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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

[ ] 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 (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
505 MONTGOMERY ST., 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 NEW YORK STOCK EXCHANGE
8 1/2% SERIES A CUMULATIVE REDEEMABLE (NAME OF EXCHANGE ON WHICH REGISTERED)
PREFERRED STOCK
(TITLE OF CLASS)

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

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

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

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 12, 1999 was approximately $1,735,825,938.

As of March 12, 1999, there were 86,026,271 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.
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2

PART I

ITEM 1. BUSINESS

GENERAL

AMB Property Corporation, a Maryland corporation ("AMB" or the "Company"),
as of December 31, 1998, owned and operated industrial buildings and retail
centers totaling 63.6 million square feet located in 30 markets nationwide,
including: Chicago, San Francisco Bay Area, Dallas/Ft. Worth, Los Angeles,
Minneapolis, Atlanta, Seattle, Miami, Boston, and Northern New Jersey. As of
December 31, 1998, the Company owned 582 industrial buildings, aggregating 56.6
million rentable square feet (the "Industrial Properties"), principally
warehouse distribution buildings, which were 96.0% leased, and 38 retail
centers, aggregating 7.0 million rentable square feet (the "Retail Properties"),
principally grocer-anchored community shopping centers, which were 94.6% leased.
The Industrial Properties and the Retail Properties collectively are referred to
as the "Properties."

On March 9, 1999, we signed a series of definitive agreements with BPP
Retail, LLC ("BPP Retail"), a co-investment entity between Burnham Pacific
Properties ("BPP") and the California Public Employees' Retirement System
("CalPERS"), pursuant to which BPP Retail will acquire 28 of our retail shopping
centers, totaling 5.1 million square feet, for an aggregate price of $663.4
million. BPP Retail will acquire the centers in separate transactions, which we
currently expect to close on or about April 30, 1999, July 31, 1999 and December
1, 1999. In addition, we have entered into a definitive agreement, subject to a
financing confirmation, with BPP, pursuant to which BPP will acquire six
additional retail centers, totaling 1.5 million square feet, for $284.4 million.
Assuming the receipt of the financing confirmation, we currently expect this
transaction to close by December 31, 1999. In connection with these
transactions, we have also granted CalPERS an option to purchase up to 2,000,000
original issue shares of AMB's Common Stock for an exercise price of $25 per
share that CalPERS may exercise on or before March 31, 2000. There can be no
assurance, however, that the transactions will close as scheduled or close at
all, and it is possible that the transactions may close with respect to just a
portion of the properties currently subject to the agreements. We currently
expect that the substantial majority of our acquisition activities going forward
will be in industrial properties. See "Item 7: Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Business
Risks -- Failure to Consummate the Transactions with BPP Retail and BPP."

INDUSTRIAL AND RETAIL PROPERTIES BY REGION
AT DECEMBER 31, 1998

INDUSTRIAL PROPERTIES RETAIL PROPERTIES TOTAL
--------------------------------- ------------------------------ ---------------------------------
NUMBER RENTABLE NUMBER RENTABLE NUMBER RENTABLE
OF SQUARE % OF OF SQUARE % OF OF SQUARE % OF
REGION BUILDINGS FEET TOTAL CENTERS FEET TOTAL BUILDINGS FEET TOTAL
------ --------- ---------- ------ ------- --------- ------ --------- ---------- ------

Eastern.............. 100 12,181,830 21.5% 4 1,272,968 18.2% 104 13,454,798 21.2%
Midwestern........... 108 12,136,083 21.4% 4 710,833 10.2% 112 12,846,916 20.2%
Southern............. 192 17,264,646 30.5% 13 2,093,257 30.0% 205 19,357,903 30.4%
Western.............. 182 15,028,308 26.6% 17 2,907,986 41.6% 199 17,936,294 28.2%
--- ---------- ------ -- --------- ------ --- ---------- ------
Total................ 582 56,610,867 100.0% 38 6,985,044 100.0% 620 63,595,911 100.0%
=== ========== ====== == ========= ====== === ========== ======

As of December 31, 1998, we employed 138 individuals; 106 in our San
Francisco headquarters and 32 in our Boston office. We actively manage our
Properties through our experienced staff of regional managers. See "Business and
Operating Strategies."

We are self-administered and self-managed and expect that we have qualified
and will continue to qualify as a real estate investment trust ("REIT") for
federal income tax purposes beginning with the year ending December 31, 1997. As
a self-administered and self-managed REIT, our own employees perform our
administrative and management functions, rather than our relying on an outside
manager for these services. The principal executive office of the Company and
AMB Property, L.P., a Delaware limited partnership (the

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"Operating Partnership"), is located at 505 Montgomery Street, San Francisco,
California 94111, and our telephone number is (415) 394-9000. We also maintain a
regional office in Boston, Massachusetts. Unless the context otherwise requires,
the terms "we," "us," "our," "AMB" and the "Company" refer to AMB Property
Corporation, the Operating Partnership and the other controlled subsidiaries.

FORMATION OF THE COMPANY

The Company commenced operations as a fully integrated real estate company
in connection with the completion of its initial public offering (the "IPO") on
November 26, 1997, and elected to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the "Code"), with its
initial tax return for the year ended December 31, 1997. The Company, through
its controlling sole general partnership interest in the Operating Partnership
and through certain other direct and indirect subsidiaries, is engaged in the
ownership, operation, management, acquisition, renovation, expansion, and
development of industrial buildings and community shopping centers in target
markets nationwide. As of December 31, 1998, the Company owned a 95.1% general
partnership interest in the Operating Partnership, excluding preferred units.

On November 26, 1997, the Company completed the IPO of 16,100,000 shares of
Common Stock for $21.00 per share, resulting in gross offering proceeds of
approximately $338.1 million. Net of underwriters' commission and offering costs
aggregating $38.1 million, the Company received approximately $300.0 million in
proceeds from the IPO. The Company contributed net proceeds of the IPO to the
Operating Partnership in exchange for general partnership units. The Operating
Partnership used these proceeds to repay indebtedness, to purchase interests
from certain investors who elected not to receive common stock or limited
partnership units, to fund property acquisitions, and to meet general corporate
working capital requirements.

For local law purposes, we own properties in certain states through limited
partnerships and limited liability companies owned 99% by the Operating
Partnership and 1% by a wholly-owned subsidiary of the Company. The ownership of
such Properties through such entities does not materially affect our overall
ownership of the interests in the Properties. As the sole general partner of the
Operating Partnership, the Company has the full, exclusive and complete
responsibility and discretion in the management and control of the Operating
Partnership. The purchase method of accounting was applied to the acquisition of
the properties. Collectively, the Merger and the other formation transactions
described above are referred to as the "Formation Transactions."

In connection with the Formation Transactions, the Operating Partnership
acquired all of the non-voting preferred stock of AMB Investment Management
Inc., a Maryland corporation ("AMB Investment Management") representing a 95%
economic interest therein. AMB Investment Management conducts its operations
through AMB Investment Management Limited Partnership, a Maryland limited
partnership ("AMB Investment Management Partnership"), of which it is the sole
general partner and owns the entire capital interest. AMB Investment Management
was formed to succeed to the Predecessor's investment management business of
providing real estate investment management services on a fee basis to clients
and intends to grow its business through the Company's co-investment program.
All of the common stock of AMB Investment Management, representing a 5% economic
interest therein, is owned by the Company's current or former executive
officers.

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BUSINESS AND OPERATING STRATEGIES

We focus on serving the needs of the supply chain through our ownership of
industrial and retail properties. As of December 31, 1998, our portfolio
consisted of 76% Industrial Properties and 24% Retail Properties, based on
annualized base rent for the properties. We believe that the rapid growth in the
air freight business, in the outsourcing of supply chain management to logistics
companies and of e-commerce are indicators of changes that are occurring in the
supply chain and the manner in which goods are distributed. We focus our
investment activities on properties which we believe will benefit by these
changes, such as high throughput distribution properties located in major hub
distribution markets and near major air cargo facilities, seaports or major
highway systems throughout the U.S. 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 firms across the
country, which provide local property management and leasing services to us on a
fee basis. We believe that real estate is fundamentally a local business and
that the most effective way for a national company such as us to operate is by
forging alliances with the best available service providers in our markets.

STRATEGIC ALLIANCE PROGRAMS(TM)

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

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

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

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

OPERATING ALLIANCES(TM)

MANAGEMENT ALLIANCE PROGRAM(TM): Our strategy for the Management Alliance
Program(TM) is to develop close relationships with and outsource property
management to local property managers that we believe to be among the best in
their respective markets. Our alliances with local property managers increase
our flexibility, reduce our overhead expenses and improve our customer service.
In addition, these alliances provide us with local market information related to
tenant activity and acquisition opportunities.

CUSTOMER ALLIANCE PROGRAM(TM): Through our Customer Alliance Program(TM),
we seek to build long-term working relationships with major tenants. We are
committed to working with our tenants, particularly our larger tenants with
multi-site requirements, to make their property searches as efficient as
possible.

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

INVESTMENT ALLIANCES(TM)

DEVELOPMENT ALLIANCE PROGRAM(TM): Our strategy for the Development Alliance
Program(TM) is to enhance our development capability while reducing our overhead
expenses, by forming alliances with development firms with a strong local
presence and expertise, who have proven they have the insight to recognize
potential in an undervalued asset and the skill to realize that value.

UPREIT ALLIANCE PROGRAM(TM): Through our UPREIT Alliance Program(TM), we
issue limited partnership units in the Operating Partnership in exchange for
properties, thus providing additional growth for the portfolio.

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INSTITUTIONAL ALLIANCE PROGRAM(TM): Our strategy for the Institutional
Alliance Program(TM) is to form alliances with institutional investors through
the co-investment program of AMB Investment Management. Our alliances with
institutional investors provide us with access to private capital, including
during those times when the public markets are less attractive, as well as
providing us with a source of incremental fee income and investment returns.

NATIONAL PROPERTY COMPANY

We own properties in 30 markets throughout the U.S. We believe that our
national strategy enables us to:

- increase or decrease investments in certain regions to take advantage of
the relative strengths in different real estate markets,

- retain and accommodate tenants as they consolidate or expand and

- build brand awareness as well as customer loyalty through the delivery of
consistent service and quality product.

RESEARCH-DRIVEN, SELECT MARKET FOCUS

We focus on acquiring, redeveloping and operating Industrial Properties in
"in-fill locations," which are characterized by limited new construction
opportunities, near major air cargo facilities, seaports or major highway
systems. As the strength of these markets continues to grow and the demand for
well-located properties increases, we believe that we will benefit from an
upward pressure on rents resulting from the increased demand combined with the
relative lack of new available space. Our decisions regarding the deployment of
capital are experience- and research-driven, and are based on thorough
qualitative and quantitative research and analysis of local markets. We employ a
dedicated research department using proprietary analyses, databases and systems.

We intend to continue to focus our industrial property investment
activities in six hub markets which dominate national warehouse distribution
activities -- Atlanta, Chicago, Dallas/Fort Worth, Los Angeles, Northern New
Jersey and San Francisco Bay Area -- as well as properties located near major
air cargo facilities, seaports or convenient to major highway systems. We also
invest in selected regional distribution markets including Boston, Denver,
Houston, Miami, Minneapolis, San Diego, Seattle and Baltimore/ Washington, D.C.
We focus on these established industrial markets because we believe they offer
large and broadly diversified tenant bases which provide greater demand for
properties over market cycles than secondary markets. In-fill locations within
these markets also typically have significant barriers to new construction,
including geographic or regulatory supply constraints, and these markets
typically benefit from an access to large labor supplies and well-developed
transportation networks.

DISCIPLINED INVESTMENT PROCESS

Over our 15-year history prior to the consummation of the IPO, we have
established a disciplined approach to the investment process through operating
divisions that are subject to the overall policy direction of our management's
investment committee (the "Investment Committee"). The stages in the investment
process are highly integrated, with Investment Committee review at critical
points in the process.

Approval of each investment is the responsibility of the Investment
Committee with sponsorship from both an acquisitions officer and the regional
manager who will be responsible for managing the property. The initial
investment recommendation is thoroughly evaluated, with approval required in
order to proceed to contract and full due diligence. The terms of the
acquisition and its structure are determined as part of the initial approval and
are the responsibility of the acquisitions officer. The regional manager is
involved in providing and verifying underwriting assumptions and developing the
operating strategy. After the due diligence review and before removing
conditions to the contract, a final Investment Committee recommendation is
prepared by the acquisition and asset management team. The Investment Committee
conducts a complete review of the information developed during the due diligence
process and either rejects or gives final approval.
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We have also established proprietary systems and procedures to manage and
track a high volume of acquisition proposals, transactions and important market
data. This includes an on-line open issues database that provides us with
current information on the status of each transaction, highlighting the issues
that must be addressed prior to closing, and a database that includes and
compiles data on all transaction proposals and markets reviewed by us.

PROPERTY DEVELOPMENT

The multidisciplinary backgrounds of our employees 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.
In this way, we leverage the development skill, access to opportunities and
capital of such developers, transferring a significant amount of the development
risk to them and eliminating the need and expense of an in-house development
staff.

FINANCING STRATEGY

In order to maintain financial flexibility and facilitate the rapid
deployment of capital over market cycles, we intend to operate with a
debt-to-total market capitalization ratio of approximately 45% or less, although
our organizational documents do not limit the amount of indebtedness that we may
incur. Additionally, we intend to continue to structure our balance sheet in
order to maintain investment-grade ratings. We also intend to keep the majority
of our assets unencumbered to facilitate such ratings. As of December 31, 1998,
our debt-to-total market capitalization ratio was approximately 38%. We
calculate our debt-to-total market capitalization ratio by adding our
consolidated debt to our share of unconsolidated joint venture debt and dividing
by the total market capitalization, including preferred stock and preferred
units.

We have a $500 million unsecured revolving credit agreement (the "Credit
Facility") with Morgan Guaranty Trust Company of New York as agent, and a
syndicate of twelve other banks. The Credit Facility bears interest at a rate
equal to LIBOR plus 90 to 120 basis points, depending upon our then current debt
rating (currently LIBOR plus 90 basis points). We presently plan to use
available borrowings under the Credit Facility for property acquisitions and for
general corporate purposes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources"
and Note 5 to the Company's consolidated financial statements included in this
report.

We currently expect that our principal sources of working capital and
funding for acquisitions, development, expansion and renovation of the
Properties will include cash flow from operations, borrowings under the Credit
Facility, other forms of secured or unsecured financing, proceeds from equity or
debt offerings by the Company or the Operating Partnership (including issuances
of units in the Operating Partnership or its subsidiaries), and proceeds from
divestitures of Properties. Additionally, our co-investment program will also
serve as a source of capital, particularly when more traditional sources of
capital may not be available on attractive terms.

THE PREFERRED STOCK SUBSIDIARIES

AMB Investment Management provides real estate investment management
services on a fee basis to certain of its clients which did not participate in
the Formation Transactions. We presently intend to co-invest with clients of AMB
Investment Management, to the extent such clients newly commit investment
capital, through partnerships, limited liability companies or joint ventures. We
use a co-investment formula with each client whereby we will own at least a 20%
interest in all ventures. As of December 31, 1998, we had consummated five
co-investments through one partnership. Headlands Realty Corporation invests in
properties and interests in entities that engage in the management, leasing and
development of properties and similar activities. The Operating Partnership owns
100% of the non-voting preferred stock of AMB Investment Management and
Headlands Realty Corporation (representing approximately 95% of the economic
interest in each entity) and certain of our current and former executive
officers and an officer of AMB Investment Management and certain of our current
and former executive officers and an officer of Headlands Realty

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Corporation own all of the outstanding voting common stock of AMB Investment
Management and Headlands Realty Corporation, respectively (representing
approximately 5% of the economic interest in each entity).

STRATEGIES FOR GROWTH

We intend to achieve our objectives of long-term sustainable growth in
Funds from Operations ("FFO") and maximization of long-term stockholder value
principally by growth through:

- operations, resulting from improved operating margins within the
portfolio while maintaining above-average occupancy,

- continued property acquisitions, including through our Strategic Alliance
Programs(TM), and

- renovation, expansion and development of selected properties, including
through our Development Alliance Program(TM).

GROWTH THROUGH OPERATIONS

We seek to improve operating margins by maintaining the high occupancy rate
of our Properties and by capitalizing on the economies of owning, operating and
growing a large national portfolio. As of December 31, 1998, our Industrial
Properties and Retail Properties owned as of that date were 96.0% leased and
94.6% leased, respectively. During the 12 months ended December 31, 1998, we
increased average base rental rates (on a cash basis) by 14.3% from the expiring
rent for that space, on leases entered into or renewed during such period,
representing 7.7 million rentable square feet. Annualized base rent represents
the monthly contractual amount under existing leases at the end of the year,
multiplied by 12. This amount excludes expense reimbursements, rental abatements
and percentage rents.

During the 12 months ending December 31, 1999, leases encompassing an
aggregate of 16.3 million rentable square feet (representing 25.6% of our
aggregate rentable square footage as of December 31, 1998) are subject to
contractual rent increases resulting in an average increase in the annualized
base rent on such leases of approximately 6.3%. Based on recent experience and
current market trends, we believe we will have an opportunity to increase the
average base rental rate on Property leases expiring during the 12 months ending
December 31, 1999 covering an aggregate of 9.3 million rentable square feet. We
seek to reduce the potential volatility of our portfolio's FFO by managing lease
expirations so that they occur within individual properties and across the
entire portfolio in a staggered fashion, and by monitoring the credit and mix of
tenants, particularly those in the Retail Properties.

GROWTH THROUGH ACQUISITIONS

We believe our significant acquisition experience, our alliance-based
operating strategy and our extensive network of property acquisition sources
will continue to provide opportunities for external growth. We have
relationships through our Institutional Alliance Program(TM) with a number of
the nation's leading pension funds and other institutional investors, many of
whom have large portfolios of industrial properties. We believe that our
relationship with third party local property managers through our Management
Alliance Program(TM) 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(TM) 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.

Between January 1, 1998 and December 31, 1998, we invested approximately
$837.5 million (including our share of co-investments) in:

- 228 industrial buildings aggregating 18.8 million square feet,

- two retail centers aggregating 0.4 million square feet and

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- an unconsolidated limited partnership interest in an existing real estate
joint venture which owns 36 industrial buildings aggregating 4.0 million
square feet.

Of the total investment during such period, we invested approximately $215.8
million through our UPREIT Alliance Program(TM), approximately $139.5 million
through our Institutional Alliance Program(TM), and $137.9 million through our
Management Alliance Program(TM).

We are generally in various stages of negotiations for a number of
acquisitions, which may include acquisitions of individual properties, large
multi-property portfolios and other real estate companies. There can be no
assurance that we will consummate any of these acquisitions. Such acquisitions,
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 the Credit Facility, other forms of secured or unsecured
financing, issuances of debt or equity securities by the Company or the
Operating Partnership (including issuances of units in the Operating Partnership
or its subsidiaries), proceeds from divestitures of certain assets, and
assumption of debt related to the acquired assets.

GROWTH THROUGH PROPERTY DEVELOPMENT

We believe that renovation and expansion of value-added properties and
development of well-located, high-quality industrial properties and community
shopping centers 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, properties that are well-located but require redevelopment or
renovation, and occasionally undeveloped land acquired in connection with
another property that provides an opportunity for development. Such properties
require significant management attention and/or capital investment to maximize
their return. We have developed the in-house expertise to create value through
acquiring and managing value-added properties and believe our national market
presence and expertise will enable us to continue to generate and capitalize on
such opportunities. Through our Development Alliance Program(TM), we have
established certain strategic alliances with national and regional developers to
enhance our development capabilities.

As of December 31, 1998, we had committed to invest approximately $349.9
million to develop approximately 5.8 million rentable square feet. Approximately
$301.5 million of this investment is through our Development Alliance
Program(TM). See "Development Projects in Progress."

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 which could adversely affect us.

ITEM 2. PROPERTIES

The Properties that we owned as of December 31, 1998, are divided into two
operating divisions. We have broken down these two operating divisions into
thirty identifiable markets. We have provided this breakdown for external
reporting purposes only. It reflects the key markets of interest to our
stockholders and does not reflect how we are operationally managed. Segment
information related to our operations can be found in Note 13 of Notes to
Consolidated Financial Statements.

As of December 31, 1998, we owned 582 industrial buildings, representing an
aggregate of 56.6 million rentable square feet, principally warehouse
distribution properties, which were 96.0% leased, and the 38 retail centers,
representing an aggregate of 7.0 million rentable square feet, principally
grocer-anchored community shopping centers, which were 94.6% leased. During the
year ended December 31, 1998, no individual industrial or retail tenant
accounted for greater than 2% of rental revenues or total square feet. As of
December 31, 1998, the largest industrial tenant accounted for only 1.0% and
0.7% of industrial base rent and total base rent, respectively. As of December
31, 1998, the largest retail tenant accounted for only 4.2% and 1.0% of retail
base rent and total base rent, respectively.
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INDUSTRIAL PROPERTIES

At December 31, 1998, we owned 582 industrial buildings aggregating
approximately 56.6 million rentable square feet, located in 26 markets
nationwide. The Industrial Properties accounted for $247.2 million, or 75.7%, of
our annualized base rent derived from the Properties as of December 31, 1998.
The Industrial Properties were 96.0% leased to over 1600 tenants as of the same
date, the largest of which accounted for no more than 1.0% of our annualized
base rent from the Industrial Properties.

Property Characteristics. The Industrial Properties, which consist
primarily of warehouse distribution facilities suitable for single or multiple
tenants, are typically comprised of multiple buildings (an average of five) and
generally range between 300,000 and 600,000 rentable square feet, averaging
475,000 rentable square feet per Property. The following table identifies
characteristics of our typical industrial buildings:

TYPICAL BUILDING RANGE
-------------------- ------------------

Rentable square feet...................................... 100,000 70,000 - 150,000
Clear height.............................................. 24 ft. 18 - 32 ft.
Building depth............................................ 200 ft. 150 - 300 ft.
Truck court depth......................................... 110 ft. 90 - 130 ft.
Loading dock & grade...................................... Dock or Dock & Grade
Parking spaces per 1,000 square feet...................... 1.0 0.5 - 2.0
Square footage per tenant................................. 35,000 5,000 - 100,000
Office finish............................................. 8% 3% - 15%
Site coverage............................................. 40% 35% - 55%

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

Overview of Major Target Markets. The Industrial Properties are
concentrated in national hub distribution markets, such as Atlanta, Chicago,
Dallas/Fort Worth, Los Angeles, Northern New Jersey, and the San Francisco Bay
Area, because we believe their strategic location, transportation network and
infrastructure, and large consumer and manufacturing bases support strong demand
for industrial space. According to statistics published by CB Commercial/Torto
Wheaton Research, the six national hub markets listed above are the nation's
largest warehouse markets and, as of December 31, 1998, comprised 38.8% of the
warehouse inventory of the 53 industrial markets tracked by them. According to
statistics published by CB Commercial/Torto Wheaton Research, as of December 31,
1998, the combined population of these markets was approximately 40.3 million,
and the amount of per capita warehouse space was 19.2% above the average for
those 53 industrial markets.

Within these metropolitan areas, the Industrial Properties are concentrated
in in-fill locations (which are characterized by limited new construction
opportunities due to high population densities and low levels of available land
that could be developed into competitive industrial or retail properties) within
established, relatively large submarkets (markets within a metropolitan area in
which the competitive environment for one or more property types is largely
dependent upon the supply of such property type in such market rather than the
supply of such property type in other portions of such metropolitan area) 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
air cargo facilities, seaports and convenient to major highways and rail lines,
are proximate to a diverse labor pool, and have limited land available for new
construction. 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. Small metropolitan areas or
cities without a heavy concentration of warehouse activity typically have few,
if any, supply-constrained locations (those areas typified by significant
population densities, a limited number of

8
10

existing industrial tenants and a low availability of land which could be
developed into competitive space for additional industrial tenants).

INDUSTRIAL PROPERTY SUMMARY

As of December 31, 1998, the 582 industrial buildings were diversified
across 26 markets nationwide. The average age of the Industrial Properties is 12
years (since the Property was built or substantially renovated), which we
believe should result in lower operating costs over the long term. 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).

PERCENTAGE PERCENTAGE
TOTAL OF TOTAL ANNUALIZED OF TOTAL
INDUSTRIAL PROPERTIES NUMBER OF RENTABLE RENTABLE PERCENTAGE BASE RENT ANNUALIZED NUMBER
(MARKET/SUBMARKET) BUILDINGS SQUARE FEET SQUARE FEET LEASED (000'S)(1) BASE RENT OF LEASES
--------------------- --------- ----------- ----------- ---------- ---------- ---------- ---------

EASTERN
Baltimore/Washington,
D.C....................... 14 1,997,682 3.5% 87.0% $ 7,732 3.1% 34
Boston...................... 38 4,508,244 7.9% 97.3% 18,651 7.5% 59
Charlotte................... 12 831,974 1.5% 97.7% 3,609 1.5% 31
Cincinnati.................. 6 812,134 1.4% 93.7% 2,566 1.0% 11
No. New Jersey.............. 14 2,986,061 5.3% 98.8% 15,114 6.1% 22
Philadelphia................ 13 779,594 1.4% 98.0% 2,918 1.2% 26
Wilmington.................. 3 266,141 0.5% 100.0% 1,057 0.4% 5
--- ---------- ------ ------ -------- ------ -----
Total/Weighted Average.... 100 12,181,830 21.5% 95.9% 51,647 20.9% 188
MIDWESTERN
Chicago..................... 63 7,116,168 12.6% 93.5% 25,937 10.5% 111
Columbus.................... 2 468,433 0.8% 100.0% 1,363 0.6% 2
Minneapolis................. 43 4,551,482 8.0% 95.5% 16,756 6.8% 211
--- ---------- ------ ------ -------- ------ -----
Total/Weighted Average.... 108 12,136,083 21.4% 94.5% 44,056 17.8% 324
SOUTHERN
Atlanta..................... 39 3,184,953 5.6% 93.3% $ 13,392 5.4% 138
Austin...................... 6 735,240 1.3% 100.0% 4,964 2.0% 22
Dallas/Ft. Worth............ 58 4,869,424 8.6% 97.7% 16,508 6.7% 172
Houston..................... 22 1,951,787 3.5% 95.0% 6,552 2.7% 109
Memphis..................... 19 2,259,162 4.0% 94.7% 9,107 3.7% 50
Miami....................... 25 2,173,481 3.8% 98.1% 12,746 5.2% 80
New Orleans................. 5 411,689 0.7% 99.3% 1,810 0.7% 49
Orlando..................... 18 1,678,910 3.0% 87.4% 5,709 2.3% 69
--- ---------- ------ ------ -------- ------ -----
Total/Weighted Average.... 192 17,264,646 30.5% 95.4% 70,788 28.6% 689
WESTERN
Denver...................... 2 63,080 0.1% 89.9% 279 0.1% 15
Los Angeles................. 50 4,983,228 8.8% 97.4% 20,431 8.3% 97
Orange County............... 12 563,437 1.0% 99.5% 3,476 1.4% 33
Portland.................... 5 676,104 1.2% 97.5% 2,657 1.1% 9
Sacramento.................. 1 182,437 0.3% 100.0% 630 0.3% 1
San Diego................... 5 276,167 0.5% 100.0% 1,918 0.8% 16
San Francisco Bay Area...... 86 6,157,976 10.9% 98.0% 43,453 17.6% 226
Seattle..................... 21 2,125,879 3.8% 98.8% 7,894 3.2% 57
--- ---------- ------ ------ -------- ------ -----
Total/Weighted Average.... 182 15,028,308 26.6% 98.0% 80,738 32.7% 454
TOTAL/WEIGHTED
AVERAGE............. 582 56,610,867 100.0% 96.0% $247,229 100.0% 1,655
=== ========== ====== ====== ======== ====== =====

ANNUALIZED
BASE RENT
INDUSTRIAL PROPERTIES PER LEASED
(MARKET/SUBMARKET) SQUARE FOOT
--------------------- -----------

EASTERN
Baltimore/Washington,
D.C....................... $4.45
Boston...................... 4.25
Charlotte................... 4.44
Cincinnati.................. 3.37
No. New Jersey.............. 5.12
Philadelphia................ 3.82
Wilmington.................. 3.97
-----
Total/Weighted Average.... 4.42
MIDWESTERN
Chicago..................... 3.90
Columbus.................... 2.91
Minneapolis................. 3.85
-----
Total/Weighted Average.... 3.84
SOUTHERN
Atlanta..................... $4.51
Austin...................... 6.75
Dallas/Ft. Worth............ 3.47
Houston..................... 3.53
Memphis..................... 4.26
Miami....................... 5.98
New Orleans................. 4.43
Orlando..................... 3.89
-----
Total/Weighted Average.... 4.30
WESTERN
Denver...................... 4.92
Los Angeles................. 4.21
Orange County............... 6.20
Portland.................... 4.03
Sacramento.................. 3.45
San Diego................... 6.95
San Francisco Bay Area...... 7.20
Seattle..................... 3.76
-----
Total/Weighted Average.... 5.48
TOTAL/WEIGHTED
AVERAGE............. $4.55
=====

- ---------------
(1) Annualized base rent represents the monthly contractual amount under
existing leases at December 31, 1998, multiplied by 12. This amount excludes
expense reimbursements and rental abatements.

9
11

INDUSTRIAL PROPERTY TENANT INFORMATION

Largest Industrial Property Tenants. Our 25 largest Industrial Property
tenants by annualized base rent are set forth in the table below.

PERCENTAGE OF PERCENTAGE OF
AGGREGATE AGGREGATE AGGREGATE
NUMBER OF RENTABLE LEASED ANNUALIZED ANNUALIZED
INDUSTRIAL TENANT NAME(1) PROPERTIES SQUARE FEET SQUARE FEET(2) BASE RENT BASE RENT(3)
------------------------- ---------- ----------- -------------- ---------- -------------

Wakefern Food Corporation......................... 1 419,900 0.8% $ 2,356 1.0%
Air Express International......................... 2 284,635 0.5% 2,033 0.8%
Exel Logistics.................................... 3 581,246 1.1% 2,029 0.8%
Dell USA, L.P..................................... 1 290,400 0.5% 1,724 0.7%
Federal Express Corporation....................... 3 189,168 0.3% 1,676 0.7%
Sequus Pharmaceuticals............................ 1 140,609 0.3% 1,667 0.7%
Sage Enterprises.................................. 3 245,289 0.5% 1,641 0.7%
Sanmina Corporation............................... 2 134,989 0.2% 1,639 0.7%
Home Depot USA, Inc............................... 3 449,813 0.8% 1,584 0.6%
Acer America...................................... 2 271,487 0.5% 1,574 0.6%
Office Depot...................................... 3 402,298 0.7% 1,567 0.6%
Rite Aid.......................................... 1 516,693 1.0% 1,550 0.6%
AM Cosmetics...................................... 1 326,500 0.6% 1,469 0.6%
Bradlees Stores, Inc.............................. 1 600,000 1.1% 1,453 0.6%
Boise Cascade Corporation......................... 2 400,655 0.7% 1,436 0.6%
United States Postal Service...................... 2 433,359 0.8% 1,334 0.5%
General Electric Company.......................... 4 318,055 0.6% 1,311 0.5%
Cosmair, Inc...................................... 1 303,843 0.6% 1,291 0.5%
Fujitsu........................................... 2 179,628 0.3% 1,271 0.5%
Schmalbach-Lubeca................................. 2 339,104 0.6% 1,265 0.5%
Avery Denison..................................... 1 410,428 0.8% 1,231 0.5%
United Liquors, Ltd............................... 1 315,000 0.6% 1,229 0.5%
Disney............................................ 1 336,143 0.6% 1,216 0.5%
Mylex............................................. 1 133,182 0.2% 1,205 0.5%
Rolf C. Hagen (USA) Corp.......................... 1 204,151 0.4% 1,133 0.5%
--------- ----- ------- -----
TOTAL/WEIGHTED AVERAGE.................... 8,226,575 15.1% $37,884 15.3%
========= ===== ======= =====

- ---------------
(1) Tenant(s) may be a subsidiary of or an entity affiliated with the named
tenant.

(2) Computed as aggregate rentable square feet divided by the aggregate leased
square feet of the Industrial Properties.

(3) Computed as annualized base rent divided by the aggregate annualized base
rent of the Industrial Properties.

10
12

INDUSTRIAL PROPERTY LEASE EXPIRATIONS

The following table summarizes the lease expirations for the Industrial
Properties for leases in place as of December 31, 1998, without giving effect to
the exercise of renewal options or termination rights, if any, at or prior to
the scheduled expirations.

RENTABLE PERCENTAGE ANNUALIZED PERCENTAGE OF ANNUALIZED
SQUARE OF TOTAL BASE RENT OF ANNUALIZED BASE RENT OF
NUMBER OF FOOTAGE OF RENTABLE EXPIRING BASE RENT EXPIRING
YEAR OF LEASES EXPIRING SQUARE LEASES OF EXPIRING LEASES
LEASE EXPIRATION EXPIRING(1) LEASES(1) FOOTAGE(5) ($000S)(1)(2) LEASES PER SQUARE FOOT(3)
---------------- ----------- ---------- ---------- ------------- ------------- ------------------

1999(4)........................ 375 8,921,425 16.4% $ 40,370 15.2% $4.53
2000........................... 381 10,253,191 18.9% 44,626 16.9% 4.35
2001........................... 344 8,766,856 16.1% 44,525 16.8% 5.08
2002........................... 225 8,165,045 15.0% 39,341 14.9% 4.82
2003........................... 181 6,701,162 12.3% 34,909 13.2% 5.21
2004........................... 45 3,009,447 5.5% 15,942 6.0% 5.30
2005........................... 39 2,978,049 5.5% 14,031 5.3% 4.71
2006........................... 19 1,214,803 2.2% 7,934 3.0% 6.53
2007........................... 13 1,495,177 2.7% 7,755 2.9% 5.19
2008........................... 21 1,355,779 2.5% 7,565 2.9% 5.58
2009 and beyond................ 11 1,514,097 2.8% 7,806 2.9% 5.16
----- ---------- ------ -------- ------ -----
TOTAL/WEIGHTED
AVERAGE.............. 1,654 54,375,031 100.0% $264,804 100.0% $4.87
===== ========== ====== ======== ====== =====

- ---------------
(1) Schedule includes executed leases that commence after December 31, 1998.
Schedule excludes leases expiring prior to January 1, 1999.

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

(3) Rent per square foot is calculated by dividing the annualized base rent of
expiring leases by the square footage expiring in any given year.

(4) Includes leases encompassing 606,275 square feet which are on a
month-to-month basis.

(5) Represents percentage of total square footage of expiring leases.

RETAIL PROPERTIES

At December 31, 1998, we owned 38 retail centers aggregating approximately
7.0 million rentable square feet, 34 of which are grocer-anchored. The Retail
Properties accounted for $79.2 million, or 24.3%, of annualized base rent
derived from the Properties as of December 31, 1998. The Retail Properties were
94.6% leased to over 900 tenants, the largest of which accounted for 4.2% of
annualized base rent from the Retail Properties as of such date. The Retail
Properties have an average age of six years since built, expanded or renovated.

11
13

assurance, however, that the transactions will close as scheduled or close at
all. We currently expect that the substantial majority of our acquisition
activities going forward will be in industrial properties. See "Item 7:
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Business Risks -- Failure to Consummate the Transactions with BPP
Retail and BPP."

The Retail Properties generally are located in supply-constrained trade
areas (those trade areas typified by significant population densities, a limited
number of existing retailers, such as grocers, and a low availability of land
which could be developed into competitive space for additional competitive
retailers) of 16 major metropolitan areas. Our national operating strategy for
the community shopping center business is based on detailed research regarding
target trade areas which typically have high population densities and above-
average income levels. We believe that the characteristics of our trade areas
tend to result in Retail Properties with above-average retail sales.

Property Characteristics. The Retail Properties generally contain between
80,000 and 400,000 rentable square feet. On average, 67% of the rentable square
feet for each of the Retail Properties is leased to one or more anchor tenants
(such as all grocery stores, drugstores and any other retail tenant occupying
more than 10,000 rentable square feet). The following table identifies
characteristics of our typical Retail Property.

TYPICAL BUILDING RANGE
---------------- -----------------

Rentable square feet........................................ 190,000 80,000 - 400,000
Percentage of square feet leased by anchor tenants.......... 67% 60% - 85%
Number of tenants........................................... 25 10 - 50
Parking spaces per 1,000 square feet........................ 5.0 4.0 - 6.0
Square footage per anchor tenant............................ 25,000 10,000 - 100,000
Average square footage per non-anchor tenant................ 1,500 750 - 5,000

Lease Terms. The Retail Properties are typically leased on a triple net
basis, defined as leases in which tenants pay their proportionate share of real
estate taxes, insurance and operating costs. In addition, some leases, including
some anchor tenant leases, require tenants to pay percentage rents based on
gross retail sales above predetermined thresholds. Typical anchor tenant leases
also provide for payment of a percentage administrative fee in lieu of a
management fee (calculated as a percentage of common area maintenance) which
ranges between 5% and 15%. Lease terms typical for anchor tenants range from 10
to 20 years, with a weighted average of 19 years, with renewal options for an
additional 10 to 20 years at fixed rents. Tenant improvement allowances are
standard and the amounts vary by submarket. Typical non-anchor tenants have
lease terms ranging from three to ten years with a weighted average of seven
years and they typically receive options for an additional five-year term at
market rents.

RETAIL PROPERTY SUMMARY

Rentable square footage occupied by anchor tenants accounted for 67.3% of
the aggregate square footage of the Retail Properties as of December 31, 1998.
Annualized base rent as of such date for our 25 largest tenants was
approximately $31.9 million, representing approximately 40.3% of annualized base
rent for all of our Retail Properties. Annualized base rent for the remaining
retail tenants was approximately $47.3 million as of the same date, representing
approximately 59.7% of the annualized base rent for all of our Retail
Properties.

12
14

The following table sets forth, on a market basis, the rentable square footage
leased to anchor tenants and non-anchor tenants as of December 31, 1998, and
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).

AVERAGE
ANCHOR TOTAL ANNUALIZED BASE RENT
RETAIL PROPERTIES NUMBER NUMBER RENTABLE RENTABLE PERCENTAGE BASE RENT PER SQUARE
(MARKET/SUBMARKET) OF CENTERS OF LEASES SQUARE FEET SQUARE FEET LEASED (000'S)(1) FEET LEASED(2)
------------------ ---------- --------- ----------- ----------- ---------- ---------- --------------

EASTERN
Albany.......................... 1 29 513,985 602,477 98.1% $ 6,179 $10.45
Baltimore/Washington, DC........ 1 12 390,288 404,755 100.0% 4,639 11.46
Boston.......................... 1 1 88,420 88,420 100.0% 690 7.80
Hartford........................ 1 24 116,960 177,316 99.9% 3,185 17.98
-- --- --------- --------- ------ ------- ------
Total/Weighted Average...... 4 66 1,109,653 1,272,968 99.1% 14,693 11.65
MIDWESTERN
Chicago......................... 3 47 413,883 504,916 96.3% 4,695 9.66
Minneapolis..................... 1 30 151,757 205,917 100.0% 2,216 10.76
-- --- --------- --------- ------ ------- ------
Total/Weighted Average...... 4 77 565,640 710,833 97.4% 6,911 9.99
SOUTHERN
Atlanta......................... 2 31 142,754 218,790 93.6% 2,856 13.95
Houston......................... 5 91 563,677 824,744 91.9% 8,053 10.62
Miami........................... 6 145 678,251 1,049,723 86.9% 10,515 11.53
-- --- --------- --------- ------ ------- ------
Total/Weighted Average...... 13 267 1,384,682 2,093,257 89.6% 21,424 11.43
WESTERN
Denver.......................... 2 64 351,193 512,460 98.6% 4,697 9.30
Los Angeles..................... 3 151 408,904 751,132 97.0% 10,528 14.45
Reno............................ 1 15 47,140 76,757 97.7% 762 10.16
San Diego....................... 2 78 107,015 276,404 95.9% 4,402 16.61
San Francisco Bay Area.......... 5 110 408,217 673,031 96.5% 8,949 13.78
Santa Barbara................... 1 25 97,189 144,484 100.0% 2,435 16.85
Seattle......................... 3 70 287,411 473,718 87.3% 4,393 10.62
-- --- --------- --------- ------ ------- ------
Total/Weighted Average...... 17 513 1,707,069 2,907,986 95.7% 36,166 13.00
TOTAL/WEIGHTED AVERAGE.... 38 923 4,767,044 6,985,044 94.6% $79,194 $11.98
== === ========= ========= ====== ======= ======

(2) Calculated as total annualized base rent divided by total rentable square
feet actually leased as of December 31, 1998.

13
15

RETAIL PROPERTY TENANT INFORMATION

Largest Retail Property Tenants. Our 25 largest Retail Property tenants by
annualized base rent are set forth in the table below.

PERCENTAGE OF PERCENTAGE OF
NUMBER AGGREGATE AGGREGATE ANNUALIZED AGGREGATE
OF RENTABLE LEASED BASE RENT ANNUALIZED
RETAIL TENANT NAME(1) CENTERS SQUARE FEET SQUARE FEET(3) (000S) BASE RENT(4)
--------------------- ------- ----------- -------------- ---------- -------------

Safeway Stores, Inc.(2)...................... 7 362,563 5.5% $ 3,290 4.2%
Wal-Mart Stores, Inc. and Sam's Club......... 2 388,866 5.9% 2,891 3.7%
Randall's Food & Drugs, Inc.(2).............. 5 298,549 4.5% 2,369 3.0%
Dayton Hudson................................ 3 320,670 4.9% 1,784 2.3%
Leonard Green & Partners..................... 5 138,998 2.1% 1,608 2.0%
Home Place................................... 2 109,323 1.7% 1,450 1.8%
Kroger(2).................................... 4 177,825 2.7% 1,414 1.8%
Viacom....................................... 10 58,785 0.9% 1,264 1.6%
Toys 'R Us, Inc.............................. 3 135,332 2.0% 1,247 1.6%
Publix(2).................................... 5 199,764 3.0% 1,180 1.5%
J.C. Penney.................................. 4 74,612 1.1% 1,161 1.5%
Comp USA, Inc................................ 4 95,213 1.4% 1,143 1.4%
Gap, Inc..................................... 4 57,591 0.9% 1,016 1.3%
Home Depot................................... 1 116,095 1.8% 1,015 1.3%
Barnes & Noble Super Stores, Inc............. 3 50,600 0.8% 1,004 1.3%
Great Atlantic............................... 1 86,889 1.3% 949 1.2%
Hallmark..................................... 13 51,643 0.8% 889 1.1%
Hannaford Bros. Co.(2)....................... 1 63,664 1.0% 875 1.1%
PETSMART, Inc................................ 4 102,100 1.5% 875 1.1%
Ross Stores, Inc............................. 2 61,120 0.9% 861 1.1%
Albertson's, Inc.(2)......................... 5 145,648 2.2% 854 1.1%
TJX, Inc..................................... 4 117,200 1.8% 769 1.0%
Randolph Bob's, Inc.......................... 1 88,420 1.3% 690 0.9%
Fry's Electronics............................ 1 46,200 0.7% 677 0.9%
Rite Aid..................................... 6 124,110 1.9% 644 0.8%
--------- ----- ------- -----
TOTAL/WEIGHTED AVERAGE............... 3,471,780 52.5% $31,919 40.3%
========= ===== ======= =====

- ---------------
(1) Tenant(s) may be a subsidiary of or an entity affiliated with the named
tenant.

(2) Of the top 25 Retail Property tenants, six are grocers. Of the 38 Retail
Properties, 34 are grocer-anchored.

(3) Computed as aggregate rentable square feet divided by the aggregate leased
square feet of the Retail Properties.

(4) Computed as annualized base rent divided by the aggregate annualized base
rent of the Retail Properties.

14
16

RETAIL PROPERTY LEASE EXPIRATIONS

The following table sets forth a summary schedule of the Retail Property
lease expirations for leases in place as of December 31, 1998 without giving
effect to the exercise of renewal options or termination rights, if any, at or
prior to the scheduled expirations.

RENTABLE PERCENTAGE ANNUALIZED
SQUARE OF TOTAL BASE RENT PERCENTAGE OF ANNUALIZED
NUMBER OF FOOTAGE OF RENTABLE OF EXPIRING ANNUALIZED RENT
YEAR OF LEASES LEASES SQUARE LEASES BASE RENT OF OF EXPIRING LEASES
LEASE EXPIRATION EXPIRING(1) EXPIRING(1) FOOTAGE(5) ($000S)(1)(2) EXPIRING LEASES PER SQUARE FOOT(3)
- ---------------------------- ----------- ----------- ---------- ------------- --------------- ------------------

1999(4)..................... 151 357,631 5.4% $ 5,410 6.3% $15.13
2000........................ 126 509,888 7.7% 6,363 7.4% 12.48
2001........................ 128 560,719 8.5% 7,223 8.3% 12.88
2002........................ 128 473,806 7.1% 8,041 9.3% 16.97
2003........................ 109 609,345 9.2% 7,637 8.8% 12.53
2004........................ 55 253,971 3.8% 4,271 4.9% 16.82
2005........................ 37 135,828 2.0% 3,193 3.7% 23.51
2006........................ 46 280,453 4.2% 5,594 6.5% 19.95
2007........................ 36 442,848 6.7% 4,683 5.4% 10.57
2008........................ 22 303,350 4.6% 3,244 3.7% 10.69
2009 and beyond............. 90 2,707,184 40.8% 30,896 35.7% 11.41
--- --------- ------ ------- ------ ------
TOTAL/WEIGHTED
AVERAGE........... 928 6,635,023 100.0% $86,555 100% $13.05
=== ========= ====== ======= ====== ======

- ---------------
(1) Schedule includes executed leases that commence after December 31, 1998.
Schedule excludes leases expiring prior to January 1, 1999.

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

(3) Rent per square foot is calculated by dividing the annualized base rent of
expiring leases by the square footage expiring in any given year.

(4) Includes leases encompassing 70,346 square feet which are on a
month-to-month basis.

(5) Represents percentage of total rentable square footage of expiring leases.

15
17

OPERATING AND LEASING STATISTICS SUMMARY

The following summarizes key operating and leasing statistics for the
Industrial and Retail Properties.

INDUSTRIAL RETAIL TOTAL
---------- ---------- -----------

Square feet owned at December 31, 1998(1)......................................... 56,610,867 6,985,044 63,595,911
Occupancy percentage at December 31, 1998......................................... 96.0% 94.6% 95.8%
Lease expirations as percentage of total sq. ft. (next 12 months)................. 15.8% 5.1% 14.6%
Weighted average lease term....................................................... 7 years 15 years 8 years
Tenant retention: -- Year................................. 74.8% 84.1% 75.4%
-- Trailing average (1/01/95 to
12/31/98)............................... 73.4% 83.4% 73.9%
Rent increases on renewals and
rollovers: -- Year................................. 14.6% 13.3% 14.3%
Same store cash basis NOI growth(2):) -- Year................................. 7.4% 6.5% 7.1%
Second generation tenant improvements
and leasing commissions per sq. ft.: -- Year:
Renewals................................ $0.92 $1.34 $0.95
Re-tenanted............................. 2.08 9.99 2.47
---------- ---------- -----------
Weighted average........................ $1.10 $2.64 $1.18
========== ========== ===========
-- Trailing average (1/01/95 to
12/31/98)............................... $1.22 $4.75 $1.42
========== ========== ===========

- ---------------
(1) In addition to owned square feet, we manage, through its subsidiary, AMB
Investment Management, 3.5 million, 0.6 million, and 0.4 million additional
square feet of industrial, retail, and other properties, respectively. We
also have an investment in 4.0 million square feet of Industrial Properties
through our investment in an unconsolidated joint venture.

(2) Consists of industrial buildings and retail centers aggregating 25.6 million
and 4.8 million square feet, respectively, that have been owned by us since
January 1, 1997, and excludes development properties prior to stabilization.
See "Item 14: Note 13 of Notes to Consolidated Financial Statements" for
total property net operating income by segment.

HISTORICAL TENANT RETENTION RATES AND RENT INCREASES

The following table sets forth information relating to tenant retention
rates and average rent increases (cash basis) on renewal and re-tenanted space
for the Industrial Properties and the Retail Properties for the periods
presented.

YEAR ENDED DECEMBER 31,
------------------------ WEIGHTED
1996 1997 1998 AVERAGE
---- ---- ---- --------

INDUSTRIAL PROPERTIES:
Retention rate.......................................... 79.2% 69.5% 74.8% 74.1%
Rental increases........................................ 4.7% 13.0% 14.6%

RETAIL PROPERTIES:
Retention rate.......................................... 88.4% 87.8% 84.1% 86.0%
Rental increases........................................ 5.4% 10.1% 13.3%

TOTAL PROPERTIES:
Retention Rate.......................................... 79.8% 70.3% 75.4% 74.7%
Rental increases........................................ 5.0% 11.0% 14.3%

16
18

RECURRING TENANT IMPROVEMENTS AND LEASING COMMISSIONS PER SQUARE FOOT LEASED

The table below summarizes for the Industrial Properties and the Retail
Properties, separately, the recurring tenant improvements and leasing
commissions per square feet leased for the periods presented. The recurring
tenant improvements and leasing commissions represent costs incurred to lease
space after the initial lease term of the initial tenant, excluding costs
incurred to relocate tenants as part of a re-tenanting strategy. The tenant
improvements and leasing commissions set forth below are not necessarily
indicative of future tenant improvements and leasing commissions.

YEAR ENDED DECEMBER 31,
--------------------------- WEIGHTED
1996 1997 1998 AVERAGE
----- ----- ----- --------

INDUSTRIAL PROPERTIES:
Expenditures per renewed square foot leased............... $0.93 $1.05 $0.92 $0.95
Expenditures per re-tenanted square foot leased........... $1.97 $1.62 $2.08 $1.84
Weighted average.......................................... $1.29 $1.30 $1.10 $1.20

RETAIL PROPERTIES:
Expenditures per renewed square foot leased............... $4.72 $4.25 $1.34 $2.63
Expenditures per re-tenanted square foot leased........... $6.53 $7.92 $9.99 $7.93
Weighted average.......................................... $5.61 $6.41 $2.64 $4.66

OCCUPANCY AND AVERAGE BASE RENT

The table below sets forth weighted average occupancy rates and average
base rent based on square feet leased of the Industrial Properties and the
Retail Properties as of and for the periods presented.

YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
------ ------ ------

INDUSTRIAL PROPERTIES:
Occupancy rate at period end.............................. 97.2% 95.7% 96.0%
Average base rent per square foot(1)...................... $ 3.81 $ 4.26 $ 4.55

RETAIL PROPERTIES:
Occupancy rate at period end.............................. 92.4% 96.1% 94.6%
Average base rent per square foot(1)...................... $11.32 $11.98 $11.98

- ---------------
(1) Average base rent per square foot represents the total annualized
contractual base rental revenue for the period divided by the average
occupied square feet leased for the period.

17
19

DEVELOPMENT PIPELINE

The following table sets forth the Properties owned by us as of December
31, 1998 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.

ESTIMATED
DEVELOPMENT STABILIZATION
PROPERTIES LOCATION TYPE ALLIANCE PARTNER(TM) DATE(1)
---------- -------- ---- -------------------- -------------

INDUSTRIAL(3)
1. Fairway Drive Phase III........ San Leandro, CA Development n/a April 1999
2. South Dallas Industrial........ Dallas, TX Expansion n/a May 1999
3. Dock's Corner (Phase II)....... South Brunswick, NJ Expansion n/a July 1999
4. North Great SW Industrial Dallas, TX Development July 1999
Park............................. Trammell Crow Company
5. Pennsy Drive................... Landover, MD Renovation n/a August 1999
6. Hempstead Highway Distribution Houston, TX Development August 1999
Center........................... Cypress Realty
7. Richardson Tech Center......... Richardson, TX Development n/a March 2000
8. Northwest Crossing Distribution Houston, TX Development May 2000
Center........................... Trammell Crow Company
9. Orlando Central Park Orlando, FL Development July 2000
Development...................... Trammell Crow Company
10. LA Media Tech Center.......... Los Angeles, CA Development Legacy Partners February 2001
11. Suwanee Creek Distribution.... Atlanta, GA Development Seefried Properties February 2001
12. South River Park Cranbury, NJ Development March 2001
Development...................... Trammell Crow Company
13. Cabot Business Park Land...... Mansfield, MA Development National Development of NE August 2001
14. Wilsonville................... Wilsonville, OR Development Trammell Crow Company January 2002
Subtotal.......................
RETAIL(3)
15. Around Lenox.................. Atlanta, GA Renovation Alpine Partners September 1999
16. Palm Aire..................... Miami, FL Renovation Lefmark December 1999
17. Springs Gate.................. Coral Springs, FL Development Lefmark December 2000
18. Northridge.................... Fort Lauderdale, FL Renovation Lefmark April 2001
Subtotal.......................
Total......................

ESTIMATED ESTIMATED
SQUARE FEET AT TOTAL
PROPERTIES COMPLETION INVESTMENT(2)
---------- -------------- -------------

INDUSTRIAL(3)
1. Fairway Drive Phase III........ 116,000 $ 5,400
2. South Dallas Industrial........ 95,000 2,400
3. Dock's Corner (Phase II)....... 659,000 23,900
4. North Great SW Industrial 215,000 10,500
Park.............................
5. Pennsy Drive................... 359,000 14,800
6. Hempstead Highway Distribution 292,000 11,500
Center...........................
7. Richardson Tech Center......... 26,000 1,900
8. Northwest Crossing Distribution 178,000 6,900
Center...........................
9. Orlando Central Park 443,000 17,700
Development......................
10. LA Media Tech Center.......... 386,000 39,200
11. Suwanee Creek Distribution.... 1,095,000 34,600
12. South River Park 626,000 27,900
Development......................
13. Cabot Business Park Land...... 415,000 29,400
14. Wilsonville................... 155,000 7,300
--------- --------
Subtotal....................... 5,060,000(4) 233,400(5)
--------- --------
RETAIL(3)
15. Around Lenox.................. 120,000 23,300
16. Palm Aire..................... 143,000 17,700
17. Springs Gate.................. 236,000 38,000
18. Northridge.................... 259,000 37,500
--------- --------
Subtotal....................... 758,000(4) 116,500(5)
--------- --------
Total...................... 5,818,000 $349,900
========= ========

- ---------------
(1) Estimated stabilization date means our estimate of when capital improvements
for repositioning, development and redevelopment programs will have been
completed and in effect for a period of time sufficient to achieve market
occupancy. The estimates are based on our current estimates and forecasts
and are therefore subject to change.

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

(3) Excludes approximately 129 acres of land available for expansion of existing
industrial buildings or development of new industrial buildings and
approximately six acres of land available for expansion of existing retail
centers.

(4) Construction has begun on approximately 2.7 million square feet of
industrial space and 0.5 million of retail space which was 37% and 75%
leased, respectively, as of December 31, 1998.

(5) As of December 31, 1998, we have spent approximately $94.5 million and $61.5
million for the renovation, expansion or development of Industrial and
Retail Properties, respectively.

18
20

PROPERTIES HELD THROUGH JOINT VENTURES, LIMITED LIABILITY COMPANIES AND
PARTNERSHIPS

As of December 31, 1998, we held interests in 21 joint ventures, limited
liability companies and partnerships with certain unaffiliated third parties
(the "Joint Venture Participants") that are consolidated in our consolidated
financial statements. Pursuant to the existing agreements with respect to each
joint venture, we hold a greater than 50% interest in 16 of the joint ventures
and a 50% interest in the remaining joint ventures, but in certain cases such
agreements provide that we are a limited partner or that the Joint Venture
Participant is principally responsible for day-to-day management of the Property
(though in all such cases, we have approval rights with respect to significant
decisions involving the underlying properties). Under the agreements governing
the joint ventures, we and the Joint Venture Participant 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 Joint
Venture Participant, and provide certain rights to us and/or the Joint Venture
Participant to sell its interest to the joint venture or to the other venturer
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 such joint venture.

The following table sets forth certain information regarding the Properties
owned through consolidated joint ventures as of December 31, 1998 (dollars in
thousands):

BOOK VALUE OF BOOK VALUE OF JV PARTNERS'
GROSS BOOK MORTGAGE PARTNERS' COMPANY'S SHARE
PROPERTIES VALUE(1) DEBT INVESTMENT INVESTMENT OF FFO
---------- ---------- --------- ------------- ------------- ------------

INDUSTRIAL
1. Chancellor.................................... $ 6,451 $ (2,925) $ (569) $ 2,957 10%
2. Nippon Express(2)............................. 6,358 -- (491) 5,867 27%
3. Metric Center................................. 44,357 -- (5,392) 38,965 13%
4. Jamesburg(3).................................. 47,293 (23,500) (11,737) 12,056 50%
5. Corporate Park/Hickory Hill(3)................ 27,390 (16,400) (5,461) 5,529 50%
6. Garland Industrial(3)......................... 33,347 -- (16,976) 16,371 50%
7. Minnetonka Industrial(3)...................... 28,047 (13,025) (7,430) 7,592 50%
8. South Point Business Park(3).................. 21,634 -- (10,776) 10,858 50%
9. Orlando Central Park Development(4)........... 7,026 -- (345) 6,681 5%
10. South River Park Development(4)............... 9,366 -- (343) 9,023 5%
11. Cabot Business Park Land(4)................... 3,991 -- (382) 3,609 10%
12. North Great SW Industrial Park(4)............. 2,333 -- (113) 2,220 5%
13. Northwest Crossing Distribution Center(4)..... 1,520 -- (76) 1,444 5%
14. LA Media Tech Center(4)....................... 25,341 -- (507) 24,834 2%
-------- --------- -------- --------
Subtotal....................................... 264,454 (55,850) (60,598) 148,006
-------- --------- -------- --------
RETAIL
15. Kendall Mall(4)............................... 36,078 (24,757) 187 11,508 29%
16. Manhattan Village............................. 83,484 -- (7,759) 75,725 10%
17. Palm Aire(4).................................. 15,708 (5,755) (1,107) 8,846 0%
18. Plaza at Delray(4)............................ 35,579 (23,142) 18 12,455 2%
19. Springs Gate(4)............................... 12,978 -- -- 12,978 0%
20. Northridge(4)................................. 15,718 -- -- 15,718 0%
21. Around Lenox(4)............................... 18,085 (11,114) (683) 6,288 0%
-------- --------- -------- --------
Subtotal....................................... 217,630 (64,768) (9,344) 143,518
-------- --------- -------- --------
Total..................................... $482,084 $(120,618) $(69,942) $291,524
======== ========= ======== ========

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21

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

(2) Represents a building which is part of the Lake Michigan Industrial
Portfolio.

(3) These properties are owned by a joint venture with an Institutional Alliance
Partner which is a client of AMB Investment Management.

(4) Represents a development, renovation or expansion project with a Development
Alliance Partner (TM).

We account for all of the above investments on a consolidated basis for
financial reporting purposes because of our ability to exercise control over
significant aspects of the investment as well as our significant economic
interest in such investments. See "Item 14, Note 2 of the Notes to Consolidated
Financial Statements." We also have a noncontrolling limited partnership
interest in one unconsolidated real estate joint venture with a net investment
value of $57.7 million as of December 31, 1998.

SECURED DEBT

As of December 31, 1998, the Operating Partnership had $719.0 million of
indebtedness secured by deeds of trust on certain properties. As of December 31,
1998, the total gross investment value of those properties secured by debt was
$1,458,652. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and Note 5 of Notes to
Consolidated Financial Statements included in this report. We believe that as of
December 31, 1998, the value of the Properties securing the respective
obligations in each case exceeded the principal amount of the outstanding
obligations.

ITEM 3. LEGAL PROCEEDINGS

Neither we nor any of the Properties is subject to any material litigation.
To our knowledge, there is no material litigation threatened against any of
them, other than routine litigation arising in the ordinary course of business,
which we generally expect to be covered by liability insurance, or to have an
immaterial effect on our financial results.

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

None.

PART II

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

The Company's Common Stock began trading on the New York Stock Exchange
("NYSE") on November 21, 1997, under the symbol "AMB." As of March 12, 1999,
there were 160 holders of record of the Company's Common Stock (excluding shares
held through The Deposit Trust Company, as nominee). Set forth below are the
high and low sales prices per share of the Company's Common Stock, as reported
on the NYSE composite tape, and the distribution per share paid by the Company
during the period from November 26, 1997 through December 31, 1998.

YEAR HIGH LOW DISTRIBUTION
---- ---- ---- ------------

1997
4th Quarter (from 11/21/97)............................... $25 1/8 $22 1/4 $0.134
1998
1st Quarter............................................... 24 15/16 23 3/8 0.3425
2nd Quarter............................................... 25 22 3/8 0.3425
3rd Quarter............................................... 25 13/16 22 11/16 0.3425
4th Quarter............................................... 25 20 15/16 0.3425

20
22

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 the Company and its Predecessor on an historical basis for
the years ended December 31, 1994, 1995, 1996, 1997, and 1998. Prior to November
26, 1997 (the IPO date), the Company's Predecessor provided real estate
investment management services to institutional investors.

AS OF AND FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
COMPANY
PREDECESSOR(1) -----------------------------------------
--------------------------- HISTORICAL(2) PRO FORMA(3)
1994 1995 1996 1997 1997 1998
------- ------- ------- ------------- ------------ ----------
(IN THOUSANDS EXCEPT SHARE DATA, PERCENTAGES AND NUMBER OF PROPERTIES)

OPERATING DATA:
Total revenues.................................. $12,865 $16,865 $23,991 $ 56,062 $284,674 $ 358,887
Income from operations before minority
interests..................................... 2,925 3,296 7,140 18,885 103,903 123,750
Net income available to common stockholders..... 2,925 3,262 7,003 18,228 99,508 108,954
Net income common per share:
Basic(4)...................................... 0.59 0.64 1.38 1.39 1.16 1.27
Diluted(4).................................... 0.59 0.64 1.38 1.38 1.15 1.26
Dividends per common share...................... 1.37 1.37
Dividends per preferred share(5)................ -- 0.99
OTHER DATA:
EBITDA(6)....................................... $195,218 $ 252,353
Funds from Operations(7)........................ 147,409 170,407
Cash flows provided by (used in):
Operating activities.......................... 131,621 177,180
Investing activities.......................... (607,768) (796,213)
Financing activities.......................... 553,199 604,202
BALANCE SHEET DATA:
Investments in real estate at cost.............. $ -- $ -- $ -- $2,442,999 $3,369,060
Total assets.................................... 4,092 4,948 7,085 2,506,255 3,562,885
Total consolidated debt(8)...................... -- -- -- 685,652 1,368,196
Stockholders' equity............................ 3,848 4,241 6,300 1,668,030 1,765,360

- ---------------
(1) Represents the Predecessor's historical financial and other data for the
years ended December 31, 1994, 1995 and 1996. The Predecessor operated as an
investment manager prior to November 26, 1997.

(2) The historical 1997 results represent the Predecessor's historical financial
and other data for the period January 1, 1997 through November 25, 1997. The
financial and other data of the Company, and the Properties acquired in the
Formation Transactions, have been included subsequent to November 26, 1997
to December 31, 1997.

(3) Pro forma 1997 financial and other data has been prepared as if the
Formation Transactions, the IPO (as described in "Item 14. Note 1 of Notes
to Consolidated Financial Statements") and certain property acquisitions and
divestitures in 1997 had occurred on January 1, 1997.

(4) Basic and diluted net income per share equals the pro forma net income
divided by 85,874,513 and 86,156,556 shares, respectively, for 1997, and net
income available to common stockholders divided by 85,876,383 and 86,235,176
shares, respectively, for 1998.

(5) Dividends for the period commencing on July 27, 1998, the date of Series A
Preferred Stock issuance.

(6) EBITDA is computed as income from operations before divestiture of
Properties and minority interests plus interest expense, income taxes,
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 an equity REIT because, together with net
income and cash flows, EBITDA provides investors with an additional basis to
evaluate the ability of a REIT to incur and service debt and to fund

21
23

acquisitions and other capital expenditures. Includes an adjustment to reflect
the Company's pro rata share of EBITDA in an unconsolidated joint venture.
EBITDA is not a measurement of operating performance calculated in accordance
with U.S. generally accepted accounting principles 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 U.S. generally accepted accounting principles. EBITDA may not be
indicative of our historical operating results, nor be predictive of
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 REITs.

(7) FFO is defined as income from operations before minority interest, gains or
losses from sale of real estate and extraordinary losses plus real estate
depreciation and adjustment to derive the Company's pro rata share of the
FFO of unconsolidated joint ventures, less minority interests' pro rata
share of the FFO of consolidated joint ventures and perpetual preferred
stock dividends. In accordance with the National Association of Real Estate
Investment Trust ("NAREIT") White Paper on FFO, the Company includes the
effects of straight-line rents in FFO. We believe that FFO is an appropriate
measure of performance for an equity REIT. While FFO is a relevant and
widely used measure of operating performance of REITs, it does not represent
cash flow from operations or net income as defined by U.S. generally
accepted accounting principles, and it should not be considered as an
alternative to these indicators in evaluating liquidity or operating
performance. Further, FFO as disclosed by other REITs may not be comparable.

(8) Secured debt includes unamortized debt premiums of approximately $18,286,
and $15,217 as of December 31, 1997 and 1998, respectively. See "Item 14.
Notes 2 and 5 of the Notes to Consolidated Financial Statements."

22
24

SELECTED PROPERTY FINANCIAL AND OTHER DATA

For comparative purposes, the table that follows provides selected
historical financial and other data of the Properties. The historical results of
the Properties for 1997 include the results achieved by the Company for the
period from November 26, 1997 to December 31, 1997 and the results achieved by
the prior owners of the Properties for the period from January 1, 1997 to
November 25, 1997. The historical results of operations of the Properties for
periods prior to November 26, 1997 include Properties that were managed by the
Predecessor and exclude the results of four Properties that were contributed to
the Company in the Formation Transactions that were not previously managed by
the Predecessor. In addition, the historical results of operations include the
results of Properties acquired after November 26, 1997, from the date of
acquisition of such Properties to December 31, 1997.

AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
COMPANY
-----------------------------------------
PROPERTIES COMBINED(1) HISTORICAL(2) PRO FORMA(3)
---------------------------------- ------------- ------------
1994 1995 1996 1997 1997 1998
-------- ---------- ---------- ------------- ------------ ----------
(IN THOUSANDS EXCEPT PERCENTAGES AND NUMBER OF PROPERTIES)

OPERATING DATA:
Rental revenues.............................. $ 50,893 $ 106,180 $ 166,415 $ 233,856 $282,665 $ 354,658
BALANCE SHEET DATA:
Investment in real estate at cost............ 666,672 1,018,681 1,616,091 2,442,999 3,369,060
Secured debt(4).............................. 201,959 254,067 522,634 535,652 734,196
PROPERTY DATA:
INDUSTRIAL PROPERTIES
Property net operating income(5)........... 137,955 181,832
Total rentable square footage at end of
period................................... 13,364 21,598 29,609 37,329 56,611
Occupancy rate at end of period............ 96.9% 97.3% 97.2% 95.7% 96.0%
RETAIL PROPERTIES
Property net operating income(5)........... 64,716 76,752
Total rentable square footage at end of
period................................... 2,422 3,299 5,282 6,216 6,985
Occupancy rate at end of period............ 93.7% 92.4% 92.4% 96.1% 94.6%

- ---------------
(1) Represents the Properties' combined historical financial and other data for
the years ended December 31, 1994, 1995 and 1996. The historical results of
operations of the Properties for periods prior to November 26, 1997 include
Properties that were managed by the Predecessor and exclude the results of
four properties that were contributed to the Company in the Formation
Transactions that were not previously managed by the Predecessor.

(2) The historical results of the Properties for 1997 include the results of the
Company for the period from November 26, 1997 (acquisition date) to December
31, 1997 and the results achieved by the prior owners of the Properties for
the period from January 1, 1997 to November 25, 1997.

(3) The pro forma financial and other data has been prepared as if the Formation
Transactions, the IPO (See "Item 14. Note 1 of Notes to Consolidated
Financial Statements"), and certain 1997 property acquisitions and
divestitures had occurred on January 1, 1997.

(4) Secured debt as of December 31, 1997 and 1998 includes unamortized debt
premiums of approximately $18,286 and $15,217, respectively. See "Item 14.
Notes 2 and 5 of Notes to Consolidated Financial Statements."

(5) Property net operating income (NOI) is defined as rental revenue, including
reimbursements and straight-line rents, less operating expenses. See "Item
14, Note 13 of Notes to Consolidated Financial Statements."

23
25

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

You should read the following discussion and analysis of the consolidated
financial condition and results of operations in conjunction with the Notes to
Consolidated Financial Statements. Statements contained in this discussion which
are not historical facts may be forward looking statements. You can identify
forward-looking statements by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," "seeks," "approximately,"
"intends," "plans," "pro forma," "estimates" or "anticipates" or the negative of
these words and phrases or similar words or phrases. You can also identify
forward-looking statements by discussions of strategy, plans or intentions.
Forward-looking statements involve numerous risks and uncertainties and you
should not rely upon them as predictions of future events. There is no assurance
that the events or circumstances reflected in forward-looking statements will be
achieved or occur. Forward-looking statements are necessarily dependent on
assumptions, data or methods that may be incorrect or imprecise and we may not
be able to realize them. The following factors, among others, could cause actual
results and future events to differ materially from those set forth or
contemplated in the forward-looking statements: defaults or non-renewal of
leases by tenants, increased interest rates and operating costs, 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, 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, as amended,
environmental uncertainties, risks related to natural disasters, financial
market fluctuations, changes in real estate and zoning laws and increases in
real property tax rates. Our success also depends upon economic trends
generally, including interest rates, income tax laws, governmental regulation,
legislation, population changes and certain other risk factors discussed in the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Business Risk" in this report. We caution you not
to place undue reliance on forward-looking statements, which reflect our
analysis only and speak only as of the date of this report or the dates
indicated in the statements.

GENERAL

Because of the significant impact of the Formation Transactions and the IPO
on our results of operations, the discussion below is presented as follows:

- results of the Company and its Predecessor for the years ended December
31, 1998, 1997 and 1996; and

- results of the Properties for the years ended December 31, 1998, 1997 and
1996.

See "Item 1: Business -- General -- Formation of the Company" and Note 1 of
Notes to Consolidated Financial Statements for discussion of the Formation
Transactions.

COMPANY AND PREDECESSOR RESULTS OF OPERATIONS

The year ended December 31, 1998 was the Company's first full year
operating as a real estate operating company. The historical results of the
Company for 1997 include its results, including property operations, for the
period from November 26, 1997 (the commencement of operations as a fully
integrated real estate company) to December 31, 1997 and the results of the
Company's Predecessor, an investment manager, for the period from January 1,
1997 to November 25, 1997, and the years ended December 31, 1997 and 1996. As an
investment manager, the Predecessor's revenues consisted primarily of fees
earned in connection with real estate management services. Management's
discussion and analysis of the Company and Predecessor for the years ended
December 31, 1997 and 1996 is limited to investment management and other income
and general and administrative expenses, and excludes a discussion of rental
revenues, operating expenses, interest expense and depreciation and amortization
because such analysis is not comparable or meaningful given the differences in
lines of business between the Company and the Predecessor.

24
26

COMPANY AND PREDECESSOR -- YEARS ENDED DECEMBER 31, 1998 AND 1997

Total revenues. Total revenues, including straight-line rents, tenant
reimbursements and other income, totaled $358.9 million for the year ended
December 31, 1998. The Predecessor's revenues consisted primarily of fees earned
in connection with real estate management services. As such, no such rental
revenues existed for the Predecessor for the years ended December 31, 1997

Property operating expenses and real estate taxes. Property operating
expenses, including asset management costs and real estate taxes, totaled $96.1
million for the year ended December 31, 1998. The Predecessor's expenses
consisted primarily of salaries and other general administrative costs. As such,
no such property operating expenses existed for the year ended December 31,
1997.

General and administrative expenses. Our general and administrative
expenses were $11.9 million for the year ended December 31, 1998, as compared to
the Predecessor's investment management expenses of $19.4 million for the period
from January 1, 1997 to November 25, 1997. Investment management expenses of the
Predecessor consisted primarily of salaries and other general and administrative
expenses. The 46.1% decrease on an annualized basis in general and
administrative expenses is attributable to the change in our operations from an
investment manager to a fully integrated real estate company, and the formation
of AMB Investment Management. In connection with the Formation Transactions, AMB
Investment Management assumed employment and other related costs of certain
employees who transferred from the Predecessor to AMB Investment Management for
the purpose of carrying on the investment management business.

COMPANY AND PREDECESSOR -- YEARS ENDED DECEMBER 31, 1997 AND 1996

Investment management and other income. Investment management and other
income for the period from January 1, 1997 to November 25, 1997 was $29.0
million, which on an annualized basis represents a 34.1% increase over the year
ended December 31, 1996. The increase reflects the growth in the portfolio under
management. Investment management and other income for the period from November
26, 1997 to December 31, 1997 was $0.6 million.

General and administrative expenses. General and administrative expenses
for the period from January 1, 1997 to November 25, 1997 were $19.4 million,
which represents a 27.7% increase on an annualized basis over the year ended
December 31, 1996. The increase was attributable to an increase in staffing that
resulted from the growth in the portfolio under management.

PROPERTIES RESULTS OF OPERATIONS

The historical results of operations of the Properties for periods prior to
November 26, 1997 include Properties that were managed by the Predecessor and
exclude the results of four properties that were contributed to the Company in
the Formation Transactions that the Predecessor did not previously manage. The
discussion below for the years ended December 31, 1997 and 1996 is limited to a
discussion of rental revenues, property operating expense and real estate taxes
and excludes an analysis of other income, interest expense and depreciation and
amortization because such analysis is not comparable or meaningful given the
differences in capital structures between the Company and the prior owners of
the Properties and the impact of the Formation Transactions and the IPO on the
Properties.

The historical property financial data presented in this report show
significant increases in revenues and expenses principally attributable to the
substantial portfolio growth. As a result, we do not believe the year-to-year
financial data are comparable. Therefore, the analysis below shows changes
resulting from Properties that the Predecessor owned as of January 1, 1997,
excluding development projects (the "Same Store Properties"), and changes
attributable to acquisition and development activity during 1997 and 1998. For
the comparison between the years ended December 31, 1998 and 1997, the Same
Store Properties consist of properties aggregating 31.1 million square feet. For
the comparison between the years ended December 31, 1997 and 1996, the Same
Store Properties consist of the 59 Properties acquired prior to January 1, 1996.
Our future financial condition and results of operations, including rental
revenues, may be impacted by the acquisition and divestiture of properties. Our
future revenues and expenses may vary materially from their historical rates.

25
27

PROPERTIES -- YEARS ENDED DECEMBER 31, 1998 AND 1997

Rental revenues. Rental revenues, including straight-line rents, tenant
reimbursements and other property related income, increased by $72.0 million, or
25.5%, for the year ended December 31, 1998, to $354.7 million, as compared with
the same period in 1997. Approximately $9.6 million, or 13.3%, of this increase
was attributable to Same Store Properties, with the remaining $62.4 million
attributable to Properties acquired in 1998. The growth in rental revenues in
Same Store Properties resulted primarily from the incremental effect of rental
rate increases and changes in occupancy and reimbursement of expenses. During
the year ended December 31, 1998, the increase in average base rents (cash
basis) was 14.3% on 7.7 million square feet leased.

Property operating expenses and real estate taxes. Property operating
expenses, including asset management costs, increased by $14.6 million, or
17.9%, for the year ended December 31, 1998, to $96.1 million, as compared with
the same period in 1997. Same Store Properties operating expenses decreased by
approximately $0.7 million for the year ended December 31, 1998, while operating
expenses attributable to Properties acquired in 1998 amounted to $15.3 million.
The change in Same Store Properties operating expenses and real estate taxes
relates to increases in Same Store Properties real estate taxes of approximately
$1.0 million, offset by decreases in Same Store Properties other property
operating expenses, including insurance expenses and property management fees of
approximately $1.7 million. The remaining decrease in property operating
expenses is primarily attributable to lower asset management costs in 1998 as
compared to 1997 resulting from the change in ownership structure.

PROPERTIES -- YEARS ENDED DECEMBER 31, 1997 AND 1996

Rental revenues. Rental income, including tenant reimbursements and other
property related income, increased by $67.5 million, or 40.6%, for the year
ended December 31, 1997, to $233.9 million as compared to $166.4 million for the
year ended December 31, 1996. Approximately $8.8 million, or 13.0% of this
increase was attributable to the Same Store Properties, with the remaining $58.7
million attributable to Properties acquired in 1997 and 1996. The 6.3% growth in
rental income in the Same Store Properties resulted primarily from the
incremental effect of rental rate increases and reimbursement of expenses. In
1997, we increased average contractual or base rental rates on the Properties by
12% on 393 new and renewing leases totaling 7.5 million rentable square feet
(representing 17.2% of the Properties' aggregate rentable square footage).

Property operating expenses and real estate taxes. Property operating
expenses and real estate taxes increased by $25.6 million, or 46.3%, for the
year ended December 31, 1997, to $80.9 million as compared to $55.3 million for
the year ended December 31, 1996. Approximately $3.4 million of this increase
was attributable to the Same Store Properties, with the remaining $22.2 million
attributable to Properties acquired in 1997 and 1996. Same Store Properties real
estate taxes and insurance expense increased by approximately $1.4 million from
1996 to 1997. Same Store Properties other property operating expenses (excluding
real estate taxes and insurance) increased by $2.0 million from 1996 to 1997.
The increases in expenses are primarily due to increases in property tax
assessment values and incentive management fees expense.

LIQUIDITY AND CAPITAL RESOURCES

We currently expect that our principal sources of working capital and
funding for acquisitions, development, expansion and renovation of the
Properties will include cash flow from operations, borrowings under the Credit
Facility, other forms of secured and unsecured financing, proceeds from equity
or debt offerings by the Company or the Operating Partnership (including
issuances of units in the Operating Partnership or its subsidiaries) and net
proceeds from divestiture of properties. We presently believe that our sources
of working capital and our ability to access private and public debt and equity
capital are adequate for us to continue to meet liquidity requirements for the
foreseeable future.

CAPITAL RESOURCES

Property divestitures. On March 9, 1999, we signed a series of definitive
agreements with BPP Retail, a co-investment entity between BPP and CalPERS,
pursuant to which BPP Retail will acquire 28 of our retail

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shopping centers, totaling 5.1 million square feet, for an aggregate price of
$663.4 million. BPP Retail will acquire the centers in separate transactions,
which we currently expect to close on or about April 30, 1999, July 31, 1999 and
December 1, 1999. In addition, we have entered into a definitive agreement,
subject to a financing confirmation, with BPP, pursuant to which BPP will
acquire six additional retail centers, totaling 1.5 million square feet, for
$284.4 million. Assuming satisfaction or waiver of this condition, we currently
expect this transaction to close by December 31, 1999. Assuming that the
transactions with BPP Retail close as scheduled, the Company currently expects
to reinvest approximately $520 million in industrial properties and to reduce
our secured indebtedness by approximately $100 million. There can be no
assurance, however, that the transactions will close as scheduled or close at
all, and it is possible that the transactions may not close with respect to just
one or more properties. In the event that one or more transactions fail to
close, or a closing is significantly delayed, net proceeds from divestitures of
properties will not be available to the same extent to fund our acquisitions and
developments. Any such failure or delay in any of the closings may also make us
unable to repay certain of our indebtedness with the net proceeds as we
currently intend, and could require us to borrow additional funds or seek other
forms of financing.

Credit facility. We have a $500 million unsecured revolving credit
agreement with Morgan Guaranty Trust Company of New York, as agent, and a
syndicate of twelve other banks. The Credit Facility has a term of three years
and is subject to a fee that accrues on the daily average undrawn funds, which
varies between 15 and 25 basis points (currently 15 basis points) of the undrawn
funds based on our credit rating. We use the Credit Facility principally for
acquisitions and for general working capital requirements. Borrowings under the
Credit Facility bear interest at LIBOR plus 90 to 120 basis points (currently
LIBOR plus 90 basis points), depending on our debt rating at the time of the
borrowings. As of December 31, 1998, the outstanding balance on the Credit
Facility was $234 million and bore interest at 6.10%. Monthly debt service
payments on the Credit Facility are interest only. The Credit Facility matures
in November 2000. The total amount available under the Credit Facility
fluctuates based upon the borrowing base, as defined in the agreement governing
the Credit Facility. At December 31, 1998, the remaining amount available under
the Credit Facility was approximately $266 million. We currently expect that the
property divestitures will not materially affect the terms and conditions of the
Credit Facility.

Debt and equity financing. In June 1998, the Operating Partnership issued
$400,000 aggregate principal amount of unsecured notes ("Senior Debt
Securities") in an underwritten public offering, the net proceeds of which the
Operating Partnership used to repay amounts outstanding under the Credit
Facility. The Senior Debt Securities mature in June 2008, June 2015 and June
2018 and bear interest at a weighted average rate of 7.18%, which is payable in
June and December of each year, commencing in December 1998. The 2015 notes are
putable and callable in June 2005. We received credit ratings for the Senior
Debt Securities of Baa1 from Moody's Investors Service, BBB from Standard &
Poor's Corporation and BBB+ from Duff & Phelps Credit Rating Co. As a result of
the receipt of these investment-grade credit ratings, the interest rate on the
Credit Facility was reduced by 20 basis points to the current rate of LIBOR plus
90 basis points.

In July 1998, the Company sold 4,000,000 shares of 8 1/2% Series A
Cumulative Redeemable Preferred Stock at a price of $25.00 per share in an
underwritten public offering. These shares are redeemable solely at the option
of the Company on or after July 27, 2003, subject to certain conditions. The
Company contributed the net proceeds of $96.1 million to the Operating
Partnership in exchange for 4,000,000 Series A Preferred Units with terms
identical to the Series A Preferred Stock. The Operating Partnership used the
proceeds to repay borrowings under the Credit Facility incurred in connection
with property acquisitions and for general purposes.

In November 1998, the Operating Partnership issued and sold 1,300,000
8.625% Series B Cumulative Redeemable Preferred Units at a price of $50.00 per
unit in a private placement. Distributions are cumulative from the date of
original issuance and are payable quarterly in arrears at a rate per unit equal
to $4.3125 per annum. The Series B Preferred Units are redeemable by the
Operating Partnership on or after November 12, 2003, 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 B Preferred Units are exchangeable, at specified times and subject to
certain conditions, on a one-for-one basis, for shares of the

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Company's Series B Preferred Stock. The Operating Partnership used the proceeds
to repay borrowings under the Credit Facility, for property acquisitions and for
general purposes.

In November 1998, a subsidiary of the Operating Partnership issued and sold
2,200,000 units of 8.75% Series C Cumulative Redeemable Preferred Units at a
price of $50.00 per unit in a private placement. Distributions are cumulative
from the date of original issuance and are payable quarterly in arrears at a
rate per unit equal to $4.375 per annum. The Series C Preferred Units are
redeemable by the subsidiary of the Operating Partnership on or after November
24, 2003, 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 C 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 C Preferred Stock. The subsidiary of the Operating
Partnership used the proceeds to make a loan to the Operating Partnership, which
used the funds to repay borrowings under the Credit Facility.

Market capitalization. In connection with the Formation Transactions and
property acquisitions consummated after the Formation Transactions, we have
assumed various mortgages and other secured debt. As of December 31, 1998, the
aggregate principal amount of this secured debt was $719 million, excluding
unamortized debt premiums of $15.2 million. The secured debt bears interest at
rates varying from 4.0% to 10.4% per annum (with a weighted average of 7.9%) and
final maturity dates ranging from April 1999 to April 2014. We believe that the
carrying value of the debt approximates its fair value on December 31, 1998.

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

The tables below summarizes our debt maturities and capitalization as of
December 31, 1998.

DEBT
--------------------------------------------------
UNSECURED UNSECURED
SECURED SENIOR DEBT CREDIT TOTAL
YEAR DEBT SECURITIES FACILITY DEBT
---- -------- ----------- --------- ----------
(IN THOUSANDS)

1999..................................... $ 14,061 $ -- $ -- $ 14,061
2000..................................... 19,833 -- 234,000 253,833
2001..................................... 42,560 -- -- 42,560
2002..................................... 68,849 -- -- 68,849
2003..................................... 136,798 -- -- 136,798
2004..................................... 67,396 -- -- 67,396
2005..................................... 67,446 100,000 -- 167,446
2006..................................... 131,759 -- -- 131,759
2007..................................... 35,320 -- -- 35,320
2008..................................... 114,425 175,000 -- 289,425
Thereafter............................... 20,532 125,000 -- 145,532
-------- -------- -------- ----------
Sub-total.............................. 718,979 400,000 234,000 1,352,979
Unamortized premiums................... 15,217 -- -- 15,217
-------- -------- -------- ----------
Total consolidated debt.............. $734,196 $400,000 $234,000 1,368,196
======== ======== ========
Our share of unconsolidated JV debt...... 20,186
----------
Total debt........................... 1,388,382
JV Partner's share of consolidated JV
debt................................... (40,275)
----------
Our share of total debt.............. $1,348,107
==========

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MARKET EQUITY AT 12/31/98
---------------------------------------------
SECURITY OUTSTANDING MARKET PRICE MARKET VALUE
-------- ----------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

Common Stock................................. 85,917,520 $22.00 $1,890,185
LP Units..................................... 4,447,839 22.00 97,853
----------- -------------
Total................................ 90,365,359 $1,988,038
=========== =============

PREFERRED STOCK AND UNITS
---------------------------------------------
DIVIDEND LIQUIDATION REDEMPTION
SECURITY RATE PREFERENCE PROVISIONS
-------- ----------- ------------- -------------
(IN THOUSANDS, EXCEPT PERCENTAGES)

Series A Preferred Stock..................... 8.50% $100,000 July 2003
Series B Preferred Units..................... 8.63% 65,000 November 2003
Series C Preferred Units..................... 8.75% 110,000 November 2003
----------- -------------
Total/Weighted Average............... 8.66% $275,000
=========== =============

CAPITALIZATION RATIOS

Consolidated debt plus our share of unconsolidated JV
debt-to-total market capitalization....................... 38.0%
Consolidated debt plus our share of unconsolidated debt less
JV partners' share of consolidated debt-to-total market
capitalization............................................ 36.9%
Consolidated debt plus our share of unconsolidated JV debt
plus preferred-to-total market capitalization............. 45.6%

LIQUIDITY

As of December 31, 1998, we had approximately $25.1 million in cash and
cash equivalents and $266 million of additional available borrowings under the
Credit Facility. We intend to use cash flow from operations, borrowings under
the Credit Facility, other forms of secured and unsecured financing, proceeds
from equity or debt offerings by the Company or the Operating Partnership
(including issuances of Units in the Operating Partnership or its subsidiaries),
and proceeds from divestiture of properties to fund acquisitions, development
activities and capital expenditures and to provide for general working capital
requirements.

On December 4, 1998, the Company and the Operating Partnership declared a
quarterly cash distribution of $0.3425 per common share and operating
partnership unit, payable January 15, 1999 to stockholders and unitholders of
record on December 31, 1998. The annual distribution per common share and unit
for 1998 was $1.37. On December 4, 1998, the Company declared a cash dividend of
$0.53125 per share on its Series A Preferred Stock, and the Operating
Partnership declared a cash distribution of $0.53125 per unit on its Series A
Preferred Units, for the three month period ended January 14, 1999, payable on
January 15, 1999 to stockholders and unitholders of record as of December 31,
1998. The 1998 dividend for Series A Preferred Stock and Units was $0.9917, for
the partial year commencing on July 27, 1998, which was the issuance date.

On March 5, 1999, the Company and the Operating Partnership declared a
quarterly cash distribution of $0.35 per common share and operating partnership
unit, for the quarter ending March 31, 1999, payable April 15, 1999 to
stockholders and unitholders of record as of March 31, 1999. This dividend (with
an annualized rate of $1.40 per share) represents a 2.2% increase from the
dividend for the fourth quarter and is consistent with our philosophy of
retaining as much cash flow as allowed under the REIT tax rules while providing
stockholders with dividend growth. On March 5, 1999, the Company declared a cash
dividend of $0.53125 per share on its Series A Preferred Stock, and the
Operating Partnership declared a cash distribution of $0.53125 per unit on its
Series A Preferred Units, for the three month period ending April 14, 1999,
payable on April 15, 1999 to stockholders and unitholders of record as of March
31, 1999.

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The anticipated size of our distributions, using only cash from operations,
will not allow us to retire all of our debt as it comes due. Therefore, we
intend to also repay maturing debt with net proceeds from future debt and/or
equity financings. However, we may not be able to obtain future financings on
favorable terms or at all.

CAPITAL COMMITMENTS

In addition to recurring capital expenditures and costs to renew or
re-tenant space, as of December 31, 1998, our development pipeline included 18
projects representing a total estimated investment of $349.9 million upon
completion. Of this total, approximately $156.0 million had been funded as of
December 31, 1998, approximately $66.2 million is estimated to be required to
complete projects under construction as of December 31, 1998, and the remainder
represents estimated investments in either projects where construction has not
yet begun or future phases of projects under construction. We presently expect
to fund these expenditures with cash flow from operations, borrowings under the
Credit Facility, debt or equity issuances, and net proceeds from property
divestiture. Other than these capital items, we have no material capital
commitments.

During the period from January 1, 1998 to December 31, 1998, we invested:

- $738.6 million in 228 industrial buildings, aggregating 18.8 million
rentable square feet,

- $31.8 million in 2 retail centers, aggregating 0.4 million rentable
square feet,

- $67.1 million in an unconsolidated limited partnership interest in an
existing joint venture that owns 36 industrial buildings aggregating 4.0
million square feet.

We funded these acquisitions through borrowings under the Credit Facility,
cash, debt assumption and the issuance of units in the Operating Partnership.

YEAR 2000 COMPLIANCE

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

We are currently conducting a company-wide test of our financial and
non-financial systems to ensure that our systems will adequately handle the year
2000 issue. Our current financial system generally provides for a four-digit
year; however, the current system is not fully year 2000 compliant. We expect
that our financial system will be fully year 2000 compliant once we complete a
software upgrade in 1999. We are also currently surveying our property managers
to determine if our non-financial systems (HVAC, security, lighting, and other
building systems) at our Properties are year 2000 compliant and to determine the
state of readiness of our tenants regarding their year 2000 compliance.

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

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

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Our contingency plans. We are currently developing our contingency plan for
all operations to address the most reasonably likely worst case scenarios
regarding year 2000 compliance. We expect such contingency plan to be completed
by the end of the year.

FUNDS FROM OPERATIONS

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

The following table reflects the calculation of our FFO for the fiscal
years ended December 31, 1997 and 1998. The 1997 FFO was prepared on a pro forma
basis (giving effect to the completion of the Formation Transactions, the IPO
and certain 1997 property acquisitions and divestitures) as if they had occurred
on January 1, 1997.

1997 1998
------------ ------------
(IN THOUSANDS, EXCEPT SHARES)

Income from operations before minority interests............ $ 103,903 $ 123,750
Real estate depreciation and amortization:
Total depreciation and amortization....................... 45,886 57,464
Furniture, fixtures and equipment depreciation............ (173) (463)
FFO attributable to minority interests(1)(2)................ (2,207) (5,899)
Adjustments to derive FFO in unconsolidated joint
venture(3):
Company's share of net income............................. -- (1,750)
Company's share of FFO.................................... -- 2,739
Series A preferred stock dividends.......................... -- (3,639)
Series B & C preferred unit distributions................... -- (1,795)
----------- -----------
FFO(1)...................................................... $ 147,409 $ 170,407
=========== ===========
Weighted average shares and units outstanding (diluted)..... 88,698,719 89,852,187

- ---------------
(1) Funds from Operations ("FFO") is defined as income from operations before
minority interest, gains or losses from sale of real estate and
extraordinary losses plus real estate depreciation and adjustment to derive
our pro rata share of the FFO of unconsolidated joint ventures, less
minority interests' pro rata share of the FFO of consolidated joint ventures
and perpetual preferred stock dividends. In accordance with NAREIT White
Paper on FFO, we include the effects of straight-line rents in FFO.

(2) Represents FFO attributable to minority interests in consolidated joint
ventures for the periods presented, which has been computed as minority
interests' share of net income before disposal of properties plus minority
interests' share of real estate-related depreciation and amortization of the
consolidated joint ventures for such periods. Such minority interests are
not exchangeable into shares of Common Stock.

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

BUSINESS RISKS

Our operations involve various risks which could have adverse consequences
to the Company. Such risks include, among others:

GENERAL REAL ESTATE RISKS

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

Real property investments are subject to varying degrees of risk. The
yields available from equity investments in real estate depend on the amount of
income earned and capital appreciation generated by the

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related properties as well as the expenses incurred in connection with the
properties. If our properties do not generate income sufficient to meet
operating expenses, including debt service and capital expenditures, our ability
to pay distributions to holders of our common stock 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 or
retail space or a reduction in demand for industrial or retail space, the
attractiveness of our properties to potential tenants, competition from other
properties, our ability to provide adequate maintenance and insurance and an
increase in operating costs. In addition, revenues from properties and real
estate values are also affected by factors such as the cost of compliance with
regulations, the potential for liability under applicable laws (including
changes in tax laws), interest rate levels and the availability of financing.
Our income would be adversely affected if a significant number of tenants were
unable to pay rent or if we were unable to rent our industrial or retail space
on favorable terms. Certain significant expenditures associated with an
investment in real estate (such as mortgage payments, real estate taxes and
maintenance costs) generally do not decline when circumstances cause a reduction
in income from the property.

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

We are subject to the risks that leases may not be renewed, space may not
be relet, or the terms of renewal or reletting (including the cost of required
renovations) may be less favorable than current lease terms. Leases on a total
of approximately 32.9% of the leased square footage of our properties as of
December 31, 1998 will expire on or prior to December 31, 2000, with leases on
13.0% of the leased square footage of our properties as of December 31, 1998
expiring during the 12 months ending December 31, 1999. In addition, numerous
properties compete with our properties in attracting tenants to lease space,
particularly with respect to retail centers. The number of competitive
commercial properties in a particular area could have a material adverse effect
on our ability to lease space in our properties and on the rents that we are
able to charge. Our financial condition, results of operations, cash flow and
ability to pay distributions on, and the market price of, our common 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 Code and related regulations on a REIT holding
property for sale may affect our ability to sell properties without adversely
affecting distributions to our stockholders. The relative illiquidity of our
holdings, Code prohibitions and related regulations could impede our ability to
respond to adverse changes in the performance of our investments and could
adversely affect our financial condition, results of operations, cash flow and
ability to pay distributions on, and the market price of, our common stock.

A SIGNIFICANT NUMBER OF OUR PROPERTIES ARE LOCATED IN CALIFORNIA

Our properties located in California as of December 31, 1998 represented
approximately 22.0% of the aggregate square footage of our properties as of
December 31, 1998 and approximately 29.5% of our Annualized Base Rent.
Annualized Base Rent means the monthly contractual amount under existing leases
at December 31, 1998, multiplied by 12. This amount excludes expense
reimbursements and rental abatements. Our revenue from, and the value of, our
properties located in California may be affected by a number of factors,
including local real estate conditions (such as oversupply of or reduced demand
for commercial properties) and the local economic climate. Business layoffs,
downsizing, industry slowdowns, changing demographics and other factors may
adversely impact the local economic climate. A downturn in either the California
economy or in California real estate conditions could adversely affect our
financial condition, results of operations, cash flow and ability to pay
distributions on, and the market price of, our common stock. Certain of our
properties are also subject to possible loss from seismic activity. In the event
that the transactions with BPP Retail and BPP are consummated, we will dispose
of all our retail centers located in California.

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OUR PROPERTIES ARE CURRENTLY CONCENTRATED IN THE INDUSTRIAL AND RETAIL SECTORS

Our properties currently are concentrated predominantly in the industrial
and retail commercial real estate sectors. However, in the event that the
transactions with BPP Retail and BPP are consummated as planned, our properties
will be concentrated predominately in the industrial real estate sector. Our
concentration in certain property types may expose us to the risk of economic
downturns in these sectors to a greater extent than if our portfolio also
included other property types. In the event that the transactions with BPP
Retail and BPP are consummated, our exposure to the risk of economic downturns
in the industrial real estate sector will be greater. As a result of such
concentration, economic downturns in these sectors could have an adverse effect
on our financial condition, results of operations, cash flow and ability to pay
distributions on, and the market price of, our common stock.

SOME POTENTIAL LOSSES ARE NOT COVERED BY INSURANCE

We carry comprehensive liability, fire, extended coverage and rental loss
insurance covering all of our properties, with policy specifications and insured
limits which we believe are adequate and appropriate under the circumstances
given relative risk of loss, the cost of such coverage and industry practice.
There are, however, certain losses that are not generally insured because it is
not economically feasible to insure against them, including losses due to riots
or acts of war. Certain losses such as losses due to floods or seismic activity
may be insured subject to certain limitations including large deductibles or
co-payments and policy limits. If an uninsured loss or a loss in excess of
insured limits occurs with respect to one or more of our properties, we could
lose the capital we invested in the properties, as well as the anticipated
future revenue from the properties and, in the case of debt which is with
recourse to us, we would remain obligated for any mortgage debt or other
financial obligations related to the properties. Moreover, as the general
partner of the Operating Partnership, we will generally be liable for all of the
Operating Partnership's unsatisfied obligations other than non-recourse
obligations. Any such liability could adversely affect our financial condition,
results of operations, cash flow and ability to pay distributions on, and the
market price of, our common 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,
1998, 154 industrial buildings aggregating 12.2 million rentable square feet
(representing 19.1% of our properties based on aggregate square footage) and 11
retail centers aggregating 1.8 million rentable square feet (representing 2.9%
of our properties based on aggregate square footage) are located. In the event
that the transactions with BPP Retail and BPP are consummated, we will dispose
of all our retail centers located in California. We carry replacement cost
earthquake insurance on all of our properties located in areas historically
subject to seismic activity, subject to coverage limitations and deductibles
which we believe are commercially reasonable. This insurance coverage also
applies to the properties managed by AMB Investment Management, with a single
aggregate policy limit and deductible applicable to those properties and our
properties. The Operating Partnership owns 100% of the non-voting preferred
stock of AMB Investment Management. See "Business -- Business and Operating
Strategies -- The Preferred Stock Subsidiaries." 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, 1998, we have ownership interests in 21 joint ventures,
limited liability companies or partnerships with third parties, as well as an
interest in one unconsolidated entity. Assuming that the transactions currently
contemplated with BPP Retail and BPP are consummated, we will have ownership
interests in 16 joint ventures, limited liability companies or partnerships with
third parties. We may make additional investments through these ventures in the
future and presently plan to do so with clients of AMB Investment Management and
certain Development Alliance Partners, who share certain approval rights over

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major decisions. Partnership, limited liability company or joint venture
investments may involve risks such as the following:

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

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

- our partners, co-members or joint venturers may be in a position to take
action contrary to our instructions, requests, policies or objectives,
including our policy with respect to maintaining our qualification as a
REIT; and

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

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

WE MAY BE UNABLE TO CONSUMMATE ACQUISITIONS ON ADVANTAGEOUS TERMS

We intend to continue to acquire industrial and, to a lesser extent,
certain value-added retail properties. Acquisitions of industrial and retail
properties entail risks that investments will fail to perform in accordance with
expectations. Estimates of the costs of improvements necessary for us to bring
an acquired property up to market standards may prove inaccurate. In addition,
there are general investment risks associated with any new real estate
investment. Further, we anticipate significant competition for attractive
investment opportunities from other major real estate investors with significant
capital including both publicly traded REITs and private institutional
investment funds. We expect that future acquisitions will be financed through a
combination of borrowings under the Credit Facility, proceeds from equity or
debt offerings by us or the Operating Partnership (including issuances of
limited partnership units) and proceeds from the transactions pending with BPP
Retail and BPP, 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, the failure of acquisitions to conform with our
expectations or investment criteria, or our failure to timely reinvest the
proceeds from the transactions with BPP Retail and BPP could adversely affect
our financial condition, results of operations, cash flow and ability to pay
distributions on, and the market price of, our common 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:

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

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

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

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

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

These risks could have an adverse effect on our financial condition,
results of operations, cash flow and ability to pay distributions on, and the
market price of, our common 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 capital stock. In spite of the foregoing policy, 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 and would do so, for example, if it were necessary for us to continue to
qualify as a REIT. If we change this policy, we could become more highly
leveraged, resulting in an increase in debt service that could adversely affect
our financial condition, results of operations, cash flow and ability to pay
distributions on, and the market price of, our common stock.

SCHEDULED DEBT PAYMENTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION

We are subject to risks normally associated with debt financing, including
the risks that our cash flow will be insufficient to make distributions 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, 1998, we had total debt outstanding of approximately
$1.4 billion including:

- approximately $734.2 million of secured indebtedness (including
unamortized debt premiums of approximately $15.2 million) with an average
maturity of seven years and a weighted average interest rate of 7.9%;

- approximately $234.0 million outstanding under our unsecured $500.0
million credit facility (the "Credit Facility") with a maturity date of
November 2000 and a weighted average interest rate of 6.53%; and

- $400 million aggregate principal amount of unsecured senior debt
securities with maturities in June 2008, 2015 and 2018 and a weighted
average interest rate of 7.18%.

In the event that the transactions with BPP Retail and BPP are consummated,
we currently anticipate the repayment of approximately $240.0 million of debt,
including $178.7 million of secured indebtedness (including premiums of $5.9
million).

We are a guarantor of the Operating Partnership's obligations with respect
to the senior debt securities referenced above. If we are unable to refinance or
extend principal payments due at maturity or pay them with proceeds of other
capital transactions, we expect that our cash flow will not be sufficient in all
years to pay distributions 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, the interest expense
relating to that refinanced

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indebtedness would increase. This increased interest expense would adversely
affect our financial condition, results of operations, cash flow and ability to
pay distributions on, and the market price of, our common 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, 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
distributions on, and the market price of, our common stock.

RISING INTEREST RATES COULD ADVERSELY AFFECT OUR CASH FLOW

As of December 31, 1998, we had $234.0 million outstanding under the Credit
Facility. In addition, we may incur other variable rate indebtedness in the
future. Increases in interest rates on this indebtedness could increase our
interest expense, which would adversely affect our financial condition, results
of operations, cash flow and ability to pay distributions on, and the market
price of, our common stock. Accordingly, we may in the future engage in
transactions to limit our exposure to rising interest rates.

WE ARE DEPENDENT ON EXTERNAL SOURCES OF CAPITAL

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

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

As of December 31, 1998, we had 19 non-recourse secured loans which are
cross-collateralized by 22 properties. As of December 31, 1998, we had $249.8
million outstanding on these loans. In the event that all the transactions with
BPP Retail and BPP are consummated, we currently anticipate the repayment of 10
loans aggregating $178.7 million, which are secured by 13 properties. If we
default on any of these loans, we will be required to repay the aggregate of all
indebtedness, together with applicable prepayment charges, to avoid foreclosure
on all the cross-collateralized properties within the applicable pool.
Foreclosure on our properties, or our inability to refinance our loans on
favorable terms, could adversely impact our financial condition, results of
operations, cash flow and ability to pay distributions on, and the market price
of, our common 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 which is in default, which could adversely affect our financial
condition, results of operations, cash flow and ability to pay distributions on,
and the market price of, our common stock.

CONTINGENT OR UNKNOWN LIABILITIES COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION

Our predecessors have been in existence for varying lengths of time up to
15 years. At the time of our formation, we acquired the assets of these entities
subject to all of their potential existing liabilities. There may be current
liabilities or future liabilities arising from prior activities that we are not
aware of and therefore are not disclosed in this prospectus. 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 (directly or indirectly) in
connection with the allocation of the Units and/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
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partners or against any individual account investors, with respect to any
unknown liabilities. Unknown liabilities might include the following:

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

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

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

- tax liabilities; and

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

Certain tenants may claim that the formation transactions gave rise to a
right to purchase the premises that they occupy. We do not believe any such
claims would be material. See "-- Government Regulations -- We Could Encounter
Costly Environmental Problems" below regarding the possibility of undisclosed
environmental conditions potentially affecting the value of our properties.
Undisclosed material liabilities which are not covered by the indemnity escrow
agreement that we entered into with our predecessors in connection with the
formation transactions or 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 distributions on, and the market price of, our common stock.

FAILURE TO CONSUMMATE THE TRANSACTIONS WITH BPP RETAIL AND BPP

On March 9, 1999, we signed a series of definitive agreements with BPP
Retail, a co-investment entity between BPP and CalPERS, pursuant to which BPP
Retail will acquire 28 of our retail shopping centers, totaling 5.1 million
square feet, for an aggregate price of $663.4 million. BPP Retail will acquire
the centers in separate transactions, which we currently expect to close on or
about April 30, 1999, July 31, 1999 and December 1, 1999. In addition, we have
entered into a definitive agreement, subject to a financing condition, with BPP,
pursuant to which BPP will acquire six additional retail centers, totaling 1.5
million square feet, for $284.4 million. Assuming satisfaction or waiver of this
condition we currently expect this transaction to close by December 31, 1999.
Although none of the transactions has a discretionary due diligence period
(other than the transaction with BPP to the extent of the financing condition),
all of the transactions are subject to certain customary closing conditions,
which are generally applied on a property-by-property basis. Additionally, while
BPP Retail has posted certain initial deposits aggregating $25 million on the
transactions, BPP Retail's liability in the event of its default under a
definitive agreement is limited to its deposit. Accordingly, there can be no
assurance that the transactions will close as scheduled or close at all, and it
is possible that the transactions may close with respect to just a portion of
the properties currently subject to the agreements. In the event that one or
more of the transactions fail to close, or a closing is significantly delayed,
net proceeds from divestitures of properties will not be available to the same
extent to fund our acquisitions and developments. Any such failure or delay in
any of the closings may also make us unable to repay certain of our indebtedness
with the net proceeds as we currently intend and could require us to borrow
additional funds or seek other forms of financing.

CONFLICTS OF INTEREST

SOME OF OUR 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, a residential housing finance company, and
ownership of AMB Development, Inc. and AMB Development, L.P., developers which
own property that we believe is not suitable for ownership by us. AMB
Development, Inc. and AMB Development, L.P. have agreed not to initiate any new
development projects following our initial public offering in November, 1997.

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These entities have also agreed that they will not make any further investments
in industrial or retail properties other than those currently under development
at the time of our initial public offering. AMB Institutional Housing Partners,
AMB Development, Inc. and AMB Development, L.P. continue to use the name "AMB"
pursuant to royalty-free license arrangements with us. 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 or retail real estate, other than through
ownership of not more than 5% of the outstanding shares of a public company
engaged in such activities or through the existing investments referred to in
this prospectus. State law may limit our ability to enforce these agreements.

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

CERTAIN OF OUR EXECUTIVE OFFICERS AND DIRECTORS MAY HAVE CONFLICTS OF INTEREST
WITH US IN CONNECTION WITH OTHER PROPERTIES THAT THEY OWN OR CONTROL

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

In addition, several of our executive officers individually own:

- less than 1% interests in the stocks of certain publicly-traded REITs;

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

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

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

Thomas W. Tusher, a member of our Board of Directors, is a limited partner
in a partnership in which Messrs. Abbey, Moghadam and Burke are general partners
and which owns a 75% interest in an office building. Mr. Tusher owns a 20%
interest in the partnership, valued as of December 31, 1998 at approximately
$1.2 million. Messrs. Abbey, Moghadam and Burke each have an approximately 26.7%
interest in the partnership, each valued as of December 31, 1998 at
approximately $1.6 million.

We believe that the properties and activities set forth above generally do
not directly compete with any of our properties. However, it is possible that a
property in which an executive officer or director, or an affiliate of such
person, 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
such 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 the Board of Directors with respect to that transaction.

OUR ROLE AS GENERAL PARTNER OF THE OPERATING PARTNERSHIP MAY CONFLICT WITH THE
INTERESTS OF OUR 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
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addition, those persons holding limited partnership Units will have the right to
vote as a class on certain amendments to the Third Amended and Restated
Agreement of Limited Partnership of the Operating Partnership (as amended, the
"Partnership Agreement") and individually to approve certain 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 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 which 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 12, 1999, our three largest stockholders, Ameritech Pension
Trust, the City and County of San Francisco Employees' Retirement System and
Southern Company Services, Inc., beneficially owned approximately 31.1% of our
outstanding common stock. In addition, our executive officers and directors
beneficially owned 5.6% of our outstanding common stock as of the same date, 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 the
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.

WE COULD SUFFER LOSSES IF WE FAIL TO ENFORCE THE TERMS OF CERTAIN AGREEMENTS

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

OWNERSHIP OF COMMON 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 our common stock. To maintain our qualification as a REIT 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 Code to include certain entities) during the last half of a
taxable year after the first taxable year for which a REIT election is made.
Furthermore, after the first taxable year for which a REIT election is made, 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 tenants (or a tenant of any
partnership in which we are a partner), the rent received by us (either directly
or through any such partnership) from that tenant will not be qualifying income
for purposes of the REIT gross income tests of the Code. To facilitate
maintenance of our qualification as a REIT for federal income tax purposes, we
will prohibit the ownership, actually or by virtue of the constructive ownership
provisions of the 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 Series B Preferred Stock and any shares of
our Series C Preferred Stock by any single 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
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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 distributions 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. The Board of Directors has waived the ownership limit
applicable to our common stock with respect to Ameritech Pension Trust, allowing
it to own up to 14.9% of our common stock and, under some circumstances,
allowing it to own up to 19.6%. However, we conditioned this waiver upon the
receipt of undertakings and representations from Ameritech Pension Trust which
we believed were reasonably necessary in order for us to conclude that the
waiver would not cause us to fail to qualify as a REIT.

Our Charter authorizes us to issue additional shares of common stock and
Series A Preferred Stock and to issue Series B Preferred Stock, Series C
Preferred Stock and one or more other series of preferred stock and to establish
the preferences, rights and other terms of any series 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 of preferred stock that could delay, defer or
prevent a transaction or a change in control that might involve a premium price
for our common stock or otherwise be in the best interests of our stockholders.

Our Charter, our 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 our common stock or otherwise be in
the best interests of our stockholders. Those provisions include the following:

- 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;

- the provision in the Charter requiring a two-thirds vote of stockholders
for any amendment of the Charter;

- 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;

- 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

- 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 fundamental investment policy to maintain our qualification
as a REIT (unless a change is approved by the Board of Directors under certain
circumstances), the 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 distribute cash to
stockholders.

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VARIOUS MARKET CONDITIONS AFFECT THE PRICE OF OUR COMMON STOCK

As with other publicly-traded equity securities, the market price of our
common 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 common stock are the following:

- the extent of investor interest in us;

- the general reputation of REITs and the attractiveness of their equity
securities in comparison to other equity securities (including securities
issued by other real estate-based companies);

- our financial performance; and

- general stock and bond market conditions, including changes in interest
rates on fixed income securities which may lead prospective purchasers of
our common stock to demand a higher annual yield from future
distributions. Such an increase in the required yield from distributions
may adversely affect the market price of our common stock.

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 common
stock.

EARNINGS AND CASH DISTRIBUTIONS, ASSET VALUE AND MARKET INTEREST RATES AFFECT
THE PRICE OF OUR COMMON STOCK

The market value of the equity securities of a REIT generally is based
primarily upon the market's perception of the REIT's growth potential and its
current and potential future earnings and cash distributions, and is based
secondarily upon the real estate market value of the underlying assets. For that
reason, shares of our common stock may trade at prices that are higher or lower
than the net asset value per share. To the extent 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 common stock. Our failure to
meet the market's expectation with regard to future earnings and cash
distributions likely would adversely affect the market price of our common
stock. Another factor that may influence the price of our common stock will be
the distribution yield on our common stock (as a percentage of the price of our
common stock) relative to market interest rates. An increase in market interest
rates might lead prospective purchasers of our common stock to expect a higher
distribution yield, which would adversely affect the market price of our common
stock. If the market price of our common stock declines significantly, we might
breach certain covenants with respect to debt obligations, which might adversely
affect our liquidity and our ability to make future acquisitions and pay
distributions to our stockholders.

WE COULD INVEST IN REAL ESTATE MORTGAGES

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

GOVERNMENT REGULATIONS

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

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COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT

Under the Americans with Disabilities Act of 1990 (the "Americans with
Disabilities Act"), places of public accommodation must meet certain federal
requirements related to access and use by disabled persons. Compliance with the
Americans with Disabilities Act might require us to remove structural barriers
to handicapped access in certain public areas where such removal is "readily
achievable." If we fail to comply with the Americans with Disabilities Act, we
might be required to pay fines to the government or damages to private
litigants. The impact of application of the Americans with Disabilities Act to
our properties, including the extent and timing of required renovations, is
uncertain. If we are required to make unanticipated expenditures to comply with
the Americans with Disabilities Act, our cash flow and the amounts available for
distributions to our stockholders may be adversely affected.

WE COULD ENCOUNTER COSTLY ENVIRONMENTAL PROBLEMS

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

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

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

All of our properties were subject to a Phase I or similar environmental
assessments by independent environmental consultants at the time of acquisition
or shortly after acquisition. Phase I assessments are intended to discover and
evaluate information regarding the environmental condition of the surveyed
property and surrounding properties. Phase I assessments generally include an
historical review, a public records review, an investigation of the surveyed
site and surrounding properties, and preparation and issuance of a

42
44

written report, but do not include soil sampling or subsurface investigations
and typically do not include an asbestos survey. We may perform additional Phase
II testing if recommended by the independent environmental consultant. Phase II
testing may include the collection and laboratory analysis of soil and
groundwater samples, completion of surveys for asbestos-containing building
materials, and any other testing that the consultant considers prudent in order
to test for the presence of hazardous materials. Some of the environmental
assessments of our properties do not contain a comprehensive review of the past
uses of the properties and/or the surrounding properties.

None of the environmental assessments of our properties has revealed any
environmental liability that we believe would have a material adverse effect on
our financial condition or results of operations taken as a whole, and we are
not aware of any such material environmental liability. Nonetheless, it is
possible that the assessments do not reveal all environmental liabilities and
that there are material environmental liabilities of which we are unaware or
that known environmental conditions may give rise to liabilities that are
materially greater than anticipated. Moreover, future laws, ordinances or
regulations may impose material environmental liability and the current
environmental condition of our properties may be affected by tenants, by the
condition of land, by operations in the vicinity of the properties (such as
releases from underground storage tanks), or by third parties unrelated to us.
If the costs of compliance with environmental laws and regulations now existing
or adopted in the future exceed our budgets for these items, our financial
condition, results of operations, cash flow and ability to pay distributions on,
and the market price of, our common 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, we might incur fines
by governmental authorities or be required to pay awards of damages to private
litigants. We believe that our properties are currently in substantial
compliance with all such regulatory requirements. However, these requirements
may change or new requirements may be imposed which could require significant
unanticipated expenditures by us. Any such unanticipated expenditures could have
an adverse effect on our financial condition, results of operations, cash flow
and ability to pay distributions on, and the market price of, our common stock.

FEDERAL INCOME TAX RISKS

OUR FAILURE TO QUALIFY AS A REIT WOULD HAVE SERIOUS ADVERSE CONSEQUENCES TO
OUR STOCKHOLDERS

We intend to operate so as to qualify as a REIT under the Code. We believe
that we have been organized and have operated in a manner which would allow us
to qualify as a REIT under the Code beginning with our taxable year ended
December 31, 1997. However, it is possible that we have been organized or have
operated in a manner which would not allow us to qualify as a REIT, or that our
future operations could cause us to fail to qualify. Qualification as a REIT
requires us to satisfy numerous requirements (some on an annual and quarterly
basis) established under highly technical and complex 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 REIT, at least 95% of
our gross income in any year must be derived from qualifying sources, and we
must pay dividends to stockholders aggregating annually at least 95% of our REIT
taxable income (determined without regard to the dividends paid deduction and by
excluding capital gains). These provisions and the applicable treasury
regulations are more complicated in our case because we hold our assets in
partnership form. Legislation, new regulations, administrative interpretations
or court decisions could significantly change the tax laws with respect to
qualification as a REIT 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 REIT.

If we fail to qualify as a REIT in any taxable year, we will be subject to
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
REIT for the four
43
45

taxable years following the year during which we lost qualification. If we lose
our REIT status, 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 stockholders.

WE PAY SOME TAXES

Even if we qualify as a REIT, we will be subject to certain federal, state
and local taxes on our income and property. In addition, the net taxable income,
if any, from the activities conducted through the Preferred Stock Subsidiaries
will be subject to federal and state income tax.

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

WE ARE DEPENDENT ON OUR KEY PERSONNEL

We depend on the efforts of our executive officers, particularly Messrs.
Abbey, Moghadam and Burke, the Chairman of our Investment Committee, our Chief
Executive Officer and the Chairman of our Board of Directors, respectively.
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 distributions on, and the market price of, our common 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. If we fail to effectively manage our growth, our financial
condition, results of operations, cash flow and ability to pay distributions on,
and the market price of, our common stock could be adversely affected.

THE PREFERRED STOCK SUBSIDIARIES

WE DO NOT CONTROL THE ACTIVITIES OF THE PREFERRED STOCK SUBSIDIARIES

The Operating Partnership owns 100% of the non-voting preferred stock of
AMB Investment Management and Headlands Realty Corporation (representing
approximately 95% of the economic interest in each entity). We refer to these
entities as the "Preferred Stock Subsidiaries." Certain of our current and
former executive officers and an officer of AMB Investment Management own all of
the outstanding voting common stock of AMB Investment Management (representing
approximately 5% of the economic interest in AMB Investment Management). Certain
of our current and former executive officers and an officer of Headlands Realty
Corporation own all of the outstanding voting common stock of Headlands Realty
Corporation (representing approximately 5% of the economic interest in Headlands
Realty Corporation). The ownership structure of the Preferred Stock Subsidiaries
permits us to share in the income of the Preferred Stock Subsidiaries while
maintaining our status as a REIT. We receive substantially all of the economic
benefit of
44
46

the businesses carried on by the Preferred Stock Subsidiaries through our right
to receive dividends through the Operating Partnership. However, we are not able
to elect the Preferred Stock Subsidiaries' directors or officers and, as a
result, we do not have the ability to influence the operation of the Preferred
Stock Subsidiaries or to require that the Preferred Stock Subsidiaries' boards
of directors declare and pay cash dividends on the non-voting stock of the
Preferred Stock Subsidiaries held by the Operating Partnership. The boards of
directors and management of the Preferred Stock Subsidiaries might implement
business policies or decisions that would not have been implemented by persons
controlled by us and that may be adverse to the interests of our stockholders or
that may adversely impact our financial condition, results of operations, cash
flow and ability to pay distributions on, and the market price of, our common
stock. In addition, the Preferred Stock Subsidiaries are subject to tax on their
income, reducing their cash available for distribution to the Operating
Partnership.

AMB INVESTMENT MANAGEMENT MAY NOT BE ABLE TO GENERATE SUFFICIENT FEES

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

ITEM 7A. QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's exposure to market risk includes the rising interest rates in
connection with the Company's unsecured credit facility and other variable rate
borrowings and the ability of the Company to incur more debt without stockholder
approval, thereby increasing our debt service obligations, which could adversely
affect the Company's cash flows. See "Item 7: Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Capital Resources -- Market Capitalization."

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

None.

PART III

ITEMS 10, 11, 12, AND 13.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, 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.

45
47

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-1
Consolidated Balance Sheets as of December 31, 1997 and
1998...................................................... F-2
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998.......................... F-3
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998.......................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1997 and 1998.............. F-5
Notes to Consolidated Financial Statements.................. F-6
Schedule III -- Real Estate and Accumulated Depreciation.... S-1

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.

(3) EXHIBITS:

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

46
48

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

4.6 Third Supplemental Indenture dated as of June 30, 1998 by
and among the Operating Partnership, the Company and State
Street Bank and Trust Company of California, N.A., as
trustee (incorporated by reference to Exhibit 4.4 to the
Company's Registration Statement on Form S-11 (No.
333-49163)).
4.7 Specimen of 7.10% Notes due 2008 (included in the First
Supplemental Indenture incorporated by reference as Exhibit
4.2 to the Company's Registration Statement on Form S-11
(No. 333-49163)).
4.8 Specimen of 7.50% Notes due 2018 (included in the Second
Supplemental Indenture incorporated by reference as Exhibit
4.3 to the Company's Registration Statement on Form S-11
(No. 333-49163)).
4.9 Specimen of 6.90% Reset Put Securities due 2015 (included in
the Third Supplemental Indenture incorporated by reference
as Exhibit 4.4 to the Company's Registration Statement on
Form S-11 (No. 333-49163)).
10.1 Third Amended and Restated Agreement of Limited Partnership
of AMB Property, L.P. (incorporated by reference to Exhibit
99.1 of the Registrant's Registration Statement of Form S-3
(No. 333-68291)).
10.2 Form of Registration Rights Agreement among the Registrant
and the persons named therein (incorporated by reference to
Exhibit 10.2 of the Registrant's Registration Statement on
Form S-11 (No. 333-35915)).
10.3 Second Amended and Restated Credit Agreement, dated November
26, 1997.
10.4 Amendment to Second Amended and Restated Revolving Credit
Agreement made as of May 29, 1998.
10.5 Second Amendment to Second Amended and Restated Revolving
Credit Agreement made as of September 30, 1998.
10.6 Form of Change in Control and Noncompetition Agreement
between the Registrant and Executive Officers.
10.7 The First Amended and Restated 1997 Stock Option and
Incentive Plan of the Registrant.
10.8 The First Amendment to the First Amended Restated Stock
Option and Incentive Plan of the Registrant.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney (included in Part IV of this Form 10-K).
27.1 Financial Data Schedule -- AMB Property Corporation.

(b) REPORTS ON FORM 8-K:

On December 2, 1998 the Registrant filed a Form 8-K, dated December 2,
1998, filing financial statements with respect to property acquisitions.

On January 7, 1999 the Registrant filed a Form 8-K, dated November 12,
1998, reporting the private placement of the Series B Units and the Series C
Units.

See Item 14(a)(3) above.

(d) FINANCIAL STATEMENT SCHEDULES:

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

47
49

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 23, 1999.

AMB PROPERTY CORPORATION

By: /s/ HAMID R. MOGHADAM

------------------------------------
Hamid R. Moghadam
President 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, David S. Fries, John T. Roberts, Jr., 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 the
registrant and in the capacities and on the dates indicated.

NAME TITLE DATE
---- ----- ----

/s/ HAMID R. MOGHADAM President and Chief Executive March 23, 1999
- --------------------------------------------------- Officer, Director (Principal
Hamid R. Moghadam Executive Officer)

/s/ T. ROBERT BURKE Chairman of the Board March 23, 1999
- ---------------------------------------------------
T. Robert Burke

/s/ DOUGLAS D. ABBEY Chairman of the Investment March 23, 1999
- --------------------------------------------------- Committee, Director
Douglas D. Abbey

Director
- ---------------------------------------------------
Daniel H. Case, III

/s/ ROBERT H. EDELSTEIN, PH.D Director March 23, 1999
- ---------------------------------------------------
Robert H. Edelstein, Ph.D

/s/ LYNN M. SEDWAY Director March 23, 1999
- ---------------------------------------------------
Lynn M. Sedway

/s/ JEFFREY L. SKELTON, PH.D Director March 23, 1999
- ---------------------------------------------------
Jeffrey L. Skelton, Ph.D

Director
- ---------------------------------------------------
Thomas W. Tusher

/s/ CARYL B. WELBORN, ESQ. Director March 23, 1999
- ---------------------------------------------------
Caryl B. Welborn, Esq.

/s/ MICHAEL A. COKE Chief Financial Officer and March 23, 1999
- --------------------------------------------------- Senior Vice President (Principal
Michael A. Coke Financial Officer and Principal
Accounting Officer)

48
50

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
AMB Property Corporation:

We have audited the accompanying consolidated balance sheets of AMB
Property Corporation and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1998. These
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 financial statements and the schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.

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

ARTHUR ANDERSEN LLP

San Francisco, California
February 2, 1999

F-1
51

AMB PROPERTY CORPORATION

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

ASSETS

1997 1998
---------- ----------

Investments in real estate:
Land and improvements..................................... $ 550,635 $ 740,680
Buildings and improvements................................ 1,822,516 2,445,104
Construction in progress.................................. 69,848 183,276
---------- ----------
Total investments in properties......................... 2,442,999 3,369,060
Accumulated depreciation and amortization................. (4,153) (58,404)
---------- ----------
Net investments in properties........................... 2,438,846 3,310,656
Investment in unconsolidated joint venture.................. -- 57,655
Properties held for divestiture, net........................ -- 115,050
---------- ----------
Net investments in real estate.......................... 2,438,846 3,483,361
Cash and cash equivalents................................... 39,968 25,137
Other assets................................................ 27,441 54,387
---------- ----------
Total assets............................................ $2,506,255 $3,562,885
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt:
Secured debt.............................................. $ 535,652 $ 734,196
Unsecured senior debt securities.......................... -- 400,000
Unsecured credit facility................................. 150,000 234,000
---------- ----------
Total debt.............................................. 685,652 1,368,196
Other liabilities........................................... 49,350 104,305
Payable to affiliates....................................... 38,071 --
---------- ----------
Total liabilities....................................... 773,073 1,472,501
Commitments and contingencies (note 11)..................... -- --
Minority interests.......................................... 65,152 325,024
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
Common stock $.01 par value, 500,000,000 shares
authorized, 85,917,520 issued and outstanding........... 859 859
Additional paid-in capital................................ 1,667,171 1,668,401
Retained earnings......................................... -- --
---------- ----------
Total stockholders' equity.............................. 1,668,030 1,765,360
---------- ----------
Total liabilities and stockholders' equity.............. $2,506,255 $3,562,885
========== ==========

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

F-2
52

AMB PROPERTY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

1996 1997 1998
---------- ----------- -----------

REVENUES
Rental revenues........................................... $ -- $ 26,465 $ 354,658
Investment management and other income.................... 23,991 29,597 4,229
---------- ----------- -----------
Total revenues...................................... 23,991 56,062 358,887
OPERATING EXPENSES
Property operating expenses............................... -- 5,312 47,856
Real estate taxes......................................... -- 3,587 48,218
General and administrative................................ -- 1,197 11,929
Interest, including amortization.......................... -- 3,528 69,670
Depreciation and amortization............................. -- 4,195 57,464
Investment management expenses............................ 16,851 19,358 --
---------- ----------- -----------
Total operating expenses............................ 16,851 37,177 235,137
---------- ----------- -----------
Income from operations before minority interests.... 7,140 18,885 123,750
Minority interests' share of net income................... (137) (657) (11,157)
---------- ----------- -----------
Net income.......................................... $ 7,003 $ 18,228 $ 112,593
Series A preferred stock dividends........................ -- -- (3,639)
---------- ----------- -----------
Net income available to common stockholders......... $ 7,003 $ 18,228 $ 108,954
========== =========== ===========
INCOME PER SHARE OF COMMON STOCK
Basic..................................................... $ 1.38 $ 1.39 $ 1.27
========== =========== ===========
Diluted................................................... $ 1.38 $ 1.38 $ 1.26
========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic..................................................... 5,079,855 13,140,218 85,876,383
========== =========== ===========
Diluted................................................... 5,079,855 13,168,036 86,235,176
========== =========== ===========

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

F-3
53

AMB PROPERTY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)

1996 1997 1998
------ --------- --------

CASH FLOWS FROM OPERATING ACTIVITIES
Net Income.................................................. $7,003 $ 18,228 $112,593
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. -- 4,195 57,464
Straight-line rents....................................... -- (901) (10,921)
Amortization of debt premiums and financing costs......... -- (266) (2,730)
Minority interests' share of net income................... 137 657 11,157
Equity in (income) loss of AMB Investment Management...... -- (61) 313
Equity earnings of unconsolidated joint venture........... -- -- (1,730)
Changes in assets and liabilities:
Other assets............................................ (249) (11,873) (9,377)
Other liabilities....................................... (25) 2,301 20,411
------ --------- --------
Net cash provided by operating activities........... 6,866 12,280 177,180
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property acquisitions......................... -- -- (564,304)
Additions to properties..................................... -- (228,432) --
Additions to buildings, development costs, and
improvements.............................................. -- (4,375) (137,913)
Acquisition of interest in unconsolidated joint venture..... -- -- (67,376)
Distribution received from unconsolidated joint venture..... -- -- 11,451
Reduction of payable to affiliates in connection with
Formation Transactions.................................... -- -- (38,071)
------ --------- --------
Net cash used for investing activities.............. -- (232,807) (796,213)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock.................................... -- 317,009 --
Borrowings on unsecured credit facility..................... -- 150,000 745,000
Borrowings on secured debt.................................. -- 850 58,725
Payment of unsecured credit facility........................ -- (182,000) (661,000)
Payments on secured debt.................................... -- (516) (79,380)
Payment of financing fees................................... -- (900) (7,704)
Net proceeds from issuance of senior debt securities........ -- -- 399,166
Net proceeds from issuance of Series A preferred stock...... -- -- 96,100
Net proceeds from issuance of Series B & C preferred
units..................................................... -- -- 167,993
Dividends paid to common stockholders and preferred
stockholders.............................................. -- (11,506) (88,236)
Dividends paid to Predecessor stockholders.................. (5,262) (16,404) --
Distributions to minority interests......................... (34) -- (26,462)
Principal payment of notes receivable from stockholders of
Predecessor............................................... 318 869 --
------ --------- --------
Net cash provided by (used in) financing
activities.......................................... (4,978) 257,402 604,202
------ --------- --------
Net increase (decrease) in cash and cash equivalents........ 1,888 36,875 (14,831)
Cash and cash equivalents at beginning of period............ 1,205 3,093 39,968
------ --------- --------
Cash and cash equivalents at end of period.................. $3,093 $ 39,968 $ 25,137
====== ========= ========

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

F-4
54

AMB PROPERTY CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

COMMON STOCK NOTES
SERIES A ---------------------- ADDITIONAL RECEIVABLE
PREFERRED NUMBER PAID-IN RETAINED FROM
STOCK OF SHARES AMOUNT CAPITAL EARNINGS STOCKHOLDERS TOTAL
--------- ---------- --------- ---------- --------- ------------ ----------

PREDECESSOR
Balance at December 31, 1995.... $ -- 5,079,855 $1,042 $ 1,298 $ 2,781 $(880) $ 4,241
Net Income.................... -- -- -- -- 7,003 -- 7,003
Dividends declared and paid... -- -- -- -- (5,262) -- (5,262)
Principal payment of notes
Receivable from
stockholders................ -- -- -- -- -- 318 318
Issuance of common stock for
notes....................... -- 101,595 307 -- -- (307) --
------- ---------- ------ ---------- --------- ----- ----------
Balance at December 31, 1996.... -- 5,181,450 1,349 1,298 4,522 (869) 6,300
AMB PROPERTY CORPORATION
Net Income.................... -- -- -- -- 18,228 -- 18,228
Dividends declared and paid to
Predecessor stockholders.... -- -- (990) (1,298) (14,116) -- (16,404)
Principal payment of notes
Receivable from
stockholders................ -- -- -- -- -- 869 869
Exchange of Predecessor Shares
for shares of AMB Property
Corporation, net............ -- (434,834) (312) 312 -- -- --
Issuance of common stock for
Properties.................. -- 65,022,185 651 1,369,740 -- -- 1,370,391
Issuance of common stock, net
of Offering costs of
$38,068..................... -- 16,100,000 161 299,871 -- -- 300,032
Issuance of restricted
stock....................... -- 5,712 -- 120 -- -- 120
Distributions paid to AMB
Property Corporation
stockholders................ -- -- -- (2,872) (8,634) -- (11,506)
------- ---------- ------ ---------- --------- ----- ----------
Balance at December 31, 1997.... -- 85,874,513 859 1,667,171 -- -- 1,668,030
Net Income.................... 3,639 -- -- -- 108,954 -- 112,593
Issuance of preferred stock,
net of offering costs....... 96,100 -- -- -- -- -- 96,100
Issuance of restricted
stock....................... -- 43,007 -- 930 -- -- 930
Reallocation of Limited
Partners' interests in
Operating Partnership....... -- -- -- 7,215 -- -- 7,215
Dividends declared............ (3,639) -- -- (6,915) (108,954) -- (119,508)
------- ---------- ------ ---------- --------- ----- ----------
Balance at December 31, 1998.... $96,100 85,917,520 $ 859 $1,668,401 $ -- $ -- $1,765,360
======= ========== ====== ========== ========= ===== ==========

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

F-5
55

AMB PROPERTY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)

1. ORGANIZATION AND FORMATION OF 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 (the "IPO") on November 26, 1997. The
Company elected to be taxed as a real estate investment trust ("REIT") under
Sections 856 through 860 of the Internal Revenue Code of 1986 (the "Code"),
commencing with its taxable year ended December 31, 1997, and believes its
current organization and method of operation will enable it to maintain its
status as a REIT. The Company, through its controlling interest in its
subsidiary, AMB Property, L.P., a Delaware limited partnership (the "Operating
Partnership"), is engaged in the acquisition, ownership, operation, management,
renovation, expansion and development of industrial buildings and community
shopping centers in target markets nationwide. Unless the context otherwise
requires, the "Company" means AMB Property Corporation, the Operating
Partnership and its other controlled subsidiaries.

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

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

As of December 31, 1998, the Company owned an approximate 95.1% general
partner interest in the Operating Partnership. The remaining 4.9% limited
partner interest is owned by nonaffiliated investors. For local law purposes,
properties in certain states are owned through limited partnerships and limited
liability companies owned 99% by the Operating Partnership and 1% by a wholly
owned subsidiary of the Company. The ownership of such properties through such
entities does not materially affect the Company's overall ownership of the
interests in the properties. As the sole general partner of the Operating
Partnership, the Company has the full, exclusive and complete responsibility and
discretion in the day-to-day management and control of the Operating
Partnership.

In connection with the Formation Transactions, the Operating Partnership
formed AMB Investment Management, Inc., a Maryland corporation ("AMB Investment
Management"). The Operating Partnership purchased 100% of AMB Investment
Management's non-voting preferred stock (representing a 95% economic interest
therein). Certain current and former executive officers of the Company and an
officer of AMB Investment Management collectively purchased 100% of the
Investment Management Subsidiary's voting common stock (representing a 5%
economic interest therein). The Operating Partnership accounts for its
investment in AMB Investment Management using the equity method of accounting.
AMB Investment Management was formed to succeed to the Predecessor's investment
management business of providing real estate investment management services on a
fee basis to clients. The Operating Partnership also owns 100% of the non-voting
preferred stock of Headlands Realty Corporation, a Maryland corporation
(representing a 95%

F-6
56

economic interest therein). Certain current and former executive officers of the
company and an officer of Headlands Realty Corporation collectively own 100% of
the voting common stock of Headlands Realty Corporation (representing a 5%
economic interest therein). Headlands Realty Corporation invests in properties
and interests in entities that engage in the management, leasing and development
of properties and similar activities.

As of December 31, 1998, the Company owned 582 industrial buildings (the
"Industrial Properties") and 38 retail centers (the "Retail Properties") located
in 30 markets throughout the United States. The Industrial Properties,
principally warehouse distribution buildings, encompass approximately 56.6
million rentable square feet and, as of December 31, 1998, were 96.0% leased to
over 1,600 tenants. The Retail Properties, principally grocer-anchored community
shopping centers, encompass approximately 7.0 million rentable square feet and,
as of the same date, were 94.6% leased to over 900 tenants. The Industrial
Properties and the Retail Properties collectively are referred to as the
"Properties."

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Generally Accepted Accounting Principles

These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles using the accrual method of
accounting. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

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 twenty-one joint
ventures (the "Joint Ventures") in which the Company has a controlling interest.
The Company also has a 56.1% non-controlling limited partnership interest in one
unconsolidated real estate joint venture which is accounted for under the equity
method. Third-party equity interests in the Operating Partnership and the Joint
Ventures are reflected as minority interests in the consolidated financial
statements. All significant intercompany amounts have been eliminated.

Basis of Presentation

The consolidated financial statements of the Company for 1997 include the
results of operations of the Company, including property operations for the
period from November 26, 1997 (the commencement of operations as a fully
integrated real estate company) to December 31, 1997 and the results of the
Company's Predecessor, an investment manager, for the period from January 1,
1997 to November 25, 1997. The consolidated financial statements for 1998
represent the results of operations of the Company for the year ended December
31, 1998.

Investments in Real Estate

Investments in real estate are stated at the lower of depreciated cost or
net realizable value. Net realizable value for financial reporting purposes is
reviewed for impairment on a property-by-property basis whenever events or
changes in circumstances indicate that the carrying amount 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. To the extent an impairment has occurred, the excess of
the carrying amount of the property over its estimated fair value will be
charged to income. As of December 31, 1998, we believe that there were no
impairments of the carrying values of the Properties.

F-7
57

Depreciation and amortization are calculated using the straight-line method
over the estimated useful lives of the investments. The estimated lives are as
follows:

Land improvements........................................... 5 to 40 years
Buildings and improvements.................................. 5 to 40 years
Tenant improvements and leasing costs....................... Term of the related lease

The cost of buildings and improvements includes the purchase price of the
property or interest in property, legal fees and acquisition costs, and
interest, property taxes, and other costs incurred during the period of
construction.

Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations or betterments that extend the economic useful
life of assets are capitalized.

Project costs directly associated with the development and construction of
a real estate project are capitalized as construction in progress. In addition,
interest, real estate taxes and other costs are capitalized during the
construction period.

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. Cash and cash equivalents as of December 31, 1997 and 1998
include restricted cash of $8,074 and $5,227, respectively, which represents
amounts held in escrow in connection with property purchases and capital
improvements.

Deferred Financing

Costs incurred in connection with financing are capitalized and amortized
to interest expense on a straight-line basis (which approximates the effective
interest method) over the term of the related loan. As of December 31, 1997 and
1998, deferred financing fees were $871 and $7,318, respectively, net of
accumulated amortization of $29 and $772, respectively. Such amounts are
included in Other Assets on the consolidated balance sheet.

Fair Value of Financial Instruments

The Company's financial instruments include short-term investments,
accounts receivable, accounts payable, accrued expenses, construction loans
payable, mortgage debt, secured debt, senior debt securities, unsecured notes
payable, and an unsecured credit facility. The fair value of these instruments
approximates its carrying or contract values.

Debt Premiums

In connection with the Formation Transactions, the Company assumed certain
secured debt with an aggregate principal value of $517,031 and a fair value of
$535,613. The difference between the principal value and the fair value was
recorded as a debt premium. The debt premium is being amortized into interest
expense over the term of the related debt instrument using the effective
interest method. As of December 31, 1997 and 1998, the unamortized debt premium
was $18,286 and $15,217, respectively.

Minority Interests

Minority interests in the Company represent the limited partnership
interests in the Operating Partnership and interests held by certain third
parties in twenty-one real estate joint ventures that are consolidated for
financial reporting purposes. Such investments are consolidated because 1) the
Company owns a majority interest, or 2) the Company holds significant control
over the entity through a 50% or greater ownership interest combined with the
ability to control major operating decisions, such as approval of budgets,
selection of property managers and change in financing.

F-8
58

The following table distinguishes the minority interest ownership held by
certain Joint Venture Partners, Institutional Alliance Partners(TM), the limited
partners in the Operating Partnership, the Series B Preferred Unit holders'
interest in the Operating Partnership, and the Series C Preferred Unit holders'
interest in a subsidiary of the Operating Partnership, as of and for the year
ended December 31, 1998.

MINORITY
INTEREST
MINORITY INTEREST SHARE OF
LIABILITY NET INCOME
----------------- ----------

Minority Interest -- Joint Venture Partners................. $ 18,012 $ 1,491
Minority Interest -- Institutional Alliance Partners(TM).... 52,381 2,987
Minority Interest -- Limited Partners in the Operating
Partnership............................................... 86,638 4,884
Minority Interest -- Series B Preferred Units (liquidation
preference of $65,000).................................... 62,259 779
Minority Interest -- Series C Preferred Units (liquidation
preference of $110,000)................................... 105,734 1,016
-------- -------
$325,024 $11,157
======== =======

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 tenants for real estate taxes and other recoverable
operating expenses are recognized as revenue in the period the applicable
expenses are incurred.

Investment Management and Other Income

Investment management income consists primarily of professional fees
generated from the Predecessors' real estate investment management services for
periods prior to the Formation Transactions and the Company's equity in the
earnings of AMB Investment Management for periods subsequent to the Formation
Transactions. Other income consists primarily of interest income on cash and
cash equivalents.

Investment Management Expenses

Investment management expenses represent the operating expenses of the
Predecessor for periods prior to November 26, 1997 and consist of salaries and
benefits and other management related expenses.

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

As discussed in Note 1, the Operating Partnership formed AMB Investment
Management for the purpose of carrying on the operations of the Predecessor. The
Company and AMB Investment Management have an agreement that allows for the
sharing of certain costs and employees. Additionally, the Company provides AMB
Investment Management with certain acquisition-related services.

As part of the Formation Transactions, the Operating Partnership was
required to pay an amount equal to the net working capital balances at November
25, 1997 of the Predecessor and the acquired Properties to the owners of said
entities. As of December 31, 1997, the Company owed approximately $37,808 to
owners related to these working capital distributions. Such amount was repaid in
full in early 1998.

The Company and AMB Investment Management share common office space under
lease obligations of an affiliate of the Predecessor. Such lease obligations are
charged to the Company and AMB Investment

F-9
59

Management at cost. For the years ended December 31, 1997 and 1998, the Company
paid approximately $700 and $1,160, respectively, for occupancy costs related to
the lease obligations of the affiliate.

4. PROPERTY HELD FOR DIVESTITURE

The Company has determined to focus exclusively on properties that meet its
strategic objectives. Therefore, as of December 31, 1998, the Company had
decided to divest itself of four industrial buildings and four retail centers.
As of December 31, 1998, the divestiture of the properties is subject to
negotiation of acceptable terms and other customary conditions.

The following summarizes the condensed results of operations of the
properties held for divestiture for the period from November 26, 1997 to
December 31, 1997 and for the year ended December 31, 1998:

1997 1998
------ -------

Income.................................................. $1,406 $14,851
Property Operating Expenses............................. 370 3,626
------ -------
Net Operating Income.................................... $1,036 $11,225
====== =======

As of December 31,1998, the net carrying value of the properties held for
divestiture was $115,050, and two of the retail centers were encumbered by
secured debt of $42,615. The net proceeds will be used to acquire additional
properties and pay down certain debts.

5. DEBT

As of December 31, 1997 and 1998, debt, excluding unamortized debt
premiums, consists of the following:

1997 1998
-------- ----------

Secured debt, varying coupon interest rates from 4.00% to
10.38%, due April 1999 to April 2014...................... $517,366 $ 718,979
Unsecured senior debt securities, weighted average interest
rate of 7.18%, due June 2008, 2015, and 2018.............. -- 400,000
Unsecured credit facility, variable interest at LIBOR plus
90 to 120 basis points (6.10% at December 31, 1998), due
November 2000............................................. 150,000 234,000
-------- ----------
Total Debt.......................................... $667,366 $1,352,979
======== ==========

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, 1998, the total gross investment value of those Properties secured
by debt was $1,458,652. All of the secured debt bear interest at fixed rates,
except for two loans with an aggregate principal amount of $9,155, which bear
interest at a variable rate. The secured debt has various financial and
non-financial covenants. Additionally, certain of the secured debt is cross-
collateralized.

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

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

Capitalized interest related to construction projects for the period from
November 26, 1997 to December 31, 1997, was $448 and for the year ended December
31, 1998 was $7,192. There was no capitalized interest for periods prior to the
Formation Transactions.

F-10
60

The scheduled maturities of the Company's total debt, excluding unamortized
debt premiums, as of December 31, 1998 are as follows:

SECURED UNSECURED SENIOR UNSECURED CREDIT
DEBT DEBT SECURITIES FACILITY TOTAL
-------- ---------------- ---------------- ----------

1999.......................... $ 14,061 $ -- $ -- $ 14,061
2000.......................... 19,833 -- 234,000 253,833
2001.......................... 42,560 -- -- 42,560
2002.......................... 68,849 -- -- 68,849
2003.......................... 136,798 -- -- 136,798
Thereafter.................... 436,878 400,000 -- 836,878
-------- -------- -------- ----------
$718,979 $400,000 $234,000 $1,352,979
======== ======== ======== ==========

6. LEASING ACTIVITY

Future minimum rental income due under noncancelable leases with tenants in
effect at December 31, 1998, is as follows:

1999........................................................ $ 329,322
2000........................................................ 287,771
2001........................................................ 239,178
2002........................................................ 189,259
2003........................................................ 142,411
Thereafter.................................................. 536,573
----------
$1,724,514
==========

In addition to minimum rental payments, certain tenants pay reimbursements
for their pro rata share of specified operating expenses, which amounted to
$5,267 and $68,071 for the period from November 26, 1997 to December 31, 1997
and for the year ended December 31, 1998, 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 period from November 26, 1997 to December 31, 1997 and for the year
ended December 31, 1998, the Company recognized percentage rent revenues of $185
and $1,870, respectively. Some leases contain options to renew. No individual
tenant accounts for greater than 2% of rental revenues.

7. 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 95% of its taxable income to
its stockholders. It is management's 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, 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. For the years ended December 31, 1997 and 1998, 0% of the
dividends paid to common stockholders represented a return of capital for income
tax purposes.

F-11
61

Prior to the Merger, the Predecessor conducted its business as an S
corporation, and was not subject to federal income taxes under Subchapter S of
the Internal Revenue Code. Under this election federal income taxes were paid by
the stockholders of the Predecessor.

8. STOCKHOLDERS' EQUITY

On July 27, 1998, the Company sold 4,000,000 shares of 8.5% Series A
Cumulative Redeemable Preferred Stock at $25.00 per share for $100,000 in an
underwritten public offering. These shares are redeemable solely at the option
of the Company on or after July 27, 2003. The net proceeds of $96,100 (after
deducting underwriters' discounts and commissions and offering costs) from the
offering were contributed to the Operating Partnership in exchange for 4,000,000
Series A preferred units with terms identical to the Series A Preferred Stock.
The Operating Partnership used these proceeds to repay borrowings under the
Credit Facility.

On December 4, 1998, the Company and the Operating Partnership declared a
quarterly cash distribution of $0.3425 per common share and operating
partnership unit, payable on January 15, 1999 to stockholders of record on
December 31, 1998. On December 4, 1998, the Company declared a cash dividend of
$0.53125 per share on its Series A Preferred Stock, and the Operating
Partnership declared a cash distribution of $0.53125 per unit of its Series A
Preferred Units, payable on January 15, 1999 to stockholders and unit holders of
record as of December 31, 1998.

9. STOCK INCENTIVE PLAN AND 401(k) 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 5,750,000 shares of Common Stock under the Stock Incentive Plan. As of
December 31, 1998, the Company had granted 4,384,037 non-qualified options, to
certain directors, officers and employees. Each option is exchangeable for one
share of the Company's Common Stock and has a weighted average exercise price
equal to $21.22. Each option's exercise price is equal to the Company's market
price at the date of grant. The options had an original ten-year term and 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, 1998.

As permitted by SFAS 123, "Accounting Stock-based Compensation," the
Company has not changed our 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 $1,767 and pro forma basic and diluted
earnings per share would have been reduced to $1.25 and $1.24, respectively, for
the year ended December 31, 1998.

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 1997 and 1998, respectively: dividend yield of 6.52% and 6.31%,
expected volatility of 18.75% and 23.10%, risk-free interest rate of 5.86% and
4.94%, and expected lives of 10 years for both years.

F-12
62

Following is a summary of the option activity for the years ended December
31, 1997 and 1998:

WEIGHTED REMAINING
SHARES UNDER AVERAGE CONTRACTUAL
OPTION (000) EXERCISE PRICE LIFE
------------ -------------- -----------

Outstanding, 11/25/97..................................... -- -- --
Granted................................................... 3,154 $21.00 10 years
Exercised................................................. -- -- --
Forfeited................................................. (10) -- --
------ ------ ---------
Outstanding, 12/31/97..................................... 3,144 21.00 10 years
Granted................................................... 1,508 21.69 10 years
Exercised................................................. -- -- --
Forfeited................................................. (268) -- --
------ ------ ---------
Outstanding, 12/31/98..................................... 4,384 21.40 9.4 years
====== ====== =========
Options exercisable at year-end........................... 622 $21.00
====== ======
Fair value of options granted during the year............. $ 2.43
======

In 1997, under the Stock Incentive Plan, the Company sold 5,712 restricted
shares of its Common Stock to certain independent directors for $0.01 per share
in cash. In 1998, under the Stock Incentive Plan the Company issued 43,007
restricted shares to certain officers of the Company as part of the Performance
Pay Program. The restricted shares are subject to a repurchase right held by the
Company, which lapses one-third of such shares annually. The repurchase right
lapses fully on January 1, 2002.

401(k) Plan

In November 1997, the Company established a Section 401(k)
Savings/Retirement Plan (the "Section 401(k) Plan"), which is a continuation of
the Section 401(k) plan of the Predecessor, to cover eligible employees of the
Company and any designated affiliate. The Section 401(k) Plan permits eligible
employees of the Company to defer up to 10% 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
Section 401(k) Plan. The Company matches the employee contributions to the
Section 401(k)Plan in an amount equal to 50% of the first 3.5% of annual
compensation deferred by each employee and may also make discretionary
contributions to the plan. As of December 31, 1997 and 1998, the Company's
accrual for 401(k) match was $140 and $153, respectively. Such amounts were
included in Other liabilities on the consolidated balance sheets.

Except for the Section 401(k) Plan, the Company offers no other
post-retirement or post-employment benefits to its employees.

F-13
63

10. SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS

YEARS ENDED DECEMBER 31,
--------------------------------------
1996 1997 1998
---------- ----------- ---------

Cash paid for interest...................................... $ -- $ 2,509 $ 68,209
Non-cash transactions:
Acquisitions of properties................................ $ -- $ 2,438,634 $ 901,284
Assumption of debt........................................ -- (717,613) (221,017)
Cash acquired............................................. -- (43,978) --
Other assumed assets and liabilities...................... -- (13,862) --
Minority interest's contribution, including units
issued.................................................. -- (64,358) (115,963)
Shares issued............................................. -- (1,370,391) --
---------- ----------- ---------
Net cash paid, net of cash acquired......................... $ -- $ 228,432 $ 564,304
========== =========== =========

11. COMMITMENTS AND CONTINGENCIES

Litigation

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

Environmental Matters

The Company follows the policy of monitoring 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. 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.

General Uninsured Losses

The Company carries comprehensive liability, fire, flood, environmental,
extended coverage and rental loss insurance with policy specifications, limits
and deductibles customarily carried for similar properties. There are, however,
certain types of extraordinary losses that may be either uninsurable, or not
economically insurable. Certain of the Properties are located in areas that are
subject to earthquake activity; the Company

F-14
64

has therefore obtained limited earthquake insurance. Should an uninsured loss
occur, the Company could lose its investment in, and anticipated profits and
cash flows, from a property.

12. QUARTERLY FINANCIAL DATA (UNAUDITED)

Selected quarterly financial data for 1998 is as follows:

QUARTER
------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR
----------- ----------- ------------ ----------- -----------

Revenues................................. $ 75,785 $ 85,014 $ 94,061 $ 104,027 $ 358,887
Income from operations before minority
interest............................... 29,188 30,382 31,802 32,378 123,750
Minority interests' share of net
income................................. (1,282) (2,404) (2,930) (4,541) (11,157)
----------- ----------- ----------- ----------- -----------
Net income............................... $ 27,906 $ 27,978 $ 28,872 $ 27,837 $ 112,593
Preferred stock dividends................ -- -- (1,514) (2,125) (3,639)
----------- ----------- ----------- ----------- -----------
Net income available to common
stockholders........................... $ 27,906 $ 27,978 $ 27,358 $ 25,712 $ 108,954
=========== =========== =========== =========== ===========
Net income per common share:
Basic(1)............................... $ 0.33 $ 0.33 $ 0.32 $ 0.30 $ 1.27
=========== =========== =========== =========== ===========
Diluted................................ $ 0.32 $ 0.32 $ 0.32 $ 0.30 $ 1.26
=========== =========== =========== =========== ===========
Weighted average common shares
outstanding:
Basic.................................. 85,874,513 85,874,513 85,874,513 85,881,992 85,876,383
=========== =========== =========== =========== ===========
Diluted................................ 86,284,736 86,222,175 86,251,857 86,181,937 86,235,176
=========== =========== =========== =========== ===========

- ---------------
(1) The sum of quarterly financial data varies from the annual data due to
rounding.

13. SEGMENT INFORMATION

The Company has two reportable segments: Industrial Properties and Retail
Properties. The Company believes that the most relevant information about the
way that its business is managed is through disclosure of certain data at the
operating division level. The accounting policies of the segments are the same
as those described in the summary of significant accounting policies.
Significant information used by the Company for the reportable segments is as
follows:

INDUSTRIAL RETAIL TOTAL
PROPERTIES PROPERTIES PROPERTIES
---------- ---------- ----------

Rental revenues:
1996............................ $ -- $ -- $ --
1997............................ 16,898 9,567 26,465
1998............................ 248,134 106,524 354,658
Property net operating income and
contribution to FFO(1):
1996............................ -- -- --
1997............................ 11,056 6,510 17,566
1998............................ 181,832 76,752 258,584
Investment in properties:
1996............................ -- -- --
1997............................ 1,639,321 803,678 2,442,999
1998(2)......................... 2,574,940 794,120 3,369,060

- ---------------
(1) Property net operating income (NOI) is defined as rental revenue, including
reimbursements and straight-line rents, less property level operating
expenses.

(2) Excludes net properties held for divestiture of $115,050. See Note 4.

F-15
65

The Company uses property net operating income and FFO as operating
performance measures. The following are reconciliations between total reportable
segment revenue, property net operating income and funds from operations ("FFO")
contribution to consolidated revenues, net income and FFO:

1996 1997 1998
------- ------- --------

REVENUES
Total rental revenues for reportable segments............... $ -- $26,465 $354,658
Investment management and other income...................... 23,991 29,597 4,229
------- ------- --------
Total consolidated revenues................................. $23,991 $56,062 $358,887
======= ======= ========
NET INCOME
Property net operating income for reportable segments....... $ -- $17,566 $258,584
Investment management and other income...................... 23,991 29,597 4,229
Less:
General and administrative................................ -- 1,197 11,929
Interest expense.......................................... -- 3,528 69,670
Depreciation and amortization............................. -- 4,195 57,464
Investment management expenses............................ 16,851 19,358 --
Minority interests........................................ 137 657 11,157
------- ------- --------
Net income.................................................. $ 7,003 $18,228 $112,593
======= ======= ========
FFO(1)
Net income.................................................. $ 7,003 $18,228 $112,593
Minority interests' share of net income..................... 137 657 11,157
Real estate depreciation and amortization:
Total depreciation and amortization....................... -- 4,195 57,464
Furniture, fixtures and equipment depreciation............ -- (37) (463)
FFO attributable to minority interests(2):
Institutional Alliance Partners........................... -- -- (3,828)
Other joint venture partners.............................. -- (218) (2,071)
Adjustments to derive FFO in unconsolidated joint
venture(3):
Company's share of net income............................. -- -- (1,750)
Company's share of FFO.................................... -- -- 2,739
Preferred stock dividends................................... -- -- (3,639)
Series B & C preferred unit distributions................... -- -- (1,795)
------- ------- --------
FFO......................................................... $ 7,140 $22,825 $170,407
======= ======= ========

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

F-16
66

14. SUBSEQUENT EVENTS (UNAUDITED)

On March 9, 1999, the Company signed a series of definitive agreements with
BPP Retail, LLC ("BPP Retail"), a co-investment entity between Burnham Pacific
Properties ("BPP") and the California Public Employees' Retirement System
("CalPERS"), pursuant to which BPP Retail will acquire 28 retail shopping
centers of the Company, totaling 5.1 million square feet, for an aggregate price
of $663.4 million. BPP Retail will acquire the centers in separate transactions,
which are currently expected to close on or about April 30, 1999, July 31, 1999
and December 1, 1999. In addition, the Company has entered into a definitive
agreement, subject to a financing confirmation, with BPP, pursuant to which BPP
will acquire six additional retail centers, totaling 1.5 million square feet,
for $284.4 million. Assuming satisfaction or waiver of this condition, this
transaction is currently expected to close by December 31, 1999. In connection
with these transactions, the Company has also granted CalPERS an option to
purchase up to 2,000,000 original issue shares of AMB's Common Stock for an
exercise price of $25 per share that may be exercised on or before March 31,
2000.

F-17
67

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT NUMBER OF BUILDINGS/CENTERS)

INITIAL COST TO COMPANY COSTS
NO. OF -------------------------------------- CAPITALIZED
BLDGS./CTRS. ENCUMBRANCES BUILDING & SUBSEQUENT TO
PROPERTY (1) LOCATION TYPE (2) LAND IMPROVEMENTS ACQUISITION
-------- ------------ -------- ---- ------------ -------- ------------ -------------

Acer Distribution Center........ 1 CA IND $ -- $ 3,146 $ 9,479 $ 384
Activity Distribution Center.... 4 CA IND 5,247 3,736 11,248 85
Addison Technology Center....... 1 TX IND -- 899 2,696 158
Alsip Industrial................ 1 IL IND -- 1,200 3,600 236
Alvarado Business Center........ 10 CA IND -- 7,906 23,757 358
Amwiler-Gwinnett Industrial
Portfolio..................... 9 GA IND 13,939 6,641 19,964 349
Anaheim Industrial.............. 1 CA IND -- 1,457 4,341 59
Ardenwood Corporate Park........ 4 CA IND 9,870 7,321 22,002 262
Artesia Industrial Portfolio.... 27 CA IND 54,100 23,860 71,620 1,429
Atlanta South................... 9 GA IND -- 8,047 24,231 313
Beacon Industrial Park.......... 8 FL IND -- 10,466 31,437 4,784
Belden Avenue................... 3 IL IND -- 5,019 15,186 106
Bensenville..................... 13 IL IND 41,031 20,799 62,438 1,102
Blue Lagoon..................... 2 FL IND 11,661 4,945 14,875 62
Boston Industrial Portfolio..... 20 MA IND 21,893 20,351 59,170 3,583
Braemar Business Center......... 2 MA IND -- 1,422 4,613 233
Brightseat Road................. 1 MD IND -- 1,557 4,841 26
Britannia Business Park......... 2 FL IND -- 3,199 9,637 219
Broward Business Park........... 5 FL IND -- 1,886 5,659 103
Broward Turnpike Center......... 1 FL IND -- 682 2,073 --
Burnsville Business Center...... 1 MN IND -- 932 2,796 56
Cabot Business Park............. 17 MA IND -- 22,240 66,548 1,608
Cascade......................... 4 OR IND -- 2,825 8,477 339
Chancellor...................... 1 FL IND 2,898 1,587 4,802 61
Chancellor Square............... 3 FL IND 16,379 13,921 16,379 367
Chemway Industrial Portfolio.... 5 NC IND -- 2,875 8,858 (40)
Chicago Industrial.............. 2 IL IND 3,201 1,574 4,761 179

GROSS AMOUNT CARRIED AT 12/31/98
------------------------------------- YEAR OF DEPRECIABLE
BUILDING & TOTAL COSTS ACCUMULATED CONSTRUCTION/ LIFE
PROPERTY LAND IMPROVEMENTS (3)(4) DEPRECIATION ACQUISITION (YEARS)
-------- -------- ------------ ----------- ------------ ------------- -----------

Acer Distribution Center........ $ 3,146 $ 9,863 $ 13,009 $ 278 1997 5-40
Activity Distribution Center.... 3,736 11,333 15,069 312 1997 5-40
Addison Technology Center....... 899 2,854 3,753 36 1998 5-40
Alsip Industrial................ 1,200 3,836 5,036 52 1998 5-40
Alvarado Business Center........ 7,906 24,115 32,021 669 1997 5-40
Amwiler-Gwinnett Industrial
Portfolio..................... 6,641 20,313 26,954 564 1997 5-40
Anaheim Industrial.............. 1,457 4,400 5,857 122 1997 5-40
Ardenwood Corporate Park........ 7,321 22,264 29,584 616 1997 5-40
Artesia Industrial Portfolio.... 23,860 73,049 96,909 2,137 1997 5-40
Atlanta South................... 8,047 24,544 32,591 652 1998 5-40
Beacon Industrial Park.......... 10,466 36,222 46,687 1,055 1997 5-40
Belden Avenue................... 5,019 15,291 20,311 393 1997 5-40
Bensenville..................... 20,799 63,540 84,339 1,856 1997 5-40
Blue Lagoon..................... 4,945 14,937 19,882 411 1997 5-40
Boston Industrial Portfolio..... 20,352 62,753 83,104 1,245 1998 5-40
Braemar Business Center......... 1,422 4,846 6,268 97 1998 5-40
Brightseat Road................. 1,557 4,867 6,423 131 1997 5-40
Britannia Business Park......... 3,199 9,856 13,055 276 1997 5-40
Broward Business Park........... 1,886 5,761 7,648 65 1998 5-40
Broward Turnpike Center......... 682 2,073 2,755 10 1998 5-40
Burnsville Business Center...... 932 2,852 3,784 32 1998 5-40
Cabot Business Park............. 22,240 68,156 90,395 1,757 1997 5-40
Cascade......................... 2,825 8,816 11,641 266 1998 5-40
Chancellor...................... 1,587 4,864 6,451 134 1997 5-40
Chancellor Square............... 7,575 23,092 30,667 450 1998 5-40
Chemway Industrial Portfolio.... 2,875 8,818 11,693 101 1998 5-40
Chicago Industrial.............. 1,574 4,939 6,513 139 1997 5-40

S-1
68

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)

Circle Freeway.................. 1 OH IND -- 530 1,591 22
Corporate Park/Hickory Hill..... 7 TN IND 16,400 6,789 6,787 13,747
Corporate Square................ 6 MN IND -- 4,024 12,113 172
Crysen Industrial............... 1 DC IND 3,400 1,425 4,275 197
Dallas Industrial Portfolio..... 18 TX IND -- 7,797 23,433 658
Deerfield Commerce Center....... 3 FL IND -- 711 2,160 --
Dixie Highway................... 2 KY IND -- 1,700 5,149 2
Dock's Corner................... 1 NJ IND -- 2,050 6,190 2,326
Dock's Corner II................ 1 NJ IND -- 2,272 6,917 324
Dowe Industrial Center.......... 2 CA IND -- 2,665 8,034 50
East Walnut Drive............... 1 CA IND -- 964 2,918 --
Edenvale Business Center........ 1 MN IND 1,510 919 2,411 197
Elk Grove Village Industrial.... 11 IL IND -- 7,713 23,179 272
Elmwood Business Park........... 5 LA IND -- 4,163 12,635 13
Empire Drive.................... 1 KY IND -- 1,590 4,815 --
Executive Drive................. 1 IL IND -- 1,399 4,236 319
Fairway Drive Industrial........ 3 CA IND -- 1,954 5,479 5,551
Fontana Industrial (Commerce)... 2 CA IND -- 5,354 16,215 1,959
Garland Industrial.............. 20 TX IND -- 8,161 8,162 16,984
Glen Ellyn Road................. 1 IL IND -- 850 2,588 --
Greater Dallas Industrial
Portfolio..................... 8 TX IND -- 9,934 30,120 (177)
Greater Houston Industrial
Portfolio..................... 14 TX IND -- 6,197 19,261 (195)
Greenwood Industrial............ 3 MD IND -- 4,729 14,188 363
Harvest Business Park........... 3 WA IND 3,584 2,371 7,153 153
Hewlett Packard Distribution.... 1 CA IND 3,339 1,668 5,043 39
Hintz Road...................... 1 IL IND -- 420 1,259 22
Holton Drive.................... 1 KY IND -- 2,633 7,899 73
Houston Industrial Portfolio.... 5 TX IND -- 3,009 9,066 351
Houston Service Center.......... 3 TX IND -- 3,800 11,401 217
Industrial Drive................ 1 OH IND -- 1,743 5,230 181
Interchange City Portfolio...... 2 TN IND -- 3,523 12,683 (2,079)
International Multifoods........ 1 CA IND -- 1,613 4,879 122
Itasca Industrial Portfolio..... 6 IL IND -- 6,416 19,289 1,145
Jamesburg Road Corporate Park... 3 NJ IND 23,500 11,700 11,701 23,765
Janitrol........................ 1 OH IND -- 1,797 5,390 186

Circle Freeway.................. 530 1,614 2,144 18 1998 5-40
Corporate Park/Hickory Hill..... 6,789 20,534 27,323 392 1998 5-40
Corporate Square................ 4,024 12,285 16,309 340 1997 5-40
Crysen Industrial............... 1,425 4,472 5,897 64 1998 5-40
Dallas Industrial Portfolio..... 7,797 24,091 31,888 676 1997 5-40
Deerfield Commerce Center....... 711 2,160 2,871 10 1998 5-40
Dixie Highway................... 1,700 5,151 6,851 132 1997 5-40
Dock's Corner................... 2,050 8,516 10,566 280 1997 5-40
Dock's Corner II................ 2,272 7,241 9,513 194 1997 5-40
Dowe Industrial Center.......... 2,665 8,084 10,748 222 1997 5-40
East Walnut Drive............... 964 2,918 3,882 75 1997 5-40
Edenvale Business Center........ 919 2,608 3,527 56 1998 5-40
Elk Grove Village Industrial.... 7,713 23,452 31,165 649 1997 5-40
Elmwood Business Park........... 4,163 12,648 16,810 60 1998 5-40
Empire Drive.................... 1,590 4,815 6,405 123 1997 5-40
Executive Drive................. 1,399 4,555 5,954 129 1997 5-40
Fairway Drive Industrial........ 1,954 11,030 12,983 191 1997 5-40
Fontana Industrial (Commerce)... 5,354 18,174 23,528 509 1997 5-40
Garland Industrial.............. 8,161 25,146 33,308 340 1998 5-40
Glen Ellyn Road................. 850 2,588 3,438 13 1998 5-40
Greater Dallas Industrial
Portfolio..................... 9,406 30,472 39,877 789 1997 5-40
Greater Houston Industrial
Portfolio..................... 6,197 19,066 25,263 218 1998 5-40
Greenwood Industrial............ 4,729 14,551 19,280 257 1998 5-40
Harvest Business Park........... 2,371 7,307 9,678 203 1997 5-40
Hewlett Packard Distribution.... 1,668 5,082 6,750 140 1997 5-40
Hintz Road...................... 420 1,280 1,700 14 1998 5-40
Holton Drive.................... 2,633 7,972 10,605 204 1997 5-40
Houston Industrial Portfolio.... 3,009 9,417 12,426 263 1997 5-40
Houston Service Center.......... 3,800 11,618 15,418 201 1998 5-40
Industrial Drive................ 1,743 5,410 7,153 145 1997 5-40
Interchange City Portfolio...... 3,523 10,604 14,127 90 1998 5-40
International Multifoods........ 1,613 5,001 6,614 139 1997 5-40
Itasca Industrial Portfolio..... 6,416 20,434 26,851 584 1997 5-40
Jamesburg Road Corporate Park... 11,700 35,466 47,166 679 1998 5-40
Janitrol........................ 1,797 5,576 7,372 149 1997 5-40

S-2
69

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)

Kent Centre..................... 4 WA IND -- 3,042 9,165 294
Kingsport Industrial Park....... 7 WA IND 17,310 7,919 23,798 359
L.A. County Industrial
Portfolio..................... 6 CA IND -- 9,671 29,082 352
Lake Michigan Industrial
Portfolio..................... 2 IL IND -- 2,886 8,699 101
Laurelwood Drive................ 2 CA IND -- 2,750 8,538 110
Lincoln Industrial Center....... 1 TX IND -- 671 2,052 48
Linder Skokie................... 1 IL IND -- 2,938 8,854 394
Lisle Industrial................ 1 IL IND -- 2,290 6,911 39
Locke Drive..................... 1 MA IND -- 1,074 3,614 (326)
Lonestar Portfolio.............. 7 TX IND 17,000 7,129 21,428 220
Mahwah Corporate Center......... 7 NJ IND -- 10,421 31,909 10
Marietta Industrial............. 3 GA IND -- 1,830 5,489 33
MBC Industrial.................. 4 CA IND 12,600 5,892 17,716 62
Meadowridge Industrial.......... 3 MD IND -- 3,716 11,147 20
Melrose Park.................... 1 IL IND -- 2,936 9,190 39
Mendota Heights................. 1 IL IND 668 1,367 4,565 1,621
Metric Center................... 6 TX IND -- 10,968 31,362 2,013
Mid-Atlantic Corporate Center... 13 NJ IND -- 6,581 19,783 1,180
Milmont Page Business Center.... 3 CA IND -- 3,201 9,642 162
Minneapolis Distribution
Portfolio..................... 5 MN IND -- 7,018 21,093 751
Minneapolis Industrial Portfolio
IV............................ 4 MN IND 8,109 4,938 14,854 556
Minneapolis Industrial Portfolio
V............................. 7 MN IND 6,965 4,426 13,317 240
Minnetonka Industrial........... 10 MN IND 12,635 6,794 6,586 14,629
Mittel Drive.................... 2 IL IND -- 646 1,970 (2)
Moffett Park R&D Portfolio...... 14 CA IND -- 14,807 44,462 1,181
NDP -- Los Angeles.............. 6 CA IND 10,902 5,875 19,139 (1,070)
NDP -- Seattle.................. 4 WA IND -- 3,888 11,893 --
Norcross/Brookhollow
Portfolio..................... 4 GA IND -- 3,721 11,180 329
Northpointe Commerce............ 2 CA IND -- 1,773 5,358 83
Northwest Distribution Center... 3 WA IND -- 3,533 10,751 555
O'Hare Industrial Portfolio..... 15 IL IND -- 7,357 22,112 306
Pacific Business Center......... 2 CA IND 9,697 5,417 16,291 165

Kent Centre..................... 3,042 9,459 12,501 265 1997 5-40
Kingsport Industrial Park....... 7,919 24,158 32,077 670 1997 5-40
L.A. County Industrial
Portfolio..................... 9,671 29,435 39,106 815 1997 5-40
Lake Michigan Industrial
Portfolio..................... 2,886 8,799 11,686 243 1997 5-40
Laurelwood Drive................ 2,750 8,648 11,398 234 1997 5-40
Lincoln Industrial Center....... 671 2,099 2,770 58 1997 5-40
Linder Skokie................... 2,938 9,248 12,186 261 1997 5-40
Lisle Industrial................ 2,290 6,950 9,240 191 1997 5-40
Locke Drive..................... 1,074 3,288 4,361 65 1998 5-40
Lonestar Portfolio.............. 7,129 21,648 28,777 598 1997 5-40
Mahwah Corporate Center......... 10,421 31,919 42,340 231 1998 5-40
Marietta Industrial............. 1,830 5,522 7,352 93 1998 5-40
MBC Industrial.................. 5,892 17,778 23,670 489 1997 5-40
Meadowridge Industrial.......... 3,716 11,168 14,884 187 1998 5-40
Melrose Park.................... 2,936 9,229 12,165 253 1997 5-40
Mendota Heights................. 1,367 6,186 7,553 186 1998 5-40
Metric Center................... 10,968 33,375 44,343 919 1997 5-40
Mid-Atlantic Corporate Center... 6,581 20,963 27,544 603 1997 5-40
Milmont Page Business Center.... 3,201 9,804 13,005 272 1997 5-40
Minneapolis Distribution
Portfolio..................... 7,018 21,845 28,863 615 1997 5-40
Minneapolis Industrial Portfolio
IV............................ 4,938 15,409 20,347 434 1997 5-40
Minneapolis Industrial Portfolio
V............................. 4,426 13,557 17,982 376 1997 5-40
Minnetonka Industrial........... 6,794 21,216 28,009 297 1998 5-40
Mittel Drive.................... 646 1,968 2,614 10 1998 5-40
Moffett Park R&D Portfolio...... 14,805 45,646 60,450 1,345 1997 5-40
NDP -- Los Angeles.............. 5,948 17,996 23,944 79 1998 5-40
NDP -- Seattle.................. 3,888 11,893 15,780 61 1998 5-40
Norcross/Brookhollow
Portfolio..................... 3,721 11,509 15,230 322 1997 5-40
Northpointe Commerce............ 1,773 5,442 7,215 150 1997 5-40
Northwest Distribution Center... 3,533 11,306 14,838 317 1997 5-40
O'Hare Industrial Portfolio..... 7,357 22,418 29,776 620 1997 5-40
Pacific Business Center......... 5,417 16,457 21,874 454 1997 5-40

S-3
70

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)

Pacific Service Center.......... 1 GA IND -- 504 1,511 13
Parkway Business Center......... 1 MN IND -- 475 1,425 86
Patuxent Range Road............. 2 MD IND -- 1,696 5,127 77
Peachtree NE Business Center.... 3 GA IND -- 2,197 6,592 146
Peninsula Business Center III... 1 VA IND -- 992 2,976 41
Penn James Office/Warehouse..... 2 MN IND -- 1,991 6,013 403
Pennsy Drive.................... 1 MD IND -- 657 2,011 1,793
Porete Avenue Warehouse......... 1 NJ IND 9,928 4,067 12,509 --
Presidents Drive Distribution
Center........................ 6 FL IND -- 3,687 11,314 271
Preston Court................... 1 MD IND -- 2,313 7,192 7
Production Drive................ 1 KY IND -- 425 1,286 135
Round Lake Business Center...... 1 MN IND -- 875 2,860 72
Sabal III....................... 1 FL IND -- 1,211 3,634 67
Sand Lake Service Center........ 6 FL IND -- -- -- 248
Santa Barbara Court............. 1 MD IND -- 1,617 5,029 118
Scripps Sorrento................ 1 CA IND -- 1,110 3,330 30
Silicon Valley R&D Portfolio.... 5 CA IND -- 8,024 24,205 219
South Bay Industrial............ 8 CA IND 19,226 14,992 45,016 929
South Point Business Park....... 7 NC IND -- 5,371 5,446 10,817
Southfield/KDRC Industrial
Portfolio..................... 10 GA IND -- 9,629 28,928 620
Stadium Business Park........... 9 CA IND 4,770 3,768 11,345 255
Stapleton Square................ 2 CO IND -- 526 1,577 98
Sunrise Industrial.............. 4 FL IND 17,514 5,982 18,174 1,136
Systematics..................... 1 CA IND -- 911 2,773 39
Torrance Commerce Center........ 6 CA IND -- 2,046 6,136 91
Twin Cities..................... 2 MN IND -- 4,873 14,638 82
Two South Middlesex............. 1 NJ IND -- 2,247 6,781 39
Valwood Industrial.............. 2 TX IND 3,954 1,983 5,989 258
Viscount........................ 1 FL IND -- 984 3,016 7
Weigman Road.................... 1 CA IND -- 1,563 4,688 164
West North Carrier Parkway...... 1 TX IND 3,201 1,375 4,165 124
Willow Lake Industrial Park..... 10 TN IND 37,928 11,997 32,286 3,875
Willow Park Industrial
Portfolio..................... 21 CA IND 33,271 25,623 74,800 3,488

Pacific Service Center.......... 504 1,525 2,028 17 1998 5-40
Parkway Business Center......... 475 1,511 1,986 31 1998 5-40
Patuxent Range Road............. 1,696 5,204 6,900 144 1997 5-40
Peachtree NE Business Center.... 2,197 6,737 8,935 77 1998 5-40
Peninsula Business Center III... 992 3,017 4,009 33 1998 5-40
Penn James Office/Warehouse..... 1,991 6,416 8,407 184 1997 5-40
Pennsy Drive.................... 657 3,804 4,461 141 1997 5-40
Porete Avenue Warehouse......... 4,067 12,509 16,576 93 1998 5-40
Presidents Drive Distribution
Center........................ 3,687 11,585 15,272 310 1997 5-40
Preston Court................... 2,313 7,199 9,512 193 1997 5-40
Production Drive................ 425 1,421 1,846 39 1997 5-40
Round Lake Business Center...... 875 2,932 3,807 67 1998 5-40
Sabal III....................... 1,211 3,701 4,913 42 1998 5-40
Sand Lake Service Center........ -- 248 248 16 1998 5-40
Santa Barbara Court............. 1,617 5,147 6,764 141 1997 5-40
Scripps Sorrento................ 1,110 3,360 4,471 36 1998 5-40
Silicon Valley R&D Portfolio.... 8,024 24,424 32,448 679 1997 5-40
South Bay Industrial............ 14,992 45,945 60,937 1,347 1997 5-40
South Point Business Park....... 5,371 16,263 21,634 37 1998 5-40
Southfield/KDRC Industrial
Portfolio..................... 9,629 29,548 39,177 730 1997 5-40
Stadium Business Park........... 3,768 11,600 15,368 323 1997 5-40
Stapleton Square................ 526 1,675 2,201 21 1998 5-40
Sunrise Industrial.............. 6,266 19,026 25,292 90 1998 5-40
Systematics..................... 911 2,812 3,723 77 1997 5-40
Torrance Commerce Center........ 2,046 6,228 8,273 69 1998 5-40
Twin Cities..................... 4,873 14,720 19,592 405 1997 5-40
Two South Middlesex............. 2,247 6,821 9,068 187 1997 5-40
Valwood Industrial.............. 1,983 6,247 8,230 176 1997 5-40
Viscount........................ 984 3,023 4,007 79 1997 5-40
Weigman Road.................... 1,563 4,852 6,415 130 1997 5-40
West North Carrier Parkway...... 1,375 4,289 5,664 120 1997 5-40
Willow Lake Industrial Park..... 11,997 36,161 48,158 311 1998 5-40
Willow Park Industrial
Portfolio..................... 25,623 78,288 103,911 531 1998 5-40

S-4
71

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)

Wilsonville..................... 1 OR IND -- 3,407 14,584 (1,043)
Windsor Court................... 1 IL IND -- 766 2,338 39
Yosemite Drive.................. 1 CA IND -- 2,350 7,051 246
Zanker/Charcot Industrial....... 5 CA IND -- 5,282 15,887 405
Applewood Village Shopping
Center........................ 1 CO RET -- 6,716 26,903 326
Arapahoe Village Shopping
Center........................ 1 CO RET 10,635 3,795 15,220 318
Around Lenox.................... 1 GA RET 10,514 3,462 13,848 775
Aurora Marketplace.............. 1 WA RET -- 3,243 13,013 44
Bayhill Shopping Center......... 1 CA RET -- 2,844 11,417 1,482
Brentwood Commons............... 1 IL RET 5,036 1,810 7,280 109
Civic Center Plaza.............. 1 IL RET 13,377 5,113 20,492 (393)
Corbins Corner Shopping
Center........................ 1 CT RET -- 6,438 25,791 537
Eastgate Plaza.................. 1 WA RET -- 2,122 8,529 256
Five Points Shopping Center..... 1 CA RET -- 5,412 21,687 228
Granada Village................. 1 CA RET 14,460 6,533 26,172 396
Kendall Mall.................... 1 FL RET 24,423 7,069 28,316 692
La Jolla Village Shopping
Center........................ 1 CA RET 17,750 6,936 27,785 127
Lakeshore Plaza Shopping
Center........................ 1 CA RET -- 6,706 26,865 163
Long Gate Shopping Center....... 1 MD RET -- 9,662 38,677 39
Manhattan Village Shopping
Center........................ 1 CA RET -- 16,484 66,578 667
Mazzeo Drive.................... 1 MA RET 4,007 1,477 4,358 105
Pleasant Hill Shopping Center... 1 CA RET -- 5,403 21,654 309
Randall's Dairy Ashford......... 1 TX RET -- 2,542 10,179 56
Randall's First Colony.......... 1 TX RET -- 2,139 8,563 42
Randall's Memorial Commons...... 1 TX RET -- 2,053 8,221 45
Randall's Woodway............... 1 TX RET -- 3,075 12,313 845
Riverview Plaza Shopping
Center........................ 1 IL RET -- 2,656 10,663 228
Rockford Road Plaza............. 1 MN RET -- 4,333 17,371 112
Silverado Plaza Shopping
Center........................ 1 CA RET 4,786 1,928 7,753 165
The Plaza at Delray............. 1 FL RET 22,747 6,968 27,914 121

Wilsonville..................... 3,407 13,541 16,948 313 1998 5-40
Windsor Court................... 766 2,377 3,143 65 1997 5-40
Yosemite Drive.................. 2,350 7,297 9,647 195 1997 5-40
Zanker/Charcot Industrial....... 5,282 16,292 21,575 455 1997 5-40
Applewood Village Shopping
Center........................ 6,716 27,228 33,944 752 1997 5-40
Arapahoe Village Shopping
Center........................ 3,795 15,538 19,333 432 1997 5-40
Around Lenox.................... 3,462 14,623 18,085 98 1998 5-40
Aurora Marketplace.............. 3,243 13,057 16,300 359 1997 5-40
Bayhill Shopping Center......... 2,844 12,898 15,743 384 1997 5-40
Brentwood Commons............... 1,810 7,390 9,200 204 1997 5-40
Civic Center Plaza.............. 4,550 20,662 25,212 570 1997 5-40
Corbins Corner Shopping
Center........................ 6,438 26,328 32,765 733 1997 5-40
Eastgate Plaza.................. 2,122 8,785 10,907 246 1997 5-40
Five Points Shopping Center..... 5,412 21,915 27,327 606 1997 5-40
Granada Village................. 6,533 26,568 33,101 737 1997 5-40
Kendall Mall.................... 7,069 29,009 36,078 810 1997 5-40
La Jolla Village Shopping
Center........................ 6,936 27,912 34,848 768 1997 5-40
Lakeshore Plaza Shopping
Center........................ 6,706 27,028 33,734 745 1997 5-40
Long Gate Shopping Center....... 9,662 38,716 48,378 1,117 1997 5-40
Manhattan Village Shopping
Center........................ 16,484 67,245 83,729 1,975 1997 5-40
Mazzeo Drive.................... 1,477 4,463 5,941 85 1998 5-40
Pleasant Hill Shopping Center... 5,403 21,963 27,366 609 1997 5-40
Randall's Dairy Ashford......... 2,542 10,235 12,777 281 1997 5-40
Randall's First Colony.......... 2,139 8,605 10,743 236 1997 5-40
Randall's Memorial Commons...... 2,053 8,267 10,320 227 1997 5-40
Randall's Woodway............... 3,075 13,158 16,233 378 1997 5-40
Riverview Plaza Shopping
Center........................ 2,656 10,892 13,547 303 1997 5-40
Rockford Road Plaza............. 4,333 17,482 21,815 482 1997 5-40
Silverado Plaza Shopping
Center........................ 1,928 7,918 9,846 220 1997 5-40
The Plaza at Delray............. 6,968 28,035 35,004 773 1997 5-40

S-5
72

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)

Totem Lake Malls................ 1 WA RET -- 5,200 20,800 327
Twin Oaks Shopping Center....... 1 CA RET -- 2,399 9,637 320
Weslayan Plaza.................. 1 TX RET -- 7,842 31,409 879
Woodlawn Point Shopping
Center........................ 1 GA RET 4,557 2,318 9,312 89
Ygnacio Plaza................... 1 CA RET 7,715 3,017 12,108 628
--- -------- -------- ---------- --------
609 $597,637 $747,764 $2,294,752 $143,268
=== ======== ======== ========== ========

Totem Lake Malls................ 5,200 21,127 26,327 454 1998 5-40
Twin Oaks Shopping Center....... 2,399 9,957 12,356 279 1997 5-40
Weslayan Plaza.................. 7,842 32,288 40,131 903 1997 5-40
Woodlawn Point Shopping
Center........................ 2,318 9,401 11,719 259 1997 5-40
Ygnacio Plaza................... 3,017 12,737 15,754 362 1997 5-40
-------- ---------- ---------- -------
$740,680 $2,445,104 $3,185,784 $58,404
======== ========== ========== =======

S-6
73

AMB PROPERTY CORPORATION

SCHEDULE III

CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION -- (CONTINUED)
(IN THOUSANDS, EXCEPT NUMBER OF BUILDINGS/CENTERS)

(1) Reconciliation of total number of industrial buildings and retail
centers to Selected Property Financial and Other Data as of December 31,
1998:

Total per Schedule III(5) 609
Bldgs./ctrs. under development(6) 3
Bldgs./ctrs. held for divestiture 8
---
Total number of bldgs./ctrs. at end of period 620
===

(2) As of December 31, 1998, Properties with a net book value of $188,442,
served as collateral for outstanding indebtedness under a secured debt
facility of $73,000.

(3) Reconciliation of total cost to Consolidated Balance Sheet caption at
December 31, 1998:

Total per Schedule III(7) $3,185,784
Construction in process(8) 183,276
----------
Total investments in properties 3,369,060
==========

(4) As of December 31, 1998, the aggregate cost for federal income tax
purposes of investments in real estate was approximately $2,953,704.

(5) Includes three industrial buildings and one retail center that are
currently in operation, but are undergoing redevelopment, expansion,
and/or renovations.

(6) Includes three retail centers currently under development that have not
reached stabilization and excludes land parcels under development or
land held for future development.

(7) A summary of activity for real estate and accumulated depreciation for
the year ended December 31, 1998, is as follows:

Investment in Real Estate:
Balance at beginning of year $2,373,151
Acquisition of properties(9) 770,444
Improvements 143,268
Acquisition of properties under redevelopment 15,673
Adjustment for properties held for divestiture (116,753)
----------
Balance at end of year 3,185,783
==========
Accumulated Depreciation:
Balance at beginning of year $ 4,153
Depreciation expense 54,463
Adjustment for properties held for divestiture (212)
----------
Balance at end of year 58,404
==========

(8) Includes $154.0 million of fundings for projects under development and
$29.3 million of leasing and other costs related to leases starting
subsequent to December 31, 1998.

(9) Excludes $67.1 million investment in unconsolidated joint venture.

S-7
74

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75

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

3.1 Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 of the Registrant's Statement on
Form S-11 (No. 333-35915)).
3.2 Certificate of Correction of the Registrant's Articles
Supplementary establishing and fixing the rights and
preferences of the 8 1/2% Series A Cumulative Redeemable
Preferred Stock.
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
the Registrant's Current Report on Form 8-K filed on January
7, 1999).
3.4 Articles of 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
the Registrant's Current Report on Form 8-K filed on January
7, 1999).
3.5 First Amended and Restated Bylaws of the Registrant.
4.1 Form of Certificate for Common Stock of the Registrant
(incorporated by reference to Exhibit 3.3 of the
Registrant's Registration Statement on Form S-11 (No.
333-35915)).
4.2 Form of Certificate for the Registrant's 8 1/2% Series A
Cumulative Redeemable Preferred Stock (incorporated by
reference to Exhibit 3.4 of the Registrant's Registration
Statement on Form S-11 (No. 333-58107)).
4.3 Indenture dated as of June 30, 1998 by and among the
Operating Partnership, the Company and State Street Bank and
Trust Company of California, N.A., as trustee (incorporated
by reference to Exhibit 4.1 of the Registrant's Registration
Statement on Form S-11 (No. 333-49163)).
4.4 First Supplemental Indenture dated as of June 30, 1998 by
and among the Operating Partnership, the Company and State
Street Bank and Trust Company of California, N.A., as
trustee (incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement Form S-11 (No. 333-49163)).
4.5 Second Supplemental Indenture dated as of June 30, 1998 by
and among the Operating Partnership, the Company and State
Street Bank and Trust Company of California, N.A., as
trustee (incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-11 (No.
333-49163)).
4.6 Third Supplemental Indenture dated as of June 30, 1998 by
and among the Operating Partnership, the Company and State
Street Bank and Trust Company of California, N.A., as
trustee (incorporated by reference to Exhibit 4.4 to the
Company's Registration Statement on Form S-11 (No.
333-49163)).
4.7 Specimen of 7.10% Notes due 2008 (included in the First
Supplemental Indenture incorporated by reference as Exhibit
4.2 to the Company's Registration Statement on Form S-11
(No. 333-49163)).
4.8 Specimen of 7.50% Notes due 2018 (included in the Second
Supplemental Indenture incorporated by reference as Exhibit
4.3 to the Company's Registration Statement on Form S-11
(No. 333-49163)).
4.9 Specimen of 6.90% Reset Put Securities due 2015 (included in
the Third Supplemental Indenture incorporated by reference
as Exhibit 4.4 to the Company's Registration Statement on
Form S-11 (No. 333-49163)).
10.1 Third Amended and Restated Agreement of Limited Partnership
of AMB Property, L.P. (incorporated by reference to Exhibit
99.1 of the Registrant's Registration Statement of Form S-3
(No. 333-68291)).
10.2 Form of Registration Rights Agreement among the Registrant
and the persons named therein (incorporated by reference to
Exhibit 10.2 of the Registrant's Registration Statement on
Form S-11 (No. 333-35915)).
10.3 Second Amended and Restated Credit Agreement, dated November
26, 1997.
10.4 Amendment to Second Amended and Restated Revolving Credit
Agreement made as of May 29, 1998.

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

10.5 Second Amendment to Second Amended and Restated Revolving
Credit Agreement made as of September 30, 1998.
10.6 Form of Change in Control and Noncompetition Agreement
between the Registrant and Executive Officers.
10.7 The First Amended and Restated 1997 Stock Option and
Incentive Plan of the Registrant.
10.8 The First Amendment to the First Amended Restated Stock
Option and Incentive Plan of the Registrant.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney (included in Part IV of this Form 10-K).
27.1 Financial Data Schedule -- AMB Property Corporation.