UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2008

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

For the transition period from                      to                     

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(Exact name of registrant as specified in its charter)

Maryland (State or other jurisdiction of incorporation or organization)		74-2604728 (I.R.S. Employer Identification No.)
4545 Airport Way, Denver, Colorado (Address or principal executive offices)		80239 (Zip Code)

     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.

Yes þ    No o

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

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

Yes o   No þ

The number of shares outstanding of the Registrant’s common shares as of August 1, 2008 was 262,473,372.

 

 

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INDEX

						Page
						Number(s)
PART I. Financial Information
		Item 1.		Financial Statements:
				Consolidated Statements of Earnings and Comprehensive Income — Three and Six months ended June 30, 2008 and 2007			3
				Consolidated Balance Sheets — June 30, 2008 and December 31, 2007			5
				Consolidated Statements of Cash Flows — Six months ended June 30, 2008 and 2007			6
				Notes to Consolidated Financial Statements			7
				Report of Independent Registered Public Accounting Firm			26
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
		Item 3.		Quantitative and Qualitative Disclosures About Market Risk			45
		Item 4.		Controls and Procedures			46
PART II. Other Information
		Item 1.		Legal Proceedings			47
		Item 1A.		Risk Factors			47
		Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			47
		Item 3.		Defaults Upon Senior Securities			47
		Item 4.		Submission of Matters to a Vote of Security Holders			47
		Item 5.		Other Information			47
		Item 6.		Exhibits			48
Sixth Supplemental Indenture
Seventh Supplemental Indenture
Computation of Ratio of Earnings to Fixed Charges
Computation of Ratio of Earnings to Fixed Charges and Preferred Share Dividends
KPMG LLP Awareness Letter
Certification of Chief Executive Officer
Certification of Chief Financial Officer
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906

PART 1.

Item 1. Financial Statements

PROLOGIS

CONSOLIDATED STATEMENTS OF
EARNINGS AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
Revenues:
Rental income		$	262,380			$	270,840			$	531,090			$	527,386
CDFS disposition proceeds:
Developed and repositioned properties			1,136,655				686,715				2,400,068				1,356,653
Acquired property portfolios			79,843				—				163,175				—
Property management and other fees and incentives			32,580				23,937				62,070				45,584
Development management and other income			3,374				6,176				10,531				13,615
Total revenues			1,514,832				987,668				3,166,934				1,943,238
Expenses:
Rental expenses			86,186				75,052				177,159				142,180
Cost of CDFS dispositions:
Developed and repositioned properties			936,610				476,684				1,921,917				915,675
Acquired property portfolios			79,843				—				163,175				—
General and administrative			59,215				48,423				115,687				96,765
Depreciation and amortization			84,866				74,004				162,238				151,973
Other expenses			5,633				15,068				8,103				17,934
Total expenses			1,252,353				689,231				2,548,279				1,324,527
Operating income			262,479				298,437				618,655				618,711
Other income (expense):
Earnings from unconsolidated property funds, net			36,553				15,804				17,986				34,768
(Losses) earnings from CDFS joint ventures and other unconsolidated investees, net			(6,878	)			1,773				(3,606	)			2,317
Interest expense			(84,136	)			(90,640	)			(169,260	)			(179,291	)
Interest and other income, net			9,644				9,735				15,260				20,909
Total other income (expense)			(44,817	)			(63,328	)			(139,620	)			(121,297	)
Earnings before minority interest			217,662				235,109				479,035				497,414
Minority interest share in loss (income), net			4,585				(723	)			3,479				(896	)
Earnings before certain net gains			222,247				234,386				482,514				496,518
Gains recognized on dispositions of certain non-CDFS business assets			4,662				124,085				4,662				124,085
Foreign currency exchange gains (losses), net			12,095				22,706				(24,606	)			9,154
Earnings before income taxes			239,004				381,177				462,570				629,757
Income taxes:
Current income tax expense			12,692				26,645				37,524				44,745
Deferred income tax expense (benefit)			6,236				(9,503	)			8,736				(6,182	)
Total income taxes			18,928				17,142				46,260				38,563
Earnings from continuing operations			220,076				364,035				416,310				591,194

(Continued)

PROLOGIS

CONSOLIDATED STATEMENTS OF
EARNINGS AND COMPREHENSIVE INCOME (CONTINUED)
(Unaudited)
(In thousands, except per share data)

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
Discontinued operations:
(Loss) income attributable to disposed properties and assets held for sale, net		$	(150	)		$	1,069			$	32			$	3,050
Gains recognized on dispositions:
Non-CDFS business assets			1,856				27,161				5,669				32,125
CDFS business assets			1,994				14,196				2,124				22,537
Total discontinued operations			3,700				42,426				7,825				57,712
Net earnings			223,776				406,461				424,135				648,906
Less preferred share dividends			6,384				6,357				12,738				12,711
Net earnings attributable to common shares			217,392				400,104				411,397				636,195
Other comprehensive income items:
Foreign currency translation gains, net			1,759				5,041				134,699				4,666
Unrealized gains (losses) on derivative contracts, net			6,715				2,188				(8,793	)			753
Comprehensive income		$	225,866			$	407,333			$	537,303			$	641,614
Weighted average common shares outstanding — Basic			262,715				257,086				260,827				255,677
Weighted average common shares outstanding — Diluted			272,317				267,880				270,370				266,723
Net earnings per share attributable to common shares —
Basic:
Continuing operations		$	0.82			$	1.39			$	1.55			$	2.26
Discontinued operations			0.01				0.17				0.03				0.23
Net earnings per share attributable to common shares —
Basic		$	0.83			$	1.56			$	1.58			$	2.49
Net earnings per share attributable to common shares —
Diluted:
Continuing operations		$	0.79			$	1.34			$	1.50			$	2.17
Discontinued operations			0.01				0.16				0.03				0.22
Net earnings per share attributable to common shares —
Diluted		$	0.80			$	1.50			$	1.53			$	2.39
Distributions per common share		$	0.5175			$	0.46			$	1.035			$	0.92

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

PROLOGIS

CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

		June 30,
		2008				December 31,
		(Unaudited)				2007
ASSETS
Real estate		$	17,105,980			$	16,578,845
Less accumulated depreciation			1,469,495				1,368,458
			15,636,485				15,210,387
Investments in and advances to unconsolidated investees			2,521,801				2,345,277
Cash and cash equivalents			523,846				399,910
Accounts and notes receivable			349,791				340,039
Other assets			1,434,482				1,408,814
Discontinued operations — assets held for sale			6,368				19,607
Total assets		$	20,472,773			$	19,724,034
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Debt		$	10,789,200			$	10,506,068
Accounts payable and accrued expenses			874,462				933,075
Other liabilities			763,014				769,408
Discontinued operations — assets held for sale			153				424
Total liabilities			12,426,829				12,208,975
Minority interest			115,582				78,661
Shareholders’ equity:
Series C Preferred Shares at stated liquidation preference of $50 per share; $0.01 par value; 2,000 shares issued and outstanding at June 30, 2008 and December 31, 2007			100,000				100,000
Series F Preferred Shares at stated liquidation preference of $25 per share; $0.01 par value; 5,000 shares issued and outstanding at June 30, 2008 and December 31, 2007			125,000				125,000
Series G Preferred Shares at stated liquidation preference of $25 per share; $0.01 par value; 5,000 shares issued and outstanding at June 30, 2008 and December 31, 2007			125,000				125,000
Common Shares; $0.01 par value; 262,473 shares issued and outstanding at June 30, 2008 and 257,712 shares issued and outstanding at December 31, 2007			2,625				2,577
Additional paid-in capital			6,646,669				6,412,473
Accumulated other comprehensive income			401,228				275,322
Retained earnings			529,840				396,026
Total shareholders’ equity			7,930,362				7,436,398
Total liabilities and shareholders’ equity		$	20,472,773			$	19,724,034

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

PROLOGIS

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

		Six months ended
		June 30,
		2008				2007
Operating activities:
Net earnings		$	424,135			$	648,906
Adjustments to reconcile net earnings to net cash provided by operating activities:
Minority interest share in (losses) earnings			(3,479	)			896
Straight-lined rents			(15,900	)			(23,484	)
Cost of share-based compensation awards			17,599				14,142
Depreciation and amortization			162,599				154,941
Equity in earnings from unconsolidated investees			(14,380	)			(37,085	)
Changes in operating receivables and distributions from unconsolidated investees			48,443				32,437
Amortization of deferred loan costs			5,952				5,291
Amortization of debt premium, net			(2,550	)			(5,687	)
Gains recognized on dispositions of non-CDFS business assets			(10,331	)			(156,210	)
Gains recognized on dispositions of CDFS business assets included in discontinued operations			(2,124	)			(22,537	)
Impairment charges			—				12,600
Unrealized foreign currency exchange losses (gains), net			20,801				(17,176	)
Deferred income tax expense (benefit)			8,736				(6,182	)
Increase in accounts and notes receivable and other assets			(40,696	)			(130,827	)
(Decrease) increase in accounts payable and accrued expenses and other liabilities			(81,145	)			119,989
Net cash provided by operating activities			517,660				590,014
Investing activities:
Real estate investments			(3,000,419	)			(2,274,901	)
Cash consideration paid in Parkridge acquisition, net of cash acquired			—				(707,374	)
Tenant improvements and lease commissions on previously leased space			(27,777	)			(30,827	)
Recurring capital expenditures			(13,335	)			(16,210	)
Proceeds from dispositions of real estate assets			2,496,653				1,964,286
Proceeds from repayment of notes receivable			1,290				40,322
Investments in and net advances to unconsolidated investees			(87,765	)			(62,205	)
Return of investment from unconsolidated investees			58,109				49,201
Net cash used in investing activities			(573,244	)			(1,037,708	)
Financing activities:
Proceeds from sales and issuances of common shares under various common share plans			215,105				17,380
Distributions paid on common shares			(277,583	)			(235,883	)
Minority interest contributions (distributions), net			27,502				(4,748	)
Dividends paid on preferred shares			(12,738	)			(12,711	)
Debt and equity issuance costs paid			(10,990	)			(8,187	)
Net proceeds (payments) from lines of credit and other credit facilities			52,607				(277,501	)
Proceeds from issuance of debt to finance Parkridge acquisition			—				600,110
Proceeds from issuance of convertible senior notes `			544,500				1,228,125
Proceeds from issuance of senior notes, secured and unsecured debt `			599,612				6,459
Payments on senior notes, secured debt, unsecured debt and assessment bonds			(959,185	)			(395,636	)
Net cash provided by financing activities			178,830				917,408
Effect of exchange rate changes on cash			690				(3,301	)
Net increase in cash and cash equivalents			123,936				466,413
Cash and cash equivalents, beginning of period			399,910				475,791
Cash and cash equivalents, end of period		$	523,846			$	942,204

See Note 13 for information on non-cash investing and financing activities and other information.

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

PROLOGIS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. General:

     Business. ProLogis, collectively with our consolidated subsidiaries (“we”, “our”, “us”, “the Company” or “ProLogis”), is a publicly held real estate investment trust (“REIT”) that owns, operates and develops (directly and through our unconsolidated investees) primarily industrial distribution properties in North America, Europe and Asia. Our business consists of three reportable business segments: (i) property operations; (ii) investment management; and (iii) CDFS business. Our property operations segment represents the direct long-term ownership of industrial distribution and retail properties. Our investment management segment represents the long-term investment management of property funds and the properties they own. Our CDFS business segment primarily encompasses our development or acquisition of real estate properties that are generally contributed to a property fund in which we have an ownership interest and act as manager, or sold to third parties. See Note 12 for further discussion of our business segments.

     Basis of Presentation. The accompanying consolidated financial statements, presented in the U.S. dollar, are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the financial statements and revenue and expenses during the reporting period. Our actual results could differ from those estimates and assumptions. 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 disclosures normally included in 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 our financial position as of June 30, 2008 and our results of operations for the three and six months ended June 30, 2008 and 2007 and cash flows for the six months ended June 30, 2008 and 2007 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 December 31, 2007 Consolidated Financial Statements, as filed with the SEC in our Annual Report on Form 10-K, as amended.

     Certain amounts included in the accompanying consolidated financial statements for 2007 have been reclassified to conform to the 2008 financial statement presentation.

     Adoption of New Accounting Pronouncements. In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosures about fair value measurements. SFAS 157 applies to other accounting pronouncements that require or permit fair value measurements but does not require any new fair value measurements. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No.157” (“FSP FAS 157-2”), that delays the effective date of SFAS 157’s fair value measurement requirements for nonfinancial assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis. The adoption of SFAS 157 on January 1, 2008 for financial assets and liabilities, primarily derivative contracts that we or our unconsolidated investees are party to, did not have a material impact on our financial position and results of operations. Fair value measurements identified in FSP FAS 157-2 will be effective for our fiscal year beginning January 1, 2009. We are currently assessing the impact, if any, that SFAS 157 will have on our financial position and results of operations, as it relates to nonfinancial assets and liabilities.

     Recent Accounting Pronouncements. In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”) and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS 160”). SFAS 141R and SFAS 160 require most identifiable assets, liabilities, noncontrolling interests and goodwill acquired in a business combination to be recorded at “full fair value” and require noncontrolling interests (previously referred to as minority interests) to be reported as a

PROLOGIS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

component of equity, which changes the accounting for transactions with noncontrolling interest holders. The provisions of SFAS 141R and SFAS 160 are effective for our fiscal year beginning January 1, 2009. SFAS 141R will be applied to business combinations occurring after the effective date and SFAS 160 will be applied prospectively to all changes in noncontrolling interests, including any that existed at the effective date. We are currently assessing what impact the adoption of SFAS 141R and SFAS 160 will have on our financial position and results of operations.

     In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 requires enhanced disclosures related to derivative instruments and hedging activities. SFAS 161 will require disclosures relating to: (i) how and why an entity uses derivative instruments; (ii) how derivative instruments and related hedge items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”; and (iii) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 must be applied prospectively and will be effective for our fiscal year beginning January 1, 2009, although early adoption is allowed. We do not expect the adoption of SFAS 161 in 2009 to have an impact on our financial position or results of operations.

     In May 2008, the FASB issued FASB Staff Position No. APB 14-1 “Accounting for Convertible Debt Instruments that May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)” that requires separate accounting for the debt and equity components of convertible debt. The value assigned to the debt component is the estimated fair value of a similar bond without the conversion feature, which would result in the debt being recorded at a discount. The resulting debt discount would be amortized over the period during which the debt is expected to be outstanding (for example, through the first optional redemption date) as additional non-cash interest expense. The effective date is January 1, 2009 with the application of the new accounting applied retrospectively to both new and existing convertible instruments, including the convertible notes we issued in 2007 and 2008. As a result of the new accounting, beginning in 2009, we will recognize an additional non-cash interest expense, for GAAP purposes, of between $64 million and $82 million per annum, prior to the capitalization of interest as a result of our development activities. In addition, we will be required to restate our 2007 and 2008 results to reflect the additional non-cash interest expense for the periods the convertible notes were outstanding in those years.

2. Mergers and Acquisitions:

     In February 2007, we purchased the industrial business and made a 25% investment in the retail business of Parkridge Holdings Limited (“Parkridge”), a European developer. The total purchase price was $1.3 billion, which was financed with $733.9 million in cash, $339.5 million of equity (4.8 million common shares valued for accounting purposes at $71.01 per share) and the remainder through the assumption of debt and other liabilities. The cash portion of the acquisition was funded with borrowings under our global senior credit facility (“Global Line”) and a new multi-currency senior unsecured facility.

3. Unconsolidated Investees:

Summary of Investments

     Our investments in and advances to unconsolidated investees, which are accounted for under the equity method, are summarized by type of investee as follows (in thousands):

		June 30,				December 31,
		2008				2007
Property funds		$	1,860,473			$	1,755,113
CDFS joint ventures and other unconsolidated investees			661,328				590,164
Totals		$	2,521,801			$	2,345,277

PROLOGIS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Property Funds

     We have recognized fees and incentives and our proportionate share of net earnings or losses, related to our investments in property funds, as follows (in thousands):

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
Earnings (losses) from unconsolidated property funds:
North America		$	10,859			$	5,689			$	(6,236	)		$	11,641
Europe			5,940				6,398				9,730				14,468
Asia			19,754				3,717				14,492				8,659
Total earnings from unconsolidated property funds		$	36,553			$	15,804			$	17,986			$	34,768
Property management and other fees and incentives:
North America		$	15,523			$	9,879			$	29,311			$	19,771
Europe			12,878				11,262				24,776				20,892
Asia			4,179				2,796				7,983				4,921
Total property management and other fees and incentives		$	32,580			$	23,937			$	62,070			$	45,584

     In our CDFS business segment, as further discussed in Note 12, we develop and acquire real estate properties with the intent to contribute the properties to various property funds in which we have an ownership interest and act as manager. Upon contribution of properties to a property fund, we realize a portion of the profits from our CDFS activities, while at the same time, we continue to maintain a long-term ownership interest in our CDFS properties. This business strategy also provides liquidity to fund our future development activities and enhances future fee income. We generally receive ownership interests in the property funds (based on our pre-contribution interest) as part of the proceeds generated by the contributions of properties. The property funds generally own operating properties that we have contributed to them, although certain of the property funds have also acquired properties from third parties. We recognize our proportionate share of the earnings or losses of each property fund, earn fees for acting as the manager, and earn additional fees by providing other services including, but not limited to, acquisition, development, construction management, leasing and financing activities. We may also earn incentive performance returns based on the investors’ returns over a specified period.

     Information about our investments in the property funds is as follows (dollars in thousands):

		Ownership Percentage								Investment in and Advances to
		June 30,				December 31,				June 30,				December 31,
Property Fund		2008				2007				2008				2007
ProLogis California			50.0	%			50.0	%		$	102,639			$	106,630
ProLogis North American Properties Fund I			41.3	%			41.3	%			26,746				27,135
ProLogis North American Properties Fund VI			20.0	%			20.0	%			36,324				37,218
ProLogis North American Properties Fund VII			20.0	%			20.0	%			31,218				31,321
ProLogis North American Properties Fund VIII			20.0	%			20.0	%			13,979				14,982
ProLogis North American Properties Fund IX			20.0	%			20.0	%			13,617				13,986
ProLogis North American Properties Fund X			20.0	%			20.0	%			15,692				15,721
ProLogis North American Properties Fund XI			20.0	%			20.0	%			28,704				30,712
ProLogis North American Industrial Fund (1)			23.2	%			23.2	%			126,717				104,277
ProLogis North American Industrial Fund II (2)			36.9	%			36.9	%			271,913				274,238
ProLogis North American Industrial Fund III (3)			20.0	%			20.0	%			127,296				123,720
ProLogis Mexico Industrial Fund (4)			20.0	%			20.0	%			98,804				38,085
ProLogis European Properties (“PEPR”)			24.9	%			24.9	%			486,435				494,593
ProLogis European Properties Fund II (“PEPF II”) (5)			24.5	%			24.3	%			186,082				158,483
ProLogis Japan Properties Fund I			20.0	%			20.0	%			91,799				87,663
ProLogis Japan Properties Fund II (6)			20.0	%			20.0	%			181,979				189,584
ProLogis Korea Fund (7)			20.0	%			20.0	%			20,529				6,765
Totals										$	1,860,473			$	1,755,113

PROLOGIS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

and other criteria. The North American Industrial Fund has equity commitments aggregating approximately $1.4 billion from third party investors that expire in February 2009 with $539.6 million remaining to be funded at June 30, 2008. In addition, we are committed to make additional capital contributions in cash of $18.9 million through February 2009 as the fund acquires assets, primarily from us. During the six months ended June 30, 2008, we contributed 25 CDFS properties for aggregate proceeds of $485.3 million to the North American Industrial Fund. In connection with a contribution in the first quarter, we advanced the property fund $7.5 million, all of which was repaid in the second quarter of 2008. For the six months ended June 30, 2008, this property fund had $102.8 million of revenues and $572,000 of both income from continuing operations and net income.

PROLOGIS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

     Summarized financial information of the property funds (for the entire entity, not our proportionate share) and our investment in such funds is presented below (dollars in millions):

		2008
		North
		America				Europe				Asia				Total
For the three months ended June 30, 2008:
Revenues		$	206.2			$	166.1			$	70.1			$	442.4
Net earnings (1)		$	17.8			$	21.1			$	92.6			$	131.5
For the six months ended June 30, 2008:
Revenues		$	406.2			$	308.6			$	135.2			$	850.0
Net (losses) earnings (1)		$	(41.5	)		$	27.2			$	59.9			$	45.6
As of June 30, 2008:
Total assets		$	9,696.7			$	8,786.2			$	4,700.7			$	23,183.6
Amounts due to us (from us)		$	49.6			$	7.8			$	119.2			$	176.6
Third party debt (2)		$	5,704.6			$	4,614.9			$	2,344.4			$	12,663.9
Total liabilities		$	5,964.4			$	5,426.8			$	3,084.6			$	14,475.8
Minority interest		$	15.2			$	13.6			$	—			$	28.8
Equity		$	3,717.1			$	3,345.8			$	1,616.1			$	8,679.0
Our weighted average ownership (3)			27.4	%			24.8	%			20.0	%			25.0	%
Our investment balance (4)		$	893.6			$	672.5			$	294.3			$	1,860.4
Deferred gains, net of amortization (5)		$	238.7			$	256.7			$	161.7			$	657.1
		2007
		North
		America				Europe				Asia				Total
For the three months ended June 30, 2007:
Revenues		$	141.3			$	129.8			$	39.2			$	310.3
Net earnings		$	15.7			$	23.1			$	14.4			$	53.2
For the six months ended June 30, 2007:
Revenues		$	279.4			$	240.2			$	73.3			$	592.9
Net earnings		$	33.5			$	53.8			$	36.1			$	123.4
As of December 31, 2007:
Total assets		$	9,034.7			$	6,526.4			$	3,810.5			$	19,371.6
Amounts due to us		$	24.8			$	70.0			$	109.1			$	203.9
Third party debt (2)		$	5,305.2			$	3,456.2			$	1,889.5			$	10,650.9
Total liabilities		$	5,678.5			$	4,057.7			$	2,550.7			$	12,286.9
Minority interest		$	17.4			$	10.8			$	—			$	28.2
Equity		$	3,338.8			$	2,457.8			$	1,259.9			$	7,056.5
Our weighted average ownership (3)			27.9	%			24.8	%			20.0	%			25.5	%
Our investment balance (4)		$	818.0			$	653.1			$	284.0			$	1,755.1
Deferred gains, net of amortization (5)		$	216.4			$	193.9			$	127.0			$	537.3

PROLOGIS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

the fair value of these contracts was recorded through earnings, along with the gain or loss on settlement of certain contracts. Included in net earnings (losses) from North America for the three and six months ended June 30, 2008 are net gains of $18.0 million and net losses of $40.2 million, respectively, which represent the losses recognized from the change in value and settlement of these contracts. We included our proportionate share of $6.6 million of net gains and $14.7 million of net losses in Earnings from Unconsolidated Property Funds for the three and six months ended June 30, 2008, respectively, in our Consolidated Statements of Earnings and Comprehensive Income.

The property funds in North America have the following interest rate swap contracts outstanding at June 30, 2008 (amounts are for the entire entity, not our proportionate share, and are in thousands):

		Our				Notional				Swap
Entity		Ownership				Amounts				Rate				Fair Value
ProLogis North American Industrial Fund II			36.9	%		$	320,600				5.73 — 5.83	%		$	(19,411	)
ProLogis North American Industrial Fund III			20.0	%		$	118,000				5.79	%		$	( 11,590	) (a)

We have recorded our proportionate share of the losses of the North America funds related to the instruments that qualify for hedge accounting, including the outstanding contracts in the above table, of $35.2 million in Accumulated Other Comprehensive Income in Shareholders’ Equity. Once these contracts are settled, the amount of the gain or loss upon settlement that is recorded by the property funds in other comprehensive income will be amortized over the life of the hedged debt issuance. As discussed above, for the contracts that did not qualify for hedge accounting, we recognized our share of the gains or losses in earnings.

In Japan, the property funds may enter into swap contracts that fix the interest rate of their variable rate debt. As these contracts did not qualify for hedge accounting, any change in value of these contracts is recognized as an unrealized gain or loss in earnings over the term of the contract. These contracts have no cash settlement at the end of the contract. Included in net earnings from Asia for the three and six months ended June 30, 2008 are net gains of $71.7 million and $20.1 million, respectively, which represent the change in value of these contracts. We included our proportionate share of these gains of $14.3 million and $4.0 million in Earnings from Unconsolidated Property Funds for the three and six months ended June 30, 2008, respectively, in our Consolidated Statements of Earnings and Comprehensive Income.

CDFS joint ventures and other unconsolidated investees

     At June 30, 2008, we had investments in entities that perform some of our CDFS business activities (the “CDFS joint ventures”) and certain other investments. The CDFS joint ventures include entities that develop and own distribution and retail properties and also include entities that perform land and mixed-use development activity. The other operating joint ventures primarily include entities that own a hotel property and office properties.

PROLOGIS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

     The amounts we have recognized as our proportionate share of the earnings (losses) from CDFS joint ventures and other unconsolidated investees are summarized as follows (in thousands):

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
North America		$	5,624			$	2,218			$	7,888			$	4,068
Europe			(374	)			503				(667	)			581
Asia			(12,128	)			(948	)			(10,827	)			(2,332	)
Total (losses) earnings from CDFS joint ventures and other unconsolidated investees		$	(6,878	)		$	1,773			$	(3,606	)		$	2,317

     Our investments in and advances to these entities are as follows (in thousands):

		June 30,				December 31,
		2008				2007
CDFS joint ventures:
North America		$	67,129			$	60,502
Europe			269,682				228,396
Asia			214,929				194,583
Total CDFS joint ventures			551,740				483,481
Other unconsolidated investees			109,588				106,683
Total		$	661,328			$	590,164

     In April 2008, we entered into an agreement with one of our CDFS joint ventures in which we own a 25% equity investment, to provide a portion of the financing for the expansion of their operations. The facility has a total commitment of €150.0 million ($232.2 million at June 30, 2008), bears interest from 8% — 12% depending on when the amounts are loaned in relation to the construction of the project for which the financing agreement was entered into. As of June 30, 2008, €19.4 million ($30.0 million at June 30, 2008) has been loaned to the joint venture under this agreement.

     In addition to the above loan, we entered into a separate loan agreement with this joint venture in 2007. As of June 30, 2008, there was an outstanding balance of £36.9 million ($72.6 million at June 30, 2008) loaned under this agreement. This loan bears interest at London Interbank Offered Rate (“LIBOR”) or Euro Interbank Offered Rate (“EURIBOR”) (depending on currency borrowed) plus a margin, matures February 2012 and provides for additional borrowing of either euro or pound sterling up to 25% of the approved budget for development projects inside the venture, representing our ownership interest, up to a maximum of £50 million.

4. Long-Term Compensation:

     We recognized share-based compensation expense of $9.8 million and $5.2 million for the three months ended June 30, 2008 and 2007, respectively, and $17.6 million and $14.1 million for the six months ended June 30, 2008 and 2007, respectively. This includes expense related to awards granted to our outside trustees, and is net of $2.7 million for both the three months ended June 30, 2008 and 2007 and $6.0 million and $5.2 million for the six months ended June 30, 2008 and 2007, respectively, that was capitalized due to our development and leasing activities. The share-based compensation expense recognized for the six months ended June 30, 2008 and 2007 also includes $4.0 million and $4.2 million, respectively, of expense related to accelerated vesting or a change in service period for share options and awards of employees who terminated employment with us in 2007 and our Chief Operating Officer’s planned retirement in January 2009.

     Our long-term incentive plans provide for grants of share options, stock appreciation rights, full value awards and cash incentive awards to employees and other persons, including outside trustees. The full value awards include restricted share units (“RSUs”) and contingent performance shares (“CPSs”).

PROLOGIS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Summary of Activity

     The activity for the six months ended June 30, 2008, with respect to our share options, is as follows:

		Options Outstanding
		Number of				Weighted Average
		Options				Exercise Price				Options Exercisable
Balance at December 31, 2007			7,998,410			$	36.63				5,504,282
Granted			3,976				57.21
Exercised			(1,007,185	)			23.90
Forfeited			(67,467	)			54.37
Balance at June 30, 2008			6,927,734			$	38.32				4,531,770

     The activity for the six months ended June 30, 2008, with respect to our full value awards, is as follows:

		Number of				Weighted Average				Number of
		Shares				Original Value				Shares Vested
Balance at December 31, 2007			2,554,786
Granted (1)			398,737
Exercised			(224,715	)
Forfeited			(42,216	)
Balance at June 30, 2008			2,686,592			$	48.15				690,958

5. Income Taxes:

     We and one of our consolidated subsidiaries have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, (the “Code”), and are not generally required to pay federal income taxes if we make distributions in excess of taxable income and meet the REIT requirements of the Code. We have elected taxable REIT subsidiary (“TRS”) status for some of our consolidated subsidiaries, which operate primarily in the CDFS business segment. Such elections allow us to provide services that would otherwise be considered impermissible for REITs. Many of the foreign countries where we have operations do not recognize REITs or do not accord REIT status under their respective tax laws to our entities that operate in their jurisdiction. In the United States, we are taxed in certain states in which we operate. Accordingly, we recognize income tax expense for the federal and state income taxes incurred by our TRSs, taxes incurred in certain states and foreign jurisdictions and interest and penalties, if any, associated with our unrecognized tax benefit liabilities.

     We have recorded liabilities for unrecognized tax benefits as of June 30, 2008 and December 31, 2007 of $201.6 million and $192.4 million, respectively. FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109” defines these liabilities as the difference between a tax position taken or expected to be taken in a tax return and the benefit measured and recognized in the financial statements. These liabilities consist of estimated federal, state and certain international jurisdictional income tax liabilities and interest and penalties, if any. Certain Catellus tax returns for the tax years 1999 through 2005 are under examination by the IRS and various state tax authorities. Included in the liabilities for unrecognized tax benefits is our best estimate of the liability we will incur related to these audits. We are currently involved in discussions with the IRS related to these audits, however, the timing and the amount of any settlement are uncertain at this time.

     Deferred income tax expense is generally a function of the period’s temporary differences, the utilization of tax net operating losses generated in prior years that had been previously recognized as deferred income tax assets and deferred income tax liabilities related to indemnification agreements for contributions to certain property funds.

PROLOGIS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

     For federal income tax purposes, certain acquisitions have been treated as tax-free transactions resulting in a carry-over basis for tax purposes. For financial reporting purposes and in accordance with purchase accounting, we record all of the acquired assets and liabilities at the estimated fair values at the date of acquisition. For our TRSs, we recognize the deferred income tax liabilities that represent the tax effect of the difference between the tax basis carried over and the fair value of the tangible assets at the date of acquisition. As taxable income is generated in these subsidiaries, we recognize a deferred income tax benefit in earnings as a result of the reversal of the deferred income tax liability previously recorded at the acquisition date and we record current income tax expense representing the entire current income tax liability. Any increases or decreases to the deferred income tax liability recorded in connection with these acquisitions, related to tax uncertainties acquired, will be reflected as an adjustment to goodwill.

Indemnification Agreements

     We have indemnification agreements related to most property funds operating outside of the United States for the contribution of certain properties. Under these agreements we indemnify the funds, or our fund partners, for taxes that may be assessed related to the capital gains associated with the step up in the value of the underlying real estate assets when we contribute to these funds.

     The ultimate outcome under these agreements is uncertain as it is dependent on the method and timing of dissolution of the related property fund or disposition of any properties by the property fund. Two of our previous agreements were terminated without any amounts being due or payable by us. We consider the probability, timing and amounts in estimating our potential liability under the agreements, which we have estimated as $35.6 million and $15.5 million at June 30, 2008 and December 31, 2007, respectively. We continue to monitor these agreements and the likelihood of the sale of assets that would result in recognition of a liability. We will adjust the potential liability in the future as facts and circumstances dictate.

6. Discontinued Operations:

     At June 30, 2008 and December 31, 2007, we had one property and two properties, respectively, that were classified as held for sale on our Consolidated Balance Sheets. The two properties that were classified as held for sale at December 31, 2007 were sold in the first quarter of 2008. The operations of the properties held for sale or disposed of to third parties during the six months ended June 30, 2008 and the full year of 2007, including land subject to ground leases, and the aggregate net gains recognized upon their disposition are presented as discontinued operations in our Consolidated Statements of Earnings and Comprehensive Income for all periods presented. Interest expense is included in discontinued operations only if it is directly attributable to these properties.

PROLOGIS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

     The (loss) income attributable to discontinued operations is summarized as follows (in thousands):

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
Rental income		$	121			$	3,911			$	887			$	9,666
Rental expenses			(116	)			(1,601	)			(494	)			(3,648	)
Depreciation and amortization			(155	)			(1,241	)			(361	)			(2,968	)
(Loss) income attributable to disposed properties and assets held for sale		$	(150	)		$	1,069			$	32			$	3,050

     The following information relates to properties and land parcels subject to ground leases disposed of to third parties, during the periods presented, and recorded as discontinued operations, including minor adjustments to previous dispositions (in thousands, except number of properties):

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
Non-CDFS business assets:
Number of properties			1				44				4				51
Net proceeds from dispositions		$	14,184			$	117,506			$	51,294			$	166,200
Net gains from dispositions		$	1,856			$	27,161			$	5,669			$	32,125
CDFS business assets:
Number of properties			1				4				1				4
Net proceeds from dispositions		$	15,206			$	105,810			$	15,206			$	173,298
Net gains from dispositions		$	1,994			$	14,196			$	2,124			$	22,537

7. Distributions and Dividends:

Common Share Distributions

     Cash distributions of $0.5175 per common share for each of the first and second quarters of 2008 were paid on February 29, 2008 and May 30, 2008, to holders of common shares of record on February 15, 2008 and May 15, 2008, respectively. Quarterly common share distributions paid in 2008 are based on the annual distribution level for 2008 of $2.07 per common share (as compared to $1.84 per common share in 2007) set by our Board of Trustees (“Board”) in December 2007. The payment of common share distributions is subject to the discretion of the Board and is dependent upon our financial condition and operating results, and may be adjusted at the discretion of the Board during the year.

Preferred Share Dividends

     The annual dividends on our cumulative redeemable preferred shares are $4.27 per share (Series C) and $1.6875 per share (Series F and Series G). For each of the first and second quarters of 2008, we paid quarterly dividends of $1.0675 per share (Series C) and $0.4219 per share (Series F and Series G). Such dividends are payable quarterly in arrears on the last day of March, June, September and December. Dividends on preferred shares are payable when, and if, they have been declared by the Board, out of funds legally available for the payment of dividends.

8. Earnings Per Common Share:

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

PROLOGIS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

     The following table sets forth the computation of our basic and diluted earnings per share (in thousands, except per share amounts):

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
Net earnings attributable to common shares		$	217,392			$	400,104			$	411,397			$	636,195
Minority interest (1)			1,087				1,474				2,238				2,462
Adjusted net earnings attributable to common shares		$	218,479			$	401,578			$	413,635			$	638,657
Weighted average common shares outstanding — Basic			262,715				257,086				260,827				255,677
Incremental weighted average effect of conversion of limited partnership units			5,053				5,108				5,053				5,124
Incremental weighted average effect of share options and awards (2)			4,549				5,686				4,490				5,922
Weighted average common shares outstanding — Diluted			272,317				267,880				270,370				266,723
Net earnings per share attributable to common shares — Basic		$	0.83			$	1.56			$	1.58			$	2.49
Net earnings per share attributable to common shares — Diluted		$	0.80			$	1.50			$	1.53			$	2.39

9. Real Estate:

     Real estate assets, including CDFS properties pending contribution or disposition, are presented at cost, and consist of the following (in thousands):

		June 30,				December 31,
		2008				2007
Distribution operating properties (1):
Improved land		$	2,292,760			$	2,200,761
Buildings and improvements			8,694,143				8,799,318
Retail operating properties (2):
Improved land			77,019				77,536
Buildings and improvements			254,478				250,884
Land subject to ground leases and other			453,834				458,782
Properties under development, including cost of land (3)			2,122,533				1,986,285
Land held for development (4)			2,477,318				2,152,960
Other investments (5)			733,895				652,319
Total real estate assets			17,105,980				16,578,845
Less accumulated depreciation			1,469,495				1,368,458
Net real estate assets		$	15,636,485			$	15,210,387

PROLOGIS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

     We own real estate assets in North America (Canada, Mexico and the United States), Europe (Austria, Belgium, the Czech Republic, France, Germany, Hungary, Italy, the Netherlands, Poland, Romania, Slovakia, Spain, Sweden and the United Kingdom) and Asia (China, Japan and South Korea).

     During the six months ended June 30, 2008, we acquired 20 distribution properties aggregating 4.9 million square feet with a combined purchase price of $202.5 million.

     Our largest customer and 25 largest customers accounted for 2.26% and 18.77%, respectively, of our annualized collected base rents at June 30, 2008.

10. Debt:

     Our debt consisted of the following (dollars in thousands):

		June 30, 2008								December 31, 2007
		Weighted								Weighted
		Average				Amount				Average				Amount
		Interest Rate				Outstanding				Interest Rate				Outstanding
Unsecured lines of credit			2.99	%		$	2,162,153				3.20	%		$	1,955,138
Senior notes and other unsecured debt			5.54	%			4,795,286				5.43	%			4,891,106
Convertible notes			2.18	%			2,881,710				2.07	%			2,332,905
Secured debt			6.76	%			919,187				6.55	%			1,294,809
Assessment bonds			3.45	%			30,864				3.63	%			32,110
Totals			4.22	%		$	10,789,200				4.40	%		$	10,506,068

     Our credit facilities provide aggregate borrowing capacity of $4.5 billion at June 30, 2008. This includes our Global Line, where a syndicate of banks allows us to draw funds in U.S. dollar, euro, Japanese yen, British pound sterling, Chinese renminbi, South Korean won and Canadian dollar. This also includes a multi-currency senior credit facility (“Credit Facility”) that allows us to borrow in U.S. dollar, euro, Japanese yen, and British pound sterling. The total commitments under the Global Line and Credit Facility fluctuate in U.S. dollars based on the underlying currencies. Based on our public debt ratings, interest on the borrowings under the Global Line and Credit Facility primarily accrues at a variable rate based upon the interbank offered rate in each respective jurisdiction in which the borrowings are outstanding. The majority of the Global Line and Credit Facility matures in October 2009; however, the Global Line contains provisions for an extension, at our option subject to certain conditions, to October 2010. The renminbi tranche accrues interest based upon the People’s Bank of China rate and matures in May 2009. The Credit Facility provides us the ability to re-borrow, within a specified period of time, any amounts repaid on the facility. As of June 30, 2008, under these facilities, we had outstanding borrowings of $2.6 billion and $178.4 million of letters of credit outstanding with participating lenders resulting in remaining borrowing capacity of approximately $1.7 billion.

PROLOGIS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

     In May 2008, we closed on $600.0 million of senior notes maturing 2018 with a coupon rate of 6.625% and $550.0 million of 2.625% convertible senior notes due 2038. The proceeds were used to repay $346.6 million of secured debt that was scheduled to mature in November 2008, borrowings on our credit facilities and for general corporate purposes. The convertible notes are convertible at the holder’s option after February 15, 2013 and redeemable at our option after May 20, 2013, and in limited circumstances before then.

11. Shareholders’ Equity:

     During the six months ended June 30, 2008, we sold and/or issued common shares under various common share plans, including share-based compensation plans, as follows (in thousands):

		Shares				Proceeds
1999 dividend reinvestment and share purchase plan			38			$	2,183
Long-term incentive plans			1,357			$	16,532
Controlled equity offering plan			3,366			$	196,381

12. Business Segments:

     We have three reportable business segments:

	•		Property operations — representing the direct long-term ownership of industrial distribution and retail properties. Each operating property is considered to be an individual operating segment having similar economic characteristics that are combined within the reportable segment based upon geographic location. Included in this segment are properties we developed and properties we acquired and rehabilitated or repositioned within the CDFS business segment with the intention of contributing the property to a property fund or selling to a third party. The costs of our property management function for both our direct-owned portfolio and the properties owned by the property funds and managed by us are all reported in rental expenses in the property operations segment. Our operations in the property operations business segment are in North America (Canada, Mexico and the United States), Europe (the Czech Republic, France, Germany, Hungary, Italy, Poland, Romania, Slovakia and the United Kingdom) and Asia (China, Japan and South Korea).
	•		Investment management — representing the long-term investment management of property funds and the properties they own. We recognize our proportionate share of the earnings or losses from our investments in unconsolidated property funds. Along with the income recognized under the equity method, we include fees earned for services performed on behalf of the property funds, interest earned on advances to the property funds and incentives earned based on investors’ returns. We utilize our leasing and property management expertise to manage the properties and the funds, and we report the costs as part of rental expenses in the property operations segment. Each investment in a property fund is considered to be an individual operating segment having similar economic characteristics that are combined within the reportable segment based upon geographic location. Our operations in the investment management segment are in North America (Canada, Mexico and the United States), Europe (Belgium, the Czech Republic, France, Germany, Hungary, Italy, the Netherlands, Poland, Slovakia, Spain, Sweden and the United Kingdom) and Asia (Japan and South Korea).
	•		CDFS business — primarily encompasses our development of real estate properties that are subsequently contributed to a property fund in which we have an ownership interest and act as manager, or sold to third parties. Additionally, we acquire properties with the intent to rehabilitate and/or reposition the property in the CDFS business segment prior to contributing to a property fund. The proceeds and related costs of these dispositions are presented as Developed and Repositioned Properties in the Consolidated Statements of Earnings and Comprehensive Income. In addition, we occasionally acquire a portfolio of properties with the intent of contributing the portfolio to an existing or future property fund. The proceeds and related costs of these dispositions are presented as Acquired Property Portfolios in the Consolidated Statements of Earnings and Comprehensive Income. We also have investments in several unconsolidated entities that perform development activities and we include our proportionate share of their earnings or losses in this segment. Additionally, we include fees earned for development activities performed on behalf of customers

PROLOGIS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

or third parties, interest income earned on notes receivable related to asset sales to third parties or development activities and gains on the disposition of land parcels, including land subject to ground leases. The separate activities in this segment are considered to be individual operating segments having similar economic characteristics that are combined within the reportable segment based upon geographic location. Our CDFS business segment operations are in North America (Canada, Mexico and the United States), in Europe (Austria, Belgium, the Czech Republic, France, Germany, Hungary, Italy, the Netherlands, Poland, Romania, Slovakia, Spain, Sweden and the United Kingdom) and in Asia (China, Japan and South Korea).

     We have other operating segments that do not meet the threshold criteria to disclose as a reportable segment, primarily the management of land subject to ground leases in the United States. Each ground lease is considered to be an individual operating segment.

     The assets of the CDFS business segment generally include our properties under development, land held for development and investments in and advances to CDFS joint ventures. During the period between the completion of development, rehabilitation or repositioning of a property and the date the property is contributed to a property fund or sold to a third party, the property and its associated rental income and rental expenses are included in the property operations segment because the primary activity associated with the property during that period is leasing. Upon contribution or sale, the resulting gain is included in the income of the CDFS business segment. The assets of the investment management segment include our investments in and advances to the unconsolidated property funds.

     We generally present the operations and net gains associated with properties sold to third parties as discontinued operations. Accordingly, these amounts are excluded from the segment presentation. See Note 6 for detail of our discontinued operations.

     Reconciliations are presented below for: (i) each reportable business segment’s revenue from external customers to our total revenues; (ii) each reportable business segment’s net operating income (loss) from external customers to our earnings before minority interest; and (iii) each reportable business segment’s assets to our 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 our revenues, earnings before minority interest 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 reflected as reconciling items. The following reconciliations are presented in thousands:

PROLOGIS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
Revenues:
Property operations (1):
North America		$	207,943			$	218,865			$	418,130			$	427,051
Europe			25,320				29,230				56,781				52,939
Asia			15,747				12,054				31,732				27,539
Total property operations segment			249,010				260,149				506,643				507,529
Investment management (2):
North America			26,382				15,568				23,075				31,412
Europe			18,818				17,660				34,506				35,360
Asia			23,933				6,513				22,475				13,580
Total investment management segment			69,133				39,741				80,056				80,352
CDFS business (3):
North America			359,997				313,748				596,688				440,453
Europe			581,573				7,576				1,393,246				281,023
Asia			269,984				373,096				576,449				653,197
Total CDFS business segment			1,211,554				694,420				2,566,383				1,374,673
Total segment revenues			1,529,697				994,310				3,153,082				1,962,554
Other — North America			13,370				10,691				24,447				19,857
Reconciling item (4)			(28,235	)			(17,333	)			(10,595	)			(39,173	)
Total revenues		$	1,514,832			$	987,668			$	3,166,934			$	1,943,238

		Three months ended								Six months ended
		June 30,								June 30,
		2008				2007				2008				2007
Net operating income:
Property operations (5):
North America		$	144,242			$	146,048			$	285,251			$	300,045
Europe			12,214				20,552				28,330				37,017
Asia			10,833				9,454				22,664				22,480
Total property operations segment			167,289				176,054				336,245				359,542
Investment management (2):
North America			26,382				15,568				23,075				31,412
Europe			18,818				17,660				34,506				35,360
Asia			23,933				6,513				22,475				13,580
Total investment management segment			69,133				39,741				80,056				80,352
CDFS business (6):
North America			57,490				101,969				92,506				138,042
Europe			73,327				2,155				205,598				78,770
Asia			58,765				111,258				175,314				237,082
Total CDFS business segment			189,582				215,382				473,418				453,894
Total segment net operating income			426,004				431,177				889,719				893,788
Other — North America			8,905				7,135				17,686				13,064
Reconciling items:
Earnings from other unconsolidated investees			3,301				3,135				6,064				4,069
General and administrative expenses			(59,215	)			(48,423	)			(115,687	)			(96,765	)
Depreciation and amortization expense			(84,866	)			(74,004	)			(162,238	)			(151,973	)
Other expenses			(114	)			(114	)			(230	)			(230	)
Interest expense			(84,136	)			(90,640	)			(169,260	)			(179,291	)
Interest and other income, net			7,783				6,843				12,981				14,752
Total reconciling items			(217,247	)			(203,203	)			(428,370	)			(409,438	)
Total earnings before minority interest		$	217,662			$	235,109			$	479,035			$	497,414