<PAGE>   1

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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                            ------------------------

                                   FORM 10-Q
                            ------------------------

(MARK ONE)

     [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
        THE SECURITIES EXCHANGE ACT OF 1934
               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999

                                       OR

     [ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
        THE SECURITIES EXCHANGE ACT OF 1934

                       COMMISSION FILE NUMBER: 001-14245

                               AMB PROPERTY, L.P.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      94-3285362
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)

505 MONTGOMERY ST., SAN FRANCISCO, CALIFORNIA                      94111
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                      (ZIP CODE)
</TABLE>

                                 (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 [X]  No [ ]

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<PAGE>   2

                               AMB PROPERTY, L.P.

                                     INDEX

<TABLE>
<CAPTION>
                                                                       PAGE
                                                                       ----
<S>      <C>                                                           <C>
                        PART I. FINANCIAL INFORMATION
Item 1.  Financial Statements
         Consolidated Balance Sheets as of December 31, 1998 and
         September, 1999 (unaudited).................................    1
         Consolidated Statements of Operations for the nine and three
         months ended September 30, 1998 and 1999 (unaudited)........    2
         Consolidated Statements of Cash Flows for the nine months
         ended September 30, 1998 and 1999 (unaudited)...............    3
         Consolidated Statement of Partners' Capital for the nine
         months ended September 30, 1999 (unaudited).................    4
         Notes to Consolidated Financial Statements (unaudited)......    5
Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations...................................   16
Item 3.  Quantitative and Qualitative Disclosures About Market
         Risks.......................................................   27

                          PART II. OTHER INFORMATION
Item 1.  Legal Proceedings...........................................   28
Item 2.  Changes in Securities and Use of Proceeds...................   28
Item 3.  Defaults Upon Senior Securities.............................   28
Item 4.  Submission of Matters to a Vote of Security Holders.........   28
Item 5.  Other Information...........................................   28
Item 6.  Exhibits and Reports on Form 8-K............................   40
</TABLE>

---------------

The following are trademarks of AMB Property Corporation: Strategic Alliance
Programs, Development Alliance Program, Development Alliance Partners, UPREIT
Alliance Program, Institutional Alliance Program, Institutional Alliance
Partners, Management Alliance Program, Customer Alliance Program and Broker
Alliance Program.
                                        i
<PAGE>   3

                                     PART I

ITEM 1. FINANCIAL STATEMENTS

                               AMB PROPERTY, L.P.

                          CONSOLIDATED BALANCE SHEETS
                 AS OF DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
      (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT UNIT AND PER UNIT AMOUNTS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                              DECEMBER 31,    SEPTEMBER 30,
                                                                  1998            1999
                                                              ------------    -------------
<S>                                                           <C>             <C>
Investments in real estate:
Land and improvements.......................................   $  740,680      $  698,445
  Buildings and improvements................................    2,445,104       2,201,905
  Construction in progress..................................      183,276         168,348
                                                               ----------      ----------
          Total investments in properties...................    3,369,060       3,068,698
  Accumulated depreciation and amortization.................      (58,404)        (85,521)
                                                               ----------      ----------
          Net investments in properties.....................    3,310,656       2,983,177
  Investment in unconsolidated joint venture................       57,655          58,685
  Properties held for divestiture, net......................      115,050         477,815
                                                               ----------      ----------
          Net investments in real estate....................    3,483,361       3,519,677
Cash and cash equivalents...................................       25,137          70,821
Other assets................................................       54,387          57,449
                                                               ----------      ----------
          Total assets......................................   $3,562,885      $3,647,947
                                                               ==========      ==========

                             LIABILITIES AND PARTNERS' CAPITAL
Debt:
  Secured debt..............................................   $  734,196      $  749,571
  Secured credit facility...................................           --          80,000
  Unsecured senior debt securities..........................      400,000         400,000
  Unsecured credit facility.................................      234,000          49,000
                                                               ----------      ----------
          Total debt........................................    1,368,196       1,278,571
Other liabilities...........................................      104,305         138,360
                                                               ----------      ----------
          Total liabilities.................................    1,472,501       1,416,931
Commitments and contingencies...............................           --              --
Minority interests..........................................      176,127         275,897
Partner's Capital:
  General Partner, 85,688,109 and 86,347,230 units
     outstanding, respectively, and 4,000,000 Series A
     preferred units with a $100,000 liquidation
     preference.............................................    1,765,360       1,802,795
  Limited Partners, 4,447,839 and 4,532,584 units
     outstanding, respectively, and 1,300,000 Series B
     preferred units with a $65,000 liquidation
     preference.............................................      148,897         152,324
                                                               ----------      ----------
          Total partners' capital...........................    1,914,257       1,955,119
                                                               ----------      ----------
          Total liabilities and partners' capital...........   $3,562,885      $3,647,947
                                                               ==========      ==========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                        1
<PAGE>   4

                               AMB PROPERTY, L.P.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
        FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
      (UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT UNIT AND PER UNIT AMOUNTS)

<TABLE>
<CAPTION>
                                                      FOR THE NINE MONTHS ENDED   FOR THE THREE MONTHS ENDED
                                                            SEPTEMBER 30,                SEPTEMBER 30,
                                                      -------------------------   ---------------------------
                                                         1998          1999           1998           1999
                                                      -----------   -----------   ------------   ------------
<S>                                                   <C>           <C>           <C>            <C>
REVENUES
Rental revenues.....................................  $   251,844   $   330,895   $    92,841    $   109,708
  Equity in earnings of unconsolidated joint
     venture........................................          833         3,580           833          1,252
  Investment management and other income............        2,183         2,258           387            824
                                                      -----------   -----------   -----------    -----------
          Total revenues............................      254,860       336,733        94,061        111,784
OPERATING EXPENSES
  Property operating expenses.......................       28,781        39,110        10,752         13,153
  Real estate taxes.................................       33,686        43,431        12,413         13,629
  General and administrative(2).....................       13,864        19,116         4,800          6,107
  Interest, including amortization..................       47,105        67,705        19,544         21,147
  Depreciation and amortization.....................       40,052        49,295        14,750         15,693
                                                      -----------   -----------   -----------    -----------
          Total operating expenses..................      163,488       218,657        62,259         69,729
                                                      -----------   -----------   -----------    -----------
          Income from operations before minority
            interests...............................       91,372       118,076        31,802         42,055
  Minority interests' share of net income...........       (3,085)      (14,002)       (1,427)        (5,621)
                                                      -----------   -----------   -----------    -----------
          Net income before gain from divestiture of
            real estate.............................       88,287       104,074        30,375         36,434
  Gain from divestiture of real estate..............           --        33,057            --         21,532
                                                      -----------   -----------   -----------    -----------
          Net income before extraordinary items.....       88,287       137,131        30,375         57,966
  Extraordinary items...............................           --        (2,856)           --         (1,347)
                                                      -----------   -----------   -----------    -----------
          Net income................................       88,287       134,275        30,375         56,619
  Series A preferred unit distribution..............       (1,514)       (6,375)       (1,514)        (2,125)
  Series B preferred unit distribution..............           --        (4,206)           --         (1,402)
                                                      -----------   -----------   -----------    -----------
          Net income available to common
            unitholders.............................  $    86,773   $   123,694   $    28,861    $    53,092
                                                      ===========   ===========   ===========    ===========
Income available to common unitholders attributable
  to:
     General partner................................  $    83,243   $   117,535   $    27,358    $    50,454
     Limited partners...............................        3,530         6,159         1,503          2,638
                                                      -----------   -----------   -----------    -----------
                                                      $    86,773   $   123,694   $    28,861    $    53,092
                                                      ===========   ===========   ===========    ===========
BASIC INCOME PER COMMON UNIT:
  Before extraordinary items........................  $      0.97   $      1.39   $      0.32    $      0.60
  Extraordinary items...............................           --         (0.03)           --          (0.02)
                                                      -----------   -----------   -----------    -----------
          Net income available to common
            unitholders.............................  $      0.97   $      1.36   $      0.32    $      0.58
                                                      ===========   ===========   ===========    ===========
DILUTED INCOME PER COMMON UNIT:
  Before extraordinary items........................  $      0.97   $      1.39   $      0.32    $      0.60
  Extraordinary items...............................           --         (0.03)           --          (0.02)
                                                      -----------   -----------   -----------    -----------
          Net income available to common
            unitholders.............................  $      0.97   $      1.36   $      0.32    $      0.58
                                                      ===========   ===========   ===========    ===========
WEIGHTED AVERAGE COMMON UNITS OUTSTANDING:
  Basic.............................................   89,214,581    90,796,692    89,675,763     91,078,726
                                                      ===========   ===========   ===========    ===========
  Diluted...........................................   89,188,352    90,897,525    90,053,107     91,179,441
                                                      ===========   ===========   ===========    ===========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                        2
<PAGE>   5

                               AMB PROPERTY, L.P.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
                       (UNAUDITED, DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               FOR THE NINE MONTHS
                                                                      ENDED
                                                                  SEPTEMBER 30,
                                                              ---------------------
                                                                1998         1999
                                                              ---------    --------
<S>                                                           <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................  $  88,287    $134,275
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation and amortization.............................     40,052      49,295
  Straight-line rents.......................................     (8,083)     (7,523)
  Amortization of debt premiums and financing costs.........     (1,921)     (2,156)
  Minority interests' share of net income...................      3,085      14,002
  Gain on divestiture of real estate........................         --     (33,057)
  Non-cash portion of extraordinary items...................         --      (1,884)
  Equity in (earnings) loss of AMB Investment Management....        394         411
  Equity in earnings of unconsolidated joint venture........       (833)     (3,580)
Changes in assets and liabilities:
  Other assets..............................................    (11,795)      1,758
  Other liabilities.........................................     28,047      34,056
                                                              ---------    --------
       Net cash provided by operating activities............    137,233     185,597
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property acquisitions.........................   (397,388)   (309,699)
Additions to land, building, development costs, and other
  first generation improvements.............................    (93,778)   (108,027)
Additions to second generation building improvements and
  lease costs...............................................     (7,622)    (20,046)
Acquisition of interest in unconsolidated joint venture.....    (67,149)         --
Distribution received from unconsolidated joint venture.....      1,011       2,550
Net proceeds from divestiture of real estate................         --     460,132
Reduction of payable to affiliates in connection with
  Formation Transactions....................................    (38,071)         --
                                                              ---------    --------
       Net cash provided by (used in) investing
       activities...........................................   (602,997)     24,910
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock....................................         --         732
Borrowings on unsecured credit facility.....................    546,000     265,000
Borrowings on secured credit facility.......................         --      80,000
Borrowings on secured debt..................................     54,554      35,253
Payments on unsecured credit facility.......................   (491,000)   (450,000)
Payments on secured debt....................................    (62,916)    (73,860)
Payments of financing fees..................................         --        (320)
Net proceeds from issuance of senior debt securities........    399,166          --
Net proceeds from issuance of Series A preferred stock......     96,100          --
Net proceeds from issuance of Series D preferred units......         --      77,690
Net proceeds from issuance of Series E preferred units......         --      10,857
Contributions from investors of Alliance Fund I.............         --      11,600
Distributions paid to common and preferred unitholders......    (62,251)   (101,901)
Distributions to minority interests, including preferred
  units.....................................................    (20,651)    (19,874)
                                                              ---------    --------
       Net cash provided by (used in) financing
       activities...........................................    459,002    (164,823)
                                                              ---------    --------
Net increase (decrease) in cash and cash equivalents........     (6,762)     45,684
Cash and cash equivalents at beginning of period............     39,968      25,137
                                                              ---------    --------
Cash and cash equivalents at end of period..................  $  33,206    $ 70,821
                                                              =========    ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest......................................  $  39,291    $ 61,267
                                                              =========    ========
Non-cash transactions:
  Acquisitions of properties................................  $ 674,365    $381,713
  Assumption of debt........................................   (171,988)    (57,480)
  Minority interest's contribution, including units
    issued..................................................   (104,989)    (14,534)
                                                              ---------    --------
       Net cash paid........................................  $ 397,388    $309,699
                                                              =========    ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                        3
<PAGE>   6

                               AMB PROPERTY, L.P.

                  CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
                      (IN THOUSANDS, EXCEPT UNIT AMOUNTS)
<TABLE>
<CAPTION>
                                                      GENERAL PARTNER                               LIMITED PARTNERS
                                       ---------------------------------------------   ------------------------------------------
                                         PREFERRED UNITS          COMMON UNITS           PREFERRED UNITS         COMMON UNITS
                                       -------------------   -----------------------   -------------------   --------------------
                                         UNITS     AMOUNT      UNITS        AMOUNT       UNITS     AMOUNT      UNITS     AMOUNTS
                                       ---------   -------   ----------   ----------   ---------   -------   ---------   --------
<S>                                    <C>         <C>       <C>          <C>          <C>         <C>       <C>         <C>
Balance at December 31, 1998.........  4,000,000   $96,100   85,688,109   $1,669,260   1,300,000   $62,190   4,447,839   $ 86,707
Net Income...........................         --     6,375           --      117,535          --    4,206           --      6,159
Contributions........................         --        --           --           --          --       --      620,498     14,101
Issuance of common limited
  partnership units in connection
  with issuance of restricted
  stock..............................         --        --       98,368        2,215          --       --           --         --
Issuance of common limited
  partnership units in connection
  with issuance of stock options.....         --        --       25,000          526          --       --           --         --
Conversion of operating
  partnership........................         --        --      535,753       11,053          --       --     (535,753)   (12,761)
Deferred compensation................         --        --           --       (3,080)         --       --           --         --
Deferred compensation amortization...         --        --           --          555          --       --           --         --
Reallocation of interests............         --        --           --         (676)         --       --           --        676
Distributions........................         --    (6,375)          --      (90,693)         --   (4,206)          --     (4,748)
                                       ---------   -------   ----------   ----------   ---------   -------   ---------   --------
Balance at September 30, 1999........  4,000,000   $96,100   86,347,230   $1,706,695   1,300,000   $62,190   4,532,584   $ 90,134
                                       =========   =======   ==========   ==========   =========   =======   =========   ========

<CAPTION>

                                         TOTAL
                                       ----------
<S>                                    <C>
Balance at December 31, 1998.........  $1,914,257
Net Income...........................     134,275
Contributions........................      14,101
Issuance of common limited
  partnership units in connection
  with issuance of restricted
  stock..............................       2,215
Issuance of common limited
  partnership units in connection
  with issuance of stock options.....         526
Conversion of operating
  partnership........................      (1,708)
Deferred compensation................      (3,080)
Deferred compensation amortization...         555
Reallocation of interests............          --
Distributions........................    (106,022)
                                       ----------
Balance at September 30, 1999........  $1,955,119
                                       ==========
</TABLE>

                                        4
<PAGE>   7

                               AMB PROPERTY, L.P.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1999
                       (UNAUDITED, DOLLARS IN THOUSANDS,
         EXCEPT PROPERTY STATISTICS, SHARE, PER UNIT AND UNIT AMOUNTS)

 1. ORGANIZATION AND FORMATION

     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 (the "IPO") 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 comply with the rules and
regulations to enable it to maintain its status as a REIT. The Company, through
its controlling interest in its subsidiary, AMB Property, L.P., a Delaware
limited partnership (the "Operating Partnership"), is engaged in the
acquisition, ownership, operation, management, renovation, expansion and
development of primarily industrial buildings in target markets nationwide.
Unless the context otherwise requires, the "Company" means AMB Property
Corporation, the Operating Partnership and its other controlled subsidiaries.

     The Company and the Operating Partnership were formed shortly before
consummation of the IPO. AMB Institutional Realty Advisors, Inc., a California
corporation and registered investment advisor (the "Predecessor"), formed AMB
Property Corporation, a wholly owned subsidiary, and merged with and into the
Company (the "Merger") in exchange for 4,746,616 shares of the Company's Common
Stock (the "Common Stock"). In addition, the Company and the Operating
Partnership acquired, through a series of mergers and other transactions, 31.8
million rentable square feet of industrial property and 6.3 million rentable
square feet of retail property in exchange for 65,022,185 shares of the
Company's Common Stock, 2,542,163 limited partner interests ("LP Units") in the
Operating Partnership, the assumption of debt and, to a limited extent, cash.
The net assets of the Predecessor and the properties acquired with Common Stock
were contributed to the Operating Partnership in exchange for 69,768,801 LP
Units. The purchase method of accounting was applied to the acquisition of the
properties. Collectively, the Merger and the other formation transactions
described above are referred to as the "Formation Transactions."

     On November 26, 1997, the Company completed its IPO of 16,100,000 shares of
Common Stock, $0.01 par value per share, for $21.00 per share, resulting in
gross offering proceeds of approximately $338,100. The net proceeds of
approximately $300,032 were used to repay indebtedness, to purchase interests
from certain investors who elected not to receive Common Stock or LP Units in
connection with the Formation Transactions, to fund property acquisitions and
for general corporate working capital requirements.

     As of September 30, 1999, the Company owned an approximate 95.0% general
partner interest in the Operating Partnership, excluding preferred units. The
remaining 5.0% limited partner interest is owned by nonaffiliated investors. For
local law purposes, properties in certain states are owned through limited
partnerships and limited liability companies owned 99% by the Operating
Partnership and 1% by a wholly owned subsidiary of the Company. The ownership of
such properties through such entities does not materially affect the Company's
overall ownership of the interests in the properties. As the sole general
partner of the Operating Partnership, the Company has the full, exclusive and
complete responsibility and discretion in the day-to-day management and control
of the Operating Partnership.

     In connection with the Formation Transactions, the Operating Partnership
formed AMB Investment Management, Inc., a Maryland corporation ("AMB Investment
Management"). The Operating Partnership purchased 100% of AMB Investment
Management's non-voting preferred stock (representing a 95% economic interest
therein). Certain current and former executive officers of the Company and an
officer of AMB Investment Management collectively purchased 100% of AMB
Investment Management's voting common stock (representing a 5% economic interest
therein). AMB Investment Management was formed to succeed to the Predecessor's
investment management business of providing real estate investment manage-

                                        5
<PAGE>   8
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1999
                       (UNAUDITED, DOLLARS IN THOUSANDS,
         EXCEPT PROPERTY STATISTICS, SHARE, PER UNIT AND UNIT AMOUNTS)

ment services on a fee basis to clients. The Operating Partnership also owns
100% of the non-voting preferred stock of Headlands Realty Corporation, a
Maryland corporation (representing a 95% economic interest therein). Certain
executive officers of the Company and a director of Headlands Realty Corporation
collectively own 100% of the voting common stock of Headlands Realty Corporation
(representing a 5% economic interest therein). Headlands Realty Corporation
primarily invests in properties and interests in entities that engage in the
management, leasing and development of properties and similar activities. The
Operating Partnership accounts for its investment in AMB Investment Management
and Headlands Realty Corporation using the equity method of accounting.

     As of September 30, 1999, the Company owned 692 industrial buildings (the
"Industrial Properties") and 17 retail centers (the "Retail Properties") located
in 26 markets throughout the United States. The Industrial Properties,
principally warehouse distribution buildings, encompass approximately 63.8
million rentable square feet and, as of September 30, 1999, were 96.7% leased to
over 2,180 tenants. The Retail Properties, principally grocer-anchored community
shopping centers, encompass approximately 3.6 million rentable square feet and,
as of September 30, 1999, were 92.0% leased to over 500 tenants. The Industrial
Properties and the Retail Properties collectively are referred to as the
"Properties."

 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 generally accepted
accounting principles have been condensed or omitted.

     The consolidated financial statements for prior periods have been
reclassified to conform to current classifications with no effect on results of
operations. General and administrative expenses on the Consolidated Statements
of Operations includes internal asset management costs of $5,170 and $7,181 for
the nine months ended September 30, 1998 and 1999, respectively, and $1,968 and
$2,522 for the three months ended September 30, 1998 and 1999, respectively.
Prior to the third quarter of 1999, such costs were classified as property
operating expenses.

     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 of the nine and three months ended September 30, 1998
and 1999 are not necessarily indicative of the results expected for the entire
year. 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, 1998
and in the Operating Partnership's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1999 and June 30, 1999.

     The preparation of financial statements in conformity with generally
accepted accounting principles 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.

                                        6
<PAGE>   9
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1999
                       (UNAUDITED, DOLLARS IN THOUSANDS,
         EXCEPT PROPERTY STATISTICS, SHARE, PER UNIT AND UNIT AMOUNTS)

 3. REAL ESTATE ACQUISITION AND DEVELOPMENT ACTIVITY

     During the third quarter of 1999, the Operating Partnership acquired
$66,987 in operating properties, consisting of 14 industrial buildings,
aggregating 1.5 million square feet. The Operating Partnership also initiated
four new development projects aggregating approximately 1.0 million square feet,
during the quarter, with a total estimated cost of $92,100 upon completion. Two
development projects, aggregating approximately 0.7 million square feet, were
completed during the quarter, at a total aggregate cost of $29,800. As of
September 30, 1999, the Operating Partnership had 16 industrial projects,
aggregating approximately 4.1 million square feet, in its development pipeline,
with a total estimated cost of $243,300 upon completion, and three retail
projects, aggregating approximately 0.5 million square feet, in its development
pipeline, with a total estimated cost of $70,200 upon completion.

 4. PROPERTY DIVESTITURE AND PROPERTY HELD FOR DIVESTITURE

     Property Divestiture. On March 9, 1999, the Operating Partnership signed
three separate definitive agreements with BPP Retail, LLC ("BPP Retail"), a
co-investment entity between Burnham Pacific ("BPP") and the California Public
Employees' Retirement System ("CalPERS"), pursuant to which, if fully
consummated, BPP Retail would have acquired up to 28 retail shopping centers,
totaling approximately 5.1 million square feet, for an aggregate price of
$663,400. The sale of three of the properties was subject to the consent of one
of the Operating Partnership's joint venture partners, which did not consent to
the sale of these properties. As a result, the price with respect to the 25
remaining properties, totaling approximately 4.3 million square feet, is
approximately $560,300. The Operating Partnership intends to dispose of the
remaining three properties or its interests in the joint ventures through which
it holds the properties.

     Pursuant to the agreements, BPP Retail will acquire the 25 centers in
separate transactions. Under the agreements, the Operating Partnership has the
right to extend the closing dates for a period of up to either 20 or 50 days.
The Operating Partnership exercised this right with respect to the first and
second transactions, which occurred on June 15, 1999 and August 4, 1999,
respectively. Pursuant to the closing of the first transaction, BPP Retail
acquired nine retail shopping centers, totaling approximately 1.4 million square
feet, for an aggregate price of approximately $207,400. The Operating
Partnership used the proceeds from the first transaction to repay secured debt
related to the properties divested, to partially repay amounts outstanding under
the Operating Partnership's unsecured credit facility, to pay transaction
expenses, for potential acquisitions and for general corporate purposes. This
divestiture resulted in an approximate gain of $11,800 and an approximate
extraordinary loss of $1,500, consisting of prepayment penalties with an off-set
for the write-off of debt premiums related to the indebtedness extinguished. On
August 4, 1999, the second transaction with BPP Retail closed. Pursuant to the
closing of the second transaction, BPP Retail acquired 12 of the Operating
Partnership's retail shopping centers, totaling approximately 2.0 million square
feet, for an aggregate price of approximately $245,800. The Operating
Partnership used the proceeds from the second transaction to repay secured debt
related to the properties divested, to partially repay amounts outstanding under
the Operating Partnership's unsecured credit facility, to pay transaction
expenses, for potential acquisitions and for general corporate purposes. The
divestiture resulted in an approximate gain of approximately $21,500 and an
extraordinary loss of approximately $1,300, consisting of prepayment penalties
with an offset for the write-off of debt premiums related to the indebtedness
extinguished. The Operating Partnership currently expects the third transaction
to close on or about December 1, 1999.

     Although the remaining transaction with BPP Retail does not have a
discretionary due diligence period, it is subject to certain customary closing
conditions, which are generally applied on a property-by-property basis. BPP has
announced that it has received and is reviewing a merger proposal. The Operating
Partnership does

                                        7
<PAGE>   10
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1999
                       (UNAUDITED, DOLLARS IN THOUSANDS,
         EXCEPT PROPERTY STATISTICS, SHARE, PER UNIT AND UNIT AMOUNTS)

not believe that the contractual obligations of BPP Retail with respect to the
purchase of the retail centers will be affected by any resulting merger. BPP
Retail has posted a deposit of $8,375 on the remaining transaction. BPP Retail's
liability in the event of its default under a definitive agreement is limited to
its deposit. Although the Operating Partnership believes that the remaining
transaction with BPP Retail is probable, the transaction might not close as
scheduled or close at all, and it is possible that the transaction may close
with respect to just a portion of the properties currently subject to the
agreement.

     The Operating Partnership intends to use the proceeds of approximately
$107,100 from the divestiture of the remaining four retail centers to BPP Retail
in the third transaction to partially repay amounts outstanding under the
Operating Partnership's unsecured credit facility, to pay transaction expenses,
for potential acquisitions and for general corporate purposes.

     In addition, the Operating Partnership entered into a definitive agreement,
subject to a financing condition, with BPP, pursuant to which, if fully
consummated, BPP would have acquired up to six additional retail centers,
totaling approximately 1.5 million square feet, for approximately $284,400. On
June 30, 1999, this agreement was terminated pursuant to its terms as a result
of BPP's decision not to waive the financing condition. The Operating
Partnership currently intends to dispose of five of these retail properties,
either on an individual or portfolio basis, or its interest in the joint venture
which holds one of the five properties.

     Properties Held for Divestiture. As of September 30, 1999, the net carrying
value of the properties held for divestiture, comprised of 12 retail centers and
17 industrial buildings, was $477,815. Certain of the properties included in
these transactions are subject to indebtedness which totaled $112,190 as of
September 30, 1999.

     The following summarizes the condensed results of operations of the
properties held for divestiture for the nine and three months ended September
30, 1998 and 1999:

<TABLE>
<CAPTION>
                                                 PROPERTIES HELD FOR DIVESTITURE
                                   ------------------------------------------------------------
                                      INDUSTRIAL             RETAIL                TOTAL
                                   ----------------    ------------------    ------------------
 NINE MONTHS ENDED SEPTEMBER 30,    1998      1999      1998       1999       1998       1999
 -------------------------------   ------    ------    -------    -------    -------    -------
<S>                                <C>       <C>       <C>        <C>        <C>        <C>
Income...........................  $3,617    $3,601    $38,176    $41,984    $41,793    $45,585
Property operating expenses......     732       853     10,910     11,584     11,642     12,437
                                   ------    ------    -------    -------    -------    -------
          Net operating income...  $2,885    $2,748    $27,266    $30,400    $30,151    $33,148
                                   ======    ======    =======    =======    =======    =======
</TABLE>

<TABLE>
<CAPTION>
                                      INDUSTRIAL             RETAIL                TOTAL
                                   ----------------    ------------------    ------------------
THREE MONTHS ENDED SEPTEMBER 30,    1998      1999      1998       1999       1998       1999
--------------------------------   ------    ------    -------    -------    -------    -------
<S>                                <C>       <C>       <C>        <C>        <C>        <C>
Income...........................  $1,227    $1,268    $12,766    $13,924    $13,993    $15,192
Property operating expenses......     251       296      3,512      3,848      3,763      4,144
                                   ------    ------    -------    -------    -------    -------
          Net operating income...  $  976    $  972    $ 9,254    $10,076    $10,230    $11,048
                                   ======    ======    =======    =======    =======    =======
</TABLE>

                                        8
<PAGE>   11
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1999
                       (UNAUDITED, DOLLARS IN THOUSANDS,
         EXCEPT PROPERTY STATISTICS, SHARE, PER UNIT AND UNIT AMOUNTS)

 5. DEBT

     As of December 31, 1998 and September 30, 1999, debt consisted of the
following:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,    SEPTEMBER 30,
                                                                 1998            1999
                                                             ------------    -------------
<S>                                                          <C>             <C>
Secured debt, varying interest rates from 4.0% to 10.4% due
  May 2000 to April 2014...................................   $  718,979      $  737,851
Secured credit facility, variable interest rate at LIBOR
plus 87.5 basis points (6.3% at September 30, 1999, based
on 30-day LIBOR of 5.7%), due December 15, 1999............           --          80,000
Unsecured senior debt securities, weighted average interest
  rate of 7.2%, due June 2008, June 2015 and June 2018.....      400,000         400,000
Unsecured credit facility, variable interest at LIBOR plus
  90 to 120 basis points (6.6% at September 30, 1999, based
  on 30-day LIBOR of 5.7%), due November 2000..............      234,000          49,000
                                                              ----------      ----------
     Subtotal..............................................    1,352,979       1,266,851
     Unamortized debt premiums.............................       15,217          11,720
                                                              ----------      ----------
          Total consolidated debt..........................   $1,368,196      $1,278,571
                                                              ==========      ==========
</TABLE>

     Secured debt generally requires monthly principal and interest payments.
The secured debt is secured by deeds of trust on certain Properties. As of
September 30, 1999, the total gross investment book value of those Properties
secured by debt was $1,443,705. All of the secured debt bears interest at fixed
rates, except for two loans with an aggregate principal amount of $10,466 which
bear interest at a variable rate. The secured debt has various financial and
non-financial covenants. Additionally, certain of the secured debt is cross-
collateralized.

     The secured credit facility represents a loan secured by unfunded capital
commitments of the third party investors in the Alliance Fund I. See Note 7 for
a discussion of the Alliance Fund I.

     Interest on the senior debt securities is payable semiannually in each June
and December commencing December 1998. The 2015 notes are putable and callable
in June 2005. The senior debt securities are subject to various financial and
non-financial covenants.

     The Operating Partnership has a $500,000 unsecured revolving credit
agreement (the "Credit Facility") with Morgan Guaranty Trust Company of New
York, as agent, and a syndicate of twelve other banks. The Credit Facility has
an original term of three years and is subject to a fee that accrues on the
daily average undrawn funds, which varies between 15 and 25 basis points of the
undrawn funds based on the Operating Partnership's credit rating. The Credit
Facility has various financial and non-financial covenants.

     Capitalized interest related to construction projects for the nine and
three months ended September 30, 1998 and 1999 was $4,974, $8,298, $1,876 and
$2,841, respectively.

                                        9
<PAGE>   12
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1999
                       (UNAUDITED, DOLLARS IN THOUSANDS,
         EXCEPT PROPERTY STATISTICS, SHARE, PER UNIT AND UNIT AMOUNTS)

     The scheduled maturities of the Operating Partnership's total debt,
excluding unamortized debt premiums, as of September 30, 1999 are as follows:

<TABLE>
<CAPTION>
                                                            UNSECURED
                                                 SECURED      SENIOR     UNSECURED
                                      SECURED     CREDIT       DEBT       CREDIT
                                        DEBT     FACILITY   SECURITIES   FACILITY      TOTAL
                                      --------   --------   ----------   ---------   ----------
<S>                                   <C>        <C>        <C>          <C>         <C>
1999 (three months).................  $  3,347   $80,000     $     --     $    --    $   83,347
2000................................    45,190        --           --      49,000        94,190
2001................................    43,322        --           --          --        43,322
2002................................    53,997        --           --          --        53,997
2003................................   108,545        --           --          --       108,545
2004................................    92,360        --           --          --        92,360
2005................................    69,951        --      100,000          --       169,951
2006................................   134,950        --           --          --       134,950
2007................................    48,107        --           --          --        48,107
2008................................   127,746        --      175,000          --       302,746
Thereafter..........................    10,336        --      125,000          --       135,336
                                      --------   -------     --------     -------    ----------
Subtotal............................  $737,851   $80,000     $400,000     $49,000    $1,266,851
                                      ========   =======     ========     =======    ==========
</TABLE>

 6. MINORITY INTERESTS IN CONSOLIDATED JOINT VENTURES

     Minority interests in the Operating Partnership represent the limited
partnership interests in a subsidiary of the Operating Partnership and interests
held by certain third parties (some of which are separate account co-investors
that are Institutional Alliance Partners) in 21 joint ventures, through which 27
properties are held, that are consolidated for financial reporting purposes.
Such investments are consolidated because (i) the Operating Partnership owns a
majority interest or (ii) the Operating Partnership exercises significant
control through the ability to control major operating decisions such as
approval of budgets, selection of property managers and changes in financing.

     The following table distinguishes the minority interest ownership held by
certain joint venture partners, separate account co-investors, the Alliance Fund
I, the Series C Preferred Unit holders' interest in a subsidiary of the
Operating Partnership, the Series D Preferred Unit holder's interest in a
subsidiary of the Operating Partnership and the Series E Preferred Unit holder's
interest in a subsidiary of the Operating

                                       10
<PAGE>   13
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1999
                       (UNAUDITED, DOLLARS IN THOUSANDS,
         EXCEPT PROPERTY STATISTICS, SHARE, PER UNIT AND UNIT AMOUNTS)

Partnership, as of the quarter ended September 30, 1999 and for the nine and
three months ended September 30, 1999.

<TABLE>
<CAPTION>
                                                                            MINORITY INTEREST SHARE
                                                                                 OF NET INCOME
                                                                    ---------------------------------------
                                               MINORITY INTEREST       NINE MONTHS          THREE MONTHS
                                                LIABILITY AS OF           ENDED                ENDED
                                               SEPTEMBER 30, 1999   SEPTEMBER 30, 1999   SEPTEMBER 30, 1999
                                               ------------------   ------------------   ------------------
<S>                                            <C>                  <C>                  <C>
Joint venture partners.......................       $ 18,384             $ 1,426               $  516
Separate account co-investors................         51,400               2,771                  971
Alliance Fund I..............................         11,711                 111                  111
Series C Preferred Units (liquidation
  preference of $110,000)....................        105,855               7,218                2,406
Series D Preferred Units (liquidation
  preference of $79,767).....................         77,690               2,404                1,545
Series E Preferred Units (liquidation
  preference of $11,022).....................         10,857                  72                   72
                                                    --------             -------               ------
                                                    $275,897             $14,002               $5,621
                                                    ========             =======               ======
</TABLE>

     On September 10, 1999, a subsidiary of the Operating Partnership, AMB
Property II, L.P., declared a cash distribution of $1.0928 per unit on its
Series C Preferred Units, for the three month period ending October 14, 1999,
payable on October 15, 1999, to unitholders of record as of October 5, 1999. On
September 10, 1999, AMB Property II, L.P. declared a cash distribution of
$0.9688 per unit on its Series D Preferred Units, for the three month period
ending on September 24, 1999, payable on September 25, 1999, to unitholders of
record as of September 15, 1999. On September 10, 1999, AMB Property II, L.P.
declared a cash dividend of $0.3264 per unit on its Series E Preferred Units,
for the period from August 31, 1999 to October 14, 1999, payable on October 15,
1999, to unitholders of record as of October 5, 1999.

 7. INVESTMENT IN CONSOLIDATED JOINT VENTURE

     On September 24, 1999, AMB Institutional Alliance REIT I, Inc. (the
"Alliance REIT") issued and sold shares of its capital stock to several third
party investors. The Alliance REIT has elected to be taxed as a REIT under the
Code, commencing with its tax year ending December 31, 1999. The Alliance REIT
acquired a limited partnership interest in AMB Institutional Alliance Fund I,
L.P. (the "Alliance Fund I"), which is engaged in the acquisition, ownership,
operation, management, renovation, expansion and development of primarily
industrial buildings in target markets nationwide. The Operating Partnership is
the managing general partner of the Alliance Fund I and, together with one of
its affiliates, owns approximately 30.1% of the partnership interests of the
Alliance Fund I. The Operating Partnership consolidates the Alliance Fund I for
financial reporting purposes because it is the managing general partner of the
Alliance Fund I and, as a result, controls all of its major operating decisions.

 8. INVESTMENT IN UNCONSOLIDATED JOINT VENTURE

     The Operating Partnership has a 56.1% non-controlling limited partnership
interest in one unconsolidated equity investment joint venture which was
purchased in June 1998. The joint venture owns 36 industrial buildings totaling
approximately 4.0 million square feet in the Chicago market. For the nine and
three month periods ended September 30, 1999, the Operating Partnership's share
of net operating income was $6,048 and $2,056, respectively, and as of September
30, 1999, the Operating Partnership's share of the unconsolidated joint venture
debt was $19,112, which had a weighted average interest rate of 6.5%.

                                       11
<PAGE>   14
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1999
                       (UNAUDITED, DOLLARS IN THOUSANDS,
         EXCEPT PROPERTY STATISTICS, SHARE, PER UNIT AND UNIT AMOUNTS)

 9. PARTNERS' CAPITAL

     On September 10, 1999, the Operating Partnership declared a quarterly cash
distribution of $0.35 per LP Unit, for the quarter ending September 30, 1999,
payable on October 15, 1999, to unitholders of record as of October 5, 1999. On
September 10, 1999, the Operating Partnership declared a cash distribution of
$0.5313 and $1.0781 per unit on its Series A Preferred Units and Series B
Preferred Units, respectively, for the three month period ending October 14,
1999, payable on October 15, 1999, to unitholders of record as of October 5,
1999.

10. INCOME PER COMMON UNIT

     The Operating Partnership's only dilutive securities outstanding for the
nine and three months ended September 30, 1998 and 1999 were stock options
granted under the Company's stock incentive plan. The effect of the stock
options was to increase weighted average shares outstanding by 377,344 and
100,832 shares for the nine months ended September 30, 1998 and 1999,
respectively, and by 378,410 and 100,715 shares for the three months ended
September 30, 1998 and 1999, respectively. Such dilution was computed using the
treasury stock method.

11. SEGMENT INFORMATION

     The Operating Partnership has two reportable segments: Industrial
Properties and Retail Properties. The Industrial Properties consist primarily of
warehouse distribution facilities suitable for single or multiple tenants and
are typically comprised of multiple buildings and are leased to tenants engaged
in various types of businesses. The Retail Properties are generally leased to
one or more anchor tenants, such as grocery and drug stores, and various retail
businesses. The accounting policies of the segments are the same as those
described in the Operating Partnership's Annual Report on Form 10-K for the year
ended December 31, 1998. The Operating Partnership evaluates performance based
upon property net operating income and contribution to funds from operations
("FFO") from the combined properties in each segment. The Operating
Partnership's

                                       12
<PAGE>   15
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1999
                       (UNAUDITED, DOLLARS IN THOUSANDS,
         EXCEPT PROPERTY STATISTICS, SHARE, PER UNIT AND UNIT AMOUNTS)

properties are managed separately because each segment requires different
operating, pricing and leasing strategies. Significant information used by the
Operating Partnership for the reportable segments is as follows:

<TABLE>
<CAPTION>
                              INDUSTRIAL PROPERTIES          RETAIL PROPERTIES             TOTAL PROPERTIES
                            --------------------------   --------------------------   --------------------------
                            NINE MONTHS   THREE MONTHS   NINE MONTHS   THREE MONTHS   NINE MONTHS   THREE MONTHS
                               ENDED         ENDED          ENDED         ENDED          ENDED         ENDED
                            -----------   ------------   -----------   ------------   -----------   ------------
<S>                         <C>           <C>            <C>           <C>            <C>           <C>
RENTAL REVENUES(1):
September 30, 1998........   $172,590       $66,021        $79,254       $26,820       $251,844       $ 92,841
  September 30, 1999......    257,199        91,395         73,696        18,313        330,895        109,708
PROPERTY NET OPERATING
  INCOME AND CONTRIBUTION
  TO FFO(2):
  September 30, 1998......    132,059        50,099         57,318        19,577        189,377         69,676
  September 30, 1999......    195,224        69,620         53,130        13,306        248,354         82,926
</TABLE>

<TABLE>
<CAPTION>
                                                     INDUSTRIAL PROPERTIES    RETAIL PROPERTIES    TOTAL PROPERTIES
                                                     ---------------------    -----------------    ----------------
<S>                                                  <C>                      <C>                  <C>
INVESTMENT IN PROPERTIES:
As of:
  December 31, 1998(3).............................       $2,574,940              $794,120            $3,369,060
  September 30, 1999(4)............................        3,038,127                30,571             3,068,698
</TABLE>

---------------
(1) Includes straight-line rents of $8,083 and $7,523 for the nine months ended
    September 30, 1998 and 1999, respectively, and $2,594 and $2,000 for the
    quarters ended September 30, 1998 and 1999, respectively.

(2) Property net operating income (NOI) and contribution to FFO are defined as
    rental revenue, including reimbursements and straight- line rents, less
    property level operating expenses and excluding depreciation, amortization
    and interest expense.

(3) Excludes net properties held for divestiture of $21,434, $93,616, and
    $115,050 for Industrial, Retail, and Total Properties, respectively.

(4) Excludes net properties held for divestiture of $39,550, $438,265, and
    $477,815 for Industrial, Retail, and Total Properties, respectively.

                                       13
<PAGE>   16
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1999
                       (UNAUDITED, DOLLARS IN THOUSANDS,
         EXCEPT PROPERTY STATISTICS, SHARE, PER UNIT AND UNIT AMOUNTS)

     The Operating Partnership uses property net operating income and FFO as
operating performance measures. The following two tables are reconciliations
between total reportable segment revenue, property net operating income and FFO
contribution to consolidated revenues, net income and FFO.

<TABLE>
<CAPTION>
                                                              FOR THE NINE MONTHS     FOR THE THREE MONTHS
                                                              ENDED SEPTEMBER 30,      ENDED SEPTEMBER 30,
                                                              --------------------    ---------------------
                                                                1998        1999       1998          1999
                                                              --------    --------    -------      --------
<S>                                                           <C>         <C>         <C>          <C>
REVENUES
Total rental revenues for reportable segments...............  $251,844    $330,895    $92,841      $109,708
Investment management and other income......................     3,016       5,838      1,220         2,076
                                                              --------    --------    -------      --------
Total consolidated revenues.................................  $254,860    $336,733    $94,061      $111,784
                                                              ========    ========    =======      ========
NET INCOME
Property net operating income and contribution to FFO for
  reportable segments.......................................  $189,377    $248,354    $69,676      $ 82,926
Equity in earnings of unconsolidated joint venture..........       833       3,580        833         1,252
Investment management and other income......................     2,183       2,258        387           824
Less:
  General and administrative................................   (13,864)    (19,116)    (4,800)       (6,107)
  Interest expense..........................................   (47,105)    (67,705)   (19,544)      (21,147)
  Depreciation and amortization.............................   (40,052)    (49,295)   (14,750)      (15,693)
  Minority interests........................................    (3,085)    (14,002)    (1,427)       (5,621)
                                                              --------    --------    -------      --------
Net income before gain from divestiture of real estate......    88,287     104,074     30,375        36,434
Gain from divestiture of real estate........................        --      33,057         --        21,532
Extraordinary items.........................................        --      (2,856)        --        (1,347)
                                                              --------    --------    -------      --------
Net income..................................................  $ 88,287    $134,275    $30,375      $ 56,619
                                                              ========    ========    =======      ========
FFO(1)
Net income..................................................  $ 88,287    $134,275    $30,375      $ 56,619
Minority interests' share of net income.....................     3,085      14,002      1,427         5,621
Gain from divestiture of real estate........................        --     (33,057)        --       (21,532)
Extraordinary items.........................................        --       2,856         --         1,347
Real estate depreciation and amortization:
  Total depreciation and amortization.......................    40,052      49,295     14,750        15,693
  Furniture, fixtures, and equipment depreciation...........      (319)       (649)      (104)         (285)
FFO attributable to minority interests (2):
  Separate account co-investors.............................    (2,561)     (4,001)    (1,430)       (1,366)
  Alliance Fund I...........................................        --        (127)        --          (127)
  Other joint venture partners..............................    (1,562)     (1,691)      (605)         (582)
  Series C, D & E preferred unit distributions..............        --      (9,694)        --        (4,023)
Adjustment to derive FFO in unconsolidated joint venture(3):
  Operating Partnership's share of net income...............      (833)     (3,579)      (833)       (1,251)
  Operating Partnership's share of FFO......................     1,327       5,061      1,327         1,745
Series A preferred unit distributions.......................    (1,514)     (6,375)    (1,514)       (2,125)
Series B preferred unit distributions.......................        --      (4,206)        --        (1,402)
                                                              --------    --------    -------      --------
FFO.........................................................  $125,962    $142,110    $43,393      $ 48,332
                                                              ========    ========    =======      ========
</TABLE>

---------------
(1) FFO is defined as income from operations before minority interest, gains or
    losses from sale of real estate and extraordinary losses plus real estate
    depreciation and adjustment to derive the Operating Partnership's pro rata
    share of the FFO of unconsolidated joint ventures, less minority interests'
    pro rata share of the FFO of consolidated joint ventures and perpetual
    preferred stock dividends. In accordance with NAREIT White Paper on FFO, the
    Operating Partnership includes the effects of straight-line rents in FFO.
    Further, the Operating Partnership does not adjust FFO to eliminate the
    effects of non-recurring charges.

(2) Represents FFO attributable to minority interests in consolidated joint
    ventures for the periods presented, which has been computed as minority
    interests' share of net income before disposal of properties plus minority
    interests' share of real estate-related depreciation and amortization of the
    consolidated joint ventures for such periods.

(2) Represents the Operating Partnership's pro rata share of FFO in
    unconsolidated joint ventures for the periods presented, which has been
    computed as the Operating Partnership's share of net income plus the
    Operating Partnership's share of real estate-related depreciation and
    amortization of the unconsolidated joint venture for such periods.

                                       14
<PAGE>   17
                               AMB PROPERTY, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 1999
                       (UNAUDITED, DOLLARS IN THOUSANDS,
         EXCEPT PROPERTY STATISTICS, SHARE, PER UNIT AND UNIT AMOUNTS)

12. COMMITMENTS AND CONTINGENCIES

  Litigation

     In the normal course of business, from time to time, the Operating
Partnership is involved in legal actions relating to the ownership and
operations of its Properties. In management's opinion, the liabilities, if any,
that may ultimately result from such legal actions are not expected to have a
materially adverse effect on the consolidated financial position, results of
operations or cash flows of the Operating Partnership.

  Environmental Matters

     The Operating Partnership follows the policy of monitoring 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. There can be no assurance that such a material
environmental liability does not exist. The existence of any such material
environmental liability would have an adverse effect on the Operating
Partnership's results of operations and cash flow.

  General Uninsured Losses

     The Operating Partnership carries comprehensive liability, fire, flood,
environmental, extended coverage and rental loss insurance with policy
specifications, limits and deductibles which the Operating Partnership believes
are adequate and appropriate under the circumstances given the relative risk of
loss, the cost of such coverage and industry practice. There are, however,
certain types of extraordinary losses that may be either uninsurable, or not
economically insurable. Certain of the Properties are located in areas that are
subject to earthquake activity; the Operating Partnership has therefore obtained
limited earthquake insurance. Should an uninsured loss occur, the Operating
Partnership could lose its investment in, and anticipated profits and cash
flows, from a Property.

                                       15
<PAGE>   18

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     You should read the following discussion and analysis of the consolidated
financial condition and results of operations in conjunction with the Notes to
Consolidated Financial Statements. Statements contained in this discussion which
are not historical facts may be forward looking statements. 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 be
achieved or occur. Forward-looking statements are necessarily dependent on
assumptions, data or methods that may be incorrect or imprecise and we may not
be able to realize them. The following factors, among others, could cause actual
results and future events to differ materially from those set forth or
contemplated in the forward-looking statements: defaults or non-renewal of
leases by tenants, increased interest rates and operating costs, failure to
obtain necessary outside financing, difficulties in identifying properties to
acquire and in effecting acquisitions, our failure to successfully integrate
acquired properties and operations, our failure to divest of properties we have
contracted to sell or to timely reinvest proceeds from any such divestitures,
risks and uncertainties affecting property development and construction
(including, construction delays, cost overruns, our inability to obtain
necessary permits and public opposition to these activities), environmental
uncertainties, risks related to natural disasters, financial market
fluctuations, changes in real estate and zoning laws and increases in real
property tax rates. Our success also depends upon economic trends generally,
including interest rates, income tax laws, governmental regulation, legislation,
population changes and those risk factors discussed in Item 5 of this report. We
caution you not to place undue reliance on forward-looking statements, which
reflect our analysis only and speak only as of the date of this report or the
dates indicated in the statements.

     Unless we indicate otherwise or unless the context requires otherwise, all
references in this report to "AMB" and the "Company" mean AMB Property
Corporation and all references to the "operating partnership" mean AMB Property,
L.P. Unless we indicate otherwise or unless the context requires otherwise, all
references in this report to "we," "us," or "our" mean the operating partnership
and its subsidiaries.

                                  THE COMPANY

     As of September 30, 1999, we owned and operated industrial buildings and
retail centers totaling 67.4 million square feet located in 26 markets
nationwide. As of September 30, 1999, we owned 692 industrial buildings,
principally warehouse distribution buildings, aggregating 63.8 million rentable
square feet, which were 96.7% leased, and 17 retail centers, principally
grocer-anchored community shopping centers, aggregating 3.6 million rentable
square feet, which were 92.0% leased. In addition, as of the same date we had an
interest in an unconsolidated joint venture that owns 36 industrial buildings
aggregating 4.0 million square feet and we operated properties aggregating 3.7
million, 0.4 million, and 0.1 million square feet of industrial, retail, and
other properties, respectively, on behalf of investment management clients.

     On March 9, 1999, we signed three separate definitive agreements with BPP
Retail, LLC, a co-investment entity between Burnham Pacific and the California
Public Employees' Retirement System, pursuant to which, if fully consummated,
BPP Retail would have acquired up to 28 of our retail shopping centers, totaling
approximately 5.1 million square feet, for an aggregate price of $663.4 million.
The sale of three of the properties was subject to the consent of one of our
joint venture partners, which did not consent to the sale of these properties.
As a result, the price with respect to the 25 remaining properties, totaling
approximately 4.3 million square feet, is approximately $560.3 million. We
intend to dispose of the remaining three properties or our interests in the
joint ventures through which we hold the properties.

     Pursuant to the agreements, BPP Retail will acquire the 25 centers in
separate transactions. Under the agreements, we have the right to extend the
closing dates for a period of up to either 20 or 50 days. We have exercised this
right with respect to the first and second transactions, which closed on June
15, 1999 and August 4, 1999, respectively. Pursuant to the closings of the first
and second transactions, BPP Retail acquired

                                       16
<PAGE>   19

21 retail shopping centers, totaling approximately 3.5 million square feet, for
an aggregate price of approximately $453.2 million. We used the proceeds from
the first and second transactions to repay secured debt related to the
properties divested of approximately $55.5 million, to pay approximately $210.0
million in partial repayment of amounts outstanding under our unsecured credit
facility, to pay transaction expenses, for potential acquisitions and for
general corporate purposes. The divestitures resulted in an aggregate gain of
approximately $33.1 million and an extraordinary loss of approximately $2.9
million, consisting of prepayment penalties with an offset for the write-off of
debt premiums related to the indebtedness extinguished. We currently expect the
third transaction to close on or about December 1, 1999.

     Although the remaining transaction with BPP Retail does not have a
discretionary due diligence period, it is subject to certain customary closing
conditions, which are generally applied on a property-by-property basis. Burnham
Pacific has announced that it has received and is reviewing a merger proposal.
We do not believe that the remaining contractual obligations of BPP Retail with
respect to the purchase of the retail centers will be affected by any resulting
merger. BPP Retail has posted a deposit of $8.4 million on the remaining
transaction. BPP Retail's liability in the event of its default under a
definitive agreement is limited to its deposit. Although we believe that the
remaining transaction with BPP Retail is probable, the transaction might not
close as scheduled or close at all, and it is possible that the transaction may
close with respect to just a portion of the properties currently subject to the
agreement.

     We intend to use the proceeds of approximately $107.1 million from the
divestiture of the remaining four retail centers to BPP Retail in the third
transaction to partially repay amounts outstanding under our unsecured credit
facility, to pay transaction expenses, for potential acquisitions and for
general corporate purposes.

     In addition, we entered into a definitive agreement, subject to a financing
condition, with Burnham Pacific, pursuant to which, if fully consummated,
Burnham Pacific would have acquired up to six additional retail centers,
totaling approximately 1.5 million square feet, for approximately $284.4
million. On June 30, 1999, this agreement was terminated pursuant to its terms
as a result of Burnham Pacific's decision not to waive the financing condition.
We currently intend to dispose of five of these retail properties, either on an
individual or portfolio basis, or our interest in the joint venture which holds
one of the five properties.

     On September 24, 1999, AMB Institutional Alliance REIT I, Inc. (the
"Alliance REIT") issued and sold shares of its capital stock to several third
party investors. The Alliance REIT acquired a limited partnership interest in
AMB Institutional Alliance Fund I, L.P. (the "Alliance Fund I"), which is
engaged in the acquisition, ownership, operation, management, renovation,
expansion and development of primarily industrial buildings in target markets
nationwide. We are the managing general partner of the Alliance Fund I and,
together with one of our affiliates, own approximately 30.1% of the partnership
interests of the Alliance Fund I. We consolidate the Alliance Fund I for
financial reporting purposes because we are the managing general partner of the
Alliance Fund I and, as a result, control all of its major operating decisions.

     We have formed a limited liability company with AIG Global Real Estate
Investment Corp. ("AIG") to acquire, develop, manage and operate environmentally
impaired properties in target markets nationwide. We are is the managing member
of this venture. We and AIG have each committed $50 million to this venture.
This venture currently intends to invest primarily in industrial properties
located near major airports, ports and in-fill areas with known and quantifiable
environmental issues, as well as, to a more limited extent, well-located,
value-added retail properties.

ACQUISITION AND DEVELOPMENT ACTIVITY

     During the third quarter, we acquired $67.0 million in operating
properties, consisting of 14 industrial buildings, aggregating 1.5 million
square feet. We also initiated four new development projects, aggregating
approximately 1.0 million square feet during the quarter, with a total estimated
cost of $92.1 million upon completion. Two development projects aggregating
approximately 0.7 million square feet, were completed during the quarter at a
total aggregate cost of $29.8 million. As of September 30, 1999, we had 16
industrial projects, aggregating approximately 4.1 million square feet, in our
development pipeline, with a total estimated

                                       17
<PAGE>   20

cost of $243.3 million upon completion, and three retail projects, aggregating
approximately 0.5 million square feet, with a total estimated cost of $70.2
million upon completion, in our development pipeline.

STRATEGIC ALLIANCE PROGRAMS

     We believe that our strategy of forming strategic alliances with local and
regional real estate experts improves our operating efficiency and flexibility,
strengthens our customer satisfaction and retention and provides us with
attractive growth opportunities. Additionally, our strategic alliances with
institutional investors enhance our access to private capital and our ability to
finance transactions.

     Our six Strategic Alliance Programs can be grouped into two categories:

     - Operating Alliances, which allow us to form relationships with local or
       regional real estate experts, thereby becoming their ally rather than
       their competitor; and

     - Investment Alliances, which allow us to establish relationships with a
       variety of capital sources.

OPERATING ALLIANCES

     Broker Alliance Program: Through our Broker Alliance Program, we work
closely with top local leasing companies in each of our markets, which brokers
provide us with access to high quality tenants and local market knowledge.

     Customer Alliance Program: Through our Customer Alliance Program, we seek
to build long-term working relationships with major tenants. We are committed to
working with our tenants, particularly our larger tenants with multi-site
requirements, to make their property searches as efficient as possible. During
the quarter ended September 30, 1999, we acquired one industrial building,
aggregating 0.7 million square feet, sourced through our Customer Alliance
Program.

     Development Alliance Program: Our strategy for our Development Alliance
Program is to form alliances with development firms with a strong local presence
and expertise. As of September 30, 1999, over 84% of our development projects
were being developed by our Development Alliance Partners.

     Management Alliance Program: Our strategy for the Management Alliance
Program is to develop close relationships with, and outsource property
management to, local property managers that we believe to be among the best in
their respective markets. Our alliances with local property managers increase
our flexibility, reduce our overhead expenses and improve our customer service.
In addition, these alliances provide us with local market information related to
tenant activity and acquisition opportunities. During the quarter ended
September 30, 1999, we acquired nine industrial buildings, aggregating 0.4
million square feet, sourced through our Management Alliance Program.

INVESTMENT ALLIANCES

     Institutional Alliance Program: Our strategy for our Institutional Alliance
Program is to form alliances with institutional investors. Our alliances with
institutional investors provide us with access to private capital, including
during those times when the public markets are less attractive, as well as
providing us with a source of incremental fee income and investment returns.

     UPREIT Alliance Program: Through our UPREIT Alliance Program, we issue our
limited partnership units to certain property owners in exchange for properties,
thus providing additional growth for our portfolio.

                             RESULTS OF OPERATIONS

     The analysis below shows changes in our results of operations for the nine
and three months ended September 30, 1999 and 1998 which includes changes
attributable to acquisitions and development activity, 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 95.0% leased) for both the current and prior periods (the "same store
properties"). For the comparison between the nine and

                                       18
<PAGE>   21

three month periods ended September 30, 1999 and 1998, the same store properties
consist of properties aggregating 38.4 million square feet. Our future financial
condition and results of operations, including rental revenues, may be impacted
by the acquisition of additional properties. Our future revenues and expenses
may vary materially from their historical rates.

NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

     Rental revenues. Rental revenues, including straight-line rents, tenant
reimbursements and other property related income, increased by $79.1 and $16.9
million, or 31.4% and 18.2%, for the nine and three months ended September 30,
1999, to $330.9 and $109.7 million, respectively, as compared with the same
periods in 1998. Approximately $6.9 and $2.1 million, or 8.8% and 12.3% of this
increase, was attributable to same store properties, with the remaining $72.2
and $14.8 million attributable to properties acquired between January 1, 1998
and September 30, 1999. The growth in rental revenues in same store properties
resulted primarily from the incremental effect of cash rental rate increases and
changes in occupancy and reimbursement of expenses, offset by a decrease in
straight-line rents and the divestiture of the 21 retail centers to BPP Retail.
During the nine and three months ended September 30, 1999, the same store
properties increase in base rents (cash basis) was 13.4% and 10.9%,
respectively, on 3.9 million and 1.4 million square feet leased, respectively.

     Other revenues. Other revenues, including equity in earnings of
unconsolidated joint venture, investment management income, and interest income,
totaled $5.8 and $2.1 million for the nine and three months ended September 30,
1999, respectively, as compared to $3.0 and $1.2 million for the nine and three
months ended September 30, 1998, respectively. The $2.8 and $0.9 million
increase in other revenues between the nine and three months ended September 30,
1999 and September 30, 1998, respectively, was primarily attributable to the
earnings from our equity investment in our unconsolidated joint venture which
was purchased in June 1998.

     Property operating expenses and real estate taxes. Property operating
expenses, including asset management costs and real estate taxes, increased by
$20.1 and $3.6 million, or 32.1% and 15.6%, for the nine and three months ended
September 30, 1999, to $82.5 and $26.8 million, respectively, as compared with
the same periods in 1998. Same store properties operating expenses increased by
approximately $1.2 and $0.2 million for the nine and three months ended
September 30, 1999, respectively, while operating expenses attributable to
properties acquired between January 1, 1998 through September 30, 1999 added
$18.9 and $3.4 million. The change in same store properties operating expenses
primarily relates to increases in same store properties real estate taxes of
approximately $1.6 and $0.4 million for the nine and three months ended
September 30, 1999, respectively, offset by decreases in same store insurance
expenses and the divestiture of the 21 retail centers to BPP Retail.

     General and administrative expenses. General and administrative expenses
were $19.1 and $6.1 million for the nine and three months ended September 30,
1999, respectively. The $5.2 and $1.3 million, or 37.4% and 27.1%, increases
from the nine and three months ended September 30, 1998 to September 30, 1999
are primarily attributable to additional staffing that resulted from the growth
in our portfolio. The remainder of the increase is due to the change in our
accounting policy for capitalizing internal acquisition costs. Effective during
the second quarter of 1998, we changed our policy to expense all internal costs.

                        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 flows from operations, borrowings under our unsecured credit
facility, other forms of secured or unsecured financing, proceeds from equity or
debt offerings by us or AMB (including issuances of limited partnership units by
us or a subsidiary or shares of stock by AMB) and net proceeds from divestitures
of properties. We presently believe that our sources of working capital and our
ability to access private and public debt and equity capital are adequate for us
to continue to meet our liquidity requirements for the foreseeable future.

                                       19
<PAGE>   22

CAPITAL RESOURCES

     Property divestitures. On March 9, 1999, we signed three separate
definitive agreements with BPP Retail, LLC pursuant to which, if fully
consummated, BPP Retail would have acquired up to 28 of our retail shopping
centers, totaling approximately 5.1 million square feet, for an aggregate price
of $663.4 million. The sale of three of the properties was subject to the
consent of one of our joint venture partners, which did not consent to the sale
of these properties. As a result, the sale price with respect to the 25
remaining properties, totaling approximately 4.3 million square feet, is
approximately $560.3 million. We intend to dispose of the remaining three
properties or our interests in the joint ventures through which we hold the
properties.

     Pursuant to the agreements, BPP Retail will acquire the 25 centers in
separate transactions. Under the agreements, we have the right to extend the
closing dates for a period of up to either 20 or 50 days. We have exercised this
right with respect to the first and second transactions, which closed on June
15, 1999 and August 4, 1999, respectively. Pursuant to the closings of the first
and second transactions, BPP Retail acquired 21 retail shopping centers,
totaling approximately 3.5 million square feet, for an aggregate price of
approximately $453.2 million. We used the proceeds from the first and second
transactions to repay secured debt related to the properties divested of
approximately $55.5 million, to pay approximately $210.0 million in partial
repayment of amounts outstanding under our unsecured credit facility, to pay
transaction expenses, for potential acquisitions and for general corporate
purposes. The divestitures resulted in an aggregate gain of approximately $33.1
million and an extraordinary loss of approximately $2.9 million, consisting of
prepayment penalties with an offset for the write-off of debt premiums related
to the indebtedness extinguished. We currently expect the third transaction to
close on or about December 1, 1999.

     In addition, we entered into a definitive agreement, subject to a financing
condition, with Burnham Pacific, pursuant to which, if fully consummated,
Burnham Pacific would have acquired up to six additional retail centers,
totaling approximately 1.5 million square feet, for approximately $284.4
million. On June 30, 1999, this agreement was terminated pursuant to its terms
as a result of Burnham Pacific's decision not to waive the financing condition.
We currently intend to dispose of five of these retail properties, either on an
individual or portfolio basis, or our interests in the joint venture which holds
one of the five properties.

     As of September 30, 1999, the net carrying value of the properties held for
divestiture was $477.8 million. Certain of the properties included in these
transactions are subject to indebtedness totaling $112.2 million as of September
30, 1999. We intend to use the proceeds from these transactions to pay expenses
incurred in connection with the divestitures, to repay the secured debt related
to the properties divested, to partially pay down our unsecured credit facility,
for potential acquisitions and for general corporate purposes. There can be no
assurance that we will dispose of all of the properties held for divestiture in
a timely manner.

     Credit facility. We have a $500 million unsecured revolving credit
agreement with Morgan Guaranty Trust Company of New York, as agent, and a
syndicate of twelve other banks. The credit facility has a term of three years
and is subject to a fee that accrues on the daily average undrawn funds, which
varies between 15 and 25 basis points (currently 15 basis points) of the undrawn
funds based on our credit rating. We use the credit facility principally for
acquisitions and for general working capital requirements. Borrowings under the
credit facility bear interest at LIBOR plus 90 to 120 basis points (currently
LIBOR plus 90 basis points), depending our debt rating at the time of the
borrowings. As of September 30, 1999, the outstanding balance on the credit
facility was $49.0 million, with a weighted average interest rate of 6.6% (based
on 30-day LIBOR of 5.7%). Monthly debt service payments on the credit facility
are interest only. The credit facility matures in November 2000. The total
amount available under the credit facility fluctuates based upon the borrowing
base, as defined in the agreement governing the credit facility. At September
30, 1999, the remaining amount available under the credit facility was
approximately $451.0 million.

     Debt and equity financing. On August 31, 1999, AMB Property II, L.P. issued
and sold 220,440 7.75% Series E Cumulative Redeemable Preferred Limited
Partnership Units at a price of $50.00 per unit in a private placement.
Distributions are cumulative from the date of original issuance and are payable
quarterly in arrears at a rate per unit equal to $3.875 per annum. The Series E
Preferred Units are redeemable by AMB Property II, L.P. on or after August 31,
2004, subject to certain conditions, for cash at a redemption price equal to
$50.00 per unit, plus accumulated and unpaid distributions thereon, if any, to
the redemption date.

                                       20
<PAGE>   23

The Series E Preferred Units are exchangeable, at specified times and subject to
certain conditions, on a one-for-one basis, for shares of AMB's Series E
Preferred Stock. AMB Property II, L.P. used the gross proceeds of approximately
$11.0 million to pay placement fees, transaction expenses and to repay
approximately $10.8 million in loans made to it by us. We used the funds to pay
approximately $10.0 million in partial repayment of amounts outstanding under
our unsecured credit facility and for general corporate purposes.

     Market capitalization. As of September 30, 1999, the aggregate principal
amount of the secured debt was $817.9 million, excluding unamortized debt
premiums of $11.7 million. The secured debt bears interest at rates varying from
4.0% to 10.4% per annum (with a weighted average of 7.6%) and final maturity
dates ranging from December 1999 to April 2014. We believe the carrying value of
the debt approximates its fair value on September 30, 1999.

     As of September 30, 1999, our total outstanding debt was approximately $1.3
billion, including unamortized debt premiums of approximately $11.7 million. See
Note 5 to our Consolidated Financial Statements. The total amount of debt that
we must repay during the remainder of 1999 is approximately $83.3 million, of
which $80.0 million represents repayment of a secured credit facility, with the
remaining $3.3 million representing scheduled principal amortization.

     In order to maintain financial flexibility and facilitate the rapid
deployment of capital through market cycles, we presently intend to operate with
a debt-to-total market capitalization ratio of approximately 45% or less.
Additionally, we presently intend to continue to structure our balance sheet in
order to maintain an investment grade rating on our senior unsecured debt.

                                       21
<PAGE>   24

     The following tables summarize our debt maturities and capitalization as of
September 30, 1999 (in thousands, except share amounts and percentages).

                                      DEBT

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
                                                                    UNSECURED
                              INDUSTRIAL    RETAIL      SECURED       SENIOR     UNSECURED
                               SECURED     SECURED      CREDIT         DEBT       CREDIT
                                 DEBT        DEBT     FACILITY(2)   SECURITIES   FACILITY      TOTAL
                              ----------   --------   -----------   ----------   ---------   ----------
<S>                           <C>          <C>        <C>           <C>          <C>         <C>
1999 (three months).........   $  2,256    $  1,091    $ 80,000      $     --     $    --    $   83,347
2000........................     36,434       8,756          --            --      49,000        94,190
2001........................     13,277      30,045          --            --          --        43,322
2002........................     30,189      23,808          --            --          --        53,997
2003........................     58,024      50,521          --            --          --       108,545
2004........................     91,790         570          --            --          --        92,360
2005........................     69,333         618          --       100,000          --       169,951
2006........................    134,280         670          --            --          --       134,950
2007........................     47,380         727          --            --          --        48,107
2008........................    119,988       7,758          --       175,000          --       302,746
Thereafter..................      8,410       1,926          --       125,000          --       135,336
                               --------    --------    --------      --------     -------    ----------
  Subtotal..................    611,361     126,490      80,000       400,000      49,000     1,266,851
  Unamortized premiums......      9,049       2,671          --            --          --        11,720
                               --------    --------    --------      --------     -------    ----------
          Total consolidated
            debt............    620,410     129,161      80,000       400,000      49,000     1,278,571
Our share of unconsolidated
  JV debt...................     19,112          --          --            --          --        19,112
                               --------    --------    --------      --------     -------    ----------
          Total debt........    639,522     129,161      80,000       400,000      49,000     1,297,683
JV partners' share of
  consolidated JV debt......    (42,489)    (16,668)    (64,000)           --          --      (123,157)
                               --------    --------    --------      --------     -------    ----------
  Our share of total debt...   $597,033    $112,493    $ 16,000      $400,000     $49,000    $1,174,526
                               ========    ========    ========      ========     =======    ==========
     Weighted average
       interest rate........        7.7%(1)      7.9%       6.3%          7.2%        6.6%          7.4%
     Weighted average
       maturity (in
       years)...............        6.3(1)      3.8         0.2          11.1         1.2           6.9
</TABLE>

---------------
(1) Does not include unconsolidated joint venture debt, which bears interest at
    6.5% per annum and matures in 2007.

(2) Represents a secured credit facility secured by the unfunded capital
    commitments of the investors in the Alliance Fund I. Our projected ownership
    of the Alliance Fund I upon final closing is estimated to be 20%.

                                 MARKET EQUITY

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
                                                    SHARES/UNITS    MARKET      MARKET
                     SECURITY                       OUTSTANDING     PRICE       VALUE
                     --------                       ------------    ------    ----------
<S>                                                 <C>             <C>       <C>
Common stock......................................   86,576,641     $21.19    $1,834,343
Common limited partnership units..................    4,532,584      21.19        96,034
                                                     ----------               ----------
          Total...................................   91,109,225               $1,930,377
                                                     ==========               ==========
</TABLE>

                                       22
<PAGE>   25

                                PREFERRED UNITS

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
                                                DIVIDEND    LIQUIDATION     REDEMPTION
                   SECURITY                       RATE      PREFERENCE      PROVISIONS
                   --------                     --------    -----------    -------------
<S>                                             <C>         <C>            <C>
Series A preferred units......................    8.50%      $100,000      July 2003
Series B preferred units......................    8.63         65,000      November 2003
Series C preferred units......................    8.75        110,000      November 2003
Series D preferred units......................    7.75         79,767      May 2004
Series E preferred units......................    7.75         11,022      August 2004
                                                  ----       --------
          Weighted Average/Total..............    8.41%      $365,789
                                                  ====       ========
</TABLE>

                             CAPITALIZATION RATIOS

<TABLE>
<CAPTION>
-------------------------------------------------------------------
<S>                                                           <C>
Total debt-to-total market capitalization...................  36.1%
Our share of total debt-to-total market capitalization......  33.8%
Total debt plus preferred-to-total market capitalization....  46.3%
Our share of total debt plus preferred-to-total market
  capitalization............................................  44.4%
</TABLE>

  Liquidity

     As of September 30, 1999, we had approximately $70.8 million in cash and
cash equivalents and $451.0 million of additional available borrowings under our
unsecured credit facility. We intend to use cash from operations, borrowings
under the credit facility, other forms of secured and unsecured financing,
proceeds from any future debt or equity offerings by us or AMB (including
issuances of limited partnership units by us or a subsidiary or shares of stock
of AMB), and proceeds from divestitures of properties to fund acquisitions,
development activities and capital expenditures and to provide for general
working capital requirements.

     On September 10, 1999, we declared a quarterly cash distribution of $0.35
per operating partnership unit, for the quarter ending September 30, 1999,
payable on October 15, 1999, to unitholders of record as of October 5, 1999. On
September 10, 1999, we declared a cash distribution of $0.5313 per unit on our
Series A Preferred Units, for the three month period ending October 14, 1999,
payable on October 15, 1999, to unitholders of record as of October 5, 1999. On
September 10, 1999, we and AMB Property II, L.P. declared a cash distribution of
$1.0781 and $1.0928 per unit on the Series B Preferred Units and Series C
Preferred Units, respectively, for the three month period ending October 14,
1999, payable on October 15, 1999, to unitholders of record as of October 5,
1999. On September 10, 1999, AMB Property II, L.P. declared a cash distribution
of $0.9688 per unit on its Series D Preferred Units, for the three month period
ending on September 24, 1999, payable on September 25, 1999, to unitholders of
record as of September 15, 1999. On September 10, 1999, AMB Property II, L.P.
declared a cash dividend of $0.3264 per unit on its Series E Preferred Units,
for the period from August 31, 1999 to October 14, 1999, payable on October 15,
1999, to unitholders of record as of October 5, 1999.

     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 and/or
equity financings. However, we may not be able to obtain future financings on
favorable terms or at all.

  Capital Commitments

     In addition to recurring capital expenditures and costs to renew or
re-tenant space, as of September 30, 1999, our development pipeline included 19
projects representing a total estimated investment of $313.5 million upon
completion. Of this total, approximately $155.2 million had been funded as of
September 30, 1999 and approximately $158.3 million is estimated to be required
to complete projects currently under construction or for which we have committed
to complete. We presently expect to fund these expenditures with cash from
operations, borrowings under the credit facility, debt or equity issuances and
net proceeds from property divestitures. Other than these capital items, we have
no material capital commitments.

                                       23
<PAGE>   26

     During the period from July 1, 1999 to September 30, 1999, we invested
$67.0 million in 14 industrial buildings, aggregating 1.5 million rentable
square feet. We funded these acquisitions and initiated development projects
through proceeds from the divestiture of properties, borrowings under the credit
facility, cash and debt assumption.

                              YEAR 2000 COMPLIANCE

     Our state of readiness. We utilize a number of computer software programs
and operating systems across our entire organization, including applications
used in financial business systems and various administrative functions. To the
extent that our software applications contain source code that is unable to
appropriately interpret the upcoming calendar year 2000 and beyond, some level
of modification or replacement of such applications will be necessary.

     We have conducted a company-wide test of our financial and non-financial
systems to ensure that our systems will adequately handle the year 2000 issue.
Our financial system is fully year 2000 compliant. We have conducted a survey of
our property managers to determine if our non-financial systems (HVAC, security,
lighting, and other building systems) at our properties are year 2000 compliant
and to determine the state of readiness of our tenants regarding their year 2000
compliance. A majority of our property managers have responded to the survey
and, based upon such responses, we believe that the non-financial systems with
respect to those properties are year 2000 compliant. In addition, we are
currently surveying our other third party vendors to determine if their systems
are year 2000 compliant and to determine the state of readiness regarding their
year 2000 compliance. The compliance efforts of our third-party vendors,
including utility and telecommunication companies, are not within our control
and any failure on the part of our third-party vendors to become year 2000
compliant could result in disruptions in our business operations and at our
properties.

     Costs of addressing our year 2000 issues. Given the information known at
this time about our systems, coupled with our ongoing, normal course-of-business
efforts to upgrade or replace critical systems, as necessary, we do not expect
year 2000 compliance costs to have any material adverse impact on our liquidity
or ongoing results of operations. The costs of such assessment will be included
in our general and administrative expenses. Although we can make no assurance,
we currently do not expect that the year 2000 issue will materially affect our
operations due to problems encountered by our suppliers, customers and lenders.

     Risks of our year 2000 issues. In light of our assessment and remediation
efforts to date, we believe that any residual year 2000 risk is limited to
non-critical business applications and support hardware. No assurance can be
given, however, that all of our systems will be year 2000 compliant or that
compliance will not have a material adverse effect on our future liquidity,
results of operations or ability to service debt.

     Our contingency plans. We have developed our contingency plan for all
material operations to address the most reasonably likely worst case scenarios
regarding year 2000 compliance. Our contingency plan includes ensuring the
availability of personnel and, if necessary, the deployment of teams consisting
of property managers and engineers to manually override malfunctioning systems
that are within our control in a timely manner.

                             FUNDS FROM OPERATIONS

     We believe that FFO, as defined by NAREIT, is an appropriate supplemental
measure of performance for an equity REIT. While FFO is a relevant and widely
used supplemental measure of operating performance of REITs, it does not
represent cash flow from operations or net income as defined by GAAP, and it
should not be considered as an alternative to those indicators in evaluating
liquidity or operating performance. Further, FFO as disclosed by other REITs may
not be comparable.

                                       24
<PAGE>   27

     The following table reflects the calculation of our FFO for nine and three
months ended September 30, 1998 and 1999 (dollars in thousands).

<TABLE>
<CAPTION>
                                              FOR THE NINE MONTHS ENDED   FOR THE THREE MONTHS ENDED
                                                    SEPTEMBER 30,                SEPTEMBER 30,
                                              -------------------------   ---------------------------
                                                 1998          1999           1998           1999
                                              -----------   -----------   ------------   ------------
<S>                                           <C>           <C>           <C>            <C>
Income from operations before minority
  interests.................................  $    91,372   $   118,076   $    31,802    $    42,055
Real estate related depreciation and
amortization:
  Total depreciation and amortization.......       40,052        49,295        14,750         15,693
  FF&E depreciation and ground lease
     amortization...........................         (319)         (649)         (104)          (285)
FFO attributable to minority
  interests(1)(2):
  Separate account co-investors.............       (2,561)       (4,001)       (1,430)        (1,366)
  Alliance Fund I...........................           --          (127)           --           (127)
  Other joint venture partners..............       (1,562)       (1,691)         (605)          (582)
Series C, D & E preferred unit
  distributions.............................           --        (9,694)           --         (4,023)
Adjustments to derive FFO in unconsolidated
  joint venture(3):
  Our share of net income...................         (833)       (3,579)         (833)        (1,251)
  Our share of FFO..........................        1,327         5,061         1,327          1,745
Series A preferred unit distributions.......       (1,514)       (6,375)       (1,514)        (2,125)
Series B preferred unit distributions.......           --        (4,286)           --         (1,402)
                                              -----------   -----------   -----------    -----------
FFO(1)......................................  $   125,962   $   142,110   $    43,393    $    48,332
                                              ===========   ===========   ===========    ===========
FFO per common unit:
  Basic.....................................  $      1.41   $      1.56   $      0.48    $      0.53
                                              ===========   ===========   ===========    ===========
  Diluted...................................  $      1.41   $      1.56   $      0.48    $      0.53
                                              ===========   ===========   ===========    ===========
Weighted average common units:
  Basic.....................................   89,214,581    90,796,692    89,675,763     91,078,726
                                              ===========   ===========   ===========    ===========
  Diluted(4)................................   89,537,512    90,897,525    90,053,107     91,179,441
                                              ===========   ===========   ===========    ===========
</TABLE>

---------------
(1) FFO is defined as income from operations before minority interest, gains or
    losses from sale of real estate and extraordinary losses plus real estate
    depreciation and adjustment to derive our pro rata share of the FFO of
    unconsolidated joint ventures, less minority interests' pro rata share of
    the FFO of consolidated joint ventures and perpetual preferred stock
    dividends and unit distributions. In accordance with 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.

(2) Represents FFO attributable to minority interest in consolidated joint
    ventures for the period presented, which has been computed as minority
    interests' share of net income plus minority interests' share of real
    estate-related depreciation and amortization of the consolidated joint
    ventures for such period. These minority interests are not convertible into
    shares of AMB's common stock.

(3) Represents our pro rata share of FFO in unconsolidated joint ventures for
    the period presented, which has been computed as our share of net income
    plus our share of real estate-related depreciation and amortization of the
    unconsolidated joint venture for such period.

(4) Includes the dilutive effect of stock options for the purchase of shares of
    AMB's common stock.

                                       25
<PAGE>   28

                    OPERATING AND LEASING STATISTICS SUMMARY

     The following summarizes key operating and leasing statistics for all of
our industrial properties and retail properties as of and for the period ended
September 30, 1999.

<TABLE>
<CAPTION>
                                                       INDUSTRIAL       RETAIL         TOTAL
                                                       -----------    ----------    -----------
<S>                                                    <C>            <C>           <C>
Square feet owned(1).................................   63,771,805     3,578,092     67,349,897
Occupancy percentage.................................         96.7%         92.0%          96.5%
Lease expirations as percentage of total square feet
  (next 12 months)...................................         16.6%          8.1%          16.1%
Weighted average lease term..........................      7 years      14 years        7 years
Tenant retention:
  Quarter............................................         68.3%         16.9%          68.1%
  Trailing average (1/01/96 to 9/30/99)..............         72.4%         85.3%          73.0%
Rent increases on renewals and rollovers:
  Quarter............................................         12.9%         (0.5)%         12.6%
  Year-to-date.......................................         13.6%          6.8%          13.0%
Same store cash basis NOI growth(2):
  Quarter............................................          6.0%          8.1%           6.4%
  Year-to-date.......................................          5.9%          5.7%           5.9%
Second generation tenant improvements and leasing
  commissions per sq. ft.:(3)
  Quarter:
     Renewals........................................  $      1.00    $     0.11    $      0.99
     Re-tenanted.....................................         3.32          0.00           3.31
                                                       -----------    ----------    -----------
       Weighted average..............................  $      1.64    $     0.10    $      1.63
                                                       ===========    ==========    ===========
  Year-to-date:
     Renewals........................................  $      1.26    $     1.26    $      1.26
     Re-tenanted.....................................         2.89          3.97           2.89
                                                       -----------    ----------    -----------
       Weighted average..............................  $      1.66    $     1.39    $      1.65
                                                       ===========    ==========    ===========
Trailing average (1/01/96 to 9/30/99)................  $      1.36    $     4.03    $      1.49
                                                       ===========    ==========    ===========
Recurring capex(4)
  Quarter............................................  $     7,657    $       27    $     7,684
  Year-to-date.......................................       19,257           789         20,046
</TABLE>

---------------
(1) In addition to owned square feet as of September 30, 1999, AMB Investment
    Management managed 3.7 million, 0.4 million, and 0.1 million additional
    square feet of industrial, retail, and other properties, respectively. We
    also have an investment in 4.0 million square feet of industrial properties
    through our investment in an unconsolidated joint venture.

(2) Consists of industrial buildings and retail centers aggregating 36.0 million
    and 2.3 million square feet, respectively, that have been owned by us prior
    to January 1, 1998, and excludes development properties prior to
    stabilization.

(3) Consists of all second generation leases renewing or re-tenanting with lease
    terms greater than one year.

(4) Includes second generation leasing costs and building improvements.

                                       26
<PAGE>   29

     The following summarizes key same store properties' operating and leasing
statistics for our industrial properties and retail properties as of and for the
period ending September 30, 1999.

<TABLE>
<CAPTION>
                                                          INDUSTRIAL     RETAIL        TOTAL
                                                          ----------    ---------    ----------
<S>                                                       <C>           <C>          <C>
Square feet in same store pool(1).......................  36,025,231    2,345,531    38,370,762
Occupancy percentage:
  9/30/99...............................................        97.9%        95.9%         97.8%
  9/30/98...............................................        95.9%        96.2%         95.9%
Tenant retention:
  Quarter...............................................        72.3%        30.6%         72.1%
  Year-to-date..........................................        75.3%        84.0%         75.4%
Rent increases on renewals and rollovers:
  Quarter...............................................        11.3%        (0.5)%        10.9%
  Year-to-date..........................................        14.3%         6.5%         13.4%
Cash basis NOI growth % increase:
  Quarter:
     Revenues...........................................         4.5%         7.8%          5.1%
     Expenses...........................................         0.1%         7.1%          1.4%
     NOI................................................         6.0%         8.1%          6.4%
  Year-to-date:
     Revenues...........................................         5.1%         5.2%          5.1%
     Expenses...........................................         2.5%         4.1%          2.8%
     NOI................................................         5.9%         5.7%          5.9%
</TABLE>

---------------
(1) Same store properties include all properties that were owned during both the
    current and prior year reporting periods and excludes development properties
    prior to being stabilized for both the current and prior reporting period.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

     Our exposure to market risk includes the rising interest rates in
connection with our unsecured credit facility and other variable rate
borrowings, and our ability to incur more debt without unitholder or noteholder
approval, thereby increasing our debt service obligations, which could adversely
affect our cash flows. See "Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Capital Resources -- Market Capitalization."

                                       27
<PAGE>   30

                                    PART II

ITEM 1. LEGAL PROCEEDINGS

     As of September 30, 1999, 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

     On September 30, 1999, we issued an aggregate of 3,642 limited partnership
units with an aggregate value of approximately $85,700 to five partnerships in
partial consideration for the acquisition of properties. Holders of the limited
partnership units may redeem part or all of their limited partnership units for
cash, or at the election of AMB, exchange their limited partnership units for
shares of AMB's common stock on a one-for-one basis. The issuance of limited
partnership units in connection with the acquisitions discussed above
constituted private placements of securities which were exempt from the
registration requirement of the Securities Act pursuant to Section 4(2) of the
Securities Act and Rule 506 of Regulation D.

     On August 31, 1999, AMB Property II, L.P. issued and sold 220,440 7.75%
Series E Cumulative Redeemable Preferred Limited Partnership Units at a price of
$50.00 per unit, for a gross price of approximately $11.0 million, to a limited
liability company. The issuance and sale of the Series E Preferred Units
constituted a private placement of securities which was exempt from the
registration requirement of the Securities Act pursuant to Section 4(2) of the
Securities Act and Rule 506 of Regulation D. The Series E Preferred Units are
exchangeable, at specified times and subject to certain conditions, on a
one-for-one basis, for shares of AMB's Series E Preferred Stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

ITEM 5. OTHER INFORMATION

                                 BUSINESS RISKS

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

GENERAL REAL ESTATE RISKS

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

     Real property investments are subject to varying degrees of risk. The
yields available from equity investments in real estate depend on the amount of
income earned and capital appreciation generated by the related properties as
well as the expenses incurred in connection with the properties. If our
properties do not generate income sufficient to meet operating expenses,
including debt service and capital expenditures, our ability to make
distributions to our unitholders and payments to our noteholders could be
adversely affected. Income from, and the value of, our properties may be
adversely affected by the general economic climate, local conditions such as
oversupply of industrial space or a reduction in demand for industrial space,
the attractiveness of our properties to potential tenants, competition from
other properties, our ability to provide adequate maintenance and insurance and
an increase in operating costs. In addition, revenues from properties and real
estate values are also affected by factors such as the cost of compliance with
regulations, the potential for liability under applicable laws (including
changes in tax laws), interest rate levels and the availability of

                                       28
<PAGE>   31

financing. Our income would be adversely affected if a significant number of
tenants 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.

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

     We are subject to the risks that leases may not be renewed, space may not
be relet, or the terms of renewal or reletting (including the cost of required
renovations) may be less favorable than current lease terms. Leases on a total
of approximately 19.8% of the leased square footage of our properties as of
September 30, 1999 will expire on or prior to December 31, 2000, with leases on
3.0% of the leased square footage of our properties as of September 30, 1999
expiring during the three months ending December 31, 1999. In addition, numerous
properties compete with our properties in attracting tenants to lease space,
particularly with respect to retail centers. The number of competitive
commercial properties in a particular area could have a material adverse effect
on our ability to lease space in our properties and on the rents that we are
able to charge. Our financial condition, results of operations, cash flow and
ability to make distributions to our unitholders and payments to our noteholders
could be adversely affected if we are unable to promptly relet or renew the
leases for all or a substantial portion of expiring leases, if the rental rates
upon renewal or reletting is significantly lower than expected, or if our
reserves for these purposes prove inadequate.

  Real Estate Investments are Illiquid

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

  A Significant Number of Our Properties are Located in California

     Our properties located in California as of September 30, 1999 represented
approximately 22.2% of the aggregate square footage of our properties as of
September 30, 1999 and approximately 28.8% of our annualized base rent.
Annualized base rent means the monthly contractual amount under existing leases
at September 30, 1999, multiplied by 12. This amount excludes expense
reimbursements and rental abatements. Our revenue from, and the value of, our
properties located in California may be affected by a number of factors,
including local real estate conditions (such as oversupply of or reduced demand
for commercial properties) and the local economic climate. Business layoffs,
downsizing, industry slowdowns, changing demographics and other factors may
adversely impact the local economic climate. A downturn in either the California
economy or in California real estate conditions could adversely affect our
financial condition, results of operations, cash flow and ability to make
distributions to our unitholders and payments to our noteholders. Certain of our
properties are also subject to possible loss from seismic activity. On June 15,
1999 and August 4, 1999, we sold an aggregate of seven of our properties located
in California to BPP Retail. In the event that the remaining transaction with
BPP Retail is fully consummated and the divestiture of certain retail centers
currently under contract is fully consummated, we will dispose of all but one of
our retail centers located in California and, thereafter (based on property
statistics as of September 30, 1999), 21.7% of our properties based on aggregate
square footage and 27.2% of our properties based on annualized base rent will be
located in California.

  Our Properties are Currently Concentrated in the Industrial Sector

     Our properties are currently concentrated predominantly in the industrial
real estate sector. Our concentration in a certain property type may expose us
to the risk of economic downturns in this sector to a

                                       29
<PAGE>   32

greater extent than if our portfolio also included other property types. As a
result of such concentration, economic downturns in the industrial real estate
sector could have an adverse effect on our financial condition, results of
operations, cash flow and ability to make distributions to our unitholders and
payments to our noteholders.

  Some Potential Losses are not Covered by Insurance

     We carry comprehensive liability, fire, extended coverage and rental loss
insurance covering all of our properties, with policy specifications and insured
limits which we believe are adequate and appropriate under the circumstances
given relative risk of loss, the cost of such coverage and industry practice.
There are, however, certain losses that are not generally insured because it is
not economically feasible to insure against them, including losses due to riots
or acts of war. Certain losses such as losses due to floods or seismic activity
may be insured subject to certain limitations including large deductibles or
co-payments and policy limits. If an uninsured loss or a loss in excess of
insured limits occurs with respect to one or more of our properties, we could
lose the capital we invested in the properties, as well as the anticipated
future revenue from the properties and, in the case of debt which is with
recourse to us, we would remain obligated for any mortgage debt or other
financial obligations related to the properties. Moreover, as the general
partner of the operating partnership, AMB will generally be liable for all of
the operating partnership's unsatisfied obligations other than non-recourse
obligations. Any such liability could adversely affect our financial condition,
results of operations, cash flow and ability to make distributions to our
unitholders and payments to our noteholders

     A number of our properties are located in areas that are known to be
subject to earthquake activity, including California where, as of September 30,
1999, 193 industrial buildings aggregating 14.1 million rentable square feet
(representing 20.9% of our properties based on aggregate square footage and
24.6% based on annualized base rent) and four retail centers aggregating 0.9
million rentable square feet (representing 1.3% of our properties based on
aggregate square footage and 4.2% based on annualized base rent) are located. In
the event that the remaining transaction with BPP Retail is fully consummated
and the divestiture of certain retail centers currently under contract is fully
consummated, we will dispose of all but one of our retail centers located in
California and, thereafter (based on property statistics as of September 30,
1999), 21.7% of our properties based on aggregate square footage and 27.2% of
our properties based on annualized base rent will be located in California. 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 which we believe are commercially reasonable. This insurance
coverage also applies to the properties managed by AMB Investment Management,
Inc., with a single aggregate policy limit and deductible applicable to those
properties and our properties. The operating partnership owns 100% of the
non-voting preferred stock of AMB Investment Management, Inc. See "-- AMB
Investment Management, Inc. and Headlands Realty Corporation." Through an annual
analysis prepared by outside consultants, we evaluate our earthquake insurance
coverage in light of current industry practice and determine the appropriate
amount of earthquake insurance to carry. We may incur material losses in excess
of insurance proceeds and we may not be able to continue to obtain insurance at
commercially reasonable rates.

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

     As of September 30, 1999, we had ownership interests in 21 joint ventures,
limited liability companies or partnerships with third parties, as well as an
interest in one unconsolidated entity. As of September 30, 1999, we owned 27 of
our properties through these entities. We may make additional investments
through these ventures in the future and presently plan to do so with clients of
AMB Investment Management, Inc. and certain Development Alliance Partners, who
share certain approval rights over major decisions. Partnership, limited
liability company or joint venture investments may involve risks such as the
following:

     - our partners, co-members or joint venturers might become bankrupt (in
       which event we and any other remaining general partners, members or joint
       venturers would generally remain liable for the liabilities of the
       partnership, limited liability company or joint venture);

                                       30
<PAGE>   33

     - our partners, co-members or joint venturers might at any time have
       economic or other business interests or goals which are inconsistent with
       our business interests or goals;

     - our partners, co-members or joint venturers may be in a position to take
       action contrary to our instructions, requests, policies or objectives,
       including our current policy with respect to maintaining AMB's
       qualification as a real estate investment trust; and

     - agreements governing joint ventures, limited liability companies and
       partnerships often contain restrictions on the transfer of a joint
       venturer's, member's or partner's interest or "buy-sell" or other
       provisions which may result in a purchase or sale of the interest at a
       disadvantageous time or on disadvantageous terms.

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

  We may be Unable to Consummate Acquisitions on Advantageous Terms

     We intend to continue to acquire primarily industrial and, to a much lesser
extent, certain value-added retail properties. Acquisitions of properties entail
risks that investments will fail to perform in accordance with expectations.
Estimates of the costs of improvements necessary for us to bring an acquired
property up to market standards may prove inaccurate. In addition, there are
general investment risks associated with any new real estate investment.
Further, we anticipate significant competition for attractive investment
opportunities from other major real estate investors with significant capital
including both publicly traded real estate investment trusts and private
institutional investment funds. We expect that future acquisitions will be
financed through a combination of borrowings under our credit facility, proceeds
from equity or debt offerings by us or AMB (including issuances of limited
partnership units by us or a subsidiary or shares of stock by AMB), and proceeds
from the transactions with BPP Retail, which could have an adverse effect on our
cash flow. We may not be able to acquire additional properties. Our inability to
finance any future acquisitions on favorable terms or the failure of
acquisitions to conform with our expectations or investment criteria, or our
failure to timely reinvest the proceeds from the transactions with BPP Retail
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 on Advantageous Terms

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

     - we may not be able to obtain financing on favorable terms for development
       projects and we may not complete construction on schedule or within
       budget, resulting in increased debt service expense and construction
       costs and delays in leasing such properties and generating cash flow;

     - we may not be able to obtain, or we may experience delays in obtaining,
       all necessary zoning, land-use, building, occupancy and other required
       governmental permits and authorizations;

     - new or renovated properties may perform below anticipated levels,
       producing cash flow below budgeted amounts;

     - substantial renovation as well as new development activities, regardless
       of whether or not they are ultimately successful, typically require a
       substantial portion of management's time and attention which could divert
       management's time from our day-to-day operations; and

                                       31
<PAGE>   34

     - activities that we finance through construction loans involve the risk
       that, upon completion of construction, we may not be able to obtain
       permanent financing or we may not be able to obtain permanent financing
       on advantageous terms.

     These risks could have an adverse effect on our financial condition,
results of operations, cash flow and ability to make distributions to our
unitholders and payments to our noteholders.

DEBT FINANCING

  We Could Incur More Debt

     The operating partnership and AMB operate with a policy of incurring debt,
either directly or through our subsidiaries, only if upon such incurrence our
debt-to-total market capitalization ratio would be approximately 45% or less.
The aggregate amount of indebtedness that we may incur under our policy varies
directly with the valuation of AMB's capital stock and the number of shares of
capital stock outstanding. Accordingly, we would be able to incur additional
indebtedness under our policy as a result of increases in the market price per
share of AMB's common stock or other outstanding classes of capital stock, and
future issuance of shares of AMB's capital stock. In spite of this policy,
neither the operating partnership's nor AMB's organizational documents contain
any limitation on the amount of indebtedness that they may incur. Accordingly,
AMB's board of directors could alter or eliminate this policy. If we change this
policy, we could become more highly leveraged, resulting in an increase in debt
service that could adversely affect our financial condition, results of
operations, cash flow and ability to make distributions to our unitholders and
payments to our noteholders

  Scheduled Debt Payments Could Adversely Affect Our Financial Condition

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

     As of September 30, 1999, we had total debt outstanding of approximately
$1.3 billion including:

     - approximately $737.9 million of secured indebtedness (not including
       unamortized debt premiums) with an average maturity of 5.9 years and a
       weighted average interest rate of 7.7%;

     - approximately $80.0 million outstanding under the secured credit facility
       related to the Alliance Fund I, with a maturity date of December 1999 and
       a weighted average interest rate of 6.3%;

     - approximately $49.0 million outstanding under our unsecured $500 million
       credit facility with a maturity date of November 2000 and a weighted
       average interest rate of 6.6%; and

     - $400.0 million aggregate principal amount of unsecured senior debt
       securities with maturities in June 2008, 2015 and 2018 and a weighted
       average interest rate of 7.2%.

     With the proceeds from the first and second transactions with BPP Retail,
we repaid approximately $55.5 million of secured indebtedness relating to the
properties divested and made payments under our unsecured credit facility in the
amount of approximately $210.0 million. We currently intend to use the proceeds
from the third transaction with BPP Retail to partially repay amounts
outstanding under our secured credit facility.

     If we are unable to refinance or extend principal payments due at maturity
or pay them with proceeds of other capital transactions, 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, the interest expense
relating to that refinanced indebtedness would increase. This increased interest
expense would adversely affect our financial condition, results of operations,
cash flow and ability to make distributions to our unitholders and payments to
our noteholders. In addition, if we mortgage one or more of our properties to
secure payment of

                                       32
<PAGE>   35

indebtedness and we are unable to meet mortgage payments, the property could be
foreclosed upon or transferred to the mortgagee with a consequent loss of income
and asset value. A foreclosure on one or more of our properties could adversely
affect our financial condition, results of operations, cash flow and ability to
make distributions to our unitholders and payments to our noteholders.

  Rising Interest Rates Could Adversely Affect Our Cash Flow

     As of September 30, 1999, we had $49.0 million outstanding under our
unsecured credit facility. In addition, we may incur other variable rate
indebtedness in the future. Increases in interest rates on this indebtedness
could increase our interest expense, which would adversely affect our financial
condition, results of operations, cash flow and ability to make distributions to
our unitholders and payments to our noteholders. Accordingly, we may in the
future engage in transactions to limit our exposure to rising interest rates.

  We Are Dependent on External Sources of Capital

     In order for AMB to qualify as a real estate investment trust under the
Internal Revenue Code, AMB is required each year to distribute to its
stockholders at least 95% of its real estate investment trust taxable income
(determined without regard to the dividends-paid deduction and by excluding any
net capital gain). Because of this distribution requirement, we may not be able
to fund all future capital needs, including capital needs in connection with
acquisitions, from cash retained from operations. As a result, to fund capital
needs, we rely on third-party sources of capital, which we may not be able to
obtain on favorable terms or at all. Our access to third-party sources of
capital depends upon a number of factors, including general market conditions
and the market's perception of our growth potential and our current and
potential future earnings and cash distributions and the market price of the
shares of AMB's capital stock. Additional debt financing may substantially
increase our leverage.

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

     As of September 30, 1999, we had 16 non-recourse secured loans which are
cross-collateralized by 18 properties. As of September 30, 1999, we had $215.7
million (not including unamortized debt premium) outstanding on these loans. If
we default on any of these loans, we will be required to repay the aggregate of
all indebtedness, together with applicable prepayment charges, to avoid
foreclosure on all the cross-collateralized properties within the applicable
pool. Foreclosure on our properties, or our inability to refinance our loans on
favorable terms, could adversely impact our financial condition, results of
operations, cash flow and ability to make distributions to our unitholders and
payments to our noteholders. In addition, our credit facilities and our 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 which is in default, which could adversely affect our financial condition,
results of operations, cash flow and ability to make distributions to our
unitholders and payments to our noteholders.

  Contingent or Unknown Liabilities Could Adversely Affect Our Financial
Condition

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

                                       33
<PAGE>   36

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

     - liabilities for clean-up or remediation of undisclosed environmental
       conditions;

     - claims of tenants, vendors or other persons dealing with AMB's
       predecessors prior to the formation transactions that had not been
       asserted prior to the formation transactions;

     - accrued but unpaid liabilities incurred in the ordinary course of
       business;

     - tax liabilities; and

     - claims for indemnification by the officers and directors of AMB's
       predecessors and others indemnified by these entities.

     Certain tenants may claim that the formation transactions gave rise to a
right to purchase the premises that they occupy. We do not believe any such
claims would be material. See "-- Government Regulations -- We Could Encounter
Costly Environmental Problems" below regarding the possibility of undisclosed
environmental conditions potentially affecting the value of our properties.
Undisclosed material liabilities in connection with the acquisition of
properties, entities and interests in properties or entities could adversely
affect our financial condition, results of operations, cash flow and ability to
make distributions to our unitholders and payments to our noteholders.

FAILURE TO CONSUMMATE THE REMAINING TRANSACTION WITH BPP RETAIL

     On March 9, 1999, the operating partnership signed three separate
definitive agreements with BPP Retail, pursuant to which, if fully consummated,
BPP Retail would have acquired up to 28 of our retail shopping centers, totaling
approximately 5.1 million square feet, for an aggregate price of $663.4 million.
The sale of three of the properties was subject to the consent of one of our
joint venture partners, which did not consent to the sale of these properties.
As a result, the price with respect to the 25 remaining properties, totaling
approximately 4.3 million square feet, is approximately $560.3 million. We
intend to dispose of the remaining three properties or our interests in the
joint ventures through which we hold the properties.

     Pursuant to the agreements, BPP Retail will acquire the 25 centers in
separate transactions. Under the agreements, the operating partnership has the
right to extend the closing dates for a period of up to either 20 or 50 days.
The operating partnership has exercised this right with respect to the first and
second transactions, which occurred on June 15, 1999 and August 4, 1999,
respectively. Pursuant to the closings of the first and second transactions, BPP
Retail acquired 21 retail shopping centers, totaling approximately 3.5 million
square feet, for an aggregate price of approximately $453.2 million. We used the
proceeds from the first and second transactions to repay secured debt related to
the properties divested of approximately $55.5 million, to pay approximately
$210.0 million in partial repayment of amounts outstanding under our unsecured
credit facility, to pay transaction expenses, for potential acquisitions and for
general corporate purposes. The divestitures resulted in an aggregate gain of
approximately $33.1 million and an extraordinary loss of approximately $2.9
million, consisting of prepayment penalties with an offset for the write-off of
debt premiums related to the indebtedness extinguished. We currently expect the
third transaction to close on or about December 1, 1999.

     Although the remaining transaction with BPP Retail does not have a
discretionary due diligence period, it is subject to certain customary closing
conditions, which are generally applied on a property-by-property basis. Burnham
Pacific has announced that it has received and is reviewing a merger proposal.
We do not believe that the contractual obligations of BPP Retail with respect to
the purchase of the retail centers will be affected by any resulting merger. BPP
Retail has posted a deposit of $8.4 million on the remaining transaction. BPP
Retail's liability in the event of its default under a definitive agreement is
limited to its deposit. Although we believe that the remaining transaction with
BPP Retail is probable, it might not close as scheduled or close at all, and it
is possible that the transaction may close with respect to just a portion of the
properties currently subject to the agreement. In the event that the remaining
transaction fails to close, or its closing is significantly delayed, net
proceeds from divestitures of properties will not be available to the same
extent to fund our acquisitions and developments. Any failure or delay in such
closing may also make us unable to repay certain

                                       34
<PAGE>   37

of our indebtedness with the net proceeds as we currently intend and could
require us to borrow additional funds or seek other forms of financing.

     We intend to use the proceeds of approximately $107.1 million from the
divestiture of the remaining four retail centers to BPP Retail in the third
transaction to partially repay amounts outstanding under our unsecured credit
facility, to pay transaction expenses, for potential acquisitions and for
general corporate purposes.

     In addition, the operating partnership entered into a definitive agreement,
subject to a financing condition, with Burnham Pacific, pursuant to which, if
fully consummated, Burnham Pacific would have acquired up to six additional
retail centers, totaling approximately 1.5 million square feet, for
approximately $284.4 million. On June 30, 1999, this agreement was terminated
pursuant to its terms as a result of Burnham Pacific's decision not to waive the
financing condition. We currently intend to dispose of five of these properties,
either on an individual or portfolio basis, or our interest in the joint venture
which holds one of the five properties.

CONFLICTS OF INTEREST

  Some of AMB's Executive Officers are Involved in Other Real Estate Activities
and Investments

     Some of the executive officers of AMB, our general partner, own interests
in real estate-related businesses and investments. These interests include
minority ownership of Institutional Housing Partners, a residential housing
finance company, and ownership of AMB Development, Inc. and AMB Development,
L.P., developers which own property that we believe is not suitable for
ownership by us. AMB Development, Inc. and AMB Development, L.P. have agreed not
to initiate any new development projects following AMB's initial public offering
in November 1997. These entities have also agreed that they will not make any
further investments in industrial or retail properties other than those
currently under development at the time of AMB's initial public offering. AMB
Institutional Housing Partners, AMB Development, Inc. and AMB Development, L.P.
continue to use the name "AMB" pursuant to royalty-free license arrangements.
The continued involvement in other real estate-related activities by some of
AMB's executive officers and directors could divert management's attention from
our day-to-day operations. Most of AMB's executive officers have entered into
non-competition agreements with AMB 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 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's ability to
enforce these agreements.

     We could also, in the future, subject to the unanimous approval of the
disinterested members of AMB's board of directors with respect to such
transaction, acquire property from executive officers, enter into leases with
executive officers, and/or engage in other related activities in which the
interests pursued by AMB's executive officers may not be in the best interests
of our unitholders or noteholders.

  Certain of AMB's Executive Officers and Directors May Have Conflicts of
  Interest with Us in Connection with Other Properties that They Own or Control

     As of September 30, 1999, AMB Development, L.P. owns interests in 11 retail
development projects in the U.S., 10 of which consist of a single free-standing
Walgreens drugstore and one of which consists of a free-standing Walgreens
drugstore, a ground lease to McDonald's and a 14,000 square foot retail center.
In addition, Messrs. Abbey, Moghadam and Burke, each a founder and director of
AMB, own less than 1% interests in two partnerships which own office buildings
in various markets; these interests have negligible value. Luis A. Belmonte, an
executive officer of AMB, owns less than a 10% interest, representing an
estimated value of $75,000, in a limited partnership which owns an office
building located in Oakland, California.

                                       35
<PAGE>   38

     In addition, several of AMB's executive officers individually own:

     - less than 1% interests in the stocks of certain publicly-traded real
       estate investment trusts;

     - certain interests in and rights to developed and undeveloped real
       property located outside the United States;

     - certain passive interests, that we do not believe are material, in real
       estate businesses in which such persons were previously employed; and

     - certain other de minimis holdings in equity securities of real estate
       companies.

     Thomas W. Tusher, a member of AMB's board of directors, is a limited
partner in a partnership in which Messrs. Abbey, Moghadam and Burke are general
partners and which owns a 75% interest in an office building. Mr. Tusher owns a
20% interest in the partnership, valued as of September 30, 1999 at
approximately $1.2 million. Messrs. Abbey, Moghadam and Burke each have an
approximately 26.7% interest in the partnership, each valued as of September 30,
1999 at approximately $1.6 million.

     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 of AMB, or an affiliate of an
executive officer or director of AMB, has an interest may compete with us in the
future if we were to invest in a property similar in type and in close proximity
to that property. In addition, the continued involvement by AMB's executive
officers and directors in these properties could divert management's attention
from our day-to-day operations. Our policy prohibits us from acquiring any
properties from AMB's executive officers or their affiliates without the
approval of the disinterested members of AMB's board of directors with respect
to that transaction.

  AMB's Directors, Executive Officers and Significant Stockholders Could Act in
  a Manner that is Not in the Best Interest of Our Limited Partners or
  Noteholders

     As of November 1, 1999, AMB's three largest stockholders, Cohen & Steers
Capital Management, Inc. (with respect to various client accounts for which
Cohen & Steers Capital Management, Inc. serves as investment advisor), Southern
Company Services, Inc. and Capital Research and Management Company (with respect
to various client accounts for which Capital Research and Management Company
serves as investment advisor) beneficially owned approximately 19.7% of AMB's
outstanding common stock. In addition, AMB's executive officers and directors
beneficially owned approximately 5.5% of AMB's outstanding common stock as of
November 1, 1999, and will have influence on AMB's and our management and
operation and, as stockholders of AMB, will have influence on the outcome of any
matters submitted to a vote of AMB's stockholders. This influence might be
exercised in a manner that is inconsistent with the interests of our limited
partners and our noteholders. Although there is no understanding or arrangement
for these directors, officers and stockholders and their affiliates to act in
concert, these parties would be in a position to exercise significant influence
over the affairs of the operating partnership and AMB if they choose to do so.

  We Could Suffer Losses if We Fail to Enforce the Terms of Certain Agreements

     As holders of shares of AMB's common stock and, potentially, performance
units, certain of AMB's directors and officers could have a conflict of interest
with respect to their obligations as directors and officers to vigorously
enforce the terms of certain of the agreements relating to our formation
transactions. The potential failure to enforce the material terms of those
agreements could result in a monetary loss to us and AMB, which loss could have
a material adverse effect on our financial condition, results of operations,
cash flow and ability to make distributions to our unitholders and to our
noteholders.

  We Could Change Our Investment and Financing Policies

     Subject to AMB's current investment policy to maintain its qualification as
a real estate investment trust (unless a change is approved by AMB's board of
directors under certain circumstances), AMB's board of directors will determine
our investment and financing policies, our growth strategy and our debt,
capitalization,

                                       36
<PAGE>   39

distribution and operating policies. Although AMB's board of directors has no
present intention to revise or amend these strategies and policies, AMB's board
of directors may do so at any time and any such changes could adversely affect
our financial condition or results of operations, including our ability to make
distributions to our unitholders or payments to our noteholders.

  We Could Invest in Real Estate Mortgages

     We may invest in mortgages, and may do so as a strategy for ultimately
acquiring the underlying property. In general, investments in mortgages include
the risks that borrowers may not be able to make debt service payments or pay
principal when due, that the value of the mortgaged property may be less than
the principal amount of the mortgage note secured by the property and that
interest rates payable on the mortgages may be lower than our cost of funds to
acquire these mortgages. In any of these events, our FFO and our ability to make
distributions to our unitholders and payments to our noteholders could be
adversely affected. FFO means income (loss) from operations before disposal of
real estate properties, minority interests and extraordinary items plus
depreciation and amortization, excluding depreciation of furniture, fixtures and
equipment less funds from operations attributable to minority interests in
consolidated joint ventures which are not convertible into shares of AMB's
common stock.

GOVERNMENT REGULATIONS

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

  Costs of Compliance with Americans with Disabilities Act

     Under the Americans with Disabilities Act, places of public accommodation
must meet certain federal requirements related to access and use by disabled
persons. Compliance with the Americans with Disabilities Act might require us to
remove structural barriers to handicapped access in certain public areas where
such removal is "readily achievable." If we fail to comply with the Americans
with Disabilities Act, we might be required to pay fines to the government or
damages to private litigants. The impact of application of the Americans with
Disabilities Act to our properties, including the extent and timing of required
renovations, is uncertain. If we are required to make unanticipated expenditures
to comply with the Americans with Disabilities Act, our cash flow and the
amounts available for distributions to our unitholders may be adversely
affected.

  We Could Encounter Costly Environmental Problems

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

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

                                       37
<PAGE>   40

personal injury associated with exposure to asbestos fibers. Some of our
properties may contain asbestos-containing building materials.

     Some of our properties are leased or have been leased, in part, to owners
and operators of dry cleaners that operate on-site dry cleaning plants, to
owners and operators of gas stations or to owners or operators of other
businesses that use, store or otherwise handle petroleum products or other
hazardous or toxic substances. Some of these properties contain, or may have
contained, underground storage tanks for the storage of petroleum products and
other hazardous or toxic substances. These operations create a potential for the
release of petroleum products or other hazardous or toxic substances. Some of
our properties are adjacent to or near other properties that have contained or
currently contain underground storage tanks used to store petroleum products or
other hazardous or toxic substances. In addition, certain of our properties are
on, or are adjacent to or near other properties upon which others, including
former owners or tenants of the properties, have engaged or may in the future
engage in activities that may release petroleum products or other hazardous or
toxic substances. From time to time, we may acquire properties, or interests in
properties, with known adverse environmental conditions where we believe that
the environmental liabilities associated with these conditions are quantifiable
and the acquisition will yield a superior risk-adjusted return. In connection
with certain of the properties under contract for disposition to BPP Retail, we
have agreed to remain responsible for, and to bear the cost of, remediating or
monitoring certain environmental conditions on the properties following the
applicable closing dates of the transactions.

     All of our properties were subject to a Phase I or similar environmental
assessments by independent environmental consultants at the time of acquisition
or shortly after acquisition. Phase I assessments are intended to discover and
evaluate information regarding the environmental condition of the surveyed
property and surrounding properties. Phase I assessments generally include an
historical review, a public records review, an investigation of the surveyed
site and surrounding properties, and preparation and issuance of a written
report, but do not include soil sampling or subsurface investigations and
typically do not include an asbestos survey. We may perform additional Phase II
testing if recommended by the independent environmental consultant. Phase II
testing may include the collection and laboratory analysis of soil and
groundwater samples, completion of surveys for asbestos-containing building
materials, and any other testing that the consultant considers prudent in order
to test for the presence of hazardous materials. Some of the environmental
assessments of our properties do not contain a comprehensive review of the past
uses of the properties and/or the surrounding properties.

     We have formed a limited liability company with AIG to acquire, develop,
manage and operate environmentally impaired properties in target markets
nationwide. We are the managing member of this venture. We and AIG have each
committed $50 million to this venture. This venture currently intends to invest
primarily in industrial properties located near major airports, ports and
in-fill areas with known and quantifiable environmental issues, as well as, to a
more limited extent, well-located, value-added retail properties. Environmental
issues for each property are evaluated and quantified prior to acquisition.
Phase I environmental assessments are performed on the property; Phase II
testing is completed, if necessary, to supplement existing environmental data on
the property; and detailed remedial cost estimates are prepared by independent
third party engineers. AIG's and our risk management teams then review the
various environmental reports and determine whether the property is appropriate
for acquisition. The costs of environmental investigation, clean-up and
monitoring are underwritten into the cost of the acquisition and appropriate
environmental insurance is obtained for the property.

     None of the environmental assessments of our properties has revealed any
environmental liability that we believe would have a material adverse effect on
our financial condition or results of operations taken as a whole, and we are
not aware of any such material environmental liability. Nonetheless, it is
possible that the assessments do not reveal all environmental liabilities and
that there are material environmental liabilities of which we are unaware or
that known environmental conditions may give rise to liabilities that are
materially greater than anticipated. Moreover, future laws, ordinances or
regulations may impose material environmental liability and the current
environmental condition of our properties may be affected by tenants, by the
condition of land, by operations in the vicinity of the properties (such as
releases from underground storage tanks), or by third parties unrelated to us.
If the costs of compliance with environmental laws and regulations now existing

                                       38
<PAGE>   41

or adopted in the future exceed our budgets for these items, our financial
condition, results of operations, cash flow and ability to make distributions to
our unitholders and payments to our noteholders could be adversely affected.

  Our Financial Condition could be Adversely Affected if We Fail to Comply with
Other Regulations

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

FEDERAL INCOME TAX RISKS

  Certain Property Transfers May Generate Prohibited Transaction Income

     From time to time, we may transfer or otherwise dispose of some of our
properties. Under the Internal Revenue Code, any gain resulting from transfers
of properties that are held as inventory or primarily for sale to customers in
the ordinary course of business is treated as income from a prohibited
transaction that is subject to a 100% penalty tax. Since we acquire properties
for investment purposes, we believe that any transfer or disposal of property by
us would not be deemed by the Internal Revenue Service to be a prohibited
transaction with any resulting gain allocable to us being subject to a 100%
penalty tax. However, whether property is held for investment purposes is a
question of fact that depends on all the facts and circumstances surrounding the
particular transaction and the Internal Revenue Service may contend that certain
transfers or disposals of properties by us (including possibly some or all of
the properties that have been sold to, or are subject to the agreements with,
BPP Retail) are prohibited transactions. While we believe that the Internal
Revenue Service would not prevail in any such dispute, any adverse finding by
the Internal Revenue Service that a transfer or disposition of property
constituted a prohibited transaction would subject us to a 100% penalty tax on
any gain allocable to us from the prohibited transaction.

WE ARE DEPENDENT ON OUR GENERAL PARTNER'S KEY PERSONNEL

     We depend on the efforts of the executive officers of our general partner.
While we believe that AMB 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
noteholders. AMB does not have employment agreements with any of its executive
officers.

WE MAY BE UNABLE TO MANAGE OUR GROWTH

     Our business has grown rapidly and continues to grow through property
acquisitions. If we fail to effectively manage our growth, 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.

AMB INVESTMENT MANAGEMENT, INC. AND HEADLANDS REALTY CORPORATION

  We do not Control the Activities of AMB Investment Management, Inc. and
Headlands Realty Corporation

     We own 100% of the non-voting preferred stock of AMB Investment Management,
Inc. and Headlands Realty Corporation (representing approximately 95% of the
economic interest in each entity). Certain of AMB's current and former executive
officers and an officer of AMB Investment Management, Inc. own all of the
outstanding voting common stock of AMB Investment Management, Inc. (representing
approximately 5% of the economic interest in AMB Investment Management, Inc.).
Certain of AMB's executive officers and a director of Headlands Realty
Corporation own all of the outstanding voting common stock of Headlands

                                       39
<PAGE>   42

Realty Corporation (representing approximately 5% of the economic interest in
Headlands Realty Corporation). The ownership structure of AMB Investment
Management, Inc. and Headlands Realty Corporation permits us to share in the
income of those corporations while allowing AMB to maintain its status as a real
estate investment trust. We receive substantially all of the economic benefit of
the businesses carried on by AMB Investment Management, Inc. and Headlands
Realty Corporation through the operating partnership's right to receive
dividends. However, we are not able to elect the directors or officers of AMB
Investment Management, Inc. and Headlands Realty Corporation and, as a result,
we do not have the ability to influence their operation or to require that their
boards of directors declare and pay cash dividends on the non-voting stock of
AMB Investment Management, Inc. and Headlands Realty Corporation held by us. The
boards of directors and management of AMB Investment Management, Inc. and
Headlands Realty Corporation might implement business policies or decisions that
would not have been implemented by persons controlled by us and that may be
adverse to the interests of our unitholders and noteholders or that may
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, AMB Investment Management, Inc. and Headlands Realty
Corporation are subject to tax on their income, reducing their cash available
for distribution to us.

  AMB Investment Management, Inc. may not be Able to Generate Sufficient Fees

     Fees earned by AMB Investment Management, Inc. depend on various factors
affecting the ability to attract and retain investment management clients and
the overall returns achieved on managed assets. These factors are beyond our
control. AMB Investment Management, Inc.'s failure to attract investment
management clients or achieve sufficient overall returns on managed assets could
reduce its ability to make distributions on the stock owned by us and could also
limit co-investment opportunities to us. This would limit our ability to
generate rental revenues from such co-investments and use the co-investment
program as a source to finance property acquisitions and leverage acquisition
opportunities.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits:

<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                            DESCRIPTION
    -------                           -----------
    <C>       <S>
     10.1     Fifth Amended and Restated Agreement of Limited Partnership
              of AMB Property II, L.P., dated August 31, 1999
              (incorporated by reference to Exhibit 10.1 of the
              Registrant's Current Report on Form 8-K filed on September
              14, 1999).
     10.2     Credit Agreement, dated as of September 27, 1999, by and
              among AMB Institutional Alliance Fund I, L.P., AMB
              Institutional Alliance REIT I, Inc., the Lenders and Issuing
              Bank party thereto, BT Realty Resources, Inc. and The Chase
              Manhattan Bank.
     27.1     Financial Data Schedule -- AMB Property, L.P.
</TABLE>

     (b) Reports on Form 8-K:

     - The operating partnership filed a Current Report on From 8-K on July 2,
       1999, regarding the termination of the transaction with Burnham Pacific
       Properties and containing updated pro forma financial statements as of
       and at March 31, 1999, relating to the transactions with BPP Retail, LLC.

     - The operating partnership filed a Current Report on Form 8-K on August
       19, 1999, regarding the closing of the second transaction with BPP
       Retail, LLC.

     - The operating partnership filed a Current Report on Form 8-K on September
       14, 1999, regarding the issuance and sale of 220,440 7.75% Series E
       Cumulative Redeemable Preferred Limited Partnership Units by AMB Property
       II, L.P. in a private placement transaction.

     - The operating partnership filed a Current Report on Form 8-K on October
       15, 1999, regarding the acquisition of certain properties during 1999.

                                       40
<PAGE>   43

                                   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

Date: November 12, 1999                   By:      /s/ MICHAEL A. COKE
                                            ------------------------------------
                                                      Michael A. Coke
                                                Chief Financial Officer and
                                                   Senior Vice President
                                                (Duly Authorized Officer and
                                             Principal Financial and Accounting
                                                           Officer)

                                       41
<PAGE>   44

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
    EXHIBIT
    NUMBER                            DESCRIPTION
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    <C>       <S>
     10.1     Fifth Amended and Restated Agreement of Limited Partnership
              of AMB Property II, L.P., dated August 31, 1999
              (incorporated by reference to Exhibit 10.1 of the
              Registrant's Current Report on Form 8-K filed on September
              14, 1999).
     10.2     Credit Agreement, dated as of September 27, 1999, by and
              among AMB Institutional Alliance Fund I, L.P., AMB
              Institutional Alliance REIT I, Inc., the Lenders and Issuing
              Bank party thereto, BT Realty Resources, Inc. and The Chase
              Manhattan Bank.
     27.1     Financial Data Schedule -- AMB Property, L.P.
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