AMB PROPERTY LP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

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

COMMISSION FILE NUMBER 001-13545

AMB PROPERTY, L.P.
(Exact name of Registrant as specified in its charter)

DELAWARE 94-3285362
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) 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)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

State the aggregate market value of the voting stock held by non-affiliates
of the Registrant: None. No market for the Registrant's partnership units exists
and, therefore, a market value for such units cannot be determined.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates by reference AMB Property Corporation's Proxy
Statement for its Annual Meeting of Stockholders which the Registrant
anticipates will be filed no later than 120 days after the end of its fiscal
year pursuant to Regulation 14A.

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PART I

ITEM 1. BUSINESS

GENERAL

AMB Property, L.P., a Delaware limited partnership, is one of the leading
owners and operators of industrial real estate nationwide. Our investment
strategy is to become a leading provider of High Throughput Distribution, or
HTD, properties located near key passenger and cargo airports, highway systems
and ports in major metropolitan areas, such as Atlanta, Chicago, Dallas/Fort
Worth, Northern New Jersey/New York City, the San Francisco Bay Area, Southern
California, Miami, and Seattle. Within each of our markets, we focus our
investments in in-fill submarkets. In-fill sub-markets are characterized by
supply constraints on the availability of land for competing projects as well as
by having physical, political, or economic barriers to new development. High
Throughput Distribution facilities are designed to serve the high-speed,
high-value freight handling needs of today's supply chain, as opposed to
functioning as long-term storage facilities. We believe that the growth of the
airfreight and ocean-going container business and the outsourcing of supply
chain management to third party logistics companies are indicative of the
changes that are occurring in the supply chain and the manner in which goods are
distributed. In addition, we believe that inventory levels as a percentage of
final sales are falling and that goods are moving more rapidly through the
supply chain. As a result, we intend to focus our investment activities
primarily on industrial properties that we believe will benefit from these
changes.

As of December 31, 2001, we owned and operated 905 industrial buildings and
seven retail centers, totaling approximately 81.6 million rentable square feet,
located in 26 markets nationwide. As of December 31, 2001, our industrial and
retail properties were 94.5% and 89.3% leased, respectively. As of December 31,
2001, through our subsidiary, AMB Capital Partners, LLC, we also managed
industrial buildings and retail centers, totaling approximately 2.7 million
rentable square feet on behalf of various clients. In addition, we have invested
in 40 industrial buildings, totaling approximately 4.9 million rentable square
feet, through unconsolidated joint ventures.

As of December 31, 2001, we had seven retail centers and three industrial
properties, which were held for divestiture. During 2001, we disposed of 26
industrial buildings and two retail buildings, aggregating approximately 3.2
million rentable square feet, for an aggregate price of $193.4 million. Over the
next few years, we intend to dispose of non-strategic assets and redeploy the
resulting capital into industrial properties in supply constrained markets in
the U.S. and internationally that better fit our current investment focus.

We are engaged in the acquisition, ownership, operation, management,
renovation, expansion, and development of primarily industrial properties in
target markets nationwide. As of December 31, 2001, AMB Property Corporation
owned an approximate 94.4% general partnership interest in us, excluding
preferred units. As our sole general partner, AMB Property Corporation has full,
exclusive, and complete responsibility and discretion in our day-to-day
management and control.

AMB Property Corporation is self-administered and self-managed and we
expect that it has qualified and will continue to qualify as a real estate
investment trust for federal income tax purposes beginning with the year ending
December 31, 1997. Because AMB Property Corporation is a self-administered and
self-managed real estate investment trust, our employees perform its
administrative and management functions, rather than it relying on an outside
manager for these services. Our principal executive office is located at Pier 1,
Bay 1, San Francisco, CA 94111, and our telephone number is (415) 394-9000. We
also maintain a regional office in Boston, Massachusetts. As of December 31,
2001, we employed 179 individuals, 134 at our San Francisco headquarters and 45
in our Boston office.

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(R); Customer Alliance Partners(R); Customer Alliance Program(R);
Development Alliance Partners(R); Development Alliance Program(R); eSpace(R);
Institutional Alliance Partners(R); Institutional Alliance Program(R);
Management Alliance Partners(R); Management Alliance Program(R); UPREIT Alliance

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Partners(R); and UPREIT Alliance Program(R). The following marks are the
unregistered trademarks of AMB Property Corporation, our general partner: Broker
Alliance Partners(TM); Broker Alliance Program(TM); HTD(TM); High Throughput
Distribution(TM); iSpace(TM); Strategic Alliance Partners(TM); and Strategic
Alliance Programs(TM).

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 of December 31, 2001, we had investments in five co-investment
joint ventures with a gross book value of $1.3 billion, which are consolidated
for financial reporting purposes and which are discussed below. We believe that
our co-investment program will also continue to serve as a source of capital for
acquisitions and developments.

We are the managing general partner of AMB Institutional Alliance Fund I,
L.P. and, together with one of our affiliates, owned, as of December 31, 2001,
approximately 21% of the partnership interests in the Alliance Fund I. The
Alliance Fund I is a co-investment partnership between us and AMB Institutional
Alliance REIT I, Inc., a limited partner of the Alliance Fund I, which includes
15 institutional investors as stockholders. The Alliance Fund I is engaged in
the acquisition, ownership, operation, management, renovation, expansion, and
development of industrial buildings in target markets nationwide. As of December
31, 2001, the Alliance Fund I had received equity contributions from third party
investors totaling $169.0 million, which, when combined with anticipated debt
financings and our investment, creates a total capitalization of $378.0 million.

We formed AMB Partners II, L.P. with the City and County of San Francisco
Employees' Retirement System to acquire, develop, and redevelop distribution
facilities nationwide. On February 14, 2001, AMB Partners II received an equity
contribution from CCSFERS of $50.0 million, which, when combined with
anticipated debt financings and our investment, creates a total planned
capitalization of $250.0 million. We are the managing general partner of AMB
Partners II and owned, as of December 31, 2001, 50% of AMB Partners II.

We formed AMB-SGP, L.P. with a subsidiary of GIC Real Estate Pte Ltd., the
real estate investment subsidiary of the Government of Singapore Investment
Corporation, to own and operate, through a private real estate investment trust,
distribution facilities nationwide. On March 23, 2001, AMB-SGP received an
equity contribution from GIC of $75.0 million, which, when combined with
anticipated debt financings and our investment, creates a total planned
capitalization of $335.0 million. We are the managing general partner of AMB-SGP
and owned, as of December 31, 2001, approximately 50.3% of AMB-SGP.

We formed AMB Institutional Alliance Fund II, L.P., in which AMB Alliance
REIT II, Inc. became a partner on June 28, 2001. We are the managing general
partner and, together with one of our affiliates, owned, as of December 31,
2001, approximately 20% of the partnership interests in the Alliance Fund II.
The Alliance Fund II is a co-investment partnership between us and AMB
Institutional Alliance REIT II, Inc., a limited partner of the Alliance Fund II,
which includes 12 institutional investors as stockholders as of December 31,
2001. The Alliance Fund II is engaged in the acquisition, ownership, operation,
management, renovation, expansion, and development of industrial buildings in
target markets nationwide. As of December 31, 2001, the Alliance Fund II had
received equity commitments from third party investors totaling $195.4 million,
which, when combined with anticipated debt financings and our investment,
creates a total planned capitalization of $488.0 million.

We, together with one of our affiliates, own, as of December 31, 2001,
approximately 50% of the partnership interests in AMB/Erie. L.P. or "Erie". Erie
is a co-investment partnership between us and various entities related to Erie
Indemnity Company, and is engaged in the acquisition, ownership, operation,
management, renovation, expansion, and development of industrial buildings in
target markets nationwide. As of December 31, 2001, Erie had received equity
contributions from third party investors totaling $14.0 million, which, when
combined with debt financings and our investment, created a total capitalization
of $129.0 million.
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ACQUISITION AND DEVELOPMENT ACTIVITY

During 2001, we invested $428.3 million in operating properties, consisting
of 65 industrial buildings aggregating approximately 6.8 million square feet,
including the investment of $219.5 million in 36 industrial buildings,
aggregating approximately 3.8 million square feet, for three of our
co-investment joint ventures.

During 2001, we also contributed $539.2 million in operating properties,
consisting of 111 industrial buildings aggregating approximately 10.8 million
square feet, to three of our co-investment joint ventures. During 2001, we
recognized gains of $17.8 million on the contributions, which represents the
portion of the contributed properties acquired by our third-party co-investors.

As of December 31, 2001, we and our co-investment partners had in our
development pipeline: (1) 12 industrial projects, which will total approximately
3.1 million square feet and have a total estimated investment of $154.4 million
upon completion; and (2) two development projects available for sale, which will
total approximately 0.6 million square feet and have an aggregate estimated
investment of $50.0 million upon completion. As of December 31, 2001, we and our
Development Alliance Partners have funded an aggregate of $127.3 million and
will need to fund an estimated additional $77.1 million in order to complete
projects currently under construction.

OPERATING STRATEGY

AMB Property Corporation is a full-service real estate company with
in-house expertise in acquisitions, development and redevelopment, asset
management and leasing, finance and accounting, and market research. AMB
Property Corporation has long-standing relationships with many real estate
management and development firms across the country, our Strategic Alliance
Partners.

We believe that real estate is fundamentally a local business and that the
most effective way for us to operate is by forging alliances with service
providers in every market. We believe that these collaborations allow us to: (1)
leverage our national presence with the local market expertise of brokers,
developers, and property managers; (2) improve the operating efficiency and
flexibility of our national portfolio; (3) strengthen customer satisfaction and
retention; and (4) provide a continuous pipeline of growth.

We believe that our partners give us local market expertise and flexibility
allowing us to focus on our core competencies: developing and refining our
strategic approach to real estate investment and management and raising private
capital to finance growth and enhance returns.

GROWTH STRATEGIES

GROWTH THROUGH OPERATIONS

We seek to generate internal growth through rent increases on existing
space and renewals on re-tenanted space. We do this by seeking to maintain a
high occupancy rate at our properties and by seeking to control expenses by
capitalizing on the economies of owning, operating, and growing a large national
portfolio. As of December 31, 2001, our industrial properties and retail centers
were 94.5% leased and 89.3% leased, respectively. During 2001, we increased
average industrial base rental rates (on a cash basis) by 20.4% from the
expiring rent for that space, on leases entered into or renewed during the
period. This amount excludes expense reimbursements, rental abatements, and
percentage rents. During 2001, we also increased same-store net operating income
by 6.3% on our industrial properties.

GROWTH THROUGH ACQUISITIONS AND CAPITAL REDEPLOYMENT

We believe that our significant acquisition experience, our alliance-based
operating strategy, and our extensive network of property acquisition sources
will continue to provide opportunities for external growth. We believe that our
relationships with third party local property management firms through our
Management Alliance Program also will create acquisition opportunities, as such
managers market properties on behalf of sellers. Our operating structure also
enables us to acquire properties through our UPREIT Alliance Program in exchange
for our limited partnership units, thereby enhancing our attractiveness to
owners and developers

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seeking to transfer properties on a tax-deferred basis. In addition to
acquisitions, we seek to redeploy capital from non-strategic assets into
properties that better fit our current investment focus.

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

GROWTH THROUGH DEVELOPMENT

We believe that renovation and expansion of properties and development of
well-located, high-quality industrial properties should continue to provide us
with attractive opportunities for increased cash flow and a higher rate of
return than we may obtain from the purchase of fully leased, renovated
properties. Value-added properties are typically characterized as properties
with available space or near-term leasing exposure, undeveloped land acquired in
connection with another property that provides an opportunity for development,
or properties that are well located but require redevelopment or renovation.
Value-added properties require significant management attention or capital
investment to maximize their return. We believe that we have developed the
in-house expertise to create value through acquiring and managing value-added
properties and believe that our national market presence and expertise will
enable us to continue to generate and capitalize on these opportunities. Through
our Development Alliance Program, we have established strategic alliances with
national and regional developers to enhance our development capabilities.

The multidisciplinary backgrounds of our employees should provide us with
the skills and experience to capitalize on strategic renovation, expansion, and
development opportunities. Several of the officers of our general partner have
extensive experience in real estate development, both with us and with national
development firms. We generally pursue development projects in joint ventures
with local developers. This way, we leverage the development skill, access to
opportunities, and capital of such developers, and we eliminate the need and
expense of an in-house development staff. Under a typical joint venture
agreement with a Development Alliance Partner, we would fund 95% of the
construction costs and our partner would fund 5%. Upon completion, we generally
would purchase our partner's interest in the joint venture.

GROWTH THROUGH CO-INVESTMENTS

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

GROWTH THROUGH DEVELOPMENTS FOR SALE

We, through a wholly-owned subsidiary, Headlands Realty Corporation,
conduct a variety of businesses that include incremental income programs, such
as our development projects available for sale to third parties. Such
development properties include value-added conversion projects and build-to-sell
projects. During 2001, we completed and sold two value-added conversion projects
for a net gain of $13.2 million. As of December 31, 2001, we were developing two
projects for sale to third parties.

AMB CAPITAL PARTNERS

AMB Capital Partners, LLC provides real estate investment management
services on a fee basis to clients. On December 31, 2001, AMB Investment
Management, Inc. was reorganized through a series of
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related transactions into AMB Capital Partners. On May 31, 2001, we began
consolidating our investment in AMB Investment Management by acquiring 100% of
its common stock for $0.3 million. Prior to May 31, 2001, we owned 100% of AMB
Investment Management's non-voting preferred stock (representing a 95% economic
interest therein) and reflected our investment using the equity method.

BUSINESS RISKS

See: "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Business Risks" for a complete discussion of the
various risks that could adversely affect us.

ITEM 2. PROPERTIES

We operate industrial and retail properties nationwide and manage our
business both by property type and by market. Industrial properties 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. As of December 31, 2001, we
operated industrial properties in eight hub and gateway markets in addition to
18 other markets nationwide. As of December 31, 2001, we operated retail
properties in Miami, Atlanta, Chicago, the San Francisco Bay Area, Boston, and
Baltimore. Retail properties are generally leased to one or more anchor
customers, such as grocery and drug stores, and various retail businesses. See
"Item 14. Note 17 of Notes to Consolidated Financial Statements" for segment
information related to our operations.

INDUSTRIAL PROPERTIES

As of December 31, 2001, we owned 905 industrial buildings aggregating
approximately 81.6 million rentable square feet, located in 26 markets
nationwide. Our industrial properties accounted for $494.9 million, or 96.8%, of
our total annualized base rent as of December 31, 2001. Our industrial
properties were 94.5% leased to over 2,900 customers, the largest of which
accounted for no more than 1.3% of our annualized base rent from our industrial
properties.

Property Characteristics. Our industrial properties, which consist
primarily of warehouse distribution facilities suitable for single or multiple
customers, are typically comprised of multiple buildings. The following table
identifies type and characteristics of our industrial buildings:

Lease Terms. Our industrial properties are typically subject to lease on a
"triple net basis," in which customers pay their proportionate share of real
estate taxes, insurance, and operating costs, or are subject to leases on a
"modified gross basis," in which customers pay expenses over certain threshold
levels. Lease terms typically range from three to ten years, with an average of
six years, excluding renewal options. The majority of the industrial leases do
not include renewal options.

Overview of Major Target Markets. Our industrial properties are located
near key passenger and air cargo airports, key interstate highways, and sea
ports in major metropolitan areas, such as Atlanta, Chicago, Dallas/Fort Worth,
Northern New Jersey, the San Francisco Bay Area, Southern California, Miami, and

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Seattle. We believe our industrial properties' strategic location,
transportation network and infrastructure, and large consumer and manufacturing
bases support strong demand for industrial space.

Within these metropolitan areas, our industrial properties are concentrated
in locations with limited new construction opportunities within established,
relatively large submarkets, which we believe should provide a higher rate of
occupancy and rent growth than properties located elsewhere. These in-fill
locations are typically near major passenger and air cargo facilities, seaports
or convenient to major highways and rail lines, and are proximate to a diverse
labor pool. There is typically broad demand for industrial space in these
centrally located submarkets due to a diverse mix of industries and types of
industrial uses, including warehouse distribution, light assembly and
manufacturing. We generally avoid locations at the periphery of metropolitan
areas where there are fewer supply constraints.

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INDUSTRIAL MARKET OPERATING STATISTICS

As of December 31, 2001, we operated in eight hub and gateway markets, in
addition to 18 other markets nationwide. The following table represents
properties in which we own a fee simple interest or a controlling interest
(consolidated), and excludes properties in which we only own a non-controlling
interest (unconsolidated) and properties under development.

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(1) We also have an ownership interest in 36 industrial buildings totaling 4.0
million square feet in the Chicago market through our investment in an
unconsolidated joint venture.

(2) We also have an ownership interest in 4 industrial buildings totaling 0.9
million square feet in the Southern California market through an
unconsolidated joint venture.

(3) Calculated as monthly rent at expiration multiplied by 12.

(4) Same store pool as of December 31, 2001, excludes properties purchased or
developments stabilized after December 31, 1999.

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INDUSTRIAL PROPERTY SUMMARY

As of December 31, 2001, our 905 industrial buildings were diversified
across 26 markets nationwide. The average age of our industrial properties is 20
years (since the property was built or substantially renovated). The following
table represents properties in which we own a fee simple interest or a
controlling interest (consolidated), and excludes properties in which we only
own a non-controlling interest (unconsolidated).

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(1) We also have an ownership interest in 36 industrial buildings totaling 4.0
million square feet in the Chicago market through our investment in an
unconsolidated joint venture.

(2) We also have an ownership interest in 4 industrial buildings totaling 0.9
million square feet in the Southern California market through our investment
in an unconsolidated joint venture.

(3) In addition to owned square feet as of December 31, 2001, we manage, through
our subsidiary, AMB Capital Partners, 2.0 million, 0.6 million, and 0.1
million additional square feet of industrial, retail, and other properties,
respectively.

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INDUSTRIAL PROPERTY LEASE EXPIRATIONS

The following table summarizes the lease expirations for our industrial
properties for leases in place as of December 31, 2001, without giving effect to
the exercise of renewal options or termination rights, if any, at or prior to
the scheduled expirations.

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(1) Schedule includes executed leases that commence after December 31, 2001.
Schedule excludes leases expiring December 31, 2001.

(2) Calculated as monthly rent at expiration multiplied by 12.

(3) Includes month-to-month leases and hold-over customers.

CUSTOMER INFORMATION

Largest Property Customers. Our 25 largest industrial property customers
by annualized base rent are set forth in the table below.

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(1) Customer(s) may be a subsidiary of or an entity affiliated with the named
customer.

(2) Computed as aggregate leased square feet divided by the aggregate leased
square feet of the industrial and retail properties.

(3) Computed as aggregate annualized base rent divided by the aggregate
annualized base rent of the industrial and retail and other properties.

(4) Apron rental amount (but not square footage) are included.

(5) County of Los Angeles includes Children's Services, the Fire Department, the
District Attorney's Office, the Sheriff, and the Unified School District.

(6) United States Government includes the United States Postal Service (USPS),
U.S. Customs, and the United Stated Department of Agriculture (USDA).

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OPERATING AND LEASING STATISTICS

TOTAL INDUSTRIAL PORTFOLIO SUMMARY

The following table summarizes key operating and leasing statistics for all
of our industrial properties as of and for the years ended December 31, 2001,
2000, and 1999.

INDUSTRIAL OPERATING AND LEASING STATISTICS(1)

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(1) Includes all consolidated operating properties and excludes development and
renovation projects.

(2) In addition to owned square feet as of December 31, 2001, we manage, through
our subsidiary, AMB Capital Partners, 2.7 million additional square feet of
industrial, retail, and other properties. We also have investments in 4.9
million square feet of industrial properties through our investments in
unconsolidated joint ventures.

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

INDUSTRIAL SAME STORE OPERATING STATISTICS

The following table summarizes key operating and leasing statistics for our
same store properties as of and for the years ended December 31, 2001, 2000, and
1999. For an explanation of our same store properties,

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see "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."

RETAIL PROPERTIES

At December 31, 2001, we owned ten retail centers aggregating approximately
1.3 million rentable square feet. Our retail properties accounted for $16.1
million, or 3.2%, of annualized base rent at December 31, 2001. Our retail
properties were 89.3% leased to over 160 customers. Our retail properties have
an average age of nine years since they were built, expanded, or renovated.

During 2001, we sold two retail properties totaling approximately 0.3
million rentable square feet. As of December 31, 2001, we had seven retail
centers, aggregating approximately 1.3 million rentable square feet, held for
divestiture.

RETAIL PROPERTY SUMMARY

The following table sets forth the rentable square footage of our retail
centers as of December 31, 2001, and represents properties in which we own a fee
simple interest or a controlling interest (consolidated). Around Lenox, Howard &
Western, Mazzeo Drive, Northridge Plaza, Palm Aire, Springsgate, and The Plaza
at Delray are all properties held for divestiture as of December 31, 2001.

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(1) Annualized base rent means the monthly contractual amount under existing
leases at December 31, 2001, multiplied by 12. This amount excludes expense
reimbursements, rental abatements, and percentage rents.

(2) Calculated as total Annualized Base Rent divided by total rentable square
feet actually leased as of December 31, 2001.

(3) We hold an interest in this property through a joint venture interest in a
limited partnership.

(4) This property is held for divestiture.

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DEVELOPMENT PIPELINE

The following table sets forth the properties owned by us as of December
31, 2001, which were undergoing renovation, expansion, or new development. No
assurance can be given that any of such projects will be completed on schedule
or within budgeted amounts.

INDUSTRIAL DEVELOPMENT AND RENOVATION DELIVERIES

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(1) Represents total estimated cost or renovation, expansion, or development,
including initial acquisition costs, debt and equity carry, and partner
earnouts. The estimates are based on our current estimates and forecasts and
are subject to change. Excludes 268 acres of land and other
acquisition-related costs totaling approximately $44.3 million.

(2) As of December 31, 2001, our share of such amounts funded to date was $57.8
million and $8.5 million, respectively, for a total of $66.3 million funded
to date.

(3) Represents a renovation project.

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HEADLANDS REALTY CORPORATION(1)

DEVELOPMENT PROJECTS HELD FOR SALE

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(1) Headlands Realty Corporation is a wholly-owned taxable REIT subsidiary of
AMB Property Corporation, our general partner.

(2) Headlands Realty Corporation intends to sell these properties within two
years of completion.

(3) Represents total estimated cost of renovation, expansion, or development,
including initial acquisition costs, debt and equity carry, and partner
earnouts. The estimates are based on our current estimates and forecasts and
are subject to change.

(4) Represents existing properties or land that Headlands Realty is leasing from
us and is upgrading for sale to a third party.

(5) Represents build-to-suit and speculative development or redevelopment.

(6) As of December 31, 2001, our share of amounts funded to date was $20.5
million.

PROPERTIES HELD THROUGH JOINT VENTURES, LIMITED LIABILITY COMPANIES, AND
PARTNERSHIPS

CONSOLIDATED:

As of December 31, 2001, we held interests in joint ventures, limited
liability companies, and partnerships with third parties, which are consolidated
in our consolidated financial statements. Such investments are consolidated
because: (1) we own a majority interest; or (2) we exercise significant control
over major operating decisions such as approval of budgets, selection of
property managers, and changes in financing. Under the agreements governing the
joint ventures, we and the other party to the joint venture may be required to
make additional capital contributions, and subject to certain limitations, the
joint ventures may incur additional debt. Such agreements also impose certain
restrictions on the transfer of joint venture interests by us or the other party
to the joint venture and provide certain rights to us or the other party to the
joint venture to sell its interest to the joint venture or to the other joint
venture partner on terms specified in the agreement. All of the joint ventures
terminate in 2024 or later, but may end earlier if a joint venture ceases to
hold any interest in or have any obligations relating to the property held by
the joint venture. See "Item 14. Note 10 of the Notes to Consolidated Financial
Statements."

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INDUSTRIAL CONSOLIDATED JOINT VENTURES

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(1) For development properties, this represents estimated square feet at
completion of development for committed phases of development and renovation
projects.

(2) Represents the book value of the property (before accumulated depreciation)
owned by the joint venture entity and excludes net other assets.

(3) A co-investment partnership with GIC Real Estate Pte Ltd., the real estate
investment subsidiary of the government of Singapore Investment Corporation.

(4) Represents a co-investment partnership with a private institutional REIT.

(5) Represents a co-investment partnership with the Erie Insurance Group.

(6) Represents a co-investment partnership with the City and County of San
Francisco Employees' Retirement System.

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RETAIL CONSOLIDATED JOINT VENTURES

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(1) For development properties, this represents estimated square feet at
completion of development project.

(2) Represents the book value of the property (before accumulated depreciation)
owned by the joint venture entity and excludes net other assets.

(3) Included as part of retail properties held for divestiture.

(4) Represents 39 acres of land for future development.

UNCONSOLIDATED AND MORTGAGE INVESTMENTS:

As of December 31, 2001, we held interests in three equity investment joint
ventures that are unconsolidated in our financial statements. The management and
control over significant aspects of these investments are with the third party
joint venture partner. In addition, as of December 31, 2001, we held two
mortgage investments from which we receive interest income.

UNCONSOLIDATED JOINT VENTURES AND
MORTGAGE INVESTMENTS

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

(1) Square feet for development alliance joint ventures represents estimated
square feet at completion of development project.

(2) We re-negotiated this mortgage and received a $5.0 million pay-down on the
principal balance and increased the interest rate to 9.5% from 8.75% in
2001.

SECURED DEBT

As of December 31, 2001, we had $1.2 billion of indebtedness, net of
unamortized premiums, secured by deeds of trust on 99 properties. As of December
31, 2001, the total gross investment value of those properties secured by debt
was $2.3 billion. Of the $1.2 billion of secured indebtedness, $759.4 million
was joint venture debt. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Item 14. Note 7 of Notes to Consolidated Financial Statements" included in this
report. We believe that as of December 31, 2001, the value of the properties
securing the respective obligations in each case exceeded the principal amount
of the outstanding obligations.

ITEM 3. LEGAL PROCEEDINGS

As of December 31, 2001, there were no pending legal proceedings to which
we are a party or of which any of our properties are the subject, the adverse
determination of which we anticipate would have a material adverse effect on our
financial position or results of operations.

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

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

There is no established public trading market for our partnership units. As
of December 31, 2001, we had outstanding 94,661,445 partnership units,
consisting of 87,592,418 general partnership units (consisting of 83,592,418
common units and 4,000,000 8 1/2% Series A Cumulative Redeemable Preferred
Units) held by AMB Property Corporation and 7,069,027 limited partnership units
(consisting of 4,969,027 common units, 1,300,000 8 5/8% Series B Cumulative
Redeemable Preferred Units, and 800,000 7.95% Series J Cumulative Redeemable
Preferred Units). Subject to certain terms and conditions, the limited
partnership units are redeemable by the holders or, at the option of AMB
Property Corporation, exchangeable on a one-for-one basis for shares of the
common stock of AMB Property Corporation. As of December 31, 2001, there were 84
holders of our common partnership units (including AMB Property Corporation's
general partnership interest). As of the same date, AMB Property Corporation was
the only holder of the 8 1/2% Series A Cumulative Redeemable Preferred Units,
there was one holder of the 8 5/8% Series B Cumulative Redeemable Units, and
there was one holder of the 7.95% Series J Cumulative Redeemable Units.

During 2001, 223,092 limited partnership units were redeemed for cash and
635,798 limited partnership units were redeemed for shares of AMB Property
Corporation's common stock.

16

Set forth below are the distributions per limited partnership unit paid by
us during the years ended December 31, 2001, 2000 and 1999:

ITEM 6. SELECTED FINANCIAL AND OTHER DATA

SELECTED OPERATING PARTNERSHIP FINANCIAL AND OTHER DATA

The following table sets forth selected consolidated historical financial
and other data for AMB Property, L.P. on an historical basis as of and for the
years ended December 31, 2001, 2000, 1999, 1998, and 1997.

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

(1) Pro forma 1997 financial and other data has been prepared as if our
formation transactions, our general partner's initial public offering, and
certain property acquisitions and divestitures in 1997 had occurred on
January 1, 1997.
(2) Our financial and other data and the properties acquired in our formation
transactions have been included from November 26, 1997 to December 31, 1997.
(3) Basic and diluted net income per unit equals the net income available to
common unitholders divided by 88,915,176 and 89,954,598 units, respectively
for 2001; 89,566,375 and 90,024,511 units, respectively, for 2000;
90,792,310 and 90,867,934 units, respectively, for 1999; 89,493,394 and
89,852,187 units, respectively, for 1998; and pro forma net income divided
by 88,416,676 and 88,698,719 units, respectively, for 1997.

17

(4) EBITDA is computed as income before divestiture of properties, net of
minority interests and impairment charges, and minority interests plus
interest expense, income taxes, and depreciation and amortization. We
believe that in addition to cash flows and net income, EBITDA is a useful
financial performance measure for assessing the operating performance of a
real estate investment trust because, together with net income and cash
flows, EBITDA provides investors with an additional basis to evaluate the
ability of a real estate investment trust to incur and service debt and to
fund acquisitions and other capital expenditures. Includes our pro rata
share of EBITDA in an unconsolidated joint venture. EBITDA is not a
measurement of operating performance calculated in accordance with
accounting principles generally accepted in the United States and should not
be considered as a substitute for operating income, net income, cash flows
from operations, or other statement of operations or cash flow data prepared
in accordance with accounting principles generally accepted in the United
States. EBITDA may not be indicative of our historical operating results nor
our potential future results. While EBITDA is frequently used as a measure
of operations and the ability to meet debt service requirements, it is not
necessarily comparable to other similarly titled captions of other real
estate investment trusts.
(5) Operating earnings represents income before gains from dispositions of real
estate, net of minority interests and impairment reserves on properties held
for divestiture and operating properties, less minority interests' share of
net income and preferred unit distributions. It excludes the preferred unit
redemption premium. We believe that in addition to cash flows and net
income, operating earnings is a useful financial performance measure for
assessing the operating performance of a real estate investment trust
because, together with net income and cash flows, operating earnings
provides investors with an additional basis to evaluate the ability of a
real estate investment trust to incur and service debt and to fund
acquisitions and other capital expenditures. Operating earnings is not a
measurement of operating performance calculated in accordance with
accounting principles generally accepted in the United States and should not
be considered as a substitute for operating income, net income, cash flows
from operations, or other statement of operations or cash flow data prepared
in accordance with accounting principles generally accepted in the United
States. Operating earnings may not be indicative of our historical operating
results nor our potential future results. While operating earnings is
frequently used as a measure of operations and the ability to meet debt
service requirements, it is not necessarily comparable to other similarly
titled captions of other real estate investment trusts.
(6) Funds from Operations, or FFO, is defined as income from operations before
minority interest, gains or losses from sale of real estate, and
extraordinary losses plus real estate depreciation and adjustment to derive
our pro rata share of the FFO of unconsolidated joint ventures, less
minority interests' pro rata share of the FFO of consolidated joint ventures
and preferred unit distributions. In accordance with the National
Association of Real Estate Investment Trust White Paper on funds from
operations, we include the effects of straight-line rents in funds from
operations. We believe that funds from operations is an appropriate measure
of performance for a real estate investment trust. While funds from
operations 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 accounting principles generally
accepted in the United States and it should not be considered as an
alternative to these indicators in evaluating liquidity or operating
performance. Further, funds from operations as disclosed by other real
estate investment trusts may not be comparable.
(7) Secured debt includes unamortized debt premiums of approximately $6.8
million, $9.9 million, $10.1 million, $15.2 million, and $18.3 million as of
December 31, 2001, 2000, 1999, 1998, and 1997, respectively. See Notes 2 and
7 of the notes to consolidated financial statements.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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

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

- defaults or non-renewal of leases by customers;

- increased interest rates and operating costs;

- our failure to obtain necessary outside financing;

- difficulties in identifying properties to acquire and in effecting
acquisitions;

- our failure to successfully integrate acquired properties and operations;

- our failure to divest of properties that we have contracted to sell or to
timely reinvest proceeds from any such divestitures;

- risks and uncertainties affecting property development and construction
(including construction delays, cost overruns, our inability to obtain
necessary permits, and public opposition to these activities);

18

- environmental uncertainties;

- risks related to natural disasters;

- financial market fluctuations;

- changes in real estate and zoning laws;

- increases in real property tax rates; and

- risks of doing business internationally.

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

GENERAL

We commenced operations in November 1997, shortly before the consummation
of AMB Property Corporation's initial public offering

We generate revenue primarily from rent received from customers at our
properties, including reimbursements from customers for certain operating costs.
In addition, our growth is, in part, dependent on our ability to increase
occupancy rates or increase rental rates at our properties and our ability to
continue the acquisition and development of additional properties. Our income
would be adversely affected if a significant number of customers were unable to
pay rent or if we were unable to rent our industrial space on favorable terms.
Certain significant expenditures associated with an investment in real estate
(such as mortgage payments, real estate taxes, and maintenance costs) generally
do not decline when circumstances cause a reduction in income from the property.
Moreover, as the general partner of the co-investment joint ventures, we
generally will be liable for all of the joint ventures unsatisfied obligations
other than non-recourse obligations. Any such liabilities could adversely affect
our financial condition, results of operations, cash flow, and ability to make
distributions to our unitholders and payments to our noteholders.

CRITICAL ACCOUNTING POLICIES

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

Investments in Real Estate. Investments in real estate are stated at cost
unless circumstances indicate that cost cannot be recovered, in which case, the
carrying value of the property is reduced to estimated fair value. Carrying
values for financial reporting purposes are reviewed for impairment on a
property-by-property basis whenever events or changes in circumstances indicate
that the carrying value of a property may not be recoverable. Impairment is
recognized when estimated expected future cash flows (undiscounted and without
interest charges) are less than the carrying amount of the property. The
estimation of expected future net cash flows is inherently uncertain and relies
on assumptions regarding current and future market conditions and the
availability of capital. If impairment analysis assumptions change, then an
adjustment to the carrying amount

19

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
income. We evaluated our properties held for divestiture and operating
properties for impairment and reduced their carrying value by $18.6 million and
$5.9 million in 2001 and 2000, respectively. We believe that there are no
additional impairments of the carrying values of our investments in real estate
at December 31, 2001.

Investment in Unconsolidated Joint Ventures. We have non-controlling
limited partnership interests in three separate unconsolidated joint ventures.
We account for the joint ventures using the equity method of accounting. We have
a 56.1% interest in a joint venture, which owns an aggregate of 36 industrial
buildings totaling approximately 4.0 million square feet. We also have a 50%
interest in each of two other operating and development alliance joint ventures.
Our net equity investment in these joint ventures is shown as investment in
unconsolidated joint ventures on our consolidated balance sheets.

Investments in Other Companies. Investments in other companies were
accounted for on a cost basis and realized gains and losses were included in
current earnings. For our investments in private companies, we periodically
reviewed our investments to determine if the value of such investments had been
permanently impaired. During 2001, we recognized a loss on our investments in
other companies totaling $20.8 million, including our investment in Webvan
Group, Inc. We had previously recognized gains and losses on our investment in
Webvan Group, Inc. as a component of other comprehensive income. As of December
31, 2001, we had realized a loss on 100% of our investments in other companies.

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

RESULTS OF OPERATIONS

The analysis below includes changes attributable to acquisitions,
development activity and divestitures and the changes resulting from properties
that we owned during both the current and prior year reporting periods,
excluding development properties prior to being stabilized (generally defined as
90% leased or 12 months after we receive a certificate of occupancy for the
building). We refer to these properties as the same store properties. For the
comparison between the years ended December 31, 2001 and 2000, the same store
industrial properties consisted of properties aggregating approximately 60.2
million square feet. The properties acquired in 2000 consisted of 145 buildings,
aggregating approximately 10.5 million square feet, and the properties acquired
during 2001 consisted of 65 buildings, aggregating 6.8 million square feet. In
2000, property divestitures consisted of one retail center and 25 industrial
buildings, aggregating approximately 2.5 million square feet, and property
divestitures during 2001 consisted of 24 industrial and two retail buildings,
aggregating approximately 3.2 million square feet. Our future financial
condition and results of operations, including rental revenues, may be impacted
by the acquisition of additional properties and dispositions. Our future
revenues and expenses may vary materially from historical rates.

FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 (DOLLARS IN MILLIONS)

20

The growth in rental revenues in same store properties resulted primarily
from the incremental effect of cash rental rate increases on renewals and
rollovers, fixed rent increases on existing leases, and reimbursement of
expenses, partially offset by lower average occupancies. During 2001, the same
store rent increases on industrial renewals and rollovers (cash basis) was 23.5%
on 10.0 million square feet leased.

The $6.7 million increase in investment management income was due primarily
to increased asset management and acquisition fees and priority distributions
from our co-investment joint ventures. The $9.8 million increase in interest and
other income was primarily due to interest income from our mortgage note on the
retail center that we sold in 2000 and from interest income resulting from
higher average cash balances.

The increase in same store properties' operating expenses primarily relates
to increases in common area maintenance expenses of $2.3 million, real estate
taxes of $2.5 million, and insurance expense of $0.8 million.

21

The increase in interest expense was primarily due to the issuance of
additional unsecured senior debt securities and an increase in secured debt
balances, partially offset by decreased borrowings on our unsecured credit
facility. The secured debt issuances were primarily for our co-investment joint
ventures' properties. The increase in depreciation expense was due to the
increase in our net investment in real estate. The increase in general and
administrative expenses was primarily due to increased personnel and occupancy
costs. In addition, the consolidation of AMB Investment Management, Inc.
(predecessor-in-interest to AMB Capital Partners, LLC) and Headlands Realty
Corporation on May 31, 2001, resulted in an increase in general and
administrative expenses of $4.9 million.

During 2001, we recognized $20.8 million of losses on investments in other
companies, related to our investment in Webvan Group, Inc. and other
technology-related companies. The loss reflects a 100% write-down of the book
value of the investments.

During 2001, we retired $55.2 million of secured debt prior to maturity
primarily in connection with property divestitures and early prepayments. We
recognized a net extraordinary loss of $0.6 million related to the early
retirement of debt, resulting from prepayment penalties, partially offset by the
write-off of debt premiums.

FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 (DOLLARS IN MILLIONS)

The growth in rental revenues in same store properties resulted primarily
from the incremental effect of cash rental rate increases, fixed rent increases
on existing leases, increases in occupancy and reimbursement of expenses,
partially offset by a decrease in straight-line rents. During 2000, the same
store base rents increase on renewals and rollovers (cash basis) was 28.0% on
9.8 million square feet leased.

The $7.0 million increase in investment management and other income was due
primarily to increased acquisition fees from AMB Institutional Alliance Fund I,
L.P., interest income, and development fees.

22

The change in same store properties' operating expenses primarily relates
to increases in real estate taxes of $2.0 million for 2000, partially offset by
decreases in insurance of $0.6 million.

The increase in interest expense was due primarily to the increase in the
outstanding balance under our unsecured credit facility. The increase in
depreciation expense was primarily due to lower than normal depreciation expense
in 1999 and increases in our investments in real estate. Under the required
accounting for assets held for sale, we discontinued depreciation of a
substantial portion of our retail portfolio after we committed to dispose of a
portion of the portfolio in March 1999. The decrease in general and
administrative expenses was due to increased allocations to AMB Investment
Management, Inc. (predecessor-in-interest to AMB Capital Partners, LLC),
partially offset by increased personnel costs.

LIQUIDITY AND CAPITAL RESOURCES

We currently expect that our principal sources of working capital and
funding for acquisitions, development, expansion, and renovation of properties
will include: (1) cash flow from operations; (2) borrowings under our unsecured
credit facility; (3) other forms of secured or unsecured financing; (4) proceeds
from debt or limited partnership unit offerings (including issuances of limited
partnership units by our subsidiaries); and (5) net proceeds from divestitures
of properties. Additionally, we believe that our private capital co-investment
program will also continue to serve as a source of capital for acquisitions and
developments. We believe that our sources of working capital, specifically our
cash flow from operations and borrowings available under our unsecured credit
facility, and our ability to access private and public debt and equity capital,
are adequate for us to meet our liquidity requirements for the foreseeable
future.

CAPITAL RESOURCES

Property Divestitures. In 2001, we divested ourselves of 24 industrial and
two retail buildings for an aggregate price of $193.4 million, with a resulting
net gain of $24.1 million, net of minority interest partners' share.

Properties Held for Divestiture. We have decided to divest ourselves of
three industrial properties and seven retail centers, which are not in our core
markets or which do not meet our strategic objectives. The divestitures of the
properties are subject to negotiation of acceptable terms and other customary
conditions. As of December 31, 2001, the net carrying value of the properties
held for divestiture was $157.2 million.

23

Co-investment Joint Ventures. We consolidate the financial position,
results of operations, and cash flows of our five co-investment joint ventures.
We consolidate these joint ventures for financial reporting purposes because we
are the sole managing general partner and, as a result, control all of the major
operating decisions. Third-party equity interests in the joint ventures are
reflected as minority interests in the consolidated financial statements. As of
December 31, 2001, we owned approximately 26.9 million square feet of our
properties through these entities. We may make additional investments through
these joint ventures or new joint ventures in the future and presently plan to
do so. The inability to obtain new joint venture partners could adversely affect
our financial condition, results of operations, cash flow, and ability to make
distributions to our unitholders and payments to our noteholders.

During 2001, we contributed $539.2 million in operating properties,
consisting of 111 industrial buildings aggregating approximately 10.8 million
square feet, to three of our co-investment joint ventures. We recognized a gain
of $17.8 million related to these contributions, representing the portion of the
contributed properties acquired by the third party co-investors.

We formed AMB Institutional Alliance Fund II, L.P. to acquire, develop, and
redevelop distribution facilities nationwide, in which AMB Institutional
Alliance REIT II, Inc. became a partner on June 28, 2001. As of December 31,
2001, the Alliance Fund II had received total equity commitments from third
party investors of $195.4 million, which, when combined with anticipated debt
financings and our investment, creates a total planned capitalization of $488.6
million. We are the managing general partner of the Alliance Fund II and owned,
as of December 31, 2001, approximately 20% of the co-investment joint venture.

We formed AMB-SGP, L.P. with a subsidiary of GIC Real Estate Pte Ltd., the
real estate investment subsidiary of the Government of Singapore Investment
Corporation, to own and operate, through a private real estate investment trust,
distribution facilities nationwide. On March 23, 2001, AMB-SGP, L.P. received an
equity contribution from GIC of $75.0 million, which, when combined with
anticipated debt financings and our investment, creates a total planned
capitalization of $335.0 million. We are the managing general partner of
AMB-SGP, L.P. and owned, as of December 31, 2001, approximately 50.3% of the
co-investment joint venture.

We formed AMB Partners II, L.P. with the City and County of San Francisco
Employees' Retirement System to acquire, develop, and redevelop distribution
facilities nationwide. On February 14, 2001, Partners II received an equity
contribution from CCSFERS of $50.0 million, which, when combined with
anticipated debt financings and our investment, creates a total planned
capitalization of $250.0 million. We are the managing general partner of
Partners II and owned, as of December 31, 2001, approximately 50% of the
co-investment joint venture.

We, together with one of our affiliates, own, as of December 31, 2001,
approximately 21% of the partnership interests in AMB Institutional Alliance
Fund I, L.P. The Alliance Fund I is a co-investment partnership between us and
AMB Institutional Alliance REIT I, Inc., which includes 15 institutional
investors as stockholders, and is engaged in the acquisition, ownership,
operation, management, renovation, expansion, and development of industrial
buildings in target markets nationwide. As of December 31, 2001, the Alliance
Fund I had received equity contributions from third party investors totaling
$169.0 million, which, when combined with debt financings and our investment,
creates a total capitalization of $378.0 million.

We, together with one of our affiliates, own, as of December 31, 2001,
approximately 50% of the partnership interests in AMB/Erie. L.P. Erie is a
co-investment partnership between us and various entities related to Erie
Indemnity Company, and is engaged in the acquisition, ownership, operation,
management, renovation, expansion, and development of industrial buildings in
target markets nationwide. As of December 31, 2001, Erie had received equity
contributions from third party investors totaling $13.7 million, which, when
combined with debt financings and our investment, created a total capitalization
of $129.0 million.

Credit Facilities. In May 2000, we entered into a $500.0 million unsecured
revolving credit agreement. AMB Property Corporation guarantees our obligations
under the credit facility. The credit facility matures in May 2003, has a
one-year extension option, and is subject to a 15 basis point annual facility
fee, which is based on our credit rating. We have the ability to increase
available borrowings to $700.0 million by adding

24

additional banks to the facility or obtaining the agreement of existing banks to
increase its commitments. We use our unsecured credit facility principally for
acquisitions and for general working capital requirements. Borrowings under our
credit facility currently bear interest at LIBOR plus 75 basis points, which is
based on our credit rating. Increases in interest rates on this indebtedness
could increase our interest expense, which would adversely affect our financial
condition, results of operations, cash flow, and ability to make distributions
to our unitholders and payments to our noteholders. Accordingly, in the future,
we may engage in transactions to limit our exposure to rising interest rates. As
of December 31, 2001, there was an outstanding balance of $12.0 million on our
unsecured credit facility. Monthly debt service payments on our credit facility
are interest only. The total amount available under our credit facility
fluctuates based upon the borrowing base, as defined in the agreement governing
the credit facility. At December 31, 2001, the remaining amount available under
our unsecured credit facility was $488.0 million (excluding the additional
$200.0 million of potential additional capacity).

In July 2001, the Alliance Fund II obtained a $150.0 million credit
facility from Bank of America N.A. Borrowings currently bear interest at LIBOR
plus 87.5 basis points. As of December 31, 2001, the outstanding balance was
$123.5 million and the remaining amount available was $26.5 million. The credit
facility is secured by the unfunded capital commitments of the third party
investors in the Alliance REIT II and the Alliance Fund II.

Equity. In December 2001, AMB Property II, L.P., one of our affiliates,
repurchased all of its outstanding 2,200,000 8.75% Series C Cumulative
Redeemable Preferred Limited Partnership Units from three institutional
investors. The units were redeemed for an aggregate cost of $115.7 million,
including accrued and unpaid dividends totaling $1.3 million and a premium of
$4.4 million. The Series C Preferred Units had a par value of $110.0 million.

In September 2001, we issued and sold 800,000 7.95% Series J Cumulative
Redeemable Preferred Limited Partnership Units at a price of $50.00 per unit in
a private placement. Distributions are cumulative from the date of issuance and
payable quarterly in arrears. The Series J Preferred Units are redeemable by us
on or after September 21, 2006, subject to certain conditions, for cash at a
redemption price equal to $50.00 per unit, plus accumulated and unpaid
distributions thereon, if any, to the redemption date. The Series J Preferred
Units are exchangeable, at specified times and subject to certain conditions, on
a one-for-one basis, for shares of AMB Property Corporation's Series J Preferred
Stock. We used the net proceeds of $38.9 million for general corporate purposes,
which may include the partial repayment of indebtedness or the acquisition or
development of additional properties.

In March 2001, AMB Property II, L.P., one of our affiliates, issued and
sold 510,000 8.00% Series I Cumulative Redeemable Preferred Limited Partnership
Units at a price of $50.00 per unit in a private placement. Distributions are
cumulative from the date of issuance and payable quarterly in arrears at a rate
per unit equal to $4.00 per annum. The Series I Preferred Units are redeemable
by AMB Property II, L.P. on or after March 21, 2006, subject to certain
conditions, for cash at a redemption price equal to $50.00 per unit, plus
accumulated and unpaid distributions thereon, if any, to the redemption date.
The Series I Preferred Units are exchangeable, at specified times and subject to
certain conditions, on a one-for-one basis, for shares of AMB Property
Corporation's Series I Preferred Stock. AMB Property II, L.P. used the net
proceeds of $24.9 million to repay advances from us and to make a loan to us. We
used the funds to partially repay borrowings under its unsecured credit facility
and for general corporate purposes. The loan bears interest at 8.0% per annum
and is payable on demand.

During 2001, we redeemed 223,092 and 635,798 common limited partnership
units for cash and shares of AMB Property Corporation's common stock,
respectively.

AMB Property Corporation's board of directors approved a stock repurchase
program in 1999 for the repurchase of up to $100.0 million worth of its common
stock. During 2001, AMB Property Corporation repurchased 1,392,600 shares of its
common stock at an average purchase price of $23.62 per share under the program.
Under the program to date, AMB Property Corporation has repurchased 2,836,200
shares of its common stock at an average purchase price of $21.22 per share. AMB
Property Corporation's stock repurchase program expired in December 2001. AMB
Property Corporation's board of directors approved a

25

new stock repurchase program for the repurchase of up to $100.0 million worth of
its common stock. The new stock repurchase program expires in December 2003 and
no repurchases were made under the new program in 2001.

Debt. As of December 31, 2001, the aggregate principal amount of our
secured debt was $1.2 billion, excluding unamortized debt premiums of $6.8
million. The secured debt bears interest at rates varying from 4.0% to 10.6% per
annum (with a weighted average rate of 7.3%) and final maturity dates ranging
from February 2002 to June 2023. All of the secured debt bears interest at fixed
rates, except for three loans with an aggregate principal amount of $52.4
million as of December 31, 2001, which bear interest at variable rates (with a
weighted average interest rate of 3.8% at December 31, 2001).

In August 2000, we commenced a medium-term note program for the issuance of
up to $400.0 million in principal amount of medium-term notes, which will be
guaranteed by AMB Property Corporation. As of December 31, 2001, we had issued
$380.0 million of medium-term notes under this program, leaving $20.0 million
available for issuance. However, on January 14, 2002, we issued and sold the
remaining $20.0 million of the notes under this program to Lehman Brothers,
Inc., as principal. AMB Property Corporation has guaranteed the notes, which
mature on January 17, 2007, and bear interest at 5.90% per annum. We used the
net proceeds of $19.9 million for general corporate purposes, to partially repay
indebtedness, and to acquire and develop additional properties. In January 2001,
we issued and sold $25.0 million of the notes under this program to A.G. Edwards
& Sons, Inc., as principal. AMB Property Corporation has guaranteed the notes,
which mature on January 30, 2006, and bear interest at 6.90% per annum. We used
the net proceeds of $24.9 million for general corporate purposes, to partially
repay indebtedness, and to acquire and develop additional properties. In March
2001, we issued and sold $50.0 million of the notes under this program to First
Union Securities, Inc., as principal. AMB Property Corporation has guaranteed
the notes, which mature on March 7, 2011, and bear interest at 7.00% per annum.
We used the net proceeds of $49.7 million for general corporate purposes, to
partially repay indebtedness, and to acquire and develop additional properties.
In September 2001, we issued and sold $25.0 million of the notes under this
program to Lehman Brothers, Inc., as principal. AMB Property Corporation has
guaranteed the notes, which mature on September 6, 2011, and bear interest at
6.75% per annum. We used the net proceeds of $24.8 million for general corporate
purposes and to acquire and develop additional properties.

Mortgage Receivables. In September 2000, we sold our retail center located
in Los Angeles, California. As of December 31, 2001, we carried a 9.50% mortgage
note in the principal amount of $74.0 million on the retail center. The maturity
date of the mortgage note, which was originally scheduled to mature on October
1, 2001, has been extended to September 30, 2002. Through a wholly-owned
subsidiary, we also 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 December 31, 2001, the outstanding balance on the note was $13.2
million.

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 of approximately 45% or less. At
December 31, 2001, our debt-to-total market capitalization ratio was 44.7%.
Additionally, we currently intend to manage our capitalization in order to
maintain an investment grade rating on our senior unsecured debt. In spite of
these policies, our organizational documents do not contain any limitation on
the amount of indebtedness that we may incur. Accordingly, our general partner
could alter or eliminate these policies without unitholder or noteholder
approval or circumstances could arise that could render us unable to comply with
these policies.

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The tables below summarize our debt maturities and capitalization as of
December 31, 2001 (dollars in thousands):

DEBT

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

(1) The 2003 maturity includes a $125.0 million credit facility obtained by the
Alliance Fund II, which we expect to repay with capital contributions and
secured debt proceeds and had an outstanding balance of $123.5 million at
December 31, 2001. We also have a $500.0 million credit facility that had an
outstanding balance of $12.0 million at December 31, 2001.

(2) The weighted average interest and maturity for the unconsolidated joint
venture debt were 6.3% and 7.0 years, respectively.

MARKET CAPITAL

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PREFERRED UNITS

CAPITALIZATION RATIOS

Total debt-to-total market capitalization................... 44.7%
Our share of total debt-to-total market capitalization...... 38.1%
Total debt plus preferred-to-total market capitalization.... 52.6%
Our share of total debt plus preferred-to-total market
capitalization............................................ 46.9%
Our share of total debt-to-total book capitalization........ 44.9%

LIQUIDITY

As of December 31, 2001, we had approximately $81.7 million in cash,
restricted cash, and cash equivalents, and $488.0 million of additional
available borrowings under our credit facility. We also had $26.5 million of
additional available borrowing under our Alliance Fund II credit facility. To
fund acquisitions, development activities, and capital expenditures and to
provide for general working capital requirements, we intend to use: (1) cash
from operations; (2) borrowings under our credit facility; (3) other forms of
secured and unsecured financing; (4) proceeds from any future debt or limited
partnership unit offerings (including issuances of limited partnership units by
our subsidiaries); (5) proceeds from divestitures of properties; and (6) private
capital. The unavailability of capital would adversely affect our financial
condition, results of operations, cash flow, and ability to make distributions
to our unitholders and payments to our noteholders.

We declared a regular cash distribution for the quarter ending December 31,
2001, of $0.395 per common unit. The distributions were payable on December 24,
2001, to unitholders of record on December 14, 2001. The Series A, B, E, F, G,
and J preferred unit distributions were also payable on January 15, 2002, to
unitholders of record on January 4, 2002. The Series D, H, and I preferred unit
distributions were payable on

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December 25, 2001, to unitholders of record on December 10, 2001. The following
table sets forth the distributions for 2001 and 2000:

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

CAPITAL COMMITMENTS

Developments. In addition to recurring capital expenditures, which consist
of building improvements and leasing costs incurred to renew or re-tenant space,
as of December 31, 2001, we are developing 12 projects representing a total
estimated investment of $154.4 million upon completion and two development
projects available for sale representing a total estimated investment of $50.0
million upon completion. Of this total, $127.3 million had been funded as of
December 31, 2001, and an estimated $77.1 million is required to complete
current and planned projects. We expect to fund these expenditures with cash
from operations, borrowings under our credit facility, debt or limited
partnership unit issuances, and net proceeds from property divestitures, which
could have an adverse effect on our cash flow. We may not be able to obtain
financing on favorable terms for development projects and we may not complete
construction on schedule or within budget, resulting in increased debt service
expense and construction costs and delays in leasing such properties and
generating cash flow. This could adversely affect our financial condition,
results of operations, cash flow, and ability to make distributions to our
unitholders and payments to our noteholders. We have no other material capital
commitments.

Acquisitions. During 2001, we invested $428.3 million in 65 operating
industrial buildings, aggregating approximately 6.8 million rentable square
feet. We funded these acquisitions and initiated development and renovation
projects through private capital contributions, borrowings under our credit
facility, cash, debt and limited partnership unit issuances, and net proceeds
from property divestitures.

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Lease Commitments. We have entered into operating ground leases on certain
land parcels with periods up to 40 years and a lease on a building in New York
City. Future minimum rental payments required under non-cancelable operating
leases in effect as of December 31, 2001, were as follows (dollars in
thousands):

2002........................................................ $ 6,823
2003........................................................ 7,720
2004........................................................ 7,921
2005........................................................ 8,159
2006........................................................ 8,480
Thereafter.................................................. 146,335
--------
$185,438
========

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

Captive Insurance Company. We have responded to recent trends towards
increasing costs and decreasing coverage availability in the insurance markets
by obtaining higher-deductible property insurance from third party insurers and
by forming a wholly-owned captive insurance company, Arcata National Insurance
Ltd. in December 2001. Arcata will generally provide insurance coverage for
losses below the increased deductible under the third party policies. Premiums
paid to Arcata have a retrospective component, so that if expenses, including
losses, are less than premiums collected, the excess will be returned to the
property owners (and, in turn, as appropriate, to the customers) and conversely,
if expenses, including losses, are greater than premiums collected, an
additional premium, not in excess of the difference, will be charged. Through
this structure, we believe that we have been able to obtain insurance for our
portfolio with more comprehensive coverage at a projected overall lower cost
than would otherwise be available in the market.

Potential Unknown Liabilities. Unknown liabilities may include the
following: (1) liabilities for clean-up or remediation of undisclosed
environmental conditions; (2) 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; (3) accrued but unpaid
liabilities incurred in the ordinary course of business; (4) tax liabilities;
and (5) claims for indemnification by the officers and directors of our general
partner's predecessors and others indemnified by these entities.

FUNDS FROM OPERATIONS

We believe that funds from operations, or FFO, as defined by the National
Association of Real Estate Investment Trusts, is an appropriate measure of
performance for a real estate investment trust, such as AMB Property
Corporation, our general partner. While funds from operations 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
generally accepted accounting principles in the United States and it should not
be considered as an alternative to those indicators in evaluating liquidity or
operating performance. Further, funds from operations as disclosed by other real
estate investment trusts may not be comparable.

FFO is defined as income from operations before minority interest, gains or
losses from sale of real estate, and extraordinary items plus real estate
depreciation and adjustment to derive our pro rata share of FFO of
unconsolidated joint ventures, less minority interests' pro rata share of FFO of
consolidated joint ventures and perpetual preferred unit distributions. In
accordance with the NAREIT White Paper on funds from operations, we include the
effects of straight-line rents in funds from operations. Further, we do not
adjust FFO to eliminate the effects of non-recurring charges.

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The following table reflects the calculation of funds from operations for
the years ended December 31, (dollars in thousands):

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

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

(2) Represents FFO attributable to minority interests in consolidated joint
ventures whose interests are not exchangeable into common stock of AMB
Property Corporation. The minority interests' share of net operating income
for the years ended December 31, 2001, 2000, and 1999, was $65.0 million,
$25.0 million, and $12.5 million, respectively.

(3) Our share of net operating income for years ended December 31, 2001, 2000,
and 1999, was $10.2 million, $8.3 million, and $8.0 million, respectively.

BUSINESS RISKS

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

GENERAL REAL ESTATE RISKS

THERE ARE FACTORS OUTSIDE OF OUR CONTROL THAT AFFECT THE PERFORMANCE AND VALUE
OF OUR PROPERTIES

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

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

WE MAY BE UNABLE TO RENEW LEASES OR RELET SPACE AS LEASES EXPIRE

We are subject to the risks that leases may not be renewed, space may not
be relet, or the terms of renewal or reletting (including the cost of required
renovations) may be less favorable than current lease terms. Leases on a total
of 14.9% of our industrial properties (based on annualized base rent) as of
December 31, 2001, will expire on or prior to December 31, 2002. In addition,
numerous properties compete with our properties in attracting customers to lease
space, particularly with respect to retail centers. The number of competitive
commercial properties in a particular area could have a material adverse effect
on our ability to lease space in our properties and on the rents that we are
able to charge. Our financial condition, results of operations, cash flow, and
our ability to make distributions to our unitholders and payments to our
noteholders could be adversely affected if we are unable to promptly relet or
renew the leases for all or a substantial portion of expiring leases, if the
rental rates upon renewal or reletting is significantly lower than expected, or
if our reserves for these purposes prove inadequate.

REAL ESTATE INVESTMENTS ARE ILLIQUID

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

A SIGNIFICANT NUMBER OF OUR PROPERTIES ARE LOCATED IN CALIFORNIA

Our industrial properties located in California as of December 31, 2001,
represented approximately 28.7% of the aggregate square footage of our
industrial operating properties as of December 31, 2001, and 35.9% of our
annualized base rent. Annualized base rent means the monthly contractual amount
under existing leases as of December 31, 2001, multiplied by 12. This amount
excludes expense reimbursements and rental abatements. Our revenue from, and the
value of, our properties located in California may be affected by a number of
factors, including local real estate conditions (such as oversupply of or
reduced demand for industrial properties) and the local economic climate.
Business layoffs, downsizing, industry slowdowns, changing demographics, and
other factors may adversely impact the local economic climate. A downturn in
either the California economy or in California real estate conditions could
adversely affect our financial condition, results of operations, cash flow, and
our ability to make distributions to our unitholders and payments to our
noteholders. Certain of our properties are also subject to possible loss from
seismic activity.

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SOME POTENTIAL LOSSES ARE NOT COVERED BY INSURANCE

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

A number of our properties are located in areas that are known to be
subject to earthquake activity, including California where, as of December 31,
2001, 291 industrial buildings aggregating approximately 23.4 million square
feet (representing 28.7% of our industrial operating properties based on
aggregate square footage and 35.9% based on annualized base rent) are located.
We carry replacement cost earthquake insurance on all of our properties located
in areas historically subject to seismic activity, subject to coverage
limitations and deductibles that we believe are commercially reasonable. This
insurance coverage also applies to the properties managed by AMB Capital
Partners, LLC, with a single aggregate policy limit and deductible applicable to
those properties and our properties. Through an annual analysis prepared by
outside consultants, we evaluate our earthquake insurance coverage in light of
current industry practice and determine the appropriate amount of earthquake
insurance to carry. We may incur material losses in excess of insurance proceeds
and we may not be able to continue to obtain insurance at commercially
reasonable rates.

WE ARE SUBJECT TO RISKS AND LIABILITIES IN CONNECTION WITH PROPERTIES OWNED
THROUGH JOINT VENTURES, LIMITED LIABILITY COMPANIES, AND PARTNERSHIPS

As of December 31, 2001, we had ownership interests in several joint
ventures, limited liability companies, or partnerships with third parties, as
well as interests in three unconsolidated entities. As of December 31, 2001, we
owned approximately 34.1 million square feet (excluding three unconsolidated
joint ventures) of our properties through these entities. We may make additional
investments through these ventures in the future and presently plan to do so.
Such partners may share certain approval rights over major decisions.
Partnership, limited liability company, or joint venture investments may involve
risks such as the following: (1) our partners, co-members, or joint venturers
might become bankrupt (in which event we and any other remaining general
partners, members, or joint venturers would generally remain liable for the
liabilities of the partnership, limited liability company, or joint venture);
(2) our partners, co-members, or joint venturers might at any time have economic
or other business interests or goals that are inconsistent with our business
interests or goals; (3) our partners, co-members, or joint venturers may be in a
position to take action contrary to our instructions, requests, policies, or
objectives; and (4) agreements governing joint ventures, limited liability
companies, and partnerships often contain restrictions on the transfer of a
joint venturer's, member's, or partner's interest or "buy-sell" or other
provisions, which may result in a purchase or sale of the interest at a
disadvantageous time or on disadvantageous terms.

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

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WE MAY BE UNABLE TO CONSUMMATE ACQUISITIONS ON ADVANTAGEOUS TERMS

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

WE MAY BE UNABLE TO COMPLETE RENOVATION AND DEVELOPMENT ON ADVANTAGEOUS TERMS

The real estate development business, including the renovation and
rehabilitation of existing properties, involves significant risks. These risks
include the following: (1) we may not be able to obtain financing on favorable
terms for development projects and we may not complete construction on schedule
or within budget, resulting in increased debt service expense and construction
costs and delays in leasing such properties and generating cash flow; (2) we may
not be able to obtain, or we may experience delays in obtaining, all necessary
zoning, land-use, building, occupancy, and other required governmental permits
and authorizations; (3) new or renovated properties may perform below
anticipated levels, producing cash flow below budgeted amounts; (4) substantial
renovation as well as new development activities, regardless of whether or not
they are ultimately successful, typically require a substantial portion of
management's time and attention that could divert management's time from our
day-to-day operations; and (5) activities that we finance through construction
loans involve the risk that, upon completion of construction, we may not be able
to obtain permanent financing or we may not be able to obtain permanent
financing on advantageous terms. These risks could adversely affect our
financial condition, results of operations, cash flow, and ability to make
distributions to our unitholders and payments to our noteholders.

WE MAY BE UNABLE TO COMPLETE DIVESTITURES ON ADVANTAGEOUS TERMS

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

DEBT FINANCING

WE COULD INCUR MORE DEBT

We operate with a policy of incurring debt, either directly or through our
subsidiaries, only if upon such incurrence our debt-to-total market
capitalization ratio would be approximately 45% or less. The aggregate amount of
indebtedness that we may incur under our policy varies directly with the
valuation of AMB Property Corporation's capital stock and the number of shares
of capital stock and common limited partnership units outstanding. Accordingly,
we would be able to incur additional indebtedness under our policy

34

as a result of increases in the market price per share of AMB Property
Corporation's common stock or other outstanding classes of capital stock, and
future issuance of shares of AMB Property Corporation's capital stock. However,
our organizational documents do not contain any limitation on the amount of
indebtedness that we may incur. Accordingly, AMB Property Corporation, as our
general partner, could alter or eliminate this policy without unitholder or
noteholder consent. If we change this policy, then we could become more highly
leveraged, resulting in an increase in debt service that could adversely affect
our financial condition, results of operations, cash flow, and ability to make
distributions to our unitholders and payments to our noteholders.

SCHEDULED DEBT PAYMENTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION

We are subject to risks normally associated with debt financing, including
the risks that cash flow will be insufficient to make distributions to our
unitholders and payments to our noteholders, that we will be unable to refinance
existing indebtedness on our properties (which in all cases will not have been
fully amortized at maturity) and that the terms of refinancing will not be as
favorable as the terms of existing indebtedness. As of December 31, 2001, we had
total debt outstanding of approximately $2.1 billion.

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

RISING INTEREST RATES COULD ADVERSELY AFFECT OUR CASH FLOW

As of December 31, 2001, we had $123.5 million outstanding under our
Alliance Fund II secured credit facility, $12.0 million outstanding under our
unsecured credit facility, and we had four secured loans with an aggregate
principal amount of $52.4 million, which bear interest at variable rates (with
weighted average interest rate of 3.8% as of December 31, 2001). In addition, we
may incur other variable rate indebtedness in the future. Increases in interest
rates on this indebtedness could increase our interest expense, which would
adversely affect our financial condition, results of operations, cash flow, and
ability to make distributions to our unitholders and payments to our
noteholders. Accordingly, in the future, we may engage in transactions to limit
our exposure to rising interest rates.

WE ARE DEPENDENT ON EXTERNAL SOURCES OF CAPITAL

In order for our general partner, AMB Property Corporation, to qualify as a
real estate investment trust under the Internal Revenue Code, we are required
each year to make distributions to enable our general partner to distribute to
its stockholders at least 90% of its real estate investment trust taxable income
(determined without regard to the dividends-paid deduction and by excluding any
net capital gain) and it is subject to tax on its income to the extent it is not
distributed. Because of this distribution requirement, we may not be able to
fund all future capital needs, including capital needs in connection with
acquisitions, from cash retained from operations. As a result, to fund capital
needs, we rely on third party sources of capital, which we may not be able to
obtain on favorable terms or at all. Our access to third party sources of
capital depends upon a number of factors, including: (1) general market
conditions; (2) the market's perception of our growth potential; (3) our current
and potential future earnings and cash distributions; and (4) the market price
of AMB Property Corporation's capital stock. Additional debt financing may
substantially increase our debt-to-total capitalization ratio.

35

WE COULD DEFAULT ON CROSS-COLLATERALIZED AND CROSS-DEFAULTED DEBT

As of December 31, 2001, we had 22 non-recourse secured loans, which are
cross collateralized by 48 properties. As of December 31, 2001, we had $551.9
million (not including unamortized debt premium) outstanding on these loans. If
we default on any of these loans, then we could be required to repay the
aggregate of all indebtedness, together with applicable prepayment charges, to
avoid foreclosure on all the cross-collateralized properties within the
applicable pool. Foreclosure on our properties, or our inability to refinance
our loans on favorable terms, could adversely impact our financial condition,
results of operations, cash flow, and ability to make distributions to our
unitholders and payments to our noteholders. In addition, our credit facilities
and senior debt securities contain certain cross-default provisions, which are
triggered in the event that our other material indebtedness is in default. These
cross-default provisions may require us to repay or restructure our credit
facilities and the senior debt securities in addition to any mortgage or other
debt that is in default, which could adversely affect our financial condition,
results of operations, cash flow, and ability to make distributions to our
unitholders and payments to our noteholders.

CONTINGENT OR UNKNOWN LIABILITIES COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION

Our predecessors have been in existence for varying lengths of time up to
18 years. At the time of our formation we acquired the assets of these entities
subject to all of their potential existing liabilities. There may be current
liabilities or future liabilities arising from prior activities that we are not
aware of and therefore have not disclosed in this report. AMB Property
Corporation assumed these liabilities as the surviving entity in the various
merger and contribution transactions that occurred at the time of its formation.
Existing liabilities for indebtedness generally were taken into account in
connection with the allocation of our limited partnership units or shares of AMB
Property Corporation's common stock in the formation transactions, but no other
liabilities were taken into account for these purposes. We do not have recourse
against AMB Property Corporation's predecessors or any of their respective
stockholders or partners or against any individual account investors with
respect to any unknown liabilities. Unknown liabilities might include the
following: (1) liabilities for clean-up or remediation of undisclosed
environmental conditions; (2) claims of customers, vendors, or other persons
dealing with AMB Property Corporation's predecessors prior to the formation
transactions that had not been asserted prior to the formation transactions; (3)
accrued but unpaid liabilities incurred in the ordinary course of business; (4)
tax liabilities; and (5) claims for indemnification by the officers and
directors of AMB Property Corporation's predecessors and others indemnified by
these entities.

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

OUR ACCESS TO TIMELY FINANCIAL REPORTING AND TO CAPITAL MARKETS MAY BE IMPAIRED
IF ARTHUR ANDERSEN LLP IS UNABLE TO PERFORM REQUIRED AUDIT-RELATED SERVICES

On March 14, 2002, our independent public accountant, Arthur Andersen LLP,
was indicted on federal obstruction of justice charges arising from the U.S.
government's investigation of Enron Corporation. Arthur Andersen LLP has
indicated that it intends to contest vigorously the indictment. The Securities
and Exchange Commission has said that it will continue accepting financial
statements audited by Arthur Andersen LLP, and interim financial statements
reviewed by it, so long as Arthur Andersen LLP is able to make certain
representations to its clients. Our access to the capital markets and our
ability to make timely filings with the Securities and Exchange Commission could
be impaired if the Securities and Exchange Commission ceases accepting financial
statements audited by Arthur Andersen LLP, if Arthur Andersen LLP becomes unable
to make the required representations to us or if for any other reason Arthur
Andersen LLP is unable to perform required audit-related services for us.
However, we believe that our sources of working capital, specifically our

36

cash flow from operations and borrowings available under our unsecured credit
facility, are adequate for us to meet our liquidity requirements for the
foreseeable future.

CONFLICTS OF INTEREST

SOME OF AMB PROPERTY CORPORATION'S DIRECTORS AND EXECUTIVE OFFICERS ARE
INVOLVED IN OTHER REAL ESTATE ACTIVITIES AND INVESTMENTS

Some of AMB Property Corporation's executive officers own interests in real
estate-related businesses and investments. These interests include minority
ownership of Institutional Housing Partners, L.P., a residential housing finance
company, and ownership of Aspire Development, Inc. and Aspire Development, L.P.,
developers that own property not suitable for ownership by us. Aspire
Development, Inc. and Aspire Development, L.P. have agreed not to initiate any
new development projects not contemplated at AMB Property Corporation's initial
public offering in November 1997. These entities have also agreed that they will
not make any further investments in industrial properties other than those
currently under development at the time of AMB Property Corporation's initial
public offering. The continued involvement in other real estate-related
activities by some of AMB Property Corporation's executive officers and
directors could divert management's attention from our day-to-day operations.
Most of AMB Property Corporation's executive officers have entered into
non-competition agreements with AMB Property Corporation pursuant to which they
have agreed not to engage in any activities, directly or indirectly, in respect
of commercial real estate, and not to make any investment in respect of
industrial real estate, other than through ownership of not more than 5% of the
outstanding shares of a public company engaged in such activities or through the
existing investments referred to in this report. State law may limit our ability
to enforce these agreements.

CERTAIN OF AMB PROPERTY CORPORATION'S EXECUTIVE OFFICERS AND DIRECTORS MAY
HAVE CONFLICTS OF INTEREST WITH US IN CONNECTION WITH OTHER PROPERTIES THAT
THEY OWN OR CONTROL

As of December 31, 2001, Aspire Development, L.P. owns interests in three
retail development projects in the U.S., one of which is a single freestanding
Walgreens drugstore and two of which are Walgreens drugstores plus shop
buildings, which are less than 10,000 feet. In addition, Messrs. Moghadam and
Burke, each a founder and director of AMB Property Corporation, own less than 1%
interests in two partnerships that own office buildings in various markets;
these interests have negligible value. Luis A. Belmonte, an executive officer of
AMB Property Corporation, owns less than a 10% interest, representing an
estimated value of $150,000, in a limited partnership, which owns an office
building located in Oakland, California.

In addition, several of AMB Property Corporation's executive officers
individually own: (1) less than 1% interests in the stocks of certain
publicly-traded real estate investment trusts; (2) certain interests in and
rights to developed and undeveloped real property located outside the United
States; and (3) certain other de minimus holdings in equity securities of real
estate companies.

Thomas W. Tusher, a member of AMB Property Corporation's board of
directors, is a limited partner in a partnership in which Messrs. Moghadam and
Burke are general partners and which owns a 75% interest in an office building.
Mr. Tusher owns a 20% interest in the partnership, valued at approximately $1.7
million. Messrs. Moghadam and Burke each have a 26.7% interest in the
partnership, each valued at approximately $2.2 million.

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

37

AMB PROPERTY CORPORATION'S DUTY TO ITS STOCKHOLDERS MAY CONFLICT WITH THE
INTERESTS OF OUR LIMITED PARTNERS AND NOTEHOLDERS

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

AMB PROPERTY CORPORATION'S DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT
STOCKHOLDERS COULD ACT IN A MANNER THAT IS NOT IN THE BEST INTEREST OF OUR
LIMITED PARTNERS OR NOTEHOLDERS

As of March 20, 2002, we believe that AMB Property Corporation's two
largest stockholders, Cohen & Steers Capital Management, Inc. (with respect to
various client accounts for which Cohen & Steers Capital Management, Inc. serves
as investment advisor) and ABP Investments U.S. (with respect to various client
accounts for which ABP Investments U.S. serves as investment advisor)
beneficially owned 14.0% of AMB Property Corporation's outstanding common stock.
In addition, AMB Property Corporation's executive officers and directors
beneficially owned 4.3% of AMB Property Corporation's outstanding common stock
as of March 20, 2002, and will have influence on AMB Property Corporation's and
our management and operation and, as stockholders, will have influence on the
outcome of any matters submitted to a vote of AMB Property Corporation's
stockholders. This influence might be exercised in a manner that is inconsistent
with the interests of our limited partners and noteholders. Although there is no
understanding or arrangement for these directors, officers, and stockholders and
their affiliates to act in concert, these parties would be in a position to
exercise significant influence over AMB Property Corporation's and our affairs
if they choose to do so.

GOVERNMENT REGULATIONS

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

COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT

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

WE COULD ENCOUNTER ENVIRONMENTAL PROBLEMS

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

Environmental laws also govern the presence, maintenance, and removal of
asbestos. These laws require that owners or operators of buildings containing
asbestos properly manage and maintain the asbestos, that they adequately inform
or train those who may come into contact with asbestos, and that they undertake
special precautions, including removal or other abatement in the event that
asbestos is disturbed during renovation or
38

demolition of a building. These laws may impose fines and penalties on building
owners or operators for failing to comply with these requirements and may allow
third parties to seek recovery from owners or operators for personal injury
associated with exposure to asbestos fibers. Some of our properties may contain
asbestos-containing building materials.

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

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

None of the environmental assessments of our properties has revealed any
environmental liability that we believe would have a material adverse effect on
our financial condition or results of operations taken as a whole. Furthermore,
we are not aware of any such material environmental liability. Nonetheless, it
is possible that the assessments do not reveal all environmental liabilities and
that there are material environmental liabilities of which we are unaware or
that known environmental conditions may give rise to liabilities that are
materially greater than anticipated. Moreover, the current environmental
condition of our properties may be affected by customers, the condition of land,
operations in the vicinity of the properties (such as releases from underground
storage tanks), or by third parties unrelated to us. If the costs of compliance
with existing or future environmental laws and regulations exceed our budgets
for these items, then our financial condition, results of operations, cash flow,
and ability to make distributions to our unitholders and payments to our
noteholders could be adversely affected.

OUR FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED IF WE FAIL TO COMPLY WITH
OTHER REGULATIONS

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

39

CERTAIN PROPERTY TRANSFERS MAY GENERATE PROHIBITED TRANSACTION INCOME

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

WE ARE DEPENDENT ON OUR GENERAL PARTNER'S KEY PERSONNEL

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

WE MAY BE UNABLE TO MANAGE OUR GROWTH

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

WE MAY BE UNABLE TO EFFECTIVELY MANAGE OUR INTERNATIONAL GROWTH

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

ITEM 7A. QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss from adverse changes in market prices and
interest rates. Our future earnings and cash flows are dependent upon prevalent
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: (1)
interest rate fluctuations in connection with our credit facilities and other
variable rate borrowings; and (2) our ability to

40

incur more debt without unitholder or noteholder approval, thereby increasing
our debt service obligations, which could adversely affect our cash flows. As of
December 31, 2001, we had no interest rate caps or swaps. See "Item 7:
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Capital Resources -- Market
Capitalization."

The table below summarizes the market risks associated with our fixed and
variable rated debt outstanding before unamortized debt premiums of $6.8 million
as of December 31, 2001:

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

(1) Represents 91.2% of all outstanding debt.

(2) Represents 8.9% of all outstanding debt.

If market rates of interest on our variable rate debt increased by 10% (or
30 basis points), then the increase in interest expense on the variable rate
debt would be $0.6 million annually.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See "Item 14. Exhibits, Financial Statement Schedules, and Reports of Form
8-K."

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEMS 10, 11, 12 AND 13.

DIRECTORS AND EXECUTIVE OFFICERS OF AMB PROPERTY L.P., EXECUTIVE COMPENSATION,
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 10, Item 11, Item 12, and Item 13 will be
contained in a definitive proxy statement for AMB Property Corporation's Annual
Meeting of Stockholders which we anticipate will be filed no later than 120 days
after the end of our fiscal year pursuant to Regulation 14A and accordingly
these items have been omitted in accordance with General Instruction G(3) to
Form 10-K.

41

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) and (2) Financial Statements and Schedules:

The following consolidated financial information is included as a separate
section of this report on Form 10-K.

All other schedules are omitted since the required information is not
present in amounts sufficient to require submission of the schedule or because
the information required is included in the financial statements and notes
thereto.

(a)(3) Exhibits:

(b) Reports on Form 8-K:

- AMB Property, L.P. filed a Current Report on Form 8-K on October 3, 2001,
in connection with the issuance and sale by AMB Property, L.P. of 800,000
7.95% Series J Cumulative Redeemable Preferred Limited Partnership Units
and the filing by AMB Property Corporation Articles Supplementary
establishing and fixing the rights and preferences of the 7.95% Series J
Cumulative Redeemable Preferred Stock.

- AMB Property, L.P. filed a Current Report on Form 8-K on December 7,
2001, in connection with the repurchase and redemption of all its
outstanding 8.75% Series C Cumulative Redeemable Preferred Limited
Partnership Units.

- AMB Property, L.P. filed a Current Report on Form 8-K on January 23,
2002, in connection with its issuance of $20.0 million of senior
unsecured notes by AMB Property, L.P. under its medium-term note program.

(c) Exhibits:

See Item 14(a)(3) above.

(d) Financial Statement Schedules:

See Item 14(a)(1) and (2) above.

45

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, AMB Property L.P. has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on March 27, 2002.

AMB PROPERTY L.P.
By AMB Property Corporation
Its General Partner

By: /s/ HAMID R. MOGHADAM
--------------------------------------
Hamid R. Moghadam
Chairman of the Board and
Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of AMB Property Corporation, the general partner of AMB Property,
L.P., hereby severally constitute Hamid R. Moghadam, W. Blake Baird, David S.
Fries, and Michael A. Coke, and each of them singly, our true and lawful
attorneys with full power to them, and each of them singly, to sign for us and
in our names in the capacities indicated below, the Form 10-K filed herewith and
any and all amendments to said Form 10-K, and generally to do all such things in
our names and in our capacities as officers and directors of the general partner
of AMB Property, L.P. to enable AMB Property, L.P. to comply with the provisions
of the Securities Exchange Act of 1934, and all requirements of the Securities
and Exchange Commission, hereby ratifying and confirming our signatures as they
may be signed by our said attorneys, or any of them, to said Form 10-K and any
and all amendments thereto.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of AMB Property
Corporation and in the capacities and on the dates indicated.

47

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
of AMB Property Corporation:

We have audited the accompanying consolidated balance sheets of AMB
Property, L.P. (a Delaware limited partnership) and subsidiaries as of December
31, 2001 and 2000, and the related consolidated statements of operations,
partners' capital, and cash flows for each of the three years in the period
ended December 31, 2001. These consolidated financial statements and the
schedule referred to below are the responsibility of the Operating Partnership's
management. Our responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AMB Property, L.P. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule III, Real
Estate and Accumulated Depreciation is presented for purposes of complying with
the Securities and Exchange Commission's rules and are not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

ARTHUR ANDERSEN LLP

San Francisco, California
January 22, 2002

F-1

AMB PROPERTY, L.P.

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2001 AND 2000

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

F-2

AMB PROPERTY, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999

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

F-3

AMB PROPERTY, L.P.

CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999

The accompanying notes are an integral part of these consolidated financial
statements.
F-4

AMB PROPERTY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999

The accompanying notes are an integral part of these consolidated financial
statements.
F-5

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND 2000

1. ORGANIZATION AND FORMATION OF THE OPERATING PARTNERSHIP

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

As of December 31, 2001, the Company owned an approximate 94.4% general
partner interest in the Operating Partnership, excluding preferred units. The
remaining 5.6% limited partner interest is owned by non-affiliated investors and
certain current and former directors and officers of the Company. For local law
purposes, certain properties are owned through limited partnerships and limited
liability companies. The ownership of such properties through such entities does
not materially affect the Operating Partnership's overall ownership interests in
the properties. As the sole general partner of the Operating Partnership, the
Company has full, exclusive, and complete responsibility and discretion in the
day-to-day management and control of the Operating Partnership. Net operating
results of the Operating Partnership are allocated after preferred unit
distributions based on the respective partners' ownership interests.

The Operating Partnership enters into co-investment joint ventures with
institutional investors. See note 10. These co-investment joint ventures provide
the Operating Partnership with an additional source of capital to fund certain
acquisitions and development and renovation projects. As of December 31, 2001,
the Operating Partnership had investments in five co-investment joint ventures,
which are consolidated for financial reporting purposes.

AMB Capital Partners, LLC, a Delaware limited liability company ("AMB
Capital Partners"), the predecessor-in-interest to AMB Investment Management,
Inc. ("AMB Investment Management"), provides real estate investment services to
clients on a fee basis. Headlands Realty Corporation, a Maryland corporation,
conducts a variety of businesses that include incremental income programs, such
as the Operating Partnership's CustomerAssist Program and development projects
available for sale to third parties. On December 31, 2001, AMB Investment
Management was reorganized through a series of related transactions into AMB
Capital Partners. The Operating Partnership is the managing member of AMB
Capital Partners. On May 31, 2001, the Operating Partnership acquired 100% of
the common stock of AMB Investment Management and Headlands Realty Corporation
from current and former executive officers of the Company, a former executive
officer of AMB Investment Management, and a director of Headlands Realty
Corporation, thereby acquiring 100% of both entities' capital stock. The
Operating Partnership began consolidating its investments in AMB Investment
Management and Headlands Realty Corporation on May 31, 2001. Prior to May 31,
2001, the Operating Partnership reflected its investment using the equity
method. The impact of consolidating AMB Investment Management and Headlands
Realty Corporation was not material.

As of December 31, 2001, the Operating Partnership owned 905 industrial
buildings and seven retail centers, located in 26 markets throughout the United
States (unaudited). The Operating Partnership's strategy is to become a leading
provider of High Throughput Distribution, or HTD, properties in supply-
constrained, in fill submarkets located near key international passenger and
cargo airports, highway systems, and sea ports in major metropolitan areas, such
as Atlanta, Chicago, Dallas/Fort Worth, Northern New Jersey/New York City, the
San Francisco Bay Area, Southern California, Miami, and Seattle. As of
F-6

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 2001, the industrial buildings, principally warehouse distribution
buildings, encompassed approximately 81.6 million rentable square feet and were
94.5% leased to over 2,900 customers (unaudited). As of December 31, 2001, the
retail centers, principally grocer-anchored community shopping centers,
encompassed approximately 1.3 million rentable square feet and were 89.3% leased
to more than 160 customers (unaudited).

As of December 31, 2001, through AMB Capital Partners, the Operating
Partnership also managed industrial buildings and retail centers, totaling
approximately 2.7 million rentable square feet on behalf of various clients
(unaudited). In addition, the Operating
Partnership has invested in industrial buildings, totaling approximately 4.9
million rentable square feet, through unconsolidated joint ventures (unaudited).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Generally Accepted Accounting Principles. These consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States. 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.

Principles of Consolidation. The accompanying consolidated financial
statements include the financial position, results of operations, and cash flows
of the Operating Partnership, its wholly-owned qualified REIT subsidiaries, and
joint ventures (the "Joint Ventures"), in which the Operating Partnership has a
controlling interest. Third-party equity interests in the Operating Partnership
and the Joint Ventures are reflected as minority interests in the consolidated
financial statements. The Operating Partnership also has three non-controlling
limited partnership interests in three separate unconsolidated real estate joint
ventures, which are accounted for under the equity method. All significant
intercompany amounts have been eliminated.

Investments in Real Estate. Investments in real estate are stated at cost
unless circumstances indicate that cost cannot be recovered, in which case, the
carrying value of the property is reduced to estimated fair value. Carrying
values for financial reporting purposes are reviewed for impairment on a
property-by-property basis whenever events or changes in circumstances indicate
that the carrying value of a property may not be recoverable. Impairment is
recognized when estimated expected future cash flows (undiscounted and without
interest charges) are less than the carrying 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 income and is included with
gains from disposition of real estate, net on the consolidated statements of
operations. The Operating Partnership evaluated its properties held for
divestiture and operating properties for impairment and reduced their carrying
value by $18.6 million and $5.9 million in 2001 and 2000, respectively. The
management of the Operating Partnership believes that there are no additional
impairments of the carrying values of its investments in real estate at December
31, 2001.

F-7

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Depreciation and amortization are calculated using the straight-line method
over the estimated useful lives of the real estate investments. The estimated
lives and components of depreciation and amortization expense for the years
ended December 31, are as follows (dollars in thousands):

The cost of buildings and improvements includes the purchase price of the
property or interest in property, including legal fees and acquisition costs.
Project costs directly associated with the development and construction of a
real estate project, which include interest and property taxes, are capitalized
as construction in progress. Capitalized interest related to construction
projects for the years ended December 31, 2001, 2000, and 1999, was $13.7
million, $15.5 million, and $10.9 million, respectively.

Expenditures for maintenance and repairs are charged to operations as
incurred. Maintenance expenditures include planned major maintenance activities
such as painting, paving, HVAC, and roofing repair costs. The Operating
Partnership expenses costs as incurred and does not accrue in advance of planned
major maintenance activities. Significant renovations or betterments that extend
the economic useful life of assets are capitalized.

Reverse Exchanges. Reverse exchanges represent loan agreements with third
parties, whereby the Operating Partnership loans substantially all funds to the
third party to acquire a real estate investment that we intend to acquire in a
Section 1031 exchange. The loan is secured by the real estate investment and
title is held by the third party. Upon acquisition of the property by the third
party, the Operating Partnership records the asset as an investment in real
estate and records the rental income and expenses associated with the property
as the Operating Partnership retains the risk of loss and the benefits of the
asset. At December 31, 2001, the Operating Partnership had one property in a
reverse exchange valued at $10.9 million.

Concentration of Credit Risk. Other real estate companies compete with the
Operating Partnership in its real estate markets. This results in competition
for customers to occupy space. The existence of competing properties could have
a material impact on the Operating Partnership's ability to lease space and on
the amount of rent received. As of December 31, 2001, the Operating Partnership
did not have any single tenant that accounted for greater than 1.3% of rental
revenues.

Cash and Cash Equivalents. Cash and cash equivalents include cash held in
financial institutions and other highly liquid short-term investments with
original maturities of three months or less.

Restricted Cash. Restricted cash includes cash held in escrow in
connection with property purchases, exchange funds, and capital improvements.

F-8

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Accounts Receivable. Accounts receivable includes all current accounts
receivable, other accruals, and deferred rent receivable of $37.9 million and
$28.0 million at December 31, 2001 and 2000, respectively.

Deferred Financing Costs. Costs incurred in connection with financings are
capitalized and amortized to interest expense using the effective-interest
method over the term of the related loan. As of December 31, 2001 and 2000,
deferred financing costs were $17.5 million and $10.7 million, respectively, net
of accumulated amortization of $8.5 million and $4.7 million, respectively. Such
amounts are included in other assets on the accompanying consolidated balance
sheets.

Investments in Other Companies. Investments in other companies were
accounted for on a cost basis and realized gains and losses were included in
current earnings. For its investments in private companies, the Operating
Partnership periodically reviewed its investments and management determined if
the value of such investments had been permanently impaired. During 2001, the
Operating Partnership recognized losses on its investments in other companies
totaling $20.8 million, including its investment in Webvan Group, Inc. The
Operating Partnership had previously recognized gains and losses on its
investment in Webvan Group, Inc. as a component of other comprehensive income.
As of December 31, 2001, the Operating Partnership had realized a loss on 100%
of its investments in other companies.

Debt Premiums. Debt premiums represent the excess of the fair value of
debt over the principal value of debt assumed in connection with the Operating
Partnership's initial public offering and subsequent acquisitions. The debt
premiums are being amortized into interest expense over the term of the related
debt instrument using the effective interest method. As of December 31, 2001 and
2000, the net unamortized debt premium was $6.8 million and $9.9 million,
respectively, and are included as a component of secured debt on the
accompanying consolidated balance sheets.

Rental Revenues. The Operating Partnership, as a lessor, retains
substantially all of the benefits and risks of ownership of the properties and
accounts for its leases as operating leases. Rental income is recognized on a
straight-line basis over the term of the leases. Reimbursements from customers
for real estate taxes and other recoverable operating expenses are recognized as
revenue in the period the applicable expenses are incurred. Differences between
estimated and actual amounts are recognized in the subsequent year. In addition,
the Operating Partnership nets its bad debt expense against rental income for
financial reporting purposes.

Investment Management Income. Investment management income consists
primarily of asset management fees and acquisition and disposition fees earned
by AMB Capital Partners from joint ventures and clients. Investment management
income also includes priority distributions from the Operating Partnership's
co-investment joint ventures of $2.3 million in 2001.

Interest and Other Income. Interest and other income consists primarily of
interest income from mortgages receivable and on cash and cash equivalents.

Comprehensive Income. Comprehensive income consists of net income and
unrealized gains and losses on certain investments in equity securities and is
presented in the consolidated statements of partners' capital.

Derivatives. The Operating Partnership adopted FASB Statement No. 133 on
derivatives on January 1, 2001. The adoption did not impact its financial
position or results of operations as the Operating Partnership does not utilize
derivative instruments in its operations. FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by Statement No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities,
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The Statement, as amended, requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met.

F-9

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Reclassifications. Certain items in the consolidated financial statements
for prior periods have been reclassified to conform with current classifications
with no effect on results of operations.

3. TRANSACTIONS WITH AFFILIATES

Prior to January 1, 2002, the Operating Partnership and AMB Capital
Partners had an agreement that allowed for the sharing of certain costs and
employees. Additionally, the Operating Partnership provided AMB Capital Partners
with certain acquisition-related services. For the years ended December 31,
2001, 2000, and 1999, the Operating Partnership allocated $3.2 million, $2.8
million, and $2.7 million, respectively, for shared costs to AMB Capital
Partners.

The Operating Partnership and AMB Capital Partners share common office
space under lease obligations. Such lease obligations are charged to the
Operating Partnership and AMB Capital Partners at cost. For the years ended
December 31, 2001, 2000, and 1999, the Operating Partnership paid $0.9 million,
$1.4 million, and $1.3 million, respectively, for occupancy costs related to the
lease obligations of the affiliate.

As of May 31, 2001, the Operating Partnership held all of the outstanding
capital stock of AMB Investment Management, Inc., the predecessor-in-interest to
AMB Capital Partners, LLC. On December 31, 2001, AMB Investment Management was
reorganized through a series of related transactions into AMB Capital Partners.
On May 31, 2001, the Operating Partnership acquired 100% of the common stock of
AMB Investment Management from current and former executive officers of the
Operating Partnership and a former executive officer of AMB Investment
Management, thereby owning 100% of the entities' capital stock, for $0.3
million. The Operating Partnership began consolidating its investment in AMB
Investment Management on May 31, 2001. Prior to May 31, 2001, the Operating
Partnership owned 100% of AMB Investment Management's non-voting preferred stock
(representing a 95% economic interest therein) and reflected its investment
using the equity method.

4. REAL ESTATE ACQUISITION AND DEVELOPMENT ACTIVITY (SQUARE FOOTAGE INFORMATION
IS UNAUDITED)

During 2001, the Operating Partnership invested $428.3 million in operating
properties, consisting of 65 industrial buildings aggregating approximately 6.8
million square feet, which included the investment of $219.5 million in 36
industrial buildings aggregating approximately 3.8 million square feet through
three of the Operating Partnership's co-investment joint ventures.

During 2001, the Operating Partnership also contributed operating
properties valued at $539.2 million, consisting of 111 industrial buildings
aggregating approximately 10.8 million square feet, to three of its
co-investment joint ventures. The properties contributed to the co-investment
joint ventures were reflected at the Operating Partnership's historical cost
because the Operating Partnership controls these joint ventures and, therefore,
they were under common control. The Operating Partnership recognized a gain of
$17.8 million related to these contributions representing the portion of the
contributed properties acquired by the third party co-investors.

During 2001, the Operating Partnership completed industrial and retail
developments valued at $148.0 million and $73.9 million, respectively,
aggregating approximately 2.3 million and $0.4 million square feet,
respectively. The Operating Partnership also initiated new industrial
development projects valued at $9.7 million aggregating approximately 0.2
million square feet.

As of December 31, 2001, the Operating Partnership had in its development
pipeline: (1) 12 industrial projects, which will total approximately 3.1 million
square feet and have an aggregate estimated investment by the Operating
Partnership and, in certain instances, the Operating Partnership's co-investors
of $154.4 million upon completion; and (2) two development projects available
for sale, which will total approximately 0.6 million square feet and have an
aggregate estimated investment of $50.0 million upon completion. As of December
31, 2001, the Operating Partnership and its Development Alliance Partners have
funded an
F-10

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

aggregate of $127.3 million and will need to fund an estimated additional $77.1
million in order to complete current and planned projects.

During 2000, the Operating Partnership invested $730.0 million in operating
properties, consisting of 145 industrial buildings aggregating approximately
10.5 million square feet. Of this, $185.6 million was acquired by the Alliance
Fund I, consisting of 44 industrial buildings, aggregating approximately 2.6
million square feet. The Operating Partnership also initiated 17 new development
projects, aggregating approximately 4.5 million square feet, with a total
estimated cost of $224.0 million upon completion. In 2000, the Operating
Partnership also completed 12 development projects, aggregating approximately
3.1 million square feet, at a total aggregate cost of $144.3 million.

5. PROPERTY DIVESTITURES AND PROPERTIES HELD FOR DIVESTITURE

Property Divestitures. During 2001, the Operating Partnership divested
itself of 24 industrial and two retail buildings, aggregating approximately 3.2
million square feet (unaudited), for an aggregate price of $193.4 million, with
a resulting net gain of $24.1 million, which is net of minority interests'
share. The resulting net gain is before impairment charges of $18.6 million and
the gain on the Operating Partnership's contributed properties of $17.8 million.

During 2000, the Operating Partnership divested itself of 25 industrial
buildings and one retail center, aggregating approximately 2.5 million square
feet (unaudited), for an aggregate price of $175.7 million, with a resulting net
gain of $7.0 million. The resulting net gain is before impairment charges of
$5.9 million. The retail center was located in Los Angeles, California,
aggregated approximately 0.4 million square feet, and sold for $89.0 million.
The Operating Partnership carries a 9.5% mortgage note in the principal amount
of $74.0 million on the retail center sale. The mortgage note matures in
September 2002.

Properties Held for Divestiture. The Operating Partnership has decided to
divest itself of seven retail centers and three industrial properties, which are
not in its core markets or which do not meet its strategic objectives. The
divestitures of the properties are subject to negotiation of acceptable terms
and other customary conditions. Properties held for divestiture are stated at
the lower of cost or estimated fair value less costs to sell.

The following summarizes the condensed results of operations of the
properties held for divestiture for the years ended December 31, (dollars in
thousands):

6. MORTGAGES RECEIVABLE

In September 2000, the Operating Partnership sold a retail center located
in Los Angeles, California. As of December 31, 2001, the Operating Partnership
carried a 9.5% mortgage note in the principal amount of $74.0 million on the
retail center. The maturity date of the mortgage note was extended to September
30, 2002. During 2001, the Operating Partnership renegotiated this mortgage and
received a $5.0 million pay-down on the principal balance and increased the
interest rate to 9.5% from 8.75%. The Operating Partnership

F-11

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

has a first lien against the retail center as collateral for the mortgage note
and believes that the underlying value of the retail center is equal to or
greater than the fair value of the mortgage note.

Through a wholly-owned subsidiary, the Operating Partnership also holds a
mortgage loan receivable on AMB Pier One, LLC, an unconsolidated joint venture.
The note bears interest at 13.0% and matures in May 2026. As of December 31,
2001, the outstanding balance on the note was $13.2 million.

7. DEBT

Debt consisted of the following, as of December 31, (dollars in thousands):

Secured debt generally requires monthly principal and interest payments.
The secured debt is secured by deeds of trust on certain properties. As of
December 31, 2001 and 2000, the total gross investment book value of those
properties securing the debt was $2.3 billion and $2.0 billion, respectively,
including $1.2 billion and $0.7 billion, respectively, in joint ventures. All of
the secured debt bears interest at fixed rates, except for three loans with an
aggregate principal amount of $52.4 million as of December 31, 2001, and two
loans with an aggregate principal amount of $29.8 million as of December 31,
2000, which bear interest at variable rates (weighted average interest rate of
3.8% as of December 31, 2001). The secured debt has various financial and
non-financial covenants. Management believes that the Operating Partnership was
in material compliance with these covenants as of December 31, 2001 and 2000. As
of December 31, 2001, the Operating Partnership had 22 non-recourse secured
loans, which are cross collateralized by 48 properties. As of December 31, 2001,
the Operating Partnership had $551.9 million (not including unamortized debt
premiums) outstanding on these loans. As of December 31, 2001 and 2000, the
estimated fair value of the OP and joint venture secured debt was $1.2 billion
and $1.0 billion, respectively.

Interest on the senior debt securities is payable semi-annually. The 2015
notes are putable and callable in June 2005. The senior debt securities are
subject to various financial and non-financial covenants. Management believes
that the Operating Partnership was in material compliance with these covenants
at December 31, 2001 and 2000. As of December 31, 2001 and 2000, the estimated
fair value of the unsecured senior debt was $802.4 million and $689.4 million,
respectively.

In August 2000, the Operating Partnership commenced a medium-term note
program for the issuance of up to $400.0 million in principal amount of
medium-term notes, which will be guaranteed by the Company.
F-12

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 2001, the Operating Partnership had issued $380.0 million of
medium-term notes under this program, leaving $20.0 million available for
issuance. However, on January 14, 2002, the Operating Partnership issued and
sold the remaining $20.0 million of the notes under this program to Lehman
Brothers, Inc., as principal. The Company has guaranteed the notes, which mature
on January 17, 2007, and bear interest at 5.90% per annum. The Operating
Partnership used the net proceeds of $19.9 million for general corporate
purposes, to partially repay indebtedness, and to acquire and develop additional
properties. In September 2001, the Operating Partnership issued and sold $25.0
million of the notes under this program to Lehman Brothers Inc., as principal.
The Company guaranteed the notes, which mature on September 6, 2011, and bear
interest at 6.75%. The Operating Partnership used the net proceeds of $24.8
million for general corporate purposes, to partially repay indebtedness, and to
acquire and develop additional properties. In March 2001, the Operating
Partnership issued and sold $50.0 million of the notes under this program to
First Union Securities, Inc., as principal. The Company guaranteed the notes,
which mature on March 7, 2011, and bear interest at 7.00%. The Operating
Partnership used the net proceeds of $49.7 million for general corporate
purposes, to partially repay indebtedness, and to acquire and develop additional
properties. The notes have various financial and non-financial covenants. In
January 2001, the Operating Partnership issued and sold $25.0 million of the
notes under this program to A.G. Edwards & Sons, Inc., as principal. The Company
guaranteed the notes, which mature on January 30, 2006, and bear interest at
6.90%. The Operating Partnership used the net proceeds of $24.9 million for
general corporate purposes, to partially repay indebtedness, and to acquire and
develop additional properties. Management believes that the Operating
Partnership was in material compliance with these covenants at December 31,
2001.

In May 2000, the Operating Partnership entered into a $500.0 million
unsecured revolving credit agreement. The Company guarantees the Operating
Partnership's obligations under the credit facility. The credit facility matures
in May 2003, has a one-year extension option, and is subject to a 15 basis point
annual facility fee based on the Company's credit rating. The credit facility
has various financial and non-financial covenants. Management believes that the
Operating Partnership was in material compliance with these covenants at
December 31, 2001. The Operating Partnership has the ability to increase
available borrowings to $700.0 million by adding additional banks to the
facility or obtaining the agreement of existing banks to increase their
commitments. Monthly debt service payments on the credit facility are interest
only. The total amount available under the credit facility fluctuates based upon
the borrowing base, as defined in the agreement governing the credit facility.
As of December 31, 2001, the remaining amount available under the credit
facility was $488.0 million (excluding the additional $200.0 million of
potential additional capacity).

In July 2001, AMB Institutional Alliance Fund II, L.P. ("Alliance Fund II")
obtained a $150.0 million credit facility from Bank of America, N.A. Borrowings
currently bear interest at LIBOR plus 87.5 basis points. The credit facility is
secured by the unfunded capital commitments of the third party investors in AMB
Institutional Alliance REIT II, Inc. ("Alliance REIT II") and the Alliance Fund
II. As of December 31, 2001, the outstanding balance was $123.5 million and the
remaining amount available was $26.5 million. The credit facility has various
financial and non-financial covenants. Management believes that the Operating
Partnership was in material compliance with these covenants at December 31,
2001.

During 2001, the Operating Partnership retired $55.2 million of secured
debt prior to maturity. The Operating Partnership recognized a net extraordinary
loss of $0.6 million related to the early debt retirement.

F-13

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 2001, the scheduled maturities of the Operating
Partnership's total debt, excluding unamortized debt premiums, were as follows
(dollars in thousands):

8. LEASING ACTIVITY

Future minimum rental income due under noncancelable leases with customers
in effect as of December 31, 2001, is as follows (dollars in thousands)

2002........................................................ $ 493,020
2003........................................................ 436,519
2004........................................................ 345,816
2005........................................................ 251,224
2006........................................................ 179,831
Thereafter.................................................. 509,636
----------
Total..................................................... $2,216,046
==========

The schedule does not reflect future rental revenues from the renewal or
replacement of existing leases and excludes property operating expense
reimbursements.

In addition to minimum rental payments, certain customers pay
reimbursements for their pro rata share of specified operating expenses, which
amounted to $116.7 million, $77.9 million, and $81.1 million for the years ended
December 31, 2001, 2000, and 1999, respectively. These amounts are included as
rental income and operating expenses in the accompanying consolidated statements
of operations. Certain of the leases also provide for the payment of additional
rent based on a percentage of the tenant's revenues. For the years ended
December 31, 2001, 2000, and 1999, the Operating Partnership recognized
percentage rent revenues related to its retail properties of $0.5 million, $0.8
million, and $2.0 million, respectively. Some leases contain options to renew.

F-14

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. INCOME TAXES

As a partnership, the allocated share of income of the Operating
Partnership is included in the income tax returns of the partners. Accordingly,
no accounting for income taxes is required in the accompanying consolidated
financial statements. State and local taxes are not material.

The following reconciles net income available to common unitholders to
taxable income available to common unitholders for the years ended December 31,
(dollars in thousands):

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

(1) Primarily due to straight-line rent, prepaid rent, and debt premium
amortization timing differences.

10. MINORITY INTERESTS

Minority interests in the Operating Partnership represent interests held by
certain third parties in several real estate joint ventures, aggregating
approximately 28.7 million square feet (unaudited), which are consolidated for
financial reporting purposes (unaudited). Such investments are consolidated
because: (1) the Operating Partnership owns a majority interest; or (2) the
Operating Partnership exercises significant control over major operating
decisions such as approval of budgets, selection of property managers, and
changes in financing.

The Operating Partnership, together with one of its affiliates, owned, as
of December 31, 2001, approximately 21% of the partnership interests in AMB
Institutional Alliance Fund I, L.P. ("Alliance Fund I"). The Alliance Fund I is
a co-investment partnership between the Operating Partnership and AMB
Institutional Alliance REIT I, Inc. ("Alliance REIT I"), which includes 15
institutional investors as stockholders, and is engaged in the acquisition,
ownership, operation, management, renovation, expansion, and development of
primarily industrial buildings in target markets nationwide. As of December 31,
2001, the Alliance Fund I had received equity contributions from third party
investors totaling $169.0 million, which, when combined with debt financings and
the Operating Partnership's investment, creates a total capitalization of $378.0
million. The Operating Partnership is the managing general partner of the
Alliance Fund I.

The Operating Partnership formed AMB Partners II, L.P. ("Partners II") with
the City and County of San Francisco Employees' Retirement System ("CCSFERS") to
acquire, manage, develop, and redevelop distribution facilities nationwide. On
February 14, 2001, Partners II received an equity contribution from CCSFERS of
$50.0 million, which, when combined with anticipated debt financings and the
Operating Partnership's investment, creates a total planned capitalization of
$250.0 million. The Operating Partnership is the managing general partner of
Partners II and owned, as of December 31, 2001, approximately 50% of Partners
II.

The Operating Partnership formed AMB-SGP, L.P. ("AMB-SGP") with a
subsidiary of GIC Real Estate Pte Ltd., the real estate investment subsidiary of
the Government of Singapore Investment Corporation ("GIC"), to own and operate,
through a private real estate investment trust, distribution facilities
nationwide. On March 23, 2001, AMB-SGP received an equity contribution from GIC
of $75.0 million, which, when combined with anticipated debt financings and the
Operating Partnership's investment in properties, creates a

F-15

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

total planned capitalization of $335.0 million. The Operating Partnership is the
managing general partner of AMB-SGP and owned, as of December 31, 2001,
approximately 50.3% of AMB-SGP.

The Operating Partnership formed the Alliance Fund II, in which the
Alliance REIT II became a partner on June 28, 2001. The Operating Partnership
owns, as of December 31, 2001, approximately 20% of the partnership interests in
the Alliance Fund II. The Alliance Fund II is a co-investment partnership
between the Operating Partnership and the Alliance REIT II. The Alliance REIT II
included 14 institutional investors as stockholders as of December 31, 2001. The
Alliance Fund II is engaged in the acquisition, ownership, operation,
management, renovation, expansion, and development of primarily industrial
buildings in target markets nationwide. As of December 31, 2001, the Alliance
Fund II had received equity commitments from third party investors of $195.4
million, which, when combined with anticipated debt financings and the Operating
Partnership's investment, creates a total planned capitalization of $488.6
million. The Operating Partnership is the managing general partner of the
Alliance Fund II.

The following table distinguishes the minority interest liability and the
minority interests' share of net income (dollars in thousands):

11. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

The Operating Partnership has non-controlling limited partnership interests
in three separate unconsolidated joint ventures. The Operating Partnership
accounts for the joint ventures using the equity method of accounting. Under the
agreements governing the joint ventures, the Operating Partnership and the other
party 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 has a 56.1% interest in a joint
venture, which owns an aggregate of 36 industrial buildings totaling
approximately 4.0 million square feet. The Operating Partnership also has a 50%
interest in each of two other operating and development alliance joint ventures.
The Operating Partnership's net equity investment in these joint ventures is
shown as Investment in unconsolidated joint ventures on the accompanying
consolidated balance sheets. For the years

F-16

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ended December 31, 2001, 2000, and 1999, the Operating Partnership's share of
net operating income was $10.2 million, $8.3 million, and $8.0 million,
respectively.

12. PARTNERS' CAPITAL

On December 5, 2001, AMB Property II, L.P. ("AMB Property II"), one of the
Operating Partnership's subsidiaries, repurchased all of its 2,200,000 8.75%
Series C Cumulative Redeemable Preferred Limited Partnership Units from three
institutional investors. The Series C Preferred Units were redeemed for an
aggregate cost of $115.7 million, including accrued and unpaid dividends
totaling $1.3 million and a premium of $4.4 million that is reflected in the
accompanying consolidated statements of operations. The Series C Preferred Units
had a par value of $110.0 million.

On September 21, 2001, the Operating Partnership issued and sold 800,000
7.95% Series J Cumulative Redeemable Preferred Limited Partnership Units at a
price of $50.00 per unit in a private placement. Distributions are cumulative
from the date of issuance and payable quarterly in arrears. The Series J
Preferred Units are redeemable by the Operating Partnership on or after
September 21, 2006, subject to certain conditions, for cash at a redemption
price equal to $50.00 per unit, plus accumulated and unpaid distributions
thereon, if any, to the redemption date. The Series J Preferred Units are
exchangeable, at specified times and subject to certain conditions, on a
one-for-one basis, for shares of the Company's Series J Preferred Stock. The
Operating Partnership used the net proceeds of $38.9 million for general
corporate purposes, which may include the partial repayment of indebtedness or
the acquisition or development of additional properties.

On March 21, 2001, AMB Property II issued and sold 510,000 8.00% Series I
Cumulative Redeemable Preferred Limited Partnership Units at a price of $50.00
per unit in a private placement. Distributions are cumulative from the date of
issuance and payable quarterly in arrears at a rate per unit equal to $4.00 per
annum. The Series I Preferred Units are redeemable by AMB Property II on or
after March 21, 2006, subject to certain conditions, for cash at a redemption
price equal to $50.00 per unit, plus accumulated and unpaid distributions
thereon, if any, to the redemption date. The Series I Preferred Units are
exchangeable, at specified times and subject to certain conditions, on a
one-for-one basis, for shares of the Company's Series I Preferred Stock. AMB
Property II used the net proceeds of $24.9 million to repay advances from the
Operating Partnership and to make a loan to the Operating Partnership. The
Operating Partnership used the funds to partially repay borrowings under its
unsecured credit facility and for general corporate purposes. The loan bears
interest at 8.0% per annum and is payable on demand.

During 2001, the Operating Partnership redeemed 223,092 and 635,798 common
limited partnership units of the Operating Partnership for cash and shares of
the Company's common stock, respectively. Holders of common limited partnership
units of the Operating Partnership have the right, commencing generally on or
after the first anniversary of the holder becoming a limited partner of the
Operating Partnership (or such other date agreed to by the Operating Partnership
and the applicable unit holders), to require the Operating Partnership to redeem
part or all of their common units for cash (based upon the fair market value of
an equivalent number of shares of common stock at the time of redemption) or the
Operating Partnership may, in its sole and absolute discretion (subject to the
limits on ownership and transfer of common stock set forth in the Company's
charter) elect to have the Company exchange those common units for shares of the
Company's common stock on a one-for-one basis, subject to adjustment in the
event of stock splits, stock dividends, issuance of certain rights, certain
extraordinary distributions and similar events. The Operating Partnership
presently anticipates that it will generally elect to have the Company issue
shares of the Company's common stock in exchange for common units in connection
with a redemption request; however, the Operating Partnership has paid cash, and
may in the future pay cash, for a redemption of common units. With each
redemption or exchange, the Company's percentage ownership in the Operating
Partnership will increase. Common limited partners may exercise this redemption
right from time to time, in whole or in part, subject to the limitations that
limited partners may not exercise the right set forth in the Company's charter
if

F-17

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

such exercise would result in any person actually or constructively owning
shares of common stock in excess of the ownership limit or any other amount
specified by the board of directors, assuming common stock was issued in the
exchange.

The Company's board of directors approved a stock repurchase program in
1999 for the repurchase of up to $100.0 million worth of common stock. During
2001, the Company repurchased 1,392,600 shares of its common stock at an average
purchase price of $23.62 per share under this program. Through December 31,
2001, the Company has repurchased 2,836,200 shares of its common stock at an
average purchase price of $21.22 per share and the Operating Partnership retired
the same number of common general partnership units. During 2000, the Company
did not repurchase any shares of its common stock. The Company's stock
repurchase program expired in December 2001. The Company's board of directors
approved a new stock repurchase program for the repurchase of up to $100.0
million worth of common stock. The new stock repurchase program expires in
December 2003 and no repurchases were made under the new program in 2001.

The following table sets forth the dividend payments per share or unit for
the years ended December 31:

13. STOCK INCENTIVE PLAN, 401(K) PLAN, AND DEFERRED COMPENSATION PLAN

Stock Incentive Plan. In November 1997, the Company established a Stock
Option and Incentive Plan (the "Stock Incentive Plan") for the purpose of
attracting and retaining eligible officers, directors, and employees. The
Company has reserved for issuance 8,950,000 shares of Common Stock under the
Stock Incentive Plan. As of December 31, 2001, the Company had 7,437,219
non-qualified options outstanding granted to certain directors, officers, and
employees. Each option is exchangeable for one share of the Company's Common
Stock. The options have a weighted average exercise price of $22.16 and the
exercise prices range from $18.94 to $26.53. Each option's exercise price is
equal to the Company's market price on the date of grant. The options had an
original ten-year term and generally vest pro rata in annual installments over a
three- or four-year period from the date of grant.

The Operating Partnership applies APB Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations in accounting for its Stock
Incentive Plan. Opinion 25 measures compensation cost using the intrinsic value
based method of accounting. Under this method, compensation cost is the excess,
if any, of the quoted market price of the stock at the date of grant over the
amount an employee must pay to acquire the stock. Accordingly, no compensation
cost has been recognized for the Company's Stock Incentive Plan as of December
31, 2001.

As permitted by SFAS No. 123, "Accounting for Stock-based Compensation,"
the Operating Partnership has not changed the method of accounting for stock
options but has provided the additional required

F-18

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

disclosures. Had compensation cost for the Operating Partnership's stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the method of SFAS No. 123, the
Operating Partnership's pro forma net income available to common unitholders
would have been reduced by $3.9 million, $2.7 million, and $3.2 million and pro
forma basic and diluted earnings per unit would have been reduced to $1.44 and
$1.42, and $1.32 and $1.31, and $1.92 and $1.92, respectively, for the years
ended December 31, 2001, 2000, and 1999.

The fair value of each option grant was estimated at the date of grant
using the Black-Scholes option-pricing model with the following assumptions used
for grants in 2001, 2000, and 1999: respectively; dividend yields of 6.4%, 6.5%,
and 7.2%; expected volatility of 14.9%, 13.3%, and 18.5%; risk-free interest
rates of 5.2%, 6.1%, and 5.4%; and expected lives of 10 years for each year.

Following is a summary of the option activity for the years ended December
31 (options in thousands):

In 2001, 2000, and 1999, under the Stock Incentive Plan, the Company issued
238,790, 162,229, and 100,000 restricted shares, respectively, to certain
officers of the Company as part of the performance pay program and in connection
with employment with the Company. As of December 31, 2001, 2,732 shares of
restricted stock have been forfeited. The 547,006 outstanding restricted shares
are subject to repurchase rights, which generally lapse over a period from three
to five years.

401(k) Plan. In November 1997, the Operating Partnership established a
Section 401(k) Savings/ Retirement Plan (the "401(k) Plan"), which is a
continuation of the 401(k) Plan of the predecessor, to cover eligible employees
of the Operating Partnership and any designated affiliates. During 2001 and
2000, the 401(k) Plan permitted eligible employees of the Operating Partnership
to defer up to 20% of their annual compensation, subject to certain limitations
imposed by the Code. The employees' elective deferrals are immediately vested
and non-forfeitable upon contribution to the 401(k) Plan. During 2001 and 2000,
the Operating Partnership matched the employee contributions to the 401(k) Plan
in an amount equal to 50% of

F-19

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the first 5.5% of annual compensation deferred by each employee. The Operating
Partnership may also make discretionary contributions to the 401(k) Plan. In
2001 and 2000, the Operating Partnership paid $0.3 million and $0.3 million,
respectively, for its 401(k) match.

Deferred Compensation Plan. Effective September 1, 1999, the Operating
Partnership established a non-qualified deferred compensation plan for officers
of the Company and certain of its affiliates. As of January 1, 2002, the plan
enables participants to defer income up to 100% of annual base pay and up to
100% of annual bonuses on a pre-tax basis. The Operating Partnership may make
discretionary matching contributions to participant accounts at any time. The
Operating Partnership made no such discretionary matching contributions in 2001,
2000, or 1999. The participant's elective deferrals and any matching
contributions are immediately 100% vested. As of December 31, 2001 and 2000, the
total amount of compensation deferred was $1.7 million and $1.0 million,
respectively.

14. INCOME PER UNIT

The Operating Partnership's only dilutive securities outstanding for the
years ended December 31, 2001, 2000, and 1999 were stock options and restricted
stock granted by the Company under its stock incentive plan. The effect on
income per unit was to increase weighted average units outstanding. Such
dilution was computed using the treasury stock method.

15. COMMITMENTS AND CONTINGENCIES

COMMITMENTS

Lease Commitments. The Operating Partnership has entered into operating
ground leases on certain land parcels with periods up to 40 years and a lease on
a building in New York City. Future minimum rental payments required under
non-cancelable operating leases in effect as of December 31, 2001, were as
follows (dollars in thousands):

2002........................................................ $ 6,823
2003........................................................ 7,720
2004........................................................ 7,921
2005........................................................ 8,159
2006........................................................ 8,480
Thereafter.................................................. 146,335
--------
Total lease commitments................................... $185,438
========

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

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. In management's opinion, the liabilities, if
any, that may ultimately result from such legal actions are not expected to have
a material

F-20

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

adverse effect on the consolidated financial position, results of operations, or
cash flows of the Operating Partnership.

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

General Uninsured Losses. The Operating Partnership carries property and
rental loss, liability, flood, and environmental insurance. The Operating
Partnership believes that the policy terms and conditions, limits, and
deductibles are adequate and appropriate under the circumstances, given the
relative risk of loss, the cost of such coverage, and industry practice. In
addition, certain of the Operating Partnership's properties are located in areas
that are subject to earthquake activity; therefore, the Operating Partnership
has obtained limited earthquake insurance on those properties. There are,
however, certain types of extraordinary losses that may be either uninsurable or
not economically insurable. Should an uninsured loss occur, the Operating
Partnership could lose its investment in, and anticipated profits and cash flows
from, a property.

Captive Insurance Company. The Operating Partnership has responded to
recent trends towards increasing costs and decreasing coverage availability in
the insurance markets by obtaining higher-deductible property insurance from
third party insurers and by forming a wholly-owned captive insurance company,
Arcata National Insurance Ltd. ("Arcata") in December 2001. Arcata will
generally provide insurance coverage for losses below the increased deductible
under the third party policies. Premiums paid to Arcata have a retrospective
component, so that if expenses, including losses, are less than premiums
collected, the excess will be returned to the property owners (and, in turn, as
appropriate, to the customers) and conversely, if expenses, including losses,
are greater than premiums collected, an additional premium, not in excess of the
difference, will be charged. Through this structure, The Operating Partnership
believes that it will be able to obtain insurance for its portfolio with more
comprehensive coverage at a projected overall lower cost than would otherwise be
available in the market.

F-21

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected quarterly financial data for 2001 and 2000 is as follows:

F-22

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

(1) Certain reclassifications have been made to the quarterly data to conform
with the annual presentation with no net effect to net income or per share
amounts.

(2) The sum of quarterly financial data may vary from the annual data due to
rounding.

17. SEGMENT INFORMATION

The Operating Partnership operates industrial and retail properties
nationwide and manages its business both by property type and by market.
Industrial properties 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. As of December 31, 2001, the Operating Partnership operated
industrial properties in eight hub and gateway markets in addition to 18 other
markets nationwide. As of December 31, 2001, the Operating Partnership operated
retail properties in Miami, Atlanta, Chicago, the San Francisco Bay Area,
Boston, and Baltimore. The Operating Partnership does not separately report its
retail operations by market. Retail properties are generally leased to one or
more anchor customers, such as grocery and drug stores, and various retail
businesses. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Operating
Partnership evaluates performance based upon property net operating income of
the combined properties in each segment. The

F-23

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Operating Partnership's geographic markets for industrial properties are managed
separately because each market requires different operating, pricing, and
leasing strategies.

During the first quarter of 2001, the Operating Partnership split its
industrial segment into geographic hub and gateway markets and other markets.
Within the hub and gateway market categorization, the Operating Partnership
operates in eight major U.S. markets. The other industrial markets category
captures all of the Operating Partnership's other smaller markets nationwide.
The 2000 and 1999 rental revenue and net operating income disclosure below has
been restated to reflect this change. Summary information for the reportable
segments is as follows (dollars in thousands):

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

(1) Excludes straight-line rents of $10.1 million, $10.2 million, and $10.8
million for the years ended December 31, 2001, 2000, and 1999, respectively.

(2) Property net operating income (NOI) is defined as rental revenue, including
reimbursements and excluding straight-line rents, less property level
operating expenses, which excludes depreciation, amortization, general and
administrative expenses, and interest expense.

F-24

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

(1) Excludes net properties held for divestiture of $157.2 million and $197.1
million, respectively.

The Operating Partnership uses property net operating income as an
operating performance measure. The following table reconciles total reportable
segment revenue and property net operating income to rental revenues and income
before minority interests and net gains from disposition of real estate (dollars
in thousands):

F-25

AMB PROPERTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

18. NEW ACCOUNTING PRONOUNCEMENTS

In June and August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards Nos. 143, Accounting for Asset
Retirement Obligations, and 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. Under FASB Statement No. 143, the fair value of a liability
for an asset retirement obligation must be recognized in the period in which it
is incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. FASB Statement No. 144 retains FASB Statement No. 121's,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, fundamental provisions for the: (1) recognition and measurement
of impairment of long-lived assets to be held and used; and (2) measurement of
long-lived assets to be disposed of by sale. The Operating Partnership does not
believe that either FASB Statement No. 143 or No. 144 will have a material
impact on its financial position or results of operations. FASB Statement No.
143 is effective for fiscal years beginning after June 15, 2002, and FASB
Statement No. 144 is effective for fiscal years beginning after December 15,
2001.

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Nos. 141, Business Combinations, and 142,
Goodwill and Other Intangible Assets. Under FASB Statement No. 141, business
combinations initiated after June 30, 2001, must use the purchase method of
accounting. The pooling of interest method of accounting is prohibited. Under
FASB Statement No. 142, intangible assets acquired in a business combination
must be recorded separately from goodwill if they arise from contractual or
other legal right or are separable from the acquired entity and can be sold,
transferred, licensed, rented, or exchanged, regardless of the acquirer's intent
to do so. The Operating Partnership does not believe that either FASB Statement
No. 141 or No. 142 will have a material impact on its financial position or
results of operations. FASB Statement No. 141 was effective for business
combinations initiated after July 1, 2001, and FASB Statement No. 142 is
effective for fiscal years beginning after December 15, 2001.

F-26

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2001

S-1

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
AS OF DECEMBER 31, 2001

S-2

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
AS OF DECEMBER 31, 2001

S-3

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
AS OF DECEMBER 31, 2001

S-4

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
AS OF DECEMBER 31, 2001

S-5

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
AS OF DECEMBER 31, 2001

S-6

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
AS OF DECEMBER 31, 2001

S-7

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
AS OF DECEMBER 31, 2001

S-8

(1) Reconciliation of total cost to consolidated balance sheet caption as of
December 31, 2001:

Total per Schedule III(3)................................... $4,349,532
Construction in process(4).................................. 181,179
----------
Total investments in properties........................... $4,530,711
==========

(2) As of December 31, 2001, the aggregate cost for federal income tax purposes
of investments in real estate was $4,092,163.

(3) A summary of activity for real estate and accumulated depreciation for the
year ended December 31, 2001, is as follows:

Investment in Real Estate:
Balance at beginning of year.............................. $3,748,862
Acquisition of properties................................. 411,932
Improvements, including properties under
development/redevelopment.............................. 309,325
Consolidation of Headlands Realty......................... 40,001
Divestiture of properties................................. (194,427)
Adjustment for properties held for divestiture............ 33,839
----------
Balance at end of year.................................... $4,349,532
==========
Accumulated Depreciation:
Balance at beginning of year.............................. $ 177,467
Depreciation expense...................................... 109,383
Adjustment for properties divested........................ (12,737)
Adjustment for contributed properties..................... (20,992)
Adjustment for properties held for divestiture............ 8,029
Consolidation of Headlands Realty......................... 203
Asset impairment.......................................... 4,300
----------
Balance at end of year.................................... $ 265,653
==========

(4) Includes $127.3 million of fundings for development projects as of December
31, 2001.

S-9

EXHIBIT INDEX