It also raised its forecast for cost savings from its merger with AMB Property and said it expects second-half funds from operations at the high end of its prior outlook, sending its shares up 3.4 percent.
Prologis said demand for top quality warehouse and distribution centers is exceeding expectations.
"We've looked hard to find evidence of the slowing market," Hamid Moghadam, co-chief executive and chairman said in a conference call with analysts. "But if anything, we appear to be a little ahead of our expectations."
San Francisco-based Prologis' second-quarter results include one month combined with AMB after the merger closed on June 3. The results also include one month from its controlling interest in a spinoff, Prologis European Properties.
Funds from operations were $8.2 million, or 3 cents a share, down from $67 million, or 32 cents per share, a year earlier. The drop was due in part to merger charges.
Core FFO totaled 35 cents per share, beating analysts' average forecast by 5 cents, according to Thomson Reuters I/B/E/S.
Core FFO excludes impairment charges of 34 cents per share and merger costs of 33 cents per share, and gains from acquisitions and sales of 34 cents a share.
FFO, a measure of performance for real estate investment trusts, removes the profit-reducing effect that depreciation has on earnings.
High End of Forecast
Prologis said it expects second-half core FFO at the higher end of its previous forecast of 78 cents to 82 cents per share.
Merger-related charges of between 2 cents to 3 cents per share annually are likely to continue through 2014, the company said.
"The map of their business plan is unfolding the way they believed it would," said Richard Imperiale, president of Uniplan Investment Council Inc which has about $1 billion under management.
Prologis sees annual savings of $90 million from the AMB merger by the end of 2012 and has already realized about 60 percent of that. At the time of the merger, it said it expected annual savings of $80 million.
The company said it remains on target to reach $600 million to $800 million in development starts this year and $300 million to $550 million of acquisitions, principally via the funds it manages and invests in with institutional partners.
Prologis intends to focus on the top 30 of the largest global markets and 50 regional ones, to satisfy its customers who include air shippers, consumer products makers and other manufactures.
It plans to exit some markets such as Seoul, New Orleans and Turin, Italy.
The company's operating portfolio was 90.7 percent occupied, up from 89.9 percent at the end of the first quarter.
For properties operated by the company for at least a year, net operating income -- the net cash flow the properties generated -- rose 3.1 percent, up from 0.7 percent in the prior quarter.
Rents for those properties fell 6.1 percent, less than the 8.9 percent decline in the second quarter.
During the second quarter, the company leased a total of 33.5 million square feet (3.1 million square meters) in its operating portfolio and 1.4 million square feet (126,348 square meters) in its development portfolio.
Going forward, Prologis plans to transfer most of its assets outside of the United States into its funds. The company has about $26 billion in assets in 22 funds but plans to consolidate, terminate or restructure the ones that are not profitable.
It also plans to create new funds with a focus on a second in Japan this year and later concentrating on Brazil and Canada.
At the end of the second quarter, the company had $14 billion in debt, which it plans to reduce by selling out of non-core markets, restructuring or selling nonperforming funds and creating new ones. (Reuters)
