Prologis (PLD) Q2 2026: Data Centers Lead $3.0B of First-Half Development Starts
Prologis reported diluted EPS of $1.13 in the second quarter of 2026 against $0.61 a year earlier, but roughly four-fifths of that increase came from asset disposition gains and a foreign-currency swing rather than from collecting rent. The number that actually reframes the company sits in the development disclosure: development starts in the first half totaled $2,966 million of TEI, of which approximately $2.1 billion went to data centers. Underneath the noise, the logistics base did firm up, with Prologis-share same-store property NOI rising 6.4% on a net effective basis and rent on commencing leases resetting 36.9% higher. After two years in which US warehouse vacancy climbed and Prologis throttled back new starts, the company has doubled its development commitments — and pointed most of the new dollars at digital infrastructure rather than distribution centers.
1. Consolidated Balance Sheet
1-1. Principal asset movements
| Item | Dec 31, 2025 ($M) | Jun 30, 2026 ($M) | Change % |
|---|---|---|---|
| Cash and cash equivalents | 1,145.6 | 1,765.0 | +54.1% |
| Investments in real estate properties (gross) | 95,129.4 | 97,013.8 | +2.0% |
| Less accumulated depreciation | (14,729.1) | (15,783.2) | +7.2% |
| Net investments in real estate properties | 80,400.2 | 81,230.6 | +1.0% |
| Investments in/advances to unconsolidated entities | 11,093.9 | 11,467.4 | +3.4% |
| Assets held for sale or contribution | 203.3 | 499.0 | +145.4% |
| Other assets | 5,881.1 | 6,049.9 | +2.9% |
| Total assets | 98,724.3 | 101,011.9 | +2.3% |
Prologis crossed $100 billion in total assets this quarter, and the composition of the increase is more instructive than the headline. Gross real estate rose $1,884.4 million while net real estate rose only $830.4 million: accumulated depreciation grew $1,054.0 million over the half (net of write-offs on assets sold), and reported depreciation and amortization expense for the six months was $1,421.0 million — more than half of gross additions. This is the structural distortion in any REIT balance sheet under US GAAP: buildings are carried at historical cost and depreciated, with no revaluation option, so a portfolio Prologis says can support $35.6 billion of development TEI on a consolidated basis ($40.6 billion owned-and-managed), counting its land, other real estate investments, land options and covered land plays, is carried at a book value that bears little relation to market value.
Two line items moved on transactions rather than operations. Assets held for sale or contribution more than doubled to $499.0 million, which is a forward indicator — these are properties expected to be contributed to co-investment ventures or sold within twelve months, so the disposition gains that dominated this quarter's income statement have a visible pipeline behind them. The cash build to $1,765.0 million reflected strong operating cash generation and net new debt proceeds; Prologis issued $2,155.3 million of senior notes during the half (Note 5), while total balance-sheet debt rose by a net $1,405.0 million after repayments, $716.6 million of assumed acquisition debt and foreign currency translation effects on non-USD borrowings (Note 11).
The single largest portfolio change was structural. In April 2026 Prologis bought out its partner's interest in an unconsolidated Asian co-investment venture and consolidated 74 operating properties totalling 23 million square feet. That transaction accounts for most of the 88 operating properties and 27,401 thousand square feet acquired in the quarter (versus 3 properties and 1,025 thousand square feet in Q2 2025) and lifted Asia segment assets from $1,100.3 million to $1,870.9 million, up 70.0%. Investors reading the year-over-year Asia revenue jump should treat it as a consolidation event, not organic growth.
1-2. Debt structure
| Item | Dec 31, 2025 ($M) | Jun 30, 2026 ($M) | Change % |
|---|---|---|---|
| Debt (financial) | 35,037.1 | 36,442.1 | +4.0% |
| Accounts payable and accrued expenses | 1,963.6 | 2,529.6 | +28.8% |
| Other liabilities | 3,969.5 | 3,920.6 | -1.2% |
| Total liabilities | 40,970.2 | 42,892.4 | +4.7% |
Debt is 36.1% of total assets, up from 35.5%, and 0.63x total equity. The maturity ladder is the defensive feature: of $36,975.8 million of scheduled principal, $1,070.6 million comes due in the remainder of 2026, $2,040.0 million in 2027 and $2,709.0 million in 2028 — 15.7% inside three years, with $24,714.3 million pushed beyond 2030. Weighted average remaining term is 8.2 years at a 3.3% weighted average interest rate.
That 3.3% legacy coupon is also the vulnerability. The $2,155.3 million of senior notes Prologis issued during the first half priced at a 4.3% weighted average rate over an 8.0-year term — roughly 100 basis points above the existing stack. With so little maturing near-term the repricing arrives slowly, but it arrives: net interest expense rose 9.7% to $530.6 million for the half; on a gross basis, before roughly $62 million of capitalized interest (up from about $50 million), interest expense was approximately $592.6 million, up about 11% — with the capitalized portion absorbed by the development ramp.
Operating liabilities grew faster than financial ones. Accounts payable and accrued expenses jumped 28.8%, consistent with construction payables on a development program that nearly doubled.
1-3. Capital structure
Total equity edged up 0.6% to $58,119.5 million, with total liabilities plus equity reconciling exactly to $101,011.9 million of assets. Additional paid-in capital rose only $212.0 million to $54,910.7 million — Prologis is not funding this cycle with equity issuance, and shares outstanding moved from 929,153 thousand to 933,006 thousand, largely from unit redemptions rather than a capital raise.
Two components tell the real story. Distributions in excess of net earnings improved from $(902.4) million to $(860.5) million, meaning first-half net earnings of $2,041.3 million modestly outran declared dividends — a rarity for a REIT and a direct consequence of the disposition gains. Accumulated other comprehensive loss narrowed from $(676.3) million to $(397.7) million, a $278.6 million improvement driven by currency translation on the international portfolio. Neither is a recurring source of book value growth. Meanwhile noncontrolling interests fell 3.7% to $4,393.8 million, almost entirely because the limited partners' interest in Prologis, L.P. declined from $1,244.1 million to $1,089.5 million as OP units were redeemed for 3.5 million common shares — the same transaction behind the rise in shares outstanding.
2. Consolidated Statement of Income
2-1. Core revenue and earnings metrics
| Item (Q2) | Q2 2025 ($M) | Q2 2026 ($M) | Change % |
|---|---|---|---|
| Rental revenue | 2,025.3 | 2,177.1 | +7.5% |
| Strategic capital revenue | 147.2 | 241.6 | +64.2% |
| Development management and other | 11.4 | 6.8 | -40.6% |
| Total revenues | 2,183.9 | 2,425.5 | +11.1% |
| Operating income before gains | 855.2 | 959.7 | +12.2% |
| Operating margin before gains (%) | 39.2 | 39.6 | — |
| Gains on real estate dispositions, net | 57.5 | 291.6 | +407.1% |
| Operating income | 912.7 | 1,251.3 | +37.1% |
| Net earnings to common stockholders | 569.7 | 1,060.8 | +86.2% |
| Net margin (%) | 26.1 | 43.7 | — |
| Diluted EPS ($) | 0.61 | 1.13 | +85.2% |
First-half revenue of $4,723.2 million compares with $4,323.5 million in the first half of 2025, a year-over-year increase of 9.2%.
The 86.2% jump in earnings attributable to common stockholders needs decomposing, because the recurring business did not grow at anything close to that rate. Pre-tax earnings rose $586.4 million year over year, and the sources break down as follows: $234.1 million from higher disposition gains, $232.5 million from the foreign currency and derivative line swinging from a $122.8 million loss to a $109.7 million gain, $104.5 million from operating income before gains, $39.8 million from unconsolidated entities, less $24.4 million of additional interest expense. Disposition gains and the currency swing together account for 79.6% of the increase; the operating business contributed 17.8%.
Strip further and the recurring picture sharpens. Strategic capital revenue's 64.2% surge was driven almost entirely by promote fees — Other Americas strategic capital revenue went from $22.6 million to $101.4 million after Prologis earned incentive fees from a co-investment venture in that region. The filing states the quarter included $62 million of promote revenue net of related strategic capital expenses. Removing that, operating income before gains grew roughly 5% rather than 12.2%, which is the honest run-rate for a portfolio whose occupancy is flat and whose rent growth flows through gradually on rollover.
Operating leverage was accordingly modest: revenue up 11.1% produced a 12.2% gain in operating income before gains, a ratio of about 1.1x. The reported 37.1% rise in total operating income implies leverage of 3.4x, but that figure is manufactured by transaction gains and should not be extrapolated.
One item deserves flagging. Income tax expense rose from $23.4 million to $108.2 million, lifting the effective rate from 3.6% to 8.8%. REITs pay little federal tax on distributed income; the increase reflects taxable gains on dispositions, particularly in international jurisdictions, and is a cash cost attached to the same asset sales that inflated the headline.
2-2. Fixed versus variable cost behaviour
Rental expenses — property operating costs, taxes and insurance, the majority of which are contractually reimbursed by tenants — rose 8.8% to $530.9 million, slightly outpacing rental revenue's 7.5% growth. The expense ratio ticked up from 24.1% to 24.4%.
The fixed-cost side is where the development pivot shows up. General and administrative expense grew 21.3% to $129.6 million, moving from 4.9% to 5.3% of revenue. Prologis states that scale should let it grow NOI with limited incremental G&A; this quarter it did the opposite, as headcount and platform costs were added in data centers, energy procurement and new venture formation. Capitalized G&A of $89 million for the half (versus $84 million) partially offsets this but is itself a function of development volume — if starts decelerate, more of that overhead lands in the income statement. Depreciation and amortization, the largest fixed item at $689.5 million, grew a comparatively slow 4.9%.
2-3. Segment detail
| Segment (Q2, $M) | Q2 2025 Revenue | Q2 2026 Revenue | Q2 2025 NOI | Q2 2026 NOI | NOI Change % |
|---|---|---|---|---|---|
| Real estate | 2,036.7 | 2,183.8 | 1,537.0 | 1,632.8 | +6.2% |
| Strategic capital | 147.2 | 241.6 | 82.2 | 146.0 | +77.6% |
| Total segment | 2,183.9 | 2,425.5 | 1,619.3 | 1,778.8 | +9.9% |
Real estate remains 90.0% of revenue, in line with the 90–95% band management describes. Strategic capital's outsized NOI growth is promote-driven and will not repeat at this level absent further incentive-fee events; the segment's durable contribution is the asset and property management fee stream tied to $62.4 billion of gross book value across 548 million square feet held in unconsolidated ventures, where Prologis holds a 30.5% weighted average ownership interest.
3. Consolidated Statement of Cash Flows
| Item (six months) | 1H 2025 ($M) | 1H 2026 ($M) | Change |
|---|---|---|---|
| Net cash from operating activities | 2,402.5 | 2,635.0 | +9.7% |
| Net cash used in investing activities | (2,585.5) | (1,553.2) | +$1,032.3M |
| Net cash used in financing activities | (93.6) | (449.9) | -$356.3M |
| Cash, end of period | 1,066.1 | 1,765.0 | +65.6% |
Operating cash flow grew 9.7%, closely tracking revenue growth of 9.2% — the cleanest evidence in the filing that the rent-collecting business is genuinely expanding rather than merely reporting well.
Free cash flow requires care with a REIT, because most investing outflow is discretionary growth capital rather than maintenance. Recurring capital — tenant improvements and leasing commissions of $257.8 million plus property improvements of $97.3 million — totalled $355.1 million, or 13.5% of operating cash flow, leaving $2,280.0 million of cash available after maintaining the existing portfolio. Growth capital was far larger: $1,564.2 million of development spend (up 17.5%) and $1,173.4 million of acquisitions, against $1,388.5 million of disposition proceeds, up from just $256.4 million a year ago. That fivefold increase in recycled proceeds is why investing outflow fell by more than $1 billion despite higher development spending — Prologis is self-funding the data center build through contributions to its co-investment ventures rather than through the capital markets.
Earnings quality warrants a REIT-specific reading. Operating cash flow to consolidated net earnings was 1.22x, down from 1.90x, but the decline is an artefact: net earnings now contain $675.7 million of non-cash disposition gains that are stripped out in the operating section. The more meaningful comparison is operating cash flow against Core FFO of $3,000 million, a ratio of 0.88x — the shortfall being $326.9 million of straight-line rent and above/below-market lease amortization, non-cash revenue that FFO includes but cash does not. That gap is normal for a portfolio with 68-month average lease terms and heavy rent escalators, but it means Core FFO sits about 14% above the cash the business actually produced, and the gap should be watched if it widens.
On the financing side, dividends and distributions of $2,002.2 million consumed 76.0% of operating cash flow (78.3% a year earlier) and 66.7% of Core FFO. The quarterly dividend rose to $1.07 per share from $1.01, up 5.9%. Prologis funded the balance of its growth through $2,155.3 million of new senior note issuances (Note 5) and net credit facility and commercial paper draws of approximately $469.5 million, against dividend and distribution payments and debt repayments — with total balance-sheet debt rising by a net $1,405.0 million, the difference reflecting $716.6 million of assumed acquisition debt (Note 11), repayments and foreign currency translation. There were no share repurchases — this is a company issuing debt and selling assets to fund growth, not returning capital beyond the dividend.
4. What Matters Beyond the Statements
The development pivot is the story. Prologis commenced 24 new development buildings with TEI of $2,966 million in the first half, against 19 buildings and $1,513 million a year earlier — a 96.0% increase. Approximately $2.1 billion of year-to-date starts went to data centers (Q2 starts alone were $1,342 million at Prologis share). Just as important, 84.5% of starts by TEI were build-to-suit, up from 69.6%, meaning the company is expanding into a capital-intensive new vertical with tenants already committed rather than on speculation. The consolidated development portfolio stood at $5.7 billion of TEI and was 43.2% leased at June 30, including $2.5 billion of data centers carrying 680 megawatts of power capacity, with $2.7 billion invested to date.
Development economics are holding, barely. Projects stabilized during the half carried a 7.2% weighted average yield, up from 6.9%, generating estimated value creation of $423 million versus $311 million. But the estimated margin narrowed from 27.4% to 26.2% — construction and capital costs are compressing spreads even as yields on cost rise. The realized version of this appears in the cash flow statement: $1,212.6 million of development disposition proceeds generated $372.2 million of gains, a 30.7% margin on contributed assets.
Occupancy is the lagging indicator that has not yet turned. Total operating portfolio occupancy slipped from 95.8% at December 31, 2025 to 95.5%, with the consolidated portfolio at 95.3% (from 95.4%) and the unconsolidated ventures at 95.7% (from 96.3%). This is soft rather than alarming, but it is the metric that contradicts the acceleration narrative, and the deterioration is concentrated in the venture portfolio. External market data show US industrial vacancy compressing to roughly 6.8–6.9% in the second quarter, the first meaningful contraction since mid-2023, which suggests the drag should ease.
The rent mark-to-market is the buried asset. Rent on leases commencing in Q2 reset 36.9% higher on a net effective basis (34.2% for the half), and Prologis estimates a remaining lease mark-to-market of approximately 17%. That is contracted, already-earned upside that converts to revenue mechanically as leases expire, independent of whether market rents rise further. It is why same-store NOI grew 6.4% net effective and 8.5% on a cash basis ($1,555 million versus $1,434 million) while occupancy was flat — the growth is coming from repricing, not from filling space.
Non-GAAP disclosure. Core FFO of $3,000 million for the half (versus $2,752 million, up 9.0%; approximately $3.13 versus $2.88 per diluted share by our calculation on 957,654 thousand and 955,601 thousand diluted shares) excludes real estate depreciation of $1,369 million, gains on real estate dispositions, unrealized currency and derivative movements, deferred taxes, debt extinguishment losses and venture formation costs. The depreciation add-back is defensible for real estate; the exclusion of disposition gains is less so for a company that treats development-and-contribute as a core earnings engine. Note that Core FFO grew 9.0% while GAAP earnings per share grew 74.4% for the half — the non-GAAP measure is, unusually, the more conservative one here.
Contingencies. The filing states Prologis and its unconsolidated entities are party to ordinary-course legal proceedings whose disposition will not have a material adverse effect, and reports no material changes to risk factors from the 2025 Form 10-K. No specific reasonably-possible loss contingencies were quantified. Prologis was in compliance with all financial debt covenants at June 30, 2026, and held $7.6 billion of total liquidity, comprising $5.8 billion of credit facility capacity and $1.8 billion of unrestricted cash.
5. Key Implications and Outlook
What grew. The recurring engine advanced roughly in line with revenue: operating cash flow up 9.7%, Core FFO up 9.0%, same-store NOI up 6.4%, real estate segment NOI up 6.2%. Rent repricing of 36.9% on rollover, with a 17% mark-to-market still embedded, gives that engine visibility for several years without requiring further market rent inflation. The headline 86.2% earnings jump is not that engine; it is transaction gains and currency, and it will not repeat mechanically.
What is at risk. Three items. First, financing cost convergence — new issuance at 4.3% against a 3.3% book means interest expense grinds higher for years, though the 8.2-year ladder and 15.7% three-year maturity concentration make it a slow burn rather than a cliff. Second, occupancy, which fell 30 basis points to 95.5% and 60 basis points in the venture portfolio; the rent-growth story assumes space stays full. Third, execution risk in data centers, a business with different tenants, different power dependencies and different competitors than warehouses, into which Prologis has now committed $2.5 billion of TEI and 680 megawatts. The 84.5% build-to-suit share substantially de-risks this, but development margins are already narrowing from 27.4% to 26.2%.
Capital allocation. The priority order is unambiguous from the cash flows: development first ($1,564.2 million, and rising), then acquisitions ($1,173.4 million, dominated by the Asian venture buyout), then the dividend ($2,002.2 million, raised 5.9% to $1.07 quarterly), with no buybacks and negligible equity issuance. Disposition proceeds of $2.0 billion for the half — generating $676 million of gains — are the swing funding source, which makes the strategy dependent on co-investment ventures continuing to absorb newly developed assets at attractive prices. The four new ventures formed in 2026 suggest that channel remains open.
Cycle position. Industrial logistics is a cyclical property type and this quarter should not be read in isolation. Revenue progressed from $8,023.5 million in 2023 to $8,201.6 million in 2024 to $8,790.1 million in 2025, with first-half revenue compounding at 9.2% over two years — growth never stopped, but it decelerated sharply in 2024 before reaccelerating. The company has recorded positive rent change in every quarter since 2013, a streak that spans the entire post-financial-crisis cycle. The positioning evidence points to early recovery: development starts nearly doubled, build-to-suit share rose, disposition proceeds rose fivefold, and the external vacancy rate turned down for the first time in roughly three years. Occupancy is the one metric still drifting the wrong way, which is characteristic of a trough being passed rather than a peak. The complication is that this recovery is not the same as the last one — the marginal development dollar is going into digital infrastructure, and if that continues, Prologis's earnings mix, tenant base and risk profile in 2029 will look materially different from today's.
This analysis is based on filings submitted to the U.S. Securities and Exchange Commission and is provided for informational purposes only. It is not investment advice. Source: SEC Form 10-Q, filed July 29, 2026 (accession 0001193125-26-323746). Market vacancy and absorption data referenced in Section 4 are from third-party commercial real estate research and are not part of the SEC filing.
