ProLogis' (PLD) funds from operations during the second quarter dropped sharply amid continued weakness in industrial real estate.

FFO, a key profitability metric for real-estate investment trusts, excluding items, slumped to 19 cents a share from $1.02. Meanwhile, the world's largest warehouse manager and developer said quarterly earnings rose 16% as it posted gains from property sales.

Chief Executive Walter C. Rakowich said Thursday the industry is facing declining rents and the company expects the challenging leasing environment to persist. While there has been an increase in leasing concessions, the drop in occupancies seems to be leveling off, he added.

The company affirmed its FFO estimate, while cutting its full-year earnings target for a third-time to $1.10 to $1.20 a share from $1.31 to $1.48. This was based on second-quarter write-downs and charges.

ProLogis reported a profit of $238.9 million, or 58 cents share, up from $206.3 million, or 76 cents a share, a year earlier. Property-sales gains were 46 cents compared to 2 cents a year earlier.

Revenue tumbled 82% to $263.4 million amid a reclassification of how the company records revenue. Rental income for ProLogis - which has facilities in North America, Europe and Asia - fell 3.5% to $229.8 million.

Analysts polled by Thomson Reuters most recently called for FFO of 23 cents and revenue of $223 million.

Amid the results, ProLogis' share price rose 8.7% to $8.30 in concert with a broad market rally.

Dave Rodgers, an analyst at RBC Capital Markets, said the results were largely in line with expectations, helping to fuel the stock gain. ProLogis' stock has lost 86% of its value in the past year, though it has more than tripled from an all-time low of $2.20 in November.

Rodgers said ProLogis' continued progress on its liquidity and leverage position "is keeping investors happy."

REITs have faced upheaval amid slowing retail sales and a poor outlook for demand for warehouse and factory space. Debt-laden ProLogis saw its status as a Wall Street darling slip last year when risky expansion efforts of the past few years left it exposed to the global downturn and credit crunch. But ProLogis, like many other companies, got some relief in recent stock and bond offerings as investors returned to the market.

ProLogis said it plans to continue actions to improve its liquidity and further leasing of its development portfolio and land monetization.

Rakowich said in an interview that the company has executed about roughly $1 billion in asset sales from the $1.5 billion to $1.7 billion target range outlined for the year. He said a significant amount of asset sales going forward will be in Europe and Mexico.

-By A.D. Pruitt, Dow Jones Newswires; 212-416-2197; angela.pruitt@dowjones.com

(Tess Stynes contributed to this story)