Prologis, Inc. Q3 FY2024 earnings call

• Acknowledged concern for those affected by recent hurricanes, with teams safe and limited property damage. - Operating and financial results met expectations despite occupancy and rent softness, with strong net effective rent change due to lease mark-to-market. - Raised $4.6 billion in new debt, had over $0.5 billion in development projects started, and a land bank over $40 billion. - Prologis Ventures had a successful exit with a 9-times multiple on investment and 65% IRR. - FIBRA Prologis closed a tender for Terrafina shares, owning nearly 80%. - Market conditions soft, but long-term growth trajectory favorable with replacement cost rents 15% above market. - Annual GROUNDBREAKERS forum held in London, featuring innovative companies and thought leadership.

Core FFO, excluding net promote expense, was $1.45 per share. Period-ending occupancy was 96.2%, nearly 300 basis points above the market. Net effective rent change was 68% and cash rent change was 44%. The portfolio produced net effective and cash same store growth of 6.2% and 7.2%, respectively. Revenues were impacted by approximately 35 basis points of bad debt. Core FFO, excluding net promote expense, was slightly ahead of forecast, and the quarter included approximately $0.03 of income from the Prologis Ventures' exit.

• Tightened average occupancy forecast to 96%-96.5%, cash same store growth to 6.5%-7%, net effective same store growth to 5.5%-6%. - Tightened G&A guidance to $415M-$425M, strategic capital revenue to $525M-$535M. - Reduced development starts guidance to $1.75B-$2.25B, increased acquisition guidance to $1.75B-$2.25B, contribution and disposition activity to $3B-$4B. - GAAP earnings range $3.35-$3.45 per share, core FFO including net promote expense $5.42-$5.46 per share, excluding $5.49-$5.53 per share.

• Soft market conditions with vacancies at peak, impacting rents. - Uncertainty around macro factors like consumer spending, interest rates, and elections. - Impact of spare capacity in the supply chain on utilization and demand.

Q: Tom Catherwood asked about reconciling mixed signals in industrial markets with raised acquisition guidance and catalyst for customers to be more active.

A: Tim Arndt responded about confidence in the long term, looking for premium deals, and utilization will drive demand.

Q: Vikram Malhotra inquired about squaring bottoming process with market rent growth and reduced development starts.

A: Dan Letter explained near-term rent softness with long-term replacement cost rents as driver, and development starts deferred but still ongoing in some markets.

Q: John Kim asked about $0.06 beat on core FFO and why full-year guidance was only raised by $0.01.

A: Tim Arndt stated events were contemplated in guidance, with FX gains and tax items previously factored in.

Q: Steve Sakwa asked about Southern California demand and size of spaces.

A: Chris Caton and Dan Letter discussed Southern California's long-term outlook and smaller spaces underperforming occupancy-wise.

Q: Michael Goldsmith questioned how quickly demand would pick up with reduced uncertainty.

A: Chris Caton said demand would recover as spare capacity is used up, with customers engaged but taking time.

Q: Craig Mailman asked about capital deployment and land bank.

A: Tim Arndt and Dan Letter discussed funding from balance sheet and strategic capital, and ample land opportunities globally.

Q: Caitlin Burrows asked about digital and energy infrastructure updates.

A: Tim Arndt and Dan Letter talked about energy starts accelerating globally and data center pipeline with 1.6 gigawatts secured.

Q: Vince Tibone asked about U.S. portfolio net absorption and supply completions.

A: Chris Caton provided net absorption and completions numbers, noting bottoming phase with declining supply.

Q: Ronald Kamdem asked about portfolio availability peak and same store cash NOI guidance.

A: Chris Caton and Tim Arndt discussed availability peaking later in 2024 and no one-time items in same store cash NOI.

Q: Blaine Heck asked about Asian e-commerce and 3PL tenant deals.

A: Chris Caton said they are leasing with these tenants, growth due to China Plus One and diversifying, not pull-forward of demand.

Q: Nick Thillman asked about short-term lease commencements.

A: Tim Arndt mentioned strategic reasons and uncertain macro as factors.

Q: Josh Dennerlein asked about occupancy trends in Asia and LatAm.

A: Dan Letter attributed to China impact in those regions.

Q: Nicholas Yulico asked about reconciling market rent decline forecast.

A: Chris Caton and Tim Arndt explained different time periods and continued rent softness.

Q: Brendan Lynch asked about reconciling Investor Day guidance with current outlook.

A: Tim Arndt talked about lease mark-to-market sustaining earnings and long-term growth from various adders.

Q: Steve Sakwa clarified Asian 3PL demand impact.

A: Chris Caton said it's broadly across the marketplace.