Prologis(PLD)2024-10-16 19:41Financial Data and Key Metrics Changes - Core FFO, excluding net promote expense, was 0.03 from Prologis Ventures' exit [8][19] - Period-ending occupancy was 96.2%, nearly 300 basis points above the market, with net effective rent change at 68% and cash rent change at 44% [8][9] - The overall portfolio lease mark-to-market finished at 34%, representing 90 million of NOI was captured by rolling leases up to market [8] - Development projects started in the quarter exceeded 1.4 billion deployed in third-party acquisitions [10] Market Data and Key Metrics Changes - Global market rents decreased approximately 3% this quarter, with Southern California experiencing the longest recovery time [12][13] - Net absorption in the U.S. portfolio was 40 million square feet, with completions at 63 million square feet, leading to a market vacancy of 6.8% [63] - The under-construction pipeline is at its lowest point since 2017, indicating a potential for demand improvement as supply decreases [64] Company Strategy and Development Direction - The company is focused on operational excellence, customer centricity, and value creation to drive performance across market cycles [20] - Prologis Ventures had a successful exit, realizing a 9-times multiple on investment, indicating a strong strategic capital position [11] - The company is tightening its forecast for average occupancy and cash same store growth, reflecting a cautious approach amid market conditions [17][18] Management Comments on Operating Environment and Future Outlook - Management noted that conditions remain soft in many markets despite healthy GDP and consumption growth, attributing this to excess capacity built during COVID [12] - The company expects market rents to bottom out mid-next year, with a long-term growth trajectory remaining favorable due to replacement cost rents being approximately 15% above current market levels [15] - Management expressed confidence in the long-term outlook, despite near-term softness in demand and occupancy [20] Other Important Information - The company raised 40 billion, including projects in India [10] - The company is on track to achieve over 600 megawatts of energy generation capacity by the end of the year, with a goal of 1 gigawatt by the end of 2025 [10] Q&A Session Summary Question: How to reconcile mixed signals in industrial markets with strong leasing activity? - Management indicated that the raised acquisition guidance reflects confidence in the long-term outlook, despite current utilization keeping demand subdued [25][26] Question: Updated view on market rent growth and development starts? - Management expects softness in rents to continue but highlighted that 90% of leases roll after the next 12 months, which will mitigate short-term fluctuations [30][31] Question: Clarification on core FFO beat and full-year guidance? - Management clarified that the perceived beat was anticipated and that FX gains were not a variance item in FFO due to hedging [36][37] Question: Trends in occupancy by unit size and Southern California demand? - Management noted that demand remains soft in LA, with Class A outperforming Class B, while the Inland Empire shows better demand due to port growth [40][43] Question: How quickly can demand recover as uncertainty ebbs? - Management suggested that as spare capacity is utilized, demand will gradually increase, supported by economic growth and trade [47] Question: Update on digital and energy infrastructure initiatives? - The company reported significant progress in solar energy projects and data center developments, with a strong pipeline in both areas [58][60] Question: Net absorption and supply completions in the U.S. portfolio? - Management confirmed net absorption of 40 million square feet and completions of 63 million square feet, with rising market vacancies [63] Question: When does availability peak in the portfolio? - Management anticipates vacancies will peak in late 2024, with recovery expected to emerge later next year [68] Question: Any specific pockets driving higher development stabilization guidance? - Management indicated that development opportunities are spread globally, with no specific trends pointing to higher stabilization in any region [86]