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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
Form 10-K
 
 
 
 
     
(Mark One)    
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2007
or
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number 001-13545
AMB Property Corporation
(Exact name of registrant as specified in its charter)
 
     
Maryland
  94-3281941
(State or Other Jurisdiction
of Incorporation or Organization)
  (IRS Employer Identification No.)
     
Pier 1, Bay 1,
San Francisco, California
(Address of Principal Executive Offices)
  94111
(Zip Code)
(415) 394-9000
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
     
(Title of Each Class)
 
(Name of Each Exchange on Which Registered)
 
Common Stock, $.01 par value
  New York Stock Exchange
61/2% Series L Cumulative Redeemable Preferred Stock
  New York Stock Exchange
63/4% Series M Cumulative Redeemable Preferred Stock
  New York Stock Exchange
7.00% Series O Cumulative Redeemable Preferred Stock
  New York Stock Exchange
6.85% Series P Cumulative Redeemable Preferred Stock
  New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
             
Large accelerated filer þ
  Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ
 
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 June 29, 2007 was $5,102,777,985.
 
As of February 25, 2008, there were 97,897,646 shares of the registrant’s common stock outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Part III incorporates by reference portions of the registrant’s Proxy Statement for its Annual Meeting of Stockholders which the registrant anticipates will be filed no later than 120 days after the end of its fiscal year pursuant to Regulation 14A.
 


 
TABLE OF CONTENTS

Item 1. Business
General
NEW YORK STOCK EXCHANGE CERTIFICATION
Operating Strategy
Growth Strategies
Item 1A. Risk Factors
General Real Estate Industry Risks
Risks Associated With Our International Business
General Business Risks
Debt Financing Risks
Conflicts of Interest Risks
Risks Associated with Government Regulations
Federal Income Tax Risks
Risks Associated With Our Dependence on Key Personnel
Risks Associated with Our Disclosure Controls and Procedures and Internal Control over Financial Reporting
Risks Associated with Ownership of Our Stock
Item 1B. Unresolved Staff Comments
Item 2. Properties
Portfolio Overview
Lease Expirations(1)
Customer Information(1)
Owned and Managed Operating and Leasing Statistics(1)
Owned and Managed Same Store Operating Statistics(1)
Development Pipeline(1)
Properties held through Co-investment Ventures, Limited Liability Companies and Partnerships
Secured Debt
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Stock Performance Graph
EXHIBIT 10.7
EXHIBIT 10.9
EXHIBIT 10.10
EXHIBIT 10.11
EXHIBIT 10.17
EXHIBIT 21.1
EXHIBIT 23.1
EXHIBIT 31.1
EXHIBIT 32.1


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FORWARD-LOOKING STATEMENTS
 
Some of the information included in this annual report on Form 10-K contains forward-looking statements, which are made pursuant to the safe-harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Because these forward-looking statements involve numerous risks and uncertainties, there are important factors that could cause our actual results to differ materially from those in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future events. The events or circumstances reflected in the forward-looking statements might not occur. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “forecasting,” “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 should not be read as guarantees of future performance or results, and will not necessarily be accurate indicators of whether, or the time at which, such performance or results will be achieved. There is no assurance that the events or circumstances reflected in forward-looking statements will occur or be achieved. Forward-looking statements are necessarily dependent on assumptions, data or methods that may be incorrect or imprecise and we may not be able to realize them.
 
The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
 
  •  changes in general economic conditions or in the real estate sector;
 
  •  defaults on or non-renewal of leases by customers or renewal at lower than expected rent;
 
  •  difficulties in identifying properties to acquire and in effecting acquisitions on advantageous terms and the failure of acquisitions to perform as we expect;
 
  •  risks and uncertainties affecting property development, redevelopment and value-added conversion (including construction delays, cost overruns, our inability to obtain necessary permits and financing, public opposition to these activities, as well as the risks associated with our expansion of and increased investment in our development business);
 
  •  risks of doing business internationally and global expansion, including unfamiliarity with new markets and currency risks;
 
  •  risks of opening offices globally (including increasing headcount);
 
  •  a downturn in the California, U.S., or the global economy or real estate conditions and other financial market fluctuations;
 
  •  risks of changing personnel and roles;
 
  •  losses in excess of our insurance coverage;
 
  •  our failure to divest of properties on advantageous terms or to timely reinvest proceeds from any such divestitures;
 
  •  unknown liabilities acquired in connection with acquired properties or otherwise;
 
  •  our failure to successfully integrate acquired properties and operations;
 
  •  risks associated with using debt to fund acquisitions and development, including re-financing risks;
 
  •  risks related to our obligations in the event of certain defaults under co-investment venture and other debt;
 
  •  our failure to obtain necessary financing;
 
  •  our failure to maintain our current credit agency ratings;
 
  •  risks associated with equity and debt securities financings and issuances (including the risk of dilution);
 
  •  changes in local, state and federal regulatory requirements, including changes in real estate and zoning laws;


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  •  increases in real property tax rates;
 
  •  risks associated with our tax structuring;
 
  •  increases in interest rates and operating costs or greater than expected capital expenditures;
 
  •  environmental uncertainties and risks related to natural disasters; and
 
  •  our failure to qualify and maintain our status as a real estate investment trust under the Internal Revenue Code of 1986, as amended.
 
Our success also depends upon economic trends generally, various market conditions and fluctuations and those other risk factors discussed under the heading “Risk Factors” in Item 1A of this report. We caution you not to place undue reliance on forward-looking statements, which reflect our analysis only and speak as of the date of this report or as of the dates indicated in the statements. All of our forward-looking statements, including those in this report, are qualified in their entirety by this statement. We assume no obligation to update or supplement forward-looking statements.


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PART I
 
Item 1.   Business
 
General
 
AMB Property Corporation, a Maryland corporation, acquires, develops and operates industrial properties in key distribution markets tied to global trade in the Americas, Europe and Asia. We use the terms “industrial properties” or “industrial buildings” to describe various types of industrial properties in our portfolio and use these terms interchangeably with the following: logistics facilities, centers or warehouses; distribution facilities, centers or warehouses; High Throughput Distribution® (HTD®) facilities; or any combination of these terms. We use the term “owned and managed” to describe assets in which we have at least a 10% ownership interest, for which we are the property or asset manager, and which we intend to hold for the long-term.
 
We commenced operations as a fully-integrated real estate company effective with the completion of our initial public offering on November 26, 1997. Our strategy focuses on providing industrial distribution warehouse space to customers who value the efficient movement of goods through the global supply chain, primarily in the world’s busiest distribution markets: large, supply-constrained infill locations with dense populations and proximity to airports, seaports and major highway systems. As of December 31, 2007, we owned, or had investments in, on a consolidated basis or through unconsolidated co-investment ventures, properties and development projects expected to total approximately 147.7 million square feet (13.7 million square meters) in 45 markets within 14 countries. Additionally, as of December 31, 2007, we managed, but did not have a significant ownership interest in, industrial and other properties totaling approximately 1.5 million rentable square feet.
 
We operate our business primarily through our subsidiary, AMB Property, L.P., a Delaware limited partnership, which we refer to as the “operating partnership”. As of December 31, 2007, we owned an approximate 96.1% general partnership interest in the operating partnership, excluding preferred units. As the sole general partner of the operating partnership, we have the full, exclusive and complete responsibility for and discretion in its day-to-day management and control.
 
Our investment strategy generally targets customers whose businesses are tied to global trade, which, according to the World Bank, has grown more than three times the world gross domestic product growth rate over the last 30 years. To serve the facility needs of these customers, we seek to invest in major global distribution markets and transportation hubs that, generally, are tied to global trade.
 
Our strategy is to be a leading provider of industrial properties in supply-constrained submarkets of our target markets. These infill submarkets are generally characterized by large population densities and typically offer substantial consumer concentrations, proximity to large clusters of distribution-facility users and significant labor pools, and are generally located near key international passenger and cargo airports, seaports and major highway systems. When measured by annualized base rent, on an owned and managed basis, the substantial majority of our portfolio of industrial properties is located in our target markets, and much of this is in infill submarkets within our target markets. Infill locations are characterized by supply constraints on the availability of land for competing projects as well as physical, political or economic barriers to new development.
 
Further, in many of our target markets, we focus on HTD® facilities, which are buildings designed to facilitate the rapid distribution of our customers’ products rather than the storage of goods. Our investment focus on HTD® assets is based on what we think to be a global trend toward lower inventory levels and expedited supply chains. HTD® facilities generally have a variety of physical characteristics that allow for the rapid transport of goods from point-to-point. These physical characteristics could include numerous dock doors, shallower building depths, fewer columns, large truck courts and more space for trailer parking. We think these building characteristics represent an important success factor for customers such as air express, logistics and freight forwarding companies that have time-sensitive needs, and that these facilities function best when located in convenient proximity to transportation infrastructure, such as major airports and seaports.


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Of approximately 147.7 million square feet as of December 31, 2007:
 
  •  on an owned and managed basis, which include investments held on a consolidated basis or through unconsolidated co-investment ventures, we owned or partially owned approximately 118.2 million square feet (principally warehouse distribution buildings) that were 96.0% leased;
 
  •  on an owned and managed basis, which include investments held on a consolidated basis or through unconsolidated co-investment ventures, we had investments in 56 industrial development projects, which are expected to total approximately 17.8 million square feet upon completion;
 
  •  on a consolidated basis, we owned 12 development projects, totaling approximately 4.2 million square feet, which are available for sale or contribution;
 
  •  through non-managed unconsolidated co-investment ventures, we had investments in 46 industrial operating properties, totaling approximately 7.4 million square feet; and
 
  •  we held approximately 0.1 million square feet, which is the location of our global headquarters.
 
Our global headquarters are located at Pier 1, Bay 1, San Francisco, California 94111; our telephone number is (415) 394-9000. We maintain other office locations in Amsterdam, Atlanta, Baltimore, Beijing, Boston, Chicago, Dallas, Delhi, Frankfurt, Los Angeles, Menlo Park, Nagoya, Narita, New Jersey, New York, Osaka, Paris, Seoul, Shanghai, Shenzhen, Singapore, Tokyo and Vancouver. As of December 31, 2007, we employed 513 individuals: 185 in our San Francisco headquarters, 57 in our Boston office, 49 in our Tokyo office, 44 in our Amsterdam office and the remainder in our other offices. Our website address is www.amb.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available on our website free of charge as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S. Securities and Exchange Commission, or SEC. The public may read and copy these materials at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains such reports, proxy and information statements and other information, and the Internet address is http://www.sec.gov. Our Corporate Governance Principles and Code of Business Conduct are also posted on our website. Information contained on our website is not and should not be deemed a part of this annual report or any other report or filing filed with the SEC.
 
NEW YORK STOCK EXCHANGE CERTIFICATION
 
We submitted our 2007 annual Section 12(a) Chief Executive Officer certification with the New York Stock Exchange. The certification was not qualified in any respect. Additionally, we filed with the SEC as exhibits to this Annual Report on Form 10-K for the year ended December 31, 2007, the Chief Executive Officer and Chief Financial Officer certifications required under Section 302 of the Sarbanes-Oxley Act of 2002 and furnished as exhibits to this Annual Report the Chief Executive Officer and Chief Financial Officer certifications required under Section 906 of the Sarbanes-Oxley Act of 2002.
 
Unless the context otherwise requires, the terms “AMB,” the “Company,” “we,” “us” and “our” refer to AMB Property Corporation, AMB Property, L.P. and their other controlled subsidiaries, and the references to AMB Property Corporation include AMB Property, L.P. and their controlled subsidiaries. We refer to AMB Property, L.P. as the “operating partnership.” The following marks are our registered trademarks: AMB®; High Throughput Distribution® (HTD®); and Strategic Alliance Programs®.
 
Operating Strategy
 
We base our operating strategy on a variety of operational and service offerings, including in-house acquisitions, development, redevelopment, value-added conversion, asset management, property management, leasing, finance, accounting and market research. Our strategy is to leverage our expertise across a large customer base, and complement our internal management resources with long-standing relationships with entrepreneurial real estate management and development firms in certain of our target markets.


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We believe that real estate is fundamentally a local business and best operated by local teams in each market. We manage our portfolio of properties generally through direct property management performed by our own employees. Additionally, within our flexible operating model, we may from time to time establish relationships with third-party real estate management firms, brokers and developers that provide some property-level administrative and management services under our direction. We intend to continue to increase utilization of internal management resources in target markets to achieve operating efficiencies and expose our customers to the broadening array of AMB service offerings, including access to multiple locations worldwide and build-to-suit developments. We actively manage our portfolio, whether directly or with an alliance partner, by establishing leasing strategies, negotiating lease terms, pricing, and level and timing of property improvements.
 
Growth Strategies
 
Growth through Operations
 
We seek to generate long-term internal growth through rent increases on existing space and renewals on rollover space, striving to maintain a high occupancy rate at our properties and to control expenses by capitalizing on the economies of scale inherent in owning, operating and growing a large, global portfolio. During 2007, rent on renewed and re-leased space in our operating portfolio increased 4.9%, on an owned and managed basis. This amount excludes expense reimbursements, rental abatements, percentage rents and straight-line rents. During 2007, cash-basis same store net operating income, including lease termination fees, increased by 5.1%, on an owned and managed basis, and 5.5% excluding lease termination fees. We believe it is important to view real estate as a long-term investment, however, our past results are not necessarily an indication of our future performance. See Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Supplemental Earnings Measures” for a discussion of cash-basis same store net operating income and a reconciliation of cash-basis same store net operating income and net income and Part IV, Item 15: Note 15 of the “Notes to Consolidated Financial Statements” for detailed segment information, including revenue attributable to each segment, gross investment in each segment and total assets.
 
Growth through Development, Redevelopment and Value-Added Conversions
 
We think that the development, redevelopment and expansion of well-located, high-quality industrial properties generally provide us with attractive investment opportunities at higher rates of return than may be obtained from the purchase of existing properties. Through the deployment of our in-house development and redevelopment expertise, we seek to create value both through new construction and the acquisition and management of redevelopment opportunities. Additionally, we believe that our historical focus on infill locations creates a unique opportunity to enhance stockholder value through the select conversion of industrial properties to higher and better uses, within our value-added conversion business. Value-added conversion projects generally involve a significant enhancement or a change in use of the property from industrial distribution warehouse to a higher and better use, such as office, retail or residential. New developments, redevelopments and value-added conversions require significant management attention, and development and redevelopment require significant capital investment, to maximize their returns. Completed development and redevelopment properties are generally contributed to our co-investment ventures and held in our owned and managed portfolio or sold to third parties. Value-added conversion properties are generally sold to third parties at some point in the re-entitlement/conversion process, thus recognizing the enhanced value of the underlying land that supports the property’s repurposed use. We think our global market presence and expertise will enable us to continue to generate and capitalize on a diverse range of development opportunities.
 
The multidisciplinary backgrounds of our employees should provide us with the skills and experience to capitalize on strategic renovation, expansion and development opportunities. Many of our employees have specific experience in real estate development, both with us and with local, national or international development firms. Over the past six years, we have significantly expanded our development staff. We pursue development projects directly and in co-investment ventures, providing us with the flexibility to pursue development projects independently or in partnerships, depending on market conditions, submarkets or building sites.
 
Growth through Acquisitions and Capital Redeployment
 
Our acquisition experience and our network of property management, leasing and acquisition resources should continue to provide opportunities for growth. In addition to our internal resources, we have long-term relationships


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with leasing and investment sales brokers, as well as third-party local property management firms, which may give us access to additional acquisition opportunities because such managers frequently market properties on behalf of sellers. In addition, we seek to redeploy capital from non-strategic assets into properties that better fit our current investment focus. Since 2002, we have sold approximately $2 billion of operating properties, recognizing a gain of approximately $264 million, in an effort to exit non-target markets and dispose of assets that no longer fit our investment criteria.
 
We are generally engaged in various stages of negotiations for a number of acquisitions and other transactions, some of which may be significant, that may include, but are not limited to, individual properties, large multi-property portfolios or property owning or real estate-related entities. We cannot assure you that we will consummate any of these transactions. Such transactions, if we consummate them, may be material individually or in the aggregate. Sources of capital for acquisitions may include retained cash flow from operations, borrowings under our unsecured credit facilities, other forms of secured or unsecured debt financing, issuances of debt or preferred or common equity securities by us or the operating partnership (including issuances of units in the operating partnership or its subsidiaries), proceeds from divestitures of properties, assumption of debt related to the acquired properties and private capital from our co-investment partners. See Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Key Transactions in 2007.”
 
Growth through Global Expansion
 
Our long-term capital allocation goal is to have approximately 50% of our owned and managed operating portfolio invested in markets outside the United States based on annualized base rent. As of December 31, 2007, operating properties in our markets outside the United States comprised 23.8% of our owned and managed operating portfolio and 4.5% of our consolidated operating portfolio based on annualized base rent. In addition to the United States, we include Canada and Mexico as target countries in the Americas. In Europe, our target countries currently are Belgium, France, Germany, Italy, the Netherlands, Spain and the United Kingdom. In Asia, our target countries currently are China, India, Japan, Singapore and South Korea. We expect to add additional target countries outside the United States in the future, including Brazil and countries in Central/Eastern Europe.
 
Expansion into target markets outside the United States represents a natural extension of our strategy to invest in industrial property markets with high population densities, close proximity to large customer clusters and available labor pools, and major distribution centers serving global trade. Our international expansion strategy mirrors our focus in the United States on supply-constrained submarkets with political, economic or physical constraints to new development. Our international investments extend our offering of HTD® facilities for customers who value speed-to-market over storage. Specifically, we are focused on customers whose businesses are derived from global trade. In addition, our investments target major consumer distribution markets and customers. We think that our established customer relationships, our contacts in the air cargo, shipping and logistics industries, our underwriting of markets and investments, our in-house expertise and our strategic alliances with knowledgeable developers and managers will assist us in competing internationally. For a discussion of the amount of our revenues attributable to the United States and international markets, please see Part VI, Item 15: Note 15 of the “Notes to Consolidated Financial Statements.”
 
Growth through Co-Investments
 
We co-invest in properties with private capital investors through partnerships, limited liability companies or co-investment ventures. Our co-investment ventures are managed by our private capital group and typically operate under the same investment strategy that we apply to our other operations. Generally, we will own a 15-50% interest in our co-investment ventures. We expect our co-investment program will continue to serve as a source of capital for acquisitions and developments; however, we cannot assure you that it will continue to do so. In addition, our co-investment ventures typically allow us to earn acquisition and development fees, asset management fees or priority distributions, as well as promoted interests or incentive distributions based on the performance of the co-investment ventures. As of December 31, 2007, we owned approximately 83.4 million square feet of our properties (56.5% of the total operating and development portfolio) through our consolidated and unconsolidated co-investment ventures.


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Item 1A.   Risk Factors
 
BUSINESS RISKS
 
Our operations involve various risks that could have adverse consequences to us. These risks include, among others:
 
General Real Estate Industry Risks
 
Our performance and value are subject to general economic conditions and risks associated with our real estate assets.
 
The investment returns available from equity investments in real estate depend on the amount of income earned and capital appreciation generated by the properties, as well as the expenses incurred in connection with the properties. If our properties do not generate income sufficient to meet operating expenses, including debt service and capital expenditures, then our ability to pay dividends to our stockholders could be adversely affected. In addition, there are significant expenditures associated with an investment in real estate (such as mortgage payments, real estate taxes and maintenance costs) that generally do not decline when circumstances reduce the income from the property. Income from, and the value of, our properties may be adversely affected by:
 
  •  changes in the general economic climate, including rising inflation;
 
  •  local conditions, such as oversupply of or a reduction in demand for industrial space;
 
  •  the attractiveness of our properties to potential customers;
 
  •  competition from other properties;
 
  •  our ability to provide adequate maintenance and insurance;
 
  •  increased operating costs;
 
  •  increased cost of compliance with regulations;
 
  •  the potential for liability under applicable laws (including changes in tax laws); and
 
  •  disruptions in the global supply chain caused by political, regulatory or other factors, including terrorism.
 
In addition, periods of economic slowdown or recession in the United States and in other countries, rising interest rates or declining demand for real estate, or public perception that any of these events may occur, would result in a general decrease in rents, an increased occurrence of defaults under existing leases or greater difficulty in financing our acquisition and development activities, which would adversely affect our financial condition and results of operations. Future terrorist attacks may result in declining economic activity, which could reduce the demand for and the value of our properties. To the extent that future attacks impact our customers, their businesses similarly could be adversely affected, including their ability to continue to honor their existing leases.
 
Our properties are concentrated predominantly in the industrial real estate sector. As a result of this concentration, we would feel the impact of an economic downturn in this sector more acutely than if our portfolio included other property types.
 
We may be unable to renew leases or relet space as leases expire.
 
As of December 31, 2007, on an owned and managed basis, leases on a total of 13.2% of our industrial properties (based on annualized base rent) will expire on or prior to December 31, 2008. We derive most of our income from rent received from our customers. Accordingly, our financial condition, results of operations, cash flow and our ability to pay dividends on, and the market price of, our stock could be adversely affected if we are unable to promptly relet or renew these expiring leases or if the rental rates upon renewal or reletting are significantly lower than expected. If a customer experiences a downturn in its business or other type of financial distress, then it may be unable to make timely rental payments or renew its lease. Further, our ability to rent space


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and the rents that we can charge are impacted, not only by customer demand, but by the number of other properties we have to compete with to appeal to customers.
 
Actions by our competitors may decrease or prevent increases of the occupancy and rental rates of our properties.
 
We compete with other developers, owners and operators of real estate, some of which own properties similar to ours in the same submarkets in which our properties are located. If our competitors offer space at rental rates below current market rates or below the rental rates we currently charge our customers, we may lose potential customers, and we may be pressured to reduce our rental rates below those we currently charge in order to retain customers when our customers’ leases expire. As a result, our financial condition, cash flow, cash available for distribution, trading price of our common stock and ability to satisfy our debt service obligations could be materially adversely affected.
 
Real estate investments are relatively illiquid, making it difficult for us to respond promptly to changing conditions.
 
Real estate assets are not as liquid as certain other types of assets. Further, the Internal Revenue Code regulates the number of properties that we, as a real estate investment trust, can dispose of in a year, their tax bases and the cost of improvements that we make to the properties. In addition, a portion of the properties held directly or indirectly by certain of our subsidiary partnerships were acquired in exchange for limited partnership units in the applicable partnership. The contribution agreements for such properties may contain restrictions on certain sales, exchanges or other dispositions of these properties, or a portion thereof, that result in a taxable transaction for specified periods, following the contribution of these properties to the applicable partnership. These limitations may affect our ability to sell properties. This lack of liquidity and the Internal Revenue Code restrictions may limit our ability to vary our portfolio promptly in response to changes in economic or other conditions and, as a result, could adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our stock.
 
We could be adversely affected if a significant number of our customers are unable to meet their lease obligations.
 
Our results of operations, distributable cash flow and the value of our stock would be adversely affected if a significant number of our customers were unable to meet their lease obligations to us. In the event of a significant number of lease defaults, our cash flow may not be sufficient to pay dividends to our stockholders and repay maturing debt. As of December 31, 2007, on an owned and managed basis, we did not have any single customer account for annualized base rent revenues greater than 3.5%. However, in the event of lease defaults by a significant number of our customers, we may incur substantial costs in enforcing our rights as landlord.
 
We may be unable to consummate acquisitions on advantageous terms or acquisitions may not perform as we expect.
 
We acquire and intend to continue to acquire primarily industrial properties. The acquisition of properties entails various risks, including the risks that our investments may not perform as we expect, that we may be unable to quickly and efficiently integrate our new acquisitions into our existing operations and that our cost estimates for bringing an acquired property up to market standards may prove inaccurate. Further, we face significant competition for attractive investment opportunities from other well-capitalized real estate investors, including both publicly-traded real estate investment trusts and private institutional investment funds. This competition increases as investments in real estate become increasingly attractive relative to other forms of investment. As a result of competition, we may be unable to acquire additional properties as we desire or the purchase price may be significantly elevated. In addition, we expect to finance future acquisitions through a combination of borrowings under our unsecured credit facilities, proceeds from equity or debt offerings by us or the operating partnership or our subsidiaries and proceeds from property divestitures, which may not be available and which could adversely affect our cash flow. Any of the above risks could adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our stock.


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We may be unable to complete renovation, development and redevelopment projects on advantageous terms.
 
As part of our business, we develop new and renovate and redevelop existing properties, and we intend to continue to expand and increase our investment in our development, renovation and redevelopment business. The real estate development, renovation and redevelopment business involves significant risks that could adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our stock, which include the following risks:
 
  •  we may not be able to obtain financing for development projects on favorable terms and complete construction on schedule or within budget, resulting in increased debt service expense and construction costs and delays in leasing the properties and generating cash flow;
 
  •  we may not be able to obtain, or may experience delays in obtaining, all necessary zoning, land-use, building, occupancy and other governmental permits and authorizations;
 
  •  the properties may perform below anticipated levels, producing cash flow below budgeted amounts;
 
  •  we may not be able to capture the anticipated enhanced value created by our value-added conversion projects ever or on our expected timetables;
 
  •  substantial renovation, new development and redevelopment activities, regardless of their ultimate success, typically require a significant amount of management’s time and attention, diverting their attention from our day-to-day operations; and
 
  •  upon completion of construction, we may not be able to obtain, or obtain on advantageous terms, permanent financing for activities that we have financed through construction loans.
 
Risks Associated With Our International Business
 
Our international growth is subject to special risks and we may not be able to effectively manage our international growth.
 
We have acquired and developed, and expect to continue to acquire and develop, properties outside the United States. Because local markets affect our operations, our international investments are subject to economic fluctuations in the international locations in which we invest. In addition, our international operations are subject to the usual risks of doing business abroad such as revisions in tax treaties or other laws and regulations, including those governing the taxation of our international revenues, restrictions on the transfer of funds, and, in certain parts of the world, uncertainty over property rights and political instability. We cannot predict the likelihood that any of these developments may occur. Further, we have entered, and may in the future enter, into agreements with non-U.S. entities that are governed by the laws of, and are subject to dispute resolution in the courts of, another country or region. We cannot accurately predict whether such a forum would provide us with an effective and efficient means of resolving disputes that may arise. Further, even if we are able to obtain a satisfactory decision through arbitration or a court proceeding, we could have difficulty enforcing any award or judgment on a timely basis or at all.
 
We also have offices in many countries outside the United States and, as a result, our operations may be subject to risks that may limit our ability to effectively establish, staff and manage our offices outside the United States, including:
 
  •  differing employment practices and labor issues;
 
  •  local business and cultural factors that differ from our usual standards and practices;
 
  •  regulatory requirements and prohibitions that differ between jurisdictions; and
 
  •  health concerns.
 
Our global growth (including growth in new regions in the United States) subjects us to certain risks, including risks associated with funding increasing headcount, integrating new offices, and establishing effective controls and


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procedures to regulate the operations of new offices. In addition, payroll expenses are paid in local currencies and, therefore, we are exposed to risks associated with fluctuations in the rate of exchange between the U.S. dollar and these currencies.
 
Further, our business has grown rapidly and continues to grow through international property acquisitions and developments. If we fail to effectively manage our international growth, then our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our stock could be adversely affected.
 
Acquired properties may be located in new markets, where we may face risks associated with investing in an unfamiliar market.
 
We have acquired and may continue to acquire properties in international markets that are new to us. When we acquire properties located in these markets, we may face risks associated with a lack of market knowledge or understanding of the local economy, forging new business relationships in the area and unfamiliarity with local government and permitting procedures. We work to mitigate such risks through extensive diligence and research and associations with experienced partners; however, there can be no guarantee that all such risks will be eliminated.
 
We are subject to risks from potential fluctuations in exchange rates between the U.S. dollar and the currencies of the other countries in which we invest.
 
We are pursuing, and intend to continue to pursue, growth opportunities in international markets. As we invest in countries where the U.S. dollar is not the national currency, we are subject to international currency risks from the potential fluctuations in exchange rates between the U.S. dollar and the currencies of those other countries. A significant depreciation in the value of the currency of one or more countries where we have a significant investment may materially affect our results of operations. We attempt to mitigate any such effects by borrowing under our multi-currency credit facility in the currency of the country in which we are investing and, under certain circumstances, by putting in place international currency put option contracts to hedge exchange rate fluctuations. For leases denominated in international currencies, we may use derivative financial instruments to manage the international currency exchange risk. We cannot assure you, however, that our efforts will successfully neutralize all international currency risks. If we do engage in international currency exchange rate hedging activities, any income recognized with respect to these hedges may not qualify under the 75% or the 95% gross income tests that we must satisfy annually in order to qualify and maintain our status as a real estate investment trust.
 
General Business Risks
 
Our performance and value are impacted by the local economic conditions of and the risks associated with doing business in California.
 
As of December 31, 2007, our industrial properties located in California represented 23.6% of the aggregate square footage of our industrial operating properties and 22.7% of our industrial annualized base rent, on an owned and managed basis. Our revenue from, and the value of, our properties located in California may be affected by local real estate conditions (such as an oversupply of or reduced demand for industrial properties) and the local economic climate. Business layoffs, downsizing, industry slowdowns, changing demographics and other factors may adversely impact California’s economic climate. Because of the number of properties we have located in California, a downturn in California’s economy or real estate conditions could adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our stock.
 
We may experience losses that our insurance does not cover.
 
We carry commercial liability, property and rental loss insurance covering all the properties that we own and manage in types and amounts that we believe are adequate and appropriate given the relative risks applicable to the property, the cost of coverage and industry practice. Certain losses, such as those due to terrorism, windstorms, floods or seismic activity, may be insured subject to certain limitations, including large deductibles or co-payments and policy limits. Although we have obtained coverage for certain acts of terrorism, with policy specifications and insured limits that we consider commercially reasonable given the cost and availability of such coverage, we cannot


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be certain that we will be able to renew coverage on comparable terms or collect under such policies. In addition, there are other types of losses, such as those from riots, bio-terrorism or acts of war, that are not generally insured in our industry because it is not economically feasible to do so. 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. If we experience a loss that is uninsured or that exceeds our insured limits with respect to one or more of our properties, then we could lose the capital invested in the damaged properties, as well as the anticipated future revenue from those properties and, if there is recourse debt, then we would remain obligated for any mortgage debt or other financial obligations related to the properties. Moreover, as the general partner of the operating partnership, we generally will be liable for all of the operating partnership’s unsatisfied recourse obligations, including any obligations incurred by the operating partnership as the general partner of co-investment ventures. Any such losses could adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our stock.
 
A number of our properties are located in areas that are known to be subject to earthquake activity. U.S. properties located in active seismic areas include properties in the San Francisco Bay Area, Los Angeles, and Seattle. Our largest concentration of such properties is in California where, on an owned and managed basis, as of December 31, 2007, we had 282 industrial buildings, aggregating approximately 27.9 million square feet and representing 23.6% of our industrial operating properties based on aggregate square footage and 22.7% based on industrial annualized base rent, on an owned and managed basis. International properties located in active seismic areas include Tokyo and Osaka, Japan and Mexico City, Mexico. We carry earthquake insurance on all of our properties located in areas historically subject to seismic activity, subject to coverage limitations and deductibles that we believe are commercially reasonable. We evaluate our earthquake insurance coverage annually in light of current industry practice through an analysis prepared by outside consultants.
 
A number of our properties are located in areas that are known to be subject to hurricane and/or flood risk. We carry hurricane and flood hazard insurance on all of our properties located in areas historically subject to such activity, subject to coverage limitations and deductibles that we believe are commercially reasonable. We evaluate our insurance coverage annually in light of current industry practice through an analysis prepared by outside consultants.
 
We are subject to risks and liabilities in connection with properties owned through co-investment ventures, limited liability companies, partnerships and other investments.
 
As of December 31, 2007, we owned approximately 83.4 million square feet of our properties through several co-investment ventures, limited liability companies or partnerships with third parties. Our organizational documents do not limit the amount of available funds that we may invest in partnerships, limited liability companies or co-investment ventures and we intend to continue to develop and acquire properties through co-investment ventures, limited liability companies, partnerships with and investments in other entities when warranted by the circumstances. Such partners may share certain approval rights over major decisions and some partners may manage the properties in the co-investment venture partnership, limited liability company or co-investment venture investments. Partnership, limited liability company or co-investment venture investments involve certain risks, including:
 
  •  if our partners, co-members or co-investment venturers go bankrupt, then we and any other remaining general partners, members or co-investment venturers would generally remain liable for the partnership’s, limited liability company’s or co-investment venture’s liabilities;
 
  •  if our partners fail to fund their share of any required capital contributions, then we may be required to contribute such capital;
 
  •  our partners, co-members or co-investment venturers might have economic or other business interests or goals that are inconsistent with our business interests or goals that would affect our ability to operate the property;


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  •  our partners, co-members or co-investment venturers may have the power to act contrary to our instructions, requests, policies or objectives, including our current policy with respect to maintaining our qualification as a real estate investment trust;
 
  •  the co-investment venture, limited liability and partnership agreements often restrict the transfer of a co-investment venture’s, member’s or partner’s interest or may otherwise restrict our ability to sell the interest when we desire or on advantageous terms;
 
  •  our relationships with our partners, co-members or co-investment venturers are generally contractual in nature and may be terminated or dissolved under the terms of the agreements, and in such event, we may not continue to own or operate the interests or assets underlying such relationship or may need to purchase such interests or assets at an above-market price to continue ownership;
 
  •  disputes between us and our partners, co-members or co-investment venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business and result in subjecting the properties owned by the applicable partnership, limited liability company, or co-investment venture to additional risk; and
 
  •  we may in certain circumstances be liable for the actions of our partners, co-members or co-investment venturers.
 
We generally seek to maintain sufficient control or influence over our partnerships, limited liability companies and co-investment ventures to permit us to achieve our business objectives, however, we may not be able to do so, and the occurrence of one or more of the events described above could adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our stock.
 
We may be unable to complete divestitures on advantageous terms or contribute properties.
 
We intend to continue to divest ourselves of properties that do not meet our strategic objectives, provided that we can negotiate acceptable terms and conditions. Our ability to dispose of properties on advantageous terms depends on factors beyond our control, including competition from other sellers and the availability of attractive financing for potential buyers of our properties. If we are unable to dispose of properties on favorable terms or redeploy the proceeds of property divestitures in accordance with our investment strategy, then our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our stock could be adversely affected.
 
We also anticipate contributing or selling properties to our co-investment ventures. If the co-investment ventures are unable to raise additional capital on favorable terms after currently available capital is depleted or if the value of such properties are appraised at less than the cost of such properties, then such contributions or sales could be delayed or prevented, adversely affecting our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our stock. For example, although we have acquired land for development and made capital commitments in Japan and Mexico, we cannot be assured that we ultimately will be able to contribute such properties to our co-investment ventures as we have planned.
 
We may not be successful in contributing properties to our co-investment ventures or disposing of properties to third parties.
 
We regularly contribute properties that we acquire or develop to our co-investment ventures, or sell these properties to third parties, and we intend to continue to contribute and sell properties as opportunities arise and build our private capital business. Our ability to contribute or sell properties on advantageous terms is affected by competition from other owners of properties that are trying to dispose of their properties, current market conditions, including the capitalization rates applicable to our properties, and other factors beyond our control. Our ability to develop and timely lease properties will impact our ability to contribute or sell these properties. Continued access to debt and equity capital, in the private and public markets, by our co-investment ventures is necessary in order for us to continue our strategy of contributing properties to these funds. Should we not have sufficient properties available that meet the investment criteria of current or future co-investment ventures, or should the co-investment ventures have limited or no access to capital on favorable terms, then these contributions could be delayed resulting in


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adverse effects on our liquidity and on our ability to meet projected earnings levels in a particular reporting period. Failure to meet our projected earnings levels in a particular reporting period could have an adverse effect on our results of operations, distributable cash flow and on the value of our securities. Further, our inability to redeploy the proceeds from our divestitures in accordance with our investment strategy could have an adverse effect on our results of operations, distributable cash flow, our ability to meet our debt obligations in a timely manner and the value of our securities in subsequent periods.
 
Contingent or unknown liabilities could adversely affect our financial condition.
 
We have acquired and may in the future acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result, if a liability were asserted against us based upon ownership of any of these entities or properties, then we might have to pay substantial sums to settle it, which could adversely affect our cash flow. Contingent or unknown liabilities with respect to entities or properties acquired might include:
 
  •  liabilities for environmental conditions;
 
  •  accrued but unpaid liabilities incurred in the ordinary course of business;
 
  •  tax liabilities; and
 
  •  claims for indemnification by the general partners, officers and directors and others indemnified by the former owners of the properties.
 
We are dependent on external sources of capital.
 
In order to qualify as a real estate investment trust, we are required each year to distribute to our stockholders at least 90% of our real estate investment trust taxable income (determined without regard to the dividends-paid deduction and by excluding any net capital gain) and are subject to tax to the extent our income is not fully distributed. Consequently, we may not be able to fund all future capital needs, including acquisition and development activities, from cash retained from operations and may have to rely on third-party sources of capital. Further, in order to maintain our real estate investment trust status and avoid the payment of income and excise taxes, we may need to borrow funds on a short-term basis to meet the real estate investment trust distribution requirements even if the then-prevailing market conditions are not favorable for these borrowings. These short-term borrowing needs could result from differences in timing between the actual receipt of cash and inclusion of income for federal income tax purposes, or the effect of non-deductible capital expenditures, the creation of reserves or required debt or amortization payments. Our ability to access private debt and equity capital on favorable terms or at all is dependent upon a number of factors, including general market conditions, the market’s perception of our growth potential, our current and potential future earnings and cash distributions and the market price of our capital stock.
 
Debt Financing Risks
 
We could incur more debt, increasing our debt service.
 
It is generally our policy to incur debt, either directly or through our subsidiaries, only if it will not cause our share of total debt-to-our share of total market capitalization ratio to exceed approximately 45% over the long term. Our definition of “our share of total market capitalization” is our share of total debt plus preferred equity liquidation preferences plus market equity. See footnote 1 to the Capitalization Ratios table contained in Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operation — Liquidity and Capital Resources” for our definitions of “market equity” and “our share of total debt.” The aggregate amount of indebtedness that we may incur under our policy increases directly with an increase in the market price per share of our capital stock. Further, our management could alter or eliminate this policy without stockholder approval. If we change this policy, then we could become more highly leveraged, resulting in an increase in debt service that could adversely affect the cash available for distribution to our stockholders.


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We face risks associated with the use of debt to fund acquisitions and developments, including refinancing and interest rate risk.
 
As of December 31, 2007, we had total debt outstanding of $3.5 billion. We guarantee the operating partnership’s obligations with respect to the senior debt securities referenced in our financial statements. We are subject to risks normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest. We anticipate that we will repay only a small portion of the principal of our debt prior to maturity. Accordingly, we will likely need to refinance at least a portion of our outstanding debt as it matures. There is a risk that we may not be able to refinance existing debt or that the terms of any refinancing will not be as favorable as the terms of our existing debt. If we are unable to refinance or extend principal payments due at maturity or pay them with proceeds of other capital transactions, then we expect that our cash flow will not be sufficient in all years to repay all such maturing debt and to pay dividends to our stockholders. Furthermore, if prevailing interest rates or other factors at the time of refinancing (such as the reluctance of lenders to make commercial real estate loans) result in higher interest rates upon refinancing, then the interest expense relating to that refinanced indebtedness would increase. Higher interest rates on newly incurred debt may negatively impact us as well. If interest rates increase, our interest costs and overall costs of capital will increase, which could adversely affect our transaction and development activity, financial condition, results of operation, cash flow, the market price of our stock, our ability to pay principal and interest on our debt and our ability to pay dividends to our stockholders.
 
In addition, if we mortgage one or more of our properties to secure payment of indebtedness and we are unable to meet mortgage payments, then the property could be foreclosed upon or transferred to the mortgagee with a consequent loss of income and asset value. A foreclosure on one or more of our properties could adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our stock.
 
As of December 31, 2007, we had outstanding guarantees in the amount of $95.9 million in connection with certain acquisitions. As of December 31, 2007, we also guaranteed $41.2 million and $107.9 million on outstanding loans on five of our consolidated co-investment ventures and two of our unconsolidated co-investment ventures, respectively. Also, we have entered into contribution agreements with certain of our unconsolidated co-investment venture funds. These contribution agreements require us to make additional capital contributions to the applicable co-investment venture fund upon certain defaults by the co-investment venture of its debt obligations to the lenders. Such additional capital contributions will cover all or part of the applicable co-investment venture’s debt obligation and may be greater than our share of the co-investment venture’s debt obligation or the value of our share of any property securing such debt. Our contribution obligations under these agreements will be reduced by the amounts recovered by the lender and the fair market value of the property, if any, used to secure the debt and obtained by the lender upon default. Our potential obligations under these contribution agreements were $160.2 million as of December 31, 2007. We intend to continue to guarantee debt of our unconsolidated co-investment venture funds and make additional contributions to our unconsolidated co-investment venture funds in connection with property contributions to the funds. Such payment obligations under such guarantees and contribution obligations under such contribution agreements, if required to be paid, could be of a magnitude that could adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our stock.
 
Adverse changes in our credit ratings could negatively affect our financing activity.
 
The credit ratings of our senior unsecured long-term debt and preferred stock are based on our operating performance, liquidity and leverage ratios, overall financial position and other factors employed by the credit rating agencies in their rating analyses of us. Our credit ratings can affect the amount of capital we can access, as well as the terms of any financings we may obtain. There can be no assurance that we will be able to maintain our current credit ratings, and in the event our current credit ratings are downgraded, we would likely incur higher borrowing costs and may encounter difficulty in obtaining additional financing. Also, a downgrade in our credit ratings may trigger additional payments or other negative consequences under our current and future credit facilities and debt instruments. Since we depend on debt financing to fund our acquisition and development activity, adverse changes in our credit ratings could negatively impact our development and acquisition activity, future growth, financial condition, and the market price of our stock.


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Covenants in our debt agreements could adversely affect our financial condition.
 
The terms of our credit agreements and other indebtedness require that we comply with a number of financial and other covenants, such as maintaining debt service coverage and leverage ratios and maintaining insurance coverage. These covenants may limit flexibility in our operations, and our failure to comply with these covenants could cause a default under the applicable debt agreement even if we have satisfied our payment obligations. As of December 31, 2007, we had certain non-recourse, secured loans, which are cross-collateralized by multiple properties. If we default on any of these loans, we may then be required to repay such indebtedness, together with applicable prepayment charges, to avoid foreclosure on all the cross-collateralized properties within the applicable pool. Foreclosure on our properties, or our inability to refinance our loans on favorable terms, could adversely impact our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our stock. In addition, our credit facilities and senior debt securities contain certain cross-default provisions, which are triggered in the event that our other material indebtedness is in default. These cross-default provisions may require us to repay or restructure the credit facilities and the senior debt securities in addition to any mortgage or other debt that is in default, which could adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our stock.
 
Failure to hedge effectively against interest rates may adversely affect results of operations.
 
We seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements, such as interest rate cap agreements and interest rate swap agreements. These agreements involve risks, such as the risk that the counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to interest rate changes and that a court could rule that such agreements are not legally enforceable. Hedging may reduce overall returns on our investments. Failure to hedge effectively against interest rate changes may materially adversely affect our results of operations.
 
Conflicts of Interest Risks
 
Some of our directors and executive officers are involved in other real estate activities and investments and, therefore, may have conflicts of interest with us.
 
From time to time, certain of our executive officers and directors may own interests in other real-estate related businesses and investments, including de minimis holdings of the equity securities of public and private real estate companies. Our executive officers’ involvement in other real estate-related activities could divert their attention from our day-to-day operations. 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 any 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 certain specified investments. State law may limit our ability to enforce these agreements. We will not acquire any properties from our executive officers, directors or their affiliates unless the transaction is approved by a majority of the disinterested and independent (as defined by the rules of the New York Stock Exchange) members of our board of directors with respect to that transaction.
 
Our role as general partner of the operating partnership may conflict with the interests of 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 addition, those persons holding limited partnership units will have the right to vote as a class on certain amendments to the operating partnership’s 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 operating partnership’s partnership agreement, holders of limited partnership units will have certain approval rights with respect to certain transactions that affect all stockholders but which they may not exercise in a manner that reflects the interests of all stockholders.


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Risks Associated with Government Regulations
 
The costs of compliance with environmental laws and regulations and any related potential liability could exceed our budgets for these items.
 
Under various environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the costs of investigation, removal or remediation of certain hazardous or toxic substances or petroleum products at, on, under or in its property. The costs of removal or remediation of such substances could be substantial. These laws typically impose liability and clean-up responsibility without regard to whether the owner or operator knew of or caused the presence of the contaminants. Even if more than one person may have been responsible for the contamination, each person covered by the environmental laws may be held responsible for all of the clean-up costs incurred. In addition, third parties may sue the owner or operator of a site for damages based on personal injury, property damage or other costs, including investigation and clean-up costs, resulting from the environmental contamination.
 
Environmental laws in some countries, including the United States, also require that owners or operators of buildings containing asbestos properly manage and maintain the asbestos, adequately inform or train those who may come into contact with asbestos and undertake special precautions, including removal or other abatement, in the event that asbestos is disturbed during building renovation or demolition. These laws may impose fines and penalties on building owners or operators who fail 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. Some of our properties may contain asbestos-containing building materials.
 
In addition, some of our properties are leased or have been leased, in part, to owners and operators of businesses that use, store or otherwise handle petroleum products or other hazardous or toxic substances, creating a potential for the release of such hazardous or toxic substances. Further, certain of our properties are on, adjacent to or near other properties that have contained or currently contain petroleum products or other hazardous or toxic substances, or upon which others have engaged, are engaged or may engage in activities that may release such hazardous or toxic substances. From time to time, we may acquire properties, or interests in properties, with known adverse environmental conditions where we believe that the environmental liabilities associated with these conditions are quantifiable and that the acquisition will yield a superior risk-adjusted return. In such an instance, we underwrite the costs of environmental investigation, clean-up and monitoring into the acquisition cost and obtain appropriate environmental insurance for the property. Further, in connection with certain divested properties, we have agreed to remain responsible for, and to bear the cost of, remediating or monitoring certain environmental conditions on the properties.
 
At the time of acquisition, we subject all of our properties to a Phase I or similar environmental assessments by independent environmental consultants and we may have additional Phase II testing performed upon the consultant’s recommendation. These environmental assessments have not revealed, and we are not aware of, any environmental liability that we believe would have a material adverse effect on our financial condition or results of operations taken as a whole. Nonetheless, it is possible that the assessments did not reveal all environmental liabilities and that there are material environmental liabilities unknown to us, or that known environmental conditions may give rise to liabilities that are greater than we anticipated. Further, our properties’ current environmental condition may be affected by customers, the condition of land, operations in the vicinity of the properties (such as releases from underground storage tanks) or by unrelated third parties. If the costs of compliance with existing or future environmental laws and regulations exceed our budgets for these items, then our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our stock could be adversely affected.
 
Compliance or failure to comply with the Americans with Disabilities Act and other similar regulations could result in substantial costs.
 
Under the Americans with Disabilities Act, places of public accommodation must meet certain federal requirements related to access and use by disabled persons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants. If we are required to make unanticipated expenditures to comply with the Americans with Disabilities Act, including removing access barriers, then our cash


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flow and the amounts available for dividends to our stockholders may be adversely affected. Our properties are also subject to various federal, state and local regulatory requirements, such as state and local fire and life-safety requirements. We could incur fines or private damage awards if we fail to comply with these requirements. While we believe that our properties are currently in material compliance with these regulatory requirements, the requirements may change or new requirements may be imposed that could require significant unanticipated expenditures by us that will affect our cash flow and results of operations.
 
Federal Income Tax Risks
 
Our failure to qualify as a real estate investment trust would have serious adverse consequences to our stockholders.
 
We elected to be taxed as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) commencing with our taxable year ended December 31, 1997. We currently intend to operate so as to qualify as a real estate investment trust under the Internal Revenue Code and believe that our current organization and method of operation comply with the rules and regulations promulgated under the Internal Revenue Code to enable us to continue to qualify as a real estate investment trust. However, it is possible that we have been organized or have operated in a manner that would not allow us to qualify as a real estate investment trust, or that our future operations could cause us to fail to qualify. Qualification as a real estate investment trust requires us to satisfy numerous requirements (some on an annual and others on a quarterly basis) established under highly technical and complex sections of the Internal Revenue Code for which there are only limited judicial and administrative interpretations, and involves the determination of various factual matters and circumstances not entirely within our control. For example, in order to qualify as a real estate investment trust, we must derive at least 95% of our gross income in any year from qualifying sources. In addition, we must pay dividends to our stockholders aggregating annually at least 90% of our real estate investment trust taxable income (determined without regard to the dividends paid deduction and by excluding capital gains) and must satisfy specified asset tests on a quarterly basis. These provisions and the applicable Treasury regulations are more complicated in our case because we hold our assets through the operating partnership. Legislation, new regulations, administrative interpretations or court decisions could significantly change the tax laws with respect to qualification as a real estate investment trust or the federal income tax consequences of such qualification. However, we are not aware of any pending tax legislation that would adversely affect our ability to qualify as a real estate investment trust.
 
If we fail to qualify as a real estate investment trust in any taxable year, we will be required to pay federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. Unless we are entitled to relief under certain statutory provisions, we would be disqualified from treatment as a real estate investment trust for the four taxable years following the year in which we lost our qualification. If we lost our real estate investment trust 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 our stockholders.
 
Certain property transfers may generate prohibited transaction income, resulting in a penalty tax on gain attributable to the transaction.
 
From time to time, we may transfer or otherwise dispose of some of our properties, including by contributing properties to our co-investment venture funds. Under the Internal Revenue Code, any gain resulting from transfers of properties we hold as inventory or primarily for sale to customers in the ordinary course of business is treated as income from a prohibited transaction subject to a 100% penalty tax. We do not believe that our transfers or disposals of property or our contributions of properties into our co-investment venture funds are properly treated as prohibited transactions. However, whether property is held for investment purposes is a question of fact that depends on all the facts and circumstances surrounding the particular transaction. The Internal Revenue Service may contend that certain transfers or dispositions of properties by us or contributions of properties into our co-investment venture funds are prohibited transactions. While we believe that the Internal Revenue Service would not prevail in any such dispute, if the Internal Revenue Service were to argue successfully that a transfer, disposition, or contribution of property constituted a prohibited transaction, we would be required to pay a 100% penalty tax on any gain allocable


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to us from the prohibited transaction. In addition, income from a prohibited transaction might adversely affect our ability to satisfy the income tests for qualification as a real estate investment trust.
 
Risks Associated With Our Dependence on Key Personnel
 
We depend on the efforts of our executive officers and other key employees. From time to time, our personnel and their roles may change. While we believe that we could find suitable employees to meet our personnel needs, the loss of key personnel, any change in their roles, or the limitation of their availability could adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our stock. We do not have employment agreements with any of our executive officers.
 
Because our compensation packages include equity-based incentives, pressure on our stock price or limitations on our ability to award such incentives could affect our ability to offer competitive compensation packages to our executives and key employees. If we are unable to continue to attract and retain our executive officers, or if compensation costs required to attract and retain key employees become more expensive, our performance and competitive position could be materially adversely affected.
 
Risks Associated with Our Disclosure Controls and Procedures and Internal Control over Financial Reporting
 
Our business could be adversely impacted if we have deficiencies in our disclosure controls and procedures or internal control over financial reporting.
 
The design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent all errors, misstatements or misrepresentations. While management will continue to review the effectiveness of our disclosure controls and procedures and internal control over financial reporting, there can be no guarantee that our internal control over financial reporting will be effective in accomplishing all control objectives all of the time. Deficiencies, including any material weakness, in our internal control over financial reporting which may occur in the future could result in misstatements of our results of operations, restatements of our financial statements, a decline in our stock price, or otherwise materially adversely affect our business, reputation, results of operations, financial condition or liquidity.
 
Risks Associated with Ownership of Our Stock
 
Limitations in our charter and bylaws could prevent a change in control.
 
Certain provisions of our charter and bylaws may delay, defer or prevent a change in control or other transaction that could provide the holders of our common stock with the opportunity to realize a premium over the then-prevailing market price for the common stock. To maintain our qualification as a real estate investment trust for federal income tax purposes, not more than 50% in value of our outstanding stock may be owned, actually or constructively, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of a taxable year after the first taxable year for which a real estate investment trust election is made. Furthermore, our common stock must be held by a minimum of 100 persons for at least 335 days of a 12-month taxable year (or a proportionate part of a short tax year). In addition, if we, or an owner of 10% or more of our stock, actually or constructively owns 10% or more of one of our customers (or a customer of any partnership in which we are a partner), then the rent received by us (either directly or through any such partnership) from that customer will not be qualifying income for purposes of the real estate investment trust gross income tests of the Internal Revenue Code. To help us maintain our qualification as a real estate investment trust for federal income tax purposes, we prohibit the ownership, actually or by virtue of the constructive ownership provisions of the Internal Revenue Code, by any single person, of more than 9.8% (by value or number of shares, whichever is more restrictive) of the issued and outstanding shares of each of our common stock, series L preferred stock, series M preferred stock, series O preferred stock, and series P preferred stock (unless such limitations are waived by our board of directors). We also prohibit the ownership, actually or constructively, of any shares of our series D preferred stock by any single person so that no such person, taking into account all of our stock so owned by such person, including any common stock or other series of preferred stock, may own in excess of 9.8% of our issued and outstanding capital stock (unless such limitations are waived by our board of directors). We refer to this limitation as


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the “ownership limit.” The charter provides that shares acquired or held in violation of the ownership limit will be transferred to a trust for the benefit of a designated charitable beneficiary. The charter further provides that any person who acquires shares in violation of the ownership limit will not be entitled to any dividends on the shares or be entitled to vote the shares or receive any proceeds from the subsequent sale of the shares in excess of the lesser of the price paid for the shares or the amount realized from the sale. A transfer of shares in violation of the above limits may be void under certain circumstances. The ownership limit may have the effect of delaying, deferring or preventing a change in control and, therefore, could adversely affect our stockholders’ ability to realize a premium over the then-prevailing market price for the shares of our common stock in connection with such transaction.
 
Our charter authorizes us to issue additional shares of common and preferred stock and to establish the preferences, rights and other terms of any series or class of preferred stock that we issue. Although our board of directors has no intention to do so at the present time, it could establish a series or class of preferred stock that could have the effect of delaying, deferring or preventing a transaction, including a change in control, that might involve a premium price for the common stock or otherwise be in the best interests of our stockholders.
 
Our charter and bylaws and Maryland law also contain other provisions that may impede various actions by stockholders without approval of our board of directors, which in turn may delay, defer or prevent a transaction, including a change in control. Those provisions in our charter and bylaws include:
 
  •  directors may be removed only for cause and only upon a two-thirds vote of stockholders;
 
  •  our board can fix the number of directors within set limits (which limits are subject to change by our board), and fill vacant directorships upon the vote of a majority of the remaining directors, even though less than a quorum, or in the case of a vacancy resulting from an increase in the size of the board, a majority of the entire board;
 
  •  stockholders must give advance notice to nominate directors or propose business for consideration at a stockholders’ meeting; and
 
  •  the request of the holders of 50% or more of our common stock is necessary for stockholders to call a special meeting.
 
Those provisions provided for under Maryland law include:
 
  •  a two-thirds vote of stockholders is required to amend our charter; and
 
  •  stockholders may only act by written consent with the unanimous approval of all stockholders entitled to vote on the matter in question.
 
In addition, our board could elect to adopt, without stockholder approval, certain other provisions under Maryland law that may impede a change in control.
 
The price per share of our stock may fluctuate significantly.
 
The market price per share of our common stock may fluctuate significantly in response to many factors, including:
 
  •  actual or anticipated variations in our quarterly operating results or dividends;
 
  •  changes in our funds from operations or earnings estimates;
 
  •  publication of research reports about us or the real estate industry;
 
  •  the general reputation of real estate investment trusts and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate-based companies);
 
  •  general stock and bond market conditions, including changes in interest rates on fixed income securities, that may lead prospective purchasers of our stock to demand a higher annual yield from future dividends;
 
  •  a change in analyst ratings or our credit ratings;
 
  •  changes in market valuations of similar companies;


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  •  adverse market reaction to any additional debt we incur in the future;
 
  •  additions or departures of key management personnel;
 
  •  actions by institutional stockholders;
 
  •  speculation in the press or investment community;
 
  •  terrorist activity may adversely affect the markets in which our securities trade, possibly increasing market volatility and causing the further erosion of business and consumer confidence and spending;
 
  •  governmental regulatory action and changes in tax laws;
 
  •  the realization of any of the other risk factors included or incorporated by reference in this report; and
 
  •  general market and economic conditions.
 
Many of the factors listed above are beyond our control. These factors may cause the market price of shares of our common stock to decline, regardless of our financial condition, results of operations, business or our prospects.
 
If we issue additional securities, then the investment of existing stockholders will be diluted.
 
As a real estate investment trust, we are dependent on external sources of capital and may issue common or preferred stock or debt securities to fund our future capital needs. We have authority to issue shares of common stock or other equity or debt securities, and to cause the operating partnership or AMB Property II, L.P., to issue limited partnership units, in exchange for property or otherwise. Existing stockholders have no preemptive right to acquire any additional securities issued by the operating partnership, AMB Property II, L.P., or us and any issuance of additional equity securities may adversely effect the market price of our stock and could result in dilution of an existing stockholder’s investment.
 
Earnings, cash dividends, asset value and market interest rates affect the price of our stock.
 
As a real estate investment trust, the market value of our equity securities, in general, is based primarily upon the market’s perception of our growth potential and our current and potential future earnings and cash dividends. Our equity securities’ market value is based secondarily upon the market value of our underlying real estate assets. For this reason, shares of our stock may trade at prices that are higher or lower than our net asset value per share. To the extent that we retain operating cash flow for investment purposes, working capital reserves, or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our stock. Our failure to meet the market’s expectations with regard to future earnings and cash dividends likely would adversely affect the market price of our stock. Further, the distribution yield on the stock (as a percentage of the price of the stock) relative to market interest rates may also influence the price of our stock. An increase in market interest rates might lead prospective purchasers of our stock to expect a higher distribution yield, which would adversely affect our stock’s market price. Additionally, if the market price of our stock declines significantly, then we might breach certain covenants with respect to our debt obligations, which could adversely affect our liquidity and ability to make future acquisitions and our ability to pay dividends to our stockholders.
 
We could change our investment and financing policies without a vote of stockholders.
 
Subject to our current investment policy to maintain our qualification as a real estate investment trust (unless a change is approved by our board of directors under certain circumstances), our board of directors determines our investment and financing policies, our growth strategy and our debt, capitalization, distribution and operating policies. Our board of directors may revise or amend these strategies and policies at any time without a vote of stockholders. Any such changes may not serve the interests of all stockholders and could adversely affect our financial condition or results of operations, including our ability to pay dividends to our stockholders.
 
Shares available for future sale could adversely affect the market price of our common stock.
 
The operating partnership and AMB Property II, L.P. had 3,992,607 common limited partnership units issued and outstanding as of December 31, 2007, which may be exchanged generally one year after their issuance on a


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one-for-one basis into shares of our common stock. In the future, the operating partnership or AMB Property II, L.P. may issue additional limited partnership units, and we may issue shares of common stock, in connection with the acquisition of properties or in private placements. These shares of common stock and the shares of common stock issuable upon exchange of limited partnership units may be sold in the public securities markets over time, pursuant to registration rights that we have granted, or may grant in connection with future issuances, or pursuant to Rule 144. In addition, common stock issued under our stock option and incentive plans may also be sold in the market pursuant to registration statements that we have filed or pursuant to Rule 144. As of December 31, 2007, under our stock option and incentive plans, we had 9,443,727 shares of common stock reserved and available for future issuance, had outstanding options to purchase 5,855,777 shares of common stock (of which 4,660,584 are vested and exercisable) and had 652,838 unvested restricted shares of common stock outstanding. Future sales of a substantial number of shares of our common stock in the market or the perception that such sales might occur could adversely affect the market price of our common stock. Further, the existence of the operating partnership’s limited partnership units and the shares of our common stock reserved for issuance upon exchange of limited partnership units and the exercise of options, and registration rights referred to above, may adversely affect the terms upon which we are able to obtain additional capital through the sale of equity securities.
 
Item 1B.   Unresolved Staff Comments
 
None.
 
Item 2.   Properties
 
INDUSTRIAL PROPERTIES
 
As of December 31, 2007, we owned and managed 1,060 industrial buildings aggregating approximately 118.2 million rentable square feet (on a consolidated basis, we had 788 industrial buildings aggregating approximately 78.0 million rentable square feet), excluding development and renovation projects and recently completed development projects available for sale or contribution, located in 45 markets throughout the United States and in Canada, China, Belgium, France, Germany, Japan, Mexico, the Netherlands, Singapore and the United Kingdom. Our industrial properties were 96.0% leased to 2,591 customers, the largest of which accounted for no more than 3.5% of our annualized base rent from our industrial properties. See Part IV, Item 15: Note 15 of “Notes to Consolidated Financial Statements” for segment information related to our operations.
 
Property Characteristics.  Our industrial properties, which consist primarily of warehouse distribution facilities suitable for single or multiple customers, are typically comprised of multiple buildings.
 
The following table identifies types and characteristics of our industrial buildings and each type’s percentage, based on square footage, of our total owned and managed operating portfolio, which we define as properties in which we have at least a 10% ownership interest, for which we are the property or asset manager, and which we intend to hold for the long-term.
 
                     
        December 31,  
Building Type
  Description   2007     2006  
 
Warehouse
  Customers typically 15,000-75,000 square feet, single or multi-customer     51.6 %     48.4 %
Bulk Warehouse
  Customers typically over 75,000 square feet, single or multi-customer     37.1 %     38.3 %
Flex Industrial
  Includes assembly or research & development, single or multi-customer     3.6 %     4.5 %
Light Industrial
  Smaller customers, 15,000 square feet or less, higher office finish     3.0 %     3.5 %
Trans-Shipment
  Unique configurations for truck terminals and cross-docking     1.3 %     1.5 %
Air Cargo
  On-tarmac or airport land for transfer of air cargo goods     2.8 %     3.2 %
Office
  Single or multi-customer, used strictly for office     0.6 %     0.6 %
                     
          100.0 %     100.0 %


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Lease Terms.  Our industrial properties are typically subject to leases on a “triple net basis,” in which customers pay their proportionate share of real estate taxes, insurance and operating costs, or are subject to leases on a “modified gross basis,” in which customers pay expenses over certain threshold levels. In addition, most of our leases include fixed rental increases or Consumer Price Index-based rental increases. Lease terms typically range from three to ten years, with a weighted average of six years, excluding renewal options. However, the majority of our industrial leases do not include renewal options.
 
Overview of Principal Global Markets.  Our industrial properties are typically located near key international passenger and cargo airports, seaports and major highway systems in major metropolitan areas, which include Chicago, Northern New Jersey/New York City, Paris, the San Francisco Bay Area, Seattle, South Florida, Southern California, Tokyo and U.S. On-Tarmac. Our other markets in the Americas are Atlanta, Austin, Baltimore, Boston, Dallas, Guadalajara, Houston, Mexico City, Minneapolis, Monterrey, New Orleans, Orlando, Querétaro, Savannah, Tijuana and Toronto. In Europe, our other markets are Amsterdam, Brussels, Frankfurt, Hamburg, London, Lyon, Madrid, Milan and Rotterdam. In Asia, our markets are Osaka, Seoul, Shanghai and Singapore.
 
Within these metropolitan areas, our industrial properties are generally concentrated in locations with limited new construction opportunities within established, relatively large submarkets, which we believe should provide a higher rate of occupancy and rent growth than properties located elsewhere. These infill locations are typically near major airports, seaports or convenient to major highway systems and rail lines, and are proximate to large and diverse labor pools. 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 constraints to the supply of additional industrial properties.


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Portfolio Overview
 
The following includes our owned and managed operating portfolio and development properties, investments in operating properties through non-managed unconsolidated co-investment ventures, and recently completed developments that have not yet been placed in operations but are being held for sale or contribution:
 
                                                 
                            Year-to-Date
    Trailing
 
          AMB
          Annualized
    Same Store
    Four Quarter
 
          share of
          Base
    NOI Growth
    Rent
 
    Square
    Square
    Year-to-Date
    Rent(1)
    Without Lease
    Change on
 
    Feet as of
    Feet as of
    Average
    psf as of
    Termination
    Renewals and
 
    12/31/2007     12/31/2007     Occupancy     12/31/2007     Fees(2)     Rollovers(3)  
 
Southern California
    17,514,557       57.1 %     96.5 %   $ 6.53       4.9 %     10.2 %
Chicago
    12,939,948       53.3 %     91.0 %     5.30       4.9 %     0.8 %
No. New Jersey/New York
    11,115,945       50.1 %     98.6 %     7.21       7.9 %     3.1 %
San Francisco Bay Area
    10,262,443       72.6 %     96.2 %     6.42       3.8 %     (5.5 )%
Seattle
    7,891,551       49.7 %     96.3 %     5.17       6.0 %     18.6 %
South Florida
    6,276,291       70.5 %     97.5 %     7.49       10.6 %     12.0 %
U.S. On-Tarmac(4)
    2,629,113       92.6 %     94.2 %     18.69       0.9 %     1.4 %
Other U.S. Markets
    27,790,006       64.8 %     94.4 %     5.49       3.9 %     1.8 %
                                                 
U.S. Subtotal/Wtd Avg
    96,419,854       60.9 %     95.3 %   $ 6.42       5.0 %     4.1 %
Canada
    304,353       100.0 %     87.0 %   $ 7.89       0.0 %     n/a  
Mexico City
    2,134,089       20.0 %     95.9 %     6.34       (6.9 )%     0.0 %
Other Mexico Markets
    2,769,507       20.0 %     93.2 %     4.83       (0.2 )%     0.1 %
                                                 
Mexico Subtotal/Wtd Avg
    4,903,596       20.0 %     94.4 %   $ 5.51       (3.8 )%     0.1 %
                                                 
The Americas Total/Wtd Avg
    101,627,803       59.0 %     95.2 %   $ 6.38       4.9 %     4.1 %
                                                 
France
    3,371,164       20.0 %     94.4 %   $ 8.61       16.5 %     10.6 %
Germany
    2,116,303       19.8 %     99.8 %     9.36       10.4 %     (1.2 )%
Benelux
    2,835,213       21.2 %     99.5 %     10.35       10.1 %     n/a  
Other Europe Markets
    178,282       100.0 %     100.0 %     14.39       0.0 %     n/a  
                                                 
Europe Subtotal/Wtd Avg(5)
    8,500,962       22.0 %     97.6 %   $ 9.53       13.4 %     7.6 %
                                                 
Tokyo
    4,916,517       28.9 %     94.2 %   $ 12.24       24.0 %     1.0 %
Osaka
    1,018,875       20.0 %     92.1 %     9.32       0.0 %     n/a  
Other Japan Markets
          0.0 %     0.0 %           0.0 %     n/a  
                                                 
Japan Subtotal/Wtd Avg(5)
    5,935,392       27.4 %     93.8 %   $ 11.77       24.0 %     1.0 %
Shanghai
    1,382,817       69.9 %     99.9 %   $ 4.03       38.6 %     48.7 %
Singapore
    733,321       82.9 %     95.5 %     9.86       0.0 %     2.7 %
Other Asia Markets
          0.0 %     0.0 %           0.0 %     n/a  
                                                 
Asia Total/Wtd Avg(5)
    8,051,530       39.7 %     95.0 %   $ 10.21       24.7 %     19.5 %
                                                 
Owned and Managed Total/Wtd Avg (6)
    118,180,295       55.0 %     95.1 %   $ 6.87       5.5 %     4.9 %
Other Real Estate Investments(7)
    7,495,659       54.3 %     95.0 %                        
                                                 
Total Operating Portfolio
    125,675,954       55.0 %     95.1 %                        
Development
                                               
Pipeline
    17,822,820       87.6 %                                
Available for Sale or Contribution(8)
    4,190,504       98.3 %                                
Development Subtotal
    22,013,324       89.7 %                                
                                                 
Total Global Portfolio
    147,689,278       60.2 %                                
                                                 


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(1) Annualized base rent (“ABR”) is calculated as monthly base rent (cash basis) per the terms of the lease, as of December 31, 2007, multiplied by 12.
 
(2) See Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Supplemental Earnings Measures” for a discussion of why management believes same store cash basis NOI is a useful supplemental measure for our management and investors, of ways to use this measure when assessing the Company’s financial performance, and the limitations of the measure as a measurement tool.
 
(3) Rent changes on renewals and rollovers are calculated as the difference, weighted by square feet, of the net ABR due the first month of a term commencement and the net ABR due the last month of the former tenant’s term. If free rent is granted, then the first positive full rent value is used as a point of comparison. The rental amounts exclude base stop amounts, holdover rent and premium rent charges. If either the previous or current lease terms are under 12 months, then they are excluded from this calculation. If the lease is first generation or there is no prior lease for comparison, then it is excluded from this calculation.
 
(4) Includes domestic on-tarmac air cargo facilities at 14 airports.
 
(5) Annualized base rent for leases denominated in foreign currencies is translated using the currency exchange rate at December 31, 2007.
 
(6) Owned and managed is defined by us as assets in which we have at least a 10% ownership interest, for which we are the property or asset manager, and which we intend to hold for the long-term.
 
(7) Includes investments in operating properties through our investments in unconsolidated co-investment ventures that we do not manage, and are therefore excluded from our owned and managed portfolio, and the location of our global headquarters.
 
(8) Represents development projects available for sale or contribution that are not included in the operating portfolio.
 
Lease Expirations(1)
 
The following table summarizes the lease expirations for our owned and managed operating properties for leases in place as of December 31, 2007, without giving effect to the exercise of renewal options or termination rights, if any, at or prior to the scheduled expirations:
 
                                 
    Square
    Annualized Base
    % of Annualized
       
    Feet     Rent (000’s)(2)(3)     Base Rent(2)        
 
2008
    16,457,850     $ 108,528       13.2 %        
2009
    20,835,399       134,456       16.4 %        
2010
    17,530,733       121,597       14.8 %        
2011
    17,711,251       126,654       15.4 %        
2012
    13,239,737       110,274       13.4 %        
2013
    7,902,888       56,526       6.9 %        
2014
    6,853,902       55,521       6.8 %        
2015
    4,210,542       32,830       4.0 %        
2016
    2,075,922       15,622       1.9 %        
2017 and beyond
    7,262,397       57,966       7.2 %        
                                 
Total
    114,080,621     $ 819,974       100.0 %        
                                 
 
 
(1) Schedule includes leases that expire on or after December 31, 2007. Schedule includes owned and managed operating properties which we define as properties in which we have at least a 10% ownership interest, for which we are the property or asset manager, and which we intend to hold for the long-term.


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(2) Annualized base rent is calculated as monthly base rent (cash basis) per the terms of the lease, as of December 31, 2007, multiplied by 12. If free rent is granted, then the first positive rent value is used. Leases denominated in foreign currencies are translated using the currency exchange rate at December 31, 2007.
 
(3) Apron rental amounts (but not square footage) are included.
 
Customer Information(1)
 
Top Customers.  As of December 31, 2007, our largest property customers by annualized base rent, on an owned and managed basis, are set forth in the table below:
 
                                 
          Annualized
       
    Aggregate
    Base
    % of Aggregate
 
    Rentable
    (000’s)
    Annualized
 
Customer(2)
  Square Feet     Rent(3)     Base Rent(3)(4)  
 
  1.     Deutsche Post World Net (DHL)(5)     3,545,830     $ 27,489       3.5 %
  2.     United States Government(5)(6)     1,392,586       20,483       2.6 %
  3.     FedEx Corporation(5)     1,517,523       15,589       2.0 %
  4.     Nippon Express     967,039       10,111       1.3 %
  5.     BAX Global Inc/Schenker/Deutsche Bahn(5)     904,210       9,908       1.3 %
  6.     Sagawa Express     729,141       9,694       1.2 %
  7.     La Poste     902,391       8,014       1.0 %
  8.     Caterpillar Inc.      668,297       6,908       0.9 %
  9.     Panalpina, Inc.      1,016,825       6,706       0.9 %
  10.     Expeditors International     1,238,693       6,192       0.8 %
                                 
          Total     12,882,535     $ 121,094       15.5 %
                                 
        Top 11-20 Customers     6,115,538       44,400       5.7 %
                                 
          Total     18,998,073     $ 165,494       21.2 %
                                 
 
 
(1) Schedule includes owned and managed operating properties which we define as properties in which we have at least a 10% ownership interest, for which we are the property or asset manager, and which we intend to hold for the long-term.
 
(2) Customer(s) may be a subsidiary of or an entity affiliated with the named customer.
 
(3) Annualized base rent is calculated as monthly base rent (cash basis) per the terms of the lease, as of December 31, 2007, multiplied by 12. If free rent is granted, then the first positive rent value is used. Leases denominated in foreign currencies are translated using the currency exchange rate at December 31, 2007.
 
(4) Computed as aggregate annualized base rent divided by the aggregate annualized base rent of operating properties.
 
(5) Airport apron rental amounts (but not square footage) are included.
 
(6) United States Government includes the United States Postal Service, United States Customs, United States Department of Agriculture and various other U.S. governmental agencies.


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OWNED AND MANAGED OPERATING AND LEASING STATISTICS
 
Owned and Managed Operating and Leasing Statistics(1)
 
The following table summarizes key operating and leasing statistics for all of our owned and managed operating properties as of and for the years ended December 31, 2007, 2006 and 2005:
 
                         
Operating Portfolio
  2007     2006     2005(2)  
 
Square feet owned(3)(4)
    118,180,295       100,702,915       87,772,104  
Occupancy percentage(4)
    96.0 %     96.1 %     95.8 %
Average occupancy percentage
    95.1 %     95.3 %     94.4 %
Weighted Average Lease Terms (years):
                       
Original
    6.2       6.1       6.1  
Remaining
    3.5       3.3       3.3  
Trailing four quarter tenant retention
    74.0 %     70.9 %     64.2 %
Trailing four quarter rent change on renewals and rollovers:(5)
                       
Percentage
    4.9 %     (0.1 )%     (9.7 )%
Same space square footage commencing (millions)
    19.2       16.2       13.6  
Trailing four quarter second Generation Leasing Activity:(6)
                       
Tenant improvements and leasing commissions per sq. ft.:
                       
Retained
  $ 1.19     $ 1.41     $ 1.60  
Re-tenanted
  $ 3.25     $ 3.19     $ 3.03  
Weighted average
  $ 2.03     $ 2.20     $ 2.34  
Square footage commencing (millions)
    22.8       19.1       18.5  
 
 
(1) Schedule includes owned and managed operating properties which we define as properties in which we have at least a 10% ownership interest, for which we are the property or asset manager, and which we intend to hold for the long-term. This excludes development and renovation projects and recently completed development projects available for sale or contribution.
 
(2) The information for 2005 is presented on a consolidated basis while the information for 2006 and 2007 is presented on an owned and managed basis. Management believes that the difference in comparability between 2005 and 2006 and 2007 is not significant.
 
(3) In addition to owned square feet as of December 31, 2007, we managed, but did not have an ownership interest in, approximately 0.4 million additional square feet of properties. As of December 31, 2007, one of our subsidiaries also managed approximately 1.1 million additional square feet of properties representing the IAT portfolio on behalf of the IAT Air Cargo Facilities Income Fund. As of December 31, 2007, we also had investments in 7.4 million square feet of operating properties through our investments in non-managed unconsolidated co-investment ventures and 0.1 million square feet, which is the location of our global headquarters.
 
(4) On a consolidated basis, we had approximately 78.0 million rentable square feet with an occupancy rate of 96.8% at December 31, 2007.
 
(5) Rent changes on renewals and rollovers are calculated as the difference, weighted by square feet, of the net ABR due the first month of a term commencement and the net ABR due the last month of the former tenant’s term. If free rent is granted, then the first positive full rent value is used as a point of comparison. The rental amounts exclude base stop amounts, holdover rent and premium rent charges. If either the previous or current lease terms are under 12 months, then they are excluded from this calculation. If the lease is first generation or there is no prior lease for comparison, then it is excluded from this calculation.
 
(6) Second generation tenant improvements and leasing commissions per square foot are the total cost of tenant improvements, leasing commissions and other leasing costs incurred during leasing of second generation space divided by the total square feet leased. Costs incurred prior to leasing available space are not included until such


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space is leased. Second generation space excludes newly developed square footage or square footage vacant at acquisition. Information for 2007 is presented as trailing four-quarters.
 
Owned and Managed Same Store Operating Statistics(1)
 
The following table summarizes key operating and leasing statistics for our owned and managed same store operating properties as of and for the years ended December 31, 2007, 2006 and 2005:
 
                         
Same Store Pool(2)
  2007     2006     2005(3)  
 
Square feet in same store pool(4)
    85,192,781       77,291,866       72,452,609  
% of total square feet
    72.1 %     76.8 %     82.5 %
Occupancy percentage(4)
    96.4 %     97.0 %     95.6 %
Average occupancy percentage
    95.9 %     95.9 %     94.1 %
Weighted Average Lease Terms (years):
                       
Original
    6.1       6.0       5.9  
Remaining
    3.1       3.0       3.0  
Trailing four quarter tenant retention
    73.4 %     72.5 %     63.7 %
Trailing four quarter rent change on renewals and rollovers:(5)
                       
Percentage
    5.0 %     (0.4 )%     (9.8 )%
Same space square footage commencing (millions)
    17.6       15.7       13.0  
Growth% Increase (decrease) (including straight-line rents):
                       
Revenues(6)
    4.3 %     2.1 %     (0.7 )%
Expenses(6)
    6.7 %     3.5 %     (0.2 )%
Net operating income(6)(7)
    3.4 %     1.6 %     (0.8 )%
Growth% Increase (decrease) (excluding straight-line rents):
                       
Revenues(6)
    5.6 %     2.8 %     0.0 %
Expenses(6)
    6.7 %     3.5 %     (0.2 )%
Net operating income(6)(7)
    5.1 %     2.6 %     0.1 %
 
 
(1) Schedule includes owned and managed operating properties which we define as properties in which we have at least a 10% ownership interest, for which we are the property or asset manager, and which we intend to hold for the long-term. This excludes development and renovation projects and recently completed development projects available for sale or contribution.
 
(2) Same store pool includes all properties that are owned as of both the current and prior year reporting periods and excludes development properties for both the current and prior reporting years. The same store pool is set annually and excludes properties purchased and developments stabilized (generally defined as properties that are 90% leased or properties that have been substantially complete for at least 12 months) after December 31, 2005.
 
(3) The information for 2005 is presented on a consolidated basis while the information for 2006 and 2007 is presented on an owned and managed basis. Management believes that the difference in comparability between 2005 and 2006 and 2007 is not significant.
 
(4) On a consolidated basis, we had approximately 72.9 million square feet with an occupancy rate of 96.7% at December 31, 2007.
 
(5) Rent changes on renewals and rollovers are calculated as the difference, weighted by square feet, of the net ABR due the first month of a term commencement and the net ABR due the last month of the former tenant’s term. If free rent is granted, then the first positive full rent value is used as a point of comparison. The rental amounts exclude base stop amounts, holdover rent and premium rent charges. If either the previous or current lease terms are under 12 months, then they are excluded from this calculation. If the lease is first generation or there is no prior lease for comparison, then it is excluded from this calculation.


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(6) As of December 31, 2007, on a consolidated basis, the percentage change was 4.2%, 6.2% and 3.5%, respectively, for revenues, expenses and NOI (including straight-line rents) and 5.7%, 6.2% and 5.5%, respectively, for the revenues, expenses and NOI (excluding straight-line rents).
 
(7) See Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Supplemental Earnings Measures” for a discussion of same store net operating income and a reconciliation of same store net operating income and net income.
 
DEVELOPMENT PROPERTIES
 
Development Pipeline(1)
 
The following table sets forth the properties owned by us as of December 31, 2007, that are currently under development. We cannot assure you that any of these projects will be completed on schedule or within budgeted amounts.
 
Industrial Projects Under Development
 
                                                         
    2008 Expected Stabilizations     2009 Expected Stabilizations     Total        
          Estimated
          Estimated
          Estimated
    % of Total
 
    Estimated
    Total
    Estimated
    Total
    Estimated
    Total
    Estimated
 
    Square Feet at
    Investment
    Square Feet at
    Investment
    Square Feet at
    Investment
    Investment
 
    Stabilization(2)     (3)(4)     Stabilization(2)     (3)(4)     Stabilization(2)     (3)(4)     (2)(3)(4)  
 
The Americas
                                                       
United States
    3,577,575     $   275,366       3,804,520     $   324,843       7,382,095     $   600,209       35.0 %
Other Americas
    281,441       26,047       2,321,879       145,474       2,603,320       171,521       10.0 %
                                                         
The Americas Total
    3,859,016     $ 301,413       6,126,399     $ 470,317       9,985,415     $ 771,730       45.0 %
Europe
                                                       
France
    37,954     $ 5,173       409,588     $ 38,542       447,542     $ 43,715       2.6 %
Germany
    139,608       19,452                   139,608       19,452       1.1 %
Benelux
    207,232       35,513       890,529       95,811       1,097,761       131,324       7.7 %
Other Europe
    585,971       76,540       436,916       40,336       1,022,887       116,876       6.8 %
                                                         
Europe Total
    970,765     $ 136,678       1,737,033     $ 174,690       2,707,798     $ 311,368       18.2 %
Asia
                                                       
Japan
    3,472,568     $ 471,591       685,757     $ 98,630       4,158,325     $ 570,221       33.3 %
China
                608,537       24,918       608,537       24,918       1.5 %
Other Asia
    362,745       34,672                   362,745       34,672       2.0 %
                                                         
Asia Total
    3,835,313     $ 506,263       1,294,294     $ 123,548       5,129,607     $ 629,811       36.8 %
                                                         
Total
    8,665,094     $ 944,353       9,157,726     $ 768,555       17,822,820     $ 1,712,908       100.0 %
                                                         
Number of Projects
            27               29               56          
Funded-to-Date
          $ 822,500             $ 391,757             $ 1,214,257          
AMB’s Weighted Average Ownership Percentage
            90.9 %             88.5 %             89.8 %        
AMB’s Share of Amounts Funded to Date
          $ 758,668             $ 347,152             $ 1,105,820          
Weighted Average Estimated Yield(5)
            7.3 %             7.5 %             7.4 %        
Percent Pre-leased
            39.7 %             6.9 %             22.9 %        
 
 
(1) Includes investments held through unconsolidated co-investment ventures.
 
(2) Stabilization is generally defined as properties that are 90% leased or properties that have been substantially complete for at least 12 months.
 
(3) Represents total estimated cost of development, renovation, or expansion, including initial acquisition costs, prepaid ground leases, buildings, and associated carry costs. Estimated total investments are based on current forecasts and are subject to change. Non-U.S. dollar investments are translated to U.S. dollars using the exchange rate at December 31, 2007.


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(4) Includes value-added conversion projects.
 
(5) Yields exclude value-added conversion projects and are calculated on an after-tax basis for international projects.
 
The following table sets forth completed development projects that we intend to either sell or contribute to co-investment funds as of December 31, 2007:
 
Completed Development Projects Available for Sale or Contribution(1)
 
                 
          Total
 
    Square Feet     Investment(2)  
 
The Americas
               
United States
    1,400,656     $ 110,657  
Other Americas
    2,444,757       155,223  
                 
The Americas Total
    3,845,413     $ 265,880  
Europe
               
France
    345,091     $ 38,863  
Germany
           
Benelux
           
Other Europe
           
                 
Europe Total
    345,091     $ 38,863  
Asia
               
Japan
        $  
China
           
Other Asia
           
                 
Asia Total
        $  
                 
Total
    4,190,504     $ 304,743  
                 
AMB’s Weighted Average Ownership Percentage
            98.9 %
Weighted Average Estimated Yield
            7.8 %
Percent Pre-leased
            82.4 %
 
 
(1) Represents projects where development activities have been completed and which we intend to sell or contribute within two years of construction completion.
 
(2) Represents total estimated cost of development, renovation, or expansion, including initial acquisition costs, prepaid ground leases, buildings, and associated carry costs. Estimated total investments are based on current forecasts and are subject to change. Non-U.S. dollar investments are translated to U.S. dollars using the exchange rate at December 31, 2007.
 
Properties held through Co-investment Ventures, Limited Liability Companies and Partnerships
 
The following table summarizes our ten consolidated and unconsolidated significant co-investment ventures as of December 31, 2007:
 
                         
                    Incentive
   
    Date
  Geographic
      Functional
  Distribution
   
Co-investment Venture
  Established   Focus   Principle Venture Investors   Currency   Frequency   Term
AMB Erie
  March 1998   United States   Erie Insurance Group   USD   3 years   Perpetual
AMB Partners II
  February 2001   United States   City and County of San Francisco ERS   USD   3 years   Perpetual
AMB-SGP
  March 2001   United States   Subsidiary of GIC Real Estate Pte Ltd.   USD   10 years   March 2011; extendable 10 years
AMB Institutional Alliance Fund II
  June 2001   United States   Various   USD   At dissolution   December 2014 (estimated)
AMB-AMS
  June 2004   United States   Various   USD   At dissolution   December 2012; extendable 4 years
AMB Institutional Alliance Fund III
  October 2004   United States   Various   USD   3 years   Open end
AMB-SGP Mexico
  December 2004   Mexico   Subsidiary of GIC Real Estate Pte Ltd.   USD   7 years   December 2011; extendable 7 years
AMB Japan Fund I
  June 2005   Japan   Various   JPY   At dissolution   June 2013; extendable 2 years
AMB DFS Fund I
  October 2006   United States   GE Real Estate   USD   Upon project sales   Perpetual
AMB Europe Fund I
  June 2007   Europe   Various   EUR   3 years   Open end


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Consolidated Co-investment Ventures:
 
As of December 31, 2007, we held interests in co-investment ventures, limited liability companies and partnerships with institutional investors and other third parties, which we consolidate in our financial statements. Such investments are consolidated because we own a majority interest or, as general partner, exercise significant control over major operating decisions such as acquisition or disposition decisions, approval of budgets, selection of property managers and changes in financing. Under the agreements governing the co-investment ventures, we and the other party to the co-investment venture may be required to make additional capital contributions and, subject to certain limitations, the co-investment ventures may incur additional debt. Such agreements also impose certain restrictions on the transfer of co-investment venture interests by us or the other party to the co-investment venture and typically provide certain rights to us or the other party to the co-investment venture to sell our or their interest in the co-investment venture to the co-investment venture or to the other co-investment venture partner on terms specified in the agreement. In addition, under certain circumstances, many of the co-investment ventures include buy/sell provisions. See Part IV, Item 15: Note 8 of the “Notes to Consolidated Financial Statements” for additional details.
 
The tables that follow summarize our consolidated co-investment ventures as of December 31, 2007:
 
Consolidated Co-investment Ventures
(dollars in thousands)
 
                                         
    Our
          Gross
             
    Ownership
    Square
    Book
    Property
    Other
 
Consolidated Co-investment Ventures
  Percentage     Feet(1)     Value(2)     Debt     Debt  
 
Co-investment Operating Ventures:
                                       
AMB Partners II(3)
    20 %     9,914,742     $ 691,114     $ 319,956     $ 65,000  
AMB-SGP(4)
    50 %     8,287,592       454,794       346,638        
AMB Institutional Alliance Fund II(5)
    20 %     8,006,081       524,727       238,284       60,000  
AMB-AMS(6)
    39 %     2,172,137       156,468       83,151        
AMB Erie(7)
    50 %     821,712       53,745       20,026        
                                         
Total Co-investment Operating Ventures
    30 %     29,202,264       1,880,848       1,008,055       125,000  
Co-Investment Development Ventures:
                                       
AMB Partners II(3)
    20 %     n/a       3,376              
AMB Institutional Alliance Fund II(5)
    20 %     n/a       4,421              
                                         
Total Co-Investment Development Ventures
    20 %           7,797              
                                         
Total Co-Investment Ventures
    30 %     29,202,264       1,888,645       1,008,055       125,000  
Other Industrial Co-investment Operating Ventures
    92 %     2,196,134       209,554       28,570        
Other Industrial Co-investment Development Ventures
    82 %     2,868,271       410,847       82,403        
                                         
Total Consolidated Co-investment Ventures
    43 %     34,266,669     $ 2,509,046     $ 1,119,028     $ 125,000  
                                         
 
 
(1) For development properties, represents the estimated square feet upon completion for committed phases of development projects.
 
(2) Represents the book value of the property (before accumulated depreciation) owned by the co-investment venture and excludes net other assets as of December 31, 2007. Development book values include uncommitted land.


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(3) AMB Partners II, L.P. is a co-investment partnership formed in 2001 with the City and County of San Francisco Employees’ Retirement System.
 
(4) AMB-SGP, L.P. is a co-investment partnership formed in 2001 with Industrial JV Pte. Ltd., a subsidiary of GIC Real Estate Pte. Ltd., the real estate investment subsidiary of the Government of Singapore Investment Corporation.
 
(5) AMB Institutional Alliance Fund II, L.P. is a co-investment partnership formed in 2001 with institutional investors, which invest through a private real estate investment trust.
 
(6) AMB-AMS, L.P. is a co-investment partnership formed in 2004 with three Dutch pension funds.
 
(7) AMB/Erie, L.P. is a co-investment partnership formed in 1998 with the Erie Insurance Company and certain related entities.
 
Unconsolidated Co-investment Ventures:
 
As of December 31, 2007, we held interests in five significant equity investment co-investment ventures that are not consolidated in our financial statements. Effective October 1, 2006, we deconsolidated AMB Institutional Alliance Fund III, L.P. on a prospective basis. The management and control over significant aspects of these investments are held by the third-party co-investment venture partners and we are not the primary beneficiary for the investments that meet the variable-interest entity consolidation criteria under FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities.
 
The tables that follow summarize our unconsolidated co-investment ventures as of December 31, 2007:
 
Unconsolidated Co-investment Ventures
(dollars in thousands)
 
                                                                 
    Our
          Gross
                Our
    Estimated
    Planned
 
    Ownership
    Square
    Book
    Property
    Other
    Net Equity
    Investment
    Gross
 
Unconsolidated co-investment Venture
  Percentage     Feet(1)     Value(2)     Debt     Debt     Investment(3)     Capacity     Capitalization  
Co-investment operating venture
                                                               
AMB Institutional Alliace Fund III(4)(5)
    18%       21,382,228     $ 1,975,455     $ 962,029     $ 86,000     $ 135,710     $ 309,000     $ 2,284,000  
AMB Europe fund I(5)(6)
    21%       8,322,680       1,098,469       667,018             49,893       273,000       1,371,000  
AMB Japan Fund I(7)
    20%       5,392,336       936,859       561,020       105,496       54,733       1,300,000       2,227,000  
AMB-SGP Mexico(8)
    20%       4,903,596       262,428       173,449             12,557       443,000       705,000  
                                                                 
Total Co-investment Operating Venture
    19%       40,000,840       4,263,211       2,363,516       191,496       252,893       2,325,000       6,587,000  
Co-investment Development venture:
                                                               
AMB DFS Fund I(9)
    15%       1,432,577       144,150                   22,004       274,000       418,000  
Other Industrial Co-investment Operating Venture
    54%       7,669,507 (10)     294,805       177,812             48,555       n/a       n/a  
                                                                 
Total Unconsolidated Co-investment Venture
    21%       49,102,924     $ 4,702,166     $ 2,541,328     $ 191,496     $ 323,452     $ 2,599,000     $ 7,005,000  
                                                                 
 
 
(1) For development properties, represents the estimated square feet upon completion for committed phases of development projects.
 
(2) Represents the book value of the property (before accumulated depreciation) owned by the co-investment venture and excludes net other assets as of December 31, 2007. Development book values include uncommitted land.
 
(3) We also have a 39% unconsolidated equity interest in G.Accion, S.A. de C.V. (G.Accion), a Mexican real estate company. G.Accion provides management and development services for industrial, retail, residential and office properties in Mexico.
 
(4) AMB Institutional Alliance Fund III, L.P. is an open-ended co-investment partnership formed in 2004 with institutional investors, which invest through a private real estate investment trust. Prior to October 1, 2006, we accounted for AMB Institutional Alliance Fund III, L.P. as a consolidated co-investment venture.
 
(5) The planned gross capitalization and investment capacity of AMB Institutional Alliance Fund III, L.P. and AMB Europe Fund I, FCP-FIS, as open-ended funds are not limited. The planned gross capitalization represents the gross book value of real estate assets as of the most recent quarter end, and the investment


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capacity represents estimated capacity based on the fund’s current cash and leverage limitations as of the most recent quarter end.
 
(6) AMB Europe Fund I, FCP-FIS, is an open-ended co-investment venture formed in 2007 with institutional investors. The fund is Euro-denominated. U.S. dollar amounts are converted at the exchange rate in effect at December 31, 2007.
 
(7) AMB Japan Fund I, L.P. is a co-investment partnership formed in 2005 with institutional investors. The fund is Yen-denominated. U.S. dollar amounts are converted at the exchange rate in effect at December 31, 2007.
 
(8) AMB-SGP Mexico, LLC is a co-investment partnership formed in 2004 with Industrial (Mexico) JV Pte. Ltd., a subsidiary of GIC Real Estate Pte. Ltd., the real estate investment subsidiary of the Government of Singapore Investment Corporation.
 
(9) AMB DFS Fund I, LLC is a co-investment partnership formed in 2006 with a subsidiary of GE Real Estate to build and sell properties.
 
(10) Includes investments in 7.5 million square feet of operating properties through our investments in unconsolidated co-investment ventures that we do not manage, which we exclude from our owned and managed portfolio. Our owned and managed operating portfolio includes properties in which we have at least a 10% ownership interest, for which we are the property or asset manager, and which we intend to hold for the long-term.
 
Secured Debt
 
As of December 31, 2007, we had $1.5 billion of secured indebtedness, net of unamortized premiums, secured by deeds of trust or mortgages. As of December 31, 2007, the total gross investment book value of those properties securing the debt was $2.1 billion. Of the $1.5 billion of secured indebtedness, $1.1 billion was consolidated co-investment venture debt secured by properties with a gross investment value of $1.8 billion. For additional details, see Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and Part IV, Item 15: Note 5 of “Notes to Consolidated Financial Statements” included in this report. We believe that as of December 31, 2007, the fair value of the properties securing the respective obligations in each case exceeded the principal amount of the outstanding obligations.
 
Item 3.   Legal Proceedings
 
As of December 31, 2007, there were no material pending legal proceedings to which we were a party or of which any of our properties was the subject, the adverse determination of which we anticipate would have a material adverse effect upon our financial condition, results of operations and cash flows.
 
Item 4.   Submission of Matters to a Vote of Security Holders
 
None.


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PART II
 
Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Our common stock began trading on the New York Stock Exchange on November 21, 1997 under the symbol “AMB.” As of February 20, 2007, there were approximately 479 holders of record of our common stock (excluding shares held through The Depository Trust Company, as nominee). Set forth below are the high and low sales prices per share of our common stock, as reported on the NYSE composite tape, and the distribution per share paid or payable by us during the period from January 1, 2006 through December 31, 2007:
 
                         
Year
  High     Low     Dividend  
 
2006
                       
1st Quarter
  $ 56.53     $ 48.89     $ 0.460  
2nd Quarter
    54.25       46.26       0.460  
3rd Quarter
    58.65       50.05       0.460  
4th Quarter
    63.02       54.49       0.460  
2007
                       
1st Quarter
  $ 65.38     $ 56.02     $ 0.500  
2nd Quarter
    62.83       51.53       0.500  
3rd Quarter
    60.00       48.10       0.500  
4th Quarter
    66.86       54.28       0.500  
 
The payment of dividends and other distributions by us is at the discretion of our board of directors and depends on numerous factors, including our cash flow, financial condition and capital requirements, real estate investment trust provisions of the Internal Revenue Code and other factors.


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Stock Performance Graph
 
The following line graph compares the change in our cumulative total stockholder return on shares of our common stock from December 31, 2002 to December 31, 2007 to the cumulative total return of the Standard and Poor’s 500 Stock Index and the NAREIT Equity REIT Total Return Index from December 31, 2002 to December 31, 2007. The graph assumes an initial investment of $100 in the common stock of AMB Property Corporation and each of the indices on December 31, 2002 and, as required by the SEC, the reinvestment of all distributions. The return shown on the graph is not necessarily indicative of future performance.
 
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among AMB Property Corporation, The S&P 500 Index
and The NAREIT Equity Index
 
(COMPANY LOGO)
 
* $100 invested on 12/31/02 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
 
Copyright© 2008, Standard & Poor’s, a division of the McGraw-Hill Companies, Inc. All rights reserved. www.researchdatagroup.com/S&P.htm


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Item 6.   Selected Financial Data
 
SELECTED COMPANY FINANCIAL AND OTHER DATA(1)
 
The following table sets forth selected consolidated historical financial and other data for AMB Property Corporation on a historical basis as of and for the years ended December 31:
 
Note:  Effective October 1, 2006, we deconsolidated AMB Institutional Alliance Fund III, L.P. on a prospective basis. See footnote 5 below for further discussion of the comparability of selected financial and other data.
 
                                         
    2007     2006(5)     2005     2004     2003  
    (Dollars in thousands, except per share amounts)  
 
Operating Data
                                       
Total revenues
  $ 669,671     $ 711,321     $ 646,877     $ 564,355     $ 489,898  
Income before minority interests, discontinued operations and cumulative effect of change in accounting principle
    297,403       224,659       196,975       106,230       104,680  
Income from continuing operations before cumulative effect of change in accounting principle
    242,558       163,027       123,627       54,127       48,784  
Income from discontinued operations
    71,702       60,852       134,180       71,344       80,344  
Net income before cumulative effect of change in accounting principle
    314,260       223,879       257,807       125,471       129,128  
Net income
    314,260       224,072       257,807       125,471       129,128  
Net income available to common stockholders
    295,524       209,420       250,419       118,340       116,716  
Income from continuing operations per common share:
                                       
Basic(2)
    2.30       1.70       1.38       0.57       0.45  
Diluted(2)
    2.24       1.63       1.32       0.55       0.44  
Income from discontinued operations per common share:
                                       
Basic(2)
    0.74       0.69       1.60       0.87       0.99  
Diluted(2)
    0.72       0.67       1.53       0.84       0.97  
Net income available to common stockholders per common share:
                                       
Basic(2)
    3.04       2.39       2.98       1.44       1.44  
Diluted(2)
    2.96       2.30       2.85       1.39       1.41  
Dividends declared per common share
    2.00       1.84       1.76       1.70       1.66  
Other Data
                                       
Funds from operations(3)
  $ 365,492     $ 297,912     $ 254,363     $ 207,314     $ 186,666  
Funds from operations per common share and unit:(3) 
                                       
Basic
    3.60       3.24       2.87       2.39       2.17  
Diluted
    3.51       3.12       2.75       2.30       2.13  
Cash flows provided by (used in):
                                       
Operating activities
    240,543       335,855       295,815       297,349       269,808  
Investing activities
    (632,240 )     (880,560 )     (60,407 )     (731,402 )     (346,275 )
Financing activities
    420,025       483,621       (101,856 )     409,705       112,022  
Balance Sheet Data
                                       
Investments in real estate at cost
  $ 6,709,545     $ 6,575,733     $ 6,798,294     $ 6,526,144     $ 5,491,707  
Total assets
    7,262,403       6,713,512       6,802,739       6,386,943       5,409,559  
Total consolidated debt
    3,494,844       3,437,415       3,401,561       3,257,191       2,574,257  
Our share of total debt(4)
    3,272,513       3,088,624       2,601,878       2,395,046       1,954,314  
Preferred stock
    223,412       223,417       175,548       103,204       103,373  
Stockholders’ equity (excluding preferred stock)
    2,540,540       1,943,240       1,740,751       1,567,936       1,553,764  


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(1) Certain items in the consolidated financial statements for prior periods have been reclassified to conform with current classifications with no effect on net income or stockholders’ equity.
 
(2) Basic and diluted net income per weighted average share equals the net income available to common stockholders divided by 97,189,749 and 99,808,455 shares, respectively, for 2007; 87,710,500 and 91,106,893 shares, respectively, for 2006; 84,048,936 and 87,873,399 shares, respectively, for 2005; 82,133,627 and 85,368,626 shares, respectively, for 2004; and 81,096,062 and 82,852,528 shares, respectively, for 2003.
 
(3) See Part II, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Supplemental Earnings Measures,” for a discussion of why we believe FFO is a useful supplemental measure of operating performance, of ways in which investors might use FFO when assessing our financial performance, and of FFO’s limitations as a measurement tool.
 
(4) Our share of total debt is the pro rata portion of the total debt based on our percentage of equity interest in each of the consolidated and unconsolidated co-investment ventures holding the debt. We believe that our share of total debt is a meaningful supplemental measure, which enables both management and investors to analyze our leverage and to compare our leverage to that of other companies. In addition, it allows for a more meaningful comparison of our debt to that of other companies that do not consolidate their co-investment ventures. Our share of total debt is not intended to reflect our actual liability should there be a default under any or all of such loans or a liquidation of the co-investment ventures. For a reconciliation of our share of total debt to total consolidated debt, a GAAP financial measure, please see the table of debt maturities and capitalization in Part II, Item 7: “Management Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capital Resources.”
 
(5) Effective October 1, 2006, we deconsolidated AMB Institutional Alliance Fund III, L.P. on a prospective basis, due to the re-evaluation of the accounting for our investment in the fund because of changes to the partnership agreement regarding the general partner’s rights effective October 1, 2006. As a result, the financial measures for the years 2007, 2006, 2005, 2004 and 2003, included in our operating data, other data and balance sheet data above are not comparable.
 
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
GENERAL
 
You should read the following discussion and analysis of our consolidated financial condition and results of operations in conjunction with the notes to the consolidated financial statements.
 
We are a self-administered and self-managed real estate investment trust and expect that we have qualified, and will continue to qualify, as a real estate investment trust for federal income tax purposes beginning with the year ended December 31, 1997. As a self-administered and self-managed real estate investment trust, our own employees perform our corporate administrative and management functions, rather than our relying on an outside manager for these services. We manage our portfolio of properties generally through direct property management performed by our own employees. Additionally, within our flexible operating model, we may from time to time establish relationships with third-party real estate management firms, brokers and developers that provide some property-level administrative and management services under our direction.
 
Management’s Overview
 
The primary source of our revenue and earnings is rent received from customers under long-term (generally three to ten years) operating leases at our properties, including reimbursements from customers for certain operating costs. We also generate earnings from our private capital business, which consists of acquisition and development fees, asset management fees and priority distributions, and promoted interests and incentive distributions from our co-investment ventures. Additionally, we generate earnings from the disposition of projects in our development-for-sale and value-


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added conversion programs, from the contributions of development properties to our co-investment ventures and from land sales. Our long-term growth is driven by our ability to:
 
  •  maintain and increase occupancy rates and/or increase rental rates at our properties;
 
  •  continue to develop properties profitably and sell to third parties or contribute to our co-investment ventures; and
 
  •  continue to grow our earnings from our private capital business through the contribution of properties or from the acquisition of new properties.
 
Real Estate Operations
 
Real estate fundamentals in the United States industrial markets held steady during 2007 due to balanced supply and demand. According to data provided by Torto-Wheaton Research, availability was 9.4% for the quarter ended December 31, 2007, up 20 basis points from the prior quarter and unchanged from the fourth quarter of 2006. Activity levels were lower than the prior year. According to Torto-Wheaton Research, absorption was 21.4 million square feet for the fourth quarter and 120.2 million square feet for the full year, down from 209.3 million square feet in 2006, whereas construction completions were 40.3 million square feet in the quarter and 126.8 million square feet for the full year, down from 175.1 million square feet in 2006. While absorption in 2007 was 17.5% below the 19-year quarter average, construction completions were 22.6% below the average for the same period, which we believe indicates a market in equilibrium with a moderating supply of new industrial space entering the market. Reflecting the slowdown in the U.S. economy, we believe that net absorption for the first quarter of 2008 will be at or slightly below the fourth quarter 2007 level and similar in the second quarter of 2008. We presently expect pick-up in the second half of 2008 to a full year absorption level approximating that of 2007. With a similar moderation in deliveries, we believe that year-end vacancy will also approximate that of 2007.
 
We think the strongest industrial markets in the United States are the major coastal markets tied to global trade, including Southern California — which is our largest market — Seattle, the San Francisco Bay Area, Northern New Jersey/New York and Miami. While we expect demand to moderate in the first half of 2008, due primarily to the slower growth rate in import volumes and the uncertainty in the economy, we believe our coastal markets will outperform other U.S. industrial markets. These markets have some of the highest occupancy rates in the country and we, therefore, expect to see some further rate growth in 2008, even as the national economic picture plays out.
 
The table below summarizes key operating and leasing statistics for our owned and managed operating properties for the years ended December 31, 2007 and 2006:
 
                                 
                      Total/Weighted
 
Owned and Managed Property Data(1)
  The Americas     Europe     Asia     Average  
 
For the year ended December 31, 2007:
                               
Rentable square feet
    101,627,803       8,500,962       8,051,530       118,180,295  
Occupancy percentage at period end(3)
    96.0 %     96.1 %     96.6 %     96.0 %
Same space square footage leased
    18,144,411       405,912       690,569       19,240,892  
Trailing four quarter rent change on renewals and rollovers(2)(3)
    4.1 %     7.6 %     19.5 %     4.9 %
                                 
For the year ended December 31, 2006:
                               
Rentable square feet
    92,498,200       4,238,193       3,966,522       100,702,915  
Occupancy percentage at period end(3)
    96.3 %     98.1 %     89.6 %     96.3 %
Same space square footage leased
    15,968,855       42,334       192,391       16,203,580  
Trailing four quarter rent change on renewals and rollovers(2)(3)
    (0.1 )%     (0.1 )%     1.0 %     (0.1 )%
 
 
(1) Schedule includes owned and managed operating properties which we define as properties in which we have at least a 10% ownership interest, for which we are the property or asset manager, and which we intend to hold for the long-term. This excludes development and renovation projects and recently completed development projects available for sale or contribution.


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(2) Rent changes on renewals and rollovers are calculated as the difference, weighted by square feet, of the net ABR due the first month of a term commencement and the net ABR due the last month of the former tenant’s term. If free rent is granted, then the first positive full rent value is used as a point of comparison. The rental amounts exclude base stop amounts, holdover rent and premium rent charges. If either the previous or current lease terms are under 12 months, then they are excluded from this calculation. If the lease is first generation or there is no prior lease for comparison, then it is excluded from this calculation.
 
(3) On a consolidated basis for the Americas, Europe and Asia, occupancy percentage at period end for 2007 was 96.6%, 100.0% and 100.0%, and rent change on renewals and rollovers at period end for 2007 was 4.2%, 0.0% and 48.7%, respectively. On a consolidated basis, for the Americas, Europe and Asia, occupancy percentage at period end for 2006 was 97.0%, 98.1% and 100.0%, and rent change on renewals and rollovers at period end for 2006 was 4.2%, 0.0% and 0.0%, respectively.
 
We believe that higher occupancy levels in our portfolio, driven in part by strengthening fundamentals in our markets tied to global trade, are contributing to rental rate growth in our portfolio. Our operating portfolio’s average occupancy rate in the fourth quarter of 2007 was 95.6%, on an owned and managed basis, an increase of 20 basis points from the prior quarter and 30 basis points from December 31, 2006. Rental rates on lease renewals and rollovers in our portfolio increased 4.9% in the fourth quarter of 2007, which we think reflect the generally positive trends in real estate fundamentals in our markets. During the quarter, cash-basis same store net operating income, with and without the effect of lease termination fees, grew by 3.3% and 4.8%, respectively, on an owned and managed basis. See “Supplemental Earnings Measures” below for a discussion of cash-basis same store net operating income and a reconciliation of cash-basis same store net operating income and net income. We believe that market rents have generally recovered from their lows and, in many of our markets, are back to or above their prior peak levels of 2001.
 
Private Capital Business
 
In June 2007, we announced the formation of AMB Europe Fund I, FCP-FIS, our eleventh co-investment fund since our initial public offering in 1997. This Euro-denominated, open-end commingled fund is our tenth active fund. The fund’s investment strategy focuses on acquiring stabilized industrial distribution properties, including those developed by us, near high-volume airports, seaports and transportation networks, and in the major metropolitan areas of Europe, with initial target markets in Belgium, France, Germany, Italy, the Netherlands, Spain, the United Kingdom and Central/Eastern Europe. The gross asset value of AMB Europe Fund I, FCP-FIS was approximately $1.1 billion at December 31, 2007.
 
Going forward, we believe that our co-investment program with private-capital investors will continue to serve as a significant source of revenues and capital for new investments. Through these co-investment ventures, we typically earn acquisition fees, asset management fees and priority distributions, as well as promoted interests and incentive distributions based on the performance of the co-investment ventures; however, we cannot assure you that we will continue to do so. Through contribution of development properties to our co-investment ventures, we expect to recognize value creation from our development pipeline. In anticipation of the formation of future co-investment ventures, we may also hold acquired and newly developed properties for later contribution to future funds.
 
As of December 31, 2007, we owned approximately 83.4 million square feet of our properties (56.5% of the total operating and development portfolio) through our consolidated and unconsolidated co-investment ventures. We may make additional investments through these co-investment ventures or new co-investment ventures in the future and presently plan to do so.
 
Development Business
 
Our development business consists of ground-up development, redevelopment, renovations, land sales, and value-added conversions. We generate earnings from our development business through the disposition or contribution of projects from these activities. We expect our development business to be a significant driver of our earnings growth as we expand the pipeline across each category.
 
We believe that customer demand for new industrial space in strategic markets tied to global trade will continue to outpace supply. To capitalize on this demand, we intend to continue to expand our development business


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in our existing markets and into new markets around the world that are essential to global trade. We also will continue to redevelop existing industrial buildings opportunistically by investing significant amounts of capital to enhance the functionality of the properties to meet current industrial market demands. In addition to our committed development pipeline, we hold a total of 2,535 acres of land for future development or sale, 91% of which is located in the Americas. We currently estimate that these 2,535 acres of land could support approximately 44.0 million square feet of future development.
 
We believe that our historical investment focus on industrial real estate in some of the world’s most strategic infill markets positions us to create value through the select conversion of industrial properties to higher and better uses (value-added conversions). Generally, we expect to sell to third parties our value-added conversion projects at some point in the re-entitlement/conversion process, thus recognizing the enhanced value of the underlying land that supports the property’s repurposed use. Value-added conversions involve the repurposing of industrial properties to a higher and better use, including office, residential, retail, research & development or manufacturing. Activities required to prepare the property for conversion to a higher and better use may include such activities as rezoning, redesigning, reconstructing and retenanting. The sales price of the value-added conversion project is generally based on the underlying land value based on its ultimate use and as such, little to no residual value is ascribed to the industrial building.
 
Our long-term capital allocation goal is to have approximately 50% of our owned and managed operating portfolio invested in non-U.S. markets based on owned and managed annualized base rent. As of December 31, 2007, our non-U.S. operating properties comprised 23.8% of our owned and managed operating portfolio and 4.5% of our consolidated operating portfolio based on annualized base rent. In addition to the United States, we include Canada and Mexico as target countries in the Americas. In Europe, our target countries currently are Belgium, France, Germany, Italy, the Netherlands, Spain and the United Kingdom. In Asia, our target countries currently are China, India, Japan, Singapore and South Korea. We expect to add additional target countries outside the United States in the future, including countries in Central/Eastern Europe.
 
To maintain our qualification as a real estate investment trust, we must pay dividends to our stockholders aggregating annually at least 90% of our taxable income. As a result, we cannot rely on retained earnings to fund our on-going operations to the same extent that other corporations that are not real estate investment trusts can. We must continue to raise capital in both the debt and equity markets to fund our working capital needs, acquisitions and developments. See “Liquidity and Capital Resources” for a complete discussion of the sources of our capital.
 
Summary of Key Transactions in 2007
 
During the year ended December 31, 2007, we completed the following significant capital deployment and other transactions:
 
  •  Acquired, on an owned and managed basis, 53 properties in the Americas, Asia and Europe aggregating approximately 11.9 million square feet for $1.0 billion, including 46 properties aggregating approximately 11.2 million square feet for $979.6 million through unconsolidated co-investment ventures and seven properties aggregating approximately 0.7 million square feet for $62.2 million acquired directly by us;
 
  •  Committed to 38 new development projects and one value-added conversion project in the Americas, Asia and Europe totaling 12.2 million square feet with an estimated total investment of approximately $1.1 billion;
 
  •  Acquired 1,441 acres of land for development in the Americas, Europe and Asia for approximately $281.2 million;
 
  •  Sold seven development projects totaling approximately 0.5 million square feet plus three land parcels for an aggregate sale price of $115.1 million;
 
  •  Formed an unconsolidated open-end co-investment venture, AMB Europe Fund I, FCP-FIS, with the contribution to the co-investment venture of $584.0 million (using the exchange rate on the date of contribution), aggregating approximately 4.7 million square feet of operating properties and completed development projects, and contributed an additional five completed development projects, aggregating


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  approximately 1.4 million square feet, for approximately $215.3 million during the year to this co-investment venture;
 
  •  Contributed 10 completed development projects totaling 1.8 million square feet and two land parcels into AMB Institutional Alliance Fund III, L.P., AMB-SGP Mexico, LLC, AMB DFS Fund I, LLC, and AMB Japan Fund I, L.P., four of our unconsolidated co-investment ventures;
 
  •  Divested three operating properties aggregating 0.3 million square feet and two value-added conversion projects for approximately $120.0 million; and
 
  •  Exercised the purchase option for the remaining equity interest held by an unrelated third party member of AMB Pier One, LLC, which held the location of our global headquarters.
 
See Part IV, Item 15: Notes 3 and 4 of the “Notes to Consolidated Financial Statements” for a more detailed discussion of our acquisition, development and disposition activity.
 
During the year ended December 31, 2007, we completed the following significant capital markets and other financing transactions:
 
  •  Raised approximately $472.1 million in net proceeds from the issuance of approximately 8.4 million shares of our common stock;
 
  •  Obtained long-term secured debt financings for our consolidated co-investment ventures of $334.0 million with a weighted average interest rate of 5.7%;
 
  •  Obtained $242.1 million of debt (using the exchange rates in effect at applicable quarter end dates) with a weighted average interest rate of 2.5% for international assets;
 
  •  Refinanced $305.0 million of secured debt, with a weighted average interest rate of 5.7%, for AMB-SGP, L.P., one of our co-investment ventures;
 
  •  Expanded the European revolving mortgage credit facility agreement by 100.0 million Euros to 328.0 million Euros (approximately $436.3 million in U.S. dollars, using the applicable exchange rate at the contribution date), which was assumed by AMB Europe Fund I, FCP-FIS, on June 12, 2007;
 
  •  Refinanced the Series D Cumulative Redeemable Preferred Limited Partnership Units to, among other things, change the rate applicable to the series D preferred units from 7.75% to 7.18% and change the date prior to which the series D preferred units may not be redeemed from May 5, 2004 to February 22, 2012;
 
  •  Increased the capacity of our Yen credit facility by 10.0 billion Yen from 45.0 billion Yen to 55.0 billion Yen (approximately $492.3 million in U.S. dollars, using the exchange rate at December 31, 2007);
 
  •  Increased the capacity of our multicurrency credit facility by $250 million to $500 million and extended the maturity date to June 2011;
 
  •  Obtained a $70 million unsecured debt facility, which had a balance of $60.0 million outstanding as of December 31, 2007, with a weighted average interest rate of 5.8%, for AMB Institutional Alliance Fund II, L.P., one of our co-investment ventures;
 
  •  Paid off $55 million of medium-term notes which matured in August 2007 and had an interest rate of 7.9%;
 
  •  Repurchased approximately 1.1 million shares of our common stock for an aggregate price of $53.4 million, at a weighted average price of $49.87 per share;
 
  •  Redeemed all 800,000 of the operating partnership’s outstanding 7.95% Series J Cumulative Redeemable Preferred Limited Partnership Units for an aggregate cost of $40.0 million, plus accrued and unpaid distributions;
 
  •  Redeemed all 800,000 of the operating partnership’s outstanding 7.95% Series K Cumulative Redeemable Preferred Limited Partnership Units for an aggregate cost of $40.0 million, plus accrued and unpaid distributions; and


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  •  Repurchased all 510,000 of AMB Property II, L.P.’s outstanding 8.00% Series I Cumulative Redeemable Preferred Limited Partnership Units for an aggregate cost of $25.5 million, plus accrued and unpaid distributions, less applicable withholding.
 
See Part IV, Item 15: Notes 5, 8 and 10 of the “Notes to Consolidated Financial Statements” for a more detailed discussion of our capital markets transactions.
 
Critical Accounting Policies
 
Our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our assumptions and estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
 
Investments in Real Estate.  Investments in real estate and leasehold interests are stated at cost unless circumstances indicate that cost cannot be recovered, in which case, the carrying value of the property is reduced to estimated fair value. We also regularly review the impact of above or below-market leases, in-place leases and lease origination costs for acquisitions, and record an intangible asset or liability accordingly. Carrying values for financial reporting purposes are reviewed for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of a property may not be fully recoverable. Impairment is recognized when estimated expected future cash flows (undiscounted and without interest charges) are less than the carrying value of the property. The estimation of expected future net cash flows is inherently uncertain and relies on assumptions regarding current and future economics and market conditions and the availability of capital. If impairment analysis assumptions change, then an adjustment to the carrying value of our long-lived assets could occur in the future period in which the assumptions change. To the extent that a property is impaired, the excess of the carrying amount of the property over its estimated fair value is charged to earnings. For properties held for sale, impairment is recognized when the carrying value of the property is less than its estimated fair value net of cost to sell. As a result of leasing activity and the economic environment, we re-evaluated the carrying value of our investments and recorded impairment charges of $1.2 million, $6.3 million and $0.0, during the years ended December 31, 2007, 2006 and 2005, respectively, on certain of our investments.
 
Revenue Recognition.  We record rental revenue from operating leases on a straight-line basis over the term of the leases and maintain an allowance for estimated losses that may result from the inability of our customers to make required payments. If customers fail to make contractual lease payments that are greater than our allowance for doubtful accounts, security deposits and letters of credit, then we may have to recognize additional doubtful account charges in future periods. We monitor the liquidity and creditworthiness of our customers on an on-going basis by reviewing their financial condition periodically as appropriate. Each period we review our outstanding accounts receivable, including straight-line rents, for doubtful accounts and provide allowances as needed. We also record lease termination fees when a customer has executed a definitive termination agreement with us and the payment of the termination fee is not subject to any conditions that must be met or waived before the fee is due to us. If a customer remains in the leased space following the execution of a definitive termination agreement, the applicable termination fees are deferred and recognized over the term of such customer’s occupancy.
 
Property Dispositions.  We report real estate dispositions in three separate categories on our consolidated statements of operations. First, when we divest a portion of our interests in real estate entities or properties, gains from the sale represent the interests acquired by third-party investors for cash and are included in gains from disposition of real estate interests in the statement of operations. Second, we dispose of value-added conversion projects and build-to-suit and speculative development projects for which we have not generated material operating income prior to sale. The gain or loss recognized from the disposition of these projects is reported net of estimated


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taxes, when applicable, and are included in development profits, net of taxes, within continuing operations of the statement of operations. Third, we dispose of value-added conversion and other redevelopment projects for which we may have generated material operating income prior to sale. The gain or loss recognized is reported net of estimated taxes, when applicable, in the development gains line within discontinued operations. Lastly, Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, requires us to separately report as discontinued operations the historical operating results attributable to operating properties sold and the applicable gain or loss on the disposition of the properties, which is included in development gains and gains from dispositions of real estate, net of taxes and minority interests, in the statement of operations. The consolidated statements of operations for prior periods are also adjusted to conform with this classification. There is no impact on our previously reported consolidated financial position, net income or cash flows. In all cases, gains and losses are recognized using the full accrual method of accounting. Gains relating to transactions which do not meet the requirements of the full accrual method of accounting are deferred and recognized when the full accrual method of accounting criteria are met.
 
Co-investment Ventures.  We hold interests in both consolidated and unconsolidated co-investment ventures. We determine consolidation based on standards set forth in Emerging Issues Task Force (EITF) Issue No. 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights, or FASB Interpretation No. 46R, Consolidation of Variable Interest Entities (FIN 46). For co-investment ventures that are variable interest entities as defined under FIN 46 where we are not the primary beneficiary, we do not consolidate the co-investment venture for financial reporting purposes.
 
Based on the guidance set forth in EITF 04-5, we consolidate certain co-investment venture investments because we exercise significant control over major operating decisions, such as approval of budgets, selection of property managers, asset management, investment activity and changes in financing. For co-investment ventures under EITF 04-5, where we do not exercise significant control over major operating and management decisions, but where we exercise significant influence, we use the equity method of accounting and do not consolidate the co-investment venture for financial reporting purposes.
 
Capitalized General and Administrative Expenses.  We capitalize general and administrative expenses, related to development projects based on time spent on development activities.
 
Real Estate Investment Trust.  As a real estate investment trust, we generally will not be subject to corporate level federal income taxes in the United States if we meet minimum distribution, income, asset and shareholder tests. However, some of our subsidiaries may be subject to federal and state taxes. In addition, foreign entities may also be subject to the taxes of the host country. An income tax allocation is required to be estimated on our taxable income arising from our taxable real estate investment trust subsidiaries and international entities. A deferred tax component could arise based upon the differences in GAAP versus tax income for items such as depreciation and gain recognition. However, we believe deferred tax is an immaterial component of our consolidated balance sheet.
 
CONSOLIDATED RESULTS OF OPERATIONS
 
Effective October 1, 2006, we deconsolidated AMB Institutional Alliance Fund III, L.P., on a prospective basis, due to the re-evaluation of the accounting for our investment in the fund because of changes to the partnership agreement regarding the general partner’s rights effective October 1, 2006. As a result, our results of operations presented below are not comparable between years presented.
 
The analysis below includes changes attributable to same store growth, acquisitions, development activity and divestitures. Same store pool includes all properties that are owned as of the end of both the current and prior year reporting periods and excludes development properties stabilized after December 31, 2005 (generally defined as properties that are 90% leased or properties that have been substantially complete for at least 12 months).
 
As of December 31, 2007, same store industrial pool consisted of properties aggregating approximately 72.9 million square feet. The properties acquired during 2007 consisted of seven properties, aggregating approximately 0.7 million square feet. The properties acquired during 2006 consisted of 31 properties, aggregating approximately 6.6 million square feet. During 2007, property divestitures and contributions consisted of 32


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properties, aggregating approximately 8.6 million square feet. In 2006, property divestitures and contributions consisted of 50 properties, aggregating approximately 7.5 million square feet. Our future financial condition and results of operations, including rental revenues, may be impacted by the acquisition of additional properties and dispositions. Our future revenues and expenses may vary materially from historical results.
 
For the Years Ended December 31, 2007 and 2006 (dollars in millions):
 
                                 
    For the Years
             
    Ended December 31,              
Revenues
  2007     2006     $ Change     % Change  
 
Rental revenues
                               
U.S. industrial:
                               
Same store
  $ 553.3     $ 580.0     $ (26.7 )     (4.6 )%
2007 acquisitions
    0.5             0.5       100.0 %
2006 acquisitions
    10.0       10.4       (0.4 )     (3.8 )%
Development
    10.7       4.7       6.0       127.7 %
Other industrial
    11.2       7.6       3.6       47.4 %
Non U.S. industrial
    52.3       62.5       (10.2 )     (16.3 )%
                                 
Total rental revenues
    638.0       665.2       (27.2 )     (4.1 )%
Private capital revenues
    31.7       46.1       (14.4 )     (31.2 )%
                                 
Total revenues
  $ 669.7     $ 711.3     $ (41.6 )     (5.8 )%
                                 
 
U.S. industrial same store rental revenues decreased $26.7 million from the prior year due primarily to the deconsolidation of AMB Institutional Alliance Fund III, L.P., on October 1, 2006 partially offset by rent increases on renewals and rollovers. Same store rental revenues for the year ended December 31, 2006 would have been $513.4 million if AMB Institutional Alliance Fund III, L.P. had been deconsolidated as of January 1, 2006. The 2006 acquisitions consisted of 31 properties, aggregating approximately 6.6 million square feet. The 2007 acquisitions consisted of seven properties, aggregating approximately 0.7 million square feet. The increase in rental revenues from development was primarily due to increased occupancy at several of our development projects where development activities have been substantially completed as well as an increase in the number of development projects. Other industrial revenues include rental revenues from properties that have been contributed to an unconsolidated co-investment venture, and accordingly are not classified as discontinued operations in our consolidated financial statements, and development projects that have reached certain levels of operation and are not yet part of the same store operating pool of properties. The increase in other industrial revenues was primarily due to an increase in base rents. The decrease in revenues from non-U.S. industrial properties was primarily due to the contribution of 4.2 million square feet of operating properties and approximately 1.8 million square feet of completed development projects into AMB Europe Fund I, FCP-FIS. The decrease in private capital income of


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$14.4 million was primarily due to a decrease in incentive fees, acquisition fees, and disposition fees offset by an increase in asset management fees as a result of an increase in total assets under management.
 
                                 
    For the Years
             
    Ended December 31,              
Costs and Expenses
  2007     2006     $ Change     % Change  
 
Property operating costs:
                               
Rental expenses
  $ 98.8     $ 96.1     $ 2.7       2.8 %
Real estate taxes
    75.2       76.9       (1.7 )     (2.2 )%
                                 
Total property operating costs
  $ 174.0     $ 173.0     $ 1.0       0.6 %
                                 
Property operating costs
                               
U.S. industrial:
                               
Same store
  $ 152.8     $ 154.9     $ (2.1 )     (1.4 )%
2007 acquisitions
    0.1             0.1       100.0 %
2006 acquisitions
    2.7       2.3       0.4       17.4 %
Development
    3.7       2.5       1.2       48.0 %
Other industrial
    3.4       1.3       2.1       161.5 %
Non-U.S. industrial
    11.3       12.0       (0.7 )     (5.8 )%
                                 
Total property operating costs
    174.0       173.0       1.0       0.6 %
Depreciation and amortization
    161.9       174.7       (12.8 )     (7.3 )%
General and administrative
    129.5       104.3       25.2       24.2 %
Fund costs
    1.1       2.1       (1.0 )     (47.6 )%
Impairment losses
    1.2       6.3       (5.1 )     (81.0 )%
Other expenses
    5.1       2.6       2.5       96.2 %
                                 
Total costs and expenses
  $ 472.8     $ 463.0     $ 9.8       2.1 %
                                 
 
Same store properties’ operating expenses decreased $2.1 million from the prior year due primarily to the deconsolidation of AMB Institutional Alliance Fund III, L.P., on October 1, 2006. Same store operating expenses for the year ended December 31, 2006 would have been $140.3 million if AMB Institutional Alliance Fund III, L.P. had been deconsolidated as of January 1, 2006. The increase of approximately $12.5 million, had AMB Institutional Alliance Fund III, L.P. been deconsolidated as of January 1, 2006, was primarily due to increased insurance costs, real estate taxes, roads and grounds expense, and management fees. The 2006 acquisitions consisted of 31 properties, aggregating approximately 6.6 million square feet. The 2007 acquisitions consisted of seven properties, aggregating approximately 0.7 million square feet. The increase in development operating costs was primarily due to increased operations in certain development projects which have been substantially completed. This increase was primarily due to increases in real estate taxes and utilities. The increase in other industrial property operating costs was primarily due to insurance, cleaning and non-reimbursable expenses. The decrease in property operating costs from non-U.S. industrial properties is primarily due to the contribution of 4.2 million square feet of operating properties and approximately 1.8 million square feet of completed development projects into AMB Europe Fund I, FCP-FIS. The decrease in depreciation and amortization expense was due to the deconsolidation of AMB Institutional Alliance Fund III, L.P. The increase in general and administrative expenses was primarily due to additional staffing and the opening of new offices both domestically and internationally. The decrease of fund costs from the prior year is due primarily to the deconsolidation of AMB Institutional Alliance Fund III, L.P. The impairment losses during the year ended December 31, 2007 were taken on non-core assets as a result of leasing activities and changes in the economic environment. The impairment losses during the year ended December 31, 2006 were taken on several non-core assets as a result of leasing activities and changes in the economic environment


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and the holding period of certain assets. Other expenses increased approximately $2.5 million from the prior year due primarily to an increase in dead deal expenditures.
 
                                 
    For the Years  Ended December 31,              
Other Income and (Expenses)
  2007     2006     $ Change     % Change  
 
Development gains, net of taxes
  $ 124.3     $ 106.4     $ 17.9       16.8 %
Gains from dispositions of real estate interests, net
    73.4             73.4       100.0 %
Equity in earnings of unconsolidated co-investment ventures, net
    7.5       23.2       (15.7 )     (67.7 )%
Other income
    22.3       11.9       10.4       87.4 %
Interest expense, including amortization
    (126.9 )     (165.1 )     (38.2 )     (23.1 )%
                                 
Total other income and (expenses), net
  $ 100.6     $ (23.6 )   $ (124.2 )     (526.3 )%
                                 
 
Development gains represent gains from the sale or contribution of development projects including land. During the year ended December 31, 2007, we sold seven completed development projects totaling 0.5 million square feet and three land parcels for approximately $115.1 million, resulting in an after-tax gain of $28.6 million. In addition, we contributed 15 completed development projects totaling 3.6 million square feet and two land parcels into AMB Institutional Alliance Fund III, L.P., AMB-SGP Mexico, LLC, AMB Europe Fund  I, FCP-FIS, AMB DFS Fund I, LLC, and AMB Japan Fund I, L.P., five of our unconsolidated co-investment ventures. As a result of these contributions, we recognized an aggregate after-tax gain of $95.7 million representing the portion of our interest in the contributed assets acquired by the third-party co-investors for cash. During 2006, we sold five land parcels and six development projects totaling approximately 1.3 million square feet for an aggregate sale price of $86.6 million, resulting in an after-tax gain of $13.3 million. In addition, during 2006, we received approximately $0.4 million in connection with the condemnation of a parcel of land resulting in a loss of $1.0 million, $0.8 million of which was the co-investment venture partner’s share. During 2006, we also contributed a total of ten completed development projects into unconsolidated co-investment ventures. Four projects totaling approximately 2.6 million square feet were contributed into AMB Japan Fund I, L.P, two projects totaling approximately 0.8 million square feet were contributed into AMB-SGP Mexico, LLC, three projects totaling approximately 0.6 million square feet were contributed into AMB Institutional Alliance Fund III, L.P., and one land parcel was contributed into AMB DFS Fund I, LLC. As a result of these contributions, we recognized an aggregate after-tax gain of $94.1 million, representing the portion of our interest in the contributed property acquired by the third-party investors for cash. During the year ended December 31, 2007, we contributed 4.2 million square feet in operating properties into AMB Europe Fund I, FCP-FIS, contributed a 0.2 million square foot operating property into AMB Institutional Alliance Fund III, L.P., and contributed an operating property aggregating approximately 0.1 million square feet into AMB-SGP Mexico, LLC, for a total of approximately $524.9 million. As a result of these contributions, we recognized gains from contribution of real estate interests of approximately $73.4 million, representing the portion of our interest in the contributed properties acquired by the third-party investors for cash. The decrease in equity in earnings of unconsolidated co-investment ventures of approximately $15.7 million was primarily due to a decrease in gains from the disposition of real estate by our unconsolidated co-investment ventures partially offset by the deconsolidation of AMB Institutional Alliance Fund III, L.P. Other income increased approximately $10.4 million from the prior year due primarily to an increase in the gain on currency remeasurement of approximately $3.9 million, an increase in insurance proceeds of approximately $2.9 million related to losses from Hurricanes Katrina and Wilma and an increase in interest income of $2.3 million. The decrease in interest expense, including amortization, was due primarily to decreased borrowings on unsecured credit facilities and the deconsolidation of AMB Institutional Alliance Fund III, L.P.
 
                                 
    For the Years
             
    Ended December 31,              
Discontinued Operations
  2007     2006     $ Change     % Change  
 
Income attributable to discontinued operations, net of minority interests
  $ 9.7     $ 18.2     $ (8.5 )     (46.7 )%
Development gains and gains from dispositions of real estate, net of taxes and minority interests
    62.0       42.6       19.4       45.5 %
                                 
Total discontinued operations
  $ 71.7     $ 60.8     $ 10.9       17.9 %
                                 


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During 2007, we divested ourselves of three industrial properties, aggregating approximately 0.3 million square feet for $120.0 million, with a resulting gain of approximately $2.0 million, and two value-added conversion projects resulting in a gain of approximately $60.0 million. During 2006, we divested ourselves of 17 industrial properties, aggregating approximately 3.5 million square feet, for an aggregate price of approximately $175.3 million, with a resulting net gain of approximately $42.6 million.
 
                                 
    For the Years
             
    Ended December 31,              
Preferred Stock
  2007     2006     $ Change     % Change  
 
Preferred stock dividends
  $ (15.8 )   $ (13.6 )   $ 2.2       16.2 %
Preferred unit redemption (issuance) costs
    (2.9 )     (1.1 )     1.8       163.6  
                                 
Total preferred stock
  $ (18.7 )   $ (14.7 )   $ 4.0       (27.2 )%
                                 
 
In August 2006, we issued 2,000,000 shares of 6.85% Series P Cumulative Redeemable Preferred Stock. The increase in preferred stock dividends is due to the then newly issued shares. On April 17, 2007, the operating partnership redeemed all 800,000 of its outstanding 7.95% Series J Cumulative Redeemable Preferred Limited Partnership Units and all 800,000 of its outstanding 7.95% Series K Cumulative Redeemable Preferred Limited Partnership Units. In addition, on April 17, 2007, AMB Property II, L.P., one of our subsidiaries, repurchased all 510,000 of its outstanding 8.00% Series I Cumulative Redeemable Preferred Limited Partnership Units. As a result of the redemptions and repurchase, we recognized a reduction of income available to common stockholders of $2.9 million for the original issuance costs during the year ended December 31, 2007. During the year ended December 31, 2006, AMB Property II, L.P., one of our subsidiaries, repurchased all 840,000 of its outstanding 8.125% Series H Cumulative Redeemable Preferred Limited Partnership Units, all 220,440 of its outstanding 7.75% Series E Cumulative Redeemable Preferred Limited Partnership Units, all 201,139 of its outstanding 7.95% Series F Cumulative Redeemable Preferred Limited Partnership Units and all 729,582 of its outstanding 5.00% Series N Cumulative Redeemable Preferred Limited Partnership Units. As a result, we recognized a decrease in income available to common stockholders of $1.1 million for the original issuance costs, net of discount on repurchase.
 
For the Years Ended December 31, 2006 and 2005 (dollars in millions):
 
                                 
    For the Years
             
    Ended December 31,              
Revenues
  2006     2005     $ Change     % Change  
 
Rental revenues
                               
U.S. industrial:
                               
Same store
  $ 580.0     $ 556.4     $ 23.6       4.2 %
2006 acquisitions
    10.4             10.4       100.0 %
Development
    4.7       2.0       2.7       135.0 %
Other industrial
    7.6       3.2       4.4       137.5 %
Non U.S. industrial
    62.5       41.4       21.1       51.0 %
                                 
Total rental revenues
    665.2       603.0       62.2       10.3 %
Private capital revenues
    46.1       43.9       2.2       5.0 %
                                 
Total revenues
  $ 711.3     $ 646.9     $ 64.4       10.0 %
                                 
 
U.S. industrial same store revenues increased $23.6 million from the prior year despite the decrease of $66.6 million in same store revenues due to the deconsolidation of AMB Institutional Alliance Fund III, L.P., effective October 1, 2006, attributable primarily to improved occupancy and increased rental rates in various markets. The properties acquired during 2005 consisted of 29 properties, aggregating approximately 6.9 million square feet. The properties acquired during 2006 consisted of 31 properties, aggregating approximately 7.3 million square feet. The increase in rental revenues from development was primarily due to increased occupancy at several of our development projects where development activities have been substantially completed as well as an increase in the number of development projects. Other industrial revenues include rental revenues from properties that have


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been contributed to unconsolidated co-investment ventures, and accordingly are not classified as discontinued operations in our consolidated financial statements, and development projects that have reached certain levels of operation and are not yet part of the same store operating pool of properties. Non-U.S. industrial revenues increased approximately $21.1 million from the prior year due primarily to the stabilization of properties in Japan and the continued acquisition of properties in France, Germany, and Mexico. The increase in private capital income was primarily due to increased asset management and acquisition fees from additional assets held in co-investment ventures, which were partially offset by a decrease in incentive distributions of approximately $3.9 million. During 2006, we received incentive distributions of $22.5 million, of which $19.8 million was from AMB Partners II, L.P., as compared to incentive distribution of $26.4 million for the sale of AMB Institutional Alliance Fund I, L.P., during 2005.
 
                                 
    For the Years
             
    Ended December 31,              
Costs and Expenses
  2006     2005     $ Change     % Change  
 
Property operating costs:
                               
Rental expenses
  $ 96.1     $ 84.8     $ 11.3       13.3 %
Real estate taxes
    76.9       72.2       4.7       6.5 %
                                 
Total property operating costs
  $ 173.0     $ 157.0     $ 16.0       10.2 %
                                 
Property operating costs
                               
U.S. industrial:
                               
Same store
  $ 154.9     $ 147.1     $ 7.8       5.3 %
2006 acquisitions
    2.3             2.3       100.0 %
Development
    2.5       2.5             %
Other industrial
    1.3       1.1       0.2       18.2 %
Non-U.S. industrial
    12.0       6.3       5.7       90.5 %
                                 
Total property operating costs
    173.0       157.0       16.0       10.2 %
Depreciation and amortization
    174.7       159.5       15.2       9.5 %
General and administrative
    104.3       71.6       32.7       45.7 %
Fund costs
    2.1       1.5       0.6       40.0 %
Impairment losses
    6.3             6.3       100.0 %
Other expenses
    2.6       5.0       (2.4 )     (48.0 )%
                                 
Total costs and expenses
  $ 463.0     $ 394.6     $ 68.4       17.3 %
                                 
 
Same store properties’ operating expenses increased $7.8 million from the prior year, despite the decrease of $14.6 million in same store operating expenses due to the deconsolidation of AMB Institutional Alliance Fund III, L.P., effective October 1, 2006, due primarily to increased insurance costs, utility expenses, repair and maintenance expenses, and other non-reimbursable expenses. The 2005 acquisitions consisted of 29 properties, aggregating approximately 6.9 million square feet. The 2006 acquisitions consisted of 31 properties, aggregating approximately 6.6 million square feet. Other industrial expenses include expenses from divested properties that have been contributed to unconsolidated co-investment ventures, and accordingly are not classified as discontinued operations in our consolidated financial statements, and development properties that have reached certain levels of operation and are not yet part of the same store operating pool of properties. Non-U.S. industrial property operating costs increased approximately $5.7 million from the prior year due primarily to the stabilization of properties in Japan and the continued acquisition of properties in France, Germany, and Mexico. The increase in depreciation and amortization expense was due to the increase in our net investment in real estate during the year. The increase in general and administrative expenses was primarily due to increased stock-based compensation expense as a result of higher values assigned to option and stock awards and executive departures, additional staffing and expenses for our international expansion, and the acquisition of AMB Blackpine. Fund costs represent general and administrative costs paid to third parties associated with our co-investment ventures. The 2006 impairment loss was taken on several non-core assets as a result of leasing activities and changes in the economic environment and the holding


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period of certain assets. Other expenses decreased approximately $2.4 million from the prior year due primarily to a decrease in losses associated with our deferred compensation plan and a decrease in certain deal costs.
 
                                 
    For the Years
             
    Ended December 31,              
Other Income and (Expenses)
  2006     2005     $ Change     % Change  
 
Development profits, net of taxes
  $ 106.4     $ 54.8     $ 51.6       94.2 %
Gains from dispositions of real estate interests, net
          19.1       (19.1 )     100.0 %
Equity in earnings of unconsolidated co-investment ventures, net
    23.2       10.8       12.4       114.8 %
Other income
    11.9       7.5       4.4       58.7 %
Interest expense, including amortization
    (165.1 )     (147.5 )     17.6       11.9 %
                                 
Total other income and (expenses), net
  $ (23.6 )   $ (55.3 )   $ (31.7 )     (57.3 )%
                                 
 
Development profits represent gains from the sale of development projects and land as part of our development-for-sale program. The increase in development profits was due to increased disposition and contribution volume during 2006. During 2006, we sold five land parcels and six development projects totaling approximately 1.3 million square feet for an aggregate sale price of $86.6 million, resulting in an after-tax gain of $13.3 million. In addition, during 2006, we received approximately $0.4 million in connection with the condemnation of a parcel of land resulting in a loss of $1.0 million, $0.8 million of which was the co-investment venture partner’s share. During 2006, we also contributed a total of ten completed development projects into unconsolidated co-investment ventures. Four projects totaling approximately 2.6 million square feet were contributed into AMB Japan Fund I, L.P, two projects totaling approximately 0.8 million square feet were contributed into AMB-SGP Mexico, LLC, three projects totaling approximately 0.6 million square feet were contributed into AMB Institutional Alliance Fund III, L.P., and one land parcel was contributed into AMB DFS Fund I, LLC. As a result of these contributions, we recognized an aggregate after-tax gain of $94.1 million, representing the portion of our interest in the contributed property acquired by the third-party investors for cash. During 2005, we sold five land parcels and five development projects, aggregating approximately 0.9 million square feet for an aggregate price of $155.2 million, resulting in an after-tax gain of $45.1 million. In addition, during 2005, we received final proceeds of $7.8 million from a land sale that occurred in 2004. During 2005, we also contributed one completed development project into an unconsolidated co-investment venture, AMB-SGP Mexico, LLC, and recognized an after-tax gain of $1.9 million representing the portion of our interest in the contributed property acquired by the third-party co-investor for cash. The 2005 gains from disposition of real estate interests resulted primarily from our contribution of $106.9 million (using the exchange rate in effect at contribution) in operating properties to our then newly formed unconsolidated co-investment venture, AMB Japan Fund I, L.P. The $12.4 million increase in equity in earnings of unconsolidated co-investment ventures was primarily due to gains of $17.5 million from the disposition of real estate by our unconsolidated co-investment ventures during 2006. During 2005, such gains were $5.5 million. In addition, effective October 1, 2006, the deconsolidation of AMB Institutional Alliance Fund III, L.P., resulted in an increase of approximately $5.1 million in equity in earnings of unconsolidated co-investment ventures. The increases in 2006 were partially offset by an increase in expenses by our unconsolidated co-investment ventures. The increase in other income was primarily due to increased bank interest income and an increase in property management income due to the expansion of our property management activities. The increase in interest expense, including amortization, was due primarily to increased borrowings on unsecured credit facilities and other debt.
 
                                 
    For the Years
             
    Ended December 31,              
Discontinued Operations
  2006     2005     $ Change     % Change  
 
Income attributable to discontinued operations, net of minority interests
  $ 18.2     $ 20.6     $ (2.4 )     (11.7 )%
Development gains and gains from dispositions of real estate, net of taxes and minority interests
    42.6       113.6       (71.0 )     (62.5 )%
                                 
Total discontinued operations
  $ 60.8     $ 134.2     $ (73.4 )     (54.7 )%
                                 


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During 2006, we divested ourselves of 17 industrial properties, aggregating approximately 3.5 million square feet, for an aggregate price of approximately $175.3 million, with a resulting net gain of approximately $42.6 million. During 2005, we divested ourselves of 18 industrial properties and one retail center, aggregating approximately 9.3 million square feet, for an aggregate price of $926.6 million, with a resulting net gain of $113.6 million. Included in these divestitures is the sale of the assets of AMB Institutional Alliance Fund I, L.P., for $618.5 million. The multi-investor fund owned approximately 5.8 million square feet. We received cash and a distribution of an on-tarmac property, AMB DFW Air Cargo Center I, in exchange for our 21% interest in the fund.
 
                                 
    For the Years
             
    Ended December 31,              
Preferred Stock
  2006     2005     $ Change     % Change  
 
Preferred stock dividends
  $ (13.6 )   $ (7.4 )   $ 6.2       83.8 %
Preferred unit redemption (issuance costs) discount
    (1.1 )           1.1       100.0 %
                                 
Total preferred stock
  $ (14.7 )   $ (7.4 )   $ 7.3       98.6 %
                                 
 
In December 2005, we issued 3,000,000 shares of 7.00% Series O Cumulative Redeemable Preferred Stock. In August 2006, we issued 2,000,000 shares of 6.85% Series P Cumulative Redeemable Preferred Stock. The increase in preferred stock dividends is due to the newly issued shares. In addition, during the year ended December 31, 2006, AMB Property II, L.P., one of our subsidiaries, repurchased all 840,000 of its outstanding 8.125% Series H Cumulative Redeemable Preferred Limited Partnership Units, all 220,440 of its outstanding 7.75% Series E Cumulative Redeemable Preferred Limited Partnership Units, all 201,139 of its outstanding 7.95% Series F Cumulative Redeemable Preferred Limited Partnership Units and all 729,582 of its outstanding 5.00% Series N Cumulative Redeemable Preferred Limited Partnership Units. As a result, we recognized a decrease in income available to common stockholders of $1.1 million for the original issuance costs, net of discount on repurchase.
 
LIQUIDITY AND CAPITAL RESOURCES
 
Balance Sheet Strategy.  In general, we use unsecured lines of credit, unsecured notes, preferred stock and common equity (issued by us and/or the operating partnership and its subsidiaries) to capitalize our wholly-owned assets. Over time, we plan to retire non-recourse, secured debt encumbering our wholly-owned assets and replace that debt with unsecured notes where practicable. In managing the co-investment ventures, in general, we use non-recourse, secured debt to capitalize our co-investment ventures.
 
We currently expect that our principal sources of working capital and funding for acquisitions, development, expansion and renovation of properties will include:
 
  •  retained earnings and cash flow from operations;
 
  •  private capital from co-investment partners;
 
  •  net proceeds from contributions of properties and completed development projects to our co-investment ventures;
 
  •  net proceeds from the sales of development projects, value-added conversion projects and land to third parties;
 
  •  net proceeds from divestitures of properties;
 
  •  proceeds from equity (common and preferred) or debt securities offerings;
 
  •  borrowings under our unsecured credit facilities;
 
  •  other forms of secured or unsecured financing; and
 
  •  proceeds from limited partnership unit offerings (including issuances of limited partnership units by our subsidiaries).


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We currently expect that our principal funding requirements will include:
 
  •  working capital;
 
  •  development, expansion and renovation of properties;
 
  •  acquisitions;
 
  •  debt service; and
 
  •  dividends and distributions on outstanding common and preferred stock and limited partnership units.
 
Cash flows.  As of December 31, 2007, cash provided by operating activities was $240.5 million as compared to $335.9 million for the same period in 2006. This change is primarily due to changes in our assets and liabilities offset by gains from sales and contributions of real estate interests, net, and an increase in operating distributions received by unconsolidated co-investment ventures. Cash used in investing activities was $632.2 million for the year ended December 31, 2007, as compared to cash used for investing activities of $880.6 million for the same period in 2006. This change is primarily due to a decrease in cash used for property acquisitions, offset by additions to interests in unconsolidated co-investment ventures and additions to land and buildings. Cash provided by financing activities was $420.0 million for the year ended December 31, 2007, as compared to cash provided by financing activities of $483.6 million for the same period in 2006. This change is due primarily to an increase in payments on other debt, credit facilities, senior debt, the cost of repurchase of preferred units, and a decrease in proceeds from issuances of senior debt, and contributions from co-investment partners. This activity was partially offset by the issuance of common stock and increased borrowings on secured debt and credit facilities.
 
We believe our sources of working capital, specifically our cash flow from operations, borrowings available under our unsecured credit facilities and our ability to access private and public debt and equity capital, are adequate for us to meet our liquidity requirements for the foreseeable future. The unavailability of capital could adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our stock.
 
Capital Resources
 
Development sales activity to third parties during the years ended December 31, 2007, 2006 and 2005 was as follows (dollars in thousands):
 
                         
    For the Years Ended December 31,  
    2007     2006     2005  
 
Number of completed development projects
    7       6       5  
Number of land parcels
    3       5       5  
Square feet
    498,017       1,323,748       921,740  
Gross sales price
  $ 130,419     $ 86,629     $ 155,206  
Development gains, net of taxes
  $ 28,575     $ 12,440     $ 52,925  


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Development contribution activity during the years ended December 31, 2007, 2006 and 2005 was as follows (dollars in thousands):
 
                         
    For the Years Ended December 31,  
    2007     2006     2005  
 
Number of projects contributed to AMB Institutional Alliance Fund III, L.P. 
    4       3        
Square feet
    1,006,164       554,279        
Number of projects contributed to AMB-SGP Mexico, LLC
    2       2       1  
Square feet
    329,114       843,439       391,457  
Number of land parcels contributed to AMB DFS Fund I, LLC
    2       1        
Square feet
                 
Number of projects contributed to AMB Europe Fund I, FCP-FIS
    8              
Square feet
    1,838,011              
Number of projects contributed to AMB Japan Fund I, L.P. 
    1       4        
Square feet
    469,627       2,644,258        
                         
Total number of contributed development assets
    17       10       1  
Total square feet
    3,642,916       4,041,976       391,457  
Development gains, net of taxes
  $ 95,713     $ 93,949     $ 1,886  
 
Property Divestitures.  During 2007, we divested ourselves of three industrial properties, aggregating approximately 0.3 million square feet, for an aggregate price of $120.0 million, with a resulting net gain of approximately $2.0 million and a gain of approximately $60.0 million associated with the sale of two value-added conversion projects.
 
During the year ended December 31, 2007, we recognized development profits of approximately $95.7 million, as a result of the contribution of 15 completed development projects and approximately 82 acres of land to AMB Europe Fund I, FCP-FIS, AMB-SGP Mexico, LLC, AMB Institutional Alliance Fund III, L.P., AMB DFS Fund I, LLC, and AMB Japan Fund I, L.P. In addition, we recognized development profits of approximately $28.6 million as a result of the sale of seven development projects and 76 acres of land during the year ended December 31, 2007.
 
Gains from Sale or Contribution of Real Estate Interests.  During 2007, we contributed operating properties for approximately $524.9 million, aggregating approximately 4.5 million square feet, into AMB Europe Fund I, FCP-FIS, AMB Institutional Alliance Fund III, L.P. and AMB-SGP Mexico, LLC. We recognized a gain of $73.4 million on the contributions, representing the portion of our interest in the contributed properties acquired by the third-party investors for cash. During 2006, there were no comparable events.
 
Properties Held for Contribution.  As of December 31, 2007, we held for contribution to co-investment ventures 17 properties with an aggregate net book value of $488.3 million, which, when contributed, will reduce our average ownership interest in these projects from approximately 90% currently to an expected range of 15-20%.
 
Properties Held for Divestiture.  As of December 31, 2007, we held for divestiture five properties with an aggregate net book value of $40.5 million. These properties either are not in our core markets or do not meet our current investment objectives, or are included as part of our development-for-sale or value-added conversion programs. The divestitures of the properties are subject to negotiation of acceptable terms and other customary conditions. Properties held for divestiture are stated at the lower of cost or estimated fair value less costs to sell.
 
Co-investment Ventures.  Through the operating partnership, we enter into co-investment ventures with institutional investors. These co-investment ventures are managed by our private capital group and provide us with an additional source of capital to fund certain acquisitions, development projects and renovation projects, as well as private capital income. We consolidate these co-investment ventures for financial reporting purposes when they are


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not variable interest entities and when we are the sole managing general partner and control all major operating decisions. However, in certain cases, our co-investment ventures are unconsolidated because we do not control all major operating decisions and the general partners do not have significant rights under the EITF Issue No. 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights.
 
Third-party equity interests in the co-investment ventures are reflected as minority interests in the consolidated financial statements. As of December 31, 2007, we owned approximately 83.4 million square feet of our properties (56.5% of the total operating and development portfolio) through our consolidated and unconsolidated co-investment ventures. We may make additional investments through these co-investment ventures or new co-investment ventures in the future and presently plan to do so.
 
The following table summarizes our significant consolidated co-investment ventures at December 31, 2007 (dollars in thousands):
 
                     
        Approximate
    Original
 
        Ownership
    Planned
 
Consolidated Co-investment Venture
  Co-investment Venture Partner   Percentage     Capitalization(1)  
 
AMB Partners II, L.P.(2)
  City and County of San Francisco Employees’ Retirement System     20 %   $ 580,000  
AMB Institutional Alliance Fund II, L.P.(3)
  AMB Institutional Alliance
REIT II, Inc.
    20 %   $ 490,000  
AMB-SGP, L.P.(4)
  Industrial JV Pte. Ltd.      50 %   $ 420,000  
AMB-AMS, L.P.(5)
  PMT, SPW and TNO(6)     39 %   $ 228,000  
AMB/Erie, L.P.(7)
  Erie Insurance Company and affiliates     50 %   $ 200,000  
 
 
(1) Planned capitalization includes anticipated debt and all partners’ expected equity contributions.
 
(2) AMB Partners II, L.P. is a co-investment partnership formed in 2001 with the City and County of San Francisco Employees’ Retirement System.
 
(3) AMB Institutional Alliance Fund II, L.P. is a co-investment partnership formed in 2001 with institutional investors, which invest through a private real estate investment trust.
 
(4) AMB-SGP, L.P. is a co-investment partnership formed in 2001 with Industrial JV Pte. Ltd., a subsidiary of GIC Real Estate Pte. Ltd., the real estate investment subsidiary of the Government of Singapore Investment Corporation.
 
(5) AMB-AMS, L.P. is a co-investment partnership formed in 2004 with three Dutch pension funds.
 
(6) PMT is Stichting Pensioenfonds Metaal en Techniek, SPW is Stichting Pensioenfonds voor de Woningcorporaties and TNO is Stichting Pensioenfonds TNO.
 
(7) AMB/Erie, L.P. is a co-investment partnership formed in 1998 with the Erie Insurance Company and certain related entities.


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The following table summarizes our significant unconsolidated co-investment ventures at December 31, 2007 (dollars in thousands):
 
                     
        Approximate
       
        Ownership
    Planned
 
Unconsolidated Co-investment Venture
  Co-investment Venture Partner   Percentage     Capitalization(1)  
 
AMB Institutional Alliance Fund III, L.P.(2)(3)
  AMB Institutional Alliance REIT III, Inc.      18 %   $ 2,284,000  
AMB Europe Fund I, FCP-FIS(3)(4)
  Institutional investors     21 %   $ 1,371,000  
AMB Japan Fund I, L.P.(5)
  Institutional investors     20 %   $ 2,227,000  
AMB-SGP Mexico, LLC(6)
  Industrial (Mexico) JV Pte Ltd     20 %   $ 705,000  
AMB DFS Fund I, LLC(7)
  Strategic Realty Ventures, LLC     15 %   $ 418,000  
 
 
(1) Planned capitalization includes anticipated debt and all partners’ expected equity contributions.
 
(2) AMB Institutional Alliance Fund III, L.P. is an open-ended co-investment partnership formed in 2004 with institutional investors, which invest through a private real estate investment trust. Prior to October 1, 2006, we accounted for AMB Institutional Alliance Fund III, L.P. as a consolidated co-investment venture.
 
(3) The planned capitalization and investment capacity of AMB Institutional Alliance Fund III, L.P. and AMB Europe Fund I, FCP-FIS, as open-ended funds are not limited. The planned capitalization represents the gross book value of real estate assets as of the most recent quarter end, and the investment capacity represents estimated capacity based on the funds’ current cash and leverage limitations as of the most recent quarter end.
 
(4) AMB Europe Fund I, FCP-FIS, is an open-ended co-investment venture formed in 2007 with institutional investors. The fund is Euro-denominated. U.S. dollar amounts are converted at the exchange rate in effect at December 31, 2007.
 
(5) AMB Japan Fund I, L.P. is a co-investment partnership formed in 2005 with institutional investors. The fund is Yen-denominated. U.S. dollar amounts are converted at the exchange rate in effect at December 31, 2007.
 
(6) AMB-SGP Mexico, LLC is a co-investment partnership formed in 2004 with Industrial (Mexico) JV Pte. Ltd., a subsidiary of GIC Real Estate Pte. Ltd., the real estate investment subsidiary of the Government of Singapore Investment Corporation.
 
(7) AMB DFS Fund I, LLC is a co-investment partnership formed in 2006 with a subsidiary of GE Real Estate to build and sell properties.
 
On June 30, 2007, we exercised our option to purchase the remaining equity interest held by an unrelated third party, based on the fair market value as stipulated in the co-investment venture agreement, in AMB Pier One, LLC, for a nominal amount. AMB Pier One, LLC, is a co-investment venture related to the 2000 redevelopment of the pier that houses our global headquarters in San Francisco, California. As a result, the investment was consolidated as of June 30, 2007.
 
As of December 31, 2007, we also had an approximate 39.0% unconsolidated equity interest in G.Accion, a Mexican real estate company. G.Accion provides management and development services for industrial, retail, residential and office properties in Mexico. In addition, as of December 31, 2007, one of our subsidiaries also had an approximate 5% interest in IAT Air Cargo Facilities Income Fund (IAT), a Canadian income trust specializing in aviation-related real estate at Canada’s leading international airports. These equity investments of approximately $2.1 million and $2.7 million, respectively, are included in other assets on the consolidated balance sheets as of December 31, 2007 and December 31, 2006.
 
Common and Preferred Equity.  We have authorized for issuance 100,000,000 shares of preferred stock, of which the following series were designated as of December 31, 2007: 1,595,337 shares of series D cumulative redeemable preferred, of which none are outstanding; 2,300,000 shares of series L cumulative redeemable preferred, of which 2,000,000 are outstanding; 2,300,000 shares of series M cumulative redeemable preferred, all of which are outstanding; 3,000,000 shares of series O cumulative redeemable preferred, all of which are outstanding; and 2,000,000 shares of series P cumulative redeemable preferred, all of which are outstanding.


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As of December 31, 2007, $107.5 million in preferred units with a weighted average rate of 6.63% become callable in 2008.
 
On April 17, 2007, AMB Property II, L.P., a partnership in which, as of January 1, 2008, AMB Property Holding Corporation, a Maryland corporation and our direct subsidiary, owns an approximate 1.0% general partnership interest and the operating partnership owns an approximate 92% common limited partnership interest, repurchased all 510,000 of its outstanding 8.00% Series I Cumulative Redeemable Preferred Limited Partnership Units from a single institutional investor for an aggregate price of $25.6 million, including accrued and unpaid distributions. In connection with this repurchase, we reclassified all 510,000 shares of our 8.00% Series I Cumulative Redeemable Preferred Stock as preferred stock.
 
On April 17, 2007, the operating partnership redeemed all 800,000 of its outstanding 7.95% Series J Cumulative Redeemable Preferred Limited Partnership Units from a single institutional investor for an aggregate price of $40.0 million, including accrued and unpaid distributions. In connection with this redemption, we reclassified all 800,000 shares of our 7.95% Series J Cumulative Redeemable Preferred Stock as preferred stock.
 
On April 17, 2007, the operating partnership redeemed all 800,000 of its outstanding 7.95% Series K Cumulative Redeemable Preferred Limited Partnership Units from a single institutional investor for an aggregate price of $40.0 million, including accrued and unpaid distributions. In connection with this redemption, we reclassified all 800,000 shares of our 7.95% Series K Cumulative Redeemable Preferred Stock as preferred stock.
 
On January 29, 2007, all of the outstanding 7.75% Series D Cumulative Redeemable Preferred Limited Partnership Units of AMB Property II, L.P. were transferred from one institutional investor to another institutional investor. In connection with that transfer, on February 22, 2007, AMB Property II, L.P. amended the terms of the series D preferred units to, among other things, change the rate applicable to the series D preferred units from 7.75% to 7.18% and change the date prior to which the series D preferred units may not be redeemed from May 5, 2004 to February 22, 2012.
 
On November 1, 2006, AMB Property II, L.P., issued 1,130,835 of its class B common limited partnership units in connection with a property acquisition.
 
In March 2007, we issued approximately 8.4 million shares of our common stock for net proceeds of approximately $472.1 million, which were contributed to the operating partnership in exchange for the issuance of approximately 8.4 million general partnership units. As a result of the common stock issuance, there was a significant reallocation of partnership interests due to the difference in our stock price at issuance as compared to the book value per share at the time of issuance. We intend to use the proceeds from the offering for general corporate purposes and, over the long term, to expand our global development business.
 
On September 21, 2006, AMB Property II, L.P., repurchased all 201,139 of its outstanding 7.95% Series F Cumulative Redeemable Preferred Limited Partnership Units from a single institutional investor for an aggregate price of $10.0 million, including accrued and unpaid distributions. In connection with this repurchase, we reclassified all 267,439 shares of our 7.95% Series F Cumulative Redeemable Preferred Stock as preferred stock.
 
On June 30, 2006, AMB Property II, L.P., repurchased all 220,440 of its outstanding 7.75% Series E Cumulative Redeemable Preferred Limited Partnership Units from a single institutional investor for an aggregate price of $10.9 million, including accrued and unpaid distributions. In connection with this repurchase, we reclassified all 220,440 shares of our 7.75% Series E Cumulative Redeemable Preferred Stock as preferred stock.
 
On March 21, 2006, AMB Property II, L.P., repurchased all 840,000 of its outstanding 8.125% Series H Cumulative Redeemable Preferred Limited Partnership Units from a single institutional investor for an aggregate price of $42.8 million, including accrued and unpaid distributions. In connection with this repurchase, we reclassified all 840,000 shares of our 8.125% Series H Cumulative Redeemable Preferred Stock as preferred stock.
 
On August 25, 2006, we issued and sold 2,000,000 shares of 6.85% Series P Cumulative Redeemable Preferred Stock at $25.00 per share. Dividends are cumulative from the date of issuance and payable quarterly in arrears at a rate per share equal to $1.7125 per annum. The series P preferred stock is redeemable by us on or after August 25, 2011, subject to certain conditions, for cash at a redemption price equal to $25.00 per share, plus accumulated and unpaid dividends thereon, if any, to the redemption date. We contributed the net proceeds of approximately


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$48.1 million to the operating partnership, and in exchange, the operating partnership issued to us 2,000,000 6.85% Series P Cumulative Redeemable Preferred Units.
 
On December 13, 2005, we issued and sold 3,000,000 shares of 7.00% Series O Cumulative Redeemable Preferred Stock at $25.00 per share. Dividends are cumulative from the date of issuance and payable quarterly in arrears at a rate per share equal to $1.75 per annum. The series O preferred stock is redeemable by us on or after December 13, 2010, subject to certain conditions, for cash at a redemption price equal to $25.00 per share, plus accumulated and unpaid dividends thereon, if any, to the redemption date. We contributed the net proceeds of approximately $72.3 million to the operating partnership, and in exchange, the operating partnership issued to us 3,000,000 7.00% Series O Cumulative Redeemable Preferred Units.
 
On September 24, 2004, AMB Property II, L.P., issued 729,582 5.00% Series N Cumulative Redeemable Preferred Limited Partnership Units at a price of $50.00 per unit. The series N preferred units were issued to Robert Pattillo Properties, Inc. in exchange for the contribution to AMB Property II, L.P of certain parcels of land that are located in multiple markets. Effective January 27, 2006, Robert Pattillo Properties, Inc. exercised its rights under its Put Agreement, dated September 24, 2004, with the operating partnership, and sold all of the series N preferred units to the operating partnership for an aggregate price of $36.6 million, including accrued and unpaid distributions. Also on January 27, 2006, AMB Property II, L.P. repurchased all of the series N preferred units from the operating partnership at an aggregate price of $36.6 million and cancelled all of the outstanding series N preferred units as of such date.
 
On November 25, 2003, we issued and sold 2,300,000 shares of 63/4% Series M Cumulative Redeemable Preferred Stock at $25.00 per share. Dividends are cumulative from the date of issuance and payable quarterly in arrears at a rate per share equal to $1.6875 per annum. The series M preferred stock is redeemable by us on or after November 25, 2008, subject to certain conditions, for cash at a redemption price equal to $25.00 per share, plus accumulated and unpaid dividends thereon, if any, to the redemption date. We contributed the net proceeds of approximately $55.4 million to the operating partnership, and in exchange, the operating partnership issued to us 2,300,000 63/4% Series M Cumulative Redeemable Preferred Units.
 
On June 23, 2003, we issued and sold 2,000,000 shares of 61/2% Series L Cumulative Redeemable Preferred Stock at a price of $25.00 per share. Dividends are cumulative from the date of issuance and payable quarterly in arrears at a rate per share equal to $1.625 per annum. The series L preferred stock is redeemable by us on or after June 23, 2008, subject to certain conditions, for cash at a redemption price equal to $25.00 per share, plus accumulated and unpaid dividends thereon, if any, to the redemption date. We contributed the net proceeds of approximately $48.0 million to the operating partnership, and in exchange, the operating partnership issued to us 2,000,000 61/2% Series L Cumulative Redeemable Preferred Units. The operating partnership used the proceeds, in addition to proceeds previously contributed to the operating partnership from other equity issuances, to redeem all 3,995,800 of its 8.5% Series A Cumulative Redeemable Preferred Units from us on July 28, 2003. We, in turn, used those proceeds to redeem all 3,995,800 of our 8.5% Series A Cumulative Redeemable Preferred Stock for $100.2 million, including all accumulated and unpaid dividends thereon, to the redemption date.
 
In December 2005, our board of directors approved a two-year common stock repurchase program for the discretionary repurchase of up to $200.0 million of our common stock. During the year ended December 31, 2007, we repurchased approximately 1.1 million shares of our common stock for an aggregate price of $53.4 million at a weighted average price of $49.87 per share. We have the authorization to repurchase up to an additional $146.6 million of our common stock under this program. On December 18, 2007, we extended this program through December 31, 2009.
 
Debt.  In order to maintain financial flexibility and facilitate the deployment of capital through market cycles, we presently intend over the long term to operate with an our share of total debt-to-our share of total market capitalization ratio of approximately 45% or less. As of December 31, 2007, our share of total debt-to-our share of total market capitalization ratio was 34.4%. (See footnote 1 to the Capitalization Ratios table below for our definitions of “our share of total market capitalization,” “market equity” and “our share of total debt.”) However, we typically finance our co-investment ventures with secured debt at a loan-to-value ratio of 50-65% per our co-investment venture agreements. Additionally, we currently intend to manage our capitalization in order to maintain an investment grade rating on our senior unsecured debt. Regardless of these policies, however, our organizational


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documents do not limit the amount of indebtedness that we may incur. Accordingly, our management could alter or eliminate these policies without stockholder approval or circumstances could arise that could render us unable to comply with these policies.
 
As of December 31, 2007, the aggregate principal amount of our secured debt was $1.5 billion, excluding unamortized debt premiums of $4.2 million. Of the $1.5 billion of secured debt, $1.1 billion is secured by properties in our co-investment ventures. The secured debt is generally non-recourse and bears interest at rates varying from 1.1% to 9.4% per annum (with a weighted average rate of 5.6%) and final maturity dates ranging from January 2008 to February 2024. As of December 31, 2007, $1.0 billion of the secured debt obligations bear interest at fixed rates with a weighted average interest rate of 6.3%, while the remaining $426.0 million bear interest at variable rates (with a weighted average interest rate of 3.8%).
 
On February 14, 2007, seven subsidiaries of AMB-SGP, L.P., a Delaware limited partnership, which is one of our subsidiaries, entered into a loan agreement for a $305 million secured financing. On the same day, pursuant to the loan agreement, the same seven subsidiaries delivered four promissory notes to the two lenders, each of which matures on March 5, 2012. One note has a principal of $160 million and an interest rate that is fixed at 5.29%. The second is a $40 million note with an interest rate of 81 basis points above the one-month LIBOR rate. The third note has a principal of $84 million and a fixed interest rate of 5.90%. The fourth note has a principal of $21 million and bears interest at a rate of 135 basis points above the one-month LIBOR rate.
 
As of December 31, 2007, the operating partnership had outstanding an aggregate of $1.0 billion in unsecured senior debt securities, which bore a weighted average interest rate of 6.1% and had an average term of 4.2 years. The unsecured senior debt securities are subject to various covenants. The covenants contain affirmative covenants, including compliance with financial reporting requirements and maintenance of specified financial ratios, and negative covenants, including limitations on the incurrence of liens and limitations on mergers or consolidations.
 
We guarantee the operating partnership’s obligations with respect to its senior debt securities. If we are unable to refinance or extend principal payments due at maturity or pay them with proceeds from other capital transactions, then our cash flow may be insufficient to pay dividends to our stockholders in all years and to repay debt upon maturity. Furthermore, if prevailing interest rates or other factors at the time of refinancing (such as the reluctance of lenders to make commercial real estate loans) result in higher interest rates upon refinancing, then the interest expense relating to that refinanced indebtedness would increase. This increased interest expense would adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our stock.
 
Credit Facilities.  The operating partnership has a $550.0 million (includes Euros, Yen, British pounds sterling or U.S. dollar denominated borrowings) unsecured revolving credit facility, which bore a weighted average interest rate of 5.2% at December 31, 2007. This facility matures on June 1, 2010. We are a guarantor of the operating partnership’s obligations under the credit facility. The line carries a one-year extension option and can be increased to up to $700.0 million upon certain conditions. The rate on the borrowings is generally LIBOR plus a margin, based on the operating partnership’s long-term debt rating, which was 42.5 basis points as of December 31, 2007, with an annual facility fee of 15 basis points. The four-year credit facility includes a multi-currency component, under which up to $550.0 million can be drawn in U.S. dollars, Euros, Yen or British pounds sterling. The operating partnership uses the credit facility principally for acquisitions, funding development activity and general working capital requirements. As of December 31, 2007, the outstanding balance on this credit facility, using the exchange rate in effect on December 31, 2007, was $259.4 million and the remaining amount available was $273.8 million, net of outstanding letters of credit of $16.8 million.
 
AMB Japan Finance Y.K., a subsidiary of the operating partnership, has a Yen-denominated unsecured revolving credit facility with an initial borrowing limit of 55.0 billion Yen, which, using the exchange rate in effect at December 31, 2007, equaled approximately $492.4 million U.S. dollars and bore a weighted average interest rate of 1.2%. We, along with the operating partnership, guarantee the obligations of AMB Japan Finance Y.K. under the credit facility, as well as the obligations of any other entity in which the operating partnership directly or indirectly owns an ownership interest and which is selected from time to time to be a borrower under and pursuant to the credit agreement. The borrowers intend to use the proceeds from the facility to fund the acquisition and development of properties and for other real estate purposes in Japan, China and South Korea. Generally, borrowers under the credit


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facility have the option to secure all or a portion of the borrowings under the credit facility with certain real estate assets or equity in entities holding such real estate assets. The credit facility matures in June 2010 and has a one-year extension option. The extension option is subject to the satisfaction of certain conditions and the payment of an extension fee equal to 0.15% of the outstanding commitments under the facility at that time. The rate on the borrowings is generally TIBOR plus a margin, which is based on the credit rating of the operating partnership’s long-term debt and was 42.5 basis points as of December 31, 2007. In addition, there is an annual facility fee, payable in quarterly amounts, which is based on the credit rating of the operating partnership’s long-term debt, and was 15 basis points of the outstanding commitments under the facility as of December 31, 2007. As of December 31, 2007, the outstanding balance on this credit facility, using the exchange rate in effect on December 31, 2007, was $399.5 million in U.S. dollars. The credit agreement contains affirmative covenants, including financial reporting requirements and maintenance of specified financial ratios, and negative covenants, including limitations on the incurrence of liens and limitations on mergers or consolidations.
 
On July 16, 2007, certain of our wholly-owned subsidiaries and the operating partnership, each acting as a borrower, with us and the operating partnership as guarantors, entered into a fifth amended and restated revolving credit agreement for a $500 million unsecured revolving credit facility that replaced the existing $250 million unsecured revolving credit facility. The fifth amended and restated credit facility amends the fourth amended and restated credit facility to, among other things, increase the facility amount to $500 million with an option to further increase the facility to $750 million, to extend the maturity date to July 2011 and to allow for future borrowing in Indian rupees. We, along with the operating partnership, guarantee the obligations for such subsidiaries and other entities controlled by the operating partnership that are selected by the operating partnership from time to time to be borrowers under and pursuant to our credit facility. Generally, borrowers under the credit facility have the option to secure all or a portion of the borrowings under the credit facility. The credit facility includes a multi-currency component under which up to $500.0 million can be drawn in U.S. dollars, Hong Kong dollars, Singapore dollars, Canadian dollars, British pounds sterling, and Euros with the ability to add Indian rupees. The line, which matures in July 2011 and carries a one-year extension option, can be increased to up to $750.0 million upon certain conditions and the payment of an extension fee equal to 0.15% of the outstanding commitments. The rate on the borrowings is generally LIBOR plus a margin, based on the credit rating of the operating partnership’s senior unsecured long-term debt, which was 60 basis points as of December 31, 2007, with an annual facility fee based on the credit rating of the operating partnership’s senior unsecured long-term debt. The borrowers intend to use the proceeds from the facility to fund the acquisition and development of properties and general working capital requirements. As of December 31, 2007, the outstanding balance on this credit facility was approximately $217.2 million and bore a weighted average interest rate of 5.3%. The credit agreement contains affirmative covenants, including financial reporting requirements and maintenance of specified financial ratios by the operating partnership, and negative covenants, including limitations on the incurrence of liens and limitations on mergers or consolidations.
 
On December 8, 2006, we executed a 228.0 million Euros facility agreement (approximately $303.3 million in U.S. dollars, using the exchange rate at June 12, 2007, the date the facility was assumed by AMB Europe Fund I, FCP-FIS, as discussed below), which provides that certain of our affiliates may borrow either acquisition loans, up to a 100.0 million Euros sub-limit (approximately $133.0 million in U.S. dollars, using the exchange rate at June 12, 2007), or secured term loans, in connection with properties located in France, Germany, the Netherlands, the United Kingdom, Italy or Spain. On March 21, 2007, we increased the facility amount limit from 228.0 million Euros to 328.0 million Euros. Drawings under the term facility bear interest at a rate of 65 basis points over EURIBOR and may occur until, and mature on, April 30, 2014. Drawings under the acquisition loan facility bear interest at a rate of 75 basis points over EURIBOR and are repayable within six months of the date of advance, unless extended. We initially guaranteed the acquisition loan facility and were the carve-out indemnitor in respect of the term loans. In accordance with the terms of the facility agreement, on June 12, 2007, AMB Europe Fund I, FCP-FIS, assumed, and the operating partnership was released from, all of the operating partnership’s obligations and liabilities under the facility agreement. On June 12, 2007, there were 267.0 million Euros (approximately $355.2 million in U.S. dollars, using the exchange rate at June 12, 2007) of term loans and no acquisition loans outstanding under the facility agreement.


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The tables below summarize our debt maturities and capitalization and reconcile our share of total debt to total consolidated debt as of December 31, 2007 (dollars in thousands):
 
                                                 
    Our
    Co-investment
    Unsecured
                   
    Secured
    Venture
    Senior
    Credit
    Other
    Total
 
    Debt(1)     Debt(1)     Debt     Facilities(2)     Debt     Debt  
 
2008
  $ 199,970     $ 98,989     $ 175,000     $     $ 13,408     $ 487,367  
2009
    25,799       122,671       100,000             873       249,343  
2010
    65,905       102,661       250,000       658,928       941       1,078,435  
2011
    115       189,420       75,000       217,177       1,014       482,726  
2012
    3,753       459,111                   61,093       523,957  
2013
    3,053       46,195       175,000             65,920       290,168  
2014
    3,216       4,102                   616       7,934  
2015
    3,387       18,806       112,491             664       135,348  
2016
    3,567       54,795                         58,362  
Thereafter
    42,267       19,091       125,000                   186,358  
                                                 
Subtotal
  $ 351,032     $ 1,115,841     $ 1,012,491     $ 876,105     $ 144,529     $ 3,499,998  
Unamortized premiums/(discount)
    1,027       3,187       (9,368 )                 (5,154 )
                                                 
Total consolidated debt
  $ 352,059     $ 1,119,028     $ 1,003,123     $ 876,105     $ 144,529     $ 3,494,844  
AMB’s share of unconsolidated co-investment venture debt(3)
          556,710                   36,368       593,078  
                                                 
Total debt(4)
  $ 352,059     $ 1,675,738     $ 1,003,123     $ 876,105     $ 180,897     $ 4,087,922  
Co-investment venture partners’ share of consolidated debt(4)
          (715,409 )                 (100,000 )     (815,409 )
                                                 
Our share of total debt(4)
  $ 352,059     $ 960,329     $ 1,003,123     $ 876,105     $ 80,897     $ 3,272,513  
                                                 
Weighted average interest rate
    4.0 %     6.1 %     6.1 %     3.4 %     6.0 %     5.2 %
Weighted average maturity (years)
    2.4       4.1       4.2       2.7       4.6       3.6  
 
 
(1) Our secured debt and co-investment venture debt include debt related to European and Asian assets in the amount of $62.0 million and $192.1 million, respectively, translated to U.S. dollars using the exchange rate in effect on December 31, 2007.
 
(2) Represents three credit facilities with total capacity of approximately $1.5 billion. Includes $432.7 million, $197.3 million, $84.3 million, $82.0 million and $19.9 million in Yen, Canadian dollar, Euros, British pounds sterling and Singapore dollar-based borrowings, respectively, translated to U.S. dollars using the foreign exchange rates in effect on December 31, 2007.
 
(3) The weighted average interest and average maturity for the unconsolidated co-investment venture debt were 4.8% and 5.4 years, respectively.
 
(4) Our share of total debt represents the pro rata portion of the total debt based on our percentage of equity interest in each of the consolidated or unconsolidated co-investment ventures holding the debt. We believe that our share of total debt is a meaningful supplemental measure, which enables both management and investors to analyze our leverage and to compare our leverage to that of other companies. In addition, it allows for a more meaningful comparison of our debt to that of other companies that do not consolidate their co-investment ventures. Our share of total debt is not intended to reflect our actual liability should there be a default under any or all of such loans or a liquidation of the co-investment ventures. The above table reconciles our share of total debt to total consolidated debt, a GAAP financial measure.
 


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    Market Equity as of
 
    December 31, 2007  
    Shares/Units
    Market
    Market
 
Security
  Outstanding     Price     Value  
 
Common stock
    99,210,508     $ 57.56     $ 5,710,557  
Common limited partnership units(1)
    3,992,607       57.56       229,814  
                         
Total
    103,203,115             $ 5,940,371  
                         
 
 
(1) Includes class B common limited partnership units issued by AMB Property II, L.P.
 
                     
    Preferred Stock and Units as of
    December 31, 2007
    Dividend
    Liquidation
    Redemption/Callable
Security
  Rate     Preference     Date
 
Series D preferred units(1)
    7.18 %   $ 79,767     February 2012
Series L preferred stock
    6.50 %     50,000     June 2008
Series M preferred stock
    6.75 %     57,500     November 2008
Series O preferred stock
    7.00 %     75,000     December 2010
Series P preferred stock
    6.85 %     50,000     August 2011
                     
Weighted average/total
    6.90 %   $ 312,267      
                     
 
 
(1) On January 29, 2007, all of the outstanding 7.75% Series D Cumulative Redeemable Preferred Limited Partnership Units of AMB Property II, L.P. were transferred from one institutional investor to another institutional investor. In connection with that transfer, AMB Property II, L.P. agreed to amend the terms of the series D preferred units to, among other things, change the rate applicable to the series D preferred units from 7.75% to 7.18% and change the date prior to which the series D preferred units may not be redeemed from May 5, 2004 to February 22, 2012.
 
         
Capitalization Ratios as of December 31, 2007
     
 
Total debt-to-total market capitalization(1)
    39.5 %
Our share of total debt-to-our share of total market capitalization(1)
    34.4 %
Total debt plus preferred-to-total market capitalization(1)
    42.6 %
Our share of total debt plus preferred-to-our share of total market capitalization(1)
    37.6 %
Our share of total debt-to-our share of total book capitalization(1)
    52.6 %
 
 
(1) Our definition of “total market capitalization” is total debt plus preferred equity liquidation preferences plus market equity. Our definition of “our share of total market capitalization” is our share of total debt plus preferred equity liquidation preferences plus market equity. Our definition of “market equity” is the total number of outstanding shares of our common stock and common limited partnership units multiplied by the closing price per share of our common stock as of December 31, 2007. Our definition of “preferred” is preferred equity liquidation preferences. Our share of total book capitalization is defined as our share of total debt plus minority interests to preferred unitholders and limited partnership unitholders plus stockholders’ equity. Our share of total debt is the pro rata portion of the total debt based on our percentage of equity interest in each of the consolidated and unconsolidated co-investment ventures holding the debt. We believe that our share of total debt is a meaningful supplemental measure, which enables both management and investors to analyze our leverage and to compare our leverage to that of other companies. In addition, it allows for a more meaningful comparison of our debt to that of other companies that do not consolidate their co-investment ventures. Our share of total debt is not intended to reflect our actual liability should there be a default under any or all of such loans or a liquidation of the co-investment ventures. For a reconciliation of our share of total debt to total consolidated debt, a GAAP financial measure, please see the table of debt maturities and capitalization above.

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Liquidity
 
As of December 31, 2007, we had $220.2 million in cash and cash equivalents and $649.5 million of additional available borrowings under our credit facilities. As of December 31, 2007, we had $30.2 million in restricted cash.
 
Our board of directors declared a regular cash dividend for the quarter ended December 31, 2007 of $0.50 per share of common stock, and the operating partnership announced its intention to pay a regular cash distribution for the quarter ended December 31, 2007 of $0.50 per common unit. The dividends and distributions were payable on January 7, 2008 to stockholders and unitholders of record on December 21, 2007. The series L, M, O and P preferred stock dividends were payable on January 15, 2008 to stockholders of record on January 4, 2008. The following table sets forth the dividends and distributions paid or payable per share or unit for the years ended December 31, 2007, 2006 and 2005:
 
                             
Paying Entity
 
Security
  2007     2006     2005  
 
AMB Property Corporation
  Common stock   $ 2.00     $ 1.84     $ 1.76  
AMB Property Corporation
  Series L preferred stock   $ 1.63     $ 1.63     $ 1.63  
AMB Property Corporation
  Series M preferred stock   $ 1.69     $ 1.69     $ 1.69  
AMB Property Corporation
  Series O preferred stock   $ 1.75     $ 1.75     $ 0.09  
AMB Property Corporation
  Series P preferred stock   $ 1.71     $ 0.60       n/a  
Operating Partnership
  Common limited partnership units   $ 2.00     $ 1.84     $ 1.76  
Operating Partnership
  Series J preferred units(1)   $ 1.01     $ 3.98     $ 3.98  
Operating Partnership
  Series K preferred units(1)   $ 1.01     $ 3.98     $ 3.98  
AMB Property II, L.P. 
  Class B common limited partnership units   $ 2.00     $ 1.84     $ 1.76  
AMB Property II, L.P. 
  Series D preferred units   $ 3.64     $ 3.88     $ 3.88  
AMB Property II, L.P. 
  Series E preferred units(2)         $ 1.78     $ 3.88  
AMB Property II, L.P. 
  Series F preferred units(3)         $ 2.72     $ 3.98  
AMB Property II, L.P. 
  Series H preferred units(4)         $ 0.97     $ 4.06  
AMB Property II, L.P. 
  Series I preferred units(5)   $ 1.24     $ 4.00     $ 4.00  
AMB Property II, L.P. 
  Series N preferred units(6)         $ 0.22     $ 2.50  
 
 
(1) In April 2007, the operating partnership redeemed all of its series J and series K preferred units.
 
(2) In June 2006, AMB Property II, L.P. repurchased all of its outstanding series E preferred units.
 
(3) In September 2006, AMB Property II, L.P. repurchased all of its outstanding series F preferred units.
 
(4) In March 2006, AMB Property II, L.P. repurchased all of its outstanding series H preferred units.
 
(5) In April 2007, AMB Property II, L.P. repurchased all of its series I preferred units.
 
(6) The holder of the series N preferred units exercised its put option in January 2006 and sold all of its series N preferred units to the operating partnership and AMB Property II, L.P. repurchased all of such units from the operating partnership.
 
The anticipated size of our distributions, using only cash from operations, will not allow us to pay all of our debt as it comes due. Therefore, we intend to also repay maturing debt with net proceeds from future debt or equity financings, as well as property divestitures. However, we may not be able to obtain future financings on favorable terms or at all. Our inability to obtain future financings on favorable terms or at all would adversely affect our financial condition, results of operations, cash flow and ability to pay dividends on, and the market price of, our stock.


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Capital Commitments
 
Development starts, generally defined as projects where we have obtained building permits and have begun physical construction, during the years ended December 31, 2007 and 2006 were as follows (dollars in thousands):
 
                 
    For the Years Ended December 31,  
    2007     2006  
 
The Americas:
               
Number of new development projects
    26       16  
Number of value-added conversion projects(1)
    1       2  
Square feet
    7,427,914       5,428,642  
Estimated total investment(2)
  $ 559,276     $ 356,843  
Europe:
               
Number of new development projects
    6       4  
Square feet
    1,687,601       711,956  
Estimated total investment(2)
  $ 220,200     $ 72,104  
Asia:
               
Number of new development projects
    6       8  
Square feet
    3,060,335       4,283,572  
Estimated total investment(2)
  $ 305,872     $ 485,344  
                 
Total:
               
Number of new development projects
    38       28  
Number of value-added conversion projects
    1       2  
Square feet
    12,175,850       10,424,170  
                 
Estimated total investment(2)
  $ 1,085,348     $ 914,291  
                 
 
Land acquisitions during the years ended December 31, 2007 and 2006 were as follows (dollars in thousands):
 
                 
    For the Years Ended December 31,  
    2007     2006  
 
The Americas:
               
Acres
    1,231       774  
Estimated build out potential (square feet)
    21,083,750       11,974,941  
Investment(3)
  $ 221,645     $ 199,785  
Europe:
               
Acres
    182        
Estimated build out potential (square feet)
    3,328,267        
Investment(3)
  $ 38,544        
Asia:
               
Acres
    28       61  
Estimated build out potential (square feet)
    997,537       3,506,843  
Investment(3)
  $ 20,977     $ 93,429  
                 
Total:
               
Acres
    1,441       835  
Estimated build out potential (square feet)
    25,409,554       15,481,784  
                 
Investment(3)
  $ 281,166     $ 293,214  
                 


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(1) Value-added conversion projects represent the repurposing of industrial properties to a higher and better use, including office, residential, retail, research and development or manufacturing. Activities required to prepare the property for conversion to a higher and better use may include such activities as rezoning, redesigning, reconstructing and retenanting. The sales price of the value-added conversion project is generally based on the underlying land value based on its ultimate use and as such, little to no residual value is ascribed to the industrial building(s).
 
(2) Includes total estimated cost of development, renovation, or expansion, including initial acquisition costs, prepaid ground leases, buildings, and associated carry costs. Estimated total investments are based on current forecasts and are subject to change. Non-U.S. dollar investments are translated into U.S. dollar using exchange rate as of December 31, 2007 or 2006, as applicable.
 
(3) Includes acquisition and associated closing costs.
 
Acquisition activity during the years ended December 31, 2007 and 2006 was as follows (dollars in thousands):
 
                 
    For the Years Ended December 31,  
    2007     2006  
 
Number of properties acquired by AMB Institutional Alliance Fund III, L.P. 
    28       21  
Square feet
    6,213,093       6,598,560  
Expected investment
  $ 527,264     $ 540,021  
Number of properties acquired by AMB Europe Fund I, FCP-FIS
    7        
Square Feet
    2,101,393        
Expected investment
  $ 201,794     $  
Number of properties acquired by AMB Japan Fund I, L.P. 
    8        
Square feet
    1,107,261        
Expected investment
  $ 180,901     $  
Number of properties acquired by AMB-SGP Mexico, LLC
    3        
Square Feet
    1,739,976        
Expected investment
  $ 69,688     $  
Number of properties acquired by AMB Partners II, L.P. 
          3  
Square Feet
          816,049  
Expected investment
  $     $ 73,936  
Number of properties acquired by AMB Property, L.P. 
    7       13  
Square feet
    701,629       2,393,627  
Expected investment
  $ 62,241     $ 220,232  
                 
Total number of properties acquired
    53       37  
Total square feet
    11,863,352       9,808,236  
Total acquisition cost
  $ 1,022,547     $ 814,128  
Total acquisition capital
  $ 19,341     $ 20,061  
                 
Total expected investment
  $ 1,041,888     $ 834,189  
                 
 
Development Pipeline.  As of December 31, 2007, we had 56 industrial projects in our development pipeline, which are expected to total approximately 17.8 million square feet and have an aggregate estimated investment of $1.7 billion upon completion. We have an additional 12 development projects available for sale or contribution totaling approximately 4.2 million square feet, with an aggregate estimated investment of $304.7 million. As of December 31, 2007, we and our co-investment venture partners have funded an aggregate of $1.2 billion and needed to fund an estimated additional $500 million in order to complete our development pipeline. The development pipeline, at December 31, 2007, included projects expected to be completed through the fourth quarter of 2009. In addition to our committed development pipeline, we hold a total of 2,535 acres of land for future development or


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sale, approximately 91% of which is located in the Americas. We currently estimate that these 2,535 acres of land could support approximately 44.0 million square feet of future development.
 
Lease Commitments.  We have entered into operating ground leases on certain land parcels, primarily on-tarmac facilities and office space with remaining lease terms from one to 55 years. These buildings and improvements subject to ground leases are amortized ratably over the lesser of the terms of the related leases or 40 years. Future minimum rental payments required under non-cancelable operating leases in effect as of December 31, 2007 were as follows (dollars in thousands):
 
         
2008
  $ 23,208  
2009
    22,632  
2010
    21,932  
2011
    21,577  
2012
    20,501  
Thereafter
    284,158  
         
Total
  $ 394,008  
         
 
Co-investment Ventures.  Through the operating partnership, we enter into co-investment ventures with institutional investors. These co-investment ventures are managed by our private capital group and provide us with an additional source of capital to fund acquisitions, development projects and renovation projects, as well as private capital income. As of December 31, 2007, we had investments in co-investment ventures with a gross book value of $2.5 billion, which are consolidated for financial reporting purposes, and net equity investments in five significant unconsolidated co-investment ventures of $274.9 million and a gross book value of $4.4 billion. As of December 31, 2007, we may make additional capital contributions to current and planned co-investment ventures of up to $151.0 million (using the exchange rates at December 31, 2007) pursuant to the terms of the co-investment venture agreements. From time to time, we may raise additional equity commitments for AMB Institutional Alliance Fund III, L.P., an open-ended unconsolidated co-investment venture formed in 2004 with institutional investors, which invests through a private real estate investment partnership, and for AMB Europe Fund I, FCP-FIS, an open-ended unconsolidated co-investment venture formed in 2007 with institutional investors. This would increase our obligation to make additional capital commitments to these funds. Pursuant to the terms of the partnership agreement of AMB Institutional Alliance Fund III, L.P., and the management regulations of AMB Europe Fund I, FCP-FIS, we are obligated to contribute 20% of the total equity commitments to each fund until such time when our total equity commitment is greater than $150.0 million or 150.0 million Euros, respectively, at which time, our obligation is reduced to 10% of the total equity commitments. We expect to fund these contributions with cash from operations, borrowings under our credit facilities, debt or equity issuances or net proceeds from property divestitures, which could adversely affect our cash flow.
 
Captive Insurance Company.  In December 2001, we formed a wholly owned captive insurance company, Arcata National Insurance Ltd. (Arcata), which provides insurance coverage for all or a portion of losses below the deductible under our third-party policies. The captive insurance company is one element of our overall risk management program. We capitalized Arcata in accordance with the applicable regulatory requirements. Arcata established annual premiums based on projections derived from the past loss experience of our properties. Annually, we engage an independent third party to perform an actuarial estimate of future projected claims, related deductibles and projected expenses necessary to fund associated risk management programs. Premiums paid to Arcata may be adjusted based on this estimate. Like premiums paid to third-party insurance companies, premiums paid to Arcata may be reimbursed by customers pursuant to specific lease terms. Through this structure, we think that we have more comprehensive insurance coverage at an overall lower cost than would otherwise be available in the market.
 
Potential Contingent and Unknown Liabilities.  Contingent and unknown liabilities may include the following:
 
  •  liabilities for environmental conditions;
 
  •  claims of customers, vendors or other persons dealing with our acquisition transactions that had not been asserted prior to our formation or acquisition transactions;


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  •  accrued but unpaid liabilities incurred in the ordinary course of business; and
 
  •  tax liabilities.
 
Overview of Contractual Obligations
 
The following table summarizes our debt, interest and lease payments due by period as of December 31, 2007 (dollars in thousands):
 
                                         
    Less than
    1-3
    3-5
    More than
       
Contractual Obligations
  1 Year     Years     Years     5 Years     Total  
 
Debt
  $ 487,367     $ 1,327,778     $ 1,006,683     $ 678,170     $ 3,499,998  
Debt interest payments
    22,582       62,781       55,806       72,238       213,407  
Operating lease commitments
    23,208       44,564       42,078       284,158       394,008  
Construction commitments
    77,194                         77,194  
                                         
Total
  $ 610,351     $ 1,435,123     $ 1,104,567     $ 1,034,566     $ 4,184,607  
                                         
 
OFF-BALANCE SHEET ARRANGEMENTS
 
Standby Letters of Credit.  As of December 31, 2007, we had provided approximately $24.2 million in letters of credit, of which $16.8 million were provided under the operating partnership’s $550.0 million unsecured credit facility. The letters of credit were required to be issued under certain ground lease provisions, bank guarantees and other commitments.
 
Guarantees and Contribution Obligations.  Excluding parent guarantees associated with unsecured debt or contribution obligations as discussed in Notes 5 and 9, we had outstanding guarantees and contribution obligations in the aggregate amount of $405.2 million as described below.
 
As of December 31, 2007, we had outstanding guarantees in the amount of $95.9 million in connection with certain acquisitions. As of December 31, 2007, we also guaranteed $41.2 million and $107.9 million on outstanding loans on five of our consolidated co-investment ventures and two of our unconsolidated co-investment ventures, respectively.
 
Also, we have entered into contribution agreements with certain of our unconsolidated co-investment venture funds. These contribution agreements require us to make additional capital contributions to the applicable co-investment venture fund upon certain defaults by the co-investment venture of certain of its debt obligations to the lenders. Such additional capital contributions will cover all or part of the applicable co-investment venture’s debt obligation and may be greater than our share of the co-investment venture’s debt obligation or the value of our share of any property securing such debt. Our contribution obligations under these agreements will be reduced by the amounts recovered by the lender and the fair market value of the property, if any, used to secure the debt and obtained by the lender upon default. Our potential obligations under these contribution agreements are $160.2 million as of December 31, 2007.
 
Performance and Surety Bonds.  As of December 31, 2007, we had outstanding performance and surety bonds in an aggregate amount of $15.2 million. These bonds were issued in connection with certain of our development projects and were posted to guarantee certain tax obligations and the construction of certain real property improvements and infrastructure. Performance and surety bonds are renewable and expire upon the payment of the taxes due or the completion of the improvements and infrastructure.
 
Promoted Interests and Other Contractual Obligations.  Upon the achievement of certain return thresholds and the occurrence of certain events, we may be obligated to make payments to certain of our co-investment venture partners pursuant to the terms and provisions of their contractual agreements with us. From time to time in the normal course of our business, we enter into various contracts with third parties that may obligate us to make payments, pay promotes, or perform other obligations upon the occurrence of certain events.


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SUPPLEMENTAL EARNINGS MEASURES
 
Funds From Operations (“FFO”) and Funds From Operations Per Share and Unit (“FFOPS”).  We believe that net income, as defined by U.S. GAAP, is the most appropriate earnings measure. However, we consider funds from operations, or FFO, and FFO per share and unit, or FFOPS, to be useful supplemental measures of our operating performance. We define FFOPS as FFO per fully diluted weighted average share of our common stock and operating partnership units. We calculate FFO as net income, calculated in accordance with U.S. GAAP, less gains (or losses) from dispositions of real estate held for investment purposes and real estate-related depreciation, and adjustments to derive our pro rata share of FFO of consolidated and unconsolidated co-investment ventures. We do not adjust FFO to eliminate the effects of non-recurring charges. We include the gains from development, including those from value-added conversion projects, before depreciation recapture, as a component of FFO. We believe that value-added conversion dispositions are in substance land sales and as such should be included in FFO, consistent with the real estate investment trust industry’s long standing practice to include gains on the sale of land in FFO. However, our interpretation of FFO or FFOPS may not be consistent with the views of others in the real estate investment trust industry, who may consider it to be a divergence from the NAREIT definition, and may not be comparable to FFO or FFOPS reported by other real estate investment trusts that interpret the current NAREIT definition differently than we do.
 
In connection with the formation of a co-investment venture, we may warehouse assets that are acquired with the intent to contribute these assets to the newly formed venture. Some of the properties held for contribution may, under certain circumstances, be required to be depreciated under U.S. GAAP. If this circumstance arises, we intend to include in our calculation of FFO gains or losses related to the contribution of previously depreciated real estate to co-investment ventures. Although such a change, if instituted, will be a departure from the current NAREIT definition, we believe such a calculation of FFO will better reflect the value created as a result of the contributions. To date, we have not included gains or losses from the contribution of previously depreciated warehoused assets in FFO.
 
AMB believes that FFO and FFOPS are meaningful supplemental measures of its operating performance because historical cost accounting for real estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets diminishes predictably over time, as reflected through depreciation and amortization expenses. However, since real estate values have historically risen or fallen with market and other conditions, many industry investors and analysts have considered presentation of operating results for real estate companies that use historical cost accounting to be insufficient. Thus, FFO and FFOPS are supplemental measures of operating performance for real estate investment trusts that exclude historical cost depreciation and amortization, among other items, from net income, as defined by U.S. GAAP. We believe that the use of FFO and FFOPS, combined with the required U.S. GAAP presentations, has been beneficial in improving the understanding of operating results of real estate investment trusts among the investing public and making comparisons of operating results among such companies more meaningful. We consider FFO and FFOPS to be useful measures for reviewing comparative operating and financial performance because, by excluding gains or losses related to sales of previously depreciated operating real estate assets and real estate depreciation and amortization, FFO and FFOPS can help the investing public compare the operating performance of a company’s real estate between periods or as compared to other companies. While FFO and FFOPS are relevant and widely used measures of operating performance of real estate investment trusts, these measures do not represent cash flow from operations or net income as defined by U.S. GAAP and should not be considered as alternatives to those measures in evaluating our liquidity or operating performance. FFO and FFOPS also do not consider the costs associated with capital expenditures related to our real estate assets nor are FFO or FFOPS necessarily indicative of cash available to fund our future cash requirements.


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The following table reflects the calculation of FFO reconciled from net income for the years ended December 31 (dollars in thousands, except per share amounts):
 
                                         
    2007     2006     2005     2004     2003  
 
Net income available to common stockholders(1)
  $ 295,524     $ 209,420     $ 250,419     $ 118,340     $ 116,716  
Gains from sale or contribution of real estate, net of minority interests(2)
    (85,544 )     (42,635 )     (132,652 )     (47,224 )     (50,325 )
Depreciation and amortization:
                                       
Total depreciation and amortization
    161,925       174,721