageous terms.

We generally seek to maintain sufficient control
of our partnerships, limited liability companies, and joint
ventures to permit us to achieve our business objectives,
however, we may not be able to do so, and 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 complete divestitures
    on advantageous terms or contribute properties.

We intend to continue to divest ourselves of
retail centers and industrial properties that do not meet our
strategic objectives, provided that we can negotiate acceptable
terms and conditions. Our ability to dispose of properties on
advantageous terms depends on factors beyond our control,
including competition from other sellers and the availability of
attractive financing for potential buyers of our properties. If
we are unable to dispose of properties on favorable terms or
redeploy the proceeds of property divestitures in accordance
with our investment strategy, then our financial condition,
results of operations, cash flow and ability to make
distributions to our unitholders and payments to our noteholders
could be adversely affected.

We also anticipate contributing or selling
properties to funds and joint ventures. If we do not have
sufficient properties available that meet the investment
criteria of current or future property funds, or if the funds
have reduced or no access to capital on favorable terms, then
such contributions or sales could be delayed or prevented,
adversely affecting 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.

At the time of our formation we acquired assets
from our predecessor entities subject to all of their potential
existing liabilities, without recourse. In addition, we have and
may in the future acquire properties subject to liabilities and
without any recourse, or with only limited recourse, with
respect to unknown liabilities. As a result, if a liability were
asserted against us based upon ownership of any of these
entities or properties, then we might have to pay substantial
sums to settle it, which could adversely affect our cash flow.
Unknown liabilities with respect to entities or properties
acquired might include:



| |   |                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 or the former owners of the properties;      
|
| |  | accrued but unpaid liabilities incurred in the
    ordinary course of business;                                                                                      
|
| |  | tax liabilities; and                                                                                                                                                 
|
| |  | claims for indemnification by the general
    partners, officers and directors and others indemnified by our
    predecessors or the former owners of the properties.

48



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##### Table of Contents






Risks Associated With Our International
Business






| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | Our international growth is subject to
    special risks and we may not be able to effectively manage our
    international growth.

We have acquired and developed, and expect to
continue to acquire and develop, properties in foreign
countries. Because local markets affect our operations, our
international investments are subject to economic fluctuations
in the foreign locations in which we invest. In addition, our
international operations are subject to the usual risks of doing
business abroad such as revisions in tax treaties or other laws
governing the taxation of our foreign 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 of these developments may occur.
Further, we have entered, and may in the future 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. And 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.

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






| |                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------
| | Acquired properties may be located in new
    markets, where we may face risks associated with investing in an
    unfamiliar market.

We have acquired and may continue to acquire
properties in international markets that are new to us. When we
acquire properties located in these markets, we may face risks
associated with a lack of market knowledge or understanding of
the local economy, forging new business relationships in the
area and unfamiliarity with local government and permitting
procedures. We work to mitigate such risks through extensive
diligence and research and associations with experienced
partners, however there can be no guarantee that all such risks
will be eliminated.






| |                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are subject to risks from potential
    fluctuations in exchange rates between the U.S. dollar and
    the currencies of the foreign countries in which we
    invest.

We are pursuing, and intend to continue to
pursue, growth opportunities in international markets. As we
invest in countries where the U.S. dollar is not the
national currency, we are subject to foreign currency risks from
the potential fluctuations in exchange rates between the
U.S. dollar and the currencies of the foreign countries in
which we invest. A significant depreciation in the value of the
currency of one or more foreign countries where we have a
significant investment may materially affect our results of
operations. We attempt to mitigate any such effects by borrowing
under our multi-currency credit facility in the foreign currency
of the country we are investing in and by putting in place
foreign currency put option contracts. For leases denominated in
foreign currencies, we may use derivative financial instruments
to manage the foreign exchange risk. We cannot, however, assure
you that our efforts will successfully neutralize all foreign
currency risks.

Debt Financing Risks



| |                                                           
| | ----------------------------------------------------------
| | We could incur more debt, increasing our
    debt service.

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 increases directly with an increase
in the market price per share of AMB Property Corporations
capital stock. Further, our general partners management
could alter or eliminate this policy without unitholder or
noteholder approval. If we change this policy, then we could

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become more highly leveraged, resulting in an
increase in debt service that could adversely affect the cash
available for distribution to our unitholders.







| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | We face risks associated with the use of
    debt to fund acquisitions and developments, including
    refinancing risk.

As of June 30, 2003, we had total debt
outstanding of $2.0 billion. We are subject to risks
normally associated with debt financing, including the risk that
our cash flow will be insufficient to meet required payments of
principal and interest. We anticipate that we will repay only a
small portion of the principal of our debt prior to maturity.
Accordingly, we will likely need to refinance at least a portion
of our outstanding debt as it matures. There is a risk that we
may not be able to refinance existing debt or that the terms of
any refinancing will not be as favorable as the terms of our
existing debt. 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.

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.






| |                                                     
| | ----------------------------------------------------
| | 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, it is
required each year to distribute to its stockholders at least
90% of its real estate investment trust taxable income
(determined without regard to the dividends-paid deduction and
by excluding any net capital gain) and it is taxed on its income
to the extent it is not fully distributed. We are required to
make distributions to AMB Property Corporation that will enable
it satisfy this distribution requirement and avoid tax
liability. Consequently, we may not be able to fund all future
capital needs, including acquisition and development activities,
from cash retained from operations and must rely on third-party
sources of capital. Our ability to access private debt and
equity capital on favorable terms or at all is dependent 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.






| |                                                                                     
| | ------------------------------------------------------------------------------------
| | Covenants in our debt agreements could
    adversely affect our financial condition.

The terms of our credit agreements and other
indebtedness require that we comply with a number of customary
financial and other covenants, such as maintaining debt service
coverage and leverage ratios and maintaining insurance coverage.
These covenants may limit flexibility in our operations, and our
failure to comply with these covenants could cause a default
under the applicable debt agreement even if we have satisfied
our payment obligations. Further, as of June 30, 2003, we
had 26 non-recourse secured loans that are cross-collateralized
by 60 properties, totaling $678.9 million (not including
unamortized debt premium). If we default on any of these loans,
we may then be required to repay such 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

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our financial condition, results of operations,
cash flow and ability to make distributions to our unitholders
and payments to our noteholders.





Conflicts of Interest Risks






| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | 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 that they acquired prior to AMB
Property Corporations initial public offering in 1997.
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). AMB Property
Corporations executive officers continued
involvement in other real estate-related activities could divert
their 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 AMB
Property Corporations 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 June 30, 2003, Aspire Development,
L.P. owned interests in three retail development projects in the
U.S., which are individually less than 15,000 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; and
|
| |  | certain other de minimus holdings in equity
    securities of real estate companies.                  

Thomas W. Tusher, a member of AMB Property
Corporations board of directors 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 AMB Property Corporations initial public
offering. The property and asset management of the office
building has recently been transferred from us to a third party.
We are still involved in certain transitional matters relating
to the property, including certain matters relating to the
financing thereof.

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, AMB Property Corporations executive
officers and directors continued involvement in
these properties could divert managements attention from
our day-to-day operations. We will not acquire any properties
from AMB Property Corporations executive officers,
directors or their affiliates unless the transaction is approved
by a majority of the disinterested and independent (as defined
by the rules of the New York Stock Exchange) members of AMB
Property Corporations board of directors with respect to
that transaction.

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| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | 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.




Risks Associated with Government
Regulations






| |                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------
| | Compliance or failure to comply with the
    Americans with Disabilities Act and other similar regulations
    could result in substantial costs.

Under the Americans with Disabilities Act, places
of public accommodation must meet certain federal requirements
related to access and use by disabled persons. Noncompliance
could result in the imposition of fines by the federal
government or the award of damages to private litigants. If we
are required to make unanticipated expenditures to comply with
the Americans with Disabilities Act, including removing access
barriers, then our cash flow and the amounts available for
dividends to our stockholders may be adversely affected. Our
properties are also subject to various federal, state and local
regulatory requirements, such as state and local fire and
life-safety requirements. We could incur fines or private damage
awards if we fail to comply with these requirements. While we
believe that our properties are currently in material compliance
with these regulatory requirements, the requirements may change
or new requirements may be imposed that could require
significant unanticipated expenditures by us that will affect
our cash flow and results of operations.



| |                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------
| | The costs of compliance with environmental
    laws and regulations could exceed our budgets for
    these items.

Under various federal, state and local laws,
ordinances and regulations, a current or previous owner or
operator of real estate may be liable for the costs of
investigation, removal or remediation of certain hazardous or
toxic substances or petroleum products at, on, under or in its
property. The costs of removal or remediation of such substances
could be substantial. 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 the environmental contamination.

Environmental laws also require that owners or
operators of buildings containing asbestos properly manage and
maintain the asbestos, adequately inform or train those who may
come into contact with asbestos and undertake special
precautions, including removal or other abatement, in the event
that asbestos is disturbed during building renovation or
demolition. These laws may impose fines and penalties on
building owners or operators who fail 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. Some of our properties may contain
asbestos-containing building materials.

In addition, 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, creating a potential for the
release of such hazardous or toxic substances. Further, certain
of our properties are on, adjacent to or near other properties
that have contained or currently contain petroleum products or
other hazardous or toxic substances, or upon which others have
engaged, are engaged or may engage in activities that may
release such 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 that the acquisition will yield a superior
risk-adjusted return. In such an instance, we underwrite the
costs of environmental investigation, clean-up and monitoring
into the acquisition cost and obtain appropriate environmental
insurance for the property. Further, 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.

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At the time of acquisition, we subject all of our
properties to a Phase I or similar environmental
assessments by independent environmental consultants and we may
have additional Phase II testing performed upon
consultants recommendation. These environmental
assessments have not revealed, and we are not aware of, any
environmental liability that we believe would have a material
adverse effect on our financial condition or results of
operations taken as a whole. Nonetheless, it is possible that
the assessments did not reveal all environmental liabilities and
that there are material environmental liabilities unknown to us,
or that known environmental conditions may give rise to
liabilities that are greater than we anticipated. Further, our
properties current environmental condition 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 unrelated third parties. 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.

Risks Associated With Our Dependence on our
General Partners Key Personnel

We depend on the efforts of our general
partners executive officers. While we believe that we
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:

|        |      |  |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | ---- |  |  | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |  |  |            
|Number  |      |  |  | Description
|        |      |  |  |            
|        | 3.1  |  |  |             |  | Eighth Amended and Restated Agreement of Limited
    Partnership of AMB Property, L.P. dated as of July 28, 2003.                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.1 |  |  |             |  | First Amendment to the Eleventh Amended and
    Restated Agreement of Limited Partnership of AMB
    Property II, L.P. dated as of July 14, 2003.                                                                                                                                                                                                                                                                                                                                                     
|        | 10.2 |  |  |             |  | Amendment to Amended and Restated Credit
    Agreement dated June 10, 2003, by and among AMB Property,
    L.P., the banks listed therein, JP Morgan Chase Bank, as
    administrative agent, Bank of America, N.A., as syndication
    agent, and Bank One, N.A., Commerzbank, A.G., New York and
    Grand Cayman Branches, and Wachovia Bank, as documentation agent.                                                                                                                              
|        | 31.1 |  |  |             |  | Rule 13a-14 (a)/15d-14
    (a) Certifications dated August 13, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 32.1 |  |  |             |  | 18 U.S.C. § 1350 Certifications
    dated August 13, 2003. The certifications in this exhibit
    are being furnished solely to accompany this report pursuant to
    18 U.S.C. § 1350, and are not being filed for
    purposes of Section 18 of the Securities Exchange Act of
    1934, as amended, and are not to be incorporated by reference
    into any of our filings, whether made before or after the date
    hereof, regardless of any general incorporation language in such
    filing.

(b) Reports on Form 8-K:



| |   |                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | AMB Property, L.P. filed a Current Report on
    Form 8-K on June 24, 2003, in connection with the
    redemption of AMB Property Corporations Series A
    Preferred Stock and the issuance of AMB Property
    Corporations Series L Preferred Stock.

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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: August 13, 2003

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