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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-K


     
(Mark One)
   
þ
  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
 
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-13545


AMB Property Corporation

(Exact name of Registrant as specified in its charter)
     
Maryland
  94-3281941
(State or Other Jurisdiction of
Incorporation or Organization)
  (IRS Employer Identification No.)
 
Pier 1, Bay 1, San Francisco, California
  94111
(Address of Principal Executive Offices)   (Zip Code)
(415) 394-9000
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

     
Common Stock, $.01 par value
8 1/2% Series A Cumulative
Redeemable Preferred Stock
(Title of Class)
  New York Stock Exchange
(Name of Exchange on Which Registered)

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 þ          No o

      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.     o

      The aggregate market value of common shares held by non-affiliates of the registrant (based upon the closing sale price on the New York Stock Exchange) on March 20, 2002, was $2,312,576,459.

      As of March 20, 2002, there were 84,063,121 shares of the Registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      Part III incorporates by reference the Registrant’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.




TABLE OF CONTENTS

PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market For Registrant’s Common Equity and Related Shareholder Matters
Item 6. Selected Financial and Other Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
For the Years Ended December 31, 2000 and 1999
Item 7a. Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
Items 10, 11, 12 and 13.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
First Amendment to the Fifth Amended and Restated
First Amendment to Tenth Amended and Restated
Third Amended and Restated 1997 Stock Option
Amendment No. 1 to the Third Amended and Restated
2002 Stock Option and Incentive Plan
Second Amendment to Tenth Amended and Restated
Exhibit 10.26
Subsidiaries of AMB Property Corporation
Consent of Arthur Andersen LLP
Letter, dated March 28, 2002,


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PART I

 
Item 1. Business

General

      AMB Property Corporation, a Maryland corporation, 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.

      Through our subsidiary, AMB Property, L.P., a Delaware limited partnership, we are engaged in the acquisition, ownership, operation, management, renovation, expansion, and development of primarily industrial properties in target markets nationwide. We refer to AMB Property, L.P. as the “operating partnership”. As of December 31, 2001, we owned an approximate 94.4% general partnership interest in the operating partnership, excluding preferred units. As the sole general partner of the operating partnership, we have the full, exclusive, and complete responsibility and discretion in the day-to-day management and control of the operating partnership.

      We are self-administered and self-managed and expect that we have 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. As a self-administered and self-managed real estate investment trust, our own employees perform our administrative and management functions, rather than our 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 Corporation, the operating partnership and the other controlled subsidiaries, and the references to AMB Property Corporation include the operating partnership and the other controlled subsidiaries. The following marks are our registered trademarks: AMB®; Customer Alliance Partners®; Customer Alliance Program®;

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Development Alliance Partners®; Development Alliance Program®; eSpace®; Institutional Alliance Partners®; Institutional Alliance Program®; Management Alliance Partners®; Management Alliance Program®; UPREIT Alliance Partners®; and UPREIT Alliance Program®. The following marks are our unregistered trademarks: Broker Alliance PartnersTM; Broker Alliance ProgramTM; HTDTM; High Throughput DistributionTM; iSpaceTM; Strategic Alliance PartnersTM; and Strategic Alliance ProgramsTM.

Co-investment Joint Ventures

      Through the operating partnership, 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.

      The operating partnership is the managing general partner of AMB Institutional Alliance Fund I, L.P. and, together with one of our other 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. The operating partnership is 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. The operating partnership is 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. The operating partnership is the managing general partner and, together with one of our other 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.

      The operating partnership, together with one of our other affiliates, owns, 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 the operating partnership 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

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contributions from third party investors totaling $14.0 million, which, when combined with debt financings and the Company’s investment, created a total capitalization of $129.0 million.

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

      We are 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. We have 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 to stockholders.

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

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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 limited partnership units in the operating partnership, thereby enhancing our attractiveness to owners and developers seeking to transfer properties on a tax-deferred basis. In addition to acquisitions, we seek to redeploy capital from non-strategic assets into properties that better fit our current investment focus.

      We are generally in various stages of negotiations for a number of acquisitions and dispositions, 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 equity securities by us or the operating partnership (including issuances of units in the operating partnership or its 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 our officers 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

      The operating partnership, through a wholly-owned subsidiary, Headlands Realty Corporation, conducts 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.

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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 related transactions into AMB Capital Partners. On May 31, 2001, the operating partnership began consolidating its investment in AMB Investment Management by acquiring 100% of its common stock for $0.3 million. 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.

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:

             
Building Type Description % of Portfolio



Warehouse
 
15,000-75,000 SF, single or multi-customer
    40.3%  
Bulk Warehouse
 
Over 75,000 SF, single or multi-customer
    37.8%  
Flex Industrial
 
May include assembly or R&D, single or multi-customer, higher parking ratios
    9.6%  
Light Industrial
 
Smaller customers, 15,000 SF or less, higher office finish
    7.3%  
Trans-Shipment
 
Unique configurations for truck terminals and specialized cross-docking
    1.8%  
Air Cargo
 
On-tarmac or airport land for transfer of air cargo goods
    1.6%  
Office
 
Single or multi-customer, used strictly for office
    1.5%  

      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.

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      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 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.

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.

                                                                                           
No. New San Total Total
Dallas/ Jersey/ Francisco Southern Hub Other
Atlanta Chicago(1) Ft. Worth New York Bay Area California(2) Miami Seattle Markets Markets Total











Square feet owned
    6,010,428       8,101,685       5,589,196       6,047,153       11,192,942       11,904,910       4,432,368       3,763,469       56,952,144       24,598,736       81,550,880  
Occupancy Percentage
    91.0 %     95.8 %     96.8 %     91.8 %     94.9 %     95.9 %     94.9 %     88.2 %     94.2 %     95.2 %     94.5 %
Annualized base rent (000’s)
  $ 24,372     $ 35,097     $ 25,942     $ 38,372     $ 99,624     $ 64,589     $ 31,958     $ 19,812     $ 339,766     $ 123,651     $ 463,417  
Annualized base rent per square foot
  $ 4.46     $ 4.52     $ 4.79     $ 6.91     $ 9.38     $ 5.66     $ 7.76     $ 5.97     $ 6.33     $ 5.28     $ 6.01  
Lease expirations as a percentage of ABR:(3) 2002
    15.8 %     11.0 %     18.5 %     9.7 %     11.4 %     14.0 %     21.9 %     17.1 %     13.7 %     18.4 %     14.9 %
 
2003.
    14.5 %     26.9 %     17.2 %     21.7 %     13.6 %     17.8 %     12.0 %     29.0 %     17.5 %     12.9 %     16.3 %
 
2004.
    16.5 %     17.0 %     17.6 %     14.1 %     15.0 %     18.4 %     21.4 %     20.7 %     16.9 %     13.6 %     16.0 %
Weighted average lease terms
                                                                                       
 
Original
    5.3 years       6.7 years       5.6 years       6.4 years       5.9 years       6.6 years       5.9 years       5.3 years       6.1 years       6.8 years       6.3 years  
 
Remaining
    3.1 years       2.9 years       2.9 years       3.5 years       3.1 years       3.4 years       2.9 years       2.5 years       3.1 years       3.6 years       3.3 years  
Tenant Retention (year-to-date)
    69.9 %     84.4 %     71.7 %     65.2 %     34.4 %     73.5 %     62.9 %     77.0 %     67.6 %     65.2 %     66.8 %
Rent increases on renewals and rollovers
    0.5 %     8.3 %     7.6 %     12.9 %     56.2 %     20.6 %     -4.3 %     9.1 %     21.3 %     19.1 %     20.4 %
Square feet leased
    772,074       1,496,943       833,228       481,766       1,385,835       1,075,779       1,100,524       812,412       7,958,561       3,988,612       11,947,173  
Same store cash basis NOI growth
    -4.9 %     1.1 %     9.7 %     3.1 %     23.7 %     4.3 %     -0.5 %     -0.4 %     8.1 %     2.6 %     6.3 %
Square feet owned in same store pool(4)
    4,258,623       6,942,817       4,737,897       3,652,692       7,563,658       5,625,212       2,193,976       3,479,316       38,454,191       21,711,246       60,165,437  


(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.

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).

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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).
                                                                       
Total Percentage Percentage Annualized
Rentable of Total Annualized of Total Base Rent
Number of Square Rentable Percentage Base Rent Annualized Number per Leased
Industrial Properties Buildings Feet(3) Square Feet Leased (000’s) Base Rent of Leases Square Foot









Hub and Gateway Markets:
                                                               
 
Atlanta
    55       6,010,428       7.4 %     91.0 %   $ 24,372       5.3 %     171     $ 4.46  
 
Chicago(1)
    91       8,101,685       9.9       95.8       35,097       7.6       190       4.52  
 
Dallas/ Ft. Worth
    65       5,589,196       6.9       96.8       25,942       5.6       211       4.79  
 
Northern New Jersey/ New York City
    67       6,047,153       7.4       91.8       38,372       8.3       228       6.91  
 
San Francisco Bay Area
    142       11,192,942       13.7       94.9       99,624       21.5       386       9.38  
 
Southern California(2)
    144       11,904,910       14.6       95.9       64,589       13.9       352       5.66  
 
Miami
    42       4,342,361       5.3       94.9       31,958       6.9       219       7.76  
 
Seattle
    42       3,763,469       4.6       88.2       19,812       4.3       163       5.97  
     
     
     
     
     
     
     
     
 
   
Subtotal/ Weighted Average
    648       56,952,144       69.8       94.2       339,766       73.4       1,920       6.33  
Other Markets:
                                                               
 
Austin
    9       1,365,873       1.7       93.5       9,754       2.1       28       7.64  
 
Baltimore/ Washington D.C. 
    60       3,790,944       4.6       96.3       28,704       6.2       279       7.86  
 
Boston
    39       4,632,528       5.7       99.6       22,866       4.9       56       4.96  
 
Charlotte
    10       729,836       0.9       55.4       1,665       0.4       24       4.12  
 
Cincinnati
    6       812,053       1.0       92.7       2,587       0.6       12       3.44  
 
Columbus
    2       465,433       0.6       100.0       1,415       0.3       2       3.04  
 
Houston
    28       2,788,474       3.4       92.8       9,907       2.1       136       3.83  
 
Memphis
    17       1,883,845       2.3       98.6       9,537       2.1       47       5.13  
 
Minneapolis
    42       4,441,909       5.5       96.9       17,836       3.8       204       4.14  
 
New Orleans
    5       411,689       0.5       99.7       2,004       0.4       47       4.88  
 
Newport News
    1       60,215       0.1       100.0       745       0.2       3       12.37  
 
Orlando
    19       1,845,494       2.3       96.0       7,476       1.6       85       4.22  
 
Portland
    5       676,104       0.8       98.4       2,816       0.6       10       4.23  
 
San Diego
    5       276,167       0.3       86.8       1,974       0.4       19       8.23  
 
Other On-Tarmac
    9       418,172       0.5       86.4       4,365       0.9       36       12.08  
     
     
     
     
     
     
     
     
 
   
Subtotal/ Weighted Average
    257       24,598,736       30.2       95.2       123,651       26.6       988       5.28  
     
     
     
     
     
     
     
     
 
     
Total/ Weighted Average
    905       81,550,880       100.0 %     94.5 %   $ 463,417       100.0 %     2,908     $ 6.01  
     
     
     
     
     
     
     
     
 


(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.

                           
Annualized Percentage of
Rentable Base Annualized
Square Rent Base
Year of Lease Expiration(1) Feet (000s)(2) Rent




2002(3)
    13,350,901     $ 73,908       14.9 %
2003
    14,728,382       80,699       16.3  
2004
    12,906,827       79,341       16.0  
2005
    11,288,977       74,129       15.0  
2006
    8,784,213       57,282       11.6  
2007
    5,079,752       32,259       6.5  
2008
    3,435,363       17,830       3.6  
2009
    2,473,353       15,053       3.1  
2010
    1,878,760       27,908       5.6  
Thereafter
    3,116,389       36,448       7.4  
     
     
     
 
 
Total/ Weighted Average
    77,042,917     $ 494,857       100.0 %
     
     
     
 


(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.

                                           
Percentage of Percentage of
Number Aggregate Aggregate Aggregate
of Rentable Leased Annualized Annualized
Industrial Customer Name(1) Leases Square Feet Square Feet(2) Base Rent Base Rent(3)






FedEx Corporation
    27       586,238       0.7 %   $ 6,251       1.3 %
International Paper Company
    7       557,299       0.7       4,353       0.9  
Abgenix, Inc. 
    2       97,887       0.1       3,489       0.7  
Harmonic Inc. 
    2       198,480       0.3       3,481       0.7  
United Liquors, Ltd. 
    2       755,000       1.0       3,286       0.7  
Hyseq, Inc. 
    3       59,300       0.1       3,176       0.7  
Novera Optics, Inc. 
    1       55,610       0.1       2,776       0.6  
Wells Fargo and Company
    5       215,052       0.3       2,663       0.6  
Integrated Airline Services(4)
    4       231,161       0.3       2,595       0.5  
County of Los Angeles(5)
    9       168,519       0.2       2,586       0.5  
CNF Inc. 
    11       358,165       0.5       2,307       0.5  
Forward Air Corporation
    7       344,765       0.4       2,212       0.5  
Exel plc
    7       520,404       0.7       2,168       0.5  
Applied Materials, Inc. 
    1       290,557       0.4       2,152       0.4  
Iron Mountain Records Management
    9       415,008       0.5       2,106       0.4  
Acer America Corporation
    4       261,932       0.3       2,067       0.4  
United States Government(4)(6)
    11       421,063       0.5       2,065       0.4  
Cirrus Logic
    1       48,384       0.1       2,032       0.4  
FMI International
    2       367,771       0.5       1,999       0.4  
Danzas AEI International
    6       288,476       0.4       1,965       0.4  
AM Cosmetics Inc. 
    1       326,500       0.4       1,954       0.4  
Airborne Express(4)
    7       242,967       0.3       1,950       0.4  
NCS Pearson
    1       226,076       0.3       1,919       0.4  
Johnson & Johnson
    4       129,449       0.2       1,918       0.4  
Rite Aid Corporation
    3       550,116       0.7       1,883       0.4  
             
             
         
 
Total
            7,716,179       9.9 %   $ 65,353       13.6 %
             
             
         


(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 States 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)

                             
2001 2000 1999



Square feet owned at December 31(2)
    81,550,880       77,795,989       65,194,364  
Occupancy percentage at December 31
    94.5 %     96.4 %     95.9 %
Weighted average lease term:
                       
 
Original
    6.3 years       6.4 years       6.4 years  
 
Remaining
    3.3 years       3.5 years       3.5 years  
Tenant retention
    66.8 %     59.0 %     72.0 %
Rent increases on renewals and rollovers
    20.4 %     25.6 %     12.9 %
 
SF leased
    11,947,173       11,940,560       7,567,062  
Second generation tenant improvements and leasing commissions per sq. ft.:
                       
 
Renewals
  $ 0.99     $ 1.22     $ 1.22  
 
Re-tenanted(3)
    3.25       2.27       2.74  
     
     
     
 
   
Weighted average(3)
  $ 2.05     $ 1.86     $ 1.64  
     
     
     
 
Recurring capital expenditures:
                       
 
Tenant improvements
  $ 8,168     $ 10,237     $ 10,515  
 
Lease commissions and other lease costs
    19,822       17,679       10,430  
 
Building improvements
    19,852       11,031       5,521  
     
     
     
 
   
Sub-total
    47,842       38,947       26,466  
 
JV Partners’ share of capital expenditures
    (5,824 )     (3,323 )     (1,576 )
     
     
     
 
   
Our share of recurring capital expenditures
  $ 42,018     $ 35,624     $ 24,890  
     
     
     
 


(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.

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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, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations.”

                           
2001 2000 1999



Square feet in same store pool
    60,165,437       52,145,350       35,128,748  
 
% of total industrial square feet
    73.8 %     68.8 %     53.8 %
Occupancy percentage at period end
    94.6 %     96.8 %     96.2 %
Tenant retention
    64.5 %     59.2 %     69.2 %
Rent increases on renewals and rollovers
    23.5 %     27.0 %     12.8 %
 
SF leased
    9,964,366       9,868,579       4,994,868  
Cash basis net operating income growth % increase
                       
 
Revenues
    6.4 %     7.3 %     4.3 %
 
Expenses
    6.9 %     3.5 %     (0.6 )%
 
NOI
    6.3 %     8.5 %     5.9 %

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.

                                           
Annualized
Total Annualized Base Rent
Rentable Percentage Base Rent Number per Leased
Retail Properties Square Feet Leased (000’s)(1) of Leases Square Foot(2)






Around Lenox(3)(4)
    121,517       71.9 %   $ 2,139       16     $ 24.47  
Beacon Center
    150,245       100.0       2,395       8       15.94  
Charles & Chase
    48,000       100.0       300       1       6.25  
Howard & Western(4)
    88,544       88.0       1,088       10       13.97  
Mazzeo Drive(4)
    88,420       100.0       717       1       8.11  
Northridge Plaza(3)(4)
    229,010       90.7       3,190       34       15.35  
Novato Fair Shopping Center(3)
    126,069       93.3       955       18       8.12  
Palm Aire(3)(4)
    130,865       100.0       1,709       29       13.06  
Springs Gate(3)(4)
    n/a       n/a       n/a       n/a       n/a  
The Plaza at Delray(3)(4)
    331,863       80.2       3,559       43       13.37  
     
     
     
     
     
 
 
Total/ Weighted Average
    1,314,533       89.3 %   $ 16,052       160     $ 13.67  
     
     
     
     
     
 

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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.

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

                                                         
Estimated Estimated Estimated Our
Development Stabilization Square Feet Total Ownership
Project Location Alliance Partner Date at Completion Investment(1) Percentage







(Dollars in thousands)
2002 Deliveries                                                
  1.     Portland Air Cargo     Portland, OR       Trammell Crow Company       February       159,000     $ 12,800       95 %
  2.     Van Nuys (Buildings 3 - 6)     Van Nuys, CA       Trammell Crow Company       February       315,000       23,000       95 %
  3.     Monte Vista Spectrum     Chino, CA       Majestic Realty       June       577,000       23,200       50 %
  4.     Cabot Business Park (Lot 1 - 2)     Mansfield, MA       National Development of NE       June       114,000       14,600       90 %
  5.     Dulles Airport park (Phase I)     Dulles, VA       Seefried Properties       July       168,000       12,000       21 %
  6.     Suwanee Creek (Phase IV) )     Atlanta, GA       Seefried Properties       August       233,000       7,600       100 %
  7.     Airport South Building 800     College Park, GA       Seefried Properties       September       60,000       3,200       50 %
  8.     Airport South Building 900     College Park, GA       Seefried Properties       September       30,000       1,700       50 %
  9.     Southfield Logistics Center(3)     Forest Park, GA       None       October       799,000       17,600       21 %
  10.     Airport South Building 400     College Park, GA       Seefried Properties       December       103,000       4,800       50 %
                                     
     
     
 
         Total 2002 Deliveries                             2,558,000       120,500       64 %
         % Pre-leased/funded-to-date(2)                             61 %   $ 91,900          
2003 Deliveries                                                
  11.     Carson Town Center, SE     Carson, CA       Mar Ventures       May       349,000       23,100       95 %
  12.     Houston Air Cargo     Houston, TX       Trammell Crow Company       October       156,000       10,800       19 %
                                     
     
     
 
         Total 2003 Deliveries                             505,000       33,900       71 %
                                     
     
         
         % Pre-leased/funded-to-date(2)                             14 %   $ 9,300          
        Total Scheduled Deliveries(1)                             3,063,000     $ 154,400       66 %
                                     
     
         
         % Pre-leased/funded-to-date(2)                             54 %   $ 100,300          


(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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Table of Contents

HEADLANDS REALTY CORPORATION(1)

Development Projects Held for Sale

                                             
Development Estimated Estimated Estimated Our
Alliance Stabilization Square Feet at Total Ownership
Project(2) Market PartnerTM Date Completion Investment(3) Percentage







(Dollars in thousands)
Development Properties Value-Added Conversion(4)
                                       
 
None
                                       
Build-to-Sell(5)
                                       
1. Novato Fair Shopping Center
  SF Bay Area   AIG     August 2002       134,000     $ 15,700       50 %
2. Carson Town Center SW
  Southern California   Mar Ventures     July 2003       431,000       34,300       100 %
                     
     
         
 
Total Build-to-Sell Properties
                    565,000       50,000       84 %
                     
     
         
   
% Pre-leased/funded-to-date(6)
                    32 %     27,000          
   
Total Scheduled Deliveries
                    565,000     $ 50,000       84 %
                     
     
         
   
% Pre-leased/funded-to-date(6)
                    32 %     27,000          


(1)  Headlands Realty Corporation is a wholly-owned taxable REIT subsidiary.
 
(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 the Company’s current estimates and forecasts and are subject to change.
 
(4)  Represents existing properties or land that Headlands Realty is leasing from the operating partnership 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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Table of Contents

Industrial Consolidated Joint Ventures

                                                       
Our JV Partners’
Ownership Number of Square Gross Book Share
Joint Ventures Percentage Buildings Feet(1) Value(2) Debt of Debt







(Dollars in thousands)
Operating Properties:
                                               
Co-investment joint ventures:
                                               
 
AMB-SGP(3)
    50 %     59       6,783,749     $ 304,902     $ 206,790     $ 103,395  
 
AMB Institutional Alliance Fund I(4)
    21 %     100       4,947,862       356,298       155,856       124,090  
 
AMB Erie(5)
    50 %     52       3,855,178       195,218       101,431       50,941  
 
AMB Partners II(6)
    50 %     47       3,637,122       184,426       113,485       58,492  
 
AMB Institutional Alliance Fund II(4)
    20 %     33       3,600,936       223,184       208,215       166,572  
             
     
     
     
     
 
   
Total co-investment joint ventures
    37 %     291       22,824,847       1,264,028       785,777       503,490  
Other Joint Ventures
    92 %     33       2,778,065       233,124       48,814       2,626  
             
     
     
     
     
 
 
Total Operating Properties
    45 %     324       25,602,912       1,497,152       835,591       506,116  
             
     
     
     
     
 
Development Alliance Joint Ventures:
                                               
 
AMB Institutional Alliance Fund I(4)
    21 %     5       1,123,000       29,564       8,453       6,678  
 
AMB Partners II(6)
    50 %     3       193,000       7,488              
 
Other Development Alliance Joint Ventures
    93 %     9       937,000       31,503              
             
     
     
     
     
 
 
Total Development Alliances
    57 %     17       2,253,000       68,555       8,453       6,678  
             
     
     
     
     
 
     
Total Industrial Consolidated Joint Ventures
    46 %     341       27,855,912     $ 1,565,707     $ 844,044     $ 512,794  
             
     
     
     
     
 


(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

                                                   
Our JV Partners’
Ownership Square Gross Book Share
Properties Market Percentage Feet(1) Value(2) Debt of Debt







(Dollars in thousands)
Development Alliance Joint Venture
                                               
1.  Springs Gate(3)(4)
    Miami       100 %         $ 10,214     $     $  
                     
     
     
     
 
 Subtotal
            100 %           10,214              
                     
     
     
     
 
Other Joint Ventures
                                               
2.  Around Lenox(3)
    Atlanta       90 %     121,517       20,925       9,730       973  
3.  Palm Aire(3)
    Miami       100 %     130,865       19,905       7,071       1,011  
4.  Northridge Plaza(3)
    Miami       100 %     229,010       36,341              
5.  Plaza Delray(3)
    Miami       98 %     331,863       39,165       22,029       4,428  
                     
     
     
     
 
 Subtotal
                    813,255       116,336       38,830       6,412  
                     
     
     
     
 
 
Total
            98 %     813,255     $ 126,550     $ 38,830     $ 6,412  
                     
     
     
     
 


(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
                                           
Our Our Our
Total Net Equity Ownership Share
Properties Market Square Feet(1) Investment Percentage of Debt






(Dollars in thousands)
Operating Joint Ventures:
                                       
1.  Elk Grove Du Page
    Chicago       4,046,721     $ 59,447       56 %   $ 15,300  
2.  Pico Rivera
    Southern California       855,600       9,430       50 %     17,084  
             
     
             
 
Total Operating Joint Ventures
            4,902,321       68,918       55 %     32,084  
             
     
             
 
Development Alliance Joint Venture:
                                       
3.  Monte Vista Spectrum
    Southern California       577,000       2,179       50 %     6,844  
             
     
             
 
  Total Unconsolidated Joint                                        
  Ventures             5,479,321     $ 71,097       55 %   $ 38,928  
             
     
             
 

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Mortgage
Properties Market Maturity Receivable Rate





Mortgage Investment
                               
1.  Pier 1
    SF Bay Area       May 2026     $ 13,214       13.00 %
2.  Manhattan Village Shopping Center(2)
    Southern California       September 2002       74,000       9.50 %
                     
         
 
Total Mortgage Investments
                  $ 87,214          
                     
         


(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.

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PART II

Item 5.     Market For Registrant’s Common Equity and Related Shareholder Matters

      Our common stock began trading on the New York Stock Exchange on November 21, 1997, under the symbol “AMB.” As of March 15, 2002, there were approximately 382 holders of record of our common stock (excluding shares held through The Depository Trust Company, as nominee). Set forth below are the high and low sales prices per share of our common stock, as reported on the NYSE composite tape, and the distribution per share paid by us during the period from January 1, 1999, through December 31, 2001.

                           
Year High Low Distribution




2001
                       
 
1st Quarter
    25.56       23.71       0.395  
 
2nd Quarter
    25.76       22.90       0.395  
 
3rd Quarter
    26.64       23.35       0.395  
 
4th Quarter
    26.21       23.30       0.395  
2000
                       
 
1st Quarter
    21.50       19.25       0.37  
 
2nd Quarter
    23.63       21.25       0.37  
 
3rd Quarter
    24.94       23.00       0.37  
 
4th Quarter
    26.06       23.25       0.37  
1999
                       
 
1st Quarter
    22.94       20.50       0.35  
 
2nd Quarter
    23.50       20.56       0.35  
 
3rd Quarter
    23.00       20.00       0.35  
 
4th Quarter
    21.13       18.13       0.35  

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Item 6.     Selected Financial and Other Data

SELECTED COMPANY AND PREDECESSOR FINANCIAL AND OTHER DATA

      The following table sets forth selected consolidated historical financial and other data for AMB Property Corporation and its predecessor on an historical basis as of and for the years ended December 31, 2001, 2000, 1999, 1998, and 1997. Prior to November 26, 1997 (our initial public offering date), AMB Property Corporation’s predecessor provided real estate investment management services to institutional investors.

                                                     
Pro Forma(1) Historical(2)
2001 2000 1999 1998 1997 1997






(Dollars in thousands, except per share amounts)
Operating Data
                                               
 
Total revenues
  $ 600,845     $ 480,207     $ 448,183     $ 358,887     $ 284,674     $ 56,062  
 
Income before minority interests
    165,672       165,599       159,321       123,750       103,903       18,885  
 
Net income available to common stockholders
    125,053       113,282       167,603       108,954       99,508       18,228  
 
Net income per common share:
                                               
   
Basic(3)
    1.49       1.35       1.94       1.27       1.16       1.39  
   
Diluted(3)
    1.47       1.35       1.94       1.26       1.15       1.38  
 
Dividends per common share
    1.58       1.48       1.40       1.37       1.37       0.13  
Other Data
                                               
 
EBITDA(4)
  $ 431,543     $ 349,353     $ 318,319     $ 252,353     $ 195,218          
 
Operating earnings(5)
    93,631       112,138       116,810       108,954       99,508          
 
Funds from operations(6)
    213,513       208,651       191,147       170,407       147,409          
 
Cash flows provided by (used in):
                                               
   
Operating activities
    288,562       261,175       190,391       177,180       131,621          
   
Investing activities
    (363,152 )     (726,499 )     63,732       (793,366 )     (607,768 )        
   
Financing activities
    127,303       452,370       (240,721 )     604,202       553,199          
Balance Sheet Data
                                               
 
Investments in real estate at cost
  $ 4,530,711     $ 4,026,597     $ 3,249,452     $ 3,369,060             $ 2,442,999  
 
Total assets
    4,760,893       4,425,626       3,621,550       3,562,885               2,506,255  
 
Total consolidated debt(7)
    2,135,664       1,836,276       1,270,037       1,368,196               685,652  
 
Our share of total debt
    1,655,386       1,681,161       1,168,218       1,348,107               672,945  
 
Stockholders’ equity
    1,752,342       1,767,930       1,829,259       1,765,360               1,668,030  


(1)  Pro forma 1997 financial and other data has been prepared as if our formation transactions, our initial public offering, and certain property acquisitions and divestitures in 1997 had occurred on January 1, 1997.
 
(2)  The historical 1997 results represent our predecessor’s historical financial and other data for the period January 1, 1997 through November 25, 1997. The financial and other data of AMB Property Corporation 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 share equals the net income available to common stockholders divided by 84,174,644 and 85,214,066 shares, respectively for 2001; 83,697,170 and 84,155,306 shares, respectively, for 2000; 86,271,862 and 86,347,487 shares, respectively, for 1999; 85,876,383 and 86,235,176 shares, respectively, for 1998; and pro forma net income divided by 85,874,513 and 86,156,556 shares, respectively, for 1997.
 
(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 stock dividends. 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

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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 stock dividends. 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);
 
  •  our failure to qualify and maintain our status as a real estate investment trust under the Internal Revenue Code of 1986;
 
  •  environmental uncertainties;
 
  •  risks related to natural disasters;

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  •  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 as a fully integrated real estate company in connection with the completion of our initial public offering on November 26, 1997, and elected to be taxed as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code of 1986 with our initial tax return for the year ended December 31, 1997. AMB Property Corporation and the operating partnership were formed shortly before the consummation of our 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 operating partnership, we generally will be liable for all of the operating partnership’s unsatisfied obligations other than non-recourse obligations, including the operating partnership’s obligations as the general partner of the co-investment joint ventures. Any such liabilities could adversely affect our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock.

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.

      REIT Compliance. We elected to be taxed as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code commencing with our taxable year ended December 31, 1997. We currently intend to operate so as to qualify as a real estate investment trust under the Internal Revenue Code and believe that our current organization and method of operation comply with the rules and regulations promulgated under the Internal Revenue Code to enable us to continue to qualify as a real estate investment trust. However, it is possible that we have been organized or have operated in a manner that would not allow us to qualify as a real estate investment trust, or that our future operations could cause us to fail to qualify.

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Qualification as a real estate investment trust requires us to satisfy numerous requirements (some on an annual and others on a quarterly basis) established under highly technical and complex Internal Revenue Code provisions for which there are only limited judicial and administrative interpretations, and involves the determination of various factual matters and circumstances not entirely within our control. For example, in order to qualify as a real estate investment trust, we must derive at least 95% of our gross income in any year from qualifying sources. In addition, we must pay dividends to stockholders aggregating annually at least 90% of our real estate investment trust taxable income (determined without regard to the dividends paid deduction and by excluding capital gains) and must satisfy specified asset tests on a quarterly basis. These provisions and the applicable treasury regulations are more complicated in our case because we hold our assets through the operating partnership. Legislation, new regulations, administrative interpretations, or court decisions could significantly change the tax laws with respect to qualification as a real estate investment trust or the federal income tax consequences of such qualification. However, we are not aware of any pending tax legislation that would adversely affect our ability to operate as a real estate investment trust.

      If we fail to qualify as a real estate investment trust in any taxable year, then we will be required to pay federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Unless we are entitled to relief under certain statutory provisions, we would be disqualified from treatment as a real estate investment trust for the four taxable years following the year during which we lost qualification. If we lose our real estate investment trust status, then our net earnings available for investment or distribution to stockholders would be significantly reduced for each of the years involved and we would no longer be required to make distributions to our stockholders. In addition, our annual fee on our unsecured credit facility may increase and certain rights that preferred limited partnership unitholders in our affiliates have to exchange their preferred units for shares of our preferred stock may be triggered.

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

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      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

                                   
Rental Revenues 2001 2000 $ Change % Change





(Dollars in millions)
Same store
  $ 400.2     $ 376.7     $ 23.5       6.2 %
2000 acquisitions
    97.1       25.6       71.5       279.3 %
2001 acquisitions
    22.8             22.8        
Developments
    27.0       14.6       12.4       84.9 %
Divestitures
    10.9       37.1       (26.2 )     (70.6 )%
Straight-line rents
    10.1       10.2       (0.1 )     (1.0 )%
     
     
     
     
 
 
Total
  $ 568.1     $ 464.2     $ 103.9       22.4 %
     
     
     
     
 

      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.

                                 
Investment Management and Other Income 2001 2000 $ Change % Change





Equity in earnings of unconsolidated joint ventures
  $ 5.5     $ 5.2     $ 0.3       5.8 %
Investment management income
    11.0       4.3       6.7       155.8 %
Interest and other income
    16.3       6.5       9.8       150.8 %
     
     
     
     
 
Total
  $ 32.8     $ 16.0     $ 16.8       105.0 %
     
     
     
     
 

      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.

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Property Operating Expenses and Real Estate Taxes 2001 2000 $ Change % Change





(Exclusive of depreciation and amortization)
                               
Rental expenses
  $ 69.0     $ 50.6     $ 18.4       36.4 %
Real estate taxes
    69.2       57.2       12.0       21.0 %
     
     
     
     
 
 
Property operating expenses
  $ 138.2     $ 107.8     $ 30.4       28.2 %
     
     
     
     
 
Same store
  $ 93.2     $ 87.2     $ 6.0       6.9 %
2000 acquisitions
    27.9       7.1       20.8       293.0 %
2001 acquisitions
    4.4             4.4        
Developments
    9.6       4.3       5.3       123.3 %
Divestitures
    3.1       9.2       (6.1 )     (66.3 )%
     
     
     
     
 
   
Total
  $ 138.2     $ 107.8     $ 30.4       28.2 %
     
     
     
     
 

      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.

                                   
Other Expenses 2001 2000 $ Change % Change





Interest, including amortization
  $ 129.0     $ 90.3     $ 38.7       42.9 %
Depreciation and amortization
    111.4       90.4       21.0       23.2 %
General and administrative
    35.8       23.7       12.1       51.1 %
     
     
     
     
 
 
Total
  $ 276.2     $ 204.4     $ 71.8       35.1 %
     
     
     
     
 

      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

                                   
Rental Revenues 2000 1999 $ Change % Change





(Dollars in millions)
Same store
  $ 314.4     $ 293.3     $ 21.1       7.2 %
1999 acquisitions
    85.1       41.0       44.1       107.6 %
2000 acquisitions
    28.0             28.0        
Developments
    7.0       4.2       2.8       66.7 %
Divestitures
    19.5       90.4       (70.9 )     (78.4 )%
Straight-line rents
    10.2       10.8       (0.6 )     (5.6 )%
     
     
     
     
 
 
Total
  $ 464.2     $ 439.7     $ 24.5       5.6 %
     
     
     
     
 

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      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.

                                   
Investment Management and Other Income 2000 1999 $ Change % Change





Equity earnings in unconsolidated joint ventures
  $ 5.2     $ 4.7     $ 0.5       10.6 %
Investment management and other income
    10.8       3.8       7.0       184.2 %
     
     
     
     
 
 
Total
  $ 16.0     $ 8.5     $ 7.5       88.2 %
     
     
     
     
 

      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.

                                   
Property Operating Expenses 2000 1999 $ Change % Change





Rental expenses
  $ 50.6     $ 51.7     $ (1.1 )     (2.1 )%
Real estate taxes
    57.2       56.2       1.0       1.8 %
     
     
     
     
 
 
Property operating expenses
  $ 107.8     $ 107.9     $ (0.1 )     (0.1 )%
     
     
     
     
 
Same store
  $ 72.1     $ 69.6     $ 2.5       3.6 %
1999 acquisitions
    20.4       12.2       8.2       67.2 %
2000 acquisitions
    7.7             7.7        
Developments
    2.5       1.8       0.7       38.9 %
Divestitures
    5.1       24.3       (19.2 )     (79.0 )%
     
     
     
     
 
 
Total
  $ 107.8     $ 107.9     $ (0.1 )     (0.1 )%
     
     
     
     
 

      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.

                                   
Other Expenses 2000 1999 $ Change % Change





Interest expense
  $ 90.3     $ 88.7     $ 1.6       1.8 %
Depreciation expense
    90.4       67.0       23.4       34.9 %
General and administrative expense
    23.7       25.2       (1.5 )     (6.0 )%
     
     
     
     
 
 
Total
  $ 204.4     $ 180.9     $ 23.5       13.0 %
     
     
     
     
 

      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 equity or debt offerings by us or the operating partnership (including issuances of limited partnership units in the operating partnership or its 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

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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.

      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 pay dividends on, and the market price of, our stock.

      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.

      The operating partnership, together with one of our other affiliates, owns, 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 the operating partnership 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

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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.

      The operating partnership, together with one of our other affiliates, owns, as of December 31, 2001, approximately 50% of the partnership interests in AMB/ Erie. L.P. Erie is a co-investment partnership between the operating partnership 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, the operating partnership entered into a $500.0 million unsecured revolving credit agreement. We guarantee 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, which is based on our credit rating. The operating partnership has the ability to increase available borrowings to $700.0 million by adding additional banks to the facility or obtaining the agreement of existing banks to increase 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 pay dividends on, and the market price of, our stock. 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 subsidiaries, 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, 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 our 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.

      In March 2001, AMB Property II, L.P., one of our subsidiaries, 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,

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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 our Series I Preferred Stock. AMB Property II, L.P. 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, we redeemed 223,092 and 635,798 common limited partnership units of the operating partnership for cash and shares of our common stock, respectively.

      Our board of directors approved a stock repurchase program in 1999 for the repurchase of up to $100.0 million worth of our common stock. During 2001, we repurchased 1,392,600 shares of our common stock at an average purchase price of $23.62 per share under the program. Under the program to date, we have repurchased 2,836,200 shares our common stock at an average purchase price of $21.22 per share. Our stock repurchase program expired in December 2001. Our board of directors approved a new stock repurchase program for the repurchase of up to $100.0 million worth of our 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, 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 us. 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. We have 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 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. We have guaranteed the notes, which mature on January 30, 2006, and bear interest at 6.90% per annum. 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. 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. We have guaranteed the notes, which mature on March 7, 2011, and bear interest at 7.00% per annum. 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. In September 2001, the operating partnership issued and sold $25.0 million of the notes under this program to Lehman Brothers, Inc., as principal. We have guaranteed the notes, which mature on September 6, 2011, and bear interest at 6.75% per annum. The operating partnership used the net proceeds of $24.8 million for general corporate purposes and to acquire and develop additional properties.

      We guarantee the operating partnership’s obligations with respect to the senior debt securities. 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 pay dividends to our stockholders 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 pay dividends on, and the market price of, our stock. In addition, if we mortgage one or more of our properties to secure payment of indebtedness and we are unable to meet mortgage payments,

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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 pay dividends on, and the market price of, our stock.

      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 board of directors could alter or eliminate these policies or circumstances could arise that could render us unable to comply with these policies.

      The tables below summarize our debt maturities and capitalization as of December 31, 2001:

Debt

                                             
REIT Joint Unsecured
Secured Venture Senior Debt Credit Total
Debt(1) Debt Securities Facilities(1) Debt





(Dollars in thousands)
2002
  $ 28,193     $ 68,505     $     $     $ 96,698  
2003
    76,295       13,577             135,500       225,372  
2004
    65,284       47,607                   112,891  
2005
    62,826       37,796       250,000             350,622  
2006
    94,965       74,115       25,000             194,080  
2007
    30,198       25,682       55,000             110,880  
2008
    33,619       147,552       175,000             356,171  
2009
    5,176       32,351                   37,527  
2010
    52,780       71,966       75,000             199,746  
2011
    1,311       167,878       75,000             244,189  
Thereafter
    3,307       72,345       125,000             200,652  
     
     
     
     
     
 
 
Subtotal
    453,954       759,374       780,000       135,500       2,128,828  
 
Unamortized premiums
    5,090       1,746                   6,836  
     
     
     
     
     
 
   
Total consolidated debt
    459,044       761,120       780,000       135,500       2,135,664  
Our share of unconsolidated joint venture debt(2)
          38,928                   38,928  
     
     
     
     
     
 
   
Total debt
    459,044       800,048       780,000       135,500       2,174,592  
Joint venture partners’ share of consolidated joint venture debt
          (420,406 )           (98,800 )     (519,206 )
     
     
     
     
     
 
 
Our share of total debt
  $ 459,044     $ 379,642     $ 780,000     $ 36,700     $ 1,655,386  
     
     
     
     
     
 
Weighed average interest rate
    8.1 %     7.1 %     7.3 %     2.8 %     7.1 %
Weighed average maturity (in years)
    4.7       7.4       7.6       1.6       6.5  

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(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. The operating partnership also has 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 Equity

                           
Shares/Units
Outstanding Market Price Market Value



(Dollars in thousands, except share price)
Common stock
    83,821,829     $ 26.00     $ 2,179,368  
Common limited partnership units
    4,969,027       26.00       129,195  
     
             
 
 
Total
    88,790,856             $ 2,308,563  
     
             
 

Preferred Stock and Units

                           
Dividend Liquidation Redemption
Rate Preference Provisions



(Dollars in thousands)
Series A preferred stock
    8.50 %   $ 100,000       July 2003  
Series B preferred units
    8.63 %     65,000       November 2003  
Series D preferred units
    7.75 %     79,767       May 2004  
Series E preferred units
    7.75 %     11,022       August 2004  
Series F preferred units
    7.95 %     19,872       March 2005  
Series G preferred units
    7.95 %     1,000       August 2005  
Series H preferred units
    8.13 %     42,000       September 2005  
Series I preferred units
    8.00 %     25,500       March 2006  
Series J preferred units
    7.95 %     40,000       September 2006  
     
     
         
 
Weighted average/total
    8.18 %   $ 384,161          
     
     
         

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 equity offerings by us or the operating partnership (including issuances of limited partnership units in the operating partnership or its 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 pay dividends on, and the market price of, our stock.

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      Our board of directors declared a regular cash dividend for the quarter ending December 31, 2001, of $0.395 per share of common stock and the operating partnership declared a regular cash distribution for the quarter ending December 31, 2001, of $0.395 per common unit. The dividends and distributions were payable on December 24, 2001, to stockholders and unitholders of record on December 14, 2001. The Series A, B, E, F, G, and J preferred stock and unit dividends and distributions were also payable on January 15, 2002, to stockholders and unitholders of record on January 4, 2002. The Series D, H, and I preferred unit distributions were payable on December 25, 2001, to unitholders of record on December 10, 2001. The following table sets forth the dividend payments and distributions for 2001 and 2000:

                         
Security Paying Entity 2001 2000




Common stock
    AMB Property Corporation     $ 1.58     $ 1.48  
Operating partnership units
    Operating Partnership     $ 1.58     $ 1.48  
Series A preferred stock
    AMB Property Corporation     $ 2.13     $ 2.13  
Series A preferred units
    Operating Partnership     $ 2.13     $ 2.13  
Series B preferred units
    Operating Partnership     $ 4.31     $ 4.31  
Series C preferred units
    AMB Property II, L.P     $ 3.88     $ 4.38  
Series D preferred units
    AMB Property II, L.P     $ 3.88     $ 3.88  
Series E preferred units
    AMB Property II, L.P     $ 3.88     $ 3.88  
Series F preferred units
    AMB Property II, L.P     $ 3.98     $ 3.09  
Series G preferred units
    AMB Property II, L.P     $ 3.98     $ 1.35  
Series H preferred units
    AMB Property II, L.P     $ 4.06     $ 1.30  
Series I preferred units
    AMB Property II, L.P     $ 3.04       n/a  
Series J preferred units
    Operating Partnership     $ 1.24       n/a  

      The anticipated size of our distributions, using only cash from operations, will not allow us to retire all of our debt as it comes due. Therefore, we intend to also repay maturing debt with net proceeds from future debt or equity financings, 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 pay dividends on, and the market price of, our stock.

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 equity 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 pay dividends on, and the market price of, our stock. 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 equity 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 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. 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 stock dividends. 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):

                           
2001 2000 1999



Income before minority interests
  $ 165,672     $ 165,599     $ 159,321  
Gains on developments held for sale
    13,169              
Real estate related depreciation and amortization:
                       
 
Total depreciation and amortization
    111,414       90,358       67,035  
 
Furniture, fixtures, and equipment depreciation and ground lease amortization(1)
    (1,963 )     (1,114 )     (1,002 )
FFO attributable to minority interests(2)
    (40,144 )     (15,055 )     (8,182 )
Adjustments to derive FFO in unconsolidated joint venture(3):
                       
 
Our share of net income
    (5,467 )     (5,212 )     (4,701 )
 
Our share of FFO
    8,014       7,188       6,677  
Series A preferred stock dividends
    (8,500 )     (8,500 )     (8,500 )
Preferred unit distributions
    (28,682 )     (24,613 )     (19,501 )
     
     
     
 
 
FFO
  $ 213,513     $ 208,651     $ 191,147  
     
     
     
 


(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. 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 dividends to our stockholders 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.

      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

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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 pay dividends on, and the market price of, our stock. 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 pay dividends on, and the market price of, our stock 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 may affect our ability to sell properties without adversely affecting dividends to our stockholders. 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 pay dividends on, and the market price of, our stock.

 
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 pay dividends on, and the market price of, our stock. Certain of our properties are also subject to possible loss from seismic activity.

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,

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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 operating partnership, we generally will be liable for all of the operating partnership’s unsatisfied obligations other than non-recourse obligations, including any obligations incurred by the operating partnership as the general partner of the co-investment joint ventures. Any such liabilities could adversely affect our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock.

      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, including our current policy with respect to maintaining our qualification as a real estate investment trust; 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 pay dividends on, and the market price of, our stock.

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

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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 equity or debt offerings by us or the operating partnership (including issuances of limited partnership units by the operating partnership or its 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 pay dividends on, and the market price of, our stock.

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 pay dividends on, and the market price of, our stock.

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 other 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 pay dividends on, and the market price of, our stock.

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 our capital stock and the number of shares of capital stock outstanding. Accordingly, we would be able to incur additional indebtedness under our policy as a result of increases in the market price per share of our common stock or other outstanding classes of capital stock, and future issuance of shares of our capital stock. However, our organizational documents do not contain any limitation on the amount of indebtedness that we may incur. Accordingly, our board of directors could alter or eliminate this policy. If we change this policy, then we could

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become more highly leveraged, resulting in an increase in debt service that could adversely affect our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock.
 
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 pay dividends to our stockholders, 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.

      In addition, we guarantee the operating partnership’s obligations with respect to the senior debt securities referenced in our financial statements. 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 pay dividends to our stockholders 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 pay dividends on, and the market price of, our stock. 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 pay dividends on, and the market price of, our stock.

 
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 pay dividends on, and the market price of, our stock. 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 to qualify as a real estate investment trust under the Internal Revenue Code, we are required each year to distribute to our stockholders at least 90% of our real estate investment trust taxable income (determined without regard to the dividends-paid deduction and by excluding any net capital gain) and we are subject to tax on our 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 our capital stock. Additional debt financing may substantially increase our debt-to-total capitalization ratio.

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

      As of 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

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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 pay dividends on, and the market price of, our stock. In addition, our credit facilities and the senior debt securities of the operating partnership contain certain cross-default provisions, which are triggered in the event that our other material indebtedness is in default. These cross-default provisions may require us to repay or restructure the credit facilities and the senior debt securities in addition to any mortgage or other debt that is in default, which could adversely affect our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock.

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. We assumed these liabilities as the surviving entity in the various merger and contribution transactions that occurred at the time of our formation. Existing liabilities for indebtedness generally were taken into account in connection with the allocation of the operating partnership’s limited partnership units or shares of our common stock in the formation transactions, but no other liabilities were taken into account for these purposes. We do not have recourse against our 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 our 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 our 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 pay dividends on, and the market price of, our stock.

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 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.

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Conflicts of Interest

 
Some of Our Directors and Executive Officers Are Involved in Other Real Estate Activities and Investments

      Some of our 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 our 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 our initial public offering. The continued involvement in other real estate-related activities by some of our executive officers and directors could divert management’s attention from our day-to-day operations. Most of our executive officers have entered into non-competition agreements with us 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 Our 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, 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, 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 our 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 our 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, has an interest may compete with us in the future if we were to invest in a property similar in type and in close proximity to that property. In addition, the continued involvement by our 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 our board of directors with respect to that transaction.

 
Our Role as General Partner of the Operating Partnership May Conflict with the Interests of Stockholders

      As the general partner of the operating partnership, we have fiduciary obligations to the operating partnership’s limited partners, the discharge of which may conflict with the interests of our stockholders. In addition, those persons holding limited partnership units will have the right to vote as a class on certain amendments to the partnership agreement of the operating partnership and individually to approve certain

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amendments that would adversely affect their rights. The limited partners may exercise these voting rights in a manner that conflicts with the interests of our stockholders. In addition, under the terms of the operating partnership’s partnership agreement, holders of limited partnership units will have certain approval rights with respect to certain transactions that affect all stockholders but which they may not exercise in a manner that reflects the interests of all stockholders.
 
Our Directors, Executive Officers, and Significant Stockholders Could Act in a Manner that is Not in the Best Interest of All Stockholders

      As of March 20, 2002, we believe that our 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 our outstanding common stock. In addition, our executive officers and directors beneficially owned 4.3% of our outstanding common stock as of March 20, 2002, and will have influence on our management and operation and, as stockholders, will have influence on the outcome of any matters submitted to a vote of our stockholders. This influence might be exercised in a manner that is inconsistent with the interests of other stockholders. 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 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 dividends to our stockholders 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

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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 pay dividends on, and the market price of, our stock 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 pay dividends on, and the market price of, our stock.

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Federal Income Tax Risks

 
Our Failure to Qualify as a Real Estate Investment Trust Would Have Serious Adverse Consequences to Stockholders

      We elected to be taxed as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code commencing with our taxable year ended December 31, 1997. We currently intend to operate so as to qualify as a real estate investment trust under the Internal Revenue Code and believe that our current organization and method of operation comply with the rules and regulations promulgated under the Internal Revenue Code to enable us to continue to qualify as a real estate investment trust. However, it is possible that we have been organized or have operated in a manner that would not allow us to qualify as a real estate investment trust, or that our future operations could cause us to fail to qualify. Qualification as a real estate investment trust requires us to satisfy numerous requirements (some on an annual and others on a quarterly basis) established under highly technical and complex Internal Revenue Code provisions for which there are only limited judicial and administrative interpretations, and involves the determination of various factual matters and circumstances not entirely within our control. For example, in order to qualify as a real estate investment trust, we must derive at least 95% of our gross income in any year from qualifying sources. In addition, we must pay dividends to stockholders aggregating annually at least 90% of our real estate investment trust taxable income (determined without regard to the dividends paid deduction and by excluding capital gains) and must satisfy specified asset tests on a quarterly basis. These provisions and the applicable treasury regulations are more complicated in our case because we hold our assets through the operating partnership. Legislation, new regulations, administrative interpretations, or court decisions could significantly change the tax laws with respect to qualification as a real estate investment trust or the federal income tax consequences of such qualification. However, we are not aware of any pending tax legislation that would adversely affect our ability to operate as a real estate investment trust.

      If we fail to qualify as a real estate investment trust in any taxable year, then we will be required to pay federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Unless we are entitled to relief under certain statutory provisions, we would be disqualified from treatment as a real estate investment trust for the four taxable years following the year during which we lost qualification. If we lose our real estate investment trust status, then our net earnings available for investment or distribution to stockholders would be significantly reduced for each of the years involved. In addition, we would no longer be required to make distributions to our stockholders.

     We Pay Some Taxes

      Even if we qualify as a real estate investment trust, we will be required to pay certain state and local taxes on our income and property. In addition, we will be required to pay federal and state income tax on the net taxable income, if any, from the activities conducted through AMB Capital Partners, LLC and Headlands Realty Corporation. AMB Capital Partners, LLC and Headlands Realty Corporation, as taxable REIT subsidiaries, are also subject to tax on their income, reducing their cash available for distribution to us.

 
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. We 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 we would be required to pay

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a 100% penalty tax on any gain allocable to us from the prohibited transaction. In addition, any income from a prohibited transaction may adversely affect our ability to satisfy the income tests for qualification as a real estate investment trust for federal income tax purposes.

We Are Dependent On Our Key Personnel

      We depend on the efforts of our executive officers. While we believe that we could find suitable replacements for these key personnel, the loss of their services or the limitation of their availability could adversely affect our financial condition, results of operations, cash flow, and ability to pay dividends on, and the market price of, our stock. We do not have employment agreements with any of our 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 pay dividends on, and the market price of, our stock 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 pay dividends on, and the market price of, our stock could be adversely affected.

Ownership of Our Stock

 
Limitations in Our Charter and Bylaws Could Prevent a Change in Control

      Certain provisions of our charter and bylaws may delay, defer, or prevent a change in control or other transaction that could provide the holders of our common stock with the opportunity to realize a premium over the then-prevailing market price for the common stock. To maintain our qualification as a real estate investment trust for federal income tax purposes, not more than 50% in value of our outstanding stock may be owned, actually or constructively, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of a taxable year after the first taxable year for which a real estate investment trust election is made. Furthermore, our common stock must be held by a minimum of 100 persons for at least 335 days of a 12-month taxable year (or a proportionate part of a short tax year). In addition, if we, or an owner of 10% or more of our stock, actually or constructively owns 10% or more of one of our customers (or a tenant of any partnership in which we are a partner), then the rent received by us (either directly or through any such partnership) from that tenant will not be qualifying income for purposes of the real estate investment trust gross income tests of the Internal Revenue Code. To facilitate maintenance of our qualification as a real estate investment trust for federal income tax purposes, we will prohibit the ownership, actually or by virtue of the constructive ownership provisions of the Internal Revenue Code, by any single person of more than 9.8% (by value or number of shares, whichever is more restrictive) of the issued and outstanding shares of our common stock and more than 9.8% (by value or number of shares, whichever is more restrictive) of the issued and outstanding shares of our Series A Preferred Stock, and we will also prohibit the ownership, actually or constructively, of any shares of our other preferred stock by any single

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person so that no such person, taking into account all of our stock so owned by such person, may own in excess of 9.8% of our issued and outstanding capital stock. We refer to this limitation as the “ownership limit.” Shares acquired or held in violation of the ownership limit will be transferred to a trust for the benefit of a designated charitable beneficiary. Any person who acquires shares in violation of the ownership limit will not be entitled to any dividends on the shares or be entitled to vote the shares or receive any proceeds from the subsequent sale of the shares in excess of the lesser of the price paid for the shares or the amount realized from the sale. A transfer of shares in violation of the above limits may be void under certain circumstances. The ownership limit may have the effect of delaying, deferring, or preventing a change in control and, therefore, could adversely affect our stockholders’ ability to realize a premium over the then-prevailing market price for the shares of our common stock in connection with such transaction.

      Our charter authorizes us to issue additional shares of common and preferred stock and to establish the preferences, rights, and other terms of any series or class of preferred stock that we issue. Although our board of directors has no intention to do so at the present time, it could establish a series or class of preferred stock that could delay, defer, or prevent a transaction or a change in control that might involve a premium price for the common stock or otherwise be in the best interests of our stockholders.

      Our charter and bylaws and Maryland law also contain other provisions that may delay, defer, or prevent a transaction, including a change in control, that might involve payment of a premium price for the common stock or otherwise be in the best interests of our stockholders. Those provisions include the following: (1) the provision in the charter that directors may be removed only for cause and only upon a two-thirds vote of stockholders, together with bylaw provisions authorizing the board of directors to fill vacant directorships; (2) the provision in the charter requiring a two-thirds vote of stockholders for any amendment of the charter; (3) the requirement in the bylaws that the request of the holders of 50% or more of our common stock is necessary for stockholders to call a special meeting; (4) the requirement of Maryland law that stockholders may only take action by written consent with the unanimous approval of all stockholders entitled to vote on the matter in question; and (5) the requirement in the bylaws of advance notice by stockholders for the nomination of directors or proposal of business to be considered at a meeting of stockholders.

      These provisions may impede various actions by stockholders without approval of our board of directors, which in turn may delay, defer or prevent a transaction involving a change of control.

 
We Could Change Our Investment and Financing Policies without a Vote of Stockholders

      Subject to our current investment policy to maintain our qualification as a real estate investment trust (unless a change is approved by our board of directors under certain circumstances), our board of directors will determine our investment and financing policies, our growth strategy and our debt, capitalization, distribution, and operating policies. Although the board of directors has no present intention to revise or amend these strategies and policies, the board of directors may do so at any time without a vote of stockholders. Accordingly, stockholders will have no control over changes in our strategies and policies (other than through the election of directors), and any such changes may not serve the interests of all stockholders and could adversely affect our financial condition or results of operations, including our ability to pay dividends to our stockholders.

 
If We Issue Additional Securities, then the Investment of Existing Stockholders Will Be Diluted

      We have authority to issue shares of common stock or other equity or debt securities in exchange for property or otherwise. Similarly, we may cause the operating partnership to issue additional limited partnership units in exchange for property or otherwise. Existing stockholders will have no preemptive right to acquire any additional securities issued by us or the operating partnership and any issuance of additional equity securities could result in dilution of an existing stockholder’s investment.

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The Large Number of Shares Available for Future Sale Could Adversely Affect the Market Price of Our Common Stock

      We cannot predict the effect, if any, that future sales of shares of our common stock, or the availability of shares of our common stock for future sale, will have on its market price. Sales of a substantial number of shares of our common stock in the public market (or upon exchange of limited partnership units in the operating partnership) or the perception that such sales (or exchanges) might occur could adversely affect the market price of our common stock.

      All shares of common stock issuable upon the redemption of limited partnership units in the operating partnership will be deemed to be “restricted securities” within the meaning of Rule 144 under the Securities Act and may not be transferred unless registered under the Securities Act or an exemption from registration is available, including any exemption from registration provided under Rule 144. In general, upon satisfaction of certain conditions, Rule 144 permits the holder to sell certain amounts of restricted securities one year following the date of acquisition of the restricted securities from us and, after two years, permits unlimited sales by persons unaffiliated with us. Commencing generally on the first anniversary of the date of acquisition of common limited partnership units (or such other date agreed to by the operating partnership and the holders of the units), the operating partnership may redeem common limited partnership units at the request of the holders for cash (based on the fair market value of an equivalent number of shares of common stock at the time of redemption) or, at the option of the operating partnership, exchange the common limited partnership units for an equal number of shares of our common stock, subject to certain antidilution adjustments. The operating partnership had issued and outstanding 4,969,027 common limited partnership units as of December 31, 2001. As of December 31, 2001, we had reserved 8,072,818 shares of common stock for issuance under our Stock Option and Incentive Plan (not including shares that we have already issued) and, as of December 31, 2001, we had granted to certain directors, officers, and employees options to purchase 7,437,219 shares of common stock (excluding forfeitures and 330,176 shares that we have issued pursuant to the exercise of options). As of December 31, 2001, we had granted 549,738 restricted shares of common stock, 2,732 of which have been forfeited. In addition, we may issue additional shares of common stock and the operating partnership may issue additional limited partnership units in connection with the acquisition of properties. In connection with the issuance of common limited partnership units to other transferors of properties, and in connection with the issuance of the performance units, we have agreed to file registration statements covering the issuance of shares of common stock upon the exchange of the common limited partnership units. We have also filed a registration statement with respect to the shares of common stock issuable under our Stock Option and Incentive Plan. These registration statements and registration rights generally allow shares of common stock covered thereby, including shares of common stock issuable upon exchange of limited partnership units, including performance units, or the exercise of options or restricted shares of common stock, to be transferred or resold without restriction under the Securities Act. We may also agree to provide registration rights to any other person who may become an owner of the operating partnership’s limited partnership units.

      Future sales of the shares of common stock described above could adversely affect the market price of our common stock. The existence of the operating partnership’s limited partnership units, options, and shares of common stock reserved for issuance upon exchange of limited partnership units, and the exercise of options and registration rights referred to above, also may adversely affect the terms upon which we are able to obtain additional capital through the sale of equity securities.

 
Various Market Conditions Affect the Price of Our Stock

      As with other publicly-traded equity securities, the market price of our stock will depend upon various market conditions, which may change from time to time. Among the market conditions that may affect the market price of our stock are the following: (1) the extent of investor interest in us; (2) the general reputation of real estate investment trusts and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate-based companies); (3) our financial performance; (4) general stock and bond market conditions, including changes in interest rates on fixed income securities, that may lead prospective purchasers of our stock to demand a higher annual yield from future dividends; and

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(5) terrorist activity may adversely affect the markets in which our securities trade, possibly increasing market volatility and causing the further erosion of business and consumer confidence and spending. Other factors such as governmental regulatory action and changes in tax laws could also have a significant impact on the future market price of our stock.
 
Earnings and Cash Dividends, Asset Value, and Market Interest Rates Affect the Price of Our Stock

      The market value of the equity securities of a real estate investment trust generally is based primarily upon the market’s perception of the real estate investment trust’s growth potential and its current and potential future earnings and cash dividends. It is based secondarily upon the real estate market value of the underlying assets. For that reason, shares of our stock may trade at prices that are higher or lower than the net asset value per share. To the extent that we retain operating cash flow for investment purposes, working capital reserves, or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our stock. Our failure to meet the market’s expectations with regard to future earnings and cash dividends likely would adversely affect the market price of our stock. Another factor that may influence the price of our stock will be the distribution yield on the stock (as a percentage of the price of the stock) relative to market interest rates. An increase in market interest rates might lead prospective purchasers of our stock to expect a higher distribution yield, which would adversely affect the market price of the stock. If the market price of our stock declines significantly, then we might breach certain covenants with respect to debt obligations, which might adversely affect our liquidity and ability to make future acquisitions and our ability to pay dividends to our stockholders.

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 stockholders and unitholders, 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 incur more debt without stockholder 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:

                                                         
Expected Maturity Date

Total
2002 2003 2004 2005 2006 Thereafter Debt







Fixed rate debt(1)
  $ 73,603     $ 89,319     $ 92,364     $ 350,029     $ 186,452     $ 1,149,166     $ 1,940,933  
Average interest rate
    8.3 %     7.8 %     8.0 %     7.3 %     7.3 %     7.5 %     7.5 %
Variable rate debt(2)
  $ 23,093     $ 136,053     $ 20,526     $ 594     $ 7,629           $ 187,895  
Average interest rate
    3.5 %     2.8 %     4.1 %     3.5 %     3.5 %           3.0 %


(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.”

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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 Corporation, 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 our 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.

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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.

         
Page

Report of Independent Public Accountants
    F-  
Consolidated Balance Sheets as of December 31, 2001 and 2000
    F-  
Consolidated Statements of Operations for the years ended December 31, 2001, 2000, and 1999
    F-  
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000, and 1999
    F-  
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2001, 2000, and 1999
    F-  
Notes to Consolidated Financial Statements
    F-  
Schedule III — Real Estate and Accumulated Depreciation
    S-  

      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:

     
Exhibit
Number Description


3.1
  Articles of Incorporation of AMB Property Corporation (incorporated by reference to Exhibit 3.1 of AMB Property Corporation’s Registrations Statement on Form S-11 (No. 333-35915)).
3.2
  Certificate of Correction of AMB Property Corporation’s Articles Supplementary establishing and fixing the rights and preferences of the 8 1/2% Series A Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.2 of AMB Property Corporation’s Annual Report on Form 10-K for the year ended December 31, 1998).
3.3
  Articles Supplementary establishing and fixing the rights and preferences of the 8 5/8% Series B Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 of AMB Property Corporation’s Current Report on Form 8-K filed on January 7, 1999).
3.4
  Articles Supplementary establishing and fixing the rights and preferences of the 8.75% Series C Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.2 of AMB Property Corporation’s Current Report on Form 8-K filed on January 7, 1999).
3.5
  Articles Supplementary establishing and fixing the rights and preferences of the 7.75% Series D Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 of AMB Property Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999).
3.6
  Articles Supplementary establishing and fixing the rights and preferences of the 7.75% Series E Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1 of AMB Property Corporation’s Current Report on Form 8-K filed on September 14, 1999).
3.7
  Articles Supplementary establishing and fixing the rights and preferences of the 7.95% Series F Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 of AMB Property Corporation’s Current Report on Form 8-K filed on April 14, 2000).
3.8
  Articles Supplementary establishing and fixing the rights and preferences of the 7.95% Series G Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 of AMB Property Corporation’s Current Report on Form 8-K filed on September 29, 2000).
3.9
  Articles Supplementary establishing and fixing the rights and preferences of the 8.125% Series H Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.3 of AMB Property Corporation’s Current Report on Form 8-K filed on September 29, 2000).

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Exhibit
Number Description


3.10
  Articles Supplementary establishing and fixing the rights and preferences of the 8.00% Series I Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 of AMB Property Corporation’s Current Report on Form 8-K filed on March 23, 2001).
3.11
  Articles Supplementary establishing and fixing the rights and preferences of the 7.95% Series J Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 of AMB Property Corporation’s Current Report on Form 8-K filed on October 3, 2001).
3.12
  Articles Supplementary redesignating and reclassifying all 2,200,000 Shares of the 8.75% Series C Cumulative Redeemable Preferred Stock as Preferred Stock (incorporated by reference to Exhibit 3.1 of AMB Property Corporation’s Current Report on Form 8-K filed on December 7, 2001).
3.13
  Second Amended and Restated Bylaws of AMB Property Corporation (incorporated by reference to Exhibit 3.11 of AMB Property Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000).
4.1
  Form of Certificate for Common Stock of AMB Property Corporation (incorporated by reference to Exhibit 3.3 of AMB Property Corporation’s Registration Statement on Form S-11 (No. 333-35915)).
4.2
  Form of Certificate for 8.5% Series A Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.5(2) of Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).
4.3
  $30,000,000 7.925% Fixed Rate Note No. 1 dated August 18, 2000, attaching the Parent Guarantee dated August 18, 2000 (incorporated by reference to Exhibit 4.5 of AMB Property Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000).
4.4
  $25,000,000,000 7.925% Fixed Rate Note No. 2 dated September 12, 2000, attaching the Parent Guarantee dated September 12, 2000 (incorporated by reference to Exhibit 4.6 of AMB Property Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000).
4.5
  $50,000,000 8.00% Fixed Rate Note No. 3 dated October 26, 2000, attaching the Parent Guarantee dated October 26, 2000 (incorporated by reference to Exhibit 4.7 of AMB Property Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000).
4.6
  $25,000,000 8.000% Fixed Rate Note No. 4 dated October 26, 2000, attaching the Parent Guarantee dated October 26, 2000 (incorporated by reference to Exhibit 4.8 of AMB Property Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000).
4.7
  $50,000,000 7.20% Fixed Rate Note No. 5 dated December 19, 2000, attaching the Parent Guarantee dated December 19, 2000 (incorporated herein by reference to Exhibit 4.1 of AMB Property Corporation’s Current Report on Form 8-K filed on January 8, 2001).
4.8
  $50,000,000 7.20% Fixed Rate Note No. 6 dated December 19, 2000, attaching the Parent Guarantee dated December 19, 2000 (incorporated herein by reference to Exhibit 4.2 of AMB Property Corporation’s Current Report on Form 8-K filed on January 8, 2001).
4.9
  $50,000,000 7.20% Fixed Rate Note No. 7 dated December 19, 2000, attaching the Parent Guarantee dated December 19, 2000 (incorporated herein by reference to Exhibit 4.3 of AMB Property Corporation’s Current Report on Form 8-K filed on January 8, 2001).
4.10
  Indenture dated as of June 30, 1998, by and among AMB Property, L.P., AMB Property Corporation and State Street Bank and Trust Company of California, N.A., as trustee (incorporated by reference to Exhibit 4.1 of AMB Property Corporation’s Registration Statement on Form S-11 (No. 333-49163)).
4.11
  First Supplemental Indenture dated as of June 30, 1998 by and among AMB Property, L.P., AMB Property Corporation and State Street Bank and Trust Company of California, N.A., as trustee (incorporated by reference to Exhibit 4.2 of AMB Property Corporation’s Registration Statement Form S-11 (No. 333-49163)).

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Exhibit
Number Description


 
4.12
  Second Supplemental Indenture dated as of June 30, 1998, by and among AMB Property, L.P., AMB Property Corporation and State Street Bank and Trust Company of California, N.A., as trustee (incorporated by reference to Exhibit 4.3 of AMB Property Corporation’s Registration Statement on Form S-11 (No. 333-49163)).
 
4.13
  Third Supplemental Indenture dated as of June 30, 1998, by and among AMB Property, L.P., AMB Property Corporation and State Street Bank and Trust Company of California, N.A., as trustee (incorporated by reference to Exhibit 4.4 of AMB Property Corporation’s Registration Statement on Form S-11 (No. 333-49163)).
 
4.14
  Fourth Supplemental Indenture, by and among AMB Property, L.P., AMB Property Corporation and State Street Bank and Trust Company of California, N.A., as trustee (incorporated herein by reference as Exhibit 4.1 of AMB Property Corporation’s Current Report on Form 8-K/ A filed on November 9, 2000).
 
4.15
  Specimen of 7.10% Notes due 2008 (included in the First Supplemental Indenture incorporated by reference as Exhibit 4.2 of AMB Property Corporation’s Registration Statement on Form S-11 (No. 333-49163)).
 
4.16
  Specimen of 7.50% Notes due 2018 (included in the Second Supplemental Indenture incorporated by reference as Exhibit 4.3 of AMB Property Corporation’s Registration Statement on Form S-11 (No. 333-49163)).
 
4.17
  Specimen of 6.90% Reset Put Securities due 2015 (included in the Third Supplemental Indenture incorporated by reference as Exhibit 4.4 of AMB Property Corporation’s Registration Statement on Form S-11 (No. 333-49163)).
 
4.18
  $25,000,000 6.90% Fixed Rate Note No. 8 dated January 9, 2001, attaching the Parent Guarantee dated January 9, 2001 (incorporated herein by reference to Exhibit 4.1 of AMB Property Corporation’s Current Report on Form 8-K filed on January 31, 2001).
 
4.19
  $50,000,000 7.00% Fixed Rate Note No. 9 dated March 7, 2001, attaching the Parent Guarantee dated March 7, 2001 (incorporated herein by reference to Exhibit 4.1 of AMB Property Corporation’s Current Report on Form 8-K filed on March 16, 2001).
 
4.20
  $25,000,000 6.75% Fixed Rate Note No. 10 dated September 6, 2001, attaching the Parent Guarantee dated September 6, 2001 (incorporated herein by reference to Exhibit 4.1 of AMB Property Corporation’s Current Report on Form 8-K filed on September 18, 2001).
 
4.21
  $20,000,000 5.90% Fixed Rate Note No. 11 dated January 17, 2002, attaching the Parent Guarantee dated January 17, 2002 (incorporated herein by reference to Exhibit 4.1 of AMB Property Corporation’s Current Report on Form 8-K filed on January 23, 2002).
10.1
  Distribution Agreement dated August 15, 2000 by and among AMB Property Corporation, AMB Property, L.P., Morgan Stanley & Co., Incorporated, Banc of America Securities LLC, Banc One Capital Markets, Inc., Chase Securities, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc., and Salomon Smith Barney Inc. (incorporated herein by reference to Exhibit 1.1 of Registrant’s Current Report on Form 8-K/ A filed on November 9, 2000).
10.2
  Terms Agreement dated as of December 14, 2000, by and between Morgan Stanley & Co., Incorporated and J.P. Morgan Securities Inc. and AMB Property, L.P. (incorporated herein by reference to Exhibit 1.1 of AMB Property Corporation’s Current Report on Form 8-K filed on January 8, 2001).
10.3
  Terms Agreement dated as of January 4, 2001, by and between A.G. Edwards & Sons, Inc. and AMB Property, L.P. (incorporated herein by reference to Exhibit 1.1 of AMB Property Corporation’s Current Report on Form 8-K filed on January 31, 2001).
10.4
  Terms Agreement dated as of March 2, 2001, by and among First Union Securities, Inc., AMB Property, L.P. and AMB Property Corporation (incorporated by reference to Exhibit 1.1 of Registrants’ current report on Form 8-K filed on March 16, 2001).

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Exhibit
Number Description


10.5
  Fifth Amended and Restated Partnership Agreement of Limited Partnership of AMB Property, L.P. dated September 21, 2001 (incorporated herein by reference as Exhibit 10.1 to AMB Property Corporations Current Report on Form 8-K filed on October 3, 2001).
10.6
  First Amendment to the Fifth Amended and Restated Agreement of Limited Partnership of AMB Property, L.P. dated January 1, 2002.
10.7
  Form of Registration Rights Agreement among AMB Property Corporation and the persons named therein (incorporated by reference to Exhibit 10.2 of AMB Property Corporation’s Registration Statement on Form S-11 (No. 333-35915)).
10.8
  Form of Change in Control and Noncompetition Agreement between AMB Property Corporation and Executive Officers (incorporated by reference to AMB Property Corporation’s Annual Report on Form 10-K for the year ended December 31, 1998).
10.9
  Agreement for Purchase and Exchange entered into as of March 9, 1999, by and among AMB Property, L.P., AMB Property II, L.P., Long Gate, L.L.C. and BPP Retail, LLC, regarding the transaction which closed on June 15, 1999 (incorporated by reference to Exhibit 10.1 of AMB Property Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
10.10
  Agreement for Purchase and Exchange entered into as of March 9, 1999, by and among AMB Property, L.P., AMB Property II, L.P., Long Gate, L.L.C. and BPP Retail, LLC, regarding the transaction which closed on August 4, 1999 (incorporated by reference to Exhibit 10.2 of AMB Property Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
10.11
  Agreement for Purchase and Exchange entered into as of March 9, 1999, by and among AMB Property, L.P., AMB Property II, L.P., Long Gate, L.L.C. and BPP Retail, LLC, regarding the transaction which closed on December 1, 1999 (incorporated by reference to Exhibit 10.3 of AMB Property Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
10.12
  Dividend Reinvestment and Direct Purchase Plan, dated July 9, 1999 (incorporated by reference to Exhibit 10.4 of AMB Property Corporation’s Quarterly Report on Report Form 10-Q for the quarter ended June 30, 1999).
10.13
  Second Amended and Restated 1997 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.5 of AMB Property Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
10.14
  Tenth Amended and Restated Agreement of Limited Partnership of AMB Property II, L.P., dated December 6, 2001 (incorporated by reference to Exhibit 10.1 of AMB Property Corporation’s Current Report on Form 8-K filed on December 7, 2001).
10.15
  First Amendment to Tenth Amended and Restated Agreement of Limited Partnership of AMB Property II, L.P., dated January 1, 2002.
10.16
  Revolving Credit Agreement dated as of May 24, 2000, among AMB Property, L.P., the banks listed therein, Morgan Guaranty Trust Company of New York, as Administrative Agent, Bank of America, N.A., as Syndication Agent, the Chase Manhattan Bank, as Documentation Agent, J.P. Morgan Securities Inc. and Banc of America Securities LLC, as Joint Lead Arrangers and Joint Bookmanagers, Bank one, NA, Commerzbank Aktiengesellschaft, PNC Bank National Association and Wachovia Bank, N.A., as Managing Agents and Banks Trust Company and Dresdner Bank AG, New York and Grand Cayman Branches, as Co-Agents (incorporated by reference to Exhibit 10.1 of AMB Property Corporation’s Current Report on Form 8-K filed on June 16, 2000).
10.17
  Guaranty of Payment made as of May 24, 2000, between AMB Property Corporation and Morgan Guaranty Trust Company of New York, as administrative agent for the banks listed on the signature page of the Revolving Credit Agreement (incorporated herein by reference to Exhibit 10.2 of AMB Property Corporation’s Current Report on Form 8-K filed on June 16, 2000).

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Exhibit
Number Description


10.18
  Credit Agreement dated as of September 27, 1999, among AMB Institutional Alliance Fund I, L.P., AMB Institutional Alliance REIT I, Inc., the Lenders and issuing parties thereto, BT Realty Resources, Inc. and Chase Manhattan Bank (incorporated by reference to Exhibit 10.3 of AMB Property Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999).
10.19
  Revolving Credit Agreement dated as of August 23, 2001, among AMB Institutional Alliance Fund II, L.P., AMB Institutional Alliance REIT II, Inc., the banks and financial institutions listed therein, Bank of America, N.A. as Administrative Agent, Dresdner Bank AG, as Syndication Agent, and Bank One, NA, as Documentation Agent (incorporated by reference to Exhibit 10.4 of AMB Property Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).
10.20
  Terms Agreement dated as of August 30, 2001, by and among Lehman Brothers Inc., AMB Property, L.P., and AMB Property Corporation (incorporated by reference to Exhibit 1.1 of AMB Property Corporation’s Current Report on Form 8-K filed on September 18, 2001).
10.21
  Terms Agreement dated as of January 14, 2002, by and among Lehman Brothers Inc., AMB Property, L.P., and AMB Property Corporation (incorporated by reference to Exhibit 1.1 of AMB Property Corporation’s Current Report on Form 8-K filed on January 23, 2002).
10.22
  Third Amended and Restated 1997 Stock Option and Incentive Plan.
10.23
  Amendment No. 1 to the Third Amended and Restated 1997 Stock Option and Incentive Plan.
10.24
  2002 Stock Option and Incentive Plan.
10.25
  Second Amendment to Tenth Amended and Restated Agreement of Limited Partnership of AMB Property II, L.P., dated February 25, 2002.
10.26
  AMB Nonqualified Deferred Compensation Plan.
21.1
  Subsidiaries of AMB Property Corporation.
23.1
  Consent of Arthur Andersen LLP.
24.1
  Powers of Attorney (included in Part IV of this Form 10-K).
99.1
  Letter, dated March 28, 2002, from AMB Property Corporation to the Securities and Exchange Commission.

      (b) Reports on Form 8-K:

  •  AMB Property Corporation 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 Corporation filed a Current Report on Form 8-K on October 16, 2001, in connection with its third quarter 2001 earnings release.
 
  •  AMB Property Corporation 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 Corporation 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.
 
  •  AMB Property Corporation filed a Current Report on Form 8-K on January 24, 2002, in connection with its fourth quarter 2001 earnings release.

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      (c) Exhibits:

      See Item 14(a)(3) above.

      (d) Financial Statement Schedules:

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

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SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, AMB Property Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 28, 2002.

  AMB PROPERTY CORPORATION

  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, 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 to enable AMB Property Corporation 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.

         
Name Title Date



/s/ HAMID R. MOGHADAM

Hamid R. Moghadam
  Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
  March 28, 2002
 
/s/ W. BLAKE BAIRD

W. Blake Baird
  President and Director   March 28, 2002
 
/s/ T. ROBERT BURKE

T. Robert Burke
  Director   March 28, 2002
 
/s/ DANIEL H. CASE III

Daniel H. Case III
  Director   March 28, 2002
 
/s/ DAVID A. COLE

David A. Cole
  Director   March 28, 2002

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Name Title Date



 
/s/ LYNN M. SEDWAY

Lynn M. Sedway
  Director   March 28, 2002
 
/s/ JEFFREY L. SKELTON, PH.D.

Jeffrey L. Skelton, Ph.D.
  Director   March 28, 2002
 
/s/ THOMAS W. TUSHER

Thomas W. Tusher
  Director   March 28, 2002
 
/s/ CARYL B. WELBORN, ESQ.

Caryl B. Welborn, Esq.
  Director   March 28, 2002
 
/s/ MICHAEL A. COKE

Michael A. Coke
  Chief Financial Officer and
Executive Vice President
(Duly Authorized Officer and Principal Financial and Accounting Officer)
  March 28, 2002

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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 Corporation (a Maryland corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders’ equity, 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 Company’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 Corporation 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. The 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


Table of Contents

AMB PROPERTY CORPORATION

CONSOLIDATED BALANCE SHEETS

As of December 31, 2001 and 2000
                     
2001 2000


(Dollars in thousands, except
share amounts)
ASSETS
 
Investments in real estate:
               
 
Land
  $ 1,064,422     $ 833,325  
 
Buildings and improvements
    3,285,110       2,915,537  
 
Construction in progress
    181,179       277,735  
     
     
 
   
Total investments in properties
    4,530,711       4,026,597  
 
Accumulated depreciation and amortization
    (265,653 )     (177,467 )
     
     
 
   
Net investments in properties
    4,265,058       3,849,130  
Investment in unconsolidated joint ventures
    71,097       80,432  
Properties held for divestiture, net
    157,174       197,146  
     
     
 
   
Net investments in real estate
    4,493,329       4,126,708  
Cash and cash equivalents
    73,071       20,358  
Restricted cash
    8,661       22,364  
Mortgages receivable
    87,214       115,969  
Accounts receivable, net of allowance for doubtful accounts of $9,354 and $7,677, respectively
    70,794       69,874  
Investments in affiliated companies
    -       35,731  
Investments in other companies, net
    -       15,965  
Other assets
    27,824       18,657  
     
     
 
   
Total assets
  $ 4,760,893     $ 4,425,626  
     
     
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Debt:
               
 
Secured debt
  $ 1,220,164     $ 940,276  
 
Unsecured senior debt securities
    780,000       680,000  
 
Alliance Fund II credit facility
    123,500       -  
 
Unsecured credit facility
    12,000       216,000  
     
     
 
   
Total debt
    2,135,664       1,836,276  
Accounts payable
    73,310       56,577  
Other liabilities
    65,291       90,465  
     
     
 
   
Total liabilities
    2,274,265       1,983,318  
Commitments and contingencies (Note 15)
               
Minority interests
    734,286       674,378  
Stockholders’ equity:
               
 
Series A preferred stock, cumulative, redeemable, $.01 par value, 100,000,000 shares authorized, 4,000,000 issued and outstanding, $100,000 liquidation preference
    96,100       96,100  
 
Common stock $.01 par value, 500,000,000 shares authorized, 83,821,829 and 84,138,751 issued and outstanding
    838       841  
 
Additional paid-in capital
    1,627,764       1,638,655  
 
Retained earnings
    27,640       36,066  
 
Accumulated other comprehensive loss
    -       (3,732 )
     
     
 
   
Total stockholders’ equity
    1,752,342       1,767,930  
     
     
 
   
Total liabilities and stockholders’ equity
  $ 4,760,893     $ 4,425,626  
     
     
 

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

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AMB PROPERTY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2001, 2000, and 1999
                               
2001 2000 1999



(Dollars in thousands,
except share and per share amounts)
REVENUES
                       
 
Rental revenues
  $ 568,066     $ 464,164     $ 439,658  
 
Equity in earnings of unconsolidated joint ventures
    5,467       5,212       4,701  
 
Investment management income
    10,972       4,282       1,511  
 
Interest and other income
    16,340       6,549       2,313  
     
     
     
 
   
Total revenues
    600,845       480,207       448,183  
EXPENSES
                       
 
Property operating expenses
    69,016       50,566       51,739  
 
Real estate taxes
    69,180       57,164       56,184  
 
Interest, including amortization
    128,985       90,270       88,681  
 
Depreciation and amortization
    111,414       90,358       67,035  
 
General and administrative
    35,820       23,750       25,223  
 
Loss on investments in other companies
    20,758       2,500        
     
     
     
 
   
Total expenses
    435,173       314,608       288,862  
     
     
     
 
   
Income before minority interests and net gains from disposition of real estate
    165,672       165,599       159,321  
 
Minority interests’ share of income
    (63,541 )     (44,961 )     (34,011 )
 
Gains from dispositions of real estate, net of minority interests:
                       
   
Gains on developments held for sale
    13,169              
   
Net gains from disposition of real estate, net of impairment charges of $18.6 million, $5.9 million, and $0.5 million, respectively
    23,259       1,144       53,283  
     
     
     
 
     
Total net gains from dispositions of real estate
    36,428       1,144       53,283  
     
     
     
 
     
Net income before extraordinary items
    138,559       121,782       178,593  
   
Extraordinary items (early debt extinguishments)
    (606 )           (2,490 )
     
     
     
 
   
Net income
    137,953       121,782       176,103  
   
Series A preferred stock dividends
    (8,500 )     (8,500 )     (8,500 )
   
Preferred unit redemption premium
    (4,400 )            
     
     
     
 
     
Net income available to common stockholders
  $ 125,053     $ 113,282     $ 167,603  
     
     
     
 
BASIC INCOME PER COMMON SHARE
                       
   
Before extraordinary items
  $ 1.49     $ 1.35     $ 1.94  
   
Extraordinary items
                (0.03 )
     
     
     
 
     
Net income available to common stockholders
  $ 1.49     $ 1.35     $ 1.94  
     
     
     
 
DILUTED INCOME PER COMMON SHARE
                       
   
Before extraordinary items
  $ 1.47     $ 1.35     $ 1.97  
   
Extraordinary items
                (0.03 )
     
     
     
 
     
Net income available to common stockholders
  $ 1.47     $ 1.35     $ 1.94  
     
     
     
 
WEIGHED AVERAGE COMMON SHARES OUTSTANDING
                       
   
Basic
    84,174,644       83,697,170       86,271,862  
     
     
     
 
   
Diluted
    85,214,066       84,155,306       86,347,487  
     
     
     
 

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

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AMB PROPERTY CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Years Ended December 31, 2001, 2000, and 1999
                                                             
Common Stock Accumulated
Series A
Additional Other
Preferred Number Paid-in Retained Comprehensive
Stock of Shares Amount Capital Earnings Income Total







(Dollars in thousands, except share amounts)
AMB Property Corporation
                                                       
Balance as of December 31, 1998
  $ 96,100       85,917,520     $ 859     $ 1,668,401     $     $     $ 1,765,360  
Comprehensive income:
                                                       
 
Net income
    8,500                         167,603                
 
Unrealized gains on securities
                                  28,993          
   
Total comprehensive income
                                        205,096  
 
Issuance of restricted stock, net
          98,368       1       2,214                   2,215  
 
Retirement of common stock
          (1,443,600 )     (14 )     (27,286 )                 (27,300 )
 
Exercise of stock options
          25,000             526                   526  
 
Conversion of Operating Partnership units
          535,753       5       11,048                   11,053  
 
Deferred compensation
                      (3,080 )                 (3,080 )
 
Deferred compensation amortization
                      952                   952  
 
Reallocation of Limited Partners’
                                                       
   
Interest in Operating Partnership
                      3,451                   3,451  
 
Dividends
    (8,500 )                       (120,514 )           (129,014 )
     
     
     
     
     
     
     
 
Balance as of December 31, 1999
    96,100       85,133,041       851       1,656,226       47,089       28,993       1,829,259  
Comprehensive income:
                                                       
 
Net income
    8,500                         113,282                
 
Unrealized loss on securities
                                  (32,725 )        
   
Total comprehensive income
                                        89,057  
 
Issuance of restricted stock, net
          161,996       2       3,268                   3,270  
 
Retirement of common stock
          (1,465,926 )     (15 )     (29,303 )                 (29,318 )
 
Exercise of stock options
          103,217       1       2,179                   2,180  
 
Conversion of Operating Partnership units
          206,423       2       4,911                   4,913  
 
Deferred compensation
                      (3,270 )                 (3,270 )
 
Deferred compensation amortization
                      1,022                   1,022  
 
Reallocation of limited partners’ interests in Operating Partnership
                      3,622                   3,622  
 
Dividends
    (8,500 )                       (124,305 )           (132,805 )
     
     
     
     
     
     
     
 
Balance as of December 31, 2000
    96,100       84,138,751       841       1,638,655       36,066       (3,732 )     1,767,930  
Comprehensive income:
                                                       
 
Net income
    8,500                         129,453                
 
Preferred unit redemption premium
                            (4,400 )              
 
Reversal of unrealized loss on securities
                                  3,732          
   
Total comprehensive income
                                        137,285  
 
Issuance of restricted stock, net
          237,920       2       5,851                   5,853  
 
Exercise of stock options
          201,960       2       4,272                   4,274  
 
Conversion of Operating Partnership units
          635,798       7       15,248                   15,255  
 
Retirement of common stock
          (1,392,600 )     (14 )     (32,878 )                 (32,892 )
 
Deferred compensation
                      (5,853 )                 (5,853 )
 
Deferred compensation amortization
                      2,725                   2,725  
 
Reallocation of limited partners’ interest in Operating Partnership
                      (256 )                 (256 )
 
Dividends
    (8,500 )                       (133,479 )           (141,979 )
     
     
     
     
     
     
     
 
Balance as of December 31, 2001
  $ 96,100       83,821,829     $ 838     $ 1,627,764     $ 27,640     $     $ 1,752,342  
     
     
     
     
     
     
     
 

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

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AMB PROPERTY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2001, 2000, and 1999
                               
2001 2000 1999



(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
                       
Net Income
  $ 137,953     $ 121,782     $ 176,103  
Adjustments to reconcile net income to net cash provided by operating activities:
                       
 
Depreciation and amortization
    111,414       90,358       67,035  
 
Loss on investments in other companies
    20,758       2,500        
 
Straight-line rents
    (10,093 )     (10,203 )     (10,847 )
 
Amortization of debt premiums and financing costs
    (2,947 )     (6,055 )     (3,009 )
 
Deferred compensation amortization
    (2,725 )     (1,022 )     (952 )
 
Minority interests
    63,541       44,961       34,011  
 
Gains from dispositions of real estate
    (36,428 )     (1,144 )     (53,283 )
 
Non-cash portion of extraordinary items
    (615 )           (6,058 )
 
Equity in loss of AMB Investment Management
    43       3,159       875  
 
Equity in earnings of unconsolidated joint ventures
    (5,467 )     (5,212 )     (4,701 )
 
Changes in assets and liabilities:
                       
   
Other assets
    19,753       (35,620 )     6,151  
   
Other liabilities
    (6,625 )     57,671       (14,934 )
     
     
     
 
     
Net cash provided by operating activities
    288,562       261,175       190,391  
CASH FLOWS FROM INVESTING ACTIVITIES
                       
Change in restricted cash and cash equivalents
    13,703       (4,002 )     (98,480 )
Cash paid for property acquisitions
    (402,208 )     (604,872 )     (399,891 )
Additions to buildings, development costs, and other first generation improvements
    (174,651 )     (153,534 )     (152,643 )
Additions to second generation building improvements and lease costs
    (47,842 )     (40,573 )     (27,289 )
Additions to interests in unconsolidated joint ventures
          (13,158 )     (7,789 )
Distributions received from unconsolidated joint ventures
    5,341       4,295       3,787  
Net proceeds from divestiture of real estate
    242,505       85,345       746,037  
     
     
     
 
     
Net cash provided by (used in) investing activities
    (363,152 )     (726,499 )     63,732  
CASH FLOWS FROM FINANCING ACTIVITIES
                       
Issuance of common stock
    4,274       2,180       732  
Retirement of common stock
    (32,892 )           (27,300 )
Borrowings on secured debt
    362,052       156,797       36,174  
Payments on secured debt
    (88,866 )     (71,822 )     (117,463 )
Borrowings on unsecured credit facility
    210,000       510,000       327,000  
Payments on unsecured credit facility
    (414,000 )     (377,000 )     (478,000 )
Borrowings on Alliance Fund I credit facility
                80,000  
Payments on Alliance Fund I credit facility
          (80,000 )      
Borrowings on Alliance Fund II credit facility
    125,000              
Payments on Alliance Fund II credit facility
    (1,500 )            
Payment of financing fees
    (7,296 )     (6,364 )     (242 )
Net proceeds from issuances of senior debt securities
    99,406       278,183        
Net proceeds from issuances of preferred units
    63,727       61,413       88,476  
Contributions from co-investment partners
    134,770       153,872       14,611  
Redemption of Series C preferred units
    (114,400 )            
Dividends paid to common and preferred stockholders
    (141,979 )     (130,680 )     (133,266 )
Distributions to minority interests, including preferred units
    (70,993 )     (44,209 )     (31,443 )
     
     
     
 
     
Net cash provided by (used in) financing activities
    127,303       452,370       (240,721 )
     
     
     
 
Net increase (decrease) in cash and cash equivalents
    52,713       (12,954 )     13,402  
Cash and cash equivalents at beginning of period
    20,358       33,312       19,910  
     
     
     
 
Cash and cash equivalents at end of period
  $ 73,071     $ 20,358     $ 33,312  
     
     
     
 
Supplemental Disclosures of Cash Flow Information
                       
Cash paid for interest
  $ 147,637     $ 90,138     $ 89,627  
Non-cash transactions:
                       
   
Acquisition of properties
  $ 428,254     $ 729,972     $ 471,905  
   
Assumption of debt
    (9,724 )     (125,100 )     (57,480 )
   
Acquisition capital
    (16,322 )            
   
Minority interest’s contribution, including units issued
                (14,534 )
     
     
     
 
     
Net cash paid
  $ 402,208     $ 604,872     $ 399,891  
     
     
     
 

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

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Table of Contents

AMB PROPERTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001 and 2000

1.     Organization and Formation of the Company

      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.

      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 Company’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.

      Through the Operating Partnership, the Company enters into co-investment joint ventures with institutional investors. See note 10. These co-investment joint ventures provide the Company with an additional source of capital to fund certain acquisitions and development and renovation projects. As of December 31, 2001, the Company 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 Company’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 Company owned 905 industrial buildings and seven retail centers, located in 26 markets throughout the United States (unaudited). The Company’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 December 31, 2001, the industrial buildings, principally warehouse distribution buildings, encompassed approximately 81.6 million rentable

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Table of Contents

AMB PROPERTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 Company also managed industrial buildings and retail centers, totaling approximately 2.7 million rentable square feet on behalf of various clients (unaudited). In addition, the Company 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 Company, its wholly-owned qualified REIT subsidiaries, the Operating Partnership, and joint ventures (the “Joint Ventures”), in which the Company 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 Company 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 Company’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 Company 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 Company believes that there are no additional impairments of the carrying values of its investments in real estate at December 31, 2001.

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Table of Contents

AMB PROPERTY CORPORATION

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:

                                     
Depreciation and Amortization Expenses Estimated Lives 2001 2000 1999





(Dollars in thousands)
Building costs
    40     $ 73,462     $ 62,097     $ 54,198  
Buildings and improvements:
                               
 
Roof/ HVAC/parking lots
    10       3,836       2,404       1,106  
 
Plumbing/signage
     7       805       484       144  
 
Painting and other
     5       7,664       6,345       2,546  
Tenant improvements
    Term of the related lease       12,305       9,165       4,091  
Lease commissions
    Term of the related lease       11,311       8,641       3,902  
             
     
     
 
   
Total real estate depreciation
            109,383       89,136       65,987  
Other depreciation and amortization
    Various       2,031       1,222       1,048  
             
     
     
 
   
Total depreciation and amortization
          $ 111,414     $ 90,358     $ 67,035  
             
     
     
 

      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 Company 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 Company 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 Company records the asset as an investment in real estate and records the rental income and expenses associated with the property as the Company retains the risk of loss and the benefits of the asset. At December 31, 2001, the Company had one property in a reverse exchange valued at $10.9 million.

      Concentration of Credit Risk. Other real estate companies compete with the Company 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 Company’s ability to lease space and on the amount of rent received. As of December 31, 2001, the Company 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.

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Table of Contents

AMB PROPERTY CORPORATION

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 Company periodically reviewed its investments and management determined if the value of such investments had been permanently impaired. During 2001, the Company recognized losses on its investments in other companies totaling $20.8 million, including its investment in Webvan Group, Inc. The Company 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 Company 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 Company’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 Company, 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 Company 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 stockholders’ equity.

      Derivatives. The Company 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 Company 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.

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Table of Contents

AMB PROPERTY CORPORATION

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

      The Company and AMB Capital Partners share common office space under lease obligations. Such lease obligations are charged to the Company and AMB Capital Partners at cost. For the years ended December 31, 2001, 2000, and 1999, the Company 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 Company 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 Company 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 Company 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 Company’s co-investment joint ventures.

      During 2001, the Company 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 Company’s historical cost because the Company controls these joint ventures and, therefore, they were under common control. The Company 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 Company 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 Company also initiated new industrial development projects valued at $9.7 million aggregating approximately 0.2 million square feet.

      As of December 31, 2001, the Company 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 Company and, in certain instances, the Company’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 Company and its 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 current and planned projects.

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Table of Contents

AMB PROPERTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      During 2000, the Company 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 Company 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 Company 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 Company 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 Company’s contributed properties of $17.8 million.

      During 2000, the Company 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 Company 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 Company 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:

                           
2001 2000 1999



(Dollars in thousands)
Rental revenues
  $ 20,203     $ 16,990     $ 15,993  
Property operating expenses and real estate taxes
    (8,067 )     (6,289 )     (5,691 )
     
     
     
 
 
Net operating income
    12,136       10,701       10,302  
Depreciation expense
    (1,864 )     (2,206 )     (2,161 )
Interest expense
    (3,546 )     (4,216 )     (3,870 )
     
     
     
 
 
Net income
  $ 6,726     $ 4,279     $ 4,271  
     
     
     
 

6.     Mortgages Receivable

      In September 2000, the Company sold a retail center located in Los Angeles, California. As of December 31, 2001, the Company 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 Company 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 Company 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.

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AMB PROPERTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Through a wholly-owned subsidiary, the Company 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:

                       
2001 2000


(Dollars in thousands)
REIT Secured debt, varying interest rates from 4.0% to 10.4% due July 2002 to April 2014 (weighted average interest rate of 8.1% as of December 31, 2001)
  $ 453,954     $ 568,650  
Joint venture secured debt, varying interest rates from 5.9% to 10.6% due February 2002 to June 2023 (weighted average interest rate of 7.1% as of December 31, 2001)
    759,374       361,768  
Unsecured senior debt securities, weighted average interest rate of 7.3%, due June 2005 to June 2018
    780,000       680,000  
Unsecured credit facility, variable interest at LIBOR plus 0.75% (interest rate of 2.8% as of December 31, 2001), due May 2003
    12,000       216,000  
Alliance Fund II credit facility, variable interest at LIBOR plus 0.875% (weighted average interest rate of 2.8% as of December 31, 2001)
    123,500        
     
     
 
   
Subtotal
    2,128,828       1,826,418  
 
Unamortized premiums
    6,836       9,858  
     
     
 
     
Total consolidated debt
  $ 2,135,664     $ 1,836,276  
     
     
 

      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 Company and the Operating Partnership were in material compliance with these covenants as of December 31, 2001 and 2000. As of December 31, 2001, the Company had 22 non-recourse secured loans, which are cross collateralized by 48 properties. As of December 31, 2001, the Company 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 REIT 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 Company 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. As of December 31, 2001, the Operating Partnership had issued $380.0 million of medium-term notes under

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AMB PROPERTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 Company and the Operating Partnership were 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 Company and the Operating Partnership were 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 Company and the Operating Partnership were 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.

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AMB PROPERTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      As of December 31, 2001, the scheduled maturities of the Company’s total debt, excluding unamortized debt premiums, were as follows:

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





(Dollars in thousands)
2002
  $ 28,193     $ 68,505     $     $     $ 96,698  
2003
    76,295       13,577             135,500       225,372  
2004
    65,284       47,607                   112,891  
2005
    62,826       37,796       250,000             350,622  
2006
    94,965       74,115       25,000             194,080  
2007
    30,198       25,682       55,000             110,880  
2008
    33,619       147,552       175,000             356,171  
2009
    5,176       32,351                   37,527  
2010
    52,780       71,966       75,000             199,746  
2011
    1,311       167,878       75,000             244,189  
Thereafter
    3,307       72,345       125,000             200,652  
     
     
     
     
     
 
    $ 453,954     $ 759,374     $ 780,000     $ 135,500     $ 2,128,828  
     
     
     
     
     
 

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 Company 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.

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AMB PROPERTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9.     Income Taxes

      The Company elected to be taxed as a REIT under the Code, commencing with its taxable year ended December 31, 1997. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its taxable income to its stockholders. It is management’s current intention to adhere to these requirements and maintain the Company’s REIT status. As a REIT, the Company generally will not be subject to corporate level federal income tax on net income it distributes currently to its stockholders. As such, no provision for federal income taxes has been included in the accompanying consolidated financial statements. If the Company fails to qualify as a REIT in any taxable year, then it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed taxable income.

      The following reconciles net income available to common stockholders to taxable income available to common stockholders for the years ended December 31:

                             
2001 2000 1999



(Dollars in thousands)
Net income available to common stockholders
  $ 125,053     $ 113,282     $ 167,603  
 
Add: Book depreciation and amortization
    111,414       90,358       67,035  
 
Less: Tax depreciation and amortization
    (117,400 )     (87,338 )     (69,264 )
   
Book/tax difference on gain on divestiture of real estate
    (7,563 )     24,688       (15,001 )
   
Other book/tax differences, net(1)
    15,943       (5,723 )     (12,722 )
     
     
     
 
Taxable income available to common stockholders
  $ 127,447     $ 135,267     $ 137,651  
     
     
     
 


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

     For income tax purposes, distributions paid to common stockholders consist of ordinary income, capital gains, or a combination thereof. For the years ended December 31, 2001, 2000, and 1999, the Company elected to distribute all of its taxable capital gain. Dividends paid per share for the years ended December 31, were taxable as follows:

                                                 
2001 2000 1999



Ordinary income
  $ 1.29       81.9 %   $ 1.21       82.0 %   $ 1.14       74.6 %
Capital gains
    0.24       14.9 %     0.20       13.2 %     0.28       18.5 %
Unrecaptured Section 1250 gain
    0.05       3.2 %     0.07       4.8 %     0.11       6.9 %
     
     
     
     
     
     
 
Dividends paid or payable
  $ 1.58       100.0 %   $ 1.48       100.0 %   $ 1.53       100.0 %
     
     
     
     
     
     
 

10.     Minority Interests

      Minority interests in the Company represent the limited partnership interests in the Operating Partnership and 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 Company owns a majority interest; or (2) the Company exercises significant control over major operating decisions such as approval of budgets, selection of property managers, and changes in financing.

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AMB PROPERTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Operating Partnership, together with one of the Company’s other 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 Company’s investment, creates a total capitalization of $378.0 million. The Operating Partnership is the managing general partner of the Alliance Fund I.

      The Company 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 Company’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 Company 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 Company’s investment in properties, creates a 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 Company 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 Company’s investment, creates a total planned capitalization of $488.6 million. The Operating Partnership is the managing general partner of the Alliance Fund II.

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AMB PROPERTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table distinguishes the minority interest liability and the minority interests’ share of net income:

                                           
Minority Interest Minority Interest Share of Net
Liability Income for the years ended
As of December 31, December 31,


2001 2000 2001 2000 1999





(Dollars in thousands)
Joint venture partners
  $ 359,514     $ 240,671     $ 27,156     $ 12,306     $ 5,721  
Limited partners in the Operating Partnership
    98,785       115,654       7,703       8,042       8,789  
Series B Preferred Units (liquidation preference of $65,000)
    62,319       62,319       5,608       5,608       5,608  
Series J Preferred Units (liquidation preference of $40,000)
    38,906             873              
Held through AMB Property II, L.P.:
                                       
 
Series C Preferred Units
          105,845       8,540       9,624       9,624  
 
Series D Preferred Units (liquidation preference of $79,767)
    77,687       77,687       6,180       6,180       3,949  
 
Series E Preferred Units (liquidation preference of $11,022)
    10,788       10,789       856       856       320  
 
Series F Preferred Units (liquidation preference of $19,872)
    19,597       19,534       1,580       1,228        
 
Series G Preferred Units (liquidation preference of $1,000)
    954       957       80       27        
 
Series H Preferred Units (liquidation preference of $42,000)
    40,915       40,922       3,412       1,090        
 
Series I Preferred Units (liquidation preference of $25,500)
    24,821             1,553              
     
     
     
     
     
 
    $ 734,286     $ 674,378     $ 63,541     $ 44,961     $ 34,011  
     
     
     
     
     
 

11.     Investment in Unconsolidated Joint Ventures

      The Company has non-controlling limited partnership interests in three separate unconsolidated joint ventures. The Company accounts for the joint ventures using the equity method of accounting. Under the agreements governing the joint ventures, the Company 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 Company 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 Company also has a 50% interest in each of two other operating and development alliance joint ventures. The Company’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 ended December 31, 2001, 2000, and 1999, the Company’s share of net operating income was $10.2 million, $8.3 million, and $8.0 million, respectively.

12.     Stockholders’ Equity

      On December 5, 2001, AMB Property II, L.P. (“AMB Property II”), one of the Company’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

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AMB PROPERTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 Company redeemed 223,092 and 635,798 common limited partnership units of the Operating Partnership for cash and shares of its 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 Company presently anticipates that the Operating Partnership will generally elect to have it issue shares of its common stock in exchange for common units in connection with a redemption request; however, the Operating Partnership has paid cash, and may in the future pay cash, for a redemption of common units. With each redemption or exchange, the Company’s percentage ownership in the Operating Partnership will increase. Common limited partners may exercise this redemption right from time to time, in whole or in part, subject to the limitations that limited partners may not exercise the right set forth in the Company’s charter if such exercise would result in any person actually or constructively owning shares of common stock in excess of the ownership limit or any other amount specified by the 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. 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

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AMB PROPERTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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:

                                 
Security Paying Entity 2001 2000 1999





Common Stock
    Company     $ 1.58     $ 1.48     $ 1.40  
OP Units
    Operating Partnership     $ 1.58     $ 1.48     $ 1.40  
Series A Preferred Stock
    Company     $ 2.13     $ 2.13     $ 2.13  
Series A Preferred Units
    Operating Partnership     $ 2.13     $ 2.13     $ 2.13  
Series B Preferred Units
    Operating Partnership     $ 4.31     $ 4.31     $ 4.31  
Series C Preferred Units
    AMB Property II, L.P.     $ 3.88     $ 4.38     $ 4.38  
Series D Preferred Units
    AMB Property II, L.P.     $ 3.88     $ 3.88     $ 2.48  
Series E Preferred Units
    AMB Property II, L.P.     $ 3.88     $ 3.88     $ 1.30  
Series F Preferred Units
    AMB Property II, L.P.     $ 3.98     $ 3.09       n/a  
Series G Preferred Units
    AMB Property II, L.P.     $ 3.98     $ 1.35       n/a  
Series H Preferred Units
    AMB Property II, L.P.     $ 4.06     $ 1.30       n/a  
Series I Preferred Units
    AMB Property II, L.P.     $ 3.04       n/a       n/a  
Series J Preferred Units
    Operating Partnership     $ 1.24       n/a       n/a  

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 Company 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 Company has not changed the method of accounting for stock options but has provided the additional required disclosures. Had compensation cost for the Company’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 Company’s pro forma net income available to common stockholders would have been reduced by $3.9 million, $2.7 million, and $3.2 million and pro forma basic and diluted earnings per share 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.

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AMB PROPERTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      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
Weighted Exercisable
Shares Under Average at Year
Option Exercise Price End



(Options in thousands)
Outstanding as of December 31, 1998
    4,384     $ 21.40       622  
                     
 
Granted
    451       22.24          
Exercised
    (25 )              
Forfeited
    (300 )              
     
     
         
Outstanding as of December 31, 1999.
    4,510       21.44       1,832  
                     
 
Granted
    1,565       20.86          
Exercised
    (103 )     21.11          
Forfeited
    (205 )     21.21          
     
     
         
Outstanding as of December 31, 2000.
    5,767       20.83       3,326  
     
     
     
 
Granted
    1,924       24.61          
Exercised
    (202 )     21.15          
Forfeited
    (52 )     22.45          
     
     
         
Outstanding as of December 31, 2001.
    7,437     $ 22.16       4,623  
     
     
     
 
Remaining average contractual life
    7.5 years                  
     
                 
Fair value of options granted during the year
  $ 1.84                  
     
                 

      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 Company 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 Company and any designated affiliates. During 2001 and 2000, the 401(k) Plan permitted eligible employees of the Company 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 Company matched the employee contributions to the 401(k) Plan in an amount equal to 50% of the first 5.5% of annual compensation deferred by each employee. The Company may also make discretionary contributions to the 401(k) Plan. In 2001 and 2000, the Company paid $0.3 million and $0.3 million, respectively, for its 401(k) match.

      Deferred Compensation Plan. Effective September 1, 1999, the Company 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

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AMB PROPERTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

a pre-tax basis. The Company may make discretionary matching contributions to participant accounts at any time. The Company 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 Share

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

                             
2001 2000 1999



WEIGHTED AVERAGE COMMON SHARES
                       
 
Basic
    84,174,644       83,697,170       86,271,862  
 
Stock options and restricted stock
    1,039,422       458,136       75,625  
     
     
     
 
   
Diluted
    85,214,066       84,155,306       86,347,487  
     
     
     
 

15.     Commitments and Contingencies

Commitments

      Lease Commitments. The Company 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 Company 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 adverse effect on the consolidated financial position, results of operations, or cash flows of the Company.

      Environmental Matters. The Company monitors its properties for the presence of hazardous or toxic substances. The Company is not aware of any environmental liability with respect to the properties that would have a material adverse effect on the Company’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 Company’s results of operations and cash flow.

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AMB PROPERTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      General Uninsured Losses. The Company carries property and rental loss, liability, flood, and environmental insurance. The Company 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 Company’s properties are located in areas that are subject to earthquake activity; therefore, the Company 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 Company could lose its investment in, and anticipated profits and cash flows from, a property.

      Captive Insurance Company. The Company 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 Company 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.

16.     Quarterly Financial Data (Unaudited)

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

                                           
Quarter (Unaudited)(1)

March 31 June 30 September 30 December 31 Year
2001




(Dollars in thousands)
Total revenues
  $ 144,834     $ 146,026     $ 155,457     $ 154,528     $ 600,845  
Income before minority interests and gains (losses)
    40,670       29,553       49,355       46,094       165,672  
Minority interests’ share of income
    (12,997 )     (16,974 )     (17,979 )     (15,591 )     (63,541 )
Total gains (losses) from disposition of real estate
    16,767       17,792       114       1,755       36,428  
Extraordinary items (early debt extinguishments)
          (438 )     87       (255 )     (606 )
     
     
     
     
     
 
 
Net income
    44,440       29,933       31,577       32,003       137,953  
Preferred stock dividends
    (2,125 )     (2,125 )     (2,125 )     (2,125 )     (8,500 )
Preferred unit redemption premium
                      (4,400 )     (4,400 )
     
     
     
     
     
 
 
Net income available to common stockholders
  $ 42,315     $ 27,808     $ 29,452     $ 25,478     $ 125,053  
     
     
     
     
     
 
NET INCOME PER COMMON SHARE(2)
                                       
 
Basic
  $ 0.50     $ 0.33     $ 0.35     $ 0.31     $ 1.49  
     
     
     
     
     
 
 
Diluted
  $ 0.50     $ 0.33     $ 0.34     $ 0.30     $ 1.47  
     
     
     
     
     
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
                                       
 
Basic
    83,895,993       84,461,544       84,395,107       83,264,975       84,174,644  
     
     
     
     
     
 
 
Diluted
    84,720,917       85,378,727       85,644,840       84,338,812       85,214,066  
     
     
     
     
     
 

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AMB PROPERTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

                                           
Quarter (Unaudited)

March 31 June 30 September 30 December 31 Year
2000




(Dollars in thousands)
Total revenues
  $ 110,323     $ 113,479     $ 121,371     $ 135,034     $ 480,207  
Income before minority interests and gains (losses)
    40,465       39,774       42,116       43,244       165,599  
Minority interests’ share of income
    (9,409 )     (10,183 )     (13,085 )     (12,284 )     (44,961 )
Total gains (losses) from disposition of real estate
    (11 )     416       5,815       (5,076 )     1,144  
     
     
     
     
     
 
 
Net income
    31,045       30,007       34,846       25,884       121,782  
Preferred stock dividends
    (2,125 )     (2,125 )     (2,125 )     (2,125 )     (8,500 )
     
     
     
     
     
 
 
Net income available to common stockholders
  $ 28,920     $ 27,882     $ 32,721     $ 23,759     $ 113,282  
     
     
     
     
     
 
NET INCOME PER COMMON SHARE(2)
                                       
 
Basic
  $ 0.34     $ 0.33     $ 0.39     $ 0.28     $ 1.35  
     
     
     
     
     
 
 
Diluted
  $ 0.34     $ 0.33     $ 0.39     $ 0.28     $ 1.35  
     
     
     
     
     
 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
                                       
 
Basic
    83,849,157       83,848,883       84,115,613       83,814,658       83,697,170  
     
     
     
     
     
 
 
Diluted
    83,863,198       84,125,277       84,725,109       84,528,547       84,155,306  
     
     
     
     
     
 


(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 Company 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 Company operated industrial properties in eight hub and gateway markets in addition to 18 other markets nationwide. As of December 31, 2001, the Company operated retail properties in Miami, Atlanta, Chicago, the San Francisco Bay Area, Boston, and Baltimore. The Company 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 Company evaluates performance based upon property net operating income of the combined properties in each segment. The Company’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 Company split its industrial segment into geographic hub and gateway markets and other markets. Within the hub and gateway market categorization, the Company operates in eight major U.S. markets. The other industrial markets category captures all of the Company’s

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AMB PROPERTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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:

                                                       
Rental Revenues(1) Property NOI(1)(2)


Segments 2001 2000 1999 2001 2000 1999







(Dollars in thousands)
Industrial hub & gateway markets:
                                               
 
Atlanta
  $ 28,268     $ 23,458     $ 17,085     $ 27,726     $ 19,368     $ 13,932  
 
Chicago
    41,195       38,228       35,155       28,389       26,447       24,887  
 
Dallas/ Fort Worth
    25,210       24,081       20,177       17,641       16,984       14,003  
 
Northern New Jersey/ New York City
    44,924       34,618       19,626       31,648       26,444       15,568  
 
San Francisco Bay Area
    106,229       79,155       59,741       88,925       64,972       47,673  
 
Southern California
    61,627       37,187       29,207       49,102       30,366       23,812  
 
Miami
    33,176       22,853       15,741       24,366       16,775       12,349  
 
Seattle
    23,229       22,081       12,587       18,634       18,048       10,392  
     
     
     
     
     
     
 
   
Total hub & gateway markets
    363,858       281,661       209,319       281,431       219,404       162,616  
 
Total other industrial markets
    169,684       145,516       134,778       122,124       107,568       98,011  
     
     
     
     
     
     
 
   
Total industrial markets
    533,542       427,177       344,097       403,555       326,972       260,627  
 
Total retail markets
    24,431       26,784       84,713       16,222       19,259       60,260  
     
     
     
     
     
     
 
     
Total properties
  $ 557,973     $ 453,961     $ 428,810     $ 419,777     $ 346,231     $ 320,887  
     
     
     
     
     
     
 


(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.

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AMB PROPERTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

                       
Total Gross Investment(1)
As of December 31,

2001 2000


Industrial hub & gateway markets:
               
 
Atlanta
  $ 271,663     $ 225,555  
 
Chicago
    330,127       295,398  
 
Dallas/ Fort Worth
    171,263       189,265  
 
Northern New Jersey/ New York City
    406,077       313,739  
 
San Francisco Bay Area
    806,528       641,142  
 
Southern California
    694,602       554,671  
 
Miami
    288,046       281,710  
 
Seattle
    193,154       185,150  
     
     
 
   
Total hub & gateway markets
    3,161,460       2,686,630  
 
Total other industrial markets
    1,321,959       1,160,433  
     
     
 
   
Total industrial markets
    4,483,419       3,847,063  
 
Total retail markets
    47,292       179,534  
     
     
 
     
Total properties
  $ 4,530,711     $ 4,026,597  
     
     
 


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

     The Company 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:

                             
For the Years Ended December 31,

2001 2000 1999



(Dollars in thousands)
Rental Revenues
                       
Total rental revenues for reportable segments
  $ 557,973     $ 453,961     $ 428,810  
Straight-line rents
    10,093       10,203       10,848  
     
     
     
 
   
Total rental revenues
  $ 568,066     $ 464,164     $ 439,658  
     
     
     
 
Income before minority interests and net gains from disposition of real estate
                       
Property net operating income for reportable segments
  $ 419,777     $ 346,231     $ 320,887  
Straight-line rents
    10,093       10,203       10,848  
Equity in earnings of unconsolidated joint ventures
    5,467       5,212       4,701  
Investment management income
    10,972       4,282       1,511  
Other income
    16,340       6,549       2,313  
Less:
                       
 
Interest, including amortization
    (128,985 )     (90,270 )     (88,681 )
 
Depreciation and amortization
    (111,414 )     (90,358 )     (67,035 )
 
General, administrative, and other
    (35,820 )     (23,750 )     (25,223 )
 
Loss on investments in other companies
    (20,758 )     (2,500 )      
     
     
     
 
   
Income before minority interests and gains
  $ 165,672     $ 165,599     $ 159,321  
     
     
     
 

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AMB PROPERTY CORPORATION

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 Company 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 Company 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.

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AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION

As of December 31, 2001
                                                                                                         
Initial Cost to Company Gross Amount Carried at 12/31/01

Costs Capitalized
Year of
No. of Building & Subsequent to Building & Total Accumulated Construction/ Depreciable Life
Property Bldgs./Ctrs. Location Type Encumbrances Land Improvements Acquisition Land Improvements Costs(1)(2) Depreciation Acquisition (Years)














(In thousands, except number of buildings/centers)
Acer Distribution Center
    1       CA       IND     $ 0     $ 3,146     $ 9,479     $ 1,295     $ 3,146     $ 10,773     $ 13,920     $ 850       1997       5-40  
Activity Distribution Center
    4       CA       IND       4,925       3,736       11,248       1,130       3,736       12,378       16,115       984       1997       5-40  
Addison Business Center
    1       IL       IND             1,060       3,228       83       1,060       3,311       4,371       267       2000       5-40  
Addison Technology Center
    1       TX       IND             899       2,696       494       899       3,191       4,090       250       1998       5-40  
Airport South Business Park
    4       GA       IND       17,629       7,718       14,658       214       7,718       14,872       22,589       1,380       2001       5-40  
Albrae Business Center
    1       CA       IND             6,299       6,227       38       6,299       6,266       12,564       767       2001       5-40  
Alsip Industrial
    1       IL       IND             1,200       3,744       233       1,200       3,977       5,177       316       1998       5-40  
Alvarado Business Center
    5       CA       IND       21,710       7,783       23,757       485       7,783       24,242       32,025       1,956       1997       5-40  
AMB Meadowlands Park
    9       NJ       IND             5,838       17,923       803       5,838       18,727       24,564       1,500       2000       5-40  
AMB O’Hare Rosemont
    14       IL       IND       8,000       3,131       8,995       742       3,131       9,737       12,868       786       1999       5-40  
AMB Port O’Hare
    2       IL       IND             4,913       5,761             4,913       5,761       10,675       652       2001       5-40  
Amwiler-Gwinnett Industial Portfolio
    9       GA       IND       12,892       6,641       19,964       2,346       6,641       22,310       28,951       1,768       1997       5-40  
Anaheim Industrial
    1       CA       IND             1,457       4,341       333       1,457       4,674       6,130       374       1997       5-40  
Ardenwood Corporate Park
    4       CA       IND       9,502       7,321       22,002       1,924       7,321       23,926       31,246       1,908       1997       5-40  
Artesia Industrial Portfolio
    25       CA       IND       51,025       22,758       68,254       6,095       22,758       74,349       97,107       5,931       1997       5-40  
Arthur Distribution Center
    1       IL       IND       4,950       2,726       5,216       20       2,726       5,236       7,961       486       2001       5-40  
Atlanta South Business Park
    9       GA       IND             8,047       24,180       1,160       8,047       25,340       33,386       2,039       1997       5-40  
Atlantic Business Center (Formerly Peachtree North East)
    3       GA       IND             2,197       6,592       1,488       2,197       8,079       10,277       628       1998       5-40  
Atlantic Distribution Center
    1       GA       IND       3,945       1,519       4,679       106       1,519       4,786       6,305       385       2000       5-40  
Beacon Centre — OP
    18       FL       IND       70,552       31,704       96,681       7,675       31,705       104,355       136,060       8,310       2000       5-40  
Beacon Centre — AF I
    4       FL       IND       17,618       7,229       22,238       466       7,230       22,703       29,933       1,828       2000       5-40  
Beacon Centre — Headlands
    2       FL       RET             4,692       14,373       52       4,692       14,425       19,117       1,168       2000       5-40  
Beacon Industrial Park
    8       FL       IND       17,006       10,466       31,437       6,486       10,466       37,923       48,389       2,955       1997       5-40  
Bedford Warehouse
    1       IL       IND             1,354       3,225             1,354       3,225       4,579       280       2001       5-40  
Belden Avenue
    3       IL       IND       10,930       4,812       15,186       493       4,812       15,678       20,491       1,251       1997       5-40  
Bell Ranch Distribution
    5       CA       IND             6,904       12,915       22       6,904       12,937       19,840       1,212       2001       5-40  
Beltway Distribution
    1       VA       IND             4,800       15,159       5,253       4,800       20,412       25,212       1,540       1999       5-40  
Bennington Corporate Center
    2       MD       IND             2,671       8,181       962       2,671       9,144       11,815       722       2000       5-40  
Bensenville Industrial Park
    13       IL       IND       38,663       20,799       62,438       6,958       20,799       69,396       90,195       5,509       1997       5-40  
Black River
    1       WA       IND             1,845       3,559       62       1,845       3,622       5,466       334       2001       5-40  
Blue Lagoon Business Park
    2       FL       IND       11,001       4,945       14,875       797       4,945       15,672       20,617       1,259       1997       5-40  

S-1


Table of Contents

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)

As of December 31, 2001
                                                                                                         
Initial Cost to Company Gross Amount Carried at 12/31/01

Costs Capitalized
Year of
No. of Building & Subsequent to Building & Total Accumulated Construction/ Depreciable Life
Property Bldgs./Ctrs. Location Type Encumbrances Land Improvements Acquisition Land Improvements Costs(1)(2) Depreciation Acquisition (Years)














(In thousands, except number of buildings/centers)
Boston Industrial Portfolio
    20       MA       IND       19,056       19,320       56,900       16,155       19,320       73,055       92,375       5,642       1998       5-40  
Braemar Business Center
    2       MA       IND             1,422       4,613       685       1,422       5,297       6,720       410       1998       5-40  
Brennan Distribution
    1       CA       IND             3,683       3,022             3,683       3,022       6,705       410       2001       5-40  
Bridgeview Industrial (Formerly Lake Michigan Industrial)
    1       IL       IND             1,332       3,996       11       1,332       4,007       5,339       326       1997       5-40  
Burnsville Business Center
    1       MN       IND             932       2,796       1,028       932       3,824       4,757       291       1998       5-40  
BWI Air Cargo Centre
    1       MD       IND       3,035             6,367       86       0       6,453       6,453       394       2000       5-40  
Cabot Business Park
    16       MA       IND             17,231       51,726       20,082       21,118       67,921       89,039       5,438       1998       5-40  
Cabot Business Park (KYKJ)
    2       MA       IND             1,396       2,310       15,365       1,396       17,674       19,070       1,165       1998       5-40  
Carson Industrial
    12       CA       IND             4,231       10,418       3,561       4,231       13,980       18,211       1,112       1999       5-40  
Cascade Business Center
    4       OR       IND             2,825       7,860       1,966       2,825       9,826       12,651       773       1998       5-40  
Central Bay
    2       CA       IND       7,400       3,896       7,400       330       3,896       7,731       11,626       710       2001       5-40  
Chancellor
    1       FL       IND       2,707       1,587       4,802       213       1,587       5,016       6,603       403       1997       5-40  
Chancellor Square
    3       FL       IND       15,636       7,575       22,721       2,453       7,575       25,174       32,749       2,000       1998       5-40  
Charles and Chase
    1       MD       RET             751       2,287       10       751       2,297       3,047       186       1998       5-40  
Chartwell Distribution Center
    1       CA       IND             2,711       8,191       32       2,711       8,223       10,934       668       2000       5-40  
Chemway Industrial Portfolio
    5       NC       IND             2,875       8,625       860       2,875       9,485       12,360       755       1998       5-40  
Chicago Industrial Portfolio
    1       IL       IND       1,634       762       2,285       231       762       2,516       3,278       200       1997       5-40  
Chicago Ridge Freight Terminal
    1       IL       IND             3,705       3,576             3,705       3,576       7,282       445       2001       5-40  
Chicago/ O’Hare Industrial Portfolio
    5       IL       IND             4,816       9,603       75       4,816       9,678       14,495       885       2001       5-40  
Circle Freeway
    1       OH       IND             530       1,591       574       530       2,166       2,696       165       1998       5-40  
Columbia Business Center
    9       MD       IND       4,026       3,856       11,736       1,493       3,856       13,229       17,085       1,043       1999       5-40  
Component Drive Ind Port
    3       CA       IND             12,688       6,974       323       12,688       7,297       19,985       1,221       2001       5-40  
Concord Industrial Portfolio
    10       CA       IND       9,883       3,872       11,647       1,859       3,872       13,506       17,378       1,061       1999       5-40  
Corporate Park/ Hickory Hill
    7       TN       IND       16,137       6,789       20,366       853       6,789       21,219       28,008       1,711       1998       5-40  
Corporate Square Industrial
    6       MN       IND             4,024       12,113       1,376       4,024       13,489       17,513       1,070       1997       5-40  
Corridor Industrial
    1       MD       IND       2,433       996       3,019       133       996       3,152       4,147       253       1999       5-40  
Crysen Industrial
    1       DC       IND       2,823       1,425       4,275       668       1,425       4,943       6,368       389       1998       5-40  
D/FW Int’l Air Cargo — AF I
    1       TX       IND       4,700             19,683       1,830       0       21,513       21,513       1,314       1999       5-40  
D/FW Air Cargo 2
    1       TX       IND                   4,286       13,779       0       18,065       18,065       1,103       1999       5-40  

S-2


Table of Contents

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)

As of December 31, 2001
                                                                                                         
Initial Cost to Company Gross Amount Carried at 12/31/01

Costs Capitalized
Year of
No. of Building & Subsequent to Building & Total Accumulated Construction/ Depreciable Life
Property Bldgs./Ctrs. Location Type Encumbrances Land Improvements Acquisition Land Improvements Costs(1)(2) Depreciation Acquisition (Years)














(In thousands, except number of buildings/centers)
Dado Distribution
    1       CA       IND             7,221       3,739       23       7,221       3,762       10,983       671       2001       5-40  
Dallas Industrial (Formerly Taxas Industrial Fortfolio)
    12       TX       IND             5,938       17,836       3,402       5,938       21,238       27,176       1,660       1997       5-40  
Dayton Air Cargo Centre
    5       OH       IND       6,810             7,163       324       0       7,487       7,487       457       2000       5-40  
Del Amo Industrial Center
    1       CA       IND             2,529       7,651       37       2,529       7,688       10,217       624       2000       5-40  
DFW Air Cargo Centre
    3       TX       IND       6,234             20,632       139       0       20,770       20,770       1,269       2000       5-40  
DFW Airfreight Portfolio
    6       TX       IND       6,800       950       8,492       400       950       8,892       9,842       601       2000       5-40  
Diablo Industrial Park
    14       CA       IND       9,539       3,653       10,045       1,598       3,653       11,644       15,297       934       1999       5-40  
Dixie Highway
    2       KY       IND             1,700       5,149       120       1,700       5,268       6,969       426       1997       5-40  
Dock’s Corner
    1       NJ       IND       36,869       5,125       22,516       26,973       12,502       42,112       54,614       3,336       1997       5-40  
Dock’s Corner II
    1       NJ       IND             2,272       6,917       349       2,272       7,267       9,539       583       1997       5-40  
Doolittle Distribution Center
    1       CA       IND             2,644       8,014       137       2,644       8,151       10,794       659       2000       5-40  
Dowe Industrial Center
    2       CA       IND             2,665       8,034       1,263       2,665       9,297       11,962       731       1997       5-40  
Dublin Industrial Portfolio
    1       CA       IND             2,980       9,042       117       2,980       9,158       12,138       741       2000       5-40  
Dulles Airport — Alliance
    1       VA       IND       8,453       767       3,669       885       767       4,554       5,321       325       2000       5-40  
East Bay Doolittle
    1       CA       IND             7,128       11,023       416       7,128       11,440       18,568       1,134       2001       5-40  
East Bay Whipple
    1       CA       IND       7,000       5,333       8,126       2       5,333       8,128       13,462       822       2001       5-40  
East Valley Warehouse
    1       WA       IND             6,813       20,511       1,294       6,813       21,805       28,618       1,748       1999       5-40  
Eaves Distribution Center
    3       CA       IND       8,327       11,893       12,708             11,893       12,708       24,601       1,503       2001       5-40  
Edenvale Business Center
    1       MN       IND             919       2,411       667       919       3,078       3,997       244       1998       5-40  
Edgewater Industrial Center
    1       CA       IND             4,038       15,113       2,551       4,038       17,664       21,701       1,325       2000       5-40  
Elk Grove Village Industrial
    10       IL       IND       18,381       6,874       21,143       1,083       6,874       22,226       29,100       1,777       1997       5-40  
Elmwood Business Park
    5       LA       IND             4,163       12,488       1,193       4,163       13,680       17,843       1,090       1998       5-40  
Empire Drive
    1       KY       IND             1,590       4,815       252       1,590       5,066       6,657       407       1997       5-40  
Executive Drive
    1       IL       IND             1,399       4,236       672       1,399       4,908       6,306       385       1997       5-40  
Fairway Drive Industrial
    4       CA       IND       10,829       4,233       9,677       3,383       4,233       13,061       17,294       1,056       1997       5-40  
Ford Distribution Cntr
    8       CA       IND             25,443       23,529             25,443       23,529       48,971       2,991       2001       5-40  
Fordyce Distribution Center
    1       CA       IND       7,600       4,340       8,335       255       4,340       8,590       12,930       790       2001       5-40  
Garland Industrial
    20       TX       IND       19,477       8,161       24,484       4,005       8,161       28,489       36,650       2,238       1998       5-40  
Gateway 58
    3       MD       IND             3,256       9,940       9       3,256       9,949       13,205       807       2000       5-40  
Gateway Commerce Center
    5       MD       IND             4,083       12,336       1,200       4,083       13,536       17,620       1,076       1999       5-40  
Gateway Corporate Center
    9       WA       IND       27,000       9,981       32,201       766       9,981       32,967       42,949       2,623       1999       5-40  
Gateway North
    6       WA       IND       14,000       5,932       18,365       263       5,932       18,629       24,560       1,500       1999       5-40  

S-3


Table of Contents

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)

As of December 31, 2001
                                                                                                         
Initial Cost to Company Gross Amount Carried at 12/31/01

Costs Capitalized
Year of
No. of Building & Subsequent to Building & Total Accumulated Construction/ Depreciable Life
Property Bldgs./Ctrs. Location Type Encumbrances Land Improvements Acquisition Land Improvements Costs(1)(2) Depreciation Acquisition (Years)














(In thousands, except number of buildings/centers)
Greater Dallas Industrial Portfolio
    6       TX       IND             6,269       18,414       6,589       6,269       25,003       31,272       1,910       1997       5-40  
Greater Houston Industrial Portfolio
    14       TX       IND             6,197       18,592       4,715       6,197       23,307       29,504       1,802       1998       5-40  
Greenwood Industrial
    3       MD       IND             4,729       14,188       1,209       4,729       15,397       20,126       1,229       1998       5-40  
Hamilton Parkway (Formerly Lake Michigan Industrial)
    1       IL       IND             1,554       4,703       134       1,554       4,837       6,391       390       1997       5-40  
Harris Business Center — AF I
    10       CA       IND       27,657       19,194       26,368       881       19,194       27,248       46,442       2,837       2000       5-40  
Harris Business Center — AF II
    10       CA       IND       33,500       13,376       40,428       3,236       13,376       43,664       57,040       3,484       2000       5-40  
Harvest Business Park
    3       WA       IND             2,371       7,153       915       2,371       8,068       10,439       638       1997       5-40  
Hawthorne LAX Cargo Center
    1       CA       IND       6,550       2,775       8,377       209       2,775       8,586       11,361       694       2000       5-40  
Hayward Industrial — Hathaway
    2       CA       IND             4,473       13,546       48       4,473       13,593       18,066       1,103       2000       5-40  
Hayward Industrial — Wiegman
    1       CA       IND       6,525       2,773       8,393       373       2,773       8,766       11,539       705       2000       5-40  
Hempstead Highway Distribution Center
    2       TX       IND             1,255       9,087       726       1,255       9,812       11,067       676       2000       5-40  
Hintz Building
    1       IL       IND             420       1,259       269       420       1,527       1,947       119       1998       5-40  
Holton Drive
    1       KY       IND             2,633       7,899       368       2,633       8,267       10,900       666       1997       5-40  
Houston Industrial (Formerly Texas Industrial Portfolio)
    5       TX       IND             3,009       9,066       1,271       3,009       10,337       13,345       815       1997       5-40  
Houston Service Center
    3       TX       IND             3,800       11,401       2,590       3,800       13,991       17,791       1,087       1998       5-40  
Industrial Drive
    1       OH       IND             1,743       5,230       360       1,743       5,589       7,332       448       1997       5-40  
International Multifoods
    1       CA       IND             1,613       4,879       941       1,613       5,820       7,433       454       1997       5-40  
Itasca Industrial Portfolio
    6       IL       IND             6,416       19,289       2,047       6,416       21,336       27,753       1,695       1997       5-40  
Jacksonville Air Cargo Centre
    1       FL       IND       3,150             3,028             0       3,028       3,028       185       2000       5-40  
Jamesburg
    3       NJ       IND       22,987       11,700       35,101       1,099       11,700       36,200       47,901       2,926       1998       5-40  
Janitrol
    1       OH       IND             1,797       5,390       246       1,797       5,635       7,432       454       1997       5-40  
JFK Air Cargo — OP
    15       NY       IND             15,434       45,660       1,677       15,434       47,337       62,771       3,834       2000       5-40  
JFK Air Cargo — AF I
    15       NY       IND       19,410       10,260       30,128       1,912       10,260       32,040       42,300       2,584       2000       5-40  
JFK Airport Park
    1       NY       IND             2,350       7,251       422       2,350       7,673       10,022       612       2000       5-40  
Junction Industrial Park
    4       CA       IND             7,875       23,975       1,091       7,875       25,067       32,942       2,012       1999       5-40  
Kent Centre Corporate Park
    4       WA       IND             3,042       9,165       690       3,042       9,855       12,897       788       1997       5-40  
Kingsport Industrial Park
    7       WA       IND       16,534       7,919       23,798       2,216       7,919       26,014       33,934       2,073       1997       5-40  

S-4


Table of Contents

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)

As of December 31, 2001
                                                                                                         
Initial Cost to Company Gross Amount Carried at 12/31/01

Costs Capitalized
Year of
No. of Building & Subsequent to Building & Total Accumulated Construction/ Depreciable Life
Property Bldgs./Ctrs. Location Type Encumbrances Land Improvements Acquisition Land Improvements Costs(1)(2) Depreciation Acquisition (Years)














(In thousands, except number of buildings/centers)
L.A. County Industrial Portfolio
    6       CA       IND       28,076       9,233       28,247       674       9,233       28,921       38,154       2,330       1997       5-40  
LA Media Tech Center
    7       CA       IND       22,716       12,810       12,531       16,051       12,810       28,582       41,392       2,528       1998       5-40  
Laurelwood Drive
    2       CA       IND             2,750       8,538       115       2,750       8,653       11,403       696       1997       5-40  
Lawrence SSF
    1       CA       IND             2,870       5,521       1,093       2,870       6,614       9,484       579       2001       5-40  
LAX Air Cargo Centre
    3       CA       IND       7,825             13,445       95       0       13,540       13,540       827       2000       5-40  
Lincoln Industrial Center
    1       TX       IND             671       2,052       211       671       2,262       2,933       179       1997       5-40  
Linden Industrial
    1       NJ       IND             900       2,753       48       900       2,800       3,700       226       1999       5-40  
Locke Drive
    1       MA       IND             1,074       3,227       69       1,074       3,296       4,369       267       1998       5-40  
Lonestar
    7       TX       IND       16,817       7,129       21,428       1,951       7,129       23,379       30,508       1,863       1997       5-40  
Los Nietos
    4       CA       IND       8,236       2,517       7,624       118       2,517       7,742       10,259       627       1999       5-40  
MCI I Air Cargo Centre
    1       MO       IND       5,445             5,793       44       0       5,838       5,838       357       2000       5-40  
MCI II Air Cargo Centre
    1       MO       IND       9,535             8,134             0       8,134       8,134       497       2000       5-40  
Mahwah Corporate Center
    6       NJ       IND             9,762       29,285       1,140       9,762       30,425       40,187       2,454       1998       5-40  
Marietta Industrial
    3       GA       IND             1,830       5,489       800       1,830       6,289       8,119       496       1998       5-40  
Martin/ Scott Ind Port
    2       CA       IND             9,052       5,309       98       9,052       5,407       14,459       883       2001       5-40  
Meadow Lane 495
    1       NJ       IND             838       2,594       156       838       2,750       3,588       219       1999       5-40  
Meadowlands AF II
    4       NJ       IND       12,400       6,755       13,093       938       6,755       14,030       20,785       1,269       2001       5-40  
Meadowlands Cross Dock
    1       NJ       IND             1,110       3,485       935       1,110       4,419       5,529       338       2000       5-40  
Meadowridge
    3       MD       IND             3,716       11,147       298       3,716       11,446       15,161       926       1998       5-40  
Melrose Park
    1       IL       IND             2,936       9,190       1,177       2,936       10,367       13,303       812       1997       5-40  
Mendota Heights
    1       MN       IND       668       1,367       4,565       1,946       1,367       6,511       7,878       481       1998       5-40  
Metric Center
    5       TX       IND             10,968       32,944       640       10,968       33,584       44,552       2,721       1997       5-40  
Miami Airport Business Center
    6       FL       IND             6,400       19,634       1,130       6,400       20,764       27,164       1,659       1999       5-40  
Milmont Page Business Center
    3       CA       IND       9,541       3,076       9,338       98       3,076       9,436       12,512       764       1997       5-40  
Minneapolis Distribution Portfolio
    4       MN       IND             6,227       18,692       1,893       6,227       20,585       26,811       1,638       1997       5-40  
Minneapolis Industrial Portfolio IV
    4       MN       IND       7,612       4,938       14,854       1,743       4,938       16,597       21,535       1,315       1997       5-40  
Minneapolis Industrial V
    7       MN       IND       5,476       4,426       13,317       1,511       4,426       14,828       19,254       1,176       1997       5-40  
Minnetonka
    10       MN       IND       11,648       6,690       20,380       2,707       6,690       23,088       29,778       1,819       1998       5-40  
Moffett Business Center (MBC Industrial)
    4       CA       IND       11,881       5,892       17,716       3,193       5,892       20,909       26,802       1,637       1997       5-40  
Moffett Distribution
    7       CA       IND             26,916       11,277             26,916       11,277       38,193       2,333       2001       5-40  

S-5


Table of Contents

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)

As of December 31, 2001
                                                                                                         
Initial Cost to Company Gross Amount Carried at 12/31/01

Costs Capitalized
Year of
No. of Building & Subsequent to Building & Total Accumulated Construction/ Depreciable Life
Property Bldgs./Ctrs. Location Type Encumbrances Land Improvements Acquisition Land Improvements Costs(1)(2) Depreciation Acquisition (Years)














(In thousands, except number of buildings/centers)
Moffett Park R&D Portfolio
    14       CA       IND             14,807       44,462       7,850       14,805       52,315       67,120       4,099       1997       5-40  
Moonachie Industrial
    2       NJ       IND       4,825       2,731       5,228       100       2,731       5,328       8,058       492       2001       5-40  
Murray Hill Parkway
    2       NJ       IND             1,670       2,568       5,009       1,670       7,577       9,247       565       1999       5-40  
NDP — Chicago (Formerly Glen Ellyn Rd. & Mitel Drive)
    3       IL       IND             1,496       4,487       654       1,496       5,141       6,637       405       1998       5-40  
NDP — Los Angeles
    6       CA       IND       9,758       5,948       17,844       1,118       5,948       18,962       24,909       1,521       1998       5-40  
NDP — Seattle
    4       WA       IND             3,888       11,663       659       3,888       12,322       16,209       990       1998       5-40  
Newark Airport I& II
    2       NJ       IND       3,766       1,755       5,400       117       1,755       5,516       7,271       444       2000       5-40  
Nicholas Warehouse
    1       IL       IND             2,599       1,883       177       2,599       2,060       4,659       285       2001       5-40  
Norcross/ Brookhollow Portfolio
    4       GA       IND             3,721       11,180       630       3,721       11,810       15,531       949       1997       5-40  
Normandie Industrial
    1       CA       IND             2,398       7,491       740       2,398       8,231       10,628       649       2000       5-40  
Northbrook Distribution Center
    1       GA       IND             1,170       3,823       495       1,170       4,318       5,488       335       2000       5-40  
Northpointe Commerce
    2       CA       IND             1,773       5,358       331       1,773       5,690       7,463       456       1997       5-40  
Northwest Crossing Distribution Center
    2       TX       IND             745       4,792       1,342       745       6,134       6,879       420       2000       5-40  
Northwest Distribution Center
    3       WA       IND             3,533       10,751       761       3,533       11,512       15,044       919       1997       5-40  
Novato Fair Shopping Center
    1       CA       RET             4,393       8,424       202       4,393       8,626       13,018       795       2001       5-40  
Oakland Ridge Industrial Center
    12       MD       IND       7,023       5,571       16,933       4,614       5,571       21,546       27,118       1,656       1999       5-40  
O’Hare Industrial Portfolio
    15       IL       IND             7,357       22,112       2,004       7,357       24,116       31,473       1,922       1997       5-40  
Orlando Central Park
    2       FL       IND             1,779       979       8,945       1,779       9,924       11,703       715       1998       5-40  
Pacific Business Center
    2       CA       IND       9,119       5,417       16,291       795       5,417       17,086       22,504       1,374       1997       5-40  
Pacific Service Center
    1       GA       IND             504       1,511       620       504       2,131       2,635       161       1998       5-40  
Pardee Drive
    1       CA       IND       1,583       619       1,850             619       1,850       2,468       151       1999       5-40  
Parkway Business Center
    1       MN       IND             475       1,425       456       475       1,881       2,356       144       1998       5-40  
Patuxent Range Road
    2       MD       IND             1,696       5,127       429       1,696       5,556       7,252       443       1997       5-40  
Patuxent Alliance 8280
    1       MD       IND             887       1,706       10       887       1,716       2,603       159       2001       5-40  
Peninsula Business Center III
    1       VA       IND             992       2,976       65       992       3,041       4,033       246       1998       5-40  
Penn James Office Warehouse
    2       MN       IND             1,991       6,013       738       1,991       6,751       8,742       534       1997       5-40  
Pioneer Alburtis
    5       CA       IND       7,150       2,433       7,166       285       2,433       7,451       9,884       604       1999       5-40  
Porete Avenue Warehouse
    1       NJ       IND       8,811       4,067       12,202       9,552       4,067       21,754       25,822       1,577       1998       5-40  

S-6


Table of Contents

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)

As of December 31, 2001
                                                                                                         
Initial Cost to Company Gross Amount Carried at 12/31/01

Costs Capitalized
Year of
No. of Building & Subsequent to Building & Total Accumulated Construction/ Depreciable Life
Property Bldgs./Ctrs. Location Type Encumbrances Land Improvements Acquisition Land Improvements Costs(1)(2) Depreciation Acquisition (Years)














(In thousands, except number of buildings/centers)
Port Northwest Phase I
    2       TX       IND       7,450       1,825       1,438       9,234       1,825       10,672       12,496       763       1999       5-40  
Presidents Drive
    6       FL       IND             3,687       11,307       1,657       3,687       12,964       16,651       1,017       1997       5-40  
Preston Court
    1       MD       IND             2,313       7,192       261       2,313       7,452       9,765       596       1997       5-40  
Production Drive
    1       KY       IND             425       1,286       338       425       1,624       2,049       125       1997       5-40  
Richardson Tech Center II
    1       TX       IND       1,929       530       1,577             530       1,577       2,107       129       1997       5-40  
Riverside Business Center (Formerly North GSW)
    2       TX       IND             1,000             10,654       1,000       10,654       11,654       712       1998       5-40  
Round Lake Business Center
    1       MN       IND             875       2,625       463       875       3,088       3,963       242       1998       5-40  
Sand Lake Service Center
    6       FL       IND                         2,150       0       2,150       2,150       131       1998       5-40  
Santa Barbara Court
    1       MD       IND             1,617       5,029       881       1,617       5,910       7,527       460       1997       5-40  
Scripps Sorrento
    1       CA       IND             1,110       3,330       32       1,110       3,363       4,473       273       1998       5-40  
Sea Tac I Air Cargo Centre
    2       WA       IND       5,074             15,594       51       0       15,645       15,645       956       2000       5-40  
Sea Tac II Air Cargo Centre
    1       WA       IND                   3,056       89       0       3,145       3,145       192       2000       5-40  
Seattle Airport Industrial
    1       WA       IND             619       1,923       119       619       2,043       2,661       163       2000       5-40  
Shawnee Industrial
    1       GA       IND             2,481       7,531       2,026       2,481       9,557       12,038       735       1999       5-40  
Silicon Valley R&D Portfolio*
    6       CA       IND             8,024       24,205       4,349       8,024       28,554       36,579       2,234       1997       5-40  
Slauson Distribution Center
    8       CA       IND       20,500       7,806       23,552       1,197       7,806       24,748       32,555       1,988       2000       5-40  
South Bay Industrial
    8       CA       IND       18,392       14,992       45,016       4,356       14,992       49,372       64,364       3,931       1997       5-40  
South Point Business Park
    5       NC       IND       8,623       3,130       10,452       825       3,130       11,277       14,407       880       1998       5-40  
South Ridge at Hartsfield
    1       GA       IND       4,195       2,096       4,008       28       2,096       4,036       6,132       374       2001       5-40  
Southfield Industrial Portfolio
    13       GA       IND       35,661       12,855       35,730       4,471       12,855       40,201       53,056       3,240       1997       5-40  
Southside Distribution Center
    1       GA       IND       1,388       766       2,480             766       2,480       3,246       198       2001       5-40  
Stadium Business Park
    9       CA       IND       4,477       3,768       11,345       620       3,768       11,965       15,733       961       1997       5-40  
Sunrise Industrial
    4       FL       IND       13,001       6,266       18,798       651       6,266       19,449       25,715       1,571       1998       5-40  
Suwannee Creek Distribution Center
    3       GA       IND       14,015       4,922             19,157       4,922       19,157       24,079       1,471       1998       5-40  
Sylvan
    1       GA       IND             1,946       5,905       150       1,946       6,055       8,001       489       1999       5-40  
Systematics
    1       CA       IND             911       2,773       40       911       2,813       3,724       227       1997       5-40  
Technology I
    2       MD       IND             1,657       5,049       103       1,657       5,153       6,809       416       1999       5-40  
Technology II
    9       MD       IND       1,942       10,206       3,761       27,416       10,206       31,178       41,384       2,528       1999       5-40  
TechRidge Phase IA
    3       TX       IND       15,304       7,132       19,044       2,607       7,132       21,651       28,783       1,758       2000       5-40  
TechRidge Phase II
    1       TX       IND       11,662       7,261       13,484       214       7,261       13,699       20,960       1,280       2001       5-40  
Teterboro Meadowlands 15
    1       NJ       IND       9,900       4,961       9,618       1,226       4,961       10,844       15,805       965       2001       5-40  

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Table of Contents

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION (Continued)

As of December 31, 2001
                                                                                                         
Initial Cost to Company Gross Amount Carried at 12/31/01

Costs Capitalized
Year of
No. of Building & Subsequent to Building & Total Accumulated Construction/ Depreciable Life
Property Bldgs./Ctrs. Location Type Encumbrances Land Improvements Acquisition Land Improvements Costs(1)(2) Depreciation Acquisition (Years)














(In thousands, except number of buildings/centers)
The Rotunda
    2       MD       IND       12,852       4,400       17,736       2,229       4,400       19,965       24,366       1,488       1999       5-40  
Torrance Commerce Center
    6       CA       IND             2,045       6,136       542       2,045       6,678       8,724       533       1998       5-40  
Twin Cities
    2       MN       IND             4,873       14,638       3,286       4,873       17,923       22,796       1,392       1997       5-40  
Two South Middlesex
    1       NJ       IND             2,247       6,781       453       2,247       7,234       9,481       579       1997       5-40  
Valwood
    2       TX       IND       3,718       1,983       5,989       1,069       1,983       7,058       9,041       552       1997       5-40  
Van Nuys Airport Industrial
    3       CA       IND             2,481       7,508       5,020       2,481       12,528       15,010       917       2000       5-40  
Viscount
    1       FL       IND             984       3,016       325       984       3,341       4,325       264       1997       5-40  
Walnut Drive (Formerly East Walnut Drive)
    1       CA       IND             964       2,918       41       964       2,959       3,922       240       1997       5-40  
Watson Industrial Center
    1       CA       IND       4,600       2,417       4,617       159       2,417       4,775       7,192       439       2001       5-40  
Weigman Road
    1       CA       IND             1,563       4,688       219       1,563       4,907       6,470       395       1997       5-40  
West North Carrier
    1       TX       IND       3,010       1,375       4,165       187       1,375       4,352       5,727       350       1997       5-40  
West Pac Air Cargo Centre
    1       PA       IND                   9,716       89       0       9,805       9,805       599       2000       5-40  
Williams & Bouroughs
    4       CA       IND       6,650       2,337       6,981       1,612       2,337       8,594       10,931       668       1999       5-40  
Willow Lake Industrial Park
    10       TN       IND       29,137       11,997       35,990       11,885       11,997       47,875       59,872       3,657       1998       5-40  
Willow Park Industrial Portfolio
    21       CA       IND       5,077       25,590       76,771       7,824       25,590       84,595       110,185       6,730       1998       5-40  
Wilmington Avenue Wharehouse
    2       CA       IND             3,849       11,605       2,582       3,849       14,187       18,036       1,102       1999       5-40  
Wilsonville
    1       OR       IND             3,407       13,493       58       3,407       13,551       16,958       1,036       1998       5-40  
Windsor Court
    1       IL       IND             766       2,338       94       766       2,432       3,198       195       1997       5-40  
Wood Dale Industrial (Includes Bonnie Lane)
    5       IL       IND       9,029       2,967       8,456       750       2,967       9,206       12,173       743       1999       5-40  
Yosemite Drive
    1       CA       IND             2,350       7,051       334       2,350       7,385       9,736       595       1997       5-40  
Zanker/ Charcot Industrial
    5       CA       IND             5,282       15,887       1,073       5,282       16,961       22,243       1,359       1997       5-40  
     
                     
     
     
     
     
     
     
     
                 
Total
    906                     $ 1,170,947     $ 1,053,157     $ 2,847,345     $ 449,030     $ 1,064,430     $ 3,285,110     $ 4,349,532     $ 265,653                  
     
                     
     
     
     
     
     
     
     
                 

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Table of Contents

(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


Table of Contents

EXHIBIT INDEX

         
Exhibit
Number Description


  3.1     Articles of Incorporation of AMB Property Corporation (incorporated by reference to Exhibit 3.1 of AMB Property Corporation’s Registration Statement on Form S-11 (No. 333-35915)).
  3.2     Certificate of Correction of AMB Property Corporation’s Articles Supplementary establishing and fixing the rights and preferences of the 8 1/2% Series A Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.2 of AMB Property Corporation’s Annual Report on Form 10-K for the year ended December 31, 1998).
  3.3     Articles Supplementary establishing and fixing the rights and preferences of the 8 5/8% Series B Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 of AMB Property Corporation’s Current Report on Form 8-K filed on January 7, 1999).
  3.4     Articles Supplementary establishing and fixing the rights and preferences of the 8.75% Series C Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.2 of AMB Property Corporation’s Current Report on Form 8-K filed on January 7, 1999).
  3.5     Articles Supplementary establishing and fixing the rights and preferences of the 7.75% Series D Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 of AMB Property Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999).
  3.6     Articles Supplementary establishing and fixing the rights and preferences of the 7.75% Series E Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1 of AMB Property Corporation’s Current Report on Form 8-K filed on September 14, 1999).
  3.7     Articles Supplementary establishing and fixing the rights and preferences of the 7.95% Series F Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 of AMB Property Corporation’s Current Report on Form 8-K filed on April 14, 2000).
  3.8     Articles Supplementary establishing and fixing the rights and preferences of the 7.95% Series G Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 of AMB Property Corporation’s Current Report on Form 8-K filed on September 29, 2000).
  3.9     Articles Supplementary establishing and fixing the rights and preferences of the 8.125% Series H Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.3 of AMB Property Corporation’s Current Report on Form 8-K filed on September 29, 2000).
  3.10     Articles Supplementary establishing and fixing the rights and preferences of the 8.00% Series I Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 of AMB Property Corporation’s Current Report on Form 8-K filed on March 23, 2001).
  3.11     Articles Supplementary establishing and fixing the rights and preferences of the 7.95% Series J Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 of AMB Property Corporation’s Current Report on Form 8-K filed on October 3, 2001).
  3.12     Articles Supplementary redesignating and reclassifying all 2,200,000 Shares of the 8.75% Series C Cumulative Redeemable Preferred Stock as Preferred Stock (incorporated by reference to Exhibit 3.1 of AMB Property Corporation’s Current Report on Form 8-K filed on December 7, 2001).
  3.13     Second Amended and Restated Bylaws of AMB Property Corporation (incorporated by reference to Exhibit 3.11 of AMB Property Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000).
  4.1     Form of Certificate for Common Stock of AMB Property Corporation (incorporated by reference to Exhibit 3.3 of AMB Property Corporation’s Registration Statement on Form S-11 (No. 333-35915)).
  4.2     Form of Certificate for 8.5% Series A Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.5(2) of Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).
  4.3     $30,000,000 7.925% Fixed Rate Note No. 1 dated August 18, 2000, attaching the Parent Guarantee dated August 18, 2000 (incorporated by reference to Exhibit 4.5 of AMB Property Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000).


Table of Contents

         
Exhibit
Number Description


  4.4     $25,000,000,000 7.925% Fixed Rate Note No. 2 dated September 12, 2000, attaching the Parent Guarantee dated September 12, 2000 (incorporated by reference to Exhibit 4.6 of AMB Property Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000).
  4.5     $50,000,000 8.00% Fixed Rate Note No. 3 dated October 26, 2000, attaching the Parent Guarantee dated October 26, 2000 (incorporated by reference to Exhibit 4.5 of AMB Property Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000).
  4.6     $25,000,000 8.000% Fixed Rate Note No. 4 dated October 26, 2000, attaching the Parent Guarantee dated October 26, 2000 (incorporated by reference to Exhibit 4.8 of AMB Property Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000).
  4.7     $50,000,000 7.20% Fixed Rate Note No. 5 dated December 19, 2000, attaching the Parent Guarantee dated December 19, 2000 (incorporated herein by reference to Exhibit 4.1 of AMB Property Corporation’s Current Report on Form 8-K filed on January 8, 2001).
  4.8     $50,000,000 7.20% Fixed Rate Note No. 6 dated December 19, 2000, attaching the Parent Guarantee dated December 19, 2000 (incorporated herein by reference to Exhibit 4.2 of AMB Property Corporation’s Current Report on Form 8-K filed on January 8, 2001).
  4.9     $50,000,000 7.20% Fixed Rate Note No. 7 dated December 19, 2000, attaching the Parent Guarantee dated December 19, 2000 (incorporated herein by reference to Exhibit 4.3 of AMB Property Corporation’s Current Report on Form 8-K filed on January 8, 2001).
  4.10     Indenture dated as of June 30, 1998, by and among AMB Property, L.P., AMB Property Corporation and State Street Bank and Trust Company of California, N.A., as trustee (incorporated by reference to Exhibit 4.1 of AMB Property Corporation’s Registration Statement on Form S-11 (No. 333-49163)).
  4.11     First Supplemental Indenture dated as of June 30, 1998 by and among AMB Property, L.P., AMB Property Corporation and State Street Bank and Trust Company of California, N.A., as trustee (incorporated by reference to Exhibit 4.2 of AMB Property Corporation’s Registration Statement Form S-11 (No. 333-49163)).
  4.12     Second Supplemental Indenture dated as of June 30, 1998, by and among AMB Property, L.P., AMB Property Corporation and State Street Bank and Trust Company of California, N.A., as trustee (incorporated by reference to Exhibit 4.3 of AMB Property Corporation’s Registration Statement on Form S-11 (No. 333-49163)).
  4.13     Third Supplemental Indenture dated as of June 30, 1998, by and among AMB Property, L.P., AMB Property Corporation and State Street Bank and Trust Company of California, N.A., as trustee (incorporated by reference to Exhibit 4.4 of AMB Property Corporation’s Registration Statement on Form S-11 (No. 333-49163)).
  4.14     Fourth Supplemental Indenture, by and among AMB Property, L.P., AMB Property Corporation and State Street Bank and Trust Company of California, N.A., as trustee (incorporated herein by reference as Exhibit 4.1 of AMB Property Corporation’s Current Report on Form 8-K/ A filed on November 9, 2000).
  4.15     Specimen of 7.10% Notes due 2008 (included in the First Supplemental Indenture incorporated by reference as Exhibit 4.2 of AMB Property Corporation’s Registration Statement on Form S-11 (No. 333-49163)).
  4.16     Specimen of 7.50% Notes due 2018 (included in the Second Supplemental Indenture incorporated by reference as Exhibit 4.3 of AMB Property Corporation’s Registration Statement on Form S-11 (No. 333-49163)).
  4.17     Specimen of 6.90% Reset Put Securities due 2015 (included in the Third Supplemental Indenture incorporated by reference as Exhibit 4.4 of AMB Property Corporation’s Registration Statement on Form S-11 (No. 333-49163)).
  4.18     $25,000,000 6.90% Fixed Rate Note No. 8 dated January 9, 2001, attaching the Parent Guarantee dated January 9, 2001 (incorporated herein by reference to Exhibit 4.1 of AMB Property Corporation’s Current Report on Form 8-K filed on January 31, 2001).


Table of Contents

         
Exhibit
Number Description


  4.19     $50,000,000 7.00% Fixed Rate Note No. 9 dated March 7, 2001, attaching the Parent Guarantee dated March 7, 2001 (incorporated herein by reference to Exhibit 4.1 of AMB Property Corporation’s Current Report on Form 8-K filed on March 16, 2001).
  4.20     $25,000,000 6.75% Fixed Rate Note No. 10 dated September 6, 2001, attaching the Parent Guarantee dated September 6, 2001 (incorporated herein by reference to Exhibit 4.1 of AMB Property Corporation’s Current Report on Form 8-K filed on September 18, 2001).
  4.21     $20,000,000 5.90% Fixed Rate Note No. 11 dated January 17, 2002, attaching the Parent Guarantee dated January 17, 2002 (incorporated herein by reference to Exhibit 4.1 of AMB Property Corporation’s Current Report on Form 8-K filed on January 23, 2002).
  10.1     Distribution Agreement dated August 15, 2000 by and among AMB Property Corporation, AMB Property, L.P., Morgan Stanley & Co., Incorporated, Banc of America Securities LLC, Banc One Capital Markets, Inc., Chase Securities, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc., and Salomon Smith Barney Inc. (incorporated herein by reference to Exhibit 1.1 of Registrant’s Current Report on Form 8-K/ A filed on November 9, 2000).
  10.2     Terms Agreement dated as of December 14, 2000, by and between Morgan Stanley & Co., Incorporated and J.P. Morgan Securities Inc. and AMB Property, L.P. (incorporated herein by reference to Exhibit 1.1 of AMB Property Corporation’s Current Report on Form 8-K filed on January 8, 2001).
  10.3     Terms Agreement dated as of January 4, 2001, by and between A.G. Edwards & Sons, Inc. and AMB Property, L.P. (incorporated herein by reference to Exhibit 1.1 of AMB Property Corporation’s Current Report on Form 8-K filed on January 31, 2001).
  10.4     Terms Agreement dated as of March 2, 2001, by and among First Union Securities, Inc., AMB Property, L.P. and AMB Property Corporation (incorporated by reference to Exhibit 1.1 of Registrants’ current report on Form 8-K filed on March 16, 2001).
  10.5     Fifth Amended and Restated Partnership Agreement of Limited Partnership of AMB Property, L.P. dated September 21, 2001 (incorporated herein by reference as Exhibit 10.1 to AMB Property Corporations Current Report on Form 8-K filed on October 3, 2001).
  10.6     First Amendment to the Fifth Amended and Restated Agreement of Limited Partnership of AMB Property, L.P. dated January 1, 2002.
  10.7     Form of Registration Rights Agreement among AMB Property Corporation and the persons named therein (incorporated by reference to Exhibit 10.2 of AMB Property Corporation’s Registration Statement on Form S-11 (No. 333-35915)).
  10.8     Form of Change in Control and Noncompetition Agreement between AMB Property Corporation and Executive Officers (incorporated by reference to AMB Property Corporation’s Annual Report on Form 10-K for the year ended December 31, 1998).
  10.9     Agreement for Purchase and Exchange entered into as of March 9, 1999, by and among AMB Property, L.P., AMB Property II, L.P., Long Gate, L.L.C. and BPP Retail, LLC, regarding the transaction which closed on June 15, 1999 (incorporated by reference to Exhibit 10.1 of AMB Property Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
  10.10     Agreement for Purchase and Exchange entered into as of March 9, 1999, by and among AMB Property, L.P., AMB Property II, L.P., Long Gate, L.L.C. and BPP Retail, LLC, regarding the transaction which closed on August 4, 1999 (incorporated by reference to Exhibit 10.2 of AMB Property Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
  10.11     Agreement for Purchase and Exchange entered into as of March 9, 1999, by and among AMB Property, L.P., AMB Property II, L.P., Long Gate, L.L.C. and BPP Retail, LLC, regarding the transaction which closed on December 1, 1999 (incorporated by reference to Exhibit 10.3 of AMB Property Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
  10.12     Dividend Reinvestment and Direct Purchase Plan, dated July 9, 1999 (incorporated by reference to Exhibit 10.4 of AMB Property Corporation’s Quarterly Report on Report Form 10-Q for the quarter ended June 30, 1999).


Table of Contents

         
Exhibit
Number Description


  10.13     Second Amended and Restated 1997 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.5 of AMB Property Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
  10.14     Tenth Amended and Restated Agreement of Limited Partnership of AMB Property II, L.P., dated December 6, 2001 (incorporated by reference to Exhibit 10.1 of AMB Property Corporation’s Current Report on Form 8-K filed on December 7, 2001).
  10.15     First Amendment to Tenth Amended and Restated Agreement of Limited Partnership of AMB Property II, L.P., dated January 1, 2002.
  10.16     Revolving Credit Agreement dated as of May 24, 2000, among AMB Property, L.P., the banks listed therein, Morgan Guaranty Trust Company of New York, as Administrative Agent, Bank of America, N.A., as Syndication Agent, the Chase Manhattan Bank, as Documentation Agent, J.P. Morgan Securities Inc. and Banc of America Securities LLC, as Joint Lead Arrangers and Joint Bookmanagers, Bank one, NA, Commerzbank Aktiengesellschaft, PNC Bank National Association and Wachovia Bank, N.A., as Managing Agents and Banks Trust Company and Dresdner Bank AG, New York and Grand Cayman Branches, as Co-Agents (incorporated by reference to Exhibit 10.1 of AMB Property Corporation’s Current Report on Form 8-K filed on June 16, 2000).
  10.17     Guaranty of Payment made as of May 24, 2000, between AMB Property Corporation and Morgan Guaranty Trust Company of New York, as administrative agent for the banks listed on the signature page of the Revolving Credit Agreement (incorporated herein by reference to Exhibit 10.2 of AMB Property Corporation’s Current Report on Form 8-K filed on June 16, 2000).
  10.18     Credit Agreement dated as of September 27, 1999, among AMB Institutional Alliance Fund I, L.P., AMB Institutional Alliance REIT I, Inc., the Lenders and issuing parties thereto, BT Realty Resources, Inc. and Chase Manhattan Bank (incorporated by reference to Exhibit 10.3 of AMB Property Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999).
  10.19     Revolving Credit Agreement dated as of August 23, 2001, among AMB Institutional Alliance Fund II, L.P., AMB Institutional Alliance REIT II, Inc., the banks and financial institutions listed therein, Bank of America, N.A. as Administrative Agent, Dresdner Bank AG, as Syndication Agent, and Bank One, NA, as Documentation Agent (incorporated by reference to Exhibit 10.4 of AMB Property Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).
  10.20     Terms Agreement dated as of August 30, 2001, by and among Lehman Brothers Inc., AMB Property, L.P., and AMB Property Corporation (incorporated by reference to Exhibit 1.1 of AMB Property Corporation’s Current Report on Form 8-K filed on September 18, 2001).
  10.21     Terms Agreement dated as of January 14, 2002, by and among Lehman Brothers Inc., AMB Property, L.P., and AMB Property Corporation (incorporated by reference to Exhibit 1.1 of AMB Property Corporation’s Current Report on Form 8-K filed on January 23, 2002).
  10.22     Third Amended and Restated 1997 Stock Option and Incentive Plan.
  10.23     Amendment No. 1 to the Third Amended and Restated 1997 Stock Option and Incentive Plan.
  10.24     2002 Stock Option and Incentive Plan.
  10.25     Second Amendment to Tenth Amended and Restated Agreement of Limited Partnership of AMB Property II, L.P., dated February 25, 2002.
  10.26     AMB Nonqualified Deferred Compensation Plan.
  21.1     Subsidiaries of AMB Property Corporation.
  23.1     Consent of Arthur Andersen LLP.
  24.1     Powers of Attorney (included in Part IV of this Form 10-K).
  99.1     Letter, dated March 28, 2002, from AMB Property Corporation to the Securities and Exchange Commission.