AMB PROPERTY LP - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q


(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended September 30, 2004

OR

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

Commission file number: 001-14245

AMB Property, L.P.

(Exact name of Registrant as Specified in Its Charter)


Delaware		94-3285362
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

Pier 1, Bay 1, San Francisco, California		94111
(Address of Principal Executive Offices)		(Zip Code)

(415) 394-9000

(Registrant’s Telephone Number, Including Area Code)

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

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

AMB PROPERTY, L.P.

INDEX


		Page

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets as of September 30, 2004 and December 31, 2003 (Restated)		1
	Consolidated Statements of Operations for the three months and nine months ended September 30, 2004 and 2003 (Restated)		2
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and 2003 (Restated)		3
	Consolidated Statement of Partners’ Capital for the nine months ended September 30, 2004		4
	Notes to Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		53
Item 4.	Controls and Procedures		54

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		56
Item 3.	Defaults Upon Senior Securities		56
Item 4.	Submission of Matters to a Vote of Security Holders		56
Item 5.	Other Information		56
Item 6.	Exhibits		56
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 31.1
EXHIBIT 32.1

PART I


Item 1.	*Financial Statements*

AMB PROPERTY, L.P.

CONSOLIDATED BALANCE SHEETS

As of September 30, 2004 and December 31, 2003 (Restated)


				September 30,			December 31,
				2004			2003

							(Restated)

				(Unaudited, dollars in
				thousands)
ASSETS
Investments in real estate:
	Land			$	1,527,247		$	1,403,807
	Buildings and improvements				4,263,195			3,888,272
	Construction in progress				512,087			199,628

		Total investments in properties			6,302,529			5,491,707
	Accumulated depreciation and amortization				(595,438	)		(485,559	)

		Net investments in properties			5,707,091			5,006,148
Investments in unconsolidated joint ventures					48,601			52,009
Properties held for contribution, net					11,854			—
Properties held for divestiture, net					59,924			11,751

		Net investments in real estate			5,827,470			5,069,908
Cash and cash equivalents					116,378			127,678
Restricted cash					57,945			28,985
Mortgages receivable					23,068			43,145
Accounts receivable, net of allowance for doubtful accounts					102,078			88,452
Other assets					94,711			51,391

		Total assets		$	6,221,650		$	5,409,559


LIABILITIES AND PARTNERS’ CAPITAL
Debt:
	Secured debt including unamortized premium			$	1,617,944		$	1,363,890
	Unsecured senior debt securities				1,025,000			925,000
	Unsecured debt				9,182			9,628
	Unsecured credit facilities				583,864			275,739

		Total debt			3,235,990			2,574,257
Distributions payable					40,898			39,076
Accounts payable and other liabilities					237,452			148,019

		Total liabilities			3,514,340			2,761,352
Commitments and contingencies (Notes 3 and 12)
Minority interests:
	Joint venture partners				701,639			658,723
	Preferred unitholders				203,260			166,865

		Total minority interests			904,899			825,588
Partners’ capital:
	General partner, 82,689,635 and 81,563,502 units outstanding, respectively; 2,000,000 Series L preferred units issued and outstanding with a $50,000 liquidation preference and 2,300,000 Series M preferred units issued and outstanding with a $57,500 liquidation preference				1,639,267			1,657,137
	Limited partners, 4,604,910 and 4,618,242 units, respectively; 800,000 Series J preferred units with a $40,000 liquidation preference, 800,000 Series K preferred units with a $40,000 liquidation preference				163,144			165,482

		Total partners’ capital			1,802,411			1,822,619

			Total liabilities and partners’ capital	$	6,221,650		$	5,409,559

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

AMB PROPERTY, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Nine Months ended September 30, 2004 and 2003 (Restated)



					For the Three Months						For the Nine Months
					ended September 30,						ended September 30,

					2004			2003			2004			2003

								(Restated)						(Restated)

					(Unaudited, dollars in thousands,
					except share and per share amounts)
REVENUES
		Rental revenues			$	173,803		$	145,466		$	497,000		$	434,589
		Private capital income				2,726			1,928			8,077			7,844

			Total revenues			176,529			147,394			505,077			442,433

COSTS AND EXPENSES
		Property operating expenses				(24,678	)		(21,910	)		(70,963	)		(63,627	)
		Real estate taxes				(19,275	)		(17,219	)		(57,617	)		(51,923	)
		Depreciation and amortization				(42,099	)		(33,734	)		(120,998	)		(102,847	)
		Impairment losses				—			—			—			(5,251	)
		General and administrative				(15,747	)		(10,824	)		(45,706	)		(34,834	)

			Total costs and expenses			(101,799	)		(83,687	)		(295,284	)		(258,482	)

OTHER INCOME AND EXPENSES
		Equity in earnings of unconsolidated joint ventures				603			1,365			3,256			4,222
		Interest and other income				1,295			653			3,283			3,144
		Gains from dispositions of real estate				—			—			—			7,429
		Development profits, net of taxes				1,521			5,512			4,756			5,512
		Interest, including amortization				(40,324	)		(35,562	)		(118,449	)		(107,132	)

			Total other income and expenses, net			(36,905	)		(28,032	)		(107,154	)		(86,825	)

				Income before minority interests and discontinued operations		37,825			35,675			102,639			97,126

		Minority interests’ share of income:
			Joint venture partners’ share of operating income			(10,302	)		(9,546	)		(28,978	)		(24,712	)
			Joint venture partners’ share of development profits			(66	)		(3,331	)		(672	)		(3,331	)
			Preferred unitholders			(3,378	)		(3,322	)		(10,076	)		(10,098	)

			Total minority interests’ share of income			(13,746	)		(16,199	)		(39,726	)		(38,141	)

Income from continuing operations						24,079			19,476			62,913			58,985

Discontinued operations:
	Income (loss) attributable to discontinued operations, net of minority interests					185			2,030			(181	)		14,357
	Gains from dispositions of real estate, net of minority interests					11,051			8,338			13,034			41,849

			Total discontinued operations			11,236			10,368			12,853			56,206

Net income						35,315			29,844			75,766			115,191
	Series A, L and M preferred unit distributions					(1,783	)		(1,470	)		(5,349	)		(5,788	)
	Series B, J and K preferred unit distributions					(1,590	)		(2,992	)		(4,770	)		(8,975	)
	Preferred unit redemption issuance costs					—			(3,671	)		—			(3,671	)

			Net income available to common unitholders		$	31,942		$	21,711		$	65,647		$	96,757

INCOME AVAILABLE TO COMMON UNITHOLDERS ATTRIBUTABLE TO:
	General partner				$	30,266		$	20,547		$	62,188		$	91,391
	Limited partners					1,676			1,164			3,459			5,366

			Net income available to common unitholders		$	31,942		$	21,711		$	65,647		$	96,757

BASIC INCOME PER COMMON UNIT
	Income from continuing operations (includes preferred unit distributions)				$	0.24		$	0.13		$	0.61		$	0.47
	Discontinued operations					0.13			0.12			0.15			0.66

				Net income available to common unitholders	$	0.37		$	0.25		$	0.76		$	1.13

DILUTED INCOME PER COMMON UNIT
	Income from continuing operations (includes preferred unit distributions)				$	0.23		$	0.13		$	0.59		$	0.46
	Discontinued operations					0.12			0.12			0.14			0.65

				Net income available to common unitholders	$	0.35		$	0.25		$	0.73		$	1.11

WEIGHTED AVERAGE COMMON UNITS OUTSTANDING
	Basic					86,943,931			85,776,251			86,749,022			85,874,579

	Diluted					90,146,245			87,399,544			89,764,633			87,342,075

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

AMB PROPERTY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2004 and 2003 (Restated)


					2004			2003

								(Restated)


					(Unaudited, dollars in
					thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income					$	75,766		$	115,191
Adjustments to net income:
	Straight-line rents					(11,251	)		(6,832	)
	Depreciation and amortization					120,998			102,847
	Impairment losses					—			5,251
	Stock-based compensation amortization					7,943			6,000
	Recognition of below market leases					(710	)		—
	Equity in earnings of unconsolidated joint ventures					(3,256	)		(4,222	)
	Gains from dispositions of real estate					—			(7,429	)
	Development profits, net of taxes					(4,756	)		(5,512	)
	Debt premiums, discounts and finance cost amortization, net					(336	)		1,577
	Total minority interests’ share of net income					39,726			38,141
	Discontinued operations:
		Depreciation and amortization				1,733			2,346
		Joint venture partners’ share of net income				2,474			2,414
		Gains from dispositions of real estate, net of minority interests				(13,034	)		(41,849	)
	Changes in assets and liabilities:
		Accounts receivable and other assets				(9,708	)		(27,697	)
		Accounts payable and other liabilities				26,794			(6,512	)

			Net cash provided by operating activities			232,383			173,714

CASH FLOWS FROM INVESTING ACTIVITIES
Change in restricted cash						(30,896	)		3,828
Cash paid for property acquisitions						(300,802	)		(176,498	)
Additions to land, buildings, development costs and other first generation improvements						(470,934	)		(188,165	)
Net proceeds from divestiture of real estate						103,987			355,986
Additions to interests in unconsolidated joint ventures						(4,547	)		(22,071	)
Distributions received from unconsolidated joint ventures						12,339			34,775
Repayment of mortgage receivable						20,077			—

			Net cash (used in) provided by investing activities			(670,776	)		7,855

CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on secured debt						200,016			148,450
Payments on secured debt						(81,719	)		(126,972	)
Payments on unsecured debt						(446	)		—
Borrowings on unsecured credit facilities						683,463			314,843
Payments on unsecured credit facilities						(377,324	)		(321,000	)
Borrowings on Alliance Fund II credit facility						—			8,000
Payments on Alliance Fund II credit facility						—			(53,500	)
Payment of financing fees						(7,422	)		(2,625	)
Net proceeds from issuances of senior debt securities						99,142			—
Issuance of common units						20,133			4,774
Repurchase and retirement of common and preferred units						—			(121,239	)
Net proceeds from issuances of preferred units						—			48,221
Repurchase of preferred units,						—			(3,172	)
Issuance costs on preferred units						(169	)		—
Contributions from co-investment partners						43,604			158,718
Distributions paid to partners						(113,763	)		(122,717	)
Distributions to minority interests, including preferred units						(43,471	)		(75,083	)

			Net cash provided by (used in) financing activities			422,044			(143,302	)

				Effect of exchange rate changes on cash and cash equivalents		5,049			779

				Net (decrease) increase in cash and cash equivalents		(11,300	)		39,046
				Cash and cash equivalents at beginning of period		127,678			89,332

				Cash and cash equivalents at end of period	$	116,378		$	128,378

Supplemental Disclosures of Cash Flow Information
Cash paid for interest, net of capitalized interest					$	108,220		$	105,469
Acquisition of properties					$	490,846		$	188,384
Non-cash transactions:
	Assumption of secured debt					(130,588	)		(7,676	)
	Assumption of other assets and liabilities					(52,302	)		—
	Acquisition capital					(5,319	)		(4,210	)
	Minority interest’s contributions					(1,835	)		—

			Net cash paid		$	300,802		$	176,498

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

AMB PROPERTY, L.P.

CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

For the Nine Months Ended September 30, 2004



			General Partner										Limited Partners


			Preferred Units					Common Units					Preferred Units					Common Units

			Units		Amount			Units		Amount			Units		Amount			Units			Amount			Total

										(Restated)											(Restated)			(Restated)

			(Unaudited, dollars in thousands)
Balance at December 31, 2003 (Restated)				4,300,000	$	103,373			81,563,502	$	1,553,764			1,600,000	$	77,815			4,618,242		$	87,667		$	1,822,619
Comprehensive income:
	Net income			—		5,349			—		62,188			—		4,770			—			3,459			—
	Unrealized gain on securities			—		—			—		(812	)		—		—			—			—			—
	Currency translation adjustment			—		—			—		(178	)		—		—			—			—			—
		Total comprehensive income																				—			74,776
	Issuance of common limited partnership units in connection with the issuance of restricted stock and options			—		—			201,413		12,695			—		—			—			—			12,695
	Issuance of common limited partnership units in connection with the exercise of stock options			—		—			911,388		20,133			—		—			—			—			20,133
	Conversion of operating partnership units to common stock			—		—			13,332		457			—		—			(13,332	)		(254	)		203
Forfeiture of restricted units				—		—			—		(646	)		—		—			—			—			(646	)
	Deferred compensation			—		—			—		(12,695	)		—		—			—			—			(12,695	)
	Deferred compensation amortization			—		—			—		7,943			—		—			—			—			7,943
	Reallocation of interests			—		—			—		(1,320	)		—		—			—			515			(805	)
	Issuance costs			—		(169	)		—		—			—		—			—			—			(169	)
	Distributions			—		(5,349	)		—		(105,466	)		—		(4,770	)		—			(6,058	)		(121,643	)

Balance as of September 30, 2004				4,300,000	$	103,204			82,689,635	$	1,536,063			1,600,000	$	77,815			4,604,910		$	85,329		$	1,802,411

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

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2004

(Unaudited)


1.	Organization and Formation of the Operating Partnership

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

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

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

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

As of September 30, 2004, the Operating Partnership owned 991 operating industrial buildings and four retail and other properties, aggregating approximately 91.6 million rentable square feet, located in 35 markets throughout the United States and in France, Germany, Japan, Mexico and the Netherlands. The Operating Partnership’s strategy is to become a leading provider of distribution properties in supply-constrained submarkets located near key international passenger and cargo airports, highway systems and seaports in major metropolitan areas of North America, Europe and Asia. These submarkets are generally tied to global trade. As of September 30, 2004, the Operating Partnership’s industrial buildings, principally warehouse distribution buildings, encompassed approximately 91.1 million rentable square feet and were 94.6% leased. As of September 30, 2004, the Operating Partnership’s retail centers, principally grocer-anchored community shopping centers, and other properties encompassed approximately 0.4 million rentable square feet and were 27.9% leased.

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of September 30, 2004, through AMB Capital Partners, the Operating Partnership also managed, but did not have an ownership interest in, industrial, retail and other properties, totaling approximately 0.5 million rentable square feet. In addition, the Operating Partnership had investments in industrial operating properties, totaling approximately 8.0 million rentable square feet, through unconsolidated joint ventures. As of September 30, 2004, the Operating Partnership also had investments in industrial development projects throughout the United States and in Japan, Mexico, Singapore and Spain, which are expected to total approximately 9.4 million square feet. Some of the development projects in the U.S. were available for sale. See Note 4: Gains from Dispositions of Real Estate, Development Sales and Discontinued Operations: Properties Held for Divestiture.


2.	Interim Financial Statements

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

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

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

Restatement. On October 12, 2004, the Company announced a restatement of depreciation expense for its prior period results relating to 39 buildings in its portfolio, 38 of which are located on-tarmac, which is land owned by federal, state or local airport authorities. As part of management’s on-going review of its accounting policies and internal control over financial reporting, management determined that it should have depreciated certain of its investments in buildings that reside on land subject to ground leases over the remaining terms of the ground leases, rather than over 40 years, which is the period used to depreciate buildings that the Operating Partnership holds in fee simple. The Operating Partnership did not segregate these assets into a separate expected useful life category for depreciation purposes. In connection with correcting this error, the Operating Partnership has taken appropriate action to modify its system of internal control over financial reporting to remediate this internal control deficiency. Going forward, these assets will be depreciated over the lesser of 40 years or the contractual term of the underlying ground lease. To reflect additional depreciation expense, management has restated the Operating Partnership’s previously issued consolidated financial statements for the years ended December 31, 2003, 2002 and 2001 filed on Forms 10-K and 10-K/A for the year ended December 31, 2003, and for the quarters ended March 31, 2004 and June 30, 2004 filed on Forms 10-Q for the quarters then ended.

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Restatements on Consolidated Balance Sheets



		December 31, 2003

		As Previously
		Reported			As Restated


		(Amounts in thousands)
Accumulated depreciation and amortization		$	(474,452	)	$	(485,559	)
Net investments in properties		$	5,017,255		$	5,006,148
Minority interests:
	Joint venture partners	$	659,487		$	658,723
Total partners’ capital		$	1,832,962		$	1,822,619

Restatements on Consolidated Statements of Operations



		For the Three Months Ended						For the Nine Months Ended
		September 30, 2003						September 30, 2003

		As Previously						As Previously
		Reported			As Restated			Reported			As Restated


		(Amounts in thousands, except per share amounts)
Depreciation and amortization		$	(32,584	)	$	(33,734	)	$	(99,269	)	$	(102,847	)
Minority interests’ share of income:
	Joint venture partners’ share of operating income	$	(9,809	)	$	(9,546	)	$	(26,410	)	$	(24,712	)
Net income		$	31,183		$	29,844		$	119,008		$	115,191
Net income available to common unitholders		$	23,050		$	21,711		$	100,574		$	96,757
Basic income per common unit:
	Net income available to common unitholders	$	0.27		$	0.25		$	1.17		$	1.13
Diluted income per common unit:
	Net income available to common unitholders	$	0.26		$	0.25		$	1.15		$	1.11

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

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

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Comprehensive Income. The Operating Partnership reports comprehensive income in its Statement of Partners’ Capital. Comprehensive income was $35.3 million and $27.0 million (restated) for the three months ended September 30, 2004 and 2003, respectively. Comprehensive income was $74.8 million and $112.5 million (restated) for the nine months ended September 30, 2004 and 2003, respectively.

Stock-based Compensation Expense. In 2002, the Operating Partnership adopted the expense recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation. The Operating Partnership values stock options using the Black-Scholes option-pricing model and recognizes this value as an expense over the vesting periods. Under this standard, recognition of expense for stock options is applied to all options granted after the beginning of the year of adoption. Under SFAS No. 123, related stock option expense was $1.0 million and $0.6 million during the three months ended September 30, 2004 and 2003, respectively, and $3.0 million and $1.8 million during the nine months ended September 30, 2004 and 2003, respectively. Additionally, the Operating Partnership awards restricted stock and recognizes this value as an expense over the vesting periods. Related restricted stock compensation expense was $1.4 million for both the three months ended September 30, 2004 and 2003, and $4.9 million and $4.2 million during the nine months ended September 30, 2004 and 2003, respectively. The expense is included in general and administrative expenses in the accompanying consolidated statements of operations. Prior to 2002, the Operating Partnership followed the intrinsic method set forth in APB Opinion 25, Accounting for Stock Issued to Employees.

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



		For the Three Months				For the Nine Months
		Ended September 30,				Ended September 30,

		2004		2003		2004		2003

				(Restated)				(Restated)
Reduction to net income		$	247	$	399	$	857	$	1,217
Adjusted net income available to common unitholders		$	31,695	$	21,312	$	64,790	$	95,540
Adjusted earnings per unit:
	Basic	$	0.37	$	0.25	$	0.75	$	1.11
	Diluted	$	0.35	$	0.24	$	0.72	$	1.09


3.	Real Estate Acquisition and Development Activity

During the three months ended September 30, 2004, the Operating Partnership acquired two industrial buildings, aggregating approximately 0.6 million square feet for a total expected investment of $51.6 million, of which the Operating Partnership acquired one industrial building aggregating approximately 0.1 million square feet through one of the Operating Partnership’s co-investment joint ventures, for a total expected investment of $5.7 million. Year-to-date through September 30, 2004, the Operating Partnership acquired 48 industrial buildings, aggregating approximately 4.6 million square feet for a total expected investment of $490.8 million, of which the Operating Partnership acquired 36 industrial buildings aggregating approximately 2.0 million square feet through three of the Operating Partnership’s co-investment joint ventures, for a total expected investment of $137.7 million. During the three months ended September 30, 2003, the Operating Partnership acquired 13 industrial buildings, aggregating approximately 0.8 million square feet for a total expected investment of $57.4 million, of which the Operating Partnership acquired six industrial buildings aggregating approximately 0.5 million square feet through two of the Operating Partnership’s co-investment joint ventures, for a total expected investment of $27.3 million. During the nine months ended September 30, 2003, the Operating Partnership acquired 31 industrial buildings, aggregating approximately 3.2 million square

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

feet for a total expected investment of $188.4 million, of which the Operating Partnership acquired 23 industrial buildings aggregating approximately 2.8 million square feet through two of the Operating Partnership’s co-investment joint ventures, for a total expected investment of $154.6 million.

For the quarter ended September 30, 2004, the Operating Partnership initiated four new industrial development projects in North America with a total expected investment of $59.4 million, aggregating approximately 0.7 million square feet, and three new industrial development projects in Japan and Singapore with a total expected investment of $286.3 million, aggregating approximately 2.0 million square feet. During the nine months ended September 30, 2004, the Operating Partnership initiated nine new industrial development projects in North America with a total expected investment of $128.9 million, aggregating approximately 1.8 million square feet, and four new industrial development projects in Japan and Singapore with a total expected investment of $368.8 million, aggregating approximately 2.7 million square feet. During the three months ended September 30, 2003, the Operating Partnership initiated two new industrial development projects in North America with a total expected investment of $67.5 million, aggregating approximately 1.6 million square feet. During the nine months ended September 30, 2003, the Operating Partnership initiated ten new industrial development projects in North America with a total expected investment of $146.0 million, aggregating approximately 3.1 million square feet.

During the three months ended September 30, 2004, the Operating Partnership completed two industrial buildings with a total expected investment at $15.4 million, aggregating approximately 0.4 million square feet. During the nine months ended September 30, 2004, the Operating Partnership completed four industrial buildings with a total expected investment at $42.3 million, aggregating approximately 0.8 million square feet. During the three months ended September 30, 2003, the Operating Partnership completed three industrial buildings with a total expected investment at $21.5 million, aggregating approximately 0.4 million square feet. During the nine months ended September 30, 2003, the Operating Partnership completed seven industrial buildings with a total expected investment at $49.4 million, aggregating approximately 0.8 million square feet.

As of September 30, 2004, the Operating Partnership had in its development pipeline: (1) 27 industrial projects, which will total approximately 8.6 million square feet and will have an aggregate estimated investment of $689.3 million upon completion, of which five industrial projects with a total of 2.2 million square feet and an aggregate estimated investment of $90.9 million upon completion are held in unconsolidated joint ventures, and (2) five development projects available for sale, which will total approximately 0.9 million square feet and will have an aggregate estimated investment of $44.5 million upon completion. As of September 30, 2004, the Operating Partnership and its Development Alliance Partners had funded an aggregate of $384.2 million and needed to fund an estimated additional $349.6 million in order to complete current and planned projects. The Operating Partnership’s development pipeline currently includes projects expected to be completed through the third quarter of 2006. Significant land acquisitions in the third quarter included the purchase of 478 acres of land for industrial warehouse developments in various U.S. markets for $36.7 million. Significant land acquisitions for the nine months ended September 30, 2004 included the purchase of 640 acres of land for industrial warehouse developments in various U.S. markets and Mexico City for $68.3 million.


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

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

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Development Sales. During the three months ended September 30, 2004, the Operating Partnership sold one land parcel and three development projects as part of its development-for-sale program, aggregating approximately 0.1 million square feet, for an aggregate price of $13.8 million, resulting in an after-tax gain of $1.5 million. During the nine months ended September 30, 2004, the Operating Partnership sold five land parcels and four development projects as part of its development-for-sale program, aggregating approximately 0.2 million square feet, for an aggregate price of $27.8 million, resulting in an after-tax gain of $4.8 million. During the three and nine months ended September 30, 2003, the Operating Partnership sold three development-for-sale projects, aggregating approximately 0.2 million square feet, for an aggregate price of $32.1 million, resulting in an after-tax gain of $5.5 million.

Discontinued Operations. The Operating Partnership reported its property divestitures as discontinued operations separately as prescribed under the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS No. 144”). During the three months ended September 30, 2004, the Operating Partnership divested itself of five industrial buildings and two retail centers, aggregating approximately 0.8 million square feet, for an aggregate price of $62.8 million, with a resulting net gain of $10.5 million. During the nine months ended September 30, 2004, the Operating Partnership divested itself of seven industrial buildings, two retail centers and one office building, aggregating approximately 1.2 million square feet, for an aggregate price of $80.7 million, with a resulting net gain of $12.3 million. During the three months ended September 30, 2003, the Operating Partnership divested itself of nine industrial buildings and one retail center, aggregating approximately 0.8 million square feet, for an aggregate price of $102.2 million, with a resulting net gain of $7.9 million. During the nine months ended September 30, 2003, the Operating Partnership divested itself of 21 industrial buildings and one retail center, aggregating approximately 2.6 million square feet, for an aggregate price of $244.3 million, with a resulting net gain of $39.6 million.

Properties Held for Contribution. As of September 30, 2004, the Operating Partnership held for contribution to a future co-investment joint venture one industrial building with an aggregate net book value of $11.9 million, which, when contributed to the joint ventures, will reduce the Operating Partnership’s current ownership interest from approximately 90% to an expected range of 20-50%. This asset is not being held for divestiture under SFAS No. 144.

Properties Held for Divestiture. As of September 30, 2004, the Operating Partnership held for divestiture 14 industrial buildings and three undeveloped land parcels with an aggregate net book value of $59.9 million. These properties are not in the Operating Partnership’s core markets, do not meet its current strategic objectives or are included as part of its development-for-sale program. The divestitures of the properties are subject to negotiation of acceptable terms and other customary conditions. Properties held for divestiture are stated at the lower of cost or estimated fair value less costs to sell.

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following summarizes the condensed results of operations of the properties held for divestiture and sold under SFAS No. 144 (dollars in thousands):



		For the Three Months						For the Nine Months
		Ended September 30,						Ended September 30,

		2004			2003			2004			2003

					(Restated)						(Restated)
Rental revenues		$	4,690		$	5,725		$	8,585		$	28,000
Straight-line rents			(291	)		101			37			27
Property operating expenses			(559	)		(902	)		(1,746	)		(3,391	)
Real estate taxes			(313	)		(792	)		(1,203	)		(2,669	)
Depreciation and amortization			(525	)		(597	)		(1,733	)		(2,346	)
Interest, including amortization			(609	)		(476	)		(1,647	)		(2,850	)
Joint venture partners’ share of income			(2,208	)		(1,029	)		(2,474	)		(2,414	)

	Income (loss) attributable to discontinued operations	$	185		$	2,030		$	(181	)	$	14,357

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


	September 30,		December 31,
	2004		2003

Accounts receivable, net	$	925	$	—
Other assets	$	50	$	116
Accounts payable and other liabilities	$	1,421	$	7


5.	Mortgage Receivable

Through a wholly-owned subsidiary, the Operating Partnership holds a mortgage loan receivable on AMB Pier One, LLC, an unconsolidated joint venture. The Operating Partnership also holds various other mortgages receivable from property sales. The Operating Partnership’s mortgages receivable at September 30, 2004 and December 31, 2003 consisted of the following (dollars in thousands):


						September 30,		December 31,					Ownership
Mortgage Receivable		Market		Maturity		2004		2003		Rate			Percentage(1)

1. Pier 1			San Francisco Bay Area		May 2026	$	12,966	$	13,042		13.0	%		0.1	%
2. Platinum Distribution Center			No. New Jersey		February 2004		—		19,500		6.0	%		20.0	%
3. Platinum Distribution Center			No. New Jersey		November 2006		800		1,300		12.0	%		20.0	%
4. North Bay Distribution Center/ BAB			San Francisco Bay Area		December 2004		7,040		7,040		5.5	%		100.0	%
5. North Bay Distribution Center/ Corovan			San Francisco Bay Area		December 2004		2,262		2,263		7.3	%		100.0	%

	Total Mortgages Receivable					$	23,068	$	43,145

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

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


6.	Debt

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


			September 30,		December 31,
			2004		2003

Operating Partnership secured debt, varying interest rates from 2.9% to 10.4%, due April 2005 to January 2012 (weighted average interest rates of 7.3% and 8.1% at September 30, 2004 and December 31, 2003, respectively)			$	297,268	$	291,516
Consolidated joint venture secured debt, varying interest rates from 2.9% to 9.5%, due June 2005 to June 2023 (weighted average interest rate of 6.5% and 6.7% at September 30, 2004 and December 31, 2003, respectively)				1,308,077		1,061,585
Unsecured senior debt securities, varying interest rates from 2.4% to 8.0%, due June 2005 to June 2018 (weighted average interest rates of 6.5% and 6.8% at September 30, 2004 and December 31, 2003, respectively)				1,025,000		925,000
Unsecured debt, due June 2013 and November 2015, interest rate of 7.5%				9,182		9,628
Unsecured credit facilities, variable interest rate, due May 2006 through June 2007 (weighted average interest rates of 2.0% and 1.9% at September 30, 2004 and December 31, 2003, respectively)				583,864		275,739

	Total debt before unamortized premiums			3,223,391		2,563,468
	Unamortized premiums			12,599		10,789

		Total consolidated debt	$	3,235,990	$	2,574,257

Secured debt generally requires monthly principal and interest payments. The secured debt is secured by mortgages or deeds of trust on certain properties and is generally non-recourse. As of September 30, 2004 and December 31, 2003, the total gross investment book value of those properties securing the debt was $3.0 billion and $2.6 billion, respectively, including $2.3 billion and $1.8 billion, respectively, in consolidated joint ventures. All of the secured debt bears interest at fixed rates, except for eight loans with an aggregate principal amount of $69.4 million as of September 30, 2004, which bear interest at variable rates (weighted average interest rate of 4.5% as of September 30, 2004). The secured debt has various covenants. Management believes that the Operating Partnership was in compliance with its financial covenants as of September 30, 2004 and December 31, 2003. As of September 30, 2004, the Operating Partnership had certain non-recourse, secured loans, which are cross-collateralized by multiple properties.

As of September 30, 2004, the Operating Partnership had issued an aggregate of $1.0 billion in unsecured senior debt securities, which bore a weighted average interest rate of 6.5% and had an average term of 4.9 years. These unsecured senior debt securities include $100.0 million in notes, which are putable and callable in September 2005, $400.0 million of medium-term notes, which were issued under the Operating Partnership’s 2000 medium-term note program, and $225.0 million of medium-term notes, which were issued under the Operating Partnership’s 2002 medium-term note program. As of September 30, 2004, the Operating Partnership’s 2002 medium-term note program had a remaining capacity of $175.0 million. The Operating Partnership intends to continue to issue medium-term notes, guaranteed by the Company, under its 2002 program from time to time and as market conditions permit. The unsecured senior debt securities are subject to various covenants. Management believes that the Operating Partnership was in compliance with its financial covenants as of September 30, 2004.

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

On June 1, 2004, the Operating Partnership completed the early renewal of its senior unsecured revolving line of credit in the amount of $500.0 million. The Company remains a guarantor of the Operating Partnership’s obligations under the credit facility. The three-year credit facility includes a multi-currency component under which up to $250.0 million can be drawn in Yen, Euros or British Pounds Sterling. The line, which matures in June 2007 and carries a one-year extension option, can be increased up to $700.0 million upon certain conditions, and replaces the Operating Partnership’s previous $500.0 million credit facility that was to mature in December 2005. The line is priced at 60 basis points over the applicable LIBOR index, with an annual facility fee of 20 basis points, based on the current credit rating of the Operating Partnership’s long-term debt. The revolving credit facility contains customary and other affirmative covenants, including compliance with financial reporting requirements and maintenance of specified financial ratios, and negative covenants, including limitations on the incurrence of liens and limitations on mergers or consolidations. The Operating Partnership uses its unsecured credit facility principally for acquisitions, funding development activity and general working capital requirements. The total amount available under the credit facility fluctuates based upon the borrowing base, as defined in the agreement governing the credit facility, generally the value of the Operating Partnership’s unencumbered properties. As of September 30, 2004, the outstanding balance on the credit facility was $363.6 million and the remaining amount available was $122.3 million, net of outstanding letters of credit of $14.1 million (excluding the additional $200.0 million of potential additional capacity). The outstanding balance included borrowings denominated in Euros and Yen, which, using the exchange rate in effect on September 30, 2004, would equal approximately $96.5 million and $77.1 million in U.S. dollars, respectively. As of September 30, 2004, the Operating Partnership had an additional outstanding balance of $26.6 million on other credit facilities. Management believes that the Operating Partnership was in compliance with its financial covenants at September 30, 2004.

On June 29, 2004, AMB Japan Finance Y.K., a subsidiary of the Operating Partnership, entered into an unsecured revolving credit agreement providing for loans or letters of credit in a maximum principal amount outstanding at any time of up to 24 billion Yen, which, using the exchange rate in effect on September 30, 2004, equals approximately $218.1 million U.S. dollars. The Company and the Operating Partnership guarantee the obligations of AMB Japan Finance Y.K. under the revolving credit facility, as well as the obligations of any other entity in which the Operating Partnership directly or indirectly owns an ownership interest, and which is selected from time to time to be a borrower under and pursuant to the revolving credit agreement. Generally, borrowers under the revolving credit facility have the option to secure all or a portion of the borrowings under the revolving credit facility with certain real estate assets or equity in entities holding such real estate assets. The revolving credit facility matures in June 2007 and has a one-year extension option, which is subject to the satisfaction of certain conditions and the payment of an extension fee equal to 0.25% of the outstanding commitments under the facility at that time. The rate on the borrowings will generally be TIBOR plus a margin, which is based on the current credit rating of the Operating Partnership’s long-term debt and is currently 60 basis points. In addition, there is an annual facility fee, payable in quarterly amounts, which is based on the credit rating of the Operating Partnership’s long-term debt, and is currently 20 basis points of the outstanding commitments under the facility. The revolving credit facility contains customary and other affirmative covenants, including financial reporting requirements and maintenance of specified financial ratios, and negative covenants, including limitations on the incurrence of liens and limitations on mergers or consolidations. As of September 30, 2004, the outstanding balance on this credit facility, using the exchange rate in effect at September 30, 2004, was $193.6 million U.S. dollars. Management believes that Operating Partnership was in compliance with its financial covenants at September 30, 2004.

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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


		Operating
		Partnership		Joint		Unsecured
		Secured		Venture		Senior Debt		Unsecured		Credit
		Debt		Debt		Securities		Debt		Facilities		Total

2004		$	2,141	$	6,394	$	—	$	154	$	—	$	8,689
2005			42,629		67,692		250,000		647		—		360,968
2006			80,687		72,065		75,000		698		26,600		255,050
2007			12,850		72,777		75,000		752		557,264		718,643
2008			31,047		173,752		175,000		810		—		380,609
2009			2,059		112,994		100,000		873		—		215,926
2010			67,791		141,429		75,000		941		—		285,161
2011			56,023		369,063		75,000		1,014		—		501,100
2012			2,041		165,061		—		1,093		—		168,195
2013			—		87,665		75,000		920		—		163,585
Thereafter			—		39,185		125,000		1,280		—		165,465

	Total	$	297,268	$	1,308,077	$	1,025,000	$	9,182	$	583,864	$	3,223,391


7.	Minority Interests in Consolidated Joint Ventures and Preferred Units

Minority interests in the Operating Partnership represent the limited partnership interests in AMB Property II, L.P. and interests held by certain third parties in several real estate joint ventures, aggregating approximately 42.8 million square feet, which are consolidated for financial reporting purposes. Such investments are consolidated because the Operating Partnership owns a majority interest or exercises significant control over major operating decisions such as approval of budgets, selection of property managers, asset management, investment activity and changes in financing. These joint venture investments do not meet the variable interest entity criteria under FASB Interpretation No. 46R, Consolidation of Variable Interest Entities.

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

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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



							Total Investment
				Operating			in Real Estate				Property Debt
				Partnership’s
				Ownership			September 30,		December 31,		September 30,		December 31,
Co-investment Joint Venture	Joint Venture Partner			Percentage			2004		2003		2004		2003

AMB/Erie, L.P.		Erie Insurance Company and affiliates			50	%	$	161,165	$	156,174	$	52,115	$	57,115
AMB Institutional Alliance Fund I, L.P.		AMB Institutional Alliance REIT I, Inc.(1)			21	%		419,595		417,902		212,189		214,538
AMB Partners II, L.P.	City and County of San Francisco Employees’ Retirement System				20	%		482,733		428,837		266,490		253,942
AMB-SGP, L.P.		Industrial JV Pte Ltd(2)			50	%		415,102		408,507		246,657		249,861
AMB Institutional Alliance Fund II, L.P.		AMB Institutional Alliance REIT II, Inc.(3)			20	%		483,777		449,709		232,762		204,542
AMB-AMS, L.P.(4)		PMT, SPW and TNO(5)			39	%		97,895		—		44,765		—
AMB Institutional Alliance Fund III		N/A	(6)					422,161		—		178,539		—

Total Co-investment Joint Ventures							$	2,482,428	$	1,861,129	$	1,233,517	$	979,998

(1) Included 16 institutional investors as stockholders as of September 30, 2004.

(2) A subsidiary of the real estate investment subsidiary of the Government of Singapore Investment Corporation.

(3) Included 13 institutional investors as stockholders and one third-party limited partner as of September 30, 2004.

(4) AMB-AMS, L.P. is a co-investment partnership with three Dutch pension funds advised by Mn Services NV.

(5) PMT is Stichting Pensioenfonds Metaal en Techniek, SPW is Stichting Pensioenfonds voor de Woningcorporaties and TNO is Stichting Pensioenfonds TNO.

(6) The Operating Partnership expects to raise third party equity in the fourth quarter of 2004, reducing its current ownership interest from approximately 100% to an expected range of 20-50%. See Note 13 — Subsequent Event.

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


			September 30,		December 31,
			2004		2003

					(Restated)
Joint venture partners			$	701,639	$	658,723
Held through AMB Property II, L.P.:
	Class B common limited partnership units			2,697		2,781
	Series D preferred units (liquidation preference of $79,767)			77,684		77,684
	Series E preferred units (liquidation preference of $11,022)			10,788		10,788
	Series F preferred units (liquidation preference of $10,057)			9,900		9,900
	Series H preferred units (liquidation preference of $42,000)			40,912		40,912
	Series I preferred units (liquidation preference of $25,500)			24,800		24,800
	Series N preferred units (liquidation preference of $36,479)			36,479		—

		Total minority interests	$	904,899	$	825,588

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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



			For the Three Months				For the Nine Months
			Ended September 30,				Ended September 30,

			2004		2003		2004		2003

					(Restated)				(Restated)
Joint Venture Partners			$	10,302	$	9,546	$	28,978	$	24,712
Joint Venture Partners’ share of development profits				66		3,331		672		3,331
Held through AMB Property II, L.P.:
	Class B common limited partnership units			26		—		80		—
	Series D preferred units (liquidation preference of $79,767)			1,545		1,545		4,636		4,636
	Series E preferred units (liquidation preference of $11,022)			214		214		641		641
	Series F preferred units (liquidation preference of $10,057)			200		200		600		732
	Series H preferred units (liquidation preference of $42,000)			853		853		2,559		2,559
	Series I preferred units (liquidation preference of $25,500)			510		510		1,530		1,530
	Series N preferred units (liquidation preference of $36,479)			30		—		30		—

		Total minority interests’ share of income	$	13,746	$	16,199	$	39,726	$	38,141

The Operating Partnership has consolidated joint ventures that have finite lives under the terms of the partnership agreements. The minority interests associated with these consolidated joint ventures represent mandatorily redeemable interests as defined in SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. As of September 30, 2004 and December 31, 2003, the aggregate book value of the minority interests in the accompanying consolidated balance sheet were $701.6 million and $658.7 million (restated), respectively, and the Operating Partnership believes that the aggregate settlement value of these interests were approximately $812.1 million and $729.2 million, respectively. This amount is based on the estimated liquidation values of the assets and liabilities and the resulting proceeds that the Operating Partnership would distribute to its joint venture partners upon dissolution, as required under the terms of the respective partnership agreements. Subsequent changes to the estimated fair values of the assets and liabilities of the consolidated joint ventures will affect the Operating Partnership’s estimate of the aggregate settlement value. The partnership agreements do not limit the amount that the minority partners would be entitled to in the event of liquidation of the assets and liabilities and dissolution of the respective partnerships. The FASB has deferred indefinitely the implementation of SFAS 150 as it applies to certain minority interests in finite-lived entities. While the Operating Partnership adopted the disclosure requirements of SFAS 150 in the third quarter of 2003, there was no impact on the Operating Partnership’s financial position, results of operations or cash flows due to this deferral.

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


8.	Investments in Unconsolidated Joint Ventures

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


					Square		September 30,		December 31,		Ownership
Unconsolidated Joint Ventures	Market		Alliance Partner		Feet		2004		2003		Percentage

1. Elk Grove Du Page		Chicago		Hamilton Partners		4,046,721	$	33,467	$	31,548		56	%
2. Pico Rivera		Los Angeles		Majestic Realty		855,600		748		1,091		50	%
3. Monte Vista Spectrum		Los Angeles		Majestic Realty		576,852		288		487		50	%
4. Industrial Fund I, LLC		Various		Citigroup		2,326,334		3,559		4,173		15	%
5. Singapore Airport Logistics Center Bldg I		Singapore		Boustead Projects		230,460		2,508		2,067		50	%
6. Singapore Airport Logistics Center Bldg II		Singapore		Boustead Projects		254,267		61		—		50	%
7. Sterling Distribution Center 1 & 2		Los Angeles		Majestic Realty		1,490,000		4,653		10,429		40	%
8. Sterling Distribution Center 3		Los Angeles		Majestic Realty		390,000		1,977		2,214		50	%
9. Nash Logistics Center		Los Angeles		AMB - IAC		75,000		1,340		—		50	%

Total Unconsolidated Joint Ventures						10,245,234	$	48,601	$	52,009

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

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


9.	Partners’ Capital

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

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

in the Operating Partnership will increase. Common limited partners and class B common limited partners may exercise this redemption right from time to time, in whole or in part, subject to certain limitations. During the nine months ended September 30, 2004, the Operating Partnership redeemed 13,332 of its common limited partnership units for an equivalent number of shares of the Company’s common stock.

During 2003, the Company repurchased and retired 812,900 shares of its common stock for an aggregate purchase price of $21.2 million, including commissions. In December 2003, the Company’s board of directors approved a new two-year common stock repurchase program for the repurchase of up to $200.0 million worth of common stock. During the nine months ended September 30, 2004, the Company did not repurchase any shares of its common stock and, accordingly, the Operating Partnership did not redeem any general partnership units.

On September 24, 2004, AMB Property II, L.P., a partnership in which Texas AMB I, LLC, a Delaware limited liability company and an indirect subsidiary of the Company, owns an approximate 1.0% general partnership interest and the Operating Partnership owns an approximate 99% common limited partnership interest, issued 729,582 5.0% Series N cumulative redeemable preferred limited partnership units at a price of $50.00 per unit. The Series N preferred units were issued to Robert Pattillo Properties, Inc. in exchange for the contribution of certain parcels of land that are located in multiple markets to AMB Property II, L.P. Beginning September 25, 2006 and until and including September 25, 2009, the Series N preferred units may be redeemed by AMB Property II, L.P. at a redemption price equal to 99.5% of the original $50.00 per unit capital contribution, plus all accrued and unpaid distributions to the date of redemption, which shall be paid solely out of capital contributed to AMB Property II, L.P. by Texas AMB I, LLC or the Operating Partnership (other than with respect to the accumulated but unpaid distributions). Pursuant to a Put Agreement, dated September 24, 2004, by and between Robert Pattillo Properties, Inc. and the Operating Partnership, beginning on June 1, 2005 and until January 15, 2006, the holders of the Series N preferred units will have the right to sell all, but not less than all, of such units to the Operating Partnership (or to certain designees) at a price equal to $50.00 per unit, plus all accrued and unpaid distributions to the date of such sale.

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

As of September 30, 2004, the Operating Partnership had outstanding 82,689,635 common general partnership units, 4,604,910 common limited partnership units, 800,000 7.95% Series J Cumulative Redeemable Partnership Units, 800,000 7.95% Series K Cumulative Redeemable Partnership Units, 2,000,000 6.5% Series L Cumulative Redeemable Partnership Units and 2,300,000 6.75% Series M Cumulative Redeemable Partnership Units.

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table sets forth the distributions paid per unit:



		For the Three Months		For the Nine Months
		Ended September 30,		Ended September 30,

Paying Entity	Security	2004	2003	2004	2003

Operating Partnership	Common limited partnership units	$0.425	$0.415	$1.275	$1.245
Operating Partnership	Series B preferred units	n/a	$1.078	n/a	$3.234
Operating Partnership	Series J preferred units	$0.994	$0.994	$2.981	$2.981
Operating Partnership	Series K preferred units	$0.994	$0.994	$2.981	$2.981
AMB Property II, L.P.	Class B common limited partnership units	$0.425	n/a	$1.275	n/a
AMB Property II, L.P.	Series D preferred units	$0.969	$0.969	$2.906	$2.906
AMB Property II, L.P.	Series E preferred units	$0.969	$0.969	$2.906	$2.906
AMB Property II, L.P.	Series F preferred units	$0.994	$0.994	$2.981	$2.981
AMB Property II, L.P.	Series H preferred units	$1.016	$1.016	$3.047	$3.047
AMB Property II, L.P.	Series I preferred units	$1.000	$1.000	$3.000	$3.000
AMB Property II, L.P.	Series N preferred units	$0.042	n/a	$0.042	n/a


10.	Income Per Unit

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



		For the Three Months				For the Nine Months
		Ended September 30,				Ended September 30,

		2004		2003		2004		2003

WEIGHTED AVERAGE COMMON UNITS
	Basic		86,943,931		85,776,251		86,749,022		85,874,579
	Stock options and restricted stock		3,202,314		1,623,293		3,015,611		1,467,496

	Diluted weighted average common units		90,146,245		87,399,544		89,764,633		87,342,075


11.	Segment Information

The Operating Partnership mainly operates industrial properties and manages its business by markets. Industrial properties represent more than 99.5% of the Operating Partnership’s portfolio by rentable square feet and consist primarily of warehouse distribution facilities suitable for single or multiple customers, and are typically comprised of multiple buildings that are leased to customers engaged in various types of businesses. The Operating Partnership’s geographic markets for industrial properties are managed separately because each market requires different operating, pricing and leasing strategies. The remaining 0.5% of the Operating Partnership’s portfolio is comprised of retail and other properties located in Southeast Florida and Atlanta. The Operating Partnership does not separately manage its retail operations by market. Retail properties are generally leased to one or more anchor customers, such as grocery and drug stores, and various retail businesses. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Operating Partnership evaluates performance based upon property net operating income of the combined properties in each segment.

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The industrial domestic target markets category includes Austin, Baltimore/ Washington D.C., Boston and Minneapolis. The industrial domestic non-target markets category captures all of the Operating Partnership’s other U.S. markets, except for those markets listed individually in the table. The international target markets category includes France, Germany, Japan, Mexico and the Netherlands.

Summary information for the reportable segments is as follows (dollars in thousands):



			Rental Revenues						Property NOI(1)


			For the Three Months						For the Three Months
			Ended September 30,						Ended September 30,

Segments			2004			2003			2004			2003

Industrial domestic hub and gateway markets:
	Atlanta		$	7,547		$	7,491		$	5,847		$	6,132
	Chicago			11,139			10,826			7,302			7,162
	Dallas/ Fort Worth			4,080			4,336			2,650			2,773
	Los Angeles			26,296			23,400			20,715			18,675
	Northern New Jersey/ New York			17,842			12,589			12,656			8,104
	San Francisco Bay Area			30,329			24,447			25,143			19,135
	Miami			7,947			8,072			5,417			5,933
	Seattle			10,587			8,721			8,293			6,718
	On-Tarmac			12,757			12,647			7,244			7,106

		Total industrial domestic hub markets		128,524			112,529			95,267			81,738
Total industrial domestic target markets				27,847			38,006			19,885			26,393
Total industrial domestic non-target markets				10,323			(6,113	)		8,854			(3,466	)
International target markets				7,057			1,704			6,408			1,764
Straight-line rents				2,593			2,579			2,593			2,579
Total retail and other markets				1,858			2,587			370			1,461
Discontinued operations				(4,399	)		(5,826	)		(3,527	)		(4,132	)

		Total	$	173,803		$	145,466		$	129,850		$	106,337

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

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)



			Rental Revenues						Property NOI(1)


			For the Nine Months						For the Nine Months
			Ended September 30,						Ended September 30,

Segments			2004			2003			2004			2003

Industrial domestic hub and gateway markets:
	Atlanta		$	22,688		$	21,759		$	17,729		$	17,436
	Chicago			32,609			32,938			21,960			22,422
	Dallas/ Fort Worth			11,681			12,599			7,603			8,229
	Los Angeles			76,952			69,385			60,774			55,498
	Northern New Jersey/ New York			46,298			39,440			32,015			25,980
	San Francisco Bay Area			76,740			85,066			61,877			70,343
	Miami			24,546			24,114			17,027			17,178
	Seattle			30,987			22,268			24,239			17,427
	On-Tarmac			40,899			35,521			23,160			19,400

		Total industrial domestic hub markets		363,400			343,090			266,384			253,913
Total industrial domestic target markets				81,671			76,999			59,118			55,353
Total industrial domestic non-target markets				25,322			21,177			19,576			14,821
International target markets				18,578			4,097			15,257			3,608
Straight-line rents				11,251			6,832			11,251			6,832
Total retail and other markets				5,400			10,421			2,507			6,479
Discontinued operations				(8,622	)		(28,027	)		(5,673	)		(21,967	)

		Total	$	497,000		$	434,589		$	368,420		$	319,039

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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



		For the Three Months						For the Nine Months
		Ended September 30,						Ended September 30,

		2004			2003			2004			2003

					(Restated)						(Restated)
Property NOI		$	129,850		$	106,337		$	368,420		$	319,039
Private capital income			2,726			1,928			8,077			7,844
Depreciation and amortization			(42,099	)		(33,734	)		(120,998	)		(102,847	)
Impairment losses			—			—			—			(5,251	)
General and administrative			(15,747	)		(10,824	)		(45,706	)		(34,834	)
Equity in earnings of unconsolidated joint ventures			603			1,365			3,256			4,222
Interest and other income			1,295			653			3,283			3,144
Gains from dispositions of real estate			—			—			—			7,429
Development profits, net of taxes			1,521			5,512			4,756			5,512
Interest, including amortization			(40,324	)		(35,562	)		(118,449	)		(107,132	)
Total minority interests’ share of income			(13,746	)		(16,199	)		(39,726	)		(38,141	)
Total discontinued operations			11,236			10,368			12,853			56,206

	Net income	$	35,315		$	29,844		$	75,766		$	115,191

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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



			Total Gross Investment as of

			September 30, 2004		December 31, 2003

Industrial domestic hub and gateway markets:
	Atlanta		$	278,339	$	275,810
	Chicago			377,866		381,364
	Dallas/ Fort Worth			151,971		152,661
	Los Angeles			893,452		854,896
	Northern New Jersey/ New York			805,149		516,712
	San Francisco Bay Area			866,131		862,173
	Miami			335,139		329,107
	Seattle			400,053		393,160
	On-Tarmac			274,123		262,046

		Total industrial domestic hub markets		4,382,223		4,027,929
Total industrial domestic target markets				847,206		764,097
Industrial domestic non-target markets and other				319,930		290,982
International target markets				206,496		160,974
Total retail and other markets				34,587		48,097
Construction in progress				512,087		199,628

		Total investments in properties	$	6,302,529	$	5,491,707

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


			September 30, 2004			December 31, 2003

						(Restated)
Total investments in properties			$	6,302,529		$	5,491,707
	Accumulated depreciation and amortization			(595,438	)		(485,559	)

		Net investments in properties		5,707,091			5,006,148
Investments in unconsolidated joint ventures				48,601			52,009
Properties held for contribution, net				11,854			—
Properties held for divestiture, net				59,924			11,751

		Net investments in real estate		5,827,470			5,069,908
Cash and cash equivalents				116,378			127,678
Restricted cash				57,945			28,985
Mortgages receivable				23,068			43,145
Accounts receivable, net of allowance for doubtful accounts				102,078			88,452
Other assets				94,711			51,391

		Total assets	$	6,221,650		$	5,409,559

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


12.	Commitments and Contingencies


	*Commitments*

Lease Commitments. The Operating Partnership holds operating ground leases on land parcels at its on-tarmac facilities, leases on office spaces for corporate use, and a leasehold interest that it holds for investment purposes. The remaining lease terms are from one to 64 years. Operating lease payments are being amortized ratably over the terms of the related leases.

Standby Letters of Credit. As of September 30, 2004, the Operating Partnership had provided approximately $33.9 million in letters of credit, of which $14.1 million was provided under the Operating Partnership’s $500.0 million unsecured credit facility. The letters of credit were required to be issued under certain ground lease provisions, bank guarantees and other commitments.

Guarantees. Other than as disclosed elsewhere in this report, as of September 30, 2004, the Operating Partnership had outstanding guarantees in the aggregate amount of $30.1 million in connection with certain acquisitions and lease obligations of which $7.6 million were backed by standby letters of credit. As of September 30, 2004, the Operating Partnership guaranteed $2.3 million and $4.7 million on outstanding construction loans for one of our consolidated joint ventures and two of our unconsolidated joint ventures, respectively. Additionally, the Operating Partnership provided a take out guarantee after the completion of construction on the aggregate construction loan amount of $66.2 million for another of its unconsolidated joint ventures, of which $35.5 million was outstanding as of September 30, 2004. In connection with this construction loan, the Operating Partnership’s joint venture partner provides an underlying construction loan guarantee up to the completion of construction.

Performance and Surety Bonds. As of September 30, 2004, the Operating Partnership had outstanding performance and surety bonds in an aggregate amount of $1.2 million. These bonds were issued in connection with certain of its development projects and were posted to guarantee certain tax obligations and the construction of certain real property improvements and infrastructure, such as grading, sewers and streets. Performance and surety bonds are commonly required by public agencies from real estate developers. Performance and surety bonds are renewable and expire upon the payment of the taxes due or the completion of the improvements and infrastructure.

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


	*Contingencies*

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

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

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Operating Partnership’s results of operations and cash flow. The Operating Partnership carries environmental insurance and believes that the policy terms, conditions, limits and deductibles are adequate and appropriate under the circumstances, given the relative risk of loss, the cost of such coverage and current industry practice.

General Uninsured Losses. The Operating Partnership carries property and rental loss, liability, flood and terrorism insurance. The Operating Partnership believes that the policy terms, conditions, limits and deductibles are adequate and appropriate under the circumstances, given the relative risk of loss, the cost of such coverage and current industry practice. In addition, certain of the Operating Partnership’s properties are located in areas that are subject to earthquake activity; therefore, the Operating Partnership has obtained limited earthquake insurance on those properties. There are, however, certain types of extraordinary losses, such as those due to acts of war that may be either uninsurable or not economically insurable. Although the Operating Partnership has obtained coverage for certain acts of terrorism, with policy specifications and insured limits that it believes are commercially reasonable, there can be no assurance that the Operating Partnership will be able to collect under such policies. Should an uninsured loss occur, the Operating Partnership could lose its investment in, and anticipated profits and cash flows from, a property.

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


13.	Subsequent Event

On October 26, 2004, AMB Institutional Alliance REIT III, Inc. received capital contributions of $136.5 million from 12 third party investors, which it contributed to AMB Institutional Alliance Fund III, L.P. (“Fund III”), an open-end commingled fund, in return for limited partnership interests. The Operating Partnership is the general partner of Fund III and has an aggregate direct and indirect capital interest of approximately 20% in Fund III. The current gross book value of Fund III is approximately $422.0 million. The open-end structure of Fund III allows investors to purchase interests in Fund III and to redeem all or a portion of their investments in Fund III on a quarterly basis, at any time following the second anniversary of Fund III’s initial closing, subject to cash availability.


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

The Management’s Discussion and Analysis of Financial Condition and Results of Operation set forth in this Item 2 has been restated to reflect the restatement of our consolidated financial statements for the years ended December 31, 2003, 2002 and 2001 filed on Forms 10-K and 10-K/A for the year ended December 31, 2003, and for the quarters ended March 31, 2004 and June 30, 2004 filed on Forms 10-Q for the quarters then ended. See Note 2 to the restated unaudited consolidated financial statements included in Part I, Item 1 on this Form 10-Q.

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

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

• changes in general economic conditions or in the real estate sector;

• non-renewal of leases by customers or renewal at lower than expected rent;

• difficulties in identifying properties to acquire and in effecting acquisitions on advantageous terms and the failure of acquisitions to perform as we expect;

• risks and uncertainties affecting property development and renovation (including construction delays, cost overruns, our inability to obtain necessary permits and financing);

• a downturn in California’s economy or real estate conditions;

• losses in excess of our insurance coverage;

• our failure to divest of properties on advantageous terms or to timely reinvest proceeds from any such divestitures;

• unknown liabilities acquired from our predecessors or in connection with acquired properties;

• risks of doing business internationally, including unfamiliarity with new markets and currency risks;

• risks associated with using debt to fund acquisitions and development, including re-financing risks;

• our failure to obtain necessary financing;

• changes in local, state and federal regulatory requirements; and

• environmental uncertainties.

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

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

GENERAL

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

Management’s Overview

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

According to data from Torto Wheaton Research, national demand for leased industrial space improved for the second consecutive quarter in the quarter ended September 30, 2004. These two consecutive quarters of improving demand follow 14 quarters of negatively trending industrial space availability. While the period of rising availability proved a difficult leasing environment, acquisition demand for industrial property (as evidenced by our observation of strong national sales volumes and declining acquisition capitalization rates) has remained consistently strong. We believe that, during this period of negative availability, we have capitalized on this opportunity by accelerating the repositioning of our portfolio through the disposition of non-core properties. While we continue to sell selected assets on an opportunistic basis, we believe that we have substantially achieved our repositioning goals. Property dispositions result in reinvestment capacity and trigger gain/loss recognition, but they also create near-term earnings dilution if the capital cannot be redeployed effectively. The table below summarizes our leasing activity for industrial operating properties for the three and nine months ended September 30, 2004 and 2003:


		U.S. Hub and
		Gateway			Total Other			Total/Weighted
Property Data		Markets (1)			Markets			Average

For the three months ended September 30, 2004:
	% of total rentable square feet		74.5	%		25.5	%		100.0	%
	Occupancy percentage at period end		94.8	%		94.1	%		94.6	%
	Same space square footage leased		3,276,590			964,889			4,241,479
	Rent decreases on renewals and rollovers		(13.4	)%		(11.5	)%		(13.2	)%
For the three months ended September 30, 2003:
	% of total rentable square feet		76.1	%		23.9	%		100.0	%
	Occupancy percentage at period end		92.1	%		91.4	%		92.0	%
	Same space square footage leased		4,165,824			380,266			4,546,090
	Rent decreases on renewals and rollovers		(16.0	)%		(4.9	)%		(15.1	)%
For the nine months ended September 30, 2004:
	% of total rentable square feet		74.5	%		25.5	%		100.0	%
	Occupancy percentage at period end		94.8	%		94.1	%		94.6	%


		U.S. Hub and
		Gateway			Total Other			Total/Weighted
Property Data		Markets (1)			Markets			Average

	Same space square footage leased		11,066,425			2,260,625			13,327,050
	Rent decreases on renewals and rollovers		(14.6	)%		(7.8	)%		(13.6	)%
For the nine months ended September 30, 2003:
	% of total rentable square feet		76.1	%		23.9	%		100.0	%
	Occupancy percentage at period end		92.1	%		91.4	%		92.0	%
	Same space square footage leased		10,472,076			2,877,223			13,349,299
	Rent (decreases) increases on renewals and rollovers		(10.4	)%		5.5	%		(7.4	)%

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

We continued to observe two positive trends nationally for industrial real estate during the quarter ended September 30, 2004, supported by data provided by Torto Wheaton Research. First, national industrial space availability declined 20 basis points in the quarter from 11.4% to 11.2%. This decrease in national industrial space availability represents the second consecutive quarter of improving demand for national industrial space. In the 14 prior quarters, national industrial space availability increased on average 36 basis points per quarter. Second, national absorption of industrial space, defined as the net change in occupied stock as measured by square feet of completions less the change in available vacant square feet, totaled approximately 56 million square feet in the quarter ended September 30, 2004, a level consistent with the 46 million square feet of industrial space absorbed in the prior quarter. This represented the fifth consecutive quarter of positive absorption, following ten quarters in which absorption averaged a negative 16 million square feet per quarter.

In this improved environment, our industrial portfolio’s occupancy levels increased to 94.6% at September 30, 2004 from 93.6% at June 30, 2004, which we believe reflects higher levels of demand for industrial space generally and in our portfolio specifically. During the three months ended September 30, 2004, our lease expirations totaled approximately 4.9 million square feet while commencements of new or renewed leases totaled approximately 5.7 million square feet, resulting in an increase in our occupancy levels of approximately 100 basis points. On September 30, 2004, our occupancy levels were 260 basis points higher than at September 30, 2003.

Rents on industrial renewals and rollovers in our portfolio decreased 13.2% during the quarter ended September 30, 2004 as leases were entered into or renewed at rates consistent with what we believe to be current market levels. We believe this decline in rents on lease renewals and rollovers reflects trends in national industrial space availability. We believe that relatively high levels of national industrial space availability have caused market rents for industrial properties to decline between 10 and 20% from their peak levels in 2001. Rental rates in our portfolio declined at a lower rate in the quarter ended September 30, 2004 than in the prior quarter, which we believe indicates a stabilization of market rental rate levels. While the level of rental rate reduction varied by market, we achieved occupancy levels in our portfolio 580 basis points in excess of the national industrial market, as determined by Torto Wheaton Research, by pricing lease renewals and new leases with sensitivity to local market conditions. In periods of decreasing or stabilizing rental rates, we strive to sign leases with shorter terms to prevent locking in lower rent levels for long periods and to be prepared to sign new, longer-term leases during periods of growing rental rates. When we sign leases of shorter duration, we attempt to limit overall leasing costs and capital expenditures by offering different grades of tenant improvement packages, appropriate to the lease term. We generally followed this practice during the quarter ended September 30, 2004.

We believe that development, renovation and expansion of well-located, high-quality industrial properties should generally continue to provide us with attractive investment opportunities at a higher rate of return than we may obtain from the purchase of existing properties. We believe that our development opportunities in Mexico and Japan are attractive given the current lack of supply of modern distribution facilities in the major

metropolitan markets of these countries. Globally, we have increased our development pipeline from a low of $107.0 million at the end of 2002 to approximately $689.3 million at September 30, 2004. In addition to our committed development pipeline, we hold 934 acres, 38 acres and six acres in North America, Asia and Europe, respectively, which could support an aggregate of approximately 17.1 million square feet of additional development. We also own approximately 307 acres of land in North America as part of our development and land sales program.

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

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

Summary of Key Transactions

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

• Acquired two buildings in the U.S., aggregating approximately 0.6 million square feet, for an aggregate price of approximately $51.6 million, including $5.7 million invested through one of our co-investment joint ventures; and

• Commenced seven new development projects in the United States, Singapore and Japan, totaling 2.7 million square feet with an estimated total investment of approximately $345.7 million (using exchange rates in effect at September 30, 2004); and

• Acquired 478 acres of land for industrial warehouse development in various U.S. markets for $36.7 million; and

• Sold one land parcel and three development projects available for sale, aggregating approximately 0.1 million square feet, for an aggregate price of $13.8 million; and

• Divested ourselves of five industrial buildings and two retail centers, aggregating 0.8 million square feet, for an aggregate price of $62.8 million.

During the nine months ended September 30, 2004, we completed the following significant capital deployment transactions:

• Acquired 48 buildings in the U.S., Mexico, Europe and Japan, aggregating approximately 4.6 million square feet, for an aggregate price of approximately $490.8 million (using exchange rates in effect at acquisition dates), including $137.7 million invested through three of our co-investment joint ventures; and

• Commenced 13 development projects in the United States, Mexico, Singapore and Japan, totaling 4.5 million square feet with an estimated total investment of approximately $497.7 million (using exchange rates in effect at applicable quarter end dates); and

• Acquired 640 acres of land for industrial warehouse development in various U.S. markets and Mexico City for approximately $68.3 million; and

• Sold five land parcels and four development projects available for sale, aggregating approximately 0.2 million square feet, for an aggregate price of $27.8 million; and

• Divested ourselves of seven industrial buildings, two retail centers and one office building, aggregating 1.2 million square feet, for an aggregate price of $80.7 million.

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

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

• Obtained long-term secured debt financings for our co-investment joint ventures of $109.8 million at an average rate of 5.0%; and

• Assumed $8.6 million of debt for our co-investment joint ventures and our pre-specified co-investment properties at a weighted average interest rate of 7.7%.

During the nine months ended September 30, 2004, we completed the following capital markets transactions:

• Obtained long-term secured debt financings for our co-investment joint ventures totaling $140.9 million at an average rate of 5.0%; and

• Assumed $124.9 million of debt for our co-investment joint ventures and our pre-specified co-investment properties at a weighted average interest rate of 6.5%; and

• Obtained $63.8 million of debt (using exchange rates in effect at applicable quarter end dates) with a weighted average interest rate of 3.6% for international acquisitions; and

• Completed the early renewal our senior unsecured revolving line of credit in the amount of $500.0 million. The three-year credit facility includes a multi-currency component under which up to $250.0 million can be drawn in Yen, Euros or British Pounds Sterling; and

• Entered into an unsecured revolving credit agreement through AMB Japan Finance Y.K., one of our subsidiaries, providing for loans or letters of credit in a maximum principal amount outstanding at any time of up to 24 billion Yen (approximately $218.1 million in U.S. dollars using exchange rates in effect at September 30, 2004).

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

Critical Accounting Policies

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

Restatement of Depreciation Expense. On October 12, 2004, our general partner announced a restatement of depreciation expense for our prior period results relating to 39 buildings in our portfolio, 38 of which are located on-tarmac, which is land owned by federal, state or local airport authorities. As part of management’s on-going review of our accounting policies and internal control over financial reporting, management determined that we should have depreciated certain of our investments in buildings that reside on land subject to ground leases over the remaining terms of the ground leases, rather than over 40 years,

which is the period used to depreciate buildings that we hold in fee simple. We did not segregate these assets into a separate expected useful life category for depreciation purposes. Our management determined that the internal control deficiency that resulted in this restatement represents a material weakness, as defined by the Public Company Accounting Oversight Board’s Auditing Standard No. 2. In connection with correcting this error, management has taken appropriate action to modify our system of internal control over financial reporting to remediate this internal control deficiency. Going forward, these assets will be depreciated over the lesser of 40 years or the contractual term of the underlying ground lease. A description of this weakness and the related remediation measures that have been undertaken by us is set forth in Part I, Item 4, Controls and Procedures of this Form 10-Q.

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

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

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

Joint Ventures. We hold interests in both consolidated and unconsolidated joint ventures. Our joint venture investments do not meet the variable interest entity criteria under FASB Interpretation No. 46R, Consolidation of Variable Interest Entities. Therefore, we determine consolidation based on standards set forth in EITF 96-16, Investor’s Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights, and Statement of

Position 78-9, Accounting for Investments in Real Estate Ventures. Based on the guidance set forth in these pronouncements, we consolidate certain joint venture investments because we own a majority interest or exercise significant control over major operating decisions, such as approval of budgets, selection of property managers, asset management, investment activity and changes in financing. For joint ventures where we do not own a majority interest or do not exercise significant control over major operating and management decisions, we use the equity method of accounting and do not consolidate the joint venture for financial reporting purposes.

Our General Partner’s Status as a Real Estate Investment Trust. As a real estate investment trust, AMB Property Corporation, our general partner, generally will not be subject to corporate level federal income taxes if it meets minimum distribution, income, asset and shareholder tests. However, some of its subsidiaries, which are also our subsidiaries, may be subject to federal and state taxes. In addition, foreign entities may also be subject to the taxes of the host country. An income tax allocation is required to be estimated on our general partner’s taxable income arising from our taxable REIT subsidiaries and foreign entities. A deferred tax component could arise based upon the differences in GAAP versus tax income for items such as depreciation and gain recognition. However, we believe deferred tax is an immaterial component of our consolidated balance sheet because of our general partner’s status as a real estate investment trust.

THE COMPANY

AMB Property, L.P., a Delaware limited partnership, acquires, develops and operates primarily industrial properties in key distribution markets throughout North America, Europe and Asia. We commenced operations as a fully integrated real estate company effective with the completion of AMB Property Corporation’s initial public offering on November 26, 1997. Increasingly, our strategy focuses on providing properties for customers who value the efficient movement of goods in the world’s busiest distribution markets: large, supply-constrained locations with close proximity to airports, seaports and major freeway systems. As of September 30, 2004, we owned, managed and had renovation and development projects totaling 109.1 million square feet (10.1 million square meters) and 1,106 buildings in 38 markets within eight countries.

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

Our investment strategy generally targets customers whose businesses are tied to global trade, which, according to the World Trade Organization, has grown more than three times the world gross domestic product growth rate during the last 20 years. To serve the facilities needs of these customers, we seek to invest in major distribution markets, transportation hubs and gateways, both domestically and internationally. Our investment strategy seeks target markets that are generally characterized by large population densities and typically offer substantial consumer bases, proximity to large clusters of distribution-facility users and significant labor pools. When measured by annualized base rents, 66.6% of our industrial properties are concentrated in eight U.S. hub and gateway distribution markets: Atlanta, Chicago, Dallas/ Fort Worth, Los Angeles, Northern New Jersey/ New York City, the San Francisco Bay Area, Miami and Seattle. Our on-tarmac properties account for 8.1% of our annualized base rents. Much of our portfolio is comprised of industrial buildings in in-fill submarkets. In-fill locations are characterized by supply constraints on the availability of land for competing projects as well as physical, political or economic barriers to new development.

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

freight forwarding companies, and that these facilities function best when located in convenient proximity to transportation infrastructure such as major airports and seaports.

As of September 30, 2004, we owned and operated (exclusive of properties that we managed for third parties) 991 industrial buildings and four retail and other properties, totaling approximately 91.6 million rentable square feet, located in 35 markets throughout the United States and in France, Germany, Japan, Mexico and the Netherlands. As of September 30, 2004, through our subsidiary, AMB Capital Partners, LLC, we also managed, but did not have an ownership interest in, industrial buildings and retail centers totaling approximately 0.5 million rentable square feet. In addition, as of September 30, 2004, we had investments in operating industrial buildings totaling approximately 8.0 million rentable square feet, through investments in unconsolidated joint ventures. As of September 30, 2004, we also had investments in industrial development projects, some of which are part of our development-for-sale program, totaling approximately 9.4 million square feet. As of September 30, 2004, we had 14 industrial buildings and three undeveloped land parcels held for divestiture, and one industrial building held for contribution.

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

Our principal executive office is located at Pier 1, Bay 1, San Francisco, California 94111; our telephone number is (415) 394-9000. We also maintain regional offices in Amsterdam, Boston, Chicago, Shanghai and Tokyo. As of September 30, 2004, we employed 215 individuals: 140 at our San Francisco headquarters, 48 in our Boston office, and the remainder in our other regional offices. Our website address is www.amb.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available on our website free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission. Information contained on our website is not and should not be deemed a part of this quarterly report.

Operating Strategy

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

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

Growth Strategies


	*Growth Through Operations*

We seek to generate long-term internal growth through rent increases on existing space and renewals on rollover space by working to maintain a high occupancy rate at our properties and to control expenses by capitalizing on the economies of scale inherent in owning, operating and growing a large, global portfolio. However, during the three months ended September 30, 2004, our average industrial base rental rates decreased by 13.2% from the rent in place at expiration for that space on leases entered into or renewed during the period. This amount excludes expense reimbursements, rental abatements, percentage rents and straight-line rents. Since 2001, as the industrial market weakened, we have focused on maintaining occupancy levels.

During the three months ended September 30, 2004, cash-basis same-store net operating income (rental revenues less straight-lined rents, property operating expenses and real estate taxes) increased by 4.8% on our industrial properties, reflecting increased occupancy and receipt of lease termination fees. During the nine months ended September 30, 2004, cash-basis same-store net operating income decreased by 1.1% on our industrial properties. From our inception through the second quarter 2004 (the most recent reporting period for our peer group), our cash-basis same-store net operating income growth has outperformed our industrial peer average by approximately 147 basis points. In the third quarter of 2004, we have experienced decreases in industrial base rental rates of 13.2%. However, since our inception in November 1997, we have experienced average annual increases in industrial base rental rates of 7.6% and maintained an average quarter-end occupancy of 94.8% on our industrial operating portfolio. While we believe that it is important to view real estate as a long-term investment, past results are not necessarily an indication of future performance. See Part I, Item 1: Note 11 of the “Notes to Consolidated Financial Statements” for detailed segment information, including revenue attributable to each segment, gross investment in each segment and total assets.


	*Growth Through Acquisitions and Capital Redeployment*

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

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


	*Growth Through Development*

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

We believe that the multidisciplinary backgrounds of our employees should provide us with the skills and experience to capitalize on strategic renovation, expansion and development opportunities. Many of the officers of our general partner have specific experience in real estate development, both with AMB and with national development firms, and over the past year we have expanded our development staff. We pursue

development projects directly and in joint ventures with our Development Alliance Partners®, which provides us with the flexibility to pursue development projects independently or in partnerships, depending on market conditions, submarkets or building sites. Under a typical joint venture agreement with a Development Alliance Partner, we would fund 95% of the construction costs and our partner would fund 5%; however, in certain cases we may own as little as 50% or as much as 98% of the joint venture. Upon completion, we generally would purchase our partner’s interest in the joint venture. We may also structure developments such that we would own 100% of the asset with an incentive development fee to be paid upon completion to our development partner.


	*Growth Through Development for Sale Program*

We, through our taxable REIT subsidiaries, conduct a variety of businesses that include incremental income programs, such as our land and development projects available for sale to third parties. Such development properties include value-added conversion projects and build-to-sell projects.


	*Growth Through Global Expansion*

By 2007, we plan to have approximately 15% of our portfolio (based on consolidated annualized base rent) invested in international markets. As of September 30, 2004, our international operating properties comprised 4.1% of our total annualized industrial base rent. Our North American target markets outside of the United States currently include Guadalajara, Mexico City, Monterrey and Toronto. Our European target markets currently include Amsterdam, Frankfurt, London, Madrid and Paris. Our Asian target markets currently include Beijing, Nagoya, Osaka, the Pearl River Delta, Shanghai, Singapore and Tokyo. There are many factors that could cause our entry into target markets and future capital allocation to differ from our current expectations, which are discussed under the subheading “Our International Growth is Subject to Special Political and Monetary Risks” and elsewhere under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Business Risks” in our Annual Report on Form 10-K for the year ended December 31, 2003. Further, it is possible that our target markets will change over time to reflect experience, market opportunities, customer needs and changes in global distribution patterns. For a breakout of the amount of our revenues attributable to the United States and to foreign countries in total, please see Part I, Item 1: Note 11 of the “Notes to Consolidated Financial Statements.”

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

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


	*Growth Through Co-Investments*

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

2004, we owned approximately 37.6 million square feet of our properties (37% of the total consolidated operating and development portfolio) through our co-investment joint ventures. In addition, we expect to fund our international expansion, in part, with private capital.

RESULTS OF OPERATIONS

The analysis below includes changes attributable to same store growth, acquisitions, development activity and divestitures. Same store properties are those that we owned during both the current and prior year reporting periods, excluding development properties prior to being stabilized subsequent to December 31, 2002 (generally defined as properties that are 90% leased or properties for which we have held a certificate of occupancy or where building has been substantially complete for at least 12 months).

As of September 30, 2004, same store industrial properties consisted of properties aggregating approximately 77.9 million square feet. The properties acquired during the three months ended September 30, 2004 consisted of two buildings, aggregating approximately 0.6 million square feet. The properties acquired during the three months ended September 30, 2003 consisted of 13 buildings, aggregating approximately 0.8 million square feet. During the three months ended September 30, 2004, property divestitures consisted of five industrial buildings and two retail centers, aggregating approximately 0.8 million square feet. During the three months ended September 30, 2003, property divestitures consisted of nine industrial buildings and one retail center, aggregating approximately 0.8 million square feet.

The properties acquired during the nine months ended September 30, 2004 consisted of 48 buildings, aggregating approximately 4.6 million square feet. The properties acquired during the nine months ended September 30, 2003 consisted of 31 buildings, aggregating approximately 3.2 million square feet. During the nine months ended September 30, 2004, property divestitures consisted of seven industrial buildings, two retail centers and one office building, aggregating approximately 1.2 million square feet. During the nine months ended September 30, 2003, property divestitures and contributions consisted of 46 industrial buildings, aggregating approximately 5.1 million square feet. Our future financial condition and results of operations, including rental revenues, may be impacted by the acquisition of additional properties and dispositions. Our future revenues and expenses may vary materially from historical results.


	*For the Three Months ended September 30, 2004 and 2003 (dollars in millions):*


Revenues				2004		2003		$ Change		% Change

Rental revenues
	U.S. industrial:
		Same store		$	141.2	$	136.6	$	4.6		3.4	%
		2003 acquisitions			11.8		4.5		7.3		162.2	%
		2004 acquisitions			9.1		—		9.1		—	%
		Development			1.0		0.7		0.3		42.9	%
		Other industrial			2.8		1.2		1.6		133.3	%
	International industrial				7.0		1.7		5.3		311.8	%
	Retail				0.9		0.8		0.1		12.5	%

		Total rental revenues			173.8		145.5		28.3		19.5	%
Private capital income					2.7		1.9		0.8		42.1	%

			Total revenues	$	176.5	$	147.4	$	29.1		19.7	%

The increase in industrial same store rental revenues was primarily driven by current year lease termination fees, net of associated straight-line rent write-offs, as well as higher average occupancies in the San Francisco Bay Area, Los Angeles, and Seattle submarkets and increased rental rates. Across the portfolio, these and other factors accounted for approximately $4.7 million of the change from prior year. This increase was partially offset by an increase in allowances for doubtful accounts of approximately $0.1 million. Industrial same store occupancy was 94.8% at September 30, 2004 and 92.5% at September 30, 2003. For the three

months ended September 30, 2004, rents in the same store portfolio decreased 14.3% on industrial renewals and rollovers (cash basis) on 3.9 million square feet leased. The properties acquired during 2003 consisted of 82 buildings, aggregating approximately 6.5 million square feet. The properties acquired during 2004 consisted of 48 buildings, aggregating approximately 4.6 million square feet. Other industrial revenues include rental revenues from divested properties not classified as discontinued operations, which accordingly are not classified as discontinued operations in our consolidated financial statements, and development projects, which have reached certain levels of operation and are not yet part of the same store operating pool of properties. In 2003 and 2004, we continued to acquire properties in France, Germany, Japan, Mexico and the Netherlands, resulting in increased international industrial revenues.


Costs and Expenses				2004		2003			$ Change			% Change

						(Restated)
Property operating costs:
	Rental expenses			$	24.7	$	21.9		$	2.8			12.8	%
	Real estate taxes				19.3		17.2			2.1			12.2	%

		Total property operating costs		$	44.0	$	39.1		$	4.9			12.5	%

Property operating costs
	U.S. industrial:
		Same store		$	37.3	$	36.6		$	0.7			1.9	%
		2003 acquisitions			2.7		1.1			1.6			145.5	%
		2004 acquisitions			2.2		—			2.2			—	%
		Development			0.3		0.9			(0.6	)		(66.7	)%
		Other industrial			0.5		0.3			0.2			66.7	%
	International industrial				0.7		(0.1	)		0.8			800.0	%
	Retail				0.3		0.3			—			—	%

		Total property operating costs			44.0		39.1			4.9			12.5	%
Depreciation and amortization					42.1		33.7			8.4			24.9	%
General and administrative					15.7		10.9			4.8			44.0	%

			Total costs and expenses	$	101.8	$	83.7		$	18.1			21.6	%

Same store properties’ operating expenses from September 30, 2003 to September 30, 2004, showed an increase of $0.7 million from prior year on a quarter-to-date basis. The 2003 acquisitions consist of 82 buildings, aggregating approximately 6.5 million square feet. The 2004 acquisitions consist of 48 buildings, aggregating approximately 4.6 million square feet. Other industrial expenses include expenses from divested properties, which have been contributed to an unconsolidated joint venture, which accordingly are not classified as discontinued operations in our consolidated financial statements, and development properties, which have reached certain levels of operation and are not yet part of the same store operating pool of properties. In 2003 and 2004, we continued to acquire properties in France, Germany, Japan, Mexico and the Netherlands, resulting in increased international industrial property operating costs. The increase in depreciation and amortization expense was due to the increase in our net investment in real estate. The increase in general and administrative expenses was primarily due to increased stock-based compensation expense of $0.4 million and additional staffing and expenses for new initiatives, including our international and development expansions.


Other Income and (Expenses)		2004			2003			$ Change			% Change

Equity in earnings of unconsolidated joint ventures		$	0.6		$	1.4		$	(0.8	)		(57.1	)%
Interest and other income			1.3			0.7			0.6			85.7	%
Development profits, net of taxes			1.5			5.5			(4.0	)		(72.7	)%
Interest, including amortization			(40.3	)		(35.6	)		4.7			13.2	%

	Total other income and (expenses), net	$	(36.9	)	$	(28.0	)	$	8.9			31.8	%

The $0.8 million decrease in equity in earnings of unconsolidated joint ventures was primarily due to decreased occupancy at a property held by one of our joint ventures. The $0.6 million increase in interest and other income was primarily due to the recovery of an insurance settlement in the third quarter of 2004. Development profits represent gains from the sale of development projects as part of our development-for-sale program. The increase in interest expense, including amortization, was due to the issuance of additional unsecured debt under our 2002 medium-term note program, increased borrowings on the unsecured credit facilities and additional secured debt borrowings in our co-investment joint ventures.


Discontinued Operations		2004		2003		$ Change			% Change

Income attributable to discontinued operations, net of minority interests		$	0.2	$	2.0	$	(1.8	)		(90.0	)%
Gains from dispositions of real estate, net of minority interests			11.1		8.3		2.8			33.7	%

	Total discontinued operations	$	11.3	$	10.3	$	1.0			9.7	%

During the three months ended September 30, 2004, we divested ourselves of five industrial building and two retail centers, aggregating approximately 0.8 million square feet for $62.8 million, with a resulting net gain of approximately $10.4 million. During 2003, we divested ourselves of 24 industrial buildings and two retail centers, aggregating approximately 2.8 million square feet for an aggregate price of $272.3 million, with a resulting net gain of approximately $42.9 million.


Preferred Units	2004			2003			$ Change		% Change

Preferred unit distributions	$	(3.4	)	$	(4.5	)	$	1.1		24.4	%
Preferred unit redemption issuance costs	$	—		$	(3.7	)	$	3.7		100.0	%

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


	*For the Nine Months ended September 30, 2004 and 2003 (dollars in millions):*


Revenues			2004		2003		$ Change			% Change

Rental revenues
	U.S. industrial:
		Same store	$	415.1	$	417.3	$	(2.2	)		(0.5	)%
		2003 acquisitions		35.7		5.0		30.7			614.0	%
		2004 acquisitions		14.7		—		14.7			—	%
		Development		2.7		2.4		0.3			12.5	%
		Other industrial		7.6		3.6		4.0			111.1	%
	International industrial			18.5		4.1		14.4			351.2	%
	Retail			2.7		2.2		0.5			22.7	%

		Total rental revenues		497.0		434.6		62.4			14.4	%
Private capital income				8.1		7.8		0.3			3.8	%

		Total revenues	$	505.1	$	442.4	$	62.7			14.2	%

On a year-to-date basis, the decrease in industrial same store rental revenues was primarily driven by decreased rental rates in various submarkets and prior year lease termination fees. Across the portfolio, these and other factors accounted for approximately $4.7 million of the change from the prior year. This decrease was partially offset by a decrease in allowances for doubtful accounts of approximately $2.5 million. Industrial same store occupancy was 94.8% at September 30, 2004 and 92.5% at September 30, 2003. For the nine months ended September 30, 2004, rents in the same store portfolio decreased 15.1% on industrial renewals

and rollovers (cash basis) on 12.3 million square feet leased. The properties acquired during 2003 consisted of 82 buildings, aggregating approximately 6.5 million square feet. The properties acquired during 2004 consisted of 48 buildings, aggregating approximately 4.6 million square feet. Other industrial revenues include revenues from divested properties, which have been contributed to an unconsolidated joint venture and accordingly are not classified as discontinued operations in our consolidated financial statements, and revenues from development properties, which have reached certain levels of operation and are not yet part of the same store operating pool of properties. In 2003 and 2004, we continued to acquire properties in the Netherlands, France, Germany, Japan and Mexico, resulting in increased international industrial revenues.


Costs and Expenses			2004		2003		$ Change			% Change

					(Restated)
Property operating costs:
	Rental expenses		$	71.0	$	63.6	$	7.4			11.6	%
	Real estate taxes			57.6		51.9		5.7			11.0	%

		Total property operating costs	$	128.6	$	115.5	$	13.1			11.3	%

Property operating costs:
	U.S. industrial:
		Same store	$	109.8	$	109.0	$	0.8			0.7	%
		2003 acquisitions		8.0		1.3		6.7			515.4	%
		2004 acquisitions		4.0		—		4.0			—	%
		Development		1.1		2.8		(1.7	)		(60.7	)%
		Other industrial		1.5		1.1		0.4			36.4	%
	International industrial			3.3		0.5		2.8			560.0	%
	Retail			0.9		0.8		0.1			12.5	%

		Total property operating costs		128.6		115.5		13.1			11.3	%
Depreciation and amortization				121.0		102.8		18.2			17.7	%
Impairment losses				—		5.3		(5.3	)		(100.0	)%
General and administrative				45.7		34.9		10.8			30.9	%

		Total costs and expenses	$	295.3	$	258.5	$	36.8			14.2	%

Same store properties’ operating expenses from September 30, 2003 to September 30, 2004, showed an increase of $0.8 million from prior year on a year-to-date basis. The 2003 acquisitions consist of 82 buildings, aggregating approximately 6.5 million square feet. The 2004 acquisitions consist of 48 buildings, aggregating approximately 4.6 million square feet. Other industrial expenses include expenses from divested properties, which have been contributed to an unconsolidated joint venture, which accordingly are not classified as discontinued operations in our consolidated financial statements, and development properties, which have reached certain levels of operation and are not yet part of the same store operating pool of properties. In 2003 and 2004, we continued to acquire properties in the Netherlands, France, Germany, Japan and Mexico, resulting in increased international industrial property operating costs. The increase in depreciation and amortization expense was due to the increase in our net investment in real estate. The 2003 impairment loss was on investments in real estate and leasehold interests. The increase in general and administrative expenses

was primarily due to increased stock-based compensation expense of $1.9 million and additional staffing and expenses for new initiatives, including our international and development expansions.


Other Income and (Expenses)		2004			2003			$ Change			% Change

Equity in earnings of unconsolidated joint ventures		$	3.2		$	4.2		$	(1.0	)		(23.8	)%
Interest and other income			3.2			3.2			—			—
Gains from dispositions of real estate			—			7.4			(7.4	)		(100.0	)%
Development profits, net of taxes			4.8			5.5			(0.7	)		(12.7	)%
Interest, including amortization			(118.4	)		(107.1	)		11.3			10.6	%

	Total other income and (expenses), net	$	(107.2	)	$	(86.8	)	$	20.4			23.5	%

The $1.0 million decrease in equity in earnings of unconsolidated joint ventures was primarily due to decreased occupancy at a property held by one of our joint ventures and increased non-reimbursable expenses. This decrease was offset by the receipt of a lease termination fee at the above-mentioned property in Chicago in the first quarter. In the first quarter of 2003, we contributed properties to an unconsolidated joint venture and accordingly recognized a gain. The increase in interest expense, including amortization, was due to the issuance of additional unsecured debt under our 2002 medium-term note program, increased borrowings on the unsecured credit facilities, and additional secured debt borrowings in our co-investment joint ventures.


Discontinued Operations		2004			2003		$ Change			% Change

Income attributable to discontinued operations, net of minority interests		$	(0.2	)	$	14.4	$	(14.6	)		(101.4	)%
Gains from dispositions of real estate, net of minority interests			13.0			41.8		(28.8	)		(68.9	)%

	Total discontinued operations	$	12.8		$	56.2	$	(43.4	)		(77.2	)%

During the nine months ended September 30, 2004, we divested ourselves of seven industrial buildings, two retail centers and one office building, aggregating approximately 1.2 million square feet for $80.7 million, with a resulting net gain of approximately $12.3 million. During 2003, we divested ourselves of 24 industrial buildings and two retail centers, aggregating approximately 2.8 million square feet, for an aggregate price of $272.3 million, with a resulting net gain of approximately $42.9 million.


Preferred Units	2004			2003			$ Change		% Change

Preferred unit distributions	$	(10.1	)	$	(14.8	)	$	4.7		31.8	%
Preferred unit redemption issuance costs	$	—		$	(3.7	)	$	3.7		100.0	%

LIQUIDITY AND CAPITAL RESOURCES

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

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

• retained earnings and cash flow from operations;

• borrowings under our unsecured credit facilities;

• other forms of secured or unsecured financing;

• proceeds from debt or limited partnership unit offerings (including issuances of limited partnership units by us or our subsidiaries);

• net proceeds from divestitures of properties; and

• private capital from co-investment partners.

We currently expect that our principal funding requirements will include:

• working capital;

• development, expansion and renovation of properties;

• acquisitions, including our global expansion;

• debt service; and

• distributions on outstanding common and preferred limited partnership units.

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

Capital Resources

Property Divestitures. During the three months ended September 30, 2004, we divested ourselves of five industrial buildings and two retail centers, aggregating approximately 0.8 million square feet for an aggregate price of $62.8 million, with a resulting net gain of $10.5 million. During the nine months ended September 30, 2004, we divested ourselves of seven industrial buildings, two retail centers and one office building, aggregating approximately 1.2 million square feet for an aggregate price of $80.7 million, with a resulting net gain of $12.3 million.

Development Sales. During the three months ended September 30, 2004, we sold one land parcel and three development projects as part of our development-for-sale program, aggregating approximately 0.1 million square feet for an aggregate price of $13.8 million, resulting in an after-tax gain of $1.5 million. During the nine months ended September 30, 2004, we sold five land parcels and four development projects as part of our development-for-sale program, aggregating approximately 0.2 million square feet for an aggregate price of $27.8 million, resulting in an after-tax gain of $4.8 million. During the three and nine months ended September 30, 2003, we sold three development projects as part of our development-for-sale program, aggregating approximately 0.2 million square feet for an aggregate price of $32.1 million, resulting in an after-tax gain of $5.5 million.

Properties Held for Contribution. As of September 30, 2004, we held for contribution to a future co-investment joint venture one industrial building with an aggregate net book value of $11.9 million, which, when contributed to the joint venture, will reduce our current ownership interest from approximately 90% to an expected range of 20-50%. This asset is not being held for divestiture under SFAS No. 144.

Properties Held for Divestiture. As of September 30, 2004, we held for divestiture 14 industrial buildings and three undeveloped land parcels, which are not in our core markets, do not meet our current strategic objectives or which we have included as part of our development-for-sale program. The divestitures of the properties are subject to negotiation of acceptable terms and other customary conditions. As of September 30, 2004, the net carrying value of the properties held for divestiture was $59.9 million.

Mortgages Receivable. Through a wholly-owned subsidiary, we hold a mortgage loan receivable on AMB Pier One, LLC, an unconsolidated joint venture. The note bears interest at 13.0% and matures in May

2026. As of September 30, 2004, the outstanding balance on the note was $13.0 million. We also hold short-term mortgages on sold properties totaling $10.1 million with a weighted average interest rate of 6.4%. The mortgages mature between December 2004 and November 2006.

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

As of September 30, 2004, we owned approximately 37.6 million square feet of our properties (37% of the total consolidated operating and development portfolio) through our co-investment joint ventures and 5.2 million square feet of our properties through our other consolidated joint ventures. We may make additional investments through these joint ventures or new joint ventures in the future and presently plan to do so.

Our co-investment joint ventures at September 30, 2004 (dollars in thousands):


		Our
		Approximate
		Ownership		Original Planned
Co-investment Joint Venture	Joint Venture Partner	Percentage		Capitalization(1)

AMB/ Erie, L.P.	Erie Insurance Company and affiliates		50%	$	200,000
AMB Institutional Alliance Fund I, L.P.	AMB Institutional Alliance REIT I, Inc.(2)		21%	$	420,000
AMB Partners II, L.P.	City and County of San Francisco Employees’ Retirement System		20%	$	500,000
AMB-SGP, L.P.	Industrial JV Pte Ltd(3)		50%	$	425,000
AMB Institutional Alliance Fund II, L.P.	AMB Institutional Alliance REIT II, Inc.(4)		20%	$	489,000
AMB-AMS, L.P.(5)	PMT, SPW and TNO(6)		39%	$	228,000
AMB Institutional Alliance Fund III	N/A(7)		100%		N/A	(7)

(1) Planned capitalization includes anticipated debt and both partners’ expected equity contributions.

(2) Included 16 institutional investors as stockholders as of September 30, 2004.

(3) A subsidiary of the real estate investment subsidiary of the Government of Singapore Investment Corporation.

(4) Included 13 institutional investors and one third-party limited partner as stockholders as of September 30, 2004.

(5) AMB-AMS, L.P. is a co-investment partnership with three Dutch pension funds advised by Mn Services NV.

(6) PMT is Stichting Pensioenfonds Metaal en Techniek, SPW is Stichting Pensioenfonds voor de Woningcorporaties and TNO is Stichting Pensioenfonds TNO.

(7) We expect to raise third party equity in the fourth quarter, reducing our current ownership interest from approximately 100% to an expected range of 20-50%. See Part I, Item 1: Note 13 — Subsequent Event of the “Notes to Consolidated Financial Statements.”

Partner’s Capital. As of September 30, 2004, we had outstanding 82,689,635 common general partnership units, 4,604,910 common limited partnership units, 800,000 7.95% Series J Cumulative Redeemable Partnership Units, 800,000 7.95% Series K Cumulative Redeemable Partnership Units, 2,000,000 6.5% Series L Cumulative Redeemable Partnership Units and 2,300,000 6.75% Series M Cumulative Redeemable Partnership Units.

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

Debt. In order to maintain financial flexibility and facilitate the deployment of capital through market cycles, we presently intend to operate with a debt-to-total market capitalization ratio (our share) of approximately 45% or less. As of September 30, 2004, our share of total debt-to-total market capitalization ratio was 41.5%. However, we typically finance our co-investment joint ventures with secured debt at a loan-to-value ratio of 50-65% per our joint venture partnership agreements. Additionally, we currently intend to manage our capitalization in order to maintain an investment grade rating on our senior unsecured debt. Regardless of these policies, however, our organizational documents do not limit the amount of indebtedness that we may incur. Accordingly, our management could alter or eliminate these policies without noteholder approval or circumstances could arise that could render us unable to comply with these policies.

As of September 30, 2004, the aggregate principal amount of our secured debt was $1.6 billion, excluding unamortized debt premiums of $12.6 million. Of the $1.6 billion of secured debt, $1.3 billion is secured by properties in our joint ventures. The secured debt is generally non-recourse and bears interest at rates varying from 2.9% to 10.4% per annum (with a weighted average rate of 6.6%) and final maturity dates ranging from April 2005 to June 2023. All of the secured debt bears interest at fixed rates, except for eight loans with an aggregate principal amount of $69.4 million as of September 30, 2004, which bear interest at variable rates (with a weighted average interest rate of 4.5% as of September 30, 2004).

As of September 30, 2004, we had issued an aggregate of $1.0 billion in unsecured senior debt securities, which bore a weighted average interest rate of 6.5% and had an average term of 4.9 years. These unsecured senior debt securities include $100.0 million in notes, which are putable and callable in September 2005, $400.0 million of medium-term notes, which were issued under our 2000 medium-term note program, and $225.0 million of medium-term notes, which were issued under our 2002 medium-term note program. Our 2002 medium-term note program has a remaining capacity of $175.0 million. We intend to continue to issue medium-term notes, guaranteed by AMB Property Corporation, under the 2002 program from time to time and as market conditions permit.

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

Credit Facilities. On June 1, 2004, we completed the early renewal of our senior unsecured revolving line of credit in the amount of $500.0 million. AMB Property Corporation guarantees our obligations under the credit facility. The three-year credit facility includes a multi-currency component under which up to $250.0 million can be drawn in Yen, Euros or British Pounds Sterling. The line, which matures in June 2007 and carries a one-year extension option, can be increased up to $700.0 million upon certain conditions, and replaces our previous $500.0 million credit facility that was to mature in December 2005. The line is priced at 60 basis points over the applicable LIBOR index, with an annual facility fee of 20 basis points, based on the current credit rating of our long-term debt. We use our unsecured credit facility principally for acquisitions, funding development activity and general working capital requirements. The total amount available under the credit facility fluctuates based upon the borrowing base, as defined in the agreement governing the credit facility, generally the value of our unencumbered properties. As of September 30, 2004, the outstanding balance on the credit facility was $363.6 million and the remaining amount available was $122.3 million, net of outstanding letters of credit of $14.1 million (excluding the additional $200.0 million of potential additional

capacity). The outstanding balance included borrowings denominated in Euros and Yen, which, using the exchange rate in effect on September 30, 2004, would equal approximately $96.5 million and $77.1 million in U.S. dollars, respectively. As of September 30, 2004, we had an additional outstanding balance of $26.6 million on other credit facilities.

On June 29, 2004, AMB Japan Finance Y.K., one of our subsidiaries, entered into an unsecured revolving credit agreement providing for loans or letters of credit in a maximum principal amount outstanding at any time of up to 24 billion Yen, which, using the exchange rate in effect on September 30, 2004, equals approximately $218.1 million U.S. dollars. We, along with AMB Property Corporation, guarantee the obligations of AMB Japan Finance Y.K. under the revolving credit facility, as well as the obligations of any other entity in which we directly or indirectly have an ownership interest, and which is selected from time to time to be a borrower under and pursuant to the revolving credit agreement. The borrowers intend to use the proceeds from the facility to fund the acquisition and development of properties and for other real estate purposes in Japan. Generally, borrowers under the revolving credit facility have the option to secure all or a portion of the borrowings under the revolving credit facility with certain real estate assets or equity in entities holding such real estate assets. The revolving credit facility matures in June 2007 and has a one-year extension option, which is subject to the satisfaction of certain conditions and the payment of an extension fee equal to 0.25% of the outstanding commitments under the facility at that time. The rate on the borrowings will generally be TIBOR plus a margin, which is based on the current credit rating of our long-term debt and is currently 60 basis points. In addition, there is an annual facility fee, payable in quarterly amounts, which is based on the credit rating of our long-term debt, and is currently 20 basis points of the outstanding commitments under the facility. As of September 30, 2004, the outstanding balance on this credit facility, using the exchange rate in effect at September 30, 2004, was $193.6 million in U.S. dollars.

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


				Wholly-owned			Joint			Unsecured
				Secured			Venture			Senior Debt			Unsecured			Credit
				Debt			Debt			Securities			Debt			Facilities(2)			Total Debt

2004				$	2,141		$	6,394		$	—		$	154		$	—		$	8,689
2005					42,629			67,692			250,000			647			—			360,968
2006					80,687			72,065			75,000			698			26,600			255,050
2007					12,850			72,777			75,000			752			557,264			718,643
2008					31,047			173,752			175,000			810			—			380,609
2009					2,059			112,994			100,000			873			—			215,926
2010					67,791			141,429			75,000			941			—			285,161
2011					56,023			369,063			75,000			1,014			—			501,100
2012					2,041			165,061			—			1,093			—			168,195
2013					—			87,665			75,000			920			—			163,585
Thereafter					—			39,185			125,000			1,280			—			165,465

	Subtotal				297,268			1,308,077			1,025,000			9,182			583,864			3,223,391
	Unamortized premiums				3,972			8,627			—			—			—			12,599

			Total consolidated debt		301,240			1,316,704			1,025,000			9,182			583,864			3,235,990
Our share of unconsolidated joint venture debt(1)					—			95,965			—			—			—			95,965

			Total debt		301,240			1,412,669			1,025,000			9,182			583,864			3,331,955
Joint venture partners’ share of consolidated joint venture debt					—			(750,328	)		—			—			—			(750,328	)

		Our share of total debt(3)		$	301,240		$	662,341		$	1,025,000		$	9,182		$	583,864		$	2,581,627

Weighted average interest rate					7.3	%		6.5	%		6.5	%		7.5	%		2.0	%		5.8	%
Weighted average maturity (in years)					3.0			6.2			4.9			10.1			2.7			4.9

(1) The weighted average interest and maturity for the unconsolidated joint venture debt were 5.3% and 4.3 years, respectively.

(2) Includes Euro and Yen based borrowings translated to U.S. dollars using the foreign exchange rates in effect at September 30, 2004.

(3) Our share of total debt is the pro rata portion of the total debt based on our percentage of equity interest in each of the consolidated ventures holding the debt. We believe that our share of total debt is a meaningful supplemental measure, which enables both management and investors to analyze our leverage and to compare our leverage to that of other companies. In addition, it allows for a more meaningful comparison of our debt to that of other companies that do not consolidate their joint ventures. Our share of total debt is not intended to reflect our actual liability should there be a default under any or all of such loans or a liquidation of the joint ventures. The above table reconciles our share of total debt to total consolidated debt, a GAAP financial measure.



Market Capital

		Units		Market		Market
Security		Outstanding		Price(1)		Value(1)

Common units			82,689,635	$	37.02	$	3,061,170
Common limited partnership units(2)			4,750,458	$	37.02		175,862

	Total		87,440,093			$	3,237,032

(1) Assumes that our common limited partnership units and the class B common limited partnership units of AMB Property II, L.P. are exchanged for AMB Property Corporation’s common stock on a one-for-one basis because there is no public market for these units.

(2) Includes 145,548 class B common limited partnership units issued by AMB Property II, L.P. in November 2003.



Preferred Units

		Distribution			Liquidation
Security		Rate			Preference		Redemption Provisions

Series D preferred units			7.75	%	$	79,767		May 2004
Series E preferred units			7.75	%		11,022		August 2004
Series F preferred units			7.95	%		10,057		March 2005
Series H preferred units			8.13	%		42,000		September 2005
Series I preferred units			8.00	%		25,500		March 2006
Series J preferred units			7.95	%		40,000		September 2006 — September 2009
Series K preferred units			7.95	%		40,000		April 2007
Series N preferred units			5.00	%		36,479		September 2009
Series L preferred units			6.50	%		50,000		June 2008
Series M preferred units			6.75	%		57,500		November 2008

	Weighted average/total		7.29	%	$	392,325




Capitalization Ratios

Total debt-to-total market capitalization	47.8	%
Our share of total debt-to-total market capitalization(1)	41.5	%
Total debt plus preferred-to-total market capitalization	53.4	%
Our share of total debt plus preferred-to-total market capitalization(1)	47.8	%
Our share of total debt-to-total book capitalization(1)	56.3	%

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


	*Liquidity*

As of September 30, 2004, we had $116.4 million in cash and cash equivalents (of which $68.8 million was held by our consolidated co-investment joint ventures), and $170.1 million of additional available borrowings under our credit facilities. As of September 30, 2004, we had $57.9 million in restricted cash (of which $21.5 million was held by our consolidated co-investment joint ventures).

We announced our intention to pay a regular cash distribution for the quarter ended September 30, 2004 of $0.425 per common unit. The distributions were payable on October 15, 2004 to unitholders of record on October 5, 2004. The series L and M preferred unit distributions were payable on October 15, 2004 to

unitholders of record on October 5, 2004. The series E, F, J and K preferred unit quarterly distributions were payable on October 15, 2004. The series D, H and I preferred unit quarterly distributions were payable on September 25, 2004.

The following table sets forth the distributions paid or payable per unit for the three and nine months ended September 30, 2004 and 2003:



			For the Three				For the Nine
			Months Ended				Months Ended
			September 30,				September 30,

Paying Entity	Security		2004		2003		2004		2003

Operating Partnership		Common limited partnership units	$	0.425	$	0.415	$	1.275	$	1.245
Operating Partnership		Series B preferred units		n/a	$	1.078		n/a	$	3.234
Operating Partnership		Series J preferred units	$	0.994	$	0.994	$	2.981	$	2.981
Operating Partnership		Series K preferred units	$	0.994	$	0.994	$	2.981	$	2.981
AMB Property II, L.P.		Class B common limited partnership units	$	0.425		n/a	$	1.275		n/a
AMB Property II, L.P.		Series D preferred units	$	0.969	$	0.969	$	2.906	$	2.906
AMB Property II, L.P.		Series E preferred units	$	0.969	$	0.969	$	2.906	$	2.906
AMB Property II, L.P.		Series F preferred units	$	0.994	$	0.994	$	2.981	$	2.981
AMB Property II, L.P.		Series H preferred units	$	1.016	$	1.016	$	3.047	$	3.047
AMB Property II, L.P.		Series I preferred units	$	1.000	$	1.000	$	3.000	$	3.000
AMB Property II, L.P.		Series N preferred units	$	0.042		n/a	$	0.042		n/a

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


	*Capital Commitments*

Developments. In addition to recurring capital expenditures, which consist of building improvements and leasing costs incurred to renew or re-tenant space, during the three months ended September 30, 2004, we initiated four new industrial development projects in the United States and Mexico with a total expected investment of $59.4 million, aggregating approximately 0.7 million square feet, and three new industrial development projects in Japan and Singapore with a total expected investment of $286.3 million, aggregating approximately 2.0 million square feet. During the nine months ended September 30, 2004, we initiated nine new industrial development projects in the United States and Mexico with a total estimated investment of $128.9 million at completion, aggregating an estimated 1.8 million square feet, and four new industrial developments in Japan and Singapore with a total expected investment of $368.8 million, aggregating approximately 2.7 million square feet. As of September 30, 2004, we had 27 projects in our development pipeline representing a total estimated investment of $689.3 million upon completion, of which five industrial projects with a total of 2.2 million square feet and an aggregate estimated investment of $90.9 million upon completion are held in unconsolidated joint ventures. In addition, we held five development projects available for sale, representing a total estimated investment of $44.5 million upon completion. Of this total, $384.2 million had been funded as of September 30, 2004 and an estimated $349.6 million was required to complete current and planned projects. We expect to fund these expenditures with cash from operations, borrowings under our credit facility, debt or limited partnership unit issuances, net proceeds from property divestitures and private capital from co-investment partners, which could have an adverse effect on our cash flow.

Acquisitions. During the three months ended September 30, 2004, we acquired two industrial buildings, aggregating approximately 0.6 million square feet for a total expected investment of $51.6 million, of which we

acquired one industrial building aggregating approximately 0.1 million square feet through one of our co-investment joint ventures, for a total expected investment of $5.7 million. During the nine months ended September 30, 2004, we acquired 48 industrial buildings, aggregating approximately 4.6 million square feet for a total expected investment of $490.8 million, of which we acquired 36 industrial buildings aggregating approximately 2.0 million square feet through three of our co-investment joint ventures, for a total expected investment of $137.7 million. We generally fund our acquisitions through private capital contributions, borrowings under our credit facility, cash, debt issuances and net proceeds from property divestitures.

Lease Commitments. We have entered into operating ground leases on certain land parcels, primarily on-tarmac facilities and office space with remaining lease terms from one to 64 years.

Co-investment Joint Ventures. We enter into co-investment joint ventures with institutional investors. These co-investment joint ventures provide us with an additional source of capital to fund certain acquisitions, development projects and renovation projects, as well as private capital income. As of September 30, 2004, we had investments in co-investment joint ventures with a gross book value of $2.5 billion, which are consolidated for financial reporting purposes. As of September 30, 2004, we may make additional capital contributions to current and planned co-investment joint ventures of up to $21.9 million. We expect to fund these contributions with cash from operations, borrowings under our credit facilities, debt or limited partnership unit issuances or net proceeds from property divestitures, which could adversely affect our cash flow.

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

Potential Unknown Liabilities. Unknown liabilities may include the following:

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

• claims of customers, vendors or other persons dealing with our predecessors prior to our formation transactions that had not been asserted prior to our formation transactions;

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

• tax liabilities; and

• claims for indemnification by the officers and directors of our general partner’s predecessors and others indemnified by these entities.

OFF-BALANCE SHEET ARRANGEMENTS

Standby Letters of Credit. As of September 30, 2004, we had provided approximately $33.9 million in letters of credit, of which $14.1 million was provided under our $500.0 million unsecured credit facility. The letters of credit were required to be issued under certain ground lease provisions, bank guarantees and other commitments.

Guarantees. Other than as disclosed elsewhere in this report, as of September 30, 2004, we had outstanding guarantees in the aggregate amount of $30.1 million in connection with certain acquisitions and lease obligations of which $7.6 million was backed by standby letters of credit. As of September 30, 2004, we guaranteed $2.3 million and $4.7 million on outstanding construction loans for one of our consolidated joint ventures and two of our unconsolidated joint ventures, respectively. Additionally, we provided a take out guarantee after completion of construction on the aggregate construction loan amount of $66.2 million for another of our unconsolidated joint ventures, of which $35.5 million was outstanding as of September 30, 2004. In connection with this construction loan, our joint venture partner provides an underlying construction loan guarantee up to the completion of construction.

Performance and Surety Bonds. As of September 30, 2004, we, together with AMB Property Corporation, had outstanding performance and surety bonds in an aggregate amount of $1.2 million. These bonds were issued in connection with certain of our development projects and were posted to guarantee certain tax obligations and the construction of certain real property improvements and infrastructure, such as grading, sewers and streets. Performance and surety bonds are commonly required by public agencies from real estate developers. Performance and surety bonds are renewable and expire upon the payment of the taxes due or the completion of the improvements and infrastructure.

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

SUPPLEMENTAL EARNINGS MEASURES

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

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

may not be comparable to FFO reported by other real estate investment trusts that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently than we do.

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



		For the Three Months Ended						For the Nine Months Ended
		September 30,						September 30,

		2004			2003(1)			2004			2003(1)

					(Restated)						(Restated)
Net income		$	35,315		$	29,844		$	75,766		$	115,191
Income available to common unitholders attributable to limited partners			(1,676	)		(1,164	)		(3,459	)		(5,366	)
Gain from dispositions of real estate			(10,450	)		(7,888	)		(12,325	)		(47,008	)
Real estate related depreciation and amortization:
	Total depreciation and amortization		42,099			33,734			120,998			102,847
	Discontinued operations’ depreciation		525			597			1,733			2,346
	Furniture, fixtures and equipment depreciation		(172	)		(170	)		(508	)		(548	)
Adjustments to derive FFO from consolidated joint ventures:
	Joint venture partners’ minority interests (NI)		10,302			9,546			28,978			24,712
	Limited partnership unitholders’ minority interests (NI)		1,012			488			2,618			2,200
	Limited partnership unitholders’ minority interests (Development profits)		79			115			222			115
	Discontinued operations’ minority interests (NI)		2,218			1,140			2,464			3,195
	FFO attributable to minority interests		(22,193	)		(17,345	)		(58,172	)		(47,847	)
Adjustments to derive FFO from unconsolidated joint ventures:
	Our share of net income		(603	)		(1,365	)		(3,256	)		(4,222	)
	Our share of FFO		1,661			2,345			6,089			7,620
Preferred unit distributions			(3,373	)		(4,462	)		(10,119	)		(14,763	)
Preferred unit redemption			—			(3,671	)		—			(3,671	)

	Funds from operations	$	54,744		$	41,744		$	151,029		$	134,801



		For the Three Months Ended				For the Nine Months Ended
		September 30,				September 30,

		2004		2003(1)		2004		2003(1)

				(Restated)				(Restated)
Basic FFO per common unit		$	0.63	$	0.49	$	1.74	$	1.57

Diluted FFO per common unit		$	0.61	$	0.48	$	1.68	$	1.54

Weighted average common units:
	Basic		86,943,931		85,776,251		86,749,022		85,874,579

	Diluted		90,146,245		87,399,544		89,764,633		87,342,075

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

OPERATING AND LEASING STATISTICS SUMMARY

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


				Three Months			Nine Months
				Ended			Ended
Operating Portfolio(1)				September 30, 2004			September 30, 2004

Square feet owned at September 30, 2004(2)					91,143,270			91,143,270
Occupancy percentage at September 30, 2004					94.6	%		94.6	%
Weighted average lease terms:
	Original				6.2 years			6.2 years
	Remaining				3.3 years			3.3 years
Tenant retention(3)					63.3	%		65.9	%
Same Space Leasing Activity:(4)
	Rent decreases on renewals and rollovers				(13.2	)%		(13.6	)%
	Same space square footage commencing (millions)				4.2			13.3
2nd Generation Leasing Activity:
	TIs and LCs per square foot:
		Retained		$	1.46		$	1.63
		Re-tenanted			2.25			2.27

			Weighted average	$	1.97		$	2.00

	Square footage commencing (millions)				5.5			17.2

(1) Includes all consolidated industrial operating properties and excludes industrial development and renovation projects. Excludes retail and other properties’ square feet of 474,368 with occupancy of 27.9% and annualized base rent of $3.1 million.

(2) In addition to owned square feet as of September 30, 2004, we managed, through our subsidiary, AMB Capital Partners, LLC, approximately 0.5 million additional square feet of industrial, retail and other properties. We also have investments in approximately 8.0 million square feet of industrial operating properties through our investments in unconsolidated joint ventures.

(3) Tenant retention is the square footage of all leases renewed by existing tenants divided by the square footage of all expiring and renewed leases during the reporting period, excluding the square footage of tenants that default or buy-out prior to expiration of their lease, short-term tenants and the square footage of month-to-month leases.

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

The following summarizes key same store properties’ operating statistics for our industrial properties as of and for the three and nine months ended September 30, 2004:


		Three Months			Nine Months
		Ended			Ended
Same Store Pool(1)		September 30, 2004			September 30, 2004

Square feet in same store pool at September 30, 2004			77,941,898			77,941,898
	% of total industrial square feet		85.5	%		85.5	%
Occupancy percentage at period end:
	September 30, 2004		94.8	%		94.8	%
	September 30, 2003		92.5	%		92.5	%
Tenant retention(2)			59.8	%		63.8	%
Rent decreases on renewals and rollovers			(14.3	)%		(15.1	)%
	Same space square footage commencing (millions)		3.9			12.3
Cash basis NOI growth % increase (decrease):
	Revenues		3.7	%		(0.7	)%
	Expenses		0.8	%		0.6	%
	NOI		4.8	%		(1.1	)%
	NOI without lease termination fees		0.6	%		(1.0	)%

(1) The same store pool excludes properties purchased and developments stabilized after December 31, 2002.

(2) Tenant retention is the square footage of all leases renewed by existing tenants divided by the square footage of all expiring and renewed leases during the reporting period, excluding the square footage of tenants that default or buy-out prior to expiration of their lease, short-term tenants and the square footage of month-to-month leases.

BUSINESS RISKS

Our operations involve various risks that could have adverse consequences to us. In addition to the risks discussed in our Annual Report on Form 10-K for the year ended December 31, 2003, these risks include:

There was a material weakness in our internal control over financial reporting, and our business could have been adversely impacted if we had failed to remedy the deficiencies in our controls.

The design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent all errors, misstatements or misrepresentations. As part of management’s on-going review of our accounting policies and internal control over financial reporting, on October 12, 2004, management determined that there was a material weakness in our internal control over financial reporting related to ground lease depreciation. This weakness resulted in an understatement of depreciation expense and resulted in a restatement of depreciation expense for our results in previously issued financial statements for the years ended December 31, 2003, 2002 and 2001 filed on Forms 10-K and 10-K/A for the year ended December 31, 2003, and for the quarters ended March 31, 2004 and June 30, 2004 filed on Forms 10-Q for the quarters then ended. In connection with correcting this error, management has taken appropriate action to modify our system of internal control over financial reporting to remediate the material weakness. While management will continue to review the effectiveness of our disclosure controls and procedures and internal control over financial reporting, there can be no guarantee that our internal control over financial reporting will be effective in accomplishing all control objectives all of the time. Other deficiencies, particularly a material weakness in internal control over financial reporting which may occur in the future, could result in misstatements of our results of operations, restatements of our financial statements, a decline in our general partner’s stock price, or otherwise materially adversely affect our business, reputation, results of operation, financial condition or liquidity.


Item 3.	*Quantitative and Qualitative Disclosures About Market Risk*

Market risk is the risk of loss from adverse changes in market prices, interest rates and foreign exchange rates. Our future earnings and cash flows are dependent upon prevailing market rates. Accordingly, we manage our market risk by matching projected cash inflows from operating, investing and financing activities with projected cash outflows for debt service, acquisitions, capital expenditures, distributions to unitholders and payments to noteholders, and other cash requirements. The majority of our outstanding debt has fixed interest rates, which minimizes the risk of fluctuating interest rates. Our exposure to market risk includes interest rate fluctuations in connection with our credit facilities and other variable rate borrowings and our ability to incur more debt without noteholder approval, thereby increasing our debt service obligations, which could adversely affect our cash flows. As of September 30, 2004, we had no interest rate caps or swaps. See Part I, Item 2: “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital Resources — Market Capitalization.”

The table below summarizes the market risks associated with our fixed and variable rate debt outstanding before unamortized debt premiums of $12.6 million as of September 30, 2004 (dollars in thousands):


	2004			2005			2006			2007			2008			Thereafter			Total

Fixed rate debt(1)	$	8,219		$	359,011		$	171,791		$	144,781		$	374,940		$	1,461,383		$	2,520,125
Weighted average interest rate		7.2	%		7.1	%		7.1	%		7.3	%		7.2	%		7.4	%		7.3	%
Variable rate debt(2)	$	468		$	1,958		$	83,259		$	573,862		$	5,669		$	38,050		$	703,266
Weighted average interest rate		4.6	%		4.3	%		2.4	%		2.1	%		4.7	%		4.5	%		2.3	%
Interest Payments	$	613		$	25,574		$	14,195		$	22,620		$	27,262		$	109,855		$	200,119

(1) Represents 78.2% of all outstanding debt.

(2) Represents 21.8% of all outstanding debt.

If market rates of interest on our variable rate debt increased by 10%, then the increase in interest expense on the variable rate debt would be $1.6 million annually. As of September 30, 2004, the estimated fair value of our fixed rate debt was $2,737.1 million based on our estimate of current market interest rates.

As of September 30, 2004 and December 31, 2003, variable rate debt comprised 23.1% and 14.7%, respectively, of all our outstanding debt. Variable rate debt was $744.2 million and $378.0 million, respectively, as of September 30, 2004 and December 31, 2003. The increase is primarily due to higher outstanding balances on our credit facilities. This increase in our variable rate debt increases our risk associated with unfavorable interest rate fluctuations.

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



	Maturity Dates

Related Derivatives (in thousands)	October-04		December-04		Total		Fair Value

Foreign Exchange Agreements:
Option to Sell MXN/ Buy USD Contract Amount (USD)	$	1,794	$	1,467	$	3,261
Contract FX Rate		11.5		11.6		11.5
Contract Premium	$	15	$	25	$	40	$	10

Foreign Operations. Our exposure to market risk also includes foreign currency exchange rate risk. The U.S. dollar is the functional currency for our subsidiaries operating in the United States and Mexico. The

functional currency for our subsidiaries operating outside North America is generally the local currency of the country in which the entity is located, mitigating the effect of foreign exchange gains and losses. Our subsidiaries whose functional currency is not the U.S. dollar translate their financial statements into U.S. dollars. Assets and liabilities are translated at the exchange rate in effect as of the financial statement date. We translate income statement accounts using the average exchange rate for the period and significant nonrecurring transactions using the rate on the transaction date. Losses resulting from the translation are included in accumulated other comprehensive income as a separate component of partners’ capital and totaled $0.2 million for the nine months ended September 30, 2004.

Our foreign subsidiaries may have transactions denominated in currencies other than their functional currency. In these instances, non-monetary assets and liabilities are reflected at the historical exchange rate, monetary assets and liabilities are remeasured at the exchange rate in effect at the end of the period and income statement accounts are remeasured at the average exchange rate for the period. For the three and nine months ended September 30, 2004, gains from remeasurement included in our results of operations were $0.1 million and $0.2 million, respectively.

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


Item 4.	*Controls and Procedures*

On October 12, 2004, our general partner announced a restatement of depreciation expense for our prior period results relating to 39 buildings in our portfolio, 38 of which are located on-tarmac, which is land owned by federal, state or local airport authorities. As part of management’s on-going review of our accounting policies and internal control over financial reporting, management determined that we should have depreciated certain of our investments in buildings that reside on land subject to ground leases over the remaining terms of the ground leases, rather than over 40 years, which is the period used to depreciate buildings that we hold in fee simple. Management determined that the cause for this depreciation error was that there was no mechanism in place to segregate and apply appropriate depreciable lives to assets subject to ground leases. Our general ledger did not have a separate account designation for assets subject to ground leases so these assets were not segregated into a separate expected useful life category for depreciation purposes.

Management also determined that the internal control deficiency that resulted in this restatement represents a material weakness, as defined by the Public Company Accounting Oversight Board’s Auditing Standard No. 2. The Public Company Accounting Oversight Board has defined material weakness as “a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.” Our conclusion that the control issues surrounding ground lease depreciation constituted a material weakness means that, absent remediation of these issues, there would exist a reasonable possibility of a material misstatement in our financial statements for future periods.

Going forward, these assets will be depreciated over the lesser of 40 years or the contractual term of the underlying ground lease. In connection with correcting this error, management has taken appropriate action to modify our system of internal control over financial reporting to remediate this internal control deficiency.

Specifically, we have implemented the following remediation measures with respect to this material weakness:

• Management modified our existing property acquisition accounting checklist system to identify ground leases to the appropriate accounting and finance personnel who create journal entries in the general ledger and to communicate certain information regarding such ground leases, including lease commencement and termination dates and any contractual extension options.

• Management created new general ledger accounts to segregate ground lease assets from fee simple assets and reclassified all investments in buildings that reside on land subject to ground leases into the new general ledger accounts.

• Management modified our existing property depreciation accounting policy to include a separate category for buildings residing on land subject to ground leases, which under the policy will be depreciated over the lesser of 40 years or the contractual term of the underlying ground lease.

• Management designated certain finance personnel to review our quarterly depreciation calculations, which will include a review for the correct depreciable lives of ground lease assets.

To reflect additional depreciation expense, management has restated our previously issued consolidated financial statements for the years ended December 31, 2003, 2002 and 2001 filed on Forms 10-K and 10-K/A for the year ended December 31, 2003, and for the quarters ended March 31, 2004 and June 30, 2004 filed on Forms 10-Q for the quarters then ended. Management and the audit committee of our general partner’s board of directors discussed with our independent auditors, PricewaterhouseCoopers LLP, and determined that this was the proper approach. On October 12, 2004, management and the audit committee of our general partner’s board of directors concluded that our financial statements for the years ended December 31, 2003, 2002 and 2001 filed on Forms 10-K and 10-K/A for the year ended December 31, 2003, and for the quarters ended March 31, 2004 and June 30, 2004 filed on Forms 10-Q for the quarters then ended should no longer be relied upon because of this error in such financial statements as addressed in Accounting Principles Board Opinion No. 20.

As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended, we carried out an evaluation, under the supervision and with the participation of our management, including the chief executive officer, president and chief financial officer of our general partner, of the effectiveness of the design and operation of our disclosure controls and procedures that were in effect as of the end of the quarter covered by this report. Based on the material weakness described above, the chief executive officer, president and chief financial officer of our general partner each concluded that our disclosure controls and procedures were not effective at a reasonable assurance level as of September 30, 2004, the end of the quarter covered by this report. However, in light of the implementation of the new remediation measures described above, the chief executive officer, president and chief financial officer of our general partner believe, as of the date of this report, management has taken appropriate action to modify our internal control over financial reporting relating to ground lease depreciation and remediate this material weakness. The changes in our internal control over financial reporting discussed above materially affected our internal control over financial reporting.

Except as stated above, there have been no other changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II


Item 1.	*Legal Proceedings*

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


Item 2.	*Unregistered Sales of Equity Securities and Use of Proceeds*

None.


Item 3.	*Defaults Upon Senior Securities*

None.


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

None.


Item 5.	*Other Information*

None.


Item 6.	*Exhibits*


Exhibit
Number		Description

	10.1	Thirteenth Amended and Restated Agreement of Limited Partnership of AMB Property II, L.P., dated September 24, 2004 (incorporated by reference to Exhibit 10.1 of AMB Property, L.P.’s Current Report on Form 8-K filed on September 30, 2004).
	10.2	Put Agreement, dated September 24, 2004, by and between Robert Pattillo Properties, Inc. and AMB Property, L.P. (incorporated by reference to Exhibit 10.2 of AMB Property, L.P.’s Current Report on Form 8-K filed on September 30, 2004).
	10.3	Amendment No. 1 to the 2002 Stock Option and Incentive Plan of AMB Property Corporation and AMB Property, L.P., dated September 23, 2004.
	10.4	Amendment No. 2 to the Third Amended and Restated 1997 Stock Option and Incentive Plan of AMB Property Corporation and AMB Property, L.P., dated September 23, 2004.
	31.1	Rule 13a-14 (a)/15d-14 (a) Certifications dated November 9, 2004.
	32.1	18 U.S.C.§ 1350 Certifications dated November 9, 2004. The certifications in this exhibit are being furnished solely to accompany this report pursuant to 18 U.S.C. sec. 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any of our filings, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

SIGNATURES

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

AMB PROPERTY, L.P.

Registrant

By: AMB Property Corporation, its General Partner

By: /s/ HAMID R. MOGHADAM

Hamid R. Moghadam

Chairman and CEO

(Duly Authorized Officer and

Principal Executive Officer)

By: /s/ W. BLAKE BAIRD

W. Blake Baird

President and Director

(Duly Authorized Officer)

By: /s/ MICHAEL A. COKE

Michael A. Coke

CFO and Executive Vice President

(Duly Authorized Officer and Principal

Financial and Accounting Officer)

Date: November 9, 2004

EXHIBIT INDEX


Exhibit
Number		Description

	10.1	Thirteenth Amended and Restated Agreement of Limited Partnership of AMB Property II, L.P., dated September 24, 2004 (incorporated by reference to Exhibit 10.1 of AMB Property, L.P.’s Current Report on Form 8-K filed on September 30, 2004).
	10.2	Put Agreement, dated September 24, 2004, by and between Robert Pattillo Properties, Inc. and AMB Property, L.P. (incorporated by reference to Exhibit 10.2 of AMB Property, L.P.’s Current Report on Form 8-K filed on September 30, 2004).
	10.3	Amendment No. 1 to the 2002 Stock Option and Incentive Plan of AMB Property Corporation and AMB Property, L.P., dated September 23, 2004.
	10.4	Amendment No. 2 to the Third Amended and Restated 1997 Stock Option and Incentive Plan of AMB Property Corporation and AMB Property, L.P., dated September 23, 2004.
	31.1	Rule 13a-14 (a)/15d-14 (a) Certifications dated November 9, 2004.
	32.1	18 U.S.C.§ 1350 Certifications dated November 9, 2004. The certifications in this exhibit are being furnished solely to accompany this report pursuant to 18 U.S.C. sec. 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any of our filings, whether made before or after the date hereof, regardless of any general incorporation language in such filing.


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


(1)	Included 16 institutional investors as stockholders as of September 30, 2004.

(2)	A subsidiary of the real estate investment subsidiary of the Government of Singapore Investment Corporation.

(3)	Included 13 institutional investors as stockholders and one third-party limited partner as of September 30, 2004.

(4)	AMB-AMS, L.P. is a co-investment partnership with three Dutch pension funds advised by Mn Services NV.

(5)	PMT is Stichting Pensioenfonds Metaal en Techniek, SPW is Stichting Pensioenfonds voor de Woningcorporaties and TNO is Stichting Pensioenfonds TNO.

(6)	The Operating Partnership expects to raise third party equity in the fourth quarter of 2004, reducing its current ownership interest from approximately 100% to an expected range of 20-50%. See Note 13 — Subsequent Event.


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


	•	changes in general economic conditions or in the real estate sector;

	•	non-renewal of leases by customers or renewal at lower than expected rent;

	•	difficulties in identifying properties to acquire and in effecting acquisitions on advantageous terms and the failure of acquisitions to perform as we expect;

	•	risks and uncertainties affecting property development and renovation (including construction delays, cost overruns, our inability to obtain necessary permits and financing);

	•	a downturn in California’s economy or real estate conditions;

	•	losses in excess of our insurance coverage;

	•	our failure to divest of properties on advantageous terms or to timely reinvest proceeds from any such divestitures;

	•	unknown liabilities acquired from our predecessors or in connection with acquired properties;

	•	risks of doing business internationally, including unfamiliarity with new markets and currency risks;

	•	risks associated with using debt to fund acquisitions and development, including re-financing risks;

	•	our failure to obtain necessary financing;

	•	changes in local, state and federal regulatory requirements; and

	•	environmental uncertainties.


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


	•	Acquired two buildings in the U.S., aggregating approximately 0.6 million square feet, for an aggregate price of approximately $51.6 million, including $5.7 million invested through one of our co-investment joint ventures; and

	•	Commenced seven new development projects in the United States, Singapore and Japan, totaling 2.7 million square feet with an estimated total investment of approximately $345.7 million (using exchange rates in effect at September 30, 2004); and

	•	Acquired 478 acres of land for industrial warehouse development in various U.S. markets for $36.7 million; and

	•	Sold one land parcel and three development projects available for sale, aggregating approximately 0.1 million square feet, for an aggregate price of $13.8 million; and

	•	Divested ourselves of five industrial buildings and two retail centers, aggregating 0.8 million square feet, for an aggregate price of $62.8 million.


	•	Acquired 48 buildings in the U.S., Mexico, Europe and Japan, aggregating approximately 4.6 million square feet, for an aggregate price of approximately $490.8 million (using exchange rates in effect at acquisition dates), including $137.7 million invested through three of our co-investment joint ventures; and

	•	Commenced 13 development projects in the United States, Mexico, Singapore and Japan, totaling 4.5 million square feet with an estimated total investment of approximately $497.7 million (using exchange rates in effect at applicable quarter end dates); and

	•	Acquired 640 acres of land for industrial warehouse development in various U.S. markets and Mexico City for approximately $68.3 million; and

	•	Sold five land parcels and four development projects available for sale, aggregating approximately 0.2 million square feet, for an aggregate price of $27.8 million; and


	•	Divested ourselves of seven industrial buildings, two retail centers and one office building, aggregating 1.2 million square feet, for an aggregate price of $80.7 million.


	•	Obtained long-term secured debt financings for our co-investment joint ventures of $109.8 million at an average rate of 5.0%; and

	•	Assumed $8.6 million of debt for our co-investment joint ventures and our pre-specified co-investment properties at a weighted average interest rate of 7.7%.


	•	Obtained long-term secured debt financings for our co-investment joint ventures totaling $140.9 million at an average rate of 5.0%; and

	•	Assumed $124.9 million of debt for our co-investment joint ventures and our pre-specified co-investment properties at a weighted average interest rate of 6.5%; and

	•	Obtained $63.8 million of debt (using exchange rates in effect at applicable quarter end dates) with a weighted average interest rate of 3.6% for international acquisitions; and

	•	Completed the early renewal our senior unsecured revolving line of credit in the amount of $500.0 million. The three-year credit facility includes a multi-currency component under which up to $250.0 million can be drawn in Yen, Euros or British Pounds Sterling; and

	•	Entered into an unsecured revolving credit agreement through AMB Japan Finance Y.K., one of our subsidiaries, providing for loans or letters of credit in a maximum principal amount outstanding at any time of up to 24 billion Yen (approximately $218.1 million in U.S. dollars using exchange rates in effect at September 30, 2004).


	•	borrowings under our unsecured credit facilities;

	•	other forms of secured or unsecured financing;

	•	proceeds from debt or limited partnership unit offerings (including issuances of limited partnership units by us or our subsidiaries);

	•	net proceeds from divestitures of properties; and

	•	private capital from co-investment partners.


	•	working capital;

	•	development, expansion and renovation of properties;

	•	acquisitions, including our global expansion;

	•	debt service; and

	•	distributions on outstanding common and preferred limited partnership units.


(1)	Planned capitalization includes anticipated debt and both partners’ expected equity contributions.

(2)	Included 16 institutional investors as stockholders as of September 30, 2004.

(3)	A subsidiary of the real estate investment subsidiary of the Government of Singapore Investment Corporation.

(4)	Included 13 institutional investors and one third-party limited partner as stockholders as of September 30, 2004.

(5)	AMB-AMS, L.P. is a co-investment partnership with three Dutch pension funds advised by Mn Services NV.

(6)	PMT is Stichting Pensioenfonds Metaal en Techniek, SPW is Stichting Pensioenfonds voor de Woningcorporaties and TNO is Stichting Pensioenfonds TNO.

(7)	We expect to raise third party equity in the fourth quarter, reducing our current ownership interest from approximately 100% to an expected range of 20-50%. See Part I, Item 1: Note 13 — Subsequent Event of the “Notes to Consolidated Financial Statements.”


(1)	The weighted average interest and maturity for the unconsolidated joint venture debt were 5.3% and 4.3 years, respectively.

(2)	Includes Euro and Yen based borrowings translated to U.S. dollars using the foreign exchange rates in effect at September 30, 2004.

(3)	Our share of total debt is the pro rata portion of the total debt based on our percentage of equity interest in each of the consolidated ventures holding the debt. We believe that our share of total debt is a meaningful supplemental measure, which enables both management and investors to analyze our leverage and to compare our leverage to that of other companies. In addition, it allows for a more meaningful comparison of our debt to that of other companies that do not consolidate their joint ventures. Our share of total debt is not intended to reflect our actual liability should there be a default under any or all of such loans or a liquidation of the joint ventures. The above table reconciles our share of total debt to total consolidated debt, a GAAP financial measure.


(1)	Assumes that our common limited partnership units and the class B common limited partnership units of AMB Property II, L.P. are exchanged for AMB Property Corporation’s common stock on a one-for-one basis because there is no public market for these units.

(2)	Includes 145,548 class B common limited partnership units issued by AMB Property II, L.P. in November 2003.


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

	•	claims of customers, vendors or other persons dealing with our predecessors prior to our formation transactions that had not been asserted prior to our formation transactions;

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

	•	tax liabilities; and

	•	claims for indemnification by the officers and directors of our general partner’s predecessors and others indemnified by these entities.


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


	(1)	Includes all consolidated industrial operating properties and excludes industrial development and renovation projects. Excludes retail and other properties’ square feet of 474,368 with occupancy of 27.9% and annualized base rent of $3.1 million.

	(2)	In addition to owned square feet as of September 30, 2004, we managed, through our subsidiary, AMB Capital Partners, LLC, approximately 0.5 million additional square feet of industrial, retail and other properties. We also have investments in approximately 8.0 million square feet of industrial operating properties through our investments in unconsolidated joint ventures.

	(3)	Tenant retention is the square footage of all leases renewed by existing tenants divided by the square footage of all expiring and renewed leases during the reporting period, excluding the square footage of tenants that default or buy-out prior to expiration of their lease, short-term tenants and the square footage of month-to-month leases.


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


(1)	The same store pool excludes properties purchased and developments stabilized after December 31, 2002.

(2)	Tenant retention is the square footage of all leases renewed by existing tenants divided by the square footage of all expiring and renewed leases during the reporting period, excluding the square footage of tenants that default or buy-out prior to expiration of their lease, short-term tenants and the square footage of month-to-month leases.


(1)	Represents 78.2% of all outstanding debt.

(2)	Represents 21.8% of all outstanding debt.


	•	Management modified our existing property acquisition accounting checklist system to identify ground leases to the appropriate accounting and finance personnel who create journal entries in the general ledger and to communicate certain information regarding such ground leases, including lease commencement and termination dates and any contractual extension options.


	•	Management created new general ledger accounts to segregate ground lease assets from fee simple assets and reclassified all investments in buildings that reside on land subject to ground leases into the new general ledger accounts.

	•	Management modified our existing property depreciation accounting policy to include a separate category for buildings residing on land subject to ground leases, which under the policy will be depreciated over the lesser of 40 years or the contractual term of the underlying ground lease.

	•	Management designated certain finance personnel to review our quarterly depreciation calculations, which will include a review for the correct depreciable lives of ground lease assets.


	AMB PROPERTY, L.P.

	Registrant

	By: AMB Property Corporation, its General Partner



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



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



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