UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2017~~2018

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

For the transition period from ______________ to ______________

Commission File Number: 001-13545 (Prologis, Inc.) 001-14245 (Prologis, L.P.)

Prologis, Inc.

Prologis, L.P.

(Exact name of registrant as specified in its charter)

Maryland (Prologis, Inc.) Delaware (Prologis, L.P.)		94-3281941 (Prologis, Inc.) 94-3285362 (Prologis, L.P.)
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Pier 1, Bay 1, San Francisco, California		94111
(Address or principal executive offices)		(Zip Code)

(415) 394-9000

(Registrants’ telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 for the past 90 days.

Prologis, Inc.	Yes	☒	No	☐
Prologis, L.P.	Yes	☒	No	☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website; if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter periods that the registrant was required to submit and post such files).

Prologis, Inc.	Yes	☒	No	☐
Prologis, L.P.	Yes	☒	No	☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, ~~or a~~ smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated ~~filer” and~~filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):

Prologis, Inc.:
Large accelerated filer ☒	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☐	Emerging growth company ☐
	(Do not check if a smaller reporting company)

Prologis, L.P.:
Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☐	Emerging growth company ☐
	(Do not check if a smaller reporting company)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Prologis, Inc.	Yes	☐	No	☒
Prologis, L.P.	Yes	☐	No	☒

The number of shares of Prologis, Inc.’s common stock outstanding at July ~~24, 2017,~~19, 2018, was approximately ~~531,863,000.~~533,307,000.

EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the period ended June 30, ~~2017,~~2018, of Prologis, Inc. and Prologis, L.P. Unless stated otherwise or the context otherwise requires, references to “Prologis, Inc.” or the “Parent” mean Prologis, Inc. and its consolidated subsidiaries; and references to “Prologis, L.P.” or the “Operating Partnership” or the “OP” mean Prologis, L.P., and its consolidated subsidiaries. The terms “the Company,” “Prologis,” “we,” “our” or “us” means the Parent and the ~~Operating Partnership~~OP collectively.

The Parent is a real estate investment trust ~~(“REIT”~~(a “REIT”) and the general partner of the ~~Operating Partnership.~~OP. At June 30, ~~2017,~~2018, the Parent owned ~~an approximate 97.33%~~97.11% common general partnership interest in the ~~Operating Partnership~~OP and 100% of the preferred units in the ~~Operating Partnership.~~OP. The remaining ~~approximate 2.67%~~2.89% common limited partnership interests are owned by ~~nonaffiliated~~unaffiliated investors and certain current and former directors and officers of the Parent. ~~As the sole general partner of the Operating Partnership, the Parent has complete responsibility and discretion in the day-to-day management and control of the Operating Partnership.~~

We operate the Parent and the ~~Operating Partnership~~OP as one enterprise. The management of the Parent consists of the same members as the management of the ~~Operating Partnership.~~OP. These members are officers of the Parent and employees of the ~~Operating Partnership~~OP or one of its subsidiaries. As sole general partner, ~~with~~the Parent has control of the ~~Operating Partnership,~~OP through complete responsibility and discretion in the ~~Parent~~day-to-day management and therefore, consolidates the ~~Operating Partnership~~OP for financial reporting purposes. Because the only significant asset of the Parent is its investment in the ~~Operating Partnership,~~OP, the assets and liabilities of the Parent and the ~~Operating Partnership~~OP are the same on their respective financial statements.

We believe combining the quarterly reports on Form 10-Q of the Parent and the ~~Operating Partnership~~OP into this single report results in the following benefits:

enhances investors’ understanding of the Parent and the ~~Operating Partnership~~OP by enabling investors to view the business as a whole in the same manner as management views and operates the business;

eliminates duplicative disclosure and provides a more streamlined and readable presentation as a substantial portion of the Company’s disclosure applies to both the Parent and the ~~Operating Partnership;~~OP; and

creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

It is important to understand the few differences between the Parent and the ~~Operating Partnership~~OP in the context of how we operate the Company. The Parent does not conduct business itself, other than acting as the sole general partner of the ~~Operating Partnership~~OP and issuing public equity from time to time. The Parent itself does not incur any indebtedness, but it guarantees the unsecured debt of the ~~Operating Partnership.~~OP. The ~~Operating Partnership~~OP holds substantially all the assets of the business, directly or ~~indirectly, and holds the ownership interests in the Company’s investment in certain entities.~~indirectly. The ~~Operating Partnership~~OP conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Parent, which are contributed to the ~~Operating Partnership~~OP in exchange for partnership units, the ~~Operating Partnership~~OP generates capital required by the business through the ~~Operating Partnership’s~~OP’s operations, incurrence of indebtedness and issuance of partnership units to third parties.

The presentation of noncontrolling interests, stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of the Parent and those of the ~~Operating Partnership.~~ OP. The differences in the presentations between stockholders’ equity and partners’ capital result from the differences in the equity and capital issuances in the Parent and in the OP.

The preferred stock, common stock, additional paid-in capital, accumulated other comprehensive ~~loss~~income (loss) and distributions in excess of net earnings of the Parent are presented as stockholders’ equity in the Parent’s consolidated financial statements. These items represent the common and preferred general partnership interests held by the Parent in the ~~Operating Partnership~~OP and are presented as general partner’s capital within partners’ capital in the ~~Operating Partnership’s~~OP’s consolidated financial statements. The common limited partnership interests held by the limited partners in the ~~Operating Partnership~~OP are presented as noncontrolling interest within equity in the Parent’s consolidated financial statements and as limited partners’ capital within partners’ capital in the ~~Operating Partnership’s~~OP’s consolidated financial statements. The differences in the presentations between stockholders’ equity and partners’ capital result from the differences in the equity and capital issuances at the Parent and Operating Partnership levels.

To highlight the differences between the Parent and the ~~Operating Partnership,~~OP, separate sections in this report, as applicable, individually discuss the Parent and the ~~Operating Partnership,~~OP, including separate financial statements and separate Exhibit 31 and 32 certifications. In the sections that combine disclosure of the Parent and the ~~Operating Partnership,~~OP, this report refers to actions or holdings as being actions or holdings of Prologis.

PROLOGIS

INDEX

			Page Number
PART I.	Financial Information
	Item 1.	Financial Statements		1
	Prologis, Inc.:
		Consolidated Balance Sheets – June 30, ~~2017,~~2018 and December 31, ~~2016~~2017		1
		Consolidated Statements of Income – Three and Six Months Ended June 30, ~~2017,~~2018 and ~~2016~~2017		2
		Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, ~~2017,~~2018 and ~~2016~~2017		3
		Consolidated Statement of Equity – Six Months Ended June 30, ~~2017~~2018		3
		Consolidated Statements of Cash Flows – Six Months Ended June 30, ~~2017,~~2018 and ~~2016~~2017		4
	Prologis, L.P.:
		Consolidated Balance Sheets – June 30, ~~2017,~~2018 and December 31, ~~2016~~2017		5
		Consolidated Statements of Income – Three and Six Months Ended June 30, ~~2017,~~2018 and ~~2016~~2017		6
		Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, ~~2017,~~2018 and ~~2016~~2017		7
		Consolidated Statement of Capital – Six Months Ended June 30, ~~2017~~2018		7
		Consolidated Statements of Cash Flows – Six Months Ended June 30, ~~2017,~~2018 and ~~2016~~2017		8
	Prologis, Inc. and Prologis, L.P.:
		Notes to the Consolidated Financial Statements		9
		Note 1. General		9
		Note 2. Real Estate		11
		Note 3. Unconsolidated Entities		12
		Note 4. Assets Held for Sale or Contribution		1514
		Note 5. Debt		1514
		Note 6. Noncontrolling Interests		1716
		Note 7. Long-Term Compensation		1817
		Note 8. Earnings Per Common Share or Unit		1918
		Note 9. Financial Instruments and Fair Value Measurements		2019
		Note 10. Business Segments		2423
		Note 11. Supplemental Cash Flow Information		2625
		Note 12. Subsequent Events		25
		Reports of Independent Registered Public Accounting Firm		27
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		4746
	Item 4.	Controls and Procedures		4847
PART II.	Other Information
	Item 1.	Legal Proceedings		4847
	Item 1A.	Risk Factors		48
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		48
	Item 3.	Defaults Upon Senior Securities		48
	Item 4.	Mine Safety Disclosures		48
	Item 5.	Other Information		4948
	Item 6.	Exhibits		4948

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

PROLOGIS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)


	June 30, 2017			December 31,			June 30, 2018			December 31,
	(Unaudited)			2016			(Unaudited)			2017
ASSETS
Investments in real estate properties	$	27,501,284		$	27,119,330		$	25,555,343		$	25,838,644
Less accumulated depreciation		4,026,369			3,758,372			4,283,877			4,059,348
Net investments in real estate properties		23,474,915			23,360,958			21,271,466			21,779,296
Investments in and advances to unconsolidated entities		4,617,724			4,230,429			5,414,623			5,496,450
Assets held for sale or contribution		350,987			322,139			892,546			342,060
Notes receivable backed by real estate		19,536			32,100			-			34,260
Net investments in real estate		28,463,162			27,945,626			27,578,635			27,652,066

Cash and cash equivalents		271,354			807,316			527,830			447,046
Other assets		1,415,879			1,496,990			1,396,417			1,381,963
Total assets	$	30,150,395		$	30,249,932		$	29,502,882		$	29,481,075

LIABILITIES AND EQUITY
Liabilities:
Debt	$	11,081,922		$	10,608,294		$	9,427,124		$	9,412,631
Accounts payable and accrued expenses		554,775			556,179			719,679			702,804
Other liabilities		653,460			627,319			629,576			659,899
Total liabilities		12,290,157			11,791,792			10,776,379			10,775,334

Equity:
Prologis, Inc. stockholders’ equity:
Series Q preferred stock at stated liquidation preference of $50 per share: $0.01 par value; 1,565 shares issued and outstanding and 100,000 preferred shares authorized at June 30, 2017, and December 31, 2016		78,235			78,235
Common stock: $0.01 par value; 531,338 shares and 528,671 shares issued and outstanding at June 30, 2017, and December 31, 2016, respectively		5,313			5,287
Series Q preferred stock at stated liquidation preference of $50 per share; $0.01 par value; 1,379 shares issued and outstanding and 100,000 preferred shares authorized at June 30, 2018 and December 31, 2017, respectively								68,948			68,948
Common stock; $0.01 par value; 533,303 shares and 532,186 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively								5,333			5,322
Additional paid-in capital		19,305,197			19,455,039			19,322,016			19,363,007
Accumulated other comprehensive loss		(934,196	)		(937,473	)		(1,041,486	)		(901,658	)
Distributions in excess of net earnings		(3,607,253	)		(3,610,007	)		(2,716,241	)		(2,904,461	)
Total Prologis, Inc. stockholders’ equity		14,847,296			14,991,081			15,638,570			15,631,158
Noncontrolling interests		3,012,942			3,467,059			3,087,933			3,074,583
Total equity		17,860,238			18,458,140			18,726,503			18,705,741
Total liabilities and equity	$	30,150,395		$	30,249,932		$	29,502,882		$	29,481,075

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 30,						June 30,						June 30,						June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Revenues:
Rental	$	447,960		$	426,150		$	887,844		$	863,254		$	426,549		$	447,960		$	854,450		$	887,844
Rental recoveries		128,417			119,981			255,466			236,993			118,130			128,417			246,172			255,466
Strategic capital		180,654			53,535			237,699			104,538			75,697			180,654			208,658			237,699
Development management and other		9,152			2,489			14,329			3,670			900			9,152			5,652			14,329
Total revenues		766,183			602,155			1,395,338			1,208,455			621,276			766,183			1,314,932			1,395,338
Expenses:
Rental		147,794			140,725			300,450			287,306			133,329			147,794			276,270			300,450
Strategic capital		51,986			27,866			83,785			53,159			34,850			51,986			78,710			83,785
General and administrative		60,077			56,934			113,694			107,477			57,615			60,077			120,043			113,694
Depreciation and amortization		228,145			230,382			454,736			480,382			203,673			228,145			407,754			454,736
Other		2,909			3,900			5,515			8,585			4,515			2,909			7,754			5,515
Total expenses		490,911			459,807			958,180			936,909			433,982			490,911			890,531			958,180

Operating income		275,272			142,348			437,158			271,546			187,294			275,272			424,401			437,158

Other income (expense):
Earnings from unconsolidated entities, net		68,596			41,454			117,201			99,765			62,549			68,596			125,205			117,201
Interest expense		(75,354	)		(76,455	)		(148,266	)		(157,267	)		(56,314	)		(75,354	)		(102,575	)		(148,266	)
Interest and other income, net		1,892			1,527			4,677			4,118			5,641			1,892			7,617			4,677
Gains on dispositions of investments in real estate, net		83,006			200,350			180,331			344,667			94,261			83,006			289,372			180,331
Foreign currency and derivative losses, net		(20,055	)		(10,335	)		(27,455	)		(24,546	)
Foreign currency and derivative gains (losses), net														85,382			(20,055	)		44,288			(27,455	)
Gains (losses) on early extinguishment of debt, net		(30,596	)		2,044			(30,596	)		992			282			(30,596	)		(702	)		(30,596	)
Total other income		27,489			158,585			95,892			267,729			191,801			27,489			363,205			95,892
Earnings before income taxes		302,761			300,933			533,050			539,275			379,095			302,761			787,606			533,050
Total income tax expense		14,781			5,142			24,381			20,679			14,104			14,781			30,656			24,381
Consolidated net earnings		287,980			295,791			508,669			518,596			364,991			287,980			756,950			508,669
Less net earnings attributable to noncontrolling interests		19,363			18,712			35,123			31,787			28,904			19,363			53,485			35,123
Net earnings attributable to controlling interests		268,617			277,079			473,546			486,809			336,087			268,617			703,465			473,546
Less preferred stock dividends		1,674			1,696			3,348			3,385			1,476			1,674			2,952			3,348
Net earnings attributable to common stockholders	$	266,943		$	275,383		$	470,198		$	483,424		$	334,611		$	266,943		$	700,513		$	470,198

Weighted average common shares outstanding – Basic		530,040			524,842			529,400			524,540			532,639			530,040			532,427			529,400
Weighted average common shares outstanding – Diluted		552,114			545,388			550,512			544,293			554,515			552,114			554,066			550,512

Net earnings per share attributable to common stockholders – Basic	$	0.50		$	0.52		$	0.89		$	0.92		$	0.63		$	0.50		$	1.32		$	0.89

Net earnings per share attributable to common stockholders – Diluted	$	0.50		$	0.52		$	0.88		$	0.92		$	0.62		$	0.50		$	1.30		$	0.88

Dividends per common share	$	0.44		$	0.42		$	0.88		$	0.84		$	0.48		$	0.44		$	0.96		$	0.88

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 30,						June 30,						June 30,						June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Consolidated net earnings	$	287,980		$	295,791		$	508,669		$	518,596		$	364,991		$	287,980		$	756,950		$	508,669
Other comprehensive income (loss):
Foreign currency translation gains (losses), net		3,162			(23,061	)		42,829			(21,600	)		(147,813	)		3,162			(143,043	)		42,829
Unrealized gains (losses) on derivative contracts, net		6,735			(5,926	)		9,366			(21,818	)		2,131			6,735			(4,156	)		9,366
Comprehensive income		297,877			266,804			560,864			475,178			219,309			297,877			609,751			560,864
Net earnings attributable to noncontrolling interests		(19,363	)		(18,712	)		(35,123	)		(31,787	)		(28,904	)		(19,363	)		(53,485	)		(35,123	)
Other comprehensive income attributable to noncontrolling interests		(811	)		(5,192	)		(48,918	)		(13,232	)
Other comprehensive loss (income) attributable to noncontrolling interests														7,539			(811	)		7,371			(48,918	)
Comprehensive income attributable to common stockholders	$	277,703		$	242,900		$	476,823		$	430,159		$	197,944		$	277,703		$	563,637		$	476,823

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, INC.

CONSOLIDATED STATEMENT OF EQUITY

Six Months Ended June 30, ~~2017~~2018

(Unaudited)

(In thousands)

Common Stock

Accumulated

Distributions

Number

Additional

Other

in Excess of

Non-

Preferred

of

Par

Paid-in

Comprehensive

Net

controlling

Total

Stock

Shares

Value

Capital

Loss

Earnings

Interests

Equity

Balance at January 1, 2017

$
78,235

528,671

$
5,287

$
19,455,039

$
(937,473
)

$
(3,610,007
)

$
3,467,059

$
18,458,140

Consolidated net earnings

-

-

-

-

-

473,546

35,123

508,669

Effect of equity compensation
     plans

-

1,714

17

39,879

-

-

18,889

58,785

Capital contributions

-

-

-

-

-

-

135,857

135,857

Settlement of noncontrolling
     interests

-

-

-

(201,620
)

-

-

(588,006
)

(789,626
)
Conversion of noncontrolling
     interests

-

953

9

28,429

-

-

(28,438
)

-

Foreign currency translation
     gains (losses), net

-

-

-

-

(5,839
)

-

48,668

42,829

Unrealized gains on derivative
     contracts, net

-

-

-

-

9,116

-

250

9,366

Reallocation of equity

-

-

-

(16,501
)

-

-

16,501

-

Distributions and other

-

-

-

(29
)

-

(470,792
)

(92,961
)

(563,782
)
Balance at June 30, 2017

$
78,235

531,338

$
5,313

$
19,305,197

$
(934,196
)

$
(3,607,253
)

$
3,012,942

$
17,860,238

			Common Stock							Accumulated			Distributions
			Number				Additional			Other			in Excess of			Non-
	Preferred		of		Par		Paid-in			Comprehensive			Net			controlling			Total
	Stock		Shares		Value		Capital			Loss			Earnings			Interests			Equity
Balance at January 1, 2018	$	68,948		532,186	$	5,322	$	19,363,007		$	(901,658	)	$	(2,904,461	)	$	3,074,583		$	18,705,741
Consolidated net earnings		-		-		-		-			-			703,465			53,485			756,950
Effect of equity compensation plans		-		1,117		11		8,835			-			-			24,835			33,681
Capital contributions		-		-		-		-			-			-			37,974			37,974
Redemption of noncontrolling interests		-		-		-		(2,792	)		-			-			(20,976	)		(23,768	)
Foreign currency translation losses, net		-		-		-		-			(135,793	)		-			(7,250	)		(143,043	)
Unrealized losses on derivative contracts, net		-		-		-		-			(4,035	)		-			(121	)		(4,156	)
Reallocation of equity		-		-		-		(46,927	)		-			-			46,927			-
Distributions and other		-		-		-		(107	)		-			(515,245	)		(121,524	)		(636,876	)
Balance at June 30, 2018	$	68,948		533,303	$	5,333	$	19,322,016		$	(1,041,486	)	$	(2,716,241	)	$	3,087,933		$	18,726,503

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Six Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2018			2017
Operating activities:
Consolidated net earnings	$	508,669		$	518,596		$	756,950		$	508,669
Adjustments to reconcile net earnings to net cash provided by operating activities:
Straight-lined rents and amortization of above and below market leases		(48,920	)		(43,113	)		(26,369	)		(48,920	)
Equity-based compensation awards		37,604			29,212			39,082			37,604
Depreciation and amortization		454,736			480,382			407,754			454,736
Earnings from unconsolidated entities, net		(117,201	)		(99,765	)		(125,205	)		(117,201	)
Distributions from unconsolidated entities		141,256			147,155
Net changes in operating receivables from unconsolidated entities		(117,675	)		22,896
Amortization of debt premiums, net of debt issuance costs		(4,445	)		(9,616	)
Operating distributions from unconsolidated entities								175,960			141,256
Decrease (increase) in operating receivables from unconsolidated entities								6,589			(117,675	)
Amortization of debt discounts (premiums), net of debt issuance costs								5,971			(4,445	)
Gains on dispositions of investments in real estate, net		(180,331	)		(344,667	)		(289,372	)		(180,331	)
Unrealized foreign currency and derivative losses, net		35,266			23,386
Losses (gains) on early extinguishment of debt, net		30,596			(992	)
Unrealized foreign currency and derivative losses (gains), net								(52,595	)		35,266
Losses on early extinguishment of debt, net								702			30,596
Deferred income tax expense (benefit)		2,268			(4,602	)		(1,194	)		2,268
Decrease in accounts receivable and other assets		61,452			14,327
Decrease (increase) in accounts receivable and other assets								(35,756	)		61,452
Decrease in accounts payable and accrued expenses and other liabilities		(58,115	)		(99,539	)		(89,293	)		(58,115	)
Net cash provided by operating activities		745,160			633,660			773,224			745,160
Investing activities:
Real estate development		(715,294	)		(775,545	)		(788,604	)		(715,294	)
Real estate acquisitions		(202,088	)		(136,107	)		(289,031	)		(202,088	)
Tenant improvements and lease commissions on previously leased space		(75,342	)		(88,659	)		(59,342	)		(75,342	)
Nondevelopment capital expenditures		(37,253	)		(30,096	)
Property improvements								(33,289	)		(37,253	)
Proceeds from dispositions and contributions of real estate properties		836,107			1,284,126			901,808			836,107
Investments in and advances to unconsolidated entities		(144,894	)		(145,287	)		(83,250	)		(144,894	)
Return of investment from unconsolidated entities		133,677			533,333			134,640			133,677
Proceeds from repayment of notes receivable backed by real estate		32,100			201,250			34,260			32,100
Proceeds from the settlement of net investment hedges		7,541			16,768			-			7,541
Payments on the settlement of net investment hedges		(5,058	)		-			(3,966	)		(5,058	)
Net cash provided by (used in) investing activities		(170,504	)		859,783
Net cash used in investing activities								(186,774	)		(170,504	)
Financing activities:
Proceeds from issuance of common stock		25,374			10,354			4,322			25,374
Dividends paid on common and preferred stock		(470,792	)		(445,343	)		(515,245	)		(470,792	)
Noncontrolling interests contributions		135,857			825			26,174			135,857
Noncontrolling interests distributions		(99,896	)		(214,263	)		(121,524	)		(99,896	)
Purchase of noncontrolling interests		(789,626	)		(2,979	)
Settlement of noncontrolling interests								(23,768	)		(789,626	)
Tax paid for shares withheld		(18,894	)		(7,301	)		(26,694	)		(18,894	)
Debt and equity issuance costs paid		(6,151	)		(14,865	)
Debt issuance costs paid								(6,386	)		(6,151	)
Net payments on credit facilities		(33,745	)		(3,515	)		(307,086	)		(33,745	)
Repurchase and payments of debt		(2,002,519	)		(1,277,311	)		(1,251,830	)		(2,002,519	)
Proceeds from issuance of debt		2,134,041			517,045			1,721,793			2,134,041
Net cash used in financing activities		(1,126,351	)		(1,437,353	)		(500,244	)		(1,126,351	)

Effect of foreign currency exchange rate changes on cash		15,733			12,051			(5,422	)		15,733
Net increase (decrease) in cash and cash equivalents		(535,962	)		68,141			80,784			(535,962	)
Cash and cash equivalents, beginning of period		807,316			264,080			447,046			807,316
Cash and cash equivalents, end of period	$	271,354		$	332,221		$	527,830		$	271,354

See Note 11 for information on noncash investing and financing activities and other information.

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, L.P.

CONSOLIDATED BALANCE SHEETS

(In thousands)


	June 30, 2017		December 31,		June 30, 2018		December 31,
	(Unaudited)		2016		(Unaudited)		2017
ASSETS
Investments in real estate properties	$	27,501,284	$	27,119,330	$	25,555,343	$	25,838,644
Less accumulated depreciation		4,026,369		3,758,372		4,283,877		4,059,348
Net investments in real estate properties		23,474,915		23,360,958		21,271,466		21,779,296
Investments in and advances to unconsolidated entities		4,617,724		4,230,429		5,414,623		5,496,450
Assets held for sale or contribution		350,987		322,139		892,546		342,060
Notes receivable backed by real estate		19,536		32,100		-		34,260
Net investments in real estate		28,463,162		27,945,626		27,578,635		27,652,066

Cash and cash equivalents		271,354		807,316		527,830		447,046
Other assets		1,415,879		1,496,990		1,396,417		1,381,963
Total assets	$	30,150,395	$	30,249,932	$	29,502,882	$	29,481,075

LIABILITIES AND CAPITAL
Liabilities:
Debt	$	11,081,922	$	10,608,294	$	9,427,124	$	9,412,631
Accounts payable and accrued expenses		554,775		556,179		719,679		702,804
Other liabilities		653,460		627,319		629,576		659,899
Total liabilities		12,290,157		11,791,792		10,776,379		10,775,334

Capital:
Partners’ capital:
General partner – preferred		78,235		78,235		68,948		68,948
General partner – common		14,769,061		14,912,846		15,569,622		15,562,210
Limited partners – common		165,826		150,173		218,162		165,401
Limited partners – Class A common		239,764		244,417		245,596		248,940
Total partners’ capital		15,252,886		15,385,671		16,102,328		16,045,499
Noncontrolling interests		2,607,352		3,072,469		2,624,175		2,660,242
Total capital		17,860,238		18,458,140		18,726,503		18,705,741
Total liabilities and capital	$	30,150,395	$	30,249,932	$	29,502,882	$	29,481,075

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per unit amounts)

	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 30,						June 30,						June 30,						June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Revenues:
Rental	$	447,960		$	426,150		$	887,844		$	863,254		$	426,549		$	447,960		$	854,450		$	887,844
Rental recoveries		128,417			119,981			255,466			236,993			118,130			128,417			246,172			255,466
Strategic capital		180,654			53,535			237,699			104,538			75,697			180,654			208,658			237,699
Development management and other		9,152			2,489			14,329			3,670			900			9,152			5,652			14,329
Total revenues		766,183			602,155			1,395,338			1,208,455			621,276			766,183			1,314,932			1,395,338
Expenses:
Rental		147,794			140,725			300,450			287,306			133,329			147,794			276,270			300,450
Strategic capital		51,986			27,866			83,785			53,159			34,850			51,986			78,710			83,785
General and administrative		60,077			56,934			113,694			107,477			57,615			60,077			120,043			113,694
Depreciation and amortization		228,145			230,382			454,736			480,382			203,673			228,145			407,754			454,736
Other		2,909			3,900			5,515			8,585			4,515			2,909			7,754			5,515
Total expenses		490,911			459,807			958,180			936,909			433,982			490,911			890,531			958,180

Operating income		275,272			142,348			437,158			271,546			187,294			275,272			424,401			437,158

Other income (expense):
Earnings from unconsolidated entities, net		68,596			41,454			117,201			99,765			62,549			68,596			125,205			117,201
Interest expense		(75,354	)		(76,455	)		(148,266	)		(157,267	)		(56,314	)		(75,354	)		(102,575	)		(148,266	)
Interest and other income, net		1,892			1,527			4,677			4,118			5,641			1,892			7,617			4,677
Gains on dispositions of investments in real estate, net		83,006			200,350			180,331			344,667			94,261			83,006			289,372			180,331
Foreign currency and derivative losses, net		(20,055	)		(10,335	)		(27,455	)		(24,546	)
Foreign currency and derivative gains (losses), net														85,382			(20,055	)		44,288			(27,455	)
Gains (losses) on early extinguishment of debt, net		(30,596	)		2,044			(30,596	)		992			282			(30,596	)		(702	)		(30,596	)
Total other income		27,489			158,585			95,892			267,729			191,801			27,489			363,205			95,892
Earnings before income taxes		302,761			300,933			533,050			539,275			379,095			302,761			787,606			533,050
Total income tax expense		14,781			5,142			24,381			20,679			14,104			14,781			30,656			24,381
Consolidated net earnings		287,980			295,791			508,669			518,596			364,991			287,980			756,950			508,669
Less net earnings attributable to noncontrolling interests		11,986			10,396			22,123			17,237			18,882			11,986			32,940			22,123
Net earnings attributable to controlling interests		275,994			285,395			486,546			501,359			346,109			275,994			724,010			486,546
Less preferred unit distributions		1,674			1,696			3,348			3,385			1,476			1,674			2,952			3,348
Net earnings attributable to common unitholders	$	274,320		$	283,699		$	483,198		$	497,974		$	344,633		$	274,320		$	721,058		$	483,198

Weighted average common units outstanding – Basic		536,060			531,912			535,392			531,507			540,084			536,060			539,547			535,392
Weighted average common units outstanding – Diluted		552,114			545,388			550,512			544,293			554,515			552,114			554,066			550,512

Net earnings per unit attributable to common unitholders – Basic	$	0.50		$	0.52		$	0.89		$	0.92		$	0.63		$	0.50		$	1.32		$	0.89

Net earnings per unit attributable to common unitholders – Diluted	$	0.50		$	0.52		$	0.88		$	0.92		$	0.62		$	0.50		$	1.30		$	0.88

Distributions per common unit	$	0.44		$	0.42		$	0.88		$	0.84		$	0.48		$	0.44		$	0.96		$	0.88

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Consolidated net earnings	$	364,991		$	287,980		$	756,950		$	508,669
Other comprehensive income (loss):
Foreign currency translation gains (losses), net		(147,813	)		3,162			(143,043	)		42,829
Unrealized gains (losses) on derivative contracts, net		2,131			6,735			(4,156	)		9,366
Comprehensive income		219,309			297,877			609,751			560,864
Net earnings attributable to noncontrolling interests		(18,882	)		(11,986	)		(32,940	)		(22,123	)
Other comprehensive loss (income) attributable to noncontrolling interests		3,424			(561	)		3,205			(48,828	)
Comprehensive income attributable to common unitholders	$	203,851		$	285,330		$	580,016		$	489,913

The accompanying notes are an integral part of these Consolidated Financial Statements.

~~PROLOGIS, L.P.~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~(Unaudited)~~

~~(In thousands)~~

Three Months Ended

Six Months Ended

June 30,

June 30,

2017

2016

2017

2016

Consolidated net earnings

$
287,980

$
295,791

$
508,669

$
518,596

Other comprehensive income (loss):

Foreign currency translation gains (losses), net

3,162

(23,061
)

42,829

(21,600
)
Unrealized gains (losses) on derivative contracts, net

6,735

(5,926
)

9,366

(21,818
)
Comprehensive income

297,877

266,804

560,864

475,178

Net earnings attributable to noncontrolling interests

(11,986
)

(10,396
)

(22,123
)

(17,237
)
Other comprehensive income attributable to noncontrolling interests

(561
)

(6,118
)

(48,828
)

(14,844
)
Comprehensive income attributable to common unitholders

$
285,330

$
250,290

$
489,913

$
443,097

~~The accompanying notes are an integral part of these Consolidated Financial Statements.~~

PROLOGIS, L.P.

CONSOLIDATED STATEMENT OF CAPITAL

Six Months Ended June 30, ~~2017~~2018

(Unaudited)

(In thousands)

General Partner

Limited Partners

Non-

Preferred

Common

Common

Class A Common

controlling

Units

Amount

Units

Amount

Units

Amount

Units

Amount

Interests

Total

Balance at January 1, 2017

1,565

$
78,235

528,671

$
14,912,846

5,323

$
150,173

8,894

$
244,417

$
3,072,469

$
18,458,140

Consolidated net earnings

-

-

-

473,546

-

5,322

-

7,678

22,123

508,669

Effect of equity compensation
     plans

-

-

1,714

39,896

1,320

18,889

-

-

-

58,785

Capital contributions

-

-

-

-

-

-

-

-

135,857

135,857

Settlement of noncontrolling
     interests

-

-

-

(201,620
)

-

-

-

-

(588,006
)

(789,626
)
Conversion of limited partners
     units

-

-

953

28,438

(677
)

(18,753
)

-

-

(9,685
)

-

Foreign currency translation
     gains (losses), net

-

-

-

(5,839
)

-

(66
)

-

(94
)

48,828

42,829

Unrealized gains on
     derivative contracts, net

-

-

-

9,116

-

102

-

148

-

9,366

Reallocation of capital

-

-

-

(16,501
)

-

17,383

-

(882
)

-

-

Distributions and other

-

-

-

(470,821
)

-

(7,224
)

-

(11,503
)

(74,234
)

(563,782
)
Balance at June 30, 2017

1,565

$
78,235

531,338

$
14,769,061

5,966

$
165,826

8,894

$
239,764

$
2,607,352

$
17,860,238

	General Partner									Limited Partners												Non-
	Preferred				Common					Common						Class A Common						controlling
	Units		Amount		Units		Amount			Units			Amount			Units			Amount			Interests			Total
Balance at January 1, 2018		1,379	$	68,948		532,186	$	15,562,210			5,656		$	165,401			8,894		$	248,940		$	2,660,242		$	18,705,741
Consolidated net earnings		-		-		-		703,465			-			9,368			-			11,177			32,940			756,950
Effect of equity compensation plans		-		-		1,117		8,846			2,057			24,835			-			-			-			33,681
Capital contributions		-		-		-		-			-			-			-			-			37,974			37,974
Redemption of noncontrolling interests		-		-		-		(2,792	)		-			-			-			-			(3,157	)		(5,949	)
Redemption of limited partners units		-		-		-		-			(240	)		(15,017	)		(45	)		(2,802	)		-			(17,819	)
Foreign currency translation losses, net		-		-		-		(135,793	)		-			(1,903	)		-			(2,142	)		(3,205	)		(143,043	)
Unrealized losses on derivative contracts, net		-		-		-		(4,035	)		-			(57	)		-			(64	)		-			(4,156	)
Reallocation of capital		-		-		-		(46,927	)		-			44,937			-			1,990			-			-
Distributions and other		-		-		-		(515,352	)		-			(9,402	)		-			(11,503	)		(100,619	)		(636,876	)
Balance at June 30, 2018		1,379	$	68,948		533,303	$	15,569,622			7,473		$	218,162			8,849		$	245,596		$	2,624,175		$	18,726,503

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Six Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2018			2017
Operating activities:
Consolidated net earnings	$	508,669		$	518,596		$	756,950		$	508,669
Adjustments to reconcile net earnings to net cash provided by operating activities:
Straight-lined rents and amortization of above and below market leases		(48,920	)		(43,113	)		(26,369	)		(48,920	)
Equity-based compensation awards		37,604			29,212			39,082			37,604
Depreciation and amortization		454,736			480,382			407,754			454,736
Earnings from unconsolidated entities, net		(117,201	)		(99,765	)		(125,205	)		(117,201	)
Distributions from unconsolidated entities		141,256			147,155
Net changes in operating receivables from unconsolidated entities		(117,675	)		22,896
Amortization of debt premiums, net of debt issuance costs		(4,445	)		(9,616	)
Operating distributions from unconsolidated entities								175,960			141,256
Decrease (increase) in operating receivables from unconsolidated entities								6,589			(117,675	)
Amortization of debt discounts (premiums), net of debt issuance costs								5,971			(4,445	)
Gains on dispositions of investments in real estate, net		(180,331	)		(344,667	)		(289,372	)		(180,331	)
Unrealized foreign currency and derivative losses, net		35,266			23,386
Losses (gains) on early extinguishment of debt, net		30,596			(992	)
Unrealized foreign currency and derivative losses (gains), net								(52,595	)		35,266
Losses on early extinguishment of debt, net								702			30,596
Deferred income tax expense (benefit)		2,268			(4,602	)		(1,194	)		2,268
Decrease in accounts receivable and other assets		61,452			14,327
Decrease (increase) in accounts receivable and other assets								(35,756	)		61,452
Decrease in accounts payable and accrued expenses and other liabilities		(58,115	)		(99,539	)		(89,293	)		(58,115	)
Net cash provided by operating activities		745,160			633,660			773,224			745,160
Investing activities:
Real estate development		(715,294	)		(775,545	)		(788,604	)		(715,294	)
Real estate acquisitions		(202,088	)		(136,107	)		(289,031	)		(202,088	)
Tenant improvements and lease commissions on previously leased space		(75,342	)		(88,659	)		(59,342	)		(75,342	)
Nondevelopment capital expenditures		(37,253	)		(30,096	)
Property improvements								(33,289	)		(37,253	)
Proceeds from dispositions and contributions of real estate properties		836,107			1,284,126			901,808			836,107
Investments in and advances to unconsolidated entities		(144,894	)		(145,287	)		(83,250	)		(144,894	)
Return of investment from unconsolidated entities		133,677			533,333			134,640			133,677
Proceeds from repayment of notes receivable backed by real estate		32,100			201,250			34,260			32,100
Proceeds from the settlement of net investment hedges		7,541			16,768			-			7,541
Payments on the settlement of net investment hedges		(5,058	)		-			(3,966	)		(5,058	)
Net cash provided by (used in) investing activities		(170,504	)		859,783
Net cash used in investing activities								(186,774	)		(170,504	)
Financing activities:
Proceeds from issuance of common partnership units in exchange for contributions from Prologis, Inc.		25,374			10,354			4,322			25,374
Distributions paid on common and preferred units		(489,519	)		(465,071	)		(536,150	)		(489,519	)
Noncontrolling interests contributions		135,857			825			26,174			135,857
Noncontrolling interests distributions		(81,169	)		(195,386	)		(100,619	)		(81,169	)
Purchase of noncontrolling interests		(789,626	)		(2,128	)
Settlement of noncontrolling interests								(5,949	)		(789,626	)
Redemption of common limited partnership units								(17,819	)		-
Tax paid for shares withheld		(18,894	)		(7,301	)		(26,694	)		(18,894	)
Debt and capital issuance costs paid		(6,151	)		(14,865	)
Debt issuance costs paid								(6,386	)		(6,151	)
Net payments on credit facilities		(33,745	)		(3,515	)		(307,086	)		(33,745	)
Repurchase and payments of debt		(2,002,519	)		(1,277,311	)		(1,251,830	)		(2,002,519	)
Proceeds from issuance of debt		2,134,041			517,045			1,721,793			2,134,041
Net cash used in financing activities		(1,126,351	)		(1,437,353	)		(500,244	)		(1,126,351	)

Effect of foreign currency exchange rate changes on cash		15,733			12,051			(5,422	)		15,733
Net increase (decrease) in cash and cash equivalents		(535,962	)		68,141			80,784			(535,962	)
Cash and cash equivalents, beginning of period		807,316			264,080			447,046			807,316
Cash and cash equivalents, end of period	$	271,354		$	332,221		$	527,830		$	271,354

See Note 11 for information on noncash investing and financing activities and other information.

The accompanying notes are an integral part of these Consolidated Financial Statements.

PROLOGIS, INC. AND PROLOGIS, L.P.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. GENERAL

Business. Prologis, Inc. (or the “Parent”) commenced operations as a fully integrated real estate company in 1997, elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and believes the current organization and method of operation will enable it to maintain its status as a REIT. The Parent is the general partner of Prologis, L.P. (or the “Operating Partnership” or “OP”). Through the ~~Operating Partnership,~~OP, we are engaged in the ownership, acquisition, development and management of logistics ~~properties~~facilities with a focus on high-barrier, high-growth markets in 19 countries. We invest in real estate through wholly owned subsidiaries and other entities through which we co-invest with partners and investors. We maintain a significant level of ownership in these co-investment ventures, which may be consolidated or unconsolidated based on our level of control of the ~~world’s primary population centers and in those supported by extensive transportation infrastructure.~~entity. Our current business strategy consists of two operating business segments: Real Estate Operations and Strategic Capital. Our Real Estate Operations segment represents the ownership and development of logistics properties. Our Strategic Capital segment represents the management of unconsolidated co-investment ~~ventures and other unconsolidated entities.~~ventures. See Note 10 for further discussion of our business segments. Unless otherwise indicated, the Notes to the Consolidated Financial Statements apply to both the Parent and the ~~Operating Partnership.~~OP. The terms “the Company,” “Prologis,” “we,” “our” or “us” means the Parent and ~~Operating Partnership~~OP collectively.

For each share of ~~common stock~~preferred or ~~preferred~~common stock the Parent issues, the ~~Operating Partnership~~OP issues a corresponding ~~common~~preferred or ~~preferred~~common partnership unit, as applicable, to the Parent in exchange for the contribution of the proceeds from the stock issuance. At June 30, ~~2017,~~2018, the Parent owned ~~an approximate 97.33%~~97.11% common general partnership interest in the ~~Operating Partnership~~OP and 100% of the preferred units in the ~~Operating Partnership.~~OP. The remaining ~~approximate 2.67%~~2.89% common limited partnership interests, which include ~~8.9~~8.8 million Class A common limited partnership units (“Class A Units”) in the ~~Operating Partnership,~~OP, are owned by unaffiliated investors and certain current and former directors and officers of the Parent. Each partner’s percentage interest in the ~~Operating Partnership~~OP is determined based on the number of ~~Operating Partnership~~OP units held, including the number of ~~Operating Partnership~~OP units into which Class A Units are convertible, compared to total ~~Operating Partnership~~OP units outstanding at each period end and is used as the basis for the allocation of net income or loss to each partner. At the end of each reporting period, a capital adjustment is made in the ~~Operating Partnership~~OP to reflect the appropriate ownership interest for each of the common unitholders. These adjustments are reflected in the line items Reallocation of Equity in the Consolidated Statement of Equity of the Parent and Reallocation of Capital in the Consolidated Statement of ~~Capital.~~Capital of the OP.

As the sole general partner of the ~~Operating Partnership,~~OP, the Parent has complete responsibility and discretion in the day-to-day management and control of the ~~Operating Partnership~~OP and we operate the Parent and the ~~Operating Partnership~~OP as one enterprise. The management of the Parent consists of the same members as the management of the ~~Operating Partnership.~~OP. These members are officers of the Parent and employees of the ~~Operating Partnership~~OP or one of its subsidiaries. As general partner with control of the ~~Operating Partnership,~~OP, the Parent is the primary beneficiary and therefore consolidates the ~~Operating Partnership.~~OP. Because the Parent’s only significant asset is its investment in the ~~Operating Partnership,~~OP, the assets and liabilities of the Parent and the ~~Operating Partnership~~OP are the same on their respective financial statements.

Basis of Presentation. The accompanying Consolidated Financial Statements are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and are presented in our reporting currency, the U.S. dollar. All material intercompany transactions with consolidated entities have been eliminated.

The accompanying unaudited interim financial information has been prepared according to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and ~~footnote~~note disclosures normally included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations. Our management believes that the disclosures presented in these financial statements are adequate to make the information presented not misleading. In our opinion, all adjustments and eliminations, consisting only of normal recurring adjustments, necessary to present fairly the financial position and results of operations for both the Parent and the ~~Operating Partnership~~OP for the reported periods have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year. The accompanying unaudited interim financial information should be read in conjunction with our Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2016,~~2017, as filed with the SEC, and other public information.

Certain amounts included in the accompanying Consolidated Financial Statements for 2016 have been reclassified to conform to the 2017 financial statement presentation. This included two reclassifications made in the Consolidated Statements of Cash Flows. The first was a reclassification of distributions from our unconsolidated entities from investing activities to operating activities due to the adoption of the accounting standard update in 2016 that provided guidance for areas in which there was diversity in how certain cash receipts and payments were presented and classified. The second was the reclassification of payments from operating activities to financing activities due to the accounting standard update in 2016 that amended the stock compensation requirements in existing GAAP.

New Accounting Pronouncements.

New Accounting Standards Adopted

Revenue Recognition. In ~~January 2017,~~May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update ~~that clarifies the definition of a business. The update adds further guidance that assists preparers in evaluating whether a transaction will be accounted for as an~~

acquisition of an asset or a business. We expect most of our acquisitions of operating properties and portfolios of operating properties to qualify as asset acquisitions under the standard that permits the capitalization of acquisition costs to the basis of the acquired buildings. We adopted this standard on January 1, 2017, on a prospective basis, and the adoption did not have a significant impact on the Consolidated Financial Statements.

~~New Accounting Standards Issued but not yet Adopted~~

~~Revenue Recognition.~~ ~~In May 2014, the FASB issued an accounting standard update~~(“ASU”) that requires companies to use a five-step model to determine when to recognize revenue from customer contracts in an effort to increase consistency and comparability throughout global capital markets and across industries. We are evaluating each of our revenue streams and their related accounting policies under the standard. Rental revenues and recoveries earned from leasing our operating properties will be assessed with the adoption of the lease accounting standard update discussed below. Our evaluation under the revenue recognition standard also includes recurring fees and promotes earned from our co-investment ventures as well as sales to third parties and unconsolidated co-investment ventures. While we do not expect changes in the recognition of recurring fees earned, we are evaluating both the timing and measurement of promotes that may result in recognition when they are probable of being earned. For sales to third parties, primarily dispositions of real estate in exchange for cash with few contingencies, we do not expect the standard to significantly impact the recognition of or accounting treatment. In February 2017, the FASB issued an additional ~~accounting standard update~~ASU that provides the accounting treatment for gains and losses from the derecognition of non-financial assets, including the accounting for partial ~~sales. Upon adoption~~sales of the standard, we will recognize, on a prospective basis, the entire gain attributed to sales to unconsolidated co-investment ventures rather than the third-party share we recognize today. For deferred gains from existing partial sales recorded prior to the adoption of the standard we will continue to recognize these gains into earnings over the lives of the assets. Bothreal estate properties.

We adopted the revenue recognition and derecognition of non-financial assets standards ~~are effective for us~~(collectively “the new revenue recognition standard”) on January 1, 2018. In addition to the recognition changes discussed above, expanded quantitative and qualitative disclosures regarding revenue recognition will be required for contracts that are subject to these standards. We expect to adopt the standards2018, on a modified retrospective basis.

Rental revenues and recoveries earned from leasing our operating properties are excluded from this standard and will be assessed with the adoption of the lease ASU discussed below. Our evaluation under the new revenue recognition standard included recurring and

transactional fees and incentive fees (“promotes” or “promote revenues”) earned from our co-investment ventures as well as dispositions and contributions of real estate properties. There is no change in our recognition of recurring and transactional fees as we will continue to recognize these fees as we provide the services. Promote revenues are earned based on a venture’s cumulative returns over a certain time-period and the returns are determined by both the operating performance and real estate valuation of the venture, including highly variable inputs such as capitalization rates, interest rates and foreign currency exchange rates. As these key inputs are highly volatile and out of our control, and such volatility can materially impact our promotes period over period, we expect promote revenues will continue to be recognized at or near the end of the performance period. Accordingly, we do not expect significant changes in promote revenue recognition as a result of this ASU.

For dispositions of real estate properties to third parties, the standard will not impact the recognition of the sale. Beginning January 1, 2018, we recognized the entire gain attributed to contributions of real estate properties to unconsolidated entities. We previously recognized a gain on contribution only to the extent of the third-party ownership in the unconsolidated entity acquiring the property and deferred the portion of the gain related to our ownership. For discussion of net gains on contributions to unconsolidated entities recognized during the three and six months ended June 30, 2018 and 2017, see Note 2. For deferred gains from partial sales recorded prior to the adoption, we will continue to recognize these gains over the lives of the underlying real estate properties or at the time of disposition to a third party, as discussed in Note 3.

We adopted the practical expedient to only assess the recognition of revenue for open contracts during the transition period and there was no adjustment to the opening balance of retained earnings at January 1, 2018. The comparative information has not been restated and continues to be reported under the accounting standards in effect for that period.

New Accounting Standards Issued but not yet Adopted

Leases. In February 2016, the FASB issued an ~~accounting standard update~~ASU that provides the principles for the recognition, measurement, presentation and disclosure of leases.

As a lessor. The accounting for lessors will remain largely unchanged from current GAAP; however, the standard requires that lessors expense, on an as-incurred basis, certain initial direct costs that are not incremental in negotiating a lease. Under existing standards, ~~certain of~~ these costs are capitalizable and therefore this new standard ~~may~~will result in certain of these costs being expensed as incurred after adoption. During the six months ended June 30, 2018 and 2017, we capitalized $10.5 million and $12.4 million, respectively, of internal costs related to our leasing activities. This standard may also impact the timing, recognition, presentation and disclosures related to our rental recoveries from tenants earned from leasing our operating ~~properties.~~properties, although we do not expect a significant impact.

As a lessee. Under the standard, lessees apply a dual approach, classifying leases as either finance or operating leases. A lessee is required to record a right-of-use (“ROU”) asset and a lease liability for all leases with a term of greater than 12 months, regardless of their lease classification. We are a lessee onof ground leases and office space leases. At December 31, ~~2016,~~2017, we had approximately 90 ground and office space leases that will require us to measure and record a ~~right-of-use~~ROU asset and a lease liability upon adoption of the standard. There have been no significant changes to our ground and office space leases since December 31, ~~2016.~~2017. Details of our future minimum rental payments under these ground and office space leases are disclosed in Note 4 to the Annual Report on Form 10-K for the year ended December 31, 2017.

The standard is effective for us on January 1, 2019. We ~~are assessing~~expect to adopt the practical expedients available for implementation under the standard. ~~If the~~By adopting these practical expedients, ~~are elected,~~ we ~~would~~will not be required to reassess (i) whether an expired or existing contract meets the definition of a lease; (ii) the lease classification at the adoption date for ~~expired or~~ existing leases; and (iii) whether costs previously capitalized as initial direct costs would continue to be amortized. This allows us to continue to account for our ground and office space leases as operating leases, however, any new or renewed ground leases may be classified as financing leases unless they meet certain conditions to be considered a lease involving facilities owned by a government unit or authority. The standard will also require new disclosures within the accompanying notes ~~accompanying~~to the Consolidated Financial Statements. WeWhile we are well into our analysis of the adoption, we will continue to evaluate the key drivers in the measurement of the ROU asset and lease liability and assess the ~~method of adoption and the overall~~ impact the adoption will have on the Consolidated Financial ~~Statements.~~Statements based on industry practice and potential updates to the ASU.

Derivatives and Hedging. In August 2017, the FASB issued an ASU that simplifies the application of hedge accounting guidance in current GAAP and improves the reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its consolidated financial statements. Among the simplification updates, the standard eliminates the requirement in current GAAP to separately recognize periodic hedge ineffectiveness. Mismatches between the changes in value of the hedged item and hedging instrument may still occur but they will no longer be separately reported. The standard requires the presentation of the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. The standard is effective for us on January 1, 2019, but early adoption is permitted. We do not expect the adoption of this standard to have a material impact on the Consolidated Financial Statements.

NOTE 2. REAL ESTATE

Investments in real estate properties consisted of the following (dollars and square feet in thousands):

	Square Feet				Number of Buildings								Square Feet				Number of Buildings
	June 30,		December 31,		June 30,		December 31,		June 30,		December 31,		June 30,		December 31,		June 30,		December 31,		June 30,		December 31,
	2017		2016		2017		2016		2017		2016		2018		2017		2018		2017		2018		2017
Operating properties
Operating properties (1):
Buildings and improvements		332,282		331,210		1,752		1,776	$	18,273,094	$	17,905,914		287,393		294,811		1,477		1,525	$	16,658,627	$	16,849,349
Improved land										6,139,322		6,037,543										5,608,507		5,735,978
Development portfolio, including land costs:
Prestabilized		5,878		8,256		22		29		526,442		798,233		6,024		7,345		20		22		471,491		546,173
Properties under development		22,325		19,539		55		60		962,851		633,849		21,317		22,216		63		63		1,184,404		1,047,316
Land (1)										1,081,897		1,218,904
Land (1) (2)																						1,111,185		1,154,383
Other real estate investments ~~(2)~~(3)										517,678		524,887										521,129		505,445
Total investments in real estate properties										27,501,284		27,119,330										25,555,343		25,838,644
Less accumulated depreciation										4,026,369		3,758,372										4,283,877		4,059,348
Net investments in real estate properties									$	23,474,915	$	23,360,958									$	21,271,466	$	21,779,296

(1)	During the six months ended June 30, 2018, we acquired 808 acres of land for $211.2 million and 3 operating properties for $103.1 million.

(2)	Included in our investments in real estate at June 30, ~~2017,~~2018 and December 31, ~~2016,~~2017, were ~~5,460~~5,220 and ~~5,892~~5,191 acres of land, respectively.

~~(2)~~(3)

Included in other real estate investments ~~are:~~were: (i) non-logistics real estate; (ii) land parcels that are ground leased to third parties; (iii) our corporate ~~office buildings;~~headquarters; (iv) costs related to future development projects, including purchase options on land; (v) infrastructure costs related to projects we are developing on behalf of others; and (vi) earnest money deposits associated with potential acquisitions.

Dispositions

The following table summarizes our real estate disposition activity ~~for the three and six months ended June 30~~ (dollars and square feet in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
Contributions to unconsolidated co-investment ventures
Number of properties		5		5		10		10		3		5		11		10
Square feet		875		1,308		3,644		4,019		1,164		875		4,242		3,644
Net proceeds (1)	$	115,617	$	65,805	$	513,106	$	463,700	$	125,917	$	115,617	$	665,739	$	513,106
Gains on contributions, net (1)	$	37,702	$	10,451	$	126,068	$	103,590
Gains on contributions, net (1) (2)									$	33,527	$	37,702	$	201,253	$	126,068
Dispositions to third parties
Number of properties		20		72		38		99		7		20		18		38
Square feet		3,720		8,321		6,038		10,565		4,139		3,720		5,442		6,038
Net proceeds (1) ~~(2)~~(3)	$	216,290	$	609,028	$	459,679	$	889,607	$	314,141	$	216,290	$	402,122	$	459,679
Gains on dispositions, net (1) ~~(2)~~(3)	$	45,304	$	103,284	$	54,263	$	154,462	$	60,734	$	45,304	$	88,119	$	54,263

Total gains on contributions and dispositions, net	$	83,006	$	113,735	$	180,331	$	258,052
Gains on redemption of investment in co-investment ventures (3)		-		86,615		-		86,615
Total gains on dispositions of investments in real estate, net	$	83,006	$	200,350	$	180,331	$	344,667	$	94,261	$	83,006	$	289,372	$	180,331

(1)	Includes the contribution and disposition of land parcels.

(2)

~~Includes~~Amounts in 2018 reflect the ~~sale~~adoption of the new revenue recognition standard under which we recognized the entire gain attributed to contributions of real estate properties to unconsolidated entities. Amounts in 2017 reflect our ~~investment~~prior recognition of the gain to the extent of the third-party ownership in ~~European Logistics Venture 1 (“ELV”) in 2017. See Note 3 for more information on this transaction.~~the unconsolidated entity acquiring the property with the deferral of a portion of the gain related to our ownership.

(3)

~~In April 2016, we redeemed a portion~~Includes the sale of our investment in ~~Prologis Targeted European~~Europe Logistics ~~Fund (“PTELF”) and Prologis Targeted U.S. Logistics Fund (“USLF”) for €185.0 million ($210.6 million) and $200.0 million, respectively. The amounts received for~~Venture 1 during the ~~redemptions were included in~~ ~~Return of Investment from Unconsolidated Entities~~ ~~in the Consolidated Statements of Cash Flows.~~six months ended June 30, 2017.

NOTE 3. UNCONSOLIDATED ENTITIES

Summary of Investments

We have investments in entities through a variety of ventures. We co-invest in entities that own multiple properties with partners and investors and we provide asset and property management services to these entities, which we refer to as co-investment ventures. These entities may be consolidated or unconsolidated, depending on the structure, our partner’s participation and other rights and our level of control of the entity. This note details our investments in unconsolidated co-investment ventures, which are accounted for using the equity method of accounting. See Note 6 for more detail regarding our consolidated ~~investments.~~investments that are not wholly owned.

We also have other ventures, generally with one partner and that we do not manage, which we account for ~~primarily~~ using the equity method. We refer to our investments in all entities accounted for using the equity method, both unconsolidated co-investment ventures and other ventures, collectively, as unconsolidated entities.

The following table summarizes our investments in and advances to our unconsolidated entities (in thousands):

	June 30,		December 31,		June 30,		December 31,
	2017		2016		2018		2017
Unconsolidated co-investment ventures	$	4,382,825	$	4,057,524	$	5,207,093	$	5,274,702
Other ventures		234,899		172,905		207,530		221,748
Totals	$	4,617,724	$	4,230,429
Total					$	5,414,623	$	5,496,450

Unconsolidated Co-Investment Ventures

~~The amounts recognized in~~ ~~Strategic Capital Revenues~~ ~~and~~ ~~Earnings from Unconsolidated Entities, Net~~ depend on the size and operations of the co-investment ventures, the timing of revenues earned through promotes during the life of a venture or upon liquidation, as well as fluctuations in foreign currency exchange rates. We recognized ~~Strategic Capital Expenses~~ for direct costs associated with the asset management of these ventures and allocated property-level management costs for the properties owned by the ventures. Our ownership interest in these ventures also impacts the earnings we recognize.

The following table summarizes the ~~amounts~~Strategic Capital Revenues we recognized in the Consolidated Statements of Income related to ~~the~~our unconsolidated co-investment ventures (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

2017

2016

2017

2016

Strategic capital revenues from unconsolidated
     co-investment ventures, net:

U.S. (1)

$
130,165

$
9,179

$
141,223

$
18,174

Other Americas (1)

9,864

5,693

15,915

11,079

Europe

25,957

25,435

52,127

47,768

Asia

14,064

12,654

26,719

26,255

Total strategic capital revenues from unconsolidated
     co-investment ventures, net

$
180,050

$
52,961

$
235,984

$
103,276

Earnings from unconsolidated co-investment
     ventures, net:

U.S.

$
1,963

$
718

$
6,909

$
7,377

Other Americas

8,933

7,509

15,503

12,808

Europe

35,859

29,014

65,764

60,593

Asia

14,410

3,693

18,439

7,348

Total earnings from unconsolidated co-investment
     ventures, net

$
61,165

$
40,934

$
106,615

$
88,126

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Recurring fees	$	57,918	$	43,478	$	112,562	$	87,673
Transactional fees		11,828		12,626		27,452		21,219
Promote revenues		5,674		123,946		68,218		127,092
Total strategic capital revenues from unconsolidated co-investment ventures	$	75,420	$	180,050	$	208,232	$	235,984

~~(1)~~

In June 2017, we earned promotes from USLF based on the venture’s cumulative returns to its investors over the last three years and FIBRA Prologis based on the venture’s cumulative returns to its investors over the past year. The third parties’ share of the promotes that were recognized in ~~Strategic Capital Revenues~~ ~~were $123.9 million.~~

The following ~~tables summarize~~table summarizes the key property information, financial position and operating information ~~and financial position~~ of our unconsolidated co-investment ventures (not our proportionate share)~~, as presented at~~ and the amounts we recognized in the Consolidated Financial Statements related to our ~~adjusted basis derived from the ventures’ U.S. GAAP information:~~unconsolidated co-investment ventures (dollars and square feet in millions):

June 30,

December 31,

June 30,

(dollars and square feet in millions)

2017

2016

2016

U.S.:

Number of ventures

1

1

1

Number of operating properties owned

384

369

379

Square feet

52

50

49

Total assets

$
4,346

$
4,238

$
4,228

Third-party debt

$
1,400

$
1,414

$
1,425

Total liabilities

$
1,620

$
1,540

$
1,504

Our investment balance (1)

$
545

$
435

$
518

Our weighted average ownership (2)

14.2
%

14.9
%

17.6
%
Other Americas:

Number of ventures

2

2

2

Number of operating properties owned

215

213

209

Square feet

43

42

41

Total assets

$
2,791

$
2,793

$
2,694

Third-party debt

$
728

$
739

$
677

Total liabilities

$
812

$
814

$
772

Our investment balance (1)

$
836

$
845

$
848

Our weighted average ownership (2)

44.0
%

43.9
%

43.6
%
Europe:

Number of ventures (3) (4)

4

4

4

Number of operating properties owned

702

700

690

Square feet

164

163

160

Total assets

$
12,178

$
10,853

$
11,188

Third-party debt

$
2,595

$
2,446

$
2,566

Total liabilities

$
3,536

$
3,283

$
3,521

Our investment balance (1)

$
2,505

$
2,327

$
2,464

Our weighted average ownership (2)

33.0
%

35.1
%

36.2
%
Asia:

Number of ventures

2

2

2

Number of operating properties owned

83

85

77

Square feet

36

36

34

Total assets

$
5,528

$
5,173

$
5,346

Third-party debt

$
2,088

$
1,947

$
1,952

Total liabilities

$
2,376

$
2,239

$
2,250

Our investment balance (1)

$
497

$
451

$
498

Our weighted average ownership (2)

15.1
%

15.1
%

15.0
%
Total:

Number of ventures

9

9

9

Number of operating properties owned

1,384

1,367

1,355

Square feet

295

291

284

Total assets

$
24,843

$
23,057

$
23,456

Third-party debt

$
6,811

$
6,546

$
6,620

Total liabilities

$
8,344

$
7,876

$
8,047

Our investment balance (1)

$
4,383

$
4,058

$
4,328

Our weighted average ownership (2)

26.9
%

27.9
%

28.8
%

	U.S.						Other Americas						Europe						Asia						Total
As of:	Jun 30, 2018			Dec 31, 2017			Jun 30, 2018			Dec 31, 2017			Jun 30, 2018			Dec 31, 2017			Jun 30, 2018			Dec 31, 2017			Jun 30, 2018			Dec 31, 2017
Key property information
Ventures		1			1			2			2			3			3			2			2			8			8
Operating properties		554			552			205			205			653			707			114			95			1,526			1,559
Square feet		88			88			37			37			154			166			48			41			327			332

Financial position
Unconsolidated co-investment ventures:
Total assets ($)		7,188			7,062			2,073			2,118			13,176			13,586			6,694			6,133			29,131			28,899
Third-party debt ($)		2,098			2,313			752			756			2,650			2,682			2,577			2,328			8,077			8,079
Total liabilities ($)		2,307			2,520			788			782			3,689			3,655			2,881			2,685			9,665			9,642

Our investment balance ($) (1)		1,365			1,383			561			555			2,699			2,813			582			524			5,207			5,275
Our weighted average ownership (2)		26.7	%		28.2	%		43.8	%		43.4	%		32.9	%		32.8	%		15.1	%		15.1	%		28.2	%		28.8	%

	U.S.						Other Americas						Europe						Asia						Total
Operating information	Jun 30, 2018			Jun 30, 2017			Jun 30, 2018			Jun 30, 2017			Jun 30, 2018			Jun 30, 2017			Jun 30, 2018			Jun 30, 2017			Jun 30, 2018			Jun 30, 2017
For the three months ended:
Unconsolidated co-investment ventures:
Total revenues ($)		168			105			55			66			272			248			114			89			609			508
Net earnings ($)		24			15			19			22			110			93			6			93			159			223

Our earnings from unconsolidated co-investment ventures, net ($)		7			2			8			10			37			36			2			14			54			62

For the six months ended:
Unconsolidated co-investment ventures:
Total revenues ($)		336			209			108			130			560			492			222			177			1,226			1,008
Net earnings ($)		37			51			33			39			203			166			48			117			321			373

Our earnings from unconsolidated co-investment ventures, net ($)		12			7			14			16			74			66			9			18			109			107

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

2017

2016

2017

2016

Revenues:

U.S.

$
105

$
98

$
209

$
196

Other Americas

66

59

130

116

Europe

248

248

492

492

Asia

89

86

177

162

Total revenues

$
508

$
491

$
1,008

$
966

Net earnings:

U.S.

$
15

$
6

$
51

$
36

Other Americas

22

19

39

33

Europe

93

68

166

141

Asia

93

22

117

44

Total net earnings

$
223

$
115

$
373

$
254

(1)

Prologis’ investment balance is presented at our adjusted basis derived from the ventures’ U.S. GAAP information. The difference between our ownership interest of a venture’s equity and our investment balance at June 30, ~~2017,~~2018 and December 31, ~~2016,~~2017, results principally from three types of transactions: (i) ~~deferring a portion of~~deferred gains from the ~~gains we recognize from a~~ contribution of a property to a venture prior to January 1, 2018 ($~~459.4~~651.8 million and ~~$469.9~~$667.3 million, respectively); (ii) recording additional costs associated with our investment in athe venture ($~~125.0~~92.4 million and ~~$124.1~~$94.2 million, respectively); and (iii) advances to a venture ($~~300.5~~219.9 million and ~~$166.1~~$210.0 million, respectively)~~, which increased primarily~~. For deferred gains from partial sales recorded prior to the ~~gross promotes that were earned during~~adoption the ~~second quarter~~new revenue recognition standard, we will continue to recognize these gains over the lives of ~~2017 and expected~~the underlying real estate properties or at the time of disposition to ~~be paid in the~~a third ~~quarter of 2017~~.party.

(2)	Represents our weighted average ownership interest in all co-investment ventures based on each entity’s contribution of total assets, before depreciation, net of other liabilities.

~~(3)~~

~~In January 2017, we sold our investment in ELV to our fund partner for $84.3 million and ELV contributed its properties to PTELF in exchange for equity interests.~~

~~(4)~~

In February 2017, we formed the Prologis United Kingdom Logistics Venture (“UKLV”), an unconsolidated co-investment venture in which we have a 15.0% ownership interest. UKLV will acquire land, develop buildings and operate and hold logistics real estate assets in the United Kingdom (“U.K.”). Upon formation, we, along with our venture partner, committed £380.0 million ($493.2 million at June 30, 2017), of which our share is £57.0 million ($74.0 million at June 30, 2017). During the six months ended June 30, 2017, we contributed 1.4 million square feet of stabilized properties, 0.5 million square feet of properties under development and 144.8 acres of land for £269.5 million ($336.4 million). We expect to continue to contribute properties and land into UKLV.

In July 2017, we contributed 190 operating properties formerly owned by Prologis North American Industrial Fund (“NAIF”), totaling approximately 39 million square feet, for an aggregate purchase price of $2.8 billion, to USLF, our unconsolidated co-investment venture. We received cash proceeds of $720 million and additional units, which increased our ownership interest in USLF to approximately 27% and USLF assumed $956.0 million of secured debt. As a result of this transaction, we expect to record a gain of approximately $480 million, net of a deferral due to our ongoing investment, in the third quarter of 2017.

Equity Commitments Related to Certain Unconsolidated Co-Investment Ventures

The following table summarizes the remaining equity commitments at June 30, ~~2017~~2018 (in millions):

Equity Commitments

Expiration Date
for Remaining Commitments

Prologis

Venture Partners

Total

Prologis Targeted Europe Logistics Fund (1)

$
-

$
346

$
346

2017 - 2018
Prologis United Kingdom Logistics Venture (2)

35

201

236

2021
Prologis China Logistics Venture

294

1,665

1,959

2017
Totals

$
329

$
2,212

$
2,541

	Equity Commitments						Expiration Date
	Prologis		Venture Partners		Total
Prologis Targeted U.S. Logistics Fund	$	-	$	178	$	178	2019
Prologis European Logistics Fund (1)		-		1,201		1,201	2018 – 2019
Prologis UK Logistics Venture (2)		18		102		120	2021
Prologis China Logistics Venture		267		1,510		1,777	2020 – 2024
Total	$	285	$	2,991	$	3,276

(1)	Equity commitments are denominated in euro and reported in U.S. dollars based on an exchange rate of ~~$1.14~~$1.17 U.S. dollars to the euro.

(2)	~~As discussed above, this co-investment venture was formed in February 2017.~~ Equity commitments are denominated in British pounds sterling and reported in U.S. dollars based on an exchange rate of ~~$1.30~~$1.32 U.S. dollars to the British pound sterling.

NOTE 4. ASSETS HELD FOR SALE OR CONTRIBUTION

We have investments in certain real estate properties that met the criteria to be classified as held for sale or contribution at June 30, ~~2017,~~2018 and December 31, ~~2016. These~~2017. At the time of classification, these properties ~~are~~were expected to be sold to third parties or were recently developed and expected to be contributed to unconsolidated co-investment ventures within twelve months. The amounts included in Assets Held for Sale or Contributionrepresented real estate investment balances and the related assets ~~and liabilities~~ for each property.

Assets held for sale or contribution consisted of the following (dollars and square feet in thousands):

	June 30,		December 31,		June 30,		December 31,
	2017		2016		2018		2017
Number of operating properties		22		13		73		22
Square feet		4,886		4,167		14,735		5,384
Total assets held for sale or contribution	$	350,987	$	322,139	$	892,546	$	342,060
Total liabilities associated with assets held for sale or contribution – included in Other Liabilities	$	6,281	$	4,984	$	22,829	$	9,341

NOTE 5. DEBT

All debt is incurred by the ~~Operating Partnership.~~OP. The Parent does not have any indebtedness, but guarantees the unsecured debt ofissued by the ~~Operating Partnership.~~OP.

The following table summarizes our debt (dollars in thousands):

	June 30, 2017					December 31, 2016					June 30, 2018					December 31, 2017
	Weighted Average Interest Rate (1)			Amount Outstanding (2)		Weighted Average Interest Rate (1)			Amount Outstanding		Weighted Average Interest Rate (1)			Amount Outstanding (2)		Weighted Average Interest Rate (1)			Amount Outstanding (2)
Credit facilities		-		$	-		1.0	%	$	35,023		0.9	%	$	11,658		1.8	%	$	317,392
Senior notes		3.1	%		6,727,450		3.3	%		6,417,492		2.9	%		7,102,381		3.0	%		6,067,277
Term loans		1.6	%		1,954,091		1.4	%		1,484,523		1.2	%		1,402,568		1.7	%		2,046,945
Unsecured other		6.1	%		14,346		6.1	%		14,478		6.1	%		13,093		6.1	%		13,546
Secured mortgages ~~(3)~~		3.9	%		1,983,623		4.9	%		979,585		5.5	%		897,424		5.3	%		967,471
Secured mortgages of consolidated entities (3)		2.7	%		402,412		3.0	%		1,677,193
Totals		3.0	%	$	11,081,922		3.2	%	$	10,608,294
Total												2.9	%	$	9,427,124		2.9	%	$	9,412,631

(1)

The interest rates presented represent the effective interest rates (including amortization of debt issuance costs and the noncash premiums or discounts) at the end of the period for the debt ~~outstanding.~~outstanding and include the impact of interest rate swaps designated as cash flow hedges, which effectively fix the interest rate on our variable rate debt.

(2)

Included in the outstanding balances ~~are~~were borrowings denominated in non-U.S. ~~dollars, principally: euro ($3.6 billion), Japanese yen ($1.5 billion), British pounds sterling ($0.6 billion) and Canadian dollars ($0.4 billion).~~dollars. The following table summarizes our debt by currency (in thousands):

~~(3)~~

As discussed in Note 6, in March 2017 we acquired all of our partner’s interest in NAIF, therefore, the related secured mortgage debt of $956.0 million at June 30, 2017 was wholly-owned and reported as secured mortgages. In July 2017, this debt was assumed by USLF in conjunction with our contribution of the associated real estate properties, as discussed in Note 3.

	June 30, 2018		December 31, 2017
British pound sterling	$	653,632	$	671,522
Canadian dollar		274,180		451,080
Euro		4,184,844		3,839,422
Japanese yen		1,276,029		1,306,380
U.S. dollar		3,038,439		3,144,227
Total	$	9,427,124	$	9,412,631

Generally, we borrow in the functional currency of the consolidated subsidiaries but we also borrow in currencies other than the U.S. dollar in the OP and may designate this borrowing as a nonderivative financial instrument. We may also hedge our foreign currency risk by designating derivative financial instruments as net investment hedges, as these amounts offset the translation adjustments on the underlying net assets of our foreign investments. See Note 9 for more information about our nonderivative and derivative financial instruments.

Credit Facilities

We have a global senior credit facility (the “Global Facility”), under which we may draw in British pounds sterling, Canadian dollars, euro, Japanese yen and U.S. dollars on a revolving basis up to $3.0 billion (subject to currency fluctuations). We have the ability to increase the Global Facility to $3.8 billion, subject to currency fluctuations and obtaining additional lender commitments. Pricing under the Global Facility, including the spread over LIBOR, facility fees and letter of credit fees, varies based on the public debt ratings of the ~~Operating Partnership.~~OP. The Global Facility is scheduled to mature in April 2020; however, we may extend the maturity date for six months on two occasions, subject to the satisfaction of certain conditions and payment of extension fees.

We also have a Japanese yen revolver (the “Revolver”)~~. In February 2017, we renewed and amended the Revolver to increase our~~ with availability ~~from ¥45.0 billion to~~of ¥50.0 billion ($~~446.7~~451.7 million at June 30, ~~2017)~~2018). We have the ability to increase the Revolver to ¥65.0 billion ($~~580.6~~587.2 million at June 30, ~~2017)~~2018), subject to obtaining additional lender commitments. Pricing under the Revolver, including the spread over LIBOR, facility fees and letter of credit fees, varies based on the public debt ratings of the ~~Operating Partnership.~~OP. The Revolver is scheduled to mature in February 2021; however, we may extend the maturity date for one year, subject to the satisfaction of certain conditions and payment of extension fees.

We refer to the Global Facility and the Revolver, collectively, as our “Credit Facilities.”

The following table summarizes information about our Credit Facilities at June 30, ~~2017~~2018 (in millions):

Aggregate lender commitments	$	3,452	$	3,479
Less:
Borrowings outstanding		-		12
Outstanding letters of credit		37		31
Current availability	$	3,415	$	3,436

Senior Notes

In ~~June 2017,~~January 2018, we issued ~~£500.0~~€400.0 million ($~~645.3~~494.2 million) of senior notes bearing a floating rate of Euribor plus 0.25%, maturing in January 2020. The exchange rate used to calculate into U.S. dollars was the spot rate at the date of the transaction. The effective interest rate was -0.08% at June 30, 2018, primarily due to the amortization of the net premium on the debt. In association with the issuance, we entered into cash flow hedges to effectively fix the interest rate, as discussed in Note 9. Following the issuance, we used the proceeds to pay down our multi-currency term loan (the “2017 Term Loan”) during the first quarter of 2018.

In June 2018, we issued $400.0 million of senior notes that bear an interest rate of ~~2.25%, maturing~~3.88% and mature in ~~2029, at 99.94%~~September 2028 and $300.0 million of ~~par value for~~senior notes that bear an ~~all-in-rate~~interest rate of ~~2.30%.~~4.38% and mature in September 2048. Following the issuance, we ~~paid cash~~used the proceeds to pay down our Global Facility in the second quarter of ~~$652.0 million to redeem $618.3 million of previously issued senior notes before the maturity date~~2018 and our Canadian term loan (the “2015 Canadian Term Loan”) in ~~an effort to reduce our borrowing costs and extend our debt maturities. As a result, we recognized a loss in~~ ~~Gains (Losses) on Early Extinguishment of Debt, Net~~ of $32.2 million represented by the difference between the recorded debt (including premiums and discounts and related debt issuance costs) and the consideration we paid to retire the debt, including fees.July 2018.

Term Loans

~~In March 2017,~~During the six months ended June 30, 2018, we ~~entered into an unsecured senior term loan agreement (the “2017 Yen~~borrowed on our Global Facility and paid down CAD 201.4 million ($158.9 million) on the 2015 Canadian Term ~~Loan”) under which we can draw in Japanese yen, of which ¥7.2 billion~~Loan, leaving CAD $170.5 million ($~~64.3~~128.7 million at June 30, ~~2017) matures~~2018) outstanding. In association with the pay down of the 2015 Canadian Term Loan, we terminated our Canadian denominated cash flow hedges in ~~March 2027 and bears an interest rate of 0.92% and ¥4.8 billion ($42.9 million at~~February 2018. See Note 9 for more information.

During the six months ended June 30, ~~2017) matures in March 2028~~2018 and ~~bears an interest rate of 1.01%. In the first quarter of~~ 2017, we ~~borrowed ¥12.0 billion ($107.2 million), causing the 2017 Yen Term Loan to be fully drawn at June 30, 2017.~~

In May 2017, we renewed and amended our existing senior term loan agreement (the “2017 Term Loan,” formerly the “Euro Term Loan”) under which loans can be obtained in British pounds sterling, euro, Japanese yen and U.S. dollars in an aggregate amount not to exceed $500.0 million. We may increase the borrowings up topaid down $1.0 billion ~~subject to obtaining additional lender commitments. We may also pay down~~ and ~~reborrow under this term loan. The 2017 Term Loan bears an interest rate of LIBOR plus 0.90%~~$575.7 million, and is scheduled to mature in May 2020; however, we may extend the maturity date twice, by one year each, subject to the satisfaction of certain conditions and the payment of an extension fee. In the second quarter of 2017, we borrowedreborrowed $500.0 million ~~causing the 2017 Term Loan to be fully drawn at June 30, 2017. In connection with the contribution of properties to USLF in July 2017, we used the net proceeds to pay down the balance outstanding~~and $877.5 million, on our 2017 Term Loan.

Long-Term Debt Maturities

Principal payments due on our debt for the remainder of ~~2017~~2018 and for each ~~of the years in~~year through the period ~~ending~~ended December 31, ~~2026,~~2022, and thereafter were as follows at June 30, ~~2017~~2018 (in thousands):

	Unsecured												Unsecured
	Senior			Term Loans			Secured						Credit		Senior			Term Loans			Secured
Maturity	Notes			and Other			Mortgage Debt			Total			Facilities		Notes			and Other			Mortgages			Total
2017 (1)	$	-		$	491		$	-		$	491
2018		175,000			1,009			118,063			294,072
2019		-			1,091			610,281			611,372
2018 (1)													$	-	$	-		$	492		$	108,137		$	108,629
2019 (1)														-		-			1,014			446,328			447,342
2020 (2)		887,241			501,155			446,318			1,834,714			11,658		1,165,802			1,077			12,409			1,190,946
2021		1,298,840			954			436,544			1,736,338			-		816,060			910			14,600			831,570
2022		798,840			447,396			141,673			1,387,909			-		816,060			452,455			10,636			1,279,151
2023		850,000			913,201			163,284			1,926,485
2024		798,840			882			174,735			974,457
2025		750,000			958			133,420			884,378
2026		570,600			599			139,920			711,119
Thereafter		648,903			112,851			2,384			764,138			-		4,356,824			968,756			306,385			5,631,965
Subtotal		6,778,264			1,980,587			2,366,622			11,125,473			11,658		7,154,746			1,424,704			898,495			9,489,603
Premiums (discounts), net		(22,648	)		-			28,391			5,743			-		(23,909	)		-			2,212			(21,697	)
Debt issuance costs, net		(28,166	)		(12,150	)		(8,978	)		(49,294	)		-		(28,456	)		(9,043	)		(3,283	)		(40,782	)
Totals	$	6,727,450		$	1,968,437		$	2,386,035		$	11,081,922

Total													$	11,658	$	7,102,381		$	1,415,661		$	897,424		$	9,427,124
��

(1)	We expect to repay the amounts maturing in ~~2017~~the next twelve months with cash generated from operations, proceeds from ~~the~~ dispositions of ~~wholly-owned~~ real estate properties, or as necessary, with borrowings on our Credit Facilities.

(2)	Included in the 2020 maturities iswas the ~~2017 Term Loan~~Global Facility that can be extended until ~~2022.~~2021, as discussed above.

Financial Debt Covenants

We have ~~approximately $6.7~~$7.1 billion of senior notes and ~~$2.0~~$1.4 billion of term loans outstanding at June 30, ~~2017,~~2018 under ~~three~~two separate indentures, as supplemented, ~~which are~~that were subject to certain financial covenants. We are also subject to financial covenants under our Credit Facilities and certain secured ~~mortgage debt.~~mortgages. At June 30, ~~2017,~~2018, we were in compliance with all of our financial debt covenants.

Guarantee of Finance Subsidiary Debt

In July 2018, we formed a finance subsidiary as part of our European operations, Prologis Euro Finance LLC (“Euro Finance Subsidiary”), that is 100% indirectly owned by the OP. All unsecured debt issued by the Euro Finance Subsidiary will be fully and unconditionally guaranteed by the OP. There are no restrictions or limits on the OP’s ability to obtain funds from its subsidiaries by dividend or loan. In reliance on Rule 3-10 of Regulation S-X, the separate financial statements of the Euro Finance Subsidiary are not provided.

NOTE 6. NONCONTROLLING INTERESTS

Prologis, L.P.

We report noncontrolling interests related to several entities we consolidate but of which we do not own 100% of the equity. These entities include two real estate partnerships that have issued limited partnership units to third parties. Depending on the specific partnership agreements, these limited partnership units are redeemable for cash or, at our option into shares of the Parent’s common stock, generally at a rate of one share of common stock to one unit. We also consolidate ~~several~~certain entities in which we do not own 100% of the equity ~~and~~but the ~~units~~equity of ~~the entity are~~these entities is not ~~convertible or redeemable.~~exchangeable into our common stock.

Prologis, Inc.

The noncontrolling interests of the Parent include the noncontrolling interests ~~presented in~~for the ~~Operating Partnership,~~OP, as well as the ~~common~~ limited partnership units in the ~~Operating Partnership~~OP that are not owned by the Parent.

The following table summarizes our ownership percentages, ~~and~~ noncontrolling interests and the consolidated entities’ total assets and liabilities ~~at June 30, 2017, and December 31, 2016~~ (dollars in thousands):

Our Ownership Percentage

Noncontrolling Interests

Total Assets

Total Liabilities

2017

2016

2017

2016

2017

2016

2017

2016

Prologis U.S. Logistics Venture

55.0
%

55.0
%

$
2,522,506

$
2,424,800

$
6,105,549

$
6,201,278

$
496,086

$
797,593

Prologis North American Industrial
     Fund (1)

100.0
%

66.1
%

-

486,648

-

2,479,072

-

1,038,708

Prologis Brazil Logistics Partners
     Fund I (2)

100.0
%

50.0
%

-

61,836

-

131,581

-

720

Other consolidated entities (3)
various

various

84,846

99,185

849,870

866,821

37,488

34,073

Prologis, L.P. noncontrolling
     interests

2,607,352

3,072,469

6,955,419

9,678,752

533,574

1,871,094

Limited partners in Prologis, L.P.
    (4) (5)

405,590

394,590

-

-

-

-

Prologis, Inc. noncontrolling
     interests

$
3,012,942

$
3,467,059

$
6,955,419

$
9,678,752

$
533,574

$
1,871,094

	Our Ownership Percentage						Noncontrolling Interests				Total Assets				Total Liabilities
	Jun 30, 2018			Dec 31, 2017			Jun 30, 2018		Dec 31, 2017		Jun 30, 2018		Dec 31, 2017		Jun 30, 2018		Dec 31, 2017
Prologis U.S. Logistics Venture		55.0	%		55.0	%	$	2,539,930	$	2,581,629	$	6,186,215	$	6,030,819	$	238,101	$	284,162
Other consolidated entities (1)	various			various				84,245		78,613		820,113		806,138		29,813		30,330
Prologis, L.P.								2,624,175		2,660,242		7,006,328		6,836,957		267,914		314,492
Limited partners in Prologis, L.P. (2) (3)								463,758		414,341		-		-		-		-
Prologis, Inc.							$	3,087,933	$	3,074,583	$	7,006,328	$	6,836,957	$	267,914	$	314,492

(1)

~~In March 2017, we acquired all of our partner’s interest for $710.2 million. The difference between the amount we paid and the noncontrolling interest balance was adjusted through~~ ~~Additional Paid-in Capital~~ ~~with no gain or loss recognized. In July 2017, we contributed substantially all of the assets formerly owned by NAIF to our unconsolidated co-investment venture, USLF.~~

~~(2)~~

~~In March 2017, we acquired all of our partner’s interest for $79.8 million. The difference between the amount we paid and the noncontrolling interest balance was adjusted through~~ ~~Additional Paid-in Capital~~ with no gain or loss recognized. At December 31, 2016, the assets of the Prologis Brazil Logistics Partners Fund I were primarily investments in unconsolidated entities of $113.1 million. For additional information on our unconsolidated investments, see Note 3.

~~(3)~~

This line item includes our two partnerships that have issued limited partnership units to third parties, as discussed above, along with various other consolidated entities. AtThe limited partnership units outstanding at June 30, ~~2017,~~2018 and December 31, ~~2016, limited partnership units~~2017 were ~~redeemable for~~exchangeable into cash or, at our option, ~~1.6~~0.9 million ~~shares of the Parent’s common stock. During the first six months of 2017, limited partnership units were redeemed for 265 thousand~~and 1.0 million shares of the Parent’s common stock.

~~(4)~~(2)

We had 8.8 million and 8.9 million Class A Units that were convertible into ~~8.6~~8.4 million and ~~8.7~~8.5 million ~~common~~ limited partnership units of the ~~Operating Partnership~~OP at June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

~~(5)~~(3)

At June 30, ~~2017,~~2018 and December 31, ~~2016,~~2017, excluding the Class A Units, there were ~~common~~ limited partnership units in the ~~Operating Partnership outstanding~~OP that were ~~redeemable for~~exchangeable into cash or, at our option, ~~4.1~~3.9 million ~~shares~~ and ~~4.6~~4.1 million shares of the Parent’s common stock, ~~with a fair value of $242.2~~ ~~million and $241.8 million, respectively, based on~~respectively. Also included are the closing stock price of the Parent’s common stock. During the first six months of 2017, unitholders redeemed 0.7 million common limited partnership units for an equal number of shares of the Parent’s common stock with a value of $18.8 million. At June 30, 2017, and December 31, 2016, there were 3.7 million and 2.2 million vested OP Long-Term Incentive Plan Units (“LTIP ~~Units (as defined in Note 7) outstanding, respectively,~~Units”) associated with our long-term compensation ~~plan that are convertible into common units~~plan. See further discussion of ~~the Operating Partnership after they vest and other applicable conditions are met.~~LTIP Units in Note 7.

NOTE 7. LONG-TERM COMPENSATION

Equity-Based Compensation Plans and Programs

Prologis Outperformance Plan (“POP”)

~~Participation~~We allocate participation points ~~represent a portion~~to participants under our POP corresponding to three-year performance periods beginning January 1. The fair value of ~~a compensation pool that can be~~the awards is measured at the grant date and amortized over the period from the grant date to the date at which the awards vest, which range from three to ten years. POP awards are earned ~~if and when certain performance criteria are met under~~to the ~~POP~~extent our three-year compound annualized total stockholder return (“TSR”) for the ~~applicable~~ performance ~~period.~~ period is positive and exceeds the three-year compound annualized TSR for the Morgan Stanley Capital International (“MSCI”) US REIT Index for the same period plus 100 basis points.

We granted participation points for the ~~2017~~2018 – ~~2019~~2020 performance period in January ~~2017,~~2018, with a fair value of ~~$20.4~~$23.3 million using a Monte Carlo valuation model that assumed a risk-free interest rate of ~~1.49%~~2.1% and an expected volatility of ~~22.2%~~16.5%. The 2018 – 2020 performance period has an absolute maximum cap of $100 million. If the award is earned then 20% of the POP award is paid at the end of the performance period and the remaining 80% is subject to additional seven-year cliff vesting. The 20% that is paid at the end of the three-year performance period is subject to an additional three-year holding requirement.

The ~~POP~~ performance criteria were met for the ~~2014~~2015 – ~~2016~~2017 performance period, which resulted in awards ~~for this performance period~~ being ~~earned.~~earned at December 31, 2017. An aggregate performance pool of ~~$62.2~~$110.2 million was awarded in January ~~2017~~2018 in the form of 0.6 million shares of common stock orand 1.2 million vested ~~POP~~ LTIP Units.

Other Equity-Based Compensation Plans and Programs

Our other equity-based compensation plans and programs include (i) the Prologis Promote Plan (“PPP”); (ii) the annual long-term incentive (“LTI”) equity award program (“Annual LTI Award”); and (iii) the annual bonus exchange program. Awards under these plans and programs may be issued in the form of restricted stock units (“RSUs”) or LTIP Units at the participant’s election. RSUs and LTIP Units are valued based on the market price of the Parent’s common stock on the date the award is granted and is charged to compensation expense over the service period. Beginning in February 2018 with awards for PPP and Annual LTI Awards, the service period is four years.

Summary of Award Activity

~~The following table details the equity awards granted under the PPP for the six months ended June 30 (in thousands):~~

2017

2016

RSUs granted

88

53

Grant date fair value of RSUs granted

$
4,800

$
2,300

LTIP Units granted

203

114

Grant date fair value of LTIP Units granted

$
11,100

$
4,900

~~Prologis Outperformance Plan Operating Partnership Long-Term Incentive Plan Units (“POP LTIP Units”)~~RSUs

The following table summarizes the activity for ~~the unvested POP LTIP Units~~RSUs for the six months ended June 30, ~~2017~~2018 (units in thousands):

				Weighted Average
	Unvested RSUs			Grant Date Fair Value
Balance at January 1, 2018		1,374		$	45.57
Granted		738			61.01
Vested and distributed		(769	)		45.36
Forfeited		(31	)		53.71
Balance at June 30, 2018		1,312		$	54.21

~~Number of Unvested~~

~~POP~~ LTIP Units

~~Balance at January 1, 2017~~

~~3,490~~

~~Granted~~

~~Vested POP LTIP Units (1)~~

~~(698~~

)

~~Forfeited~~

~~(576~~

)

~~Balance at June 30, 2017~~

~~2,254~~

~~(1)~~

Vested units were based on the POP performance criteria being met for the 2014 – 2016 performance period and represented the earned award amount. Vested units are included in LTIP Units in the table below. Any excess outstanding unvested POP LTIP Units for the 2014 – 2016 performance period were forfeited to the extent not earned.

~~Operating Partnership Long-Term Incentive Plan Units (“LTIP Units”)~~

The following table summarizes the activity for LTIP Units for the six months ended June 30, ~~2017~~2018 (units in thousands):

Number of

Weighted Average

Number of

LTIP Units

Grant-Date Fair Value

LTIP Units Vested

Balance at January 1, 2017

2,219

$
40.81

743

Granted

1,032

Vested POP LTIP Units

698

Conversion to common limited partnership units

(227
)

Balance at June 30, 2017

3,722

$
45.55

1,835

	Vested			Unvested			Unvested Weighted Average
	LTIP Units (1)			LTIP Units (1)			Grant Date Fair Value
Balance at January 1, 2018		1,532			1,829		$	46.48
Granted		-			1,246			60.95
Forfeited		-			(70	)		47.66
Vested LTIP Units		887			(887	)		45.25
Vested LTIP Units – POP (2)		1,170			-		N/A
Conversion to common limited partnership units		(52	)		-		N/A
Balance at June 30, 2018		3,537			2,118		$	55.46

(1)	The outstanding LTIP Units are exchangeable into limited partnership units of the OP and redeemable for the Parent’s common stock after they vest and other applicable conditions have been met.

~~Restricted Stock Units (“RSUs”)~~

~~The following table summarizes the activity for RSUs for the six months ended June 30, 2017 (units in thousands):~~

Number of

Weighted Average

Number of

RSUs

Grant-Date Fair Value

RSUs Vested

Balance at January 1, 2017

1,617

$
40.58

125

Granted

757

Vested and distributed

(783
)

Forfeited

(46
)

Balance at June 30, 2017

1,545

$
45.29

106

(2)	Vested units were based on the POP performance criteria being met for the 2015 – 2017 performance period and represented the earned award amount, as discussed above.

~~Stock Options~~

We have 1.0 million stock options outstanding and exercisable at June 30, 2017, with a weighted average exercise price of $31.14. The aggregate intrinsic value of exercised options was $19.8 million and $10.0 million for the six months ended June 30, 2017, and 2016, respectively. No stock options were granted in 2017 or 2016.

NOTE 8. EARNINGS PER COMMON SHARE OR UNIT

We determine basic earnings per share or unit based on the weighted average number of shares of common stock or units outstanding during the period. We compute diluted earnings per share or unit based on the weighted average number of shares or units outstanding combined with the incremental weighted average effect from all outstanding potentially dilutive instruments.

The computation of our basic and diluted earnings per share and unit was as follows (in thousands, except per share and unit amounts) ~~is as follows:~~:

	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
Prologis, Inc.	2017		2016		2017		2016		2018		2017		2018		2017
Net earnings attributable to common stockholders – Basic	$	266,943	$	275,383	$	470,198	$	483,424	$	334,611	$	266,943	$	700,513	$	470,198
Net earnings attributable to redeemable limited partnership unitholders (1)		7,798		9,085		13,765		15,694
Net earnings attributable to exchangeable limited partnership units (1)										10,216		7,798		20,909		13,765
Adjusted net earnings attributable to common stockholders – Diluted	$	274,741	$	284,468	$	483,963	$	499,118	$	344,827	$	274,741	$	721,422	$	483,963

Weighted average common shares outstanding – Basic		530,040		524,842		529,400		524,540		532,639		530,040		532,427		529,400
Incremental weighted average effect on redemption of limited partnership units (1)		16,364		17,703		16,409		17,623
Incremental weighted average effect on exchange of limited partnership units (1)										16,847		16,364		16,560		16,409
Incremental weighted average effect of equity awards		5,710		2,843		4,703		2,130		5,029		5,710		5,079		4,703
Weighted average common shares outstanding – Diluted (2)		552,114		545,388		550,512		544,293		554,515		552,114		554,066		550,512

Net earnings per share attributable to common stockholders:
Basic	$	0.50	$	0.52	$	0.89	$	0.92	$	0.63	$	0.50	$	1.32	$	0.89
Diluted	$	0.50	$	0.52	$	0.88	$	0.92	$	0.62	$	0.50	$	1.30	$	0.88

	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 30,						June 30,						June 30,						June 30,
Prologis, L.P.	2017			2016			2017			2016			2018			2017			2018			2017
Net earnings attributable to common unitholders	$	274,320		$	283,699		$	483,198		$	497,974		$	344,633		$	274,320		$	721,058		$	483,198
Net earnings attributable to Class A common unitholders		(4,347	)		(4,619	)		(7,678	)		(8,129	)
Net earnings attributable to Class A Units														(5,324	)		(4,347	)		(11,177	)		(7,678	)
Net earnings attributable to common unitholders – Basic	$	269,973		$	279,080		$	475,520		$	489,845			339,309			269,973			709,881			475,520
Net earnings attributable to Class A common unitholders		4,347			4,619			7,678			8,129
Net earnings attributable to limited partnership unitholders		421			768			765			1,143
Net earnings attributable to Class A Units														5,324			4,347			11,177			7,678
Net earnings attributable to exchangeable other limited partnership units														194			421			364			765
Adjusted net earnings attributable to common unitholders – Diluted	$	274,741		$	284,467		$	483,963		$	499,117		$	344,827		$	274,741		$	721,422		$	483,963

Weighted average common partnership units outstanding – Basic		536,060			531,912			535,392			531,507			540,084			536,060			539,547			535,392
Incremental weighted average effect on conversion of Class A Units		8,626			8,798			8,645			8,821
Incremental weighted average effect on redemption of limited partnership units into common stock of Prologis, Inc.		1,718			1,835			1,772			1,835
Incremental weighted average effect on exchange of Class A Units														8,477			8,626			8,495			8,645
Incremental weighted average effect on exchange of other limited partnership units														925			1,718			945			1,772
Incremental weighted average effect of equity awards of Prologis, Inc.		5,710			2,843			4,703			2,130			5,029			5,710			5,079			4,703
Weighted average common partnership units outstanding – Diluted (2)		552,114			545,388			550,512			544,293
Weighted average common units outstanding – Diluted (2)														554,515			552,114			554,066			550,512

Net earnings per unit attributable to common unitholders:
Basic	$	0.50		$	0.52		$	0.89		$	0.92		$	0.63		$	0.50		$	1.32		$	0.89
Diluted	$	0.50		$	0.52		$	0.88		$	0.92		$	0.62		$	0.50		$	1.30		$	0.88

(1)

The exchangeable limited partnership units include the units as discussed in Note 6. Earnings allocated to the ~~redeemable Operating Partnership~~exchangeable OP units not held by the Parent ~~has~~have been included in the numerator and ~~redeemable Operating Partnership~~exchangeable common units have been included in the denominator for the purpose of computing diluted earnings per share for all periods as the per share and unit amount is the same.

(2)	Our total weighted average potentially dilutive shares and units outstanding consisted of the following:

Three Months Ended

Six Months Ended

June 30,

June 30,

2017

2016

2017

2016

Total weighted average potentially dilutive limited partnership units

10,344

10,633

10,417

10,656

Total potentially dilutive stock awards

9,355

7,176

8,583

6,854

Total Prologis, L.P.

19,699

17,809

19,000

17,510

Limited partners in Prologis, L.P.

6,020

7,070

5,992

6,967

Total Prologis, Inc.

25,719

24,879

24,992

24,477

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Class A Units		8,477		8,626		8,495		8,645
Other limited partnership units		925		1,718		945		1,772
Equity awards		8,432		9,355		8,391		8,583
Prologis, L.P.		17,834		19,699		17,831		19,000
Common limited partnership units		7,445		6,020		7,120		5,992
Prologis, Inc.		25,279		25,719		24,951		24,992

NOTE 9. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Derivative Financial Instruments

In the normal course of business, our operations are exposed to market risks, including the effect of changes in foreign currency exchange rates and interest rates. ~~To manage these risks, we may~~We enter into derivative ~~contracts, such as foreign currency contracts to manage foreign currency exposure, and interest rate swaps to manage the effect of interest rate fluctuations. We do not use derivative~~ financial instruments for trading or speculative purposes. Our derivative financial instruments are customized transactions and are not exchange-traded. Management reviews our hedging program, derivative positions and overall risk management strategy on a regular basis. We enter into only those transactions we believe will be highly effective at offsetting theto offset these underlying ~~risk.~~market risks. There have been no significant changes in our policy or strategy from what was disclosed in our Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2016.~~

2017.

The following table presents the fair value ~~and classification~~ of our derivative financial instruments recognized within the line items Other Assets and Other Liabilities on the Consolidated Balance Sheet (in thousands):

June 30, 2017

December 31, 2016

Asset

Liability

Asset

Liability

Net investment hedges

British pound sterling denominated

$
-

$
-

$
7,439

$
-

Canadian dollar denominated

-

3,904

1,245

-

Forwards and options (1)

British pound sterling denominated

8,401

4,048

16,985

-

Canadian dollar denominated

31

546

831

197

Euro denominated

538

6,101

10,933

-

Yen denominated

6,919

1,512

9,246

1,071

Interest rate hedges

3,639

-

435

-

Total fair value of derivatives

$
19,528

$
16,111

$
47,114

$
1,268

	June 30, 2018				December 31, 2017
	Asset		Liability		Asset		Liability
Undesignated derivatives
Foreign currency contracts
Forwards
British pound sterling	$	142	$	4,017	$	2,440	$	8,103
Canadian dollar		1,469		253		-		1,698
Euro		3,619		6,380		2		14,234
Japanese yen		3,992		1,235		6,474		931
Mexican peso		373		-		-		-

Designated derivatives
Foreign currency contracts
Net investment hedges
Canadian dollar		1,871		-		-		7,263
Euro		-		280		-		-

Interest rate swaps
Cash flow hedges
Canadian dollar		-		-		10,223		-
Euro		-		555		-		-
Total fair value of derivatives	$	11,466	$	12,720	$	19,139	$	32,229

~~(1)~~

Undesignated Derivative Financial Instruments

As discussed below, these foreign currency options are not designated as hedges. We recognized unrealized losses of $18.8 million and $32.5 million for the three and six months ended June 30, 2017, respectively, from the change in value of our outstanding foreign currency options within ~~Foreign Currency and Derivative Losses, Net~~ in the Consolidated Statements of Income. We recognized unrealized gains of $3.3 million and losses of $13.5 million for the three and six months ended June 30, 2016, respectively, from the change in value of our outstanding foreign currency options.

Foreign Currency Contracts

~~We primarily manage our foreign currency exposure by borrowing in~~The following table summarizes the currencies in which we invest. We may issue debt in a currency that is not the same functional currency of the borrowing entity to offset the translation and economic exposures related to our net investment in international subsidiaries. To mitigate the impact of the translation from the fluctuations in exchange rates, we may designate this debt as a nonderivative financial instrument hedge. We also hedge our investments in certain international subsidiaries using foreign currency derivative contracts (net investment hedges) to offset the translation and economic exposures related to our investments in these subsidiaries by locking in a forward exchange rate at the inception of the hedge. To the extent we have an effective hedging relationship, we report all changes in fair value of the hedged portion of the nonderivative financial instruments and net investment hedges in equity in the foreign currency translation component of ~~Accumulated Other Comprehensive Loss (“AOCI”)~~ ~~in the Consolidated Balance Sheets. These amounts offset the translation adjustments on the underlying net assets~~activity of our ~~foreign investments, which we also record in~~ ~~AOCI. The changes in fair value of the portion of the nonderivative financial instruments that are not designated as hedges are recorded in~~ ~~Foreign Currency and Derivative Losses, Net~~ ~~in the Consolidated Statements of Income. We recognize ineffectiveness, if any, in earnings at the time the ineffectiveness occurred.~~

We may use foreign currency option contracts, including puts, calls and collars to mitigate foreign currency exchange rate risk associated with the translation of our projected net operating income of our international subsidiaries. These are not designated as hedges as they do not meet hedge accounting requirements. Changes in the fair value of non-hedge designated derivatives are recorded in ~~Foreign Currency and Derivative Losses, Net~~.

~~The following tables summarize the activity in our~~undesignated foreign currency contracts for the six months ended June 30 (in millions, except for weighted average forward rates and number of active contracts):

	2018																		2017
	CAD			CNY			EUR			GBP			JPY			MXN			CAD			EUR			GBP			JPY
Notional amounts at January 1	$	56		$	-		$	233		$	132		$	153		$	-		$	38		$	197		$	78		$	144
New contracts		13			80			54			-			28			10			-			63			137			38
Matured, expired or settled contracts		(14	)		(80	)		(55	)		(36	)		(36	)		(10	)		(12	)		(56	)		(46	)		(31	)
Notional amounts at June 30	$	55		$	-		$	232		$	96		$	145		$	-		$	26		$	204		$	169		$	151

Weighted average forward rate at June 30		1.28			-			1.20			1.30			105.53			-			1.32			1.13			1.33			106.51
Active contracts at June 30		24			-			29			16			32			-			12			26			22			32

During the six months ended June 30, 2018 and 2017, we exercised 31 and 22 forward contracts, respectively. We recognized realized losses of $1.1 million and $7.9 million for the three and six months ended June 30, 2018, respectively, and gains of $3.6 million and $8.9 million for the three and six months ended June 30, 2017, respectively, from contracts that matured, expired or settled in Foreign Currency and Derivative Gain (Losses), Net in the Consolidated Statements of Income.

We recognized unrealized gains of $30.1 million and $17.2 million for the three and six months ended June 30, 2018, respectively, and unrealized losses of $18.8 million and $32.5 million for the three and six months ended June 30, 2017, respectively, from the change in value of our outstanding foreign currency contracts within Foreign Currency and Derivative Gains (Losses), Net in the Consolidated Statements of Income.

Designated Derivative Financial Instruments

Foreign Currency Contracts

The following table summarizes the activity of our foreign currency contracts designated as net investment hedges for the six months ended June 30 (in millions, except for weighted average forward rates and number of active contracts):

2017
	Foreign Currency Contracts
Local Currency	Net Investment Hedges						Forwards and Options
	CAD			GBP			CAD			EUR			GBP			JPY
Notional amounts at January 1	$	133		£	31		$	50		€	174		£	48		¥	15,500
New contracts		133			100			-			56			107			4,000
Matured, expired or settled contracts		(133	)		(131	)		(15	)		(50	)		(31	)		(3,500	)
Notional amounts at June 30	$	133		£	-		$	35		€	180		£	124		¥	16,000
																			2018					2017
	Foreign Currency Contracts																		CAD			EUR		CAD			GBP
U.S. Dollar	Net Investment Hedges						Forwards and Options
Notional amounts at January 1	$	100		$	46		$	38		$	197		$	78		$	144		$	99		$	-	$	100		$	46
New contracts		99			127			-			63			137			38			100			35		99			127
Matured, expired or settled contracts		(100	)		(173	)		(12	)		(56	)		(46	)		(31	)		(99	)		-		(100	)		(173	)
Notional amounts at June 30	$	99		$	-		$	26		$	204		$	169		$	151		$	100		$	35	$	99		$	-

Weighted average forward rate at June 30		1.34			-			1.32			1.13			1.33			106.51			1.28			1.16		1.34			-
Active contracts at June 30		2			-			12			26			22			32			2			1		2			-

2016

Foreign Currency Contracts

Local Currency

Net Investment Hedges

Forwards and Options

CAD

GBP

JPY

EUR

GBP

JPY

Other

Notional amounts at January 1

$
-

£
238

¥
-

€
275

£
97

¥
12,840

New contracts

133

60

11,189

171

-

11,460

Matured, expired or settled contracts

-

(60
)

(11,189
)

(75
)

(24
)

(3,120
)

Notional amounts at June 30

$
133

£
238

¥
-

€
371

£
73

¥
21,180

Foreign Currency Contracts

U.S. Dollar

Net Investment Hedges

Forwards and Options (1)

Notional amounts at January 1

$
-

$
386

$
-

$
310

$
148

$
109

$
50

New contracts

100

85

99

192

-

108

15

Matured, expired or settled contracts

-

(100
)

(99
)

(85
)

(36
)

(27
)

(15
)
Notional amounts at June 30

$
100

$
371

$
-

$
417

$
112

$
190

$
50

Interest Rate Swaps

The following table summarizes the activity of our interest rate swaps designated as cash flow hedges for the six months ended June 30 (in millions):

	2018								2017
	CAD			EUR		USD			CAD
Notional amounts at January 1	$	271		$	-	$	-		$	271
New contracts (1)		-			500		300			-
Matured, expired or settled contracts (2)		(271	)		-		(300	)		-
Notional amounts at June 30	$	-		$	500	$	-		$	271

(1)

During the six months ended June 30, ~~2017, and 2016,~~2018, we ~~exercised 22 and 15 option~~entered into two interest rate swap contracts ~~respectively. We realized gains~~with an aggregated notional amount of ~~$3.6~~€400.0 million ~~and $8.9 million for~~($499.7 million) to effectively fix the ~~three and~~interest rate on our senior notes bearing a floating rate of Euribor plus 0.25% issued in January 2018.

(2)

During the six months ended June 30, ~~2017, respectively, and gains of $0.2~~2018, we repaid CAD 201.4 million ~~and $1.9~~($158.9 million) on our 2015 Canadian Term Loan, leaving CAD 170.5 million ~~for the three and six months ended~~($128.7 million at June 30, ~~2016, respectively,~~2018) outstanding. At that time, we settled the interest rate swap contracts related to the 2015 Canadian Term Loan as we determined at that time it was no longer probable that we would continue to have the future cash flows as originally hedged. As a result, the $12.5 million gain in ~~Foreign Currency and Derivative Losses, Net.~~Accumulated Other Comprehensive Income (Loss) “AOCI/L” at the time of settlement was reclassified to Interest Expense during the first quarter of 2018.

~~Interest Rate~~

We may enter into interest rate swap agreements that allow us to receive variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of our agreements without the exchange of the underlying notional amount.

~~We report the effective portion of the gain or loss on the derivative as a component of~~ ~~AOCI~~ ~~and reclassify it to~~ ~~Interest Expense~~ ~~over the corresponding period of the hedged item. We recognize any hedge ineffectiveness in~~ ~~Interest Expense~~ ~~at the time the ineffectiveness occurred.~~ During the six months ended June 30, 2018 and 2017, ~~and 2016,~~ we ~~did not have~~had no losses due to hedge ineffectiveness.

AtDesignated Nonderivative Financial Instruments

The following table summarizes our debt, net of accrued interest, designated as a nonderivative financial instrument to hedge our net investment in international subsidiaries (in millions):

	June 30, 2018		December 31, 2017
British pound sterling	$	267	$	436
Euro	$	3,550	$	3,620

We recognized unrealized gains of $64.6 million and $40.3 million in Foreign Currency and Derivative Losses, Net on the unhedged portion of our debt, net of accrued interest, for the three and six months ended June 30, ~~2017,~~2018, respectively. We recognized unrealized losses of $7.2 million and ~~December 31, 2016, we had~~$11.3 million for the three ~~interest rate swaps outstanding with a notional amount of $271.2 million. We did not enter into or settle any interest rate swaps during the~~and six months ended June 30, 2017, ~~or 2016.~~respectively.

Other Comprehensive Income (Loss)

The change in Other Comprehensive Income (Loss)in the Consolidated Statements of Comprehensive Income during the periods presented is due to the translation into U.S. dollars on consolidation of the financial statements ~~into U.S. dollars~~ of our consolidated subsidiaries whose functional currency is not the U.S. dollar. We recorded gains of $225.6 million and $307.5 million for the three and six months ended June 30, 2017, respectively, and losses of $136.0 million and gains of $18.8 million for the three and six months ended June 30, 2016, respectively. It also includes theThe change in fair value ~~for~~of the effective portion of our derivative ~~and nonderivative~~financial instruments that have been designated as ~~hedges.~~

~~The following table presents~~net investment hedges and cash flow hedges and the ~~gains and (losses) associated with the change in fair value for the effective portion~~translation of our ~~derivative and~~ nonderivative ~~hedging~~financial instruments as discussed above are also included in Other Comprehensive Income (Loss).

The following table presents these changes in Other Comprehensive Income (Loss) (in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

Derivative net investment hedges (1)

$
7,197

$
21,512

$
9,491

$
29,420

Interest rate and cash flow hedges (2)

4,559

(2,703
)

4,988

(13,824
)
Our share of derivatives from unconsolidated co-investment ventures

2,176

(3,223
)

4,378

(7,994
)
Total derivative instruments

13,932

15,586

18,857

7,602

Nonderivative net investment hedges (3) (4)

(229,666
)

91,416

(274,192
)

(69,773
)
Total derivative and nonderivative hedging instruments

$
(215,734
)

$
107,002

$
(255,335
)

$
(62,171
)

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Net investment hedges	$	1,740		$	7,197		$	4,833		$	9,491
Nonderivative financial instruments		223,739			(229,666	)		113,862			(274,192	)
Cumulative translation adjustment		(373,292	)		225,631			(261,738	)		307,530
Total foreign currency translation gains (losses), net	$	(147,813	)	$	3,162		$	(143,043	)	$	42,829

Cash flow hedges (1)	$	963		$	4,559		$	(8,322	)	$	4,988
Our share of derivatives from unconsolidated co-investment ventures		1,168			2,176			4,166			4,378
Total unrealized gains (losses) on derivative contracts, net	$	2,131		$	6,735		$	(4,156	)	$	9,366
Total change in other comprehensive income (loss)	$	(145,682	)	$	9,897		$	(147,199	)	$	52,195

(1)

We ~~received $0.7~~estimate an additional expense of $4.2 million and $2.5 million for the three and six months ended June 30, 2017, respectively, upon the settlement of net investment hedges. We received $15.9 million and $16.8 million for the three and six months ended June 30, 2016, respectively, upon the settlement of net investment hedges.

~~(2)~~

~~The amounts~~will be reclassified to interest expense for the three and six months ended June 30, 2017, were $1.5 million and $2.9 million, respectively. The amounts reclassified to interest expense for the three and six months ended June 30, 2016, were $1.1 million and $2.1 million, respectively. ForInterest Expense over the next 12 months from June 30, ~~2017, we estimate an additional expense~~2018, due to the amortization of ~~$4.8 million will be reclassified to~~ ~~Interest Expense~~.

~~(3)~~

~~At June 30, 2017, and December 31, 2016, we had €3.1 billion ($3.5 billion) and €3.2 billion ($3.4 billion) of debt, net of accrued interest, respectively,~~previously settled derivatives designated as ~~nonderivative financial instrument hedges of our net investment in international subsidiaries. We recognized unrealized losses of $7.2 million and $11.3 million in~~ ~~Foreign Currency and Derivative Losses, Net~~ ~~on the unhedged portion of our debt for the three and six months ended June 30, 2017. We did not recognize any gains or losses for the three and six months ended June 30, 2016.~~

~~(4)~~

~~In June 2017, we issued~~ £500.0 million ($645.3 million) of debt, as discussed in Note 5, and designated the debt as a nonderivative financial instrument hedge of our net investment in international subsidiaries. We had no gains or losses for the three and six months ended June 30, 2017.cash flow hedges.

Fair Value Measurements

There have been no significant changes in our policy from what was disclosed in our Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2016.~~2017.

Fair Value Measurements on a Recurring Basis

At June 30, ~~2017,~~2018, and December 31, ~~2016,~~2017, other than the derivatives discussed previously, we did not have any significant financial assets or financial liabilities that were measured at fair value on a recurring basis in the Consolidated Financial Statements. All of our derivatives held at June 30, ~~2017,~~2018, and December 31, ~~2016,~~2017, were classified as Level 2 of the fair value hierarchy.

Fair Value Measurements on Nonrecurring Basis

NoAcquired properties and assets we expect to sell or contribute met the criteria to be measured ~~at fair value~~ on a nonrecurring basis at fair value and the lower of their carrying amount or their estimated fair value less the costs to sell, respectively, at June 30, ~~2017, or~~2018 and December 31, ~~2016.~~2017. At June 30, 2018 and December 31, 2017, we estimate the fair value of our properties using Level 2 or Level 3 inputs from the fair value hierarchy. See more information on our acquired properties and assets held for sale or contribution in Notes 2 and 4, respectively.

Fair Value of Financial Instruments

At June 30, ~~2017,~~2018, and December 31, ~~2016,~~2017, the carrying amounts of certain financial instruments, including cash and cash equivalents, ~~restricted cash,~~ accounts and notes receivable, accounts payable and accrued expenses were representative of their fair ~~values because of the short-term nature of these instruments.~~values.

The differences in the fair value of our debt from the carrying value in the table below ~~are~~were the result of differences in interest rates or borrowing spreads that were available to us at June 30, ~~2017,~~2018 and December 31, ~~2016,~~2017, as compared with those in effect when the debt was issued or ~~assumed.~~assumed, including reduced borrowing spreads due to our improved credit ratings. The senior notes and many of the ~~issues~~issuances of secured ~~mortgage debt~~mortgages contain pre-payment penalties or yield maintenance provisions that could make the cost of refinancing the debt at lower rates exceed the benefit that would be derived from doing so.

The following table reflects the carrying amounts and estimated fair values of our debt (in thousands):

	June 30, 2017				December 31, 2016				June 30, 2018				December 31, 2017
	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
Credit Facilities	$	-	$	-	$	35,023	$	35,061	$	11,658	$	11,660	$	317,392	$	317,496
Senior notes		6,727,450		7,216,569		6,417,492		6,935,485		7,102,381		7,447,585		6,067,277		6,537,100
Term loans and unsecured other		1,968,437		1,986,654		1,499,001		1,510,661		1,415,661		1,431,793		2,060,491		2,075,002
Secured mortgages		1,983,623		2,063,821		979,585		1,055,020		897,424		937,205		967,471		1,026,197
Secured mortgages of consolidated entities		402,412		402,348		1,677,193		1,683,489
Total debt	$	11,081,922	$	11,669,392	$	10,608,294	$	11,219,716
Total									$	9,427,124	$	9,828,243	$	9,412,631	$	9,955,795

NOTE 10. ~~BUSINESS~~BUSINESS SEGMENTS

Our current business strategy consists of two operating segments: Real Estate Operations and Strategic Capital. We generate revenues, ~~earnings,~~ net operating income, earnings and cash flows through our segments, as follows:

Real Estate Operations. This operating segment represents the ownership and development of operating properties and is the largest component of our revenues and earnings. We collect rent from our customers through operating leases, including reimbursements for the majority of our property operating costs. Each operating property is considered to be an individual operating segment with similar economic characteristics; these properties are combined within the reportable business segment based on geographic location. Our Real Estate Operations segment also includes development activities that lead to rental operations, including land held for development and properties currently under development. Within this line of business, we utilize the following: (i) our land bank; (ii) the development expertise of our local teams; and (iii) our customer ~~relationships; and (iv) our in-depth knowledge in connection with our development activities.~~relationships. Land we own and lease to customers under ground leases is also included in this segment.

Strategic Capital. This operating segment represents the management of unconsolidated co-investment ventures. We generate strategic capital revenues primarily from our unconsolidated co-investment ventures through asset ~~management~~ and property management services and we earn additional revenues by providing leasing, acquisition, construction, development, financing, legal and disposition services. Depending on the structure of the venture and the returns provided to our partners, we also earn revenues through promotes periodically during the life of a venture or upon liquidation. Each unconsolidated co-investment venture we manage is considered to be an individual operating segment with similar economic characteristics; these ventures are combined within the reportable business segment based on geographic location.

Reconciliations are presented below for: (i) each reportable business segment’s revenues from external customers to Total Revenues; (ii) each reportable business segment’s net operating income from external customers to Operating Income and Earnings Before Income Taxes; and (iii) each reportable business segment’s assets to Total Assets. Our chief operating decision makers rely primarily on net operating income and similar measures to make decisions about allocating resources and assessing segment performance. The applicable components of Total Revenues, Operating Income, Earnings Before Income Taxes and Total Assets are allocated to each reportable business segment’s revenues, net operating income and assets. Items that are not directly assignable to a segment, such as certain corporate income and expenses, are not allocated but reflected as reconciling items. The following reconciliations are presented in thousands:

	Three Months Ended						Six Months Ended						Three Months Ended June 30,						Six Months Ended June 30,
	June 30,						June 30,							2018			2017			2018			2017
		2017			2016			2017			2016
Revenues:
Segment revenues:
Real estate operations segment:
U.S.	$	529,841		$	501,707		$	1,053,988		$	1,012,864		$	491,051		$	529,841		$	990,308		$	1,053,988
Other Americas		16,444			15,083			31,533			29,018			29,948			16,444			60,379			31,533
Europe		22,076			19,533			40,307			36,008			12,908			22,076			30,110			40,307
Asia		17,168			12,297			31,811			26,027			11,672			17,168			25,477			31,811
Total real estate operations segment		585,529			548,620			1,157,639			1,103,917			545,579			585,529			1,106,274			1,157,639
Strategic capital segment:
U.S.		130,677			9,580			142,585			18,936			17,905			130,677			33,974			142,585
Other Americas		9,864			5,693			15,915			11,079			12,256			9,864			18,409			15,915
Europe		25,973			25,526			52,235			48,109			28,488			25,973			67,305			52,235
Asia		14,140			12,736			26,964			26,414			17,048			14,140			88,970			26,964
Total strategic capital segment		180,654			53,535			237,699			104,538			75,697			180,654			208,658			237,699

Total revenues	$	766,183		$	602,155		$	1,395,338		$	1,208,455
Total segment revenues														621,276			766,183			1,314,932			1,395,338

Segment net operating income:
Real estate operations segment:
U.S.	$	396,274		$	369,786		$	780,374		$	745,503
U.S. (1)														367,935			396,274			737,299			780,374
Other Americas		10,384			10,517			20,366			18,710			22,488			10,384			45,411			20,366
Europe		16,401			15,328			29,259			26,633			8,693			16,401			21,152			29,259
Asia		11,767			8,364			21,675			17,180			8,619			11,767			18,388			21,675
Total real estate operations segment		434,826			403,995			851,674			808,026			407,735			434,826			822,250			851,674
Strategic capital segment:
U.S.		99,668			826			101,607			2,536
U.S. (1)														5,893			99,668			1,657			101,607
Other Americas		7,587			3,052			10,732			6,188			9,032			7,587			11,939			10,732
Europe		16,342			18,450			32,732			34,070			19,382			16,342			47,045			32,732
Asia		5,071			3,341			8,843			8,585			6,540			5,071			69,307			8,843
Total strategic capital segment		128,668			25,669			153,914			51,379			40,847			128,668			129,948			153,914

Total segment net operating income		563,494			429,664			1,005,588			859,405			448,582			563,494			952,198			1,005,588

Reconciling items:
General and administrative expenses		60,077			56,934			113,694			107,477			57,615			60,077			120,043			113,694
Depreciation and amortization expenses		228,145			230,382			454,736			480,382			203,673			228,145			407,754			454,736
Operating income		275,272			142,348			437,158			271,546			187,294			275,272			424,401			437,158
Earnings from unconsolidated entities, net		68,596			41,454			117,201			99,765			62,549			68,596			125,205			117,201
Interest expense		(75,354	)		(76,455	)		(148,266	)		(157,267	)		(56,314	)		(75,354	)		(102,575	)		(148,266	)
Interest and other income, net		1,892			1,527			4,677			4,118			5,641			1,892			7,617			4,677
Gains on dispositions of investments in real estate, net		83,006			200,350			180,331			344,667			94,261			83,006			289,372			180,331
Foreign currency and derivative losses, net		(20,055	)		(10,335	)		(27,455	)		(24,546	)
Foreign currency and derivative gains (losses), net														85,382			(20,055	)		44,288			(27,455	)
Gains (losses) on early extinguishment of debt, net		(30,596	)		2,044			(30,596	)		992			282			(30,596	)		(702	)		(30,596	)
Earnings before income taxes	$	302,761		$	300,933		$	533,050		$	539,275		$	379,095		$	302,761		$	787,606		$	533,050

	June 30,		December 31,			June 30, 2018		December 31, 2017
		2017		2016
Assets:
Segment assets:
Real estate operations segment:
U.S.	$	21,295,808	$	21,286,422		$	18,807,476	$	19,058,610
Other Americas		1,052,052		978,476			1,618,701		1,767,385
Europe		1,139,882		1,346,589			970,749		1,008,340
Asia		1,147,246		936,462			1,023,036		1,083,764
Total real estate operations segment		24,634,988		24,547,949			22,419,962		22,918,099
Strategic capital segment:
U.S.		17,454		18,090			16,438		16,818
Europe		44,680		47,635			25,280		25,280
Asia		958		1,301			341		544
Total strategic capital segment		63,092		67,026			42,059		42,642
Total segment assets		24,698,080		24,614,975			22,462,021		22,960,741

Reconciling items:
Investments in and advances to unconsolidated entities		4,617,724		4,230,429	��		5,414,623		5,496,450
Assets held for sale or contribution		350,987		322,139			892,546		342,060
Notes receivable backed by real estate		19,536		32,100			-		34,260
Cash and cash equivalents		271,354		807,316			527,830		447,046
Other assets		192,714		242,973			205,862		200,518
Total reconciling items		5,452,315		5,634,957			7,040,861		6,520,334
Total assets	$	30,150,395	$	30,249,932		$	29,502,882	$	29,481,075

(1)	This includes compensation and personnel costs for employees who were located in the U.S. but also support other regions.

NOTE 11. SUPPLEMENTAL CASH FLOW INFORMATION

Our significant noncash investing and financing activities for the six months ended June 30, ~~2017,~~2018 and ~~2016~~2017 included the following:

We capitalized $14.1 million and $14.0 million in 2018 and ~~$13.3 million in~~ 2017, ~~and 2016,~~ respectively, of equity-based compensation expense resulting from our development and leasing activities.

We ~~issued 0.7~~received $105.4 million and ~~0.9~~$22.8 million ~~shares~~ in 2018 and 2017, ~~and 2016,~~ respectively, ~~of the Parent’s common stock upon redemption of an equal number of common limited partnership units in the Operating Partnership, as disclosed in Note 6.~~

~~We received $22.8 million~~ of ownership interests in certain unconsolidated co-investment ventures as a portion of our proceeds from the contribution of properties to these entities, ~~during 2017,~~ as disclosed in Note 3.2.

We formed a consolidated joint venture into which our partner contributed $11.8 million of land in 2018.

We issued 0.7 million shares in 2017 of the Parent’s common stock upon redemption of an equal number of common limited partnership units in the OP.

We received a $19.5 million ~~of a~~ note backed by real estate in exchange for the disposition of real estate in 2017.

We paid ~~$188.1~~$154.4 million and ~~$197.9~~$188.1 million for interest, net of amounts capitalized, for the six months ended June 30, ~~2017,~~2018 and ~~2016,~~2017, respectively.

We paid ~~$23.6~~$32.3 million and ~~$14.4~~$23.6 million for income taxes, net of refunds, for the six months ended June 30, 2018 and 2017, respectively.

NOTE 12. SUBSEQUENT EVENTS

Proposed Merger. On April 29, 2018, we entered into a definitive agreement (the “Merger Agreement”) with DCT Industrial Trust Inc. (“DCT”) and ~~2016, respectively.~~DCT Industrial Operating Partnership LP (“DCT OP”), pursuant to which, subject to the terms and conditions set forth in the Merger Agreement, (i) DCT will merge with and into Prologis, with Prologis surviving the merger (the “Company Merger”) and (ii) immediately prior to the effective time of the Company Merger, DCT OP will merge with and into the OP, with the OP surviving the merger (the “Partnership Merger” and, together with the Company Merger, the “Mergers”). The estimated purchase price consideration for the Mergers will be approximately $8.2 billion in a stock-for-stock transaction, including the assumption of debt, and is based on the closing price of Prologis' common stock on July 19, 2018. Under the terms of the Merger Agreement, at the effective time of the Company Merger, each issued and outstanding share of DCT common stock will be converted automatically into the right to receive 1.02 shares of Prologis common stock and each issued and outstanding common unit of DCT OP will be converted automatically into the right to receive 1.02 common units of the OP. This exchange ratio is fixed and will not be adjusted to reflect changes in the Prologis stock price prior to closing. Changes in the price of Prologis common stock prior to the Mergers will affect the market value of the

merger consideration that DCT stockholders and unitholders will receive on the closing date of the Mergers. After consideration of all applicable factors pursuant to the business combination accounting rules, we concluded the Mergers will be treated as an asset acquisition and as a result the transaction costs will be capitalized to the basis of the acquired properties.

On July 9, 2018, the SEC declared the registration statement on Form S-4 for the proposed Mergers effective. Subject to DCT stockholder approval and the other closing conditions described in the Form S-4, the Mergers are expected to be consummated in August 2018.

In connection with the Mergers, on July 2, 2018, DCT, DCT OP, DCT’s board of directors (the “DCT Board”), Prologis, and the OP were sued in a putative class action lawsuit, the Rosenblatt Action, filed in the United States District Court for the District of Colorado, in connection with DCT's proposed merger with Prologis and the related Form S-4. The complaint in the Rosenblatt Action alleges that DCT, DCT OP, the DCT Board, Prologis, and Prologis OP violated federal securities laws by omitting material information from the Form S-4, rendering the Form S-4 materially deficient. On July 10, 2018, DCT and the DCT Board were sued in another putative class action lawsuit, the Bushansky Action, also filed in the United States District Court for the District of Colorado, and also in connection with DCT's proposed merger with Prologis and the related Form S-4. On July 13, 2018, DCT, DCT OP and the DCT Board were sued in a third putative class action lawsuit, the Aiken Action, filed in the United States District Court for the District of Maryland, also in connection with DCT’s proposed merger with Prologis and the related Form S-4. The complaints in the Bushansky Action and the Aiken Action allege that DCT and the DCT Board violated federal securities laws by omitting from the Form S-4, and/or misrepresenting in the Form S-4, material information, rendering the Form S-4 materially deficient. In all three actions, the plaintiffs seek, among other things, (i) to enjoin the transaction (or rescind it to the extent it is completed), and (ii) attorneys' fees and costs in connection with these lawsuits.

Although the ultimate outcome of litigation cannot be predicted with certainty, we believe that these lawsuits are without merit and intend to defend against these actions vigorously.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

~~Report of Independent Registered Public Accounting Firm~~

~~The~~To the Stockholders and Board of Directors ~~and Stockholders~~
Prologis, Inc.:

Results of Review of Interim Financial Information

We have reviewed the ~~accompanying~~ consolidated balance sheet of Prologis, Inc. and subsidiaries (the Company) as of June 30, ~~2017,~~2018, the related consolidated statements of income, and consolidated statements of comprehensive income for the three-month and six-month periods ended June 30, ~~2017~~2018 and ~~2016,~~2017, the related consolidated statement of equity for the six-month period ended June 30, ~~2017, and~~2018, the related consolidated statements of cash flows for the six-month periods ended June 30, 2018 and 2017, and ~~2016. These~~the related notes (collectively, the consolidated interim financial ~~statements~~information). Based on our reviews, we are not aware of any material modifications that should be made to the ~~responsibility of the Company’s management.~~consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.

We ~~conducted our reviews~~have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the consolidated balance sheet of the Company as of December 31, 2017, and the related consolidated statements of income, comprehensive income, equity, and cash flows for the year then ended (not presented herein); and in our report dated February 15, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States),~~PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ KPMG LLP

Denver, Colorado
July 23, 2018

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners
Prologis, L.P.:

Results of Review of Interim Financial Information

We have reviewed the consolidated balance sheet of Prologis, L.P. and subsidiaries (the Operating Partnership) as of June 30, 2018, the related consolidated statements of income, and consolidated statements of comprehensive income for the three-month and six-month periods ended June 30, 2018 and 2017, the related consolidated statement of capital for the six-month period ended June 30, 2018, the related consolidated statements of cash flows for the six-month periods ended June 30, 2018 and 2017, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial ~~statements referred to above~~information for ~~them~~it to be in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 of the consolidated financial statements, during 2016 the Company changed its method for classifying distributions received from equity method investees in the consolidated statements of cash flows for all periods presented at June 30, 2017, on a retrospective basis, due to the early adoption of Accounting Standards Update 2016-15.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of ~~Prologis, Inc. and subsidiaries~~the Operating Partnership as of December 31, ~~2016,~~2017, and the related consolidated statements of income, comprehensive income, ~~equity~~capital, and cash flows for the year then ended (not presented herein); and in our report dated February ~~14, 2017,~~15, 2018, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, ~~2016,~~2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

~~/s/ KPMG LLP~~Basis for Review Results

Denver, Colorado
July 26, 2017

~~Report of Independent Registered Public Accounting Firm~~

The Partners
Prologis, L.P.:

~~We have reviewed the accompanying~~This consolidated balance sheet of Prologis, L.P. and subsidiaries (the Operating Partnership) as of June 30, 2017, the related consolidated statements of income, and consolidated statements of comprehensive income for the three-month and six-month periods ended June 30, 2017 and 2016, the related consolidated statement of capital for the six-month period ended June 30, 2017, and the related consolidated statements of cash flows for the six-month periods ended June 30, 2017 and 2016. These consolidatedinterim financial ~~statements are~~information is the responsibility of the Operating Partnership’s management.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States).~~PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States),~~PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 of the consolidated financial statements, during 2016 the Operating Partnership changed its method for classifying distributions received from equity method investees in the consolidated statements of cash flows for all periods presented at June 30, 2017, on a retrospective basis, due to the early adoption of Accounting Standards Update 2016-15.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Prologis, L.P. and subsidiaries as of December 31, 2016, and the related consolidated statements of income, comprehensive income, capital and cash flows for the year then ended (not presented herein); and in our report dated February 14, 2017, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2016, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ KPMG LLP

Denver, Colorado
July ~~26, 2017~~

23, 2018

ITEM 2. ~~Management’s Dis~~Ma~~cussion~~nagement’s Discussion and Analysis of Financial Condition and Results of Operations

The following should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 1 of this report and our Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2016,~~2017, as filed with the Securities and Exchange Commission (“SEC”).

The statements in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which we operate as well as management’s beliefs and assumptions. Such statements involve uncertainties that could significantly impact our financial results. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” ~~“seeks”~~“seeks,” and “estimates” including variations of such words and similar expressions are intended to identify such forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future — including statements relating to rent and occupancy growth, development activity, ~~and~~ contribution orand disposition activity, general conditions in the geographic areas where we operate, our debt, capital structure and financial position, our ability to form new co-investment ventures and the availability of capital in existing or new co-investment ventures — are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained, and therefore actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Some of the factors that may affect outcomes and results include, but are not limited to: (i) national, international, regional and local economic and political climates; (ii) changes in global financial markets, interest rates and foreign currency exchange rates; (iii) increased or unanticipated competition for our properties; (iv) risks associated with acquisitions, dispositions and development of properties; (v) maintenance of ~~REIT~~real estate investment trust (“REIT”) status, tax structuring and changes in income tax laws and rates; (vi) availability of financing and capital, the levels of debt that we maintain and our credit ratings; (vii) risks related to our investments in our co-investment ventures, including our ability to establish new co-investment ventures; (viii) risks of doing business internationally, including currency risks; (ix) environmental uncertainties, including risks of natural disasters; and (x) those additional factors discussed under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2016.~~2017. We undertake no duty to update any forward-looking statements appearing in this report except as may be required by law.

Prologis, Inc. is a self-administered and self-managed ~~real estate investment trust (a “REIT”)~~REIT and is the sole general partner of Prologis, L.P. We operate Prologis, Inc. and ~~Prologs~~Prologis, L.P. as one enterprise and, therefore, our discussion and analysis refers to Prologis, Inc. and its consolidated subsidiaries, including Prologis, L.P., collectively. We invest in real estate through wholly owned subsidiaries and other entities through which we co-invest with partners and investors. We maintain a significant level of ownership in these co-investment ventures, which may be consolidated or unconsolidated based on our level of control of the entity.

MANAGEMENT’S OVERVIEW

Prologis is the global leader in logistics real estate with a focus on high-barrier, high-growth ~~markets.~~markets in 19 countries. We own, manage and develop well-located, high-quality logistics facilities in the world’s ~~most active centers~~busiest consumption markets. Our local teams actively manage our portfolio, which encompasses leasing and property management, capital deployment and opportunistic dispositions allowing us to recycle capital to self-fund our development activities. The majority of ~~commerce. An investment~~our properties in ~~Prologis taps into~~the United States (“U.S.”) are wholly owned, while our properties outside the U.S. are generally held in co-investment ventures, reducing our exposure to foreign currency movements.

Our portfolio benefits from key drivers of economic ~~growth,~~activity, including consumption, supply chain modernization, e-commerce and urbanization.

In the developed markets of the U.S., Europe and Japan, key factors are the reconfiguration of supply chains (strongly influenced by e-commerce trends), and the operational efficiencies that can be realized from our modern logistics facilities. In emerging markets, such as Brazil, China and Mexico, new affluence and the rise of a new consumer class have increased the need for modern distribution networks. Our strategy is to own the highest-quality logistics property portfolio in each of our target markets. These markets are characterized by large population densities and consumption. They typically offer proximity to large labor pools and are supported by extensive transportation infrastructure (major airports, seaports and rail and highway networks). Customers turn to us because they know an efficient supply chain will make their businesses run better, and that a strategic relationship with Prologis will create a competitive advantage. ~~We lease modern logistics facilities to a diverse base of approximately 5,200 customers. These facilities assist the efficient distribution of goods for the world’s best businesses and brands.~~

We invest in Class-A logistics facilities in the world’s primary population centers with high barriers to entry and supported by extensive transportation infrastructure (major airports, seaports and rail and highway networks). We believe our portfolio is the highest-quality logistics property portfolio in the industry because it is focused in these key markets. Our local teams actively manage the portfolio, which encompasses leasing and property management, capital deployment and an opportunistic disposition program. The majority of our consolidated properties are in the United States (“U.S.”); while our properties outside the U.S. are generally held in co-investment ventures, which reduces our exposure to movements in foreign currency. Therefore, we are principally an owner-operator in the U.S. and a manager-developer outside the U.S.

~~We manage~~operate our business on an owned and managed basis, including properties that we wholly ~~owned by us or~~own and properties that are owned by one of our co-investment ~~ventures, which allows us to~~ventures. We make decisions based on the property operations, ~~versus our ownership. We believe the operating fundamentals~~regardless of our ~~owned and managed portfolio are consistent with those of our consolidated portfolio,~~ownership interest, and therefore we generally ~~look at~~evaluate operating metrics on an owned and managed basis.

At June 30, ~~2017,~~2018, we owned or had investments in, on a wholly-owned basis or through co-investment ventures, properties and development projects (based on gross book value and total expected ~~to total $54.7~~investment (“TEI”)) totaling $58.6 billion ~~in gross total investment~~ across ~~684~~685 million square feet (64 million square meters) ~~in 19 countries spanning~~across four continents. Our investment ~~of $32.7~~totaled $33.6 billion and consisted of our wholly-owned properties and our pro rata (or ownership) share of the properties owned by our co-investment ventures. We leased modern logistics facilities to a diverse base of approximately 5,000 customers.

Our business comprises two operating segments: Real Estate Operations and Strategic Capital. ~~See below for information for the six months ended June 30, 2017:~~

REAL ESTATE –OPERATIONS

STRATEGIC CAPITAL

RENTAL ~~OPERATIONS~~

~~Grow~~

Generate revenues, net operating income ~~(“NOI”)~~ and cash flows by increasing rents and maintaining high occupancy rates

~~REAL ESTATE –~~

DEVELOPMENT

~~Contributes~~

Provide significant earnings growth as projects lease up and generate income

~~STRATEGIC CAPITAL~~

Access third-party capital to grow our business and earn ~~recurring~~ fees, ~~and promotes~~including incentive fees, through long-term co-investment ventures

•~~4.9% increase in consolidated revenues and 5.4% increase in NOI from the same period in 2016~~

•~~96.0% average occupancy in our consolidated portfolio~~

•~~23.3% estimated weighted average margins on $1.1 billion total estimated investment of stabilized development projects in our owned and managed portfolio~~

•~~$248 million of value created by development stabilizations (of which $219 million is our share)~~

•~~$38.8 billion in third-party assets under management~~

•~~127.4% increase in consolidated Strategic Capital revenues from the same period in 2016, primarily from promote revenues of $124 million recognized in June 2017~~

Real Estate Operations

~~Rental Operations.~~Rental. Rental operations comprise the largest component of our operating segments and generally contribute ~~85% to~~ 90% of our consolidated revenues, earnings and funds from operations (“FFO”) (see below for more information on ~~funds from operations,~~FFO, a non-GAAP measure). We collect rent from our customers through operating leases, including reimbursements for the majority of our property operating costs. We expect to generate long-term internal growth by increasing rents, maintaining high occupancy rates and controlling expenses. The primary driver of our rent growth will be rolling in-place leases to current market rents. We believe our active portfolio management, coupled with the skills of our property, leasing, maintenance, capital, energy and risk management teams, will allow us to maximize rental revenues across our portfolio. ~~In the first six months of 2017, more than 90%~~A significant amount of our ~~consolidated~~rental revenues and ~~NOI in this segment were~~net operating income (“NOI”) are generated in the U.S. ~~NOI from this segment is calculated directly from our financial statements as rental revenues, rental recoveries and development management and other revenues less rental expenses and other expenses.~~

Development. We ~~use~~develop properties to meet our customers’ needs, deepen our market presence and refresh our portfolio quality. We believe we have a competitive advantage due to (i) the strategic locations of our land bank; (ii) the development expertise of our local teams; and (iii) the depth of our customer ~~relationships; and (iv) our in-depth local knowledge in connection with our value creation activities.~~relationships. Successful development and redevelopment efforts increase both the rental revenues and the net asset value of our Real Estate Operations segment. We measure the development value we ~~created~~create based on the increase in estimated fair value of a stabilized development property, as compared to the costs incurred. ~~Generally, we~~We develop properties in the U.S. for long-term hold or contribution to our unconsolidated co-investment venture and outside the U.S. we develop primarily for contribution to our co-investment ventures. Occasionally, we develop for sale to third parties.

NOI from this segment is calculated directly from our financial statements as Rental Revenues, Rental Recoveries and Development Management and Other Revenues less Rental Expenses and Other Expenses.

Strategic Capital

Real estate is a capital-intensive business that requires ~~growth capital. This segment of our~~new capital to grow. Our strategic capital business gives us access to third-party capital, both private and public, allowing us to diversify our sources of capital and providing us with a ~~broader~~broad range of options to fund our ~~growth.~~growth, while reducing our exposure to foreign currency movements for investments outside of the U.S. We ~~co-invest~~partner with some of the world’s largest institutional ~~partners~~investors to grow our business and provide incremental ~~revenues.~~revenues, with a focus on long-term and open-ended ventures. We also access alternative sources of equity through two publicly traded vehicles: Nippon Prologis REIT, Inc. in Japan and FIBRA Prologis in Mexico. We ~~tailor logistics portfolios to meet our partners’ specific needs, with a focus on long-term ventures and open-ended funds. We hold significant ownership interests in these ventures, aligning our~~align interests with those of our ~~partners.~~partners by holding significant ownership interests in all of our unconsolidated co-investment ventures (ranging from 15% to 50%).

This segment produces stable, long-term cash flows and generally contributes 10% of our consolidated revenues, earnings and FFO. We generate strategic capital revenues ~~primarily~~ from our unconsolidated co-investment ventures, principally through asset ~~management~~ and property management ~~services.~~services, of which 90% are generally earned from long-term and open-ended ventures. We earn additional revenues by providing leasing, acquisition, construction, development, financing, legal and disposition services. ~~Depending on~~In certain ventures, we also have the ~~structure of the venture and the returns provided~~ability to ~~our partners, we also~~ earn revenues through incentive fees (“promotes” or “promote revenues”) periodically during the life of a venture or upon liquidation. ~~Approximately 40% of promote revenues are paid to our employees as a combination of cash and stock awards pursuant to the terms of the Prologis Promote Plan and expensed through~~ ~~Strategic Capital Expenses.~~ This segment generally contributes 10% to 15% of our consolidated revenues, earnings and funds from operations. In June 2017, we earned promotes of $124 million primarily from our U.S. co-investment venture that increased these percentages slightly over 15%. During the first quarter of 2017, we formed a new co-investment venture that will acquire land, develop buildings and own and hold logistics real estate assets in the United Kingdom (“U.K.”). We plan to profitably grow this business by increasing our assets under management in ~~our~~ existing or new ventures. Generally, ~~approximately 80%~~the majority of the

~~consolidated~~ strategic capital revenues ~~and NOI in this segment~~ are generated outside the U.S. ~~With the promote we earned from our U.S. co-investment venture in June, this percentage temporarily decreased revenues and NOI generated outside the U.S. to approximately 35%.~~ NOI in this segment is calculated directly from our financial statements as ~~strategic capital revenues~~Strategic Capital Revenues less ~~strategic capital expenses~~Strategic Capital Expenses and does not include property-related NOI.

~~Growth Strategies~~FUTURE GROWTH

We believe the quality and scale of our global ~~owned and managed operating~~ portfolio, the expertise of our team, the depth of our customer relationships and the strength of our balance sheet give us unique competitive advantages. Our plan to grow revenues, NOI, earnings, ~~NOI,~~FFO, and cash flows ~~and funds from operations~~ is based on the following:

•

Rent Growth. We expect market rents to continue to grow over the next few years, driven by demand for the location and quality of our properties. Due to strong market rent growth over the last several years, our in-place leases have considerable upside potential. We estimate that our leases on an aggregate basis are more than 15% below current market rent on the basis of our proportionate economic ownership of each entity included in our owned and managed portfolio at June 30, 2018. Therefore, even if market rents remain flat, a lease renewal will translate into increased future rental income, on a consolidated basis or through the earnings we recognize from our unconsolidated co-investment ventures based on our ownership. This is reflected in the

~~Rent Growth~~. We expect market rents to continue to grow over the next few years, albeit at a more modest pace, driven by demand for the location and quality of our properties. Because of strong market rent growth in the last several years, even if market rents remain flat, our in-place leases have considerable room to rise back to market levels. We estimate that across our owned and managed portfolio, our leases on an aggregate basis are more than 10% below market; this means that a lease renewal would translate into increased future earnings, NOI and cash flow, both on a consolidated basis and through the amounts we recognize from our unconsolidated co-investment ventures based on our ownership. This is reflected in the positive rent change on rollover (comparing the net effective rent of the new lease to the prior lease for the same space) on our owned and managed portfolio. We have experienced positive rent change on rollover for every quarter since 2013, and we expect this to continue for several more years.

positive rent change on rollover (comparing the net effective rent of the new lease to the prior lease for the same space) every quarter since 2013. During the first six months of 2018, our net effective rents increased 21.3% on lease rollover that represented approximately 7% of our proportionate economic ownership of each entity included in our owned and managed operating portfolio. We expect this trend to continue for several more years due to our current rents being below market, increasing market rents and the term of our leases.

Value Creation from Development. A successful development and redevelopment program involves maintaining control of ~~well-positioned~~well-located and entitled land. ~~On the basis of~~Based on our current estimates, our ~~owned and managed~~consolidated land bank, excluding land we have under an option contract, has the potential to support the development of ~~$8.5~~$7.5 billion of ~~total expected investment (“TEI”)~~TEI of new logistics space. TEI is the total estimated cost of development or expansion, including land, construction and leasing costs. We believe the carrying value of our land bank is below its current fair value, and we expect to realize this value going forward—primarily through development. During the first six months of ~~2017,~~2018, we stabilized consolidated development projects with a TEI of ~~$1.1~~$1.0 billion, ~~in our owned~~ and ~~managed portfolio. Post-stabilization,~~ we estimate the value of these buildings to be ~~23.3%~~35.6% above ~~their book value or the~~our cost to develop (defined as estimated margin and calculated using estimated yield and capitalization rates from our underwriting models)~~. In addition, these~~, while increasing NOI of our operating portfolio. We expect our properties ~~will generate NOI as they are leased up and become occupied.~~

~~Economies of Scale from Growth in Assets Under Management.~~ ~~Over the last several years, we have invested in a variety of technologies that have allowed us~~under development at June 30, 2018, to achieve efficiencies and increase our investments in real estate with minimal increases to general and administrative (“G&A”) expenses. We have increased our owned and managed real estate assets by 25 million square feet (or approximately 4%) over the last two years primarily through acquisitions, and we have integrated the assets with only minimal increases in overhead related to property management and leasing functions. We will continue to leverage these technologies to further streamline our operations and reduce our costs as a percentage of assets under management, along with advanced data analytics to enhance decision-making.be completed before October 2019.

~~Summary of 2017~~SUMMARY OF 2018

During the six months ended June 30, ~~2017,~~2018, operating fundamentals remained strong for our owned and managed operating portfolio and we ended the period with occupancy of ~~96.2%~~97.4%. See below for the results of our two business segments and details of the operating ~~and development~~ activity of our ~~Owned~~owned and ~~Managed Portfolio.~~ managed portfolio.

In ~~2017,~~2018, we completed the following significant activities as ~~further~~previously described in the ~~accompanying notes~~Notes to the Consolidated Financial Statements:

~~During the first six months of 2017, we~~ We generated net proceeds of ~~$973 million~~$1.1 billion and ~~recorded~~realized net gains of ~~$180~~$289 million from the contribution of properties to our unconsolidated co-investment ventures in Europe and Japan and the disposition of non-strategic operating properties primarily in the U.S. Beginning January 1, 2018, we recognized the entire gain attributed to contributions of real estate assets ~~primarily from property~~to our unconsolidated entities under the new revenue recognition standard, as discussed in Note 2 to the Consolidated Financial Statements. We previously recognized gains on contributions ~~in Europe and~~to the extent of the third-party ~~dispositions~~ownership in the ~~U.S.~~unconsolidated entity acquiring the property.

~~In January, we sold our investment~~We recognized promotes aggregating $68 million in ~~Europe~~StrategicCapital Revenues ($50 million net of expenses in the period), primarily from the Prologis China Logistics Venture, ~~1 (“ELV”) to our fund partner for $84 million and ELV contributed its properties to Prologis Targeted Europe Logistics Fund (“PTELF”)~~an unconsolidated co-investment venture, in ~~exchange for equity interests.~~ the first quarter of 2018.

In February, we formed the Prologis United Kingdom Logistics Venture (“UKLV”), in which we have a 15.0% ownership interest. During the six months of 2017, we contributed 1 million square feet of stabilized properties, 1 million square feet properties under development and 145 acres of land for £270 million ($336 million), included in net proceeds and net gains above. We expect to continue to contribute properties and land into UKLV.

~~In February, we amended our Japanese yen revolver and increased the total borrowing capacity to ¥50.0 billion ($447 million at June 30, 2017).~~

In March, we acquired our partner’s interest in Prologis North American Industrial Fund (“NAIF”), a consolidated co-investment venture, for $710 million. In July, we contributed 190 operating properties formerly owned by NAIF, for an aggregate purchase price of $2.8 billion, to Prologis Targeted U.S. Logistics Fund (“USLF”). We received cash proceeds of $720 million and additional units, which increased our ownership interest in USLF to approximately 27%, and USLF assumed secured debt of $1.0 billion.

•

In ~~March,~~January, we ~~purchased~~issued €400 million ($494 million) of senior notes bearing a floating rate of Euribor plus 0.25%, maturing in January 2020. Following the issuance, we used the proceeds to pay down our ~~venture partner’s~~multi-currency term loan (the “2017 Term Loan”). The effective interest inrate was -0.08% at June 30, 2018, primarily due to the ~~Prologis Brazil Logistics Partners Fund I (“Brazil Fund”), a consolidated co-investment venture, for $80 million and now own 100%~~amortization of the ~~venture. The Brazil Fund continues to hold a 50.0% ownership interest in several joint ventures that we account for~~net premium on the ~~equity method. In addition, in July, we entered into an agreement to acquire our partners’ interest in the Brazil platform, which we expect to close later in 2017.~~debt.

In June, we issued ~~£500~~$400 million ~~($645 million)~~ of senior notes ~~with~~that bear an interest rate of ~~2.3%, maturing~~3.88% and mature in ~~2029, at 99.9%~~September 2028 and $300 million of ~~par value.~~senior notes that bear an interest rate of 4.38% and mature in September 2048. Following the issuance, we used the ~~cash~~ proceeds to ~~redeem $618 million~~pay down our global senior credit facility in the second quarter of ~~previously issued senior notes.~~2018 and our Canadian term loan (the “2015 Canadian Term Loan”) in July 2018.

On April 29, 2018, we entered into a definitive agreement (the “Merger Agreement”) with DCT Industrial Trust Inc. (“DCT”) and DCT Industrial Operating Partnership LP (“DCT OP”), pursuant to which, subject to the terms and conditions set forth in the Merger Agreement, (i) DCT will merge with and into Prologis, with Prologis surviving the merger (the “Company Merger”) and (ii) immediately prior to the effective time of the Company Merger, DCT OP will merge with and into the OP, with the OP surviving the merger (the “Partnership Merger” and, together with the Company Merger, the “Mergers”). The estimated purchase price consideration for the Mergers will be approximately $8.2 billion in a stock-for-stock transaction, including the assumption of debt, and is based on the closing price of Prologis' common stock on July 19, 2018. We expect to close on the transaction in August 2018 after the vote of the DCT shareholders. See Note 12 to our Consolidated Financial Statements for more information on this subsequent event.

Throughout this discussion, we reflect amounts in U.S. dollars, our reporting currency. Included in these amounts are consolidated and unconsolidated investments denominated in foreign currencies, principally the British pound sterling, euro and Japanese yen that are impacted by fluctuations in exchange rates when translated to U.S. dollars. We mitigate our exposure to foreign currency fluctuations by investing outside the U.S. through co-investment ventures, borrowing in the functional currency of our consolidated subsidiaries, borrowing in currencies other than the U.S. dollar in the OP (designated as a nonderivative financial instrument) and utilizing derivative financial instruments.

RESULTS OF OPERATIONS – SIX MONTHS ENDED JUNE 30, ~~2017~~2018 AND ~~2016~~2017

We evaluate our business operations based on the NOI of our two operating ~~segments,~~segments: Real Estate Operations and Strategic Capital. NOI by segment is a non-GAAP financial measure that is calculated using revenues and expenses directly from our financial statements. We consider NOI by segment to be an appropriate supplemental measure of our performance because it helps ~~both~~ management and investors to understand the core operations of our ~~business.~~real estate assets.

Below is a reconciliation of our NOI by segment to Operating Income per the Consolidated Financial Statements for the six months ended June 30 (in millions). Each segment’s NOI is reconciled to a line item in the Consolidated Financial Statements in the respective segment discussion below.

	2017			2016			2018			2017
Real Estate Operations segment – NOI	$	852		$	808
Strategic Capital segment – NOI		154			51
Real Estate Operations – NOI							$	822		$	852
Strategic Capital – NOI								130			154
General and administrative expenses		(114	)		(107	)		(120	)		(114	)
Depreciation and amortization expenses		(455	)		(480	)		(408	)		(455	)
Operating income	$	437		$	272		$	424		$	437

See Note 10 to the Consolidated Financial Statements for more information on our segments and a reconciliation of each ~~reportable~~ business segment’s NOI to Operating Income and Earnings Before Income Taxes.

Real Estate Operations

This operating segment principally includes rental revenues, rental recoveries and rental expenses recognized from our consolidated properties. We allocate the costs of our property management functions to the Real Estate Operations segment through Rental Expenses and to the Strategic Capital segment through Strategic Capital Expenses based on the ~~size~~square footage of the relative portfolios as compared to our total owned and managed portfolio. The operating fundamentals in the markets in which we operate continue to ~~improve,~~be strong, which has ~~positively affected both the rental rates~~driven rents higher, kept occupancies high and ~~occupancy and also~~ has fueled development activity. This segment is impacted by our development, acquisition and disposition activities.

Below are the components of Real Estate Operations revenues, expenses and NOI for the six months ended June 30, ~~(in millions),~~ derived directly from line items in the Consolidated Financial ~~Statements.~~Statements (in millions):

	2017			2016			2018			2017
Rental revenues	$	888		$	863		$	854		$	888
Rental recoveries		255			237			246			255
Development management and other revenues		14			4			6			14
Rental expenses		(300	)		(287	)		(276	)		(300	)
Other expenses		(5	)		(9	)		(8	)		(5	)
Real Estate Operations segment – NOI	$	852		$	808
Real Estate Operations – NOI							$	822		$	852

The change in Real Estate Operations ~~revenues, expenses and~~ NOI ~~are impacted by changes in rental rates, occupancy and capital deployment activities. The following items highlight the key changes in NOI~~ for the six months ended June 30, ~~2017,~~2018 from the same period in ~~2016~~2017, was impacted by the following items (in millions):

Rent rate and occupancy growth (1)

$
84

Development activity

(2
)
Contributions and dispositions

(48
)
Other

10

Total change in Real Estate Operations segment – NOI

$
44

(1)

We experienced increased occupancy and positive rent rate growth in 2018 compared to 2017. Rent rate growth (or rent change) is a combination of the rollover of existing leases and increases in certain rental rates from contractual rent increases on existing leases. If a lease has a contractual rent increase that is not known at the time the lease ~~is signed,~~commences, such as the consumer price index or a similar metric, the rent increase is not included in rent leveling and therefore, would impact the rental revenues we recognize. ~~We have experienced positive~~See below for key metrics on occupancy and rent change on rollover for ~~every quarter since 2013 that has resulted in higher average rental rates in our portfolio and increased rental revenues and NOI as those leases commenced.~~the consolidated operating portfolio.

(2)	Contribution and disposition activity decreased NOI from this segment in 2018, compared to 2017, primarily due to the contribution of the Prologis North American Industrial Fund (“NAIF”) operating properties to Prologis Targeted U.S. Logistics Fund (“USLF”) in July 2017.

(3)	Other items include recoveries, noncash adjustments for the amortization of above or below market leases, non-recoverable expenses, termination fees and changes in foreign currency rates.

Below are ~~the~~ key operating metrics of our consolidated operating portfolio. Beginning January 1, 2018, we modified certain definitions of our operating metrics to align methodologies with members of the industrial REIT group. These changes were retroactively applied for all prior periods presented.

(1)	Consolidated square feet of leases commenced and weighted average rent change were calculated for leases with initial terms of one year or greater during each quarter in 2017 and 2018.

(2)	Calculated using the trailing twelve months immediately prior to the period ended.

Development Start Activity

The following table summarizes consolidated development starts for the six months ended June 30 (dollars and square feet in millions):

	2018			2017
Number of new development projects during the period		32			28
Square feet		11			12
TEI	$	1,150		$	1,202
Percentage of build-to-suits based on TEI		38.0	%		46.7	%

Development Stabilization Activity

A developed property moves into the operating portfolio when it meets our definition of stabilization. A property is considered stabilized when a development project has been completed for one year or is 90% occupied, whichever occurs first. The following table summarizes consolidated development stabilization activity for the six months ended June 30 (dollars and square feet in millions):

	2018			2017
Number of development projects stabilized during the period		31			37
Square feet		13			12
TEI	$	1,022		$	913
Weighted average expected yield on TEI (1)		6.6	%		6.5	%
Estimated value at completion	$	1,386		$	1,119
Estimated weighted average margin		35.6	%		22.5	%

(1)	We calculate the weighted average expected yield on TEI as estimated NOI assuming stabilized occupancy divided by TEI.

Capital Expenditures

We capitalize costs incurred in renovating and improving our operating properties as part of the investment basis. The following graph summarizes our capital expenditures on operating properties within our consolidated operating portfolio:

Strategic Capital

This operating segment includes revenues from asset and property management and other fees for services performed, as well as promotes earned, ~~for services performed for our~~from the unconsolidated co-investment ventures. Revenues associated with the Strategic Capital segment fluctuate because of the size of co-investment ventures under management, the transactional activity in the ventures and the timing of promotes. These revenues are reduced generally by the direct costs associated with the asset management and property-level management expenses for the properties owned by these ventures. We allocate the costs of our property management functions to the Strategic Capital segment through Strategic Capital Expenses and to the Real Estate Operations segment through Rental Expenses based on the ~~size~~square footage of the relative portfolios as compared to our total owned and managed portfolio.

Below are the components of Strategic Capital revenues, expenses and NOI for the six months ended June 30, derived directly from the line items in the Consolidated Financial Statements (in millions):

	2017			2016			2018			2017
Strategic capital revenues	$	238		$	104		$	209		$	238
Strategic capital expenses		(84	)		(53	)		(79	)		(84	)
Strategic Capital segment – NOI	$	154		$	51
Strategic Capital – NOI							$	130		$	154

Below is additional detail of our Strategic Capital revenues, expenses and NOI for the six months ended June 30 (in millions):

2017

2016

U.S.:

Asset management and other fees

$
18

$
16

Leasing commissions, acquisition, development and other transaction fees

5

3

Promote (1)

120

-

Strategic capital expenses (2)

(41
)

(16
)
Subtotal U.S.

102

3

Other Americas:

Asset management and other fees

11

10

Leasing commissions, acquisition, development and other transaction fees

1

1

Promote (1)

4

-

Strategic capital expenses

(5
)

(5
)
Subtotal Other Americas

11

6

Europe:

Asset management and other fees

42

42

Leasing commissions, acquisition, development and other transaction fees

7

6

Promote (1)

3

-

Strategic capital expenses

(20
)

(14
)
Subtotal Europe

32

34

Asia:

Asset management and other fees

18

18

Leasing commissions, acquisition, development and other transaction fees

9

8

Strategic capital expenses

(18
)

(18
)
Subtotal Asia

9

8

Strategic Capital segment – NOI

$
154

$
51

	U.S. (1)						Other Americas						Europe						Asia						Total
	2018			2017			2018			2017			2018			2017			2018			2017			2018			2017
Strategic capital revenues ($)
Recurring fees (2)		31			18			12			11			48			42			23			18			114			89
Transactional fees (3)		3			5			1			1			11			7			12			9			27			22
Promote revenues (4)		-			120			5			4			9			3			54			-			68			127
Total strategic capital revenues ($)		34			143			18			16			68			52			89			27			209			238
Strategic capital expenses ($)		(32	)		(41	)		(6	)		(5	)		(21	)		(20	)		(20	)		(18	)		(79	)		(84	)
Strategic Capital – NOI ($)		2			102			12			11			47			32			69			9			130			154

(1)	~~The promotes~~This includes compensation and personnel costs for employees who were located in the U.S. but also support other regions.

(2)	Recurring fees include asset and ~~Mexico were earned in the second quarter~~property management fees.

(3)	Transactional fees include leasing commission, acquisition and ~~the~~other fees.

(4)

The promote ~~in Europe was earned in the first quarter. The promotes~~revenues represent the ~~third parties’~~third-party partners’ share based on the venture’s cumulative returns to ~~the~~ investors over ~~the last~~a certain time-period, generally three years. Approximately 40% of promote revenues are paid to our employees as a combination of cash and stock awards pursuant to the terms of the Prologis Promote Plan and expensed through Strategic Capital ~~Expenses.~~Expenses, as vested.

~~(2)~~

~~This includes compensation and personnel costs for employees who are located in the U.S. but also support other regions.~~

The following real estate investments were held through our unconsolidated co-investment ventures based on historical cost (dollars and square feet in millions):

June 30,

December 31,

June 30,

2017

2016

2016

U.S.:

Number of ventures

1

1

1

Number of operating properties owned

384

369

379

Square feet

52

50

49

Total assets

$
4,346

$
4,238

$
4,228

Other Americas:

Number of ventures

2

2

2

Number of operating properties owned

215

213

209

Square feet

43

42

41

Total assets

$
2,791

$
2,793

$
2,694

Europe (1):

Number of ventures

4

4

4

Number of operating properties owned

702

700

690

Square feet

164

163

160

Total assets

$
12,178

$
10,853

$
11,188

Asia:

Number of ventures

2

2

2

Number of operating properties owned

83

85

77

Square feet

36

36

34

Total assets

$
5,528

$
5,173

$
5,346

Total:

Number of ventures

9

9

9

Number of operating properties owned

1,384

1,367

1,355

Square feet

295

291

284

Total assets

$
24,843

$
23,057

$
23,456

~~(1)~~

~~As discussed above, ELV contributed its properties to PTELF in January 2017 and we formed the co-investment venture UKLV in February 2017.~~

	U.S.				Other Americas				Europe				Asia				Total
	Jun 30, 2018		Dec 31, 2017		Jun 30, 2018		Dec 31, 2017		Jun 30, 2018		Dec 31, 2017		Jun 30, 2018		Dec 31, 2017		Jun 30, 2018		Dec 31, 2017
Ventures		1		1		2		2		3		3		2		2		8		8
Operating properties		554		552		205		205		653		707		114		95		1,526		1,559
Square feet		88		88		37		37		154		166		48		41		327		332
Total assets ($)		7,188		7,062		2,073		2,118		13,176		13,586		6,694		6,133		29,131		28,899

See Note 3 to the Consolidated Financial Statements for additional information ~~about the contribution of the ELV properties to PTELF and the formation of UKLV, along with~~on our ~~other~~ unconsolidated co-investment ventures.

G&A Expenses

G&A expenses increased ~~$6 million~~ for the six months ended June 30, ~~2017, compared to~~2018, from the same period in ~~2016, primarily~~2017, principally due to ~~additional~~inflationary increases and higher compensation ~~expense~~expenses based on the ~~company’s~~Company’s performance.

We capitalize certain costs directly related to our development and leasing activities. Capitalized G&A expenses ~~include~~included salaries and related costs, as well as ~~certain~~ other G&A costs. The following table summarizes capitalized G&A amounts for the six months ended June 30 (dollars in millions):

	2017			2016			2018			2017
Building and land development activities	$	31		$	30		$	31		$	31
Leasing activities(1)		12			12			11			12
Operating building improvements and other		8			8			8			8
Total capitalized G&A expenses	$	51		$	50		$	50		$	51
Capitalized salaries and related costs as a percent of total salaries and related costs		25.5	%		26.7	%		23.7	%		25.5	%

(1)	Due to a new accounting standard effective January 1, 2019, we expect a change in capitalized leasing activities. See Note 1 to the Consolidated Financial Statements for additional information.

Depreciation and Amortization Expenses

The ~~following table highlights the key changes~~change in depreciation and amortization expenses for the six months ended June 30, ~~2017,~~2018 from the same period in ~~2016~~2017, was impacted by the following items (in millions):

Acquisition of properties

$
10

Development properties placed into service

18

Disposition and contribution of properties

(36
)
Other

(18
)
Total change in depreciation and amortization expenses

$
(26
)

(1)	The decrease in depreciation and amortization expense in 2018 from 2017 was primarily due to the contribution of the NAIF operating properties to USLF in July 2017.

Our Owned and Managed Operating Portfolio

We manage our business and review our operating fundamentals on an owned and managed basis, which includes properties wholly owned by us or owned by one of our co-investment ventures. ~~We review our operating fundamentals on an owned and managed basis.~~ We believe reviewing these fundamentals this way allows management to understand the entire impact to the financial statements, as it will affect both the Real Estate Operations and Strategic Capital segments, as well as the net earnings we recognize from our unconsolidated co-investment ventures based on our ownership share. We do not control the unconsolidated co-investment ventures for purposes of GAAP and the presentation of the ventures’ operating information does not represent a legal claim to such items.

Our owned and managed ~~portfolio includes~~ operating ~~properties and~~portfolio does not include our development portfolio, value-added properties ~~under development~~ or properties held for sale to third ~~parties (square feet in millions):~~

June 30, 2017

December 31, 2016

June 30, 2016

Number of Properties

Square
Feet

Percentage Occupied

Number of Properties

Square
Feet

Percentage Occupied

Number of Properties

Square
Feet

Percentage Occupied

Consolidated

1,765

335

96.2
%

1,777

332

97.0
%

1,838

338

95.7
%
Unconsolidated

1,378

294

96.1
%

1,359

290

97.2
%

1,339

280

96.6
%
Totals

3,143

629

96.2
%

3,136

622

97.1
%

3,177

618

96.1
%

~~Our operating portfolio excludes value-added~~parties. Value-added properties ~~which~~ are defined as properties that are expected to be repurposed or redeveloped to a higher and better use and recently acquired properties that present opportunities to create greater value. ~~We had seven consolidated value-added properties totaling two million square feet and six unconsolidated value-added properties totaling one million square feet at June 30, 2017.~~

~~Operating Activity~~See below for information on our owned and managed operating portfolio (square feet in millions):

	June 30, 2018							December 31, 2017
	Number of Properties		Square Feet		Percentage Occupied			Number of Properties		Square Feet		Percentage Occupied
Consolidated		1,490		291		97.5	%		1,532		297		97.3	%
Unconsolidated		1,523		326		97.3	%		1,557		331		97.1	%
Total		3,013		617		97.4	%		3,089		628		97.2	%

Below ~~is information~~are the key operating metrics summarizing the leasing activity of our owned and managed operating ~~portfolio:~~portfolio. Beginning January 1, 2018, we modified certain definitions of our operating metrics to align methodologies with members of the industrial REIT group. These changes were retroactively applied for all prior periods presented.

(1)

Square feet of leases commenced and weighted average rent change were calculated for leases with initial terms of one year or greater during each quarter in 2017 and 2018. We retained ~~at least 74%~~more than 70% of our customers, based on the total square feet of leases ~~signed, for each quarter in 2016 and 2017.~~commenced during these periods.

(2)	Calculated using the trailing twelve months immediately prior to the period ended.

(3)	Turnover costs are defined as leasing commissions and tenant improvements and represent the obligations incurred in connection with the ~~signing of a~~ lease ~~including leasing commissions and tenant improvements.~~

~~Capital Expenditures~~

We capitalize costs incurred in developing, renovating, rehabilitating and improving our properties as part of the investment basis. The following table summarizes our capital expenditures on previously leased buildings within our owned and managed portfolio for the six months ended June 30 (in millions):

2017

2016

Property improvements

$
65

$
59

Turnover costs:

Tenant improvements

58

63

Leasing commissions

57

56

Total turnover costs

115

119

Total capital expenditures

$
180

$
178

Our proportionate share of capital expenditures based on ownership (1)

$
115

$
120

~~(1)~~

~~We calculated our proportionate share of capital expenditures by applying our ownership percentage of each co-investment venture on an entity-by-entity basis to the capital expenditures each period.~~

~~Development Start Activity~~

~~The following table summarizes our development starts for the six months ended June 30 (dollars and square feet in millions):~~

2017 (1)

2016

Number of new development projects during the period

37

34

Square feet

15

9

TEI

$
1,382

$
720

Our proportionate share of TEI (2)

$
1,209

$
658

Percentage of build-to-suits based on TEI

44.9
%

44.9
%

~~(1)~~

~~We expect all of our properties under development at June 30, 2017, to be completed before July 2019.~~

~~(2)~~

~~We calculate our proportionate share of TEI by applying our ownership percentage of each co-investment venture on an entity-by-entity basis to the TEI of each co-investment venture~~commencement for ~~the period.~~

~~Development Stabilization Activity~~

~~The following table summarizes our development stabilization activity for the six months ended June 30 (dollars and square feet in millions):~~

2017

2016

Number of development projects stabilized during the period

44

52

Square feet

14

19

TEI

$
1,066

$
1,332

Our proportionate share of TEI (1)

$
965

$
1,089

Weighted average expected yield on TEI (2)

6.8
%

7.0
%
Estimated value at completion

$
1,314

$
1,671

Our proportionate share of estimated value at completion (1)

$
1,184

$
1,374

Estimated weighted average margin

23.3
%

25.5
%

~~(1)~~

We calculate our proportionate share of TEI and estimated value by applying our ownership percentage of each co-investment venture on an entity-by-entity basis to the TEI of each co-investment venture for the period.

~~(2)~~

~~We calculate the weighted average expected yield on TEI as estimated NOI assuming stabilized occupancy divided by TEI.~~leases greater than one year.

Same Store Analysis

Our same store metrics are non-GAAP financial measures, which are commonly used in the real estate industry and expected from the financial community, on both a net-effective and cash basis. We evaluate the ~~operating~~ performance of the operating properties we own and manage using a “same store” analysis because the population of properties in this analysis is consistent from period to period, which ~~eliminates the effects of changes in the composition of the portfolio.~~ allows us to analyze our ongoing business operations.

We ~~have defined the~~define our same store ~~portfolio,~~population for the ~~six~~three months ended June 30, ~~2017,~~2018 as ~~those~~our owned and managed properties that were in ~~operation~~the operating portfolio at January 1, ~~2016~~2017 and ~~have been in operation~~owned throughout the end of the same three-month ~~periods~~period in both ~~2017~~2018 and ~~2016 (including~~2017. The same store population excludes non-industrial real estate properties and properties held for sale, along with development properties that ~~have been completed~~were not stabilized at the beginning of the period (January 1, 2017) and ~~available for lease). We have removed all~~ properties ~~that were~~acquired or disposed of to a third ~~party or were classified as held for sale to a third party from~~parties during the ~~population for both periods. We believe the~~

~~factors that affect rental revenues, rental expenses and NOI in the~~period. Beginning January 1, 2018, we modified our definition of same store ~~portfolio are generally~~to align methodologies with members of the ~~same as for the total operating portfolio.~~industrial REIT group. This did not materially change our historical amounts reported. To derive an appropriate measure of period-to-period operating performance, we remove the effects of foreign currency exchange rate movements by using the ~~recent~~reported period end exchange rate to translate from local currency into the U.S. dollar, for both periods.

~~Same store is a commonly used measure in~~ We believe the ~~real estate industry. Our same store measures are non-GAAP financial measures~~factors that ~~are calculated beginning with~~affect rental revenues, rental recoveries, ~~and~~ rental expenses ~~from~~and NOI in the ~~financial statements prepared in accordance with GAAP.~~ same store portfolio are generally the same as for our consolidated portfolio.

As our same store measures are non-GAAP financial measures, they have certain limitations as analytical tools and may vary among real estate companies. As a result, we provide a reconciliation of rental revenues, rental recoveries and rental expenses from our ~~financial statements~~Consolidated Financial Statements prepared in accordance with GAAP to same store property NOI with explanations of how these metrics are calculated. In addition, we further remove certain noncash items (straight-line rent adjustments and amortization of lease intangibles) included in the financial statements prepared in accordance with GAAP to reflect a cash same store number. To clearly label these metrics, they are categorized as same store portfolio NOI – net effective and same store portfolio NOI – cash.

The following is a reconciliation of our consolidated rental revenues, rental recoveries, rental expenses and property NOI, as included in the Consolidated Statements of ~~Operations,~~Income, to the respective amounts in our same store portfolio analysis for the three months ended June 30 (dollars in millions):

Percentage

2017

2016

Change

Rental Revenues (1) (2)

Consolidated:

Rental revenues per the Consolidated Statements of Income

$
448

$
426

Rental recoveries per the Consolidated Statements of Income

128

120

Consolidated adjustments to derive same store results:

Rental revenues and recoveries of properties not in the same store portfolio –
     properties developed, acquired and sold to third parties during the period
          and land subject to ground leases

(59
)

(51
)

Effect of changes in foreign currency exchange rates and other

(2
)

(1
)

Unconsolidated co-investment ventures – rental revenues

462

449

Same store portfolio – rental revenues (2)

$
977

$
943

3.6
%
Rental Expenses (1) (3)

Consolidated:

Rental expenses per the Consolidated Statements of Income

$
148

$
141

Consolidated adjustments to derive same store results:

Rental expenses of properties not in the same store portfolio – properties
     developed, acquired and sold to third parties during the period and
          land subject to ground leases

(18
)

(20
)

Effect of changes in foreign currency exchange rates and other

13

14

Unconsolidated co-investment ventures – rental expenses

99

101

Same store portfolio – rental expenses (3)

$
242

$
236

2.4
%
NOI (1)

Consolidated:

Property NOI (calculated as rental revenues and rental recoveries less rental expenses
     per the Consolidated Statements of Income)

$
428

$
405

Consolidated adjustments to derive same store results:

Property NOI of properties not in the same store portfolio – properties developed,
     acquired and sold to third parties during the period and land subject to ground
          leases

(41
)

(31
)

Effect of changes in foreign currency exchange rates and other

(15
)

(15
)

Unconsolidated co-investment ventures – property NOI

363

348

Same store portfolio – NOI

$
735

$
707

3.9
%

							Percentage
	2018			2017			Change
Rental revenues
Rental revenues per the Consolidated Statements of Income	$	427		$	448
Rental recoveries per the Consolidated Statements of Income		118			128
Total rental revenues (1)		545			576
Adjustments to derive same store results:
Properties not included in the same store portfolio and other adjustments (1) (2)		(59	)		(67	)
Unconsolidated co-investment ventures (1)		543			479
Same store portfolio – rental revenues – net effective	$	1,029		$	988			4.1	%
Straight-line rent adjustments		(8	)		(18	)
Fair value lease adjustments		-			(1	)
Same store portfolio – rental revenues – cash	$	1,021		$	969			5.3	%

Rental expenses
Rental expenses per the Consolidated Statements of Income (1)	$	133		$	148
Adjustments to derive same store results:
Properties not included in the same store portfolio and other adjustments (1) (3)		(4	)		(10	)
Unconsolidated co-investment ventures (1)		116			101
Same store portfolio – rental expenses – net effective and cash	$	245		$	239			2.4	%

NOI
Property NOI (calculated as rental revenues and rental recoveries less rental expenses per the Consolidated Statements of Income) (1)	$	412		$	428
Adjustments to derive same store results:
Properties not included in the same store portfolio and other adjustments (1) (2) (3)		(55	)		(57	)
Unconsolidated co-investment ventures (1)		427			378
Same store portfolio – NOI – net effective	$	784		$	749			4.7	%
Same store portfolio – NOI – cash	$	776		$	730			6.3	%

(1)

We include 100% of the same store NOI from the properties in our same store portfolio. During the periods presented, certain properties owned by us were contributed to a co-investment venture and are included in the same store portfolio. Neither our consolidated results nor those of the co-investment ventures, when viewed individually, would be comparable on a same store basis because of the changes in composition of the respective portfolios from period to period (e.g. the results of a contributed property are included in our consolidated results through the contribution date and in the results of the unconsolidated entities subsequent to the contribution date). As a result, only line items labeled “same store portfolio” are comparable period over period.

(2)

We exclude non-industrial real estate properties and properties held for sale, along with development properties that were not stabilized at the beginning of the reporting period and properties acquired or disposed of to third parties during the period. We also exclude net termination and renegotiation fees ~~from our same store rental revenues~~ to allow us to evaluate the growth or decline in each property’s rental revenues without regard to one-time items that are not indicative of the property’s recurring operating performance. Net termination and renegotiation fees represent the gross fee negotiated to allow a customer to terminate or renegotiate their lease, offset by the write-off of the asset recorded due to the adjustment to straight-line rents over the lease term. ~~The adjustments to remove these items are included in “effect of changes in foreign currency exchange rates and other” in this table.~~

(3)

Rental expenses include the direct operating expenses of the property such as property taxes, insurance and utilities. In addition, we include an allocation of the property management expenses for our ~~direct-owned~~consolidated properties based on the property management services provided to each property (generally, based on a percentage of revenues). On consolidation, these amounts are eliminated and the actual costs of providing property management services are recognized as part of our consolidated rental expenses. These expenses fluctuate based on the level of properties included in the same store portfolio and any adjustment is included as “effect of changes in foreign currency exchange rates and other” in this table.

Other Components of Income (Expense)

Earnings from Unconsolidated Entities, Net

We recognized net earnings from unconsolidated entities, which are accounted for using the equity method, of ~~$117~~$125 million and ~~$100~~$117 million for the six months ended June 30, ~~2017,~~2018, and ~~2016,~~2017, respectively. The earnings we recognize can be impacted by: (i) variances in NOI and other revenues and expenses of each venture; (ii) the size and occupancy rate of the portfolio of properties owned by each venture; (iii) gains or losses from the dispositions of ~~properties;~~properties and extinguishment of debt; (iv) our ownership interest in each venture; and (v) fluctuations in foreign currency exchange rates used to translate our share of net earnings to U.S. dollars.

See the discussion of our co-investment ventures above in the Strategic Capital segment discussion and in Note 3 to the Consolidated Financial Statements for further breakdown of our share of net earnings recognized.

Interest Expense

The following table details our net interest expense for the six months ended June 30 (dollars in millions):

	2017			2016			2018			2017
Gross interest expense	$	181		$	197		$	120		$	181
Amortization of premiums, net and debt issuance costs, net		(5	)		(10	)
Amortization of discounts (premiums), net of debt issuance costs								6			(5	)
Capitalized amounts		(28	)		(30	)		(23	)		(28	)
Net interest expense	$	148		$	157		$	103		$	148
Weighted average effective interest rate		3.2	%		3.2	%
Weighted average effective interest rate during the period								2.9	%		3.2	%

Our overall debt decreased by $1.7 billion from June 30, 2017 to June 30, 2018, primarily from USLF assuming secured debt in conjunction with our contribution of real estate properties in July 2017. Gross interest expense decreased for the six months ended ~~June 30, 2017, compared to~~2018, from the same period in ~~2016,~~2017, principally due to ~~pay downs on previously issued~~decreased secured debt as a result of the USLF contribution, lower interest rates due to the change in the composition of our senior notes and ~~secured debt and less borrowings on our credit facilities. Our overall debt increased by $474 million from December 31, 2016, to June 30, 2017, primarily from increased borrowings on our~~ term loans ~~related to~~and the ~~buyout of our partner in NAIF. In July, we repaid the term loans with proceeds received from the contribution~~settlement of the ~~operating properties formerly owned by NAIF to USLF.~~interest rate swaps on the 2015 Canadian Term Loan.

See Note 5 to the Consolidated Financial Statements and the Liquidity and Capital Resources section below, for further discussion of our debt and borrowing costs.

Gains on Dispositions of Investments in Real Estate, Net

~~The following table details our~~During the six months ended June 30, 2018, and 2017, we recognized net gains on dispositions of investments in real estate ~~net for~~of $289 million and $180 million, respectively. We contributed properties, generally that we developed, to our unconsolidated co-investment ventures in Europe in 2018 and 2017 and in Japan in 2018. We also sold properties to third parties, primarily from our operating portfolio in the U.S. During the six months ended June 30, ~~(dollars~~2017, we sold our investment in ~~millions):~~Europe Logistics Venture 1 (“ELV”) to our venture partner and contributed properties to our newly formed co-investment venture Prologis UK Logistics Venture. We utilized the proceeds from both contributions and dispositions to fund our capital investments in both periods.

2017

2016

Contributions to unconsolidated co-investment ventures (1)

Number of properties

10

10

Gains on contributions, net

$
126

$
104

Dispositions to third parties (2) (3)

Number of properties

38

99

Gains on dispositions, net

$
54

$
154

Total gains on contributions and dispositions, net

$
180

$
258

Gains on redemption of investment in co-investment ventures

-

87

Total gains on dispositions of investments in real estate, net

$
180

$
345

Beginning January 1, 2018, we recognized the entire gain attributed to contributions of real estate properties to unconsolidated entities under the new revenue recognition standard, as discussed in Note 1 to the Consolidated Financial Statements. We previously recognized a gain in connection with contributions to the extent of the third-party ownership in the unconsolidated entity acquiring the property. For deferred gains from partial sales recorded prior to the adoption, we will continue to recognize these gains over the lives of the underlying real estate properties or at the time of disposition to a third party.

~~(1)~~

~~Contributions to unconsolidated co-investment ventures were primarily in Europe in 2017 and in Japan in 2016.~~

~~(2)~~

~~Dispositions to third parties were primarily in the U.S.~~

~~(3)~~

~~In January 2017, we sold our investment in ELV to our fund partner and ELV contributed its properties to PTELF in exchange for equity interests.~~

See Notes 2 and 3 to the Consolidated Financial Statements for further information on the gains we ~~recognized and our unconsolidated co-investment ventures.~~recognized.

Foreign Currency and Derivative ~~Losses,~~Gains (Losses), Net

The following table details our foreign currency and derivative losses, net for the six months ended June 30 (in millions):

2017

2016

Realized foreign currency and derivative gains (losses):

Gains on the settlement of unhedged derivative transactions

$
9

$
2

Losses on the settlement of transactions with third parties

(1
)

(4
)
Total realized foreign currency and derivative gains (losses)

8

(2
)

Unrealized foreign currency and derivative gains (losses), net:

Losses on the change in fair value of unhedged derivative transactions

(44
)

(25
)
Gains on remeasurement of certain assets and liabilities (1)

9

2

Total unrealized foreign currency and derivative losses, net

(35
)

(23
)
Total foreign currency and derivative losses, net

$
(27
)

$
(25
)

	2018			2017
Realized foreign currency and derivative gains (losses):
Gains (losses) on the settlement of unhedged derivative transactions	$	(8	)	$	9
Losses on the settlement of transactions with third parties		(1	)		(1	)
Total realized foreign currency and derivative gains (losses)		(9	)		8

Unrealized foreign currency and derivative gains (losses):
Gains (losses) on the change in fair value of unhedged derivative and nonderivative transactions		58			(44	)
Gains (losses) on remeasurement of certain assets and liabilities (1)		(5	)		9
Total unrealized foreign currency and derivative gains (losses)		53			(35	)
Total foreign currency and derivative gains (losses), net	$	44		$	(27	)

(1)

These gains or losses ~~are from~~were primarily related to the remeasurement of assets and liabilities that are denominated in currencies other than the functional currency of the entity, such as short-term intercompany loans between the U.S. parent and certain foreign consolidated subsidiaries, debt and tax receivables and payables.

See Note 9 to the Consolidated Financial Statements for more information about our derivative transactions.

Gains (Losses) on Early Extinguishment of Debt, Net

During the ~~six months ended June 30,~~second quarter of 2017, we redeemed $618 million of senior notes and repaid $302 million of secured mortgage debt prior to maturity, which resulted in a loss of $31 million. ~~During the six months ended June 30, 2016, we repaid $363 million of secured mortgage debt prior to maturity, which resulted in a gain of $1 million.~~

Income Tax Expense

We recognize ~~current~~ income tax expense ~~for income taxes incurred by~~related to our taxable REIT subsidiaries and the local, state and ~~local income taxes and taxes incurred in the~~ foreign jurisdictions in which we operate. Our current income tax expense fluctuates from period to period based ~~predominantly from~~primarily on the ~~dispositions~~timing of ~~real estate.~~our taxable income. Deferred income tax expense (benefit) is generally a function of the period’s temporary differences and the utilization of net operating losses generated in prior years that had been previously recognized as deferred income tax assets in taxable subsidiaries operating in the U.S. or in foreign jurisdictions.

The following table summarizes our income tax expense for the six months ended June 30 (in millions):

	2017			2016			2018			2017
Current income tax expense (benefit):
Income tax expense	$	22		$	16		$	21		$	22
Income tax expense on dispositions		1			10			10			1
Income tax benefit related to acquired tax assets		(1	)		-
Income tax expense (benefit) related to acquired tax assets								1			(1	)
Total current income tax expense		22			26			32			22

Deferred income tax expense (benefit):
Income tax expense (benefit)		1			(5	)
Income tax expense related to acquired tax assets		1			-
Income tax expense								-			1
Income tax expense (benefit) related to acquired tax assets								(1	)		1
Total deferred income tax expense (benefit)		2			(5	)		(1	)		2
Total income tax expense	$	24		$	21		$	31		$	24

The Tax Cuts and Jobs Act, enacted on December 22, 2017, reduced the corporate federal tax rate in the U.S. to 21.0%, effective upon enactment. As such deferred tax assets and liabilities were remeasured using the lower corporate federal tax rate beginning December 31, 2017. While we do not expect other material impacts, the new rules are complex and lack developed administrative guidance; thus, the impact of certain aspects of these provisions on us is currently unclear.

Net Earnings Attributable to Noncontrolling Interests

This amount represents the third-party investors’ share of the earnings generated in consolidated entities in which we do not own 100% of the equity, reduced by the third-party share of fees or promotes payable to us and earned during the period.

~~The following table summarizes~~ We had net earnings attributable to noncontrolling interests of $53 million and $35 million for the six months ended June 30, ~~(in millions):~~2018 and 2017, respectively. Included in these amounts were $21 million and $13 million for the six months ended June 30, 2018 and 2017, respectively, of net earnings attributable to the common limited partnership unitholders of Prologis, L.P.

2017

2016

Prologis U.S. Logistics Venture

$
19

$
2

Prologis North American Industrial Fund (1)

2

11

Other consolidated entities (1)

1

4

Prologis, L.P. net earnings attributable to noncontrolling interests

22

17

Limited partners in Prologis, L.P.

13

15

Prologis, Inc. net earnings attributable to noncontrolling interests

$
35

$
32

~~(1)~~

~~In March 2017, we acquired all of our partner’s interest in NAIF and the Brazil Fund and owned 100% of these ventures through June 30, 2017.~~

See Note 6 to the Consolidated Financial Statements for further information on our ~~consolidated co-investment ventures.~~noncontrolling interests.

Other Comprehensive Income (Loss)

During the six months ended June 30, 2017, we recorded net gains in the Statements of Comprehensive Income related to foreign currency translations of our foreign subsidiaries into U.S. dollars upon consolidation. These gains were principally due to the strengthening of the British pound sterling, euro and Japanese yen to the U.S. dollar, offset slightly by the weakening of the Brazilian real. During the six months ended June 30, 2016, we recorded net losses, principally due to the weakening of the British pound sterling, offset slightly by the strengthening of the Brazilian real, euro and Japanese yen to the U.S. dollar.

During the six months ended June 30, 2017, we recorded unrealized gains and during the six months ended June 30, 2016, we recorded unrealized losses in the Statements of Comprehensive Income, related to the change in fair value of our cash flow hedges and our share of derivatives in our unconsolidated co-investment ventures.

See Note 9 to the Consolidated Financial Statements for more information about our derivative ~~transactions.~~transactions and other comprehensive income (loss).

Other Matters

The U.S. government has created the potential for significant changes in trade policies, including tariffs and government regulations affecting trade between the U.S. and other countries where we operate. The foreign trade policies, tariffs and other impositions on imported goods by the U.S. or other countries are beyond our control. We believe that our customers are moving forward with their growth plans and we do not expect these tariffs will materially change the consumption habits that drive our business globally. However, increased sanctions are generally negative for all businesses in the U.S. and abroad, including our business, and could adversely affect economic growth generally and our financial performance.

RESULTS OF OPERATIONS – THREE MONTHS ENDED JUNE 30, 2018 AND 2017 ~~and 2016~~

Except as separately discussed above, the changes in comprehensive income attributable to common stockholders and its components for the three months ended June 30, ~~2017,~~2018, as compared to the three months ended June 30, ~~2016,~~2017, are similar to the changes for the ~~six month~~six-month periods ended on the same dates.

LIQUIDITY AND CAPITAL RESOURCES

Overview

We consider our ability to generate cash from operating activities, distributions from our co-investment ventures, contributions and dispositions of properties and ~~from~~ available financing sources to be adequate to meet our anticipated future development, acquisition, operating, debt service, dividend and distribution requirements.

Near-Term Principal Cash Sources and Uses

In addition to dividends ~~to the common and preferred stockholders of Prologis, Inc.~~ and distributions, ~~to the holders of limited partnership units of Prologis, L.P. and our partner in our consolidated co-investment venture,~~ we expect our primary cash needs will consist of the following:

completion of the development and leasing of the properties in our consolidated development portfolio (at June 30, ~~2017, 77~~2018, 83 properties in our development portfolio were ~~63.5%~~51.8% leased with a current investment of ~~$1.5~~$1.7 billion and a TEI of ~~$2.7~~$2.9 billion when completed and leased, leaving $1.2 billion ~~remaining to be spent)~~of estimated additional required investment);

development of new properties for long-term investment or contributions to unconsolidated co-investment ventures, including the acquisition of land in certain markets;

capital expenditures and leasing costs on properties in our operating portfolio;

repayment of debt and scheduled principal payments of ~~less than $1~~$109 million in ~~2017;~~2018;

additional investments in current unconsolidated entities or new investments in future unconsolidated ~~co-investment ventures; including the expected acquisition of our partners’ interest in the Brazil platform for R$1.2 billion ($362 million), discussed earlier;~~entities;

acquisition of operating properties or portfolios of operating properties (depending on market and other conditions) for direct, long-term investment in our consolidated portfolio (this might include acquisitions from our co-investment ventures);

•	acquisition of operating properties or portfolios of operating properties (depending on market and other conditions) for direct, long-term investment in our consolidated portfolio (this might include acquisitions from our co-investment ventures); and

repurchase of our outstanding debt or equity securities (depending on prevailing market conditions, our liquidity, ~~requirements,~~ contractual restrictions and other factors) through cash purchases, open-market purchases, privately negotiated transactions, tender offers or ~~otherwise.~~otherwise; and

as discussed earlier, we expect to close on the acquisition of DCT in August principally through the issuance of common stock and the assumption of debt. We expect to repay certain of this debt with available cash, borrowings under our credit facilities and proceeds from the issuance of debt.

We expect to fund our cash needs principally from the following sources (subject to market conditions):

available unrestricted cash balances ($~~271~~528 million at June 30, ~~2017)~~2018);

net cash flow from property operations;

fees earned for services performed on behalf of the co-investment ventures, including promotes;

distributions received from the co-investment ventures;

proceeds from the disposition of properties, land parcels or other investments to third parties;

proceeds from the contributions of properties to current or future co-investment ventures;

proceeds from the sale of a portion of our investments in co-investment ~~ventures;~~ventures to achieve long-term ownership targets;

borrowing capacity under our current credit facility arrangements, ~~discussed in the following section,~~ other facilities or borrowing arrangements ($~~3.5~~3.4 billion available at June 30, ~~2017)~~2018); and

proceeds from the issuance of debt.

We may also generate proceeds from the issuance of equity securities, subject to market conditions.

Debt

The following table summarizes information about our consolidated debt by currency (dollars in millions):

June 30,
2017

December 31,
2016

Debt outstanding

$
11,082

$
10,608

Weighted average interest rate

3.0
%

3.2
%
Weighted average maturity in months

65

60

	June 30, 2018					December 31, 2017
	Weighted Average Interest Rate			Amount Outstanding		Weighted Average Interest Rate			Amount Outstanding
British pound sterling		2.3	%	$	654		2.3	%	$	672
Canadian dollar		3.4	%		274		3.3	%		451
Euro		2.3	%		4,185		2.6	%		3,840
Japanese yen (1)		1.0	%		1,276		0.9	%		1,306
U.S. dollar		4.6	%		3,038		4.1	%		3,144
Total debt (2)		2.9	%	$	9,427		2.9	%	$	9,413

(1)	The majority of our Japanese yen denominated debt is variable rate debt.

(2)	The weighted average maturity for total debt outstanding at June 30, 2018 and December 31, 2017 was 73 months and 67 months, respectively.

~~In February 2017, we renewed and amended our Japanese yen revolver (the “Revolver”) and increased our availability under~~During the ~~Revolver to ¥50.0 billion ($447 million at~~six months ended June 30, ~~2017).~~2018, we had the following significant consolidated debt activity, which resulted in extending our debt maturities (principal in millions):

		Principal
	Borrowing Currency	Borrowing Currency		USD		Stated Interest Rate	Fixed/ Variable	Maturity
Repurchase and payments of debt
2015 Canadian Term Loan (1)	CAD	$	201	$	159	CDOR + 1.50%	Variable	February 2023

Issuance of debt
Senior notes	EUR	€	400	$	494	Euribor + 0.25%	Variable	January 2020
Senior notes	USD	$	400	$	400	3.88%	Fixed	September 2028
Senior notes	USD	$	300	$	300	4.38%	Fixed	September 2048

~~In March 2017, we entered into an unsecured senior term loan agreement (the “2017 Yen Term Loan”) under which we can draw in Japanese yen, of which ¥7.2 billion (~~

(1)~~$64 million at June 30, 2017) matures in March 2027 and bears an interest rate of 0.9% and ¥4.8 billion ($43 million at June 30, 2017) matures in March 2028 and bears an interest rate of 1.0%. In the first quarter of 2017, we borrowed ¥12.0 billion ($107 million)~~This activity included a partial pay down on the ~~2017 Yen Term Loan and it was fully drawn at June 30, 2017.~~

In May 2017, we renewed and amended our 2017 Term Loan under which loans can be obtained in British pounds sterling, euro, Japanese yen and U.S. dollars in an aggregate amount not to exceed $500 million. We may pay down and reborrow under the 2017 Term Loan. The 2017 Term Loan bears an interest rate of LIBOR plus 0.9% and is scheduled to mature in May 2020; however, we may extend the maturity date twice, by one year each, subject to the satisfaction of certain conditions and the payment of an extension fee. In the second quarter of 2017, we borrowed $500 million, causing the 2017 Term Loan to be fully drawn at June 30, 2017.debt outstanding.

In June 2017, we issued £500 million ($645 million) of senior notes with an interest rate of 2.3%, maturing in 2029, at 99.9% of par value. We used the net proceeds for redemption of previously issued senior notes, general corporate purposes and to repay other indebtedness.

At June 30, ~~2017,~~2018, we had credit facilities with an aggregate borrowing capacity of $3.5 billion, of which $3.4 billion was available for borrowing.

Our credit ratings at June 30, 2018, were A3 from Moody’s and A- from S&P, both with stable outlook. These ratings allow us to borrow at an advantageous rate. Adverse changes in our credit ratings could negatively impact our business and, in particular, our refinancing and other capital market activities, our ability to manage debt maturities, our future growth and our development and acquisition activity. A securities rating is not a recommendation to buy, sell or hold securities and is subject to revision or withdrawal at any time by the rating organization.

At June 30, ~~2017,~~2018, we were in compliance with all of our financial debt covenants. These covenants include customary financial covenants for total debt, encumbered debt and fixed charge coverage ratios.

As discussed earlier, in July, we contributed operating properties formerly owned by NAIF to USLF and received cash proceeds of $720 million that was used to pay down term loans and other borrowings. Also, USLF assumed $956 million of secured mortgage debt related to the properties.

See Note 5 to the Consolidated Financial Statements for further discussion on our debt.

Equity Commitments Related to Certain Co-Investment Ventures

Certain co-investment ventures have equity commitments from us and our venture partners. Our venture partners fulfill their equity commitment with cash. We may fulfill our equity commitment through contributions of properties or cash. See the Cash Flow Summary below for more information about our investment activity in our co-investment ventures. For more information on equity commitments for our unconsolidated co-investment ventures, see Note 3 to the Consolidated Financial Statements.

Cash Flow Summary

The following table summarizes our cash flow activity for the six months ended June 30 (in millions):

	2017			2016			2018			2017
Net cash provided by operating activities	$	745		$	634		$	773		$	745
Net cash provided by (used in) investing activities	$	(171	)	$	860
Net cash used in investing activities							$	(187	)	$	(171	)
Net cash used in financing activities	$	(1,126	)	$	(1,437	)	$	(500	)	$	(1,126	)

~~Cash Provided by~~ Operating Activities

Cash provided by operating activities, exclusive of changes in receivables and payables, is impacted by the following significant ~~activity:~~activity during the six months ended June 30, 2018 and 2017:

Real estate operations. We receive the majority of our operating cash through the net revenues of our Real Estate Operations segment. See ~~our~~the Results of Operations section above for further explanation of our Real Estate Operations segment. The revenues from this segment include noncash adjustments for straight-lined ~~rent~~rents and amortization of above and below market leases of $26 million and $49 million for 2018 and ~~$43 million for~~ 2017, ~~and 2016,~~ respectively.

Strategic capital. We also generate operating cash through our Strategic Capital segment by providing management services to our unconsolidated co-investment ~~ventures, including promotes.~~ventures. See ~~our~~the Strategic Capital Results of Operations section above for the key drivers of our strategic capital revenues and expenses. ~~We earned $124 million of promotes~~Included in Strategic Capital Revenues is the ~~second quarter of 2017, which represents the third-parties’~~third-party investors’ share of the ~~promotes earned that were included as strategic capital revenues, but excluded from cash provided by~~total promote revenue, which is recognized in operating activities ~~as the cash will be received~~ in the ~~third quarter of 2017. Included in the cash provided by operating activities for 2016~~period it is ~~$30 million of cash received, which represented the third-parties’ share of promotes earned in 2015.~~received.

G&A expenses. We incurred ~~$114~~$120 million and ~~$107~~$114 million of G&A costs in 2018 and 2017, ~~and 2016,~~ respectively.

~~Distributions from unconsolidated entities.~~ We recognized $141 million and $147 million of distributions from our unconsolidated entities in 2017 and 2016, respectively. Included in 2016 are distributions of $27 million that represented our share of promotes earned in 2015. In the third quarter of 2016, we adopted an accounting standard update that clarifies the classification methodology within the statement of cash flows for distributions received from equity method investments. As a result, for the six months ended June 30, 2016, we reclassified $48 million of distributions from our unconsolidated entities into operating activities that were previously reported as investing activities.

Equity-based compensation awards. We record equity-based compensation expenses in Rental Expenses in the Real Estate Operations segment, Strategic Capital Expenses in the Strategic Capital segment and G&A expenses. The total amounts expensed were $39 million and $38 million in 2018 and ~~$29~~2017, respectively.

Operating distributions from unconsolidated entities. We received $176 million and $141 million of distributions from our unconsolidated entities in 2018 and 2017, respectively. Certain co-investment ventures distribute the total promote (third-party investors’ and ~~2016, respectively.~~our share) and our share is recorded to Investment In and Advances to Unconsolidated Entities, and is recognized in operating activities in the period it is received.

Cash paid for interest and income taxes. As disclosed in Note 11 to the Consolidated Financial Statements, we paid combined amounts for interest and income taxes of $187 million and $212 million in ~~both~~2018 and 2017, ~~and 2016,~~ respectively.

~~Cash Provided by (Used in)~~ Investing Activities

Cash provided by investing activities is primarily driven by proceeds from contributions and dispositions of real estate properties. Cash used in investing activities is principally driven by our investments in real estate development, acquisitions and capital expenditures. See Note 2 to the Consolidated Financial Statements for further information on these real estate activities. The following significant transactions impacted our cash used in investing activities during the six months ended June 30, 2018 and 2017:

Real estate development. We invested $789 million and $715 million in 2018 and ~~$776 million in~~ 2017, ~~and 2016,~~ respectively, in real estate development and leasing costs for first generation ~~leases.~~space. We had 5563 properties under development and 2220 properties that were completed but not stabilized at June 30, ~~2017, and we expect to continue to develop new properties as the opportunities arise.~~2018.

Real estate acquisitions. ~~In 2017, we~~We acquired total real estate of $289 million, which included 808 acres of land and 3 operating properties in 2018. We acquired total real estate of $202 million, which included 524 acres of land and 2 operating ~~properties. In 2016, we acquired total real estate of $136 million, which included 384 acres of land and 6 operating properties.~~

•	~~Capital expenditures.~~ We invested $113 million and $119 million in our operating properties during 2017 and 2016, respectively; which included recurring capital expenditures, tenant improvements and leasing commissions on existing operating properties that were previously leased.

~~Proceeds from contributions and dispositions.We generated cash from contributions and dispositions of real estate~~ properties ~~of $836 million and $1.3 billion during 2017 and 2016, respectively. See Note 2 to the Consolidated Financial Statements for more detail about our contributions and dispositions.~~in 2017.

Investments in and advances to. We ~~invest~~invested cash in our unconsolidated co-investment ventures and other ventures, which represents our proportionate ~~share.~~share of $83 million and $145 million in 2018 and 2017, respectively. The ventures ~~primarily~~ use the funds for the acquisition of operating properties, development and repayment of debt. ~~The following table summarizes our investments in our unconsolidated co-investment ventures for the six months ended June 30 (in millions):~~

2017

2016

Unconsolidated co-investment ventures:

Other Americas

Prologis Brazil Logistics Partners Fund I and related joint ventures

$
4

$
21

Europe

European Logistics Venture 1

19

-

Prologis European Logistics Partners Sàrl

3

61

Prologis United Kingdom Logistics Venture

31

-

Asia

Nippon Prologis REIT, Inc.

-

33

Remaining unconsolidated co-investment ventures

7

10

Total unconsolidated co-investment ventures

64

125

Other ventures

81

20

Total investments in and advances to unconsolidated entities

$
145

$
145

See Note 3 to the Consolidated Financial Statements for more detail on our unconsolidated co-investment ventures.

Return of investment. We received distributions from unconsolidated co-investment ventures and other ventures as a return of investment of $135 million and $134 million in 2018 and ~~$533 million during~~ 2017, ~~and 2016,~~ respectively. Included in ~~this amount~~these amounts for 2018 and 2017 ~~is $84~~was $115 million ~~from the disposition of our investment in ELV~~ and $49 million from property dispositions within our unconsolidated co-investment ventures. ~~Included in this amount for 2016 is $411 million from the redemption of a portion of our investments in PTELF and USLF and $79~~In 2017, we also included $84 million from the disposition of our investment in a joint venture, and the remaining amount was from property dispositions within our unconsolidated entities. As discussed above, we adopted an accounting standard update in the third quarter of 2016 that clarifies the classification methodology within the statement of cash flows for distributions received from equity method investments and as a result, we reclassified $48 million of distributions in 2016 from our unconsolidated entities that were previously reported as investing activities into operating activities.ELV.

~~Proceeds from repayment of notes receivable backed by real estate.~~ ~~In 2017 and 2016, we received $32 million and $201 million, respectively, for the payment of notes receivable received in connection with dispositions of real estate to third parties.~~

•	Proceeds from repayment of notes receivable backed by real estate. We received $34 million and $32 million in 2018 and 2017, respectively, for the payment of notes receivable received in connection with dispositions of real estate to third parties.

~~Cash Used in~~ Financing Activities

~~Dividends~~Cash provided by financing activities is primarily driven by proceeds from the issuance of debt. Cash used in financing activities is principally driven by dividends paid on common and preferred ~~stock.~~ ~~We paid dividends~~units, noncontrolling interest distributions and payments of ~~$471 million~~debt and ~~$445 million to~~credit facilities. The following significant transactions impacted our ~~common~~cash used in financing activities during the six months ended June 30, 2018 and ~~preferred stockholders during 2017 and 2016, respectively.~~2017:

~~Noncontrolling interests contributions.~~ ~~In 2017, our partner in U.S. Logistics Venture (“USLV”) made contributions of $136 million for the pay down of secured mortgage debt.~~

~~Noncontrolling interests distributions.~~In 2017 and 2016, we distributed $100 million and $214 million to various noncontrolling interests, respectively. Distributions in 2017 and 2016 included $28 million and $137 million related to proceeds from dispositions of real estate, primarily to our partner in USLV. Included in these amounts in both 2017 and 2016 were $19 million of distributions to common limited partnership unitholders of Prologis, L.P.

~~Purchase~~Settlement of noncontrolling interests. ~~In 2017, we~~We paid net cash of $710 million to acquire our partner’s interest in NAIF and $80 million to acquire our partner’s interest in the Prologis Brazil ~~Fund.~~Logistics Partners Fund I, L.P. in 2017.

~~Tax paid for shares withheld.~~Other debt activity. ~~In the third quarter~~Our repurchase of 2016, we adopted an accounting standard update that clarifies the classification methodology within the statement of cash flows for taxes paid to a tax authority by us when we withhold shares to cover employee withholding tax payments for certain stock compensation plans. As a result of the adoption, in 2016 we reclassified payments of $7 million from operating activities~~to financing activities.~~

~~Repurchase~~ and payments ~~of debt.~~ ~~During 2017, we made payments of $1.0 billion, primarily~~ on ~~our outstanding term loans. We also repurchased~~debt and extinguished senior notes and secured mortgage debt for a combined total of $954 million, which included extinguishment costs. During 2016, we made payments of $750 million on our outstanding term loans and $164 million on regularly scheduled debt principal payments and payments at maturity. We also repurchased and extinguished secured mortgage debt of $363 million, which included extinguishment costs.

~~Proceeds~~proceeds from issuance of ~~debt.In 2017, we issued $1.3 billion~~debt consisted of ~~term loans, £500 million ($645 million) of senior notes and $148 million of secured mortgage debt and used~~ the ~~net proceeds to repurchase and extinguish senior notes and secured mortgage debt and~~following activity for ~~general corporate purposes. In 2016, we issued $299 million of term loans and $218 million of secured mortgage debt and used~~ the ~~net proceeds for general corporate purposes. See Note 5 to the Consolidated Financial Statements for more detail on debt.~~six months ended June 30 (in millions):

	2018		2017
Repurchase of and payments on debt (including extinguishment costs)
Regularly scheduled debt principal payments and payments at maturity	$	4	$	9
Senior notes		-		652
Term loans		1,159		1,040
Secured mortgages		89		302
Total	$	1,252	$	2,003

Proceeds from issuance of debt
Senior notes	$	1,190	$	645
Term loans		500		1,449
Secured mortgages		32		40
Total	$	1,722	$	2,134

Off-Balance Sheet Arrangements

Unconsolidated Co-Investment Venture Debt

We had investments in and advances to unconsolidated co-investment ventures, at June 30, ~~2017,~~2018, of ~~$4.4~~$5.2 billion. These ventures had total third-party debt of ~~$6.8~~$8.1 billion at June 30, ~~2017.~~2018. The weighted average loan-to-value ratio for all unconsolidated co-investment ventures was 27.8% at June 30, 2018. Loan-to-value, a non-GAAP measure, was calculated as the percentage of total third-party debt to the gross book value of real estate for each venture and weighted based on the cumulative gross book value of all unconsolidated co-investment ventures.

At June 30, ~~2017,~~2018, we did not guarantee any third-party debt of the unconsolidated co-investment ventures. In our role as the manager or sponsor, we work with the ventures to refinance their maturing debt. There can be no assurance that the ventures will be able to refinance any maturing indebtedness on terms as favorable as the maturing debt, or at all. If the ventures are unable to refinance the maturing indebtedness with newly issued debt, they may be able to obtain funds by voluntary capital contributions from us and our partners or by selling assets. Certain of our ventures also have credit facilities, or unencumbered properties, both of which may be used to obtain funds.

Contractual Obligations

~~Distribution~~Dividend and ~~Dividend~~Distribution Requirements

Our dividend policy on our common stock is to distribute a percentage of our cash flow to ensure that we will meet the dividend requirements of the Internal Revenue Code, relative to maintaining our REIT status, while still allowing us to retain cash to ~~meet other needs such as~~fund capital improvements and other investment activities.

Under the Internal Revenue Code, REITs may be subject to certain federal income and excise taxes on our undistributed taxable income. We do not expect the Tax Cuts and Jobs Act, enacted on December 22, 2017, to modify our current distribution policy.

We paid a cash dividend of ~~$0.44~~$0.48 per common share in the first two quarters of ~~2017.~~2018. Our future common stock dividends, if and as declared, may vary and will be determined by the board of directors ~~(the “Board”~~(“Board”) upon the circumstances prevailing at the time, including our financial condition, operating results and REIT distribution requirements, and may be adjusted at the discretion of the Board during the year.

We make distributions on the common limited partnership units outstanding at the same per unit amount as our common stock dividend. The Class A Units in the OP are entitled to a quarterly distribution equal to $0.64665 per unit so long as the common units receive a quarterly distribution of at least $0.40 per unit. We paid a quarterly distribution of $0.64665 per Class A Unit in the first two quarters of 2018.

At June 30, ~~2017,~~2018, we had one series of preferred stock outstanding, the series Q. The annual dividend rate is 8.54% per share and dividends are payable quarterly in arrears.

Pursuant to the terms of our preferred stock, we are restricted from declaring or paying any dividend with respect to our common stock unless and until all cumulative dividends with respect to the preferred stock have been paid and sufficient funds have been set aside for dividends that have been declared for the relevant dividend period with respect to the preferred stock.

Other Commitments

On a continuing basis, we are engaged in various stages of negotiations for the acquisition or disposition of individual properties or portfolios of properties.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 1 to the Consolidated Financial Statements.

FUNDS FROM OPERATIONS ATTRIBUTABLE TO COMMON STOCKHOLDERS/UNITHOLDERS (“FFO”)

FFO is a non-GAAP financial measure that is commonly used in the real estate industry. The most directly comparable GAAP measure to FFO is net earnings.

The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO as earnings computed under GAAP to exclude historical cost depreciation and gains and losses from the sales, along with impairment charges, of previously depreciated properties. We also exclude the gains on revaluation of equity investments upon acquisition of a controlling interest and the gain recognized from a

partial sale of our investment, as these are similar to gains from the sales of previously depreciated properties. We exclude similar adjustments from our unconsolidated entities and the third parties’ share of our consolidated co-investment ventures.

Our FFO Measures

Our FFO measures begin with NAREIT’s definition and we make certain adjustments to reflect our business and the way that management plans and executes our business strategy. While not infrequent or unusual, the additional items we adjust for in calculating FFO, as modified by Prologis, and Core FFO, both as defined below, are subject to significant fluctuations from period to period. Although these items may have a material impact on our operations and are reflected in our financial statements, the removal of the effects of these items allows us to better understand the core operating performance of our properties over the long term. These items have both positive and negative short-term effects on our results of operations in inconsistent and unpredictable directions that are not relevant to our long-term outlook.

We calculate our FFO measures, as defined below, based on our proportionate ownership share of both our unconsolidated and consolidated ventures. We reflect our share of our FFO measures for unconsolidated ~~co-investment~~ ventures by applying our average ownership percentage for the period to the applicable reconciling items on an entity by entity basis. We reflect our share for consolidated ventures in which we do not own 100% of the equity by adjusting our FFO measures to remove the noncontrolling interests share of the applicable reconciling items based on our average ownership percentage for the applicable periods.

These FFO measures are used by management as supplemental financial measures of operating performance and we believe that it is important that stockholders, potential investors and financial analysts understand the measures management uses. We do not use our FFO measures as, nor should they be considered to be, alternatives to net earnings computed under GAAP, as indicators of our operating performance, as alternatives to cash from operating activities computed under GAAP or as indicators of our ability to fund our cash needs.

We analyze our operating performance ~~primarily~~principally by the rental revenues of our real estate and the revenues from our strategic capital business, net of operating, administrative and financing expenses. This income stream is not directly impacted by fluctuations in the market value of our investments in real estate or debt securities.

FFO, as modified by Prologis attributable to common ~~stockholders and~~ stockholders/unitholders (“FFO, as modified by Prologis”)

To arrive at FFO, as modified by Prologis, we adjust the NAREIT defined FFO measure to exclude the impact of foreign currency related items and deferred tax, specifically:

deferred income tax benefits and deferred income tax expenses recognized by our subsidiaries;

current income tax expense related to acquired tax liabilities that were recorded as deferred tax liabilities in an acquisition, to the extent the expense is offset with a deferred income tax benefit in earnings that is excluded from our defined FFO measure;

unhedged foreign currency exchange gains and losses resulting from debt transactions between us and our foreign consolidated subsidiaries and our foreign unconsolidated entities;

foreign currency exchange gains and losses from the remeasurement (based on current foreign currency exchange rates) of certain ~~third party~~third-party debt of our foreign consolidated and unconsolidated entities; and

mark-to-market adjustments associated with derivative financial instruments.

We use FFO, as modified by Prologis, so that management, analysts and investors are able to evaluate our performance against other REITs that do not have similar operations or operations in jurisdictions outside the U.S.

Core FFO attributable to common ~~stockholders and~~ stockholders/unitholders (“Core FFO”)

In addition to FFO, as modified by Prologis, we also use Core FFO. To arrive at Core FFO, we adjust FFO, as modified by Prologis, to exclude the following recurring and nonrecurring items that we recognized directly in FFO, as modified by Prologis:

gains or losses from the disposition of land and development properties that were developed with the intent to contribute or sell;

income tax expense related to the sale of investments in real ~~estate and third-party acquisition costs related to the acquisition of real~~ estate;

impairment charges recognized related to our investments in real estate generally as a result of our change in intent to contribute or sell these properties;

gains or losses from the early extinguishment of debt and redemption and repurchase of preferred stock; and

expenses related to natural disasters.

We use Core FFO, including by segment and region, to: (i) assess our operating performance as compared to other real estate companies; (ii) evaluate our performance and the performance of our properties in comparison with expected results and results of previous periods; (iii) evaluate the performance of our management; (iv) budget and forecast future results to assist in the allocation of resources; (v) provide guidance to the financial markets to understand our expected operating performance; and ~~(v)~~(vi) evaluate how a specific potential investment will impact our future results.

Limitations on the use of our FFO measures

While we believe our modified FFO measures are important supplemental measures, neither NAREIT’s nor our measures of FFO should be used alone because they exclude significant economic components of net earnings computed under GAAP and are, therefore, limited as an analytical tool. Accordingly, these are only a few of the many measures we use when analyzing our business. Some of the limitations are:

The current income tax expenses ~~and acquisition costs~~ that are excluded from our modified FFO measures represent the taxes and transaction costs that are payable.

Depreciation and amortization of real estate assets are economic costs that are excluded from FFO. FFO is limited, as it does not reflect the cash requirements that may be necessary for future replacements of the real estate assets. Furthermore, the amortization of capital expenditures and leasing costs necessary to maintain the operating performance of logistics facilities are not reflected in FFO.

Gains or losses from non-development property ~~and~~ dispositions orand impairment charges related to expected dispositions represent changes in value of the properties. By excluding these gains and losses, FFO does not capture realized changes in the value of disposed properties arising from changes in market conditions.

The deferred income tax benefits and expenses that are excluded from our modified FFO measures result from the creation of a deferred income tax asset or liability that may have to be settled at some future point. Our modified FFO measures do not currently reflect any income or expense that may result from such settlement.

The foreign currency exchange gains and losses that are excluded from our modified FFO measures are generally recognized based on movements in foreign currency exchange rates through a specific point in time. The ultimate settlement of our foreign currency-denominated net assets is indefinite as to timing and amount. Our FFO measures are limited in that they do not reflect the current period changes in these net assets that result from periodic foreign currency exchange rate movements.

The gains and losses on extinguishment of debt or preferred stock that we exclude from our Core FFO, may provide a benefit or cost to us as we may be settling our ~~debt~~obligation at less or more than our future obligation.

The natural disaster expenses that we exclude from Core FFO are costs that we have incurred.

We compensate for these limitations by using our FFO measures only in conjunction with net earnings computed under GAAP when making our decisions. This information should be read with our complete ~~consolidated financial statements~~Consolidated Financial Statements prepared under GAAP. To assist investors in compensating for these limitations, we reconcile our modified FFO measures to our net earnings computed under GAAP for six months ended June 30 as follows (in millions).:

	2017			2016			2018			2017
FFO
Reconciliation of net earnings to FFO measures:
Net earnings attributable to common stockholders	$	470		$	483		$	701		$	470

Add (deduct) NAREIT defined adjustments:
Real estate related depreciation and amortization		439			465			390			439
Gains on dispositions of investments in real estate properties, net		(113	)		(238	)		(68	)		(113	)
Reconciling items related to noncontrolling interests		(42	)		(64	)		(23	)		(42	)
Our share of reconciling items included in earnings from unconsolidated entities		60			79			104			60
NAREIT defined FFO		814			725			1,104			814

Add (deduct) our modified adjustments:
Unrealized foreign currency and derivative losses, net		36			24
Deferred income tax expense (benefit), net		2			(5	)
Current income tax benefit on dispositions related to acquired tax assets		(1	)		-
Reconciling items related to noncontrolling interests		-			1
Unrealized foreign currency and derivative (gains) losses, net								(53	)		36
Deferred income tax expense (benefit)								(1	)		2
Current income tax expense (benefit) on dispositions related to acquired tax assets								1			(1	)
Our share of reconciling items included in earnings from unconsolidated entities		(1	)		-			2			(1	)
FFO, as modified by Prologis		850			745			1,053			850

Adjustments to arrive at Core FFO:
Gains on dispositions of development properties and land, net		(68	)		(105	)		(221	)		(68	)
Current income tax expense on dispositions		1			10			10			1
Acquisition expenses		-			2
Losses (gains) on early extinguishment of debt, net		31			(1	)
Losses on early extinguishment of debt, net								1			31
Reconciling items related to noncontrolling interests		(1	)		1			5			(1	)
Our share of reconciling items included in earnings from unconsolidated entities		(5	)		2			(14	)		(5	)
Core FFO	$	808		$	654		$	834		$	808

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to the impact of ~~foreign-exchange related~~foreign exchange-related variability and earnings volatility on our foreign investments and interest rate changes. See our risk factors in Item 1A. Risk Factors, in our Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2016.~~2017. See also Note 9 to the Consolidated Financial Statements in Item 1 for more information about our derivative financial instruments.

We monitor our market risk exposures using a sensitivity analysis. Our sensitivity analysis estimates the exposure to market risk sensitive instruments assuming a hypothetical 10% adverse change in foreign currency exchange rates or interest rates at June 30, ~~2017.~~2018. The results of the sensitivity analysis are summarized in the following sections. The sensitivity analysis is of limited predictive value. As a result, revenues and expenses, as well as our ultimate realized gains or losses with respect to ~~interest~~foreign currency exchange rate and ~~foreign currency exchange~~interest rate fluctuations will depend on the exposures that arise during a future period, hedging strategies at the time and the prevailing ~~interest and~~ foreign currency exchange rates and interest rates.

Foreign Currency Risk

We are exposed to foreign ~~exchange-related~~currency exchange variability ofrelated to investments in and earnings from our foreign investments. Foreign currency market risk is the possibility that our ~~financial~~ results of operations or financial position could be better or worse than planned because of changes in foreign currency exchange rates. We primarily hedge our foreign currency risk by borrowing in the currencies in which we invest. Generally, we borrow in the functional currency of the consolidated subsidiaries but we also borrow in currencies other than the U.S. dollar in the OP and may designate this borrowing as a nonderivative financial instrument. We may also hedge our foreign currency risk by designating derivative financial instruments as net investment hedges, as these amounts offset the translation adjustments on the underlying net assets of our foreign investments. Other foreign currency contracts, such as forwards, not designated as hedges reduce fluctuations in foreign currency associated with the translation of our projected net operating income of our international subsidiaries.

At June 30, ~~2017,~~2018, after consideration of our nonderivative and derivative financial instruments, we had net equity of approximately ~~$984~~$694 million ~~or 4.8% of total net equity,~~ denominated in a currency other than the U.S. dollar ~~after consideration~~representing 3.7% of ~~our derivative and nonderivative financial instruments.~~total net equity. Based on our sensitivity analysis, a 10% ~~adverse change in exchange rates~~strengthening of the U.S. dollar against other currencies would cause a reduction of ~~$98~~$69 million to our net equity.

At June 30, ~~2017,~~2018, we had foreign currency forward contracts, which were designated and qualify as net investment hedges, with an aggregate notional amount of ~~$99~~$135 million to hedge a portion of our investments in ~~Canada.~~Canada and Europe. On the basis of our sensitivity analysis, a weakening of the U.S. dollar against the Canadian dollar or Euro by 10% would result in a ~~$10~~$13 million negative change in our cash flows on settlement. In addition, we also have British pound sterling, Canadian dollar, euro and Japanese yen forward ~~and option~~ contracts, which were not designated as hedges, and have an aggregate notional amount of ~~$550~~$528 million to mitigate risk associated with the translation of the projected ~~financial results~~earnings of our subsidiaries in Canada, Europe and Japan. A weakening of the U.S. dollar against these currencies by 10% would result in a ~~$55~~$53 million negative change in our net income and cash flows on ~~settlement.~~settlement of these contracts.

Interest Rate Risk

We also are exposed to the impact of interest rate changes on future earnings and cash flows. At June 30, ~~2017,~~2018, we had ~~$2.3~~$1.7 billion of variable rate debt outstanding, of which ~~$2.0~~$1.2 billion was ~~outstanding on our~~ term loans, ~~and $327~~$466 million was ~~outstanding on~~senior notes, $12 million was credit facilities and $50 million was secured ~~mortgage debt.~~mortgages. At June 30, ~~2017,~~2018, we had interest rate swap agreements to fix ~~the interest~~our floating rate on $287 million (CAD $372 million) of our Canadian term loan. During the six months ended June 30, 2017, we had weighted average daily outstanding borrowings of $56 million on our variable rate credit facilities.euro senior notes. On the basis of our sensitivity analysis, a 10% adverse change in interest rates based on our average outstanding variable rate debt balances not subject to interest rate swap agreements during the period would result in additional annual interest expense of $2 million, which equates to a change in interest rates of 1112 basis points.

ITEM 4. Controls and Procedures

Controls and Procedures (The Parent)

The Parent carried out an evaluation under the supervision and with the participation of management, including the ~~chief executive officer~~Chief Executive Officer and ~~chief financial officer,~~Chief Financial Officer, of the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-14(c)) under the Securities and Exchange Act of 1934 (the “Exchange Act”) at June 30, ~~2017.~~2018. On the basis of this evaluation, the ~~chief executive officer~~Chief Executive Officer and the ~~chief financial officer~~Chief Financial Officer have concluded that the disclosure controls and procedures are effective to ensure that the information required to be disclosed in reports that are filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission (“SEC”) rules and forms.

No changes in the internal controls over financial reporting during the most recent fiscal quarter have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

Controls and Procedures (The ~~Operating Partnership)~~OP)

The ~~Operating Partnership~~OP carried out an evaluation under the supervision and with the participation of management, including the ~~chief executive officer~~Chief Executive Officer and ~~chief financial officer,~~Chief Financial Officer, of the effectiveness of the disclosure controls and procedures (as defined in Rule 13a-14(c)) under the Exchange Act at June 30, ~~2017.~~2018. On the basis of this evaluation, the ~~chief executive officer~~Chief Executive Officer and the ~~chief financial officer~~Chief Financial Officer have concluded that the disclosure controls and procedures are effective to ensure that the information required to be disclosed in reports that are filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

Although the ultimate outcome of litigation cannot be predicted with certainty, we believe that these lawsuits are without merit and intend to defend against these actions vigorously.

In addition, Prologis and our unconsolidated investees are party to a variety of other legal proceedings arising in the ordinary course of business. With respect to any such matters to which we are currently a party, the ultimate disposition of any such matters will not result in a material adverse effect on our business, financial position or results of operations.

ITEM 1A. ~~Risk~~Risk Factors

At June 30, ~~2017, no material changes had occurred in our~~2018, the risk factors as discussed ~~in Item 1A~~under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2016.~~2017 and “Risk Factors” in Amendment No. 1 to the Registration Statement on Form S-4 for Prologis, Inc., filed with the SEC on July 6, 2018, and any amendments thereto, continue to apply to our business.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended June 30, ~~2017,~~2018, we ~~issued an aggregate of 0.3 million~~did not issue shares of common stock of the Parent ~~upon~~in connection with the redemption of common units of the ~~Operating Partnership. The~~OP. If issued, the shares of common stock ~~were~~would be issued in reliance on the exemption from registration requirements of the Securities Act of 1933, as amended, afforded by Section 4(a)(2) thereof.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not Applicable.

ITEM 5. Other Information

None.

ITEM 6. Exhibits

The exhibits required by this item are set forth on the Exhibit Index attached hereto.

INDEX TO EXHIBITS

Certain of the following documents are filed herewith. Certain other of the following documents that have been previously filed with the Securities and Exchange Commission and, pursuant to Rule 12-b-32, are incorporated herein by reference.


2.1	Agreement and Plan of Merger, dated as of April 29, 2018, by and among Prologis, Inc., Prologis, L.P., DCT Industrial Trust Inc., and DCT Industrial Operating Partnership LP (incorporated by reference to Exhibit 2.1 to Prologis’ Current Report on Form 8-K filed April 29, 2018).
4.1	Form of 3.875% Notes Due 2028 (incorporated by reference to Exhibit 4.1 to Prologis’ Current Report Form 8-K filed on June 20, 2018).
4.2	Form of 4.375% Notes Due 2048 (incorporated by reference to Exhibit 4.2 to Prologis’ Current Report Form 8-K filed on June 20, 2018).

4.3	Form of Officer’s Certificate related to 3.875% Notes Due 2028 (incorporated by reference to Exhibit 4.3 to Prologis’ Current Report Form 8-K filed on June 20, 2018).

4.4	Form of Officer’s Certificate related to 4.375% Notes Due 2048 (incorporated by reference to Exhibit 4.4 to Prologis’ Current Report Form 8-K filed on June 20, 2018).

10.1	Amended and Restated Director Deferred Stock Unit Award Terms (incorporated by reference to Exhibit 10.1 to Prologis’ Current Report on Form 8-K filed May 7, 2018).

12.1†	Computation of Ratio of Earnings to Fixed Charges of Prologis, Inc. and Prologis, L.P.

12.2†	Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock/Unit Dividends, of Prologis, Inc. and Prologis, L.P.

15.1†	KPMG LLP Awareness Letter of Prologis, Inc.

15.2†	KPMG LLP Awareness Letter of Prologis, L.P.

31.1†	Certification of Chief Executive Officer of Prologis, Inc.

31.2†	Certification of Chief Financial Officer of Prologis, Inc.

31.3†	Certification of Chief Executive Officer for Prologis, L.P.

31.4†	Certification of Chief Financial Officer for Prologis, L.P.

32.1†	Certification of Chief Executive Officer and Chief Financial Officer of Prologis, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2†	Certification of Chief Executive Officer and Chief Financial Officer for Prologis, L.P., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS†	XBRL Instance Document

101.SCH†	XBRL Taxonomy Extension Schema

101.CAL†	XBRL Taxonomy Extension Calculation Linkbase

101.DEF†	XBRL Taxonomy Extension Definition Linkbase

101.LAB†	XBRL Taxonomy Extension Label Linkbase

101.PRE†	XBRL Taxonomy Extension Presentation Linkbase

†	Filed herewith

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.


PROLOGIS, INC.

By:	/s/ Thomas S. Olinger
	Thomas S. Olinger
	Chief Financial Officer

By:	/s/ Lori A. Palazzolo
	Lori A. Palazzolo
	Managing Director and Chief Accounting Officer

PROLOGIS, L.P.
By:	Prologis, Inc., its general partner

By:	/s/ Thomas S. Olinger
	Thomas S. Olinger
	Chief Financial Officer

By:	/s/ Lori A. Palazzolo
	Lori A. Palazzolo
	Managing Director and Chief Accounting Officer

Date: July ~~26, 2017~~23, 2018

~~INDEX TO EXHIBITS~~


~~4.1~~	Form of Eighth Supplemental Indenture among Prologis, Inc., Prologis, L.P., U.S. Bank National Association and Elavon Financial Services DAC, UK Branch (incorporated by reference to Exhibit 4.1 to Prologis’ Current Report Form 8-K filed on June 6, 2017).

~~4.2~~	~~Form of Officers’ Certificate related to 2.250% Notes due 2029 (incorporated by reference to Exhibit 4.2 to Prologis’ Current Report Form 8-K filed on June 6, 2017).~~

~~4.3~~	~~Form of 2.250% Notes due 2029 (incorporated by reference to Exhibit 4.3 to Prologis’ Current Report Form 8-K filed on June 6, 2017).~~

~~10.1~~	Senior Term Loan Agreement dated as of May 4, 2017 among Prologis, Inc., Prologis, L.P., various affiliates of Prologis, L.P., various lenders and Bank of America, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to Prologis’ Current Report Form 8-K on May 8, 2017).

~~10.2~~	First Amendment, dated as of May 4, 2017, to the Amended and Restated Global Senior Credit Agreement by and among Prologis, Inc., Prologis, L.P., various affiliates of Prologis, L.P., various lenders and Bank of America, N.A., as Global Administrative Agent (incorporated by reference to Exhibit 10.2 to Prologis’ Current Report Form 8-K on May 8, 2017).
~~12.1†~~	~~Computation of Ratio of Earnings to Fixed Charges of Prologis, Inc. and Prologis, L.P.~~

~~12.2†~~	~~Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock/Unit Dividends, of Prologis, Inc. and Prologis, L.P.~~

~~15.1†~~	~~KPMG LLP Awareness Letter of Prologis, Inc.~~

~~15.2†~~	~~KPMG LLP Awareness Letter of Prologis, L.P.~~

~~31.1†~~	~~Certification of Chief Executive Officer of Prologis, Inc.~~

~~31.2†~~	~~Certification of Chief Financial Officer of Prologis, Inc.~~

~~31.3†~~	~~Certification of Chief Executive Officer for Prologis, L.P.~~

~~31.4†~~	~~Certification of Chief Financial Officer for Prologis, L.P.~~

~~32.1†~~	~~Certification of Chief Executive Officer and Chief Financial Officer of Prologis, Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

~~32.2†~~	~~Certification of Chief Executive Officer and Chief Financial Officer for Prologis, L.P., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

~~101.INS†~~	~~XBRL Instance Document~~

~~101.SCH†~~	~~XBRL Taxonomy Extension Schema~~

~~101.CAL†~~	~~XBRL Taxonomy Extension Calculation Linkbase~~

~~101.DEF†~~	~~XBRL Taxonomy Extension Definition Linkbase~~

~~101.LAB†~~	~~XBRL Taxonomy Extension Label Linkbase~~

~~101.PRE†~~	~~XBRL Taxonomy Extension Presentation Linkbase~~

†	~~Filed herewith~~

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Strategic capital revenues from unconsolidated co-investment ventures, net:
U.S. (1)	$	130,165	$	9,179	$	141,223	$	18,174
Other Americas (1)		9,864		5,693		15,915		11,079
Europe		25,957		25,435		52,127		47,768
Asia		14,064		12,654		26,719		26,255
Total strategic capital revenues from unconsolidated co-investment ventures, net	$	180,050	$	52,961	$	235,984	$	103,276

Earnings from unconsolidated co-investment ventures, net:
U.S.	$	1,963	$	718	$	6,909	$	7,377
Other Americas		8,933		7,509		15,503		12,808
Europe		35,859		29,014		65,764		60,593
Asia		14,410		3,693		18,439		7,348
Total earnings from unconsolidated co-investment ventures, net	$	61,165	$	40,934	$	106,615	$	88,126

	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2017		2016		2017		2016
Revenues:
U.S.	$	105	$	98	$	209	$	196
Other Americas		66		59		130		116
Europe		248		248		492		492
Asia		89		86		177		162
Total revenues	$	508	$	491	$	1,008	$	966

Net earnings:
U.S.	$	15	$	6	$	51	$	36
Other Americas		22		19		39		33
Europe		93		68		166		141
Asia		93		22		117		44
Total net earnings	$	223	$	115	$	373	$	254

	Equity Commitments						Expiration Date for Remaining Commitments
	Prologis		Venture Partners		Total
Prologis Targeted Europe Logistics Fund (1)	$	-	$	346	$	346	2017 - 2018
Prologis United Kingdom Logistics Venture (2)		35		201		236	2021
Prologis China Logistics Venture		294		1,665		1,959	2017
Totals	$	329	$	2,212	$	2,541

	2017		2016
RSUs granted		88		53
Grant date fair value of RSUs granted	$	4,800	$	2,300
LTIP Units granted		203		114
Grant date fair value of LTIP Units granted	$	11,100	$	4,900

	Number of			Weighted Average		Number of
	LTIP Units			Grant-Date Fair Value		LTIP Units Vested
Balance at January 1, 2017		2,219		$	40.81		743
Granted		1,032
Vested POP LTIP Units		698
Conversion to common limited partnership units		(227	)
Balance at June 30, 2017		3,722		$	45.55		1,835

Rent rate and occupancy growth (1)	$	84
Development activity		(2	)
Contributions and dispositions		(48	)
Other		10
Total change in Real Estate Operations segment – NOI	$	44

	2017			2016
U.S.:
Asset management and other fees	$	18		$	16
Leasing commissions, acquisition, development and other transaction fees		5			3
Promote (1)		120			-
Strategic capital expenses (2)		(41	)		(16	)
Subtotal U.S.		102			3
Other Americas:
Asset management and other fees		11			10
Leasing commissions, acquisition, development and other transaction fees		1			1
Promote (1)		4			-
Strategic capital expenses		(5	)		(5	)
Subtotal Other Americas		11			6
Europe:
Asset management and other fees		42			42
Leasing commissions, acquisition, development and other transaction fees		7			6
Promote (1)		3			-
Strategic capital expenses		(20	)		(14	)
Subtotal Europe		32			34
Asia:
Asset management and other fees		18			18
Leasing commissions, acquisition, development and other transaction fees		9			8
Strategic capital expenses		(18	)		(18	)
Subtotal Asia		9			8
Strategic Capital segment – NOI	$	154		$	51

Acquisition of properties	$	10
Development properties placed into service		18
Disposition and contribution of properties		(36	)
Other		(18	)
Total change in depreciation and amortization expenses	$	(26	)

	June 30, 2017							December 31, 2016							June 30, 2016
	Number of Properties		Square Feet		Percentage Occupied			Number of Properties		Square Feet		Percentage Occupied			Number of Properties		Square Feet		Percentage Occupied
Consolidated		1,765		335		96.2	%		1,777		332		97.0	%		1,838		338		95.7	%
Unconsolidated		1,378		294		96.1	%		1,359		290		97.2	%		1,339		280		96.6	%
Totals		3,143		629		96.2	%		3,136		622		97.1	%		3,177		618		96.1	%

	June 30, 2017			December 31, 2016
Debt outstanding	$	11,082		$	10,608
Weighted average interest rate		3.0	%		3.2	%
Weighted average maturity in months	65			60