The paragraph is an introduction to the Prologis Q3 2024 Earnings Conference Call. The operator announces that participants are in a listen-only mode, with a Q&A session to follow. Justin Meng, the SVP and Head of Investor Relations, begins by mentioning the availability of a supplemental document on their website and states that the call will include forward-looking statements. These statements are based on current expectations and are not guarantees of performance. Tim Arndt, the CFO, is set to discuss financial results, market conditions, and guidance. Other executives present include the CEO, President, and Managing Director. Tim Arndt also expresses concern for those affected by recent hurricanes in the U.S. and Europe.

The paragraph reports on the company's positive performance during the third quarter despite challenges from strong storms, with minimal property damage and proactive customer support. While there was a slight decline in occupancy and rent due to subdued demand, the company still achieved significant net effective rent changes thanks to strong lease mark-to-market potential in its portfolio. Core FFO was $1.45 per share, slightly above forecasts, and a $0.03 income boost came from Prologis Ventures' exit. The period-ending occupancy was 96.2%, well above market averages, with net effective rent change at 68% and cash rent change at 44%. The company captured over $90 million in NOI by adjusting leases to market rates, reporting net effective and cash same store growth of 6.2% and 7.2%, respectively. The increase in bad debt impacted revenues, but there is optimism due to rental upside in reclaimed spaces. The lease mark-to-market ended at 34%, equating to $1.6 billion in potential NOI. The company raised $4.6 billion in new debt with a 4.6% average rate and nine-year maturity, reflecting an active quarter for deployment.

The article discusses several strategic initiatives and achievements, including over $0.5 billion in development projects and the expansion of a land bank for potential development opportunities exceeding $40 billion, including projects in India. They deployed $1.4 billion in acquisitions, acquiring over 14 million square feet of assets at a discount. They initiated 54 megawatts of new energy systems and expect to exceed 600 megawatts capacity by year-end, aiming for 1 gigawatt by 2025. Prologis Ventures had a successful investment exit in Japan, yielding a significant return. FIBRA Prologis increased its stake in Terrafina to nearly 80% in Mexico, strengthening its market position. Despite economic growth, operating conditions remain soft due to excess supply chain availability from COVID-19.

The paragraph discusses the challenges faced by the real estate market as excess capacity decreases and utilization levels force decisions on expansion, which varies by market. While some customers are reducing capacity through growth and others through consolidation, net absorption remains below pre-COVID levels, affecting rent prices. Globally, market rents have decreased by 3% this quarter, with Southern California seeing the most significant declines. Despite this, Southern California's portfolio achieved an 84% rent change on commencements due to lease mark-to-market advantages. New supply barriers and carbon emission legislation strengthen the investment case for SoCal. Although the rent landscape is mixed, with some markets flat or positive, such as Houston and LatAm, demand is expected to remain soft in the near term. Market vacancy is nearing its peak, with global rents likely to bottom by mid-next year, impacting near-term growth.

The company remains optimistic about its business outlook due to low vacancies, reduced starts, and decreased supply deliveries. Despite changes in market conditions, such as a 15% increase in replacement cost rents and reduced land values, long-term growth looks promising. In capital markets, pricing and activity have improved, with U.S., European, and Mexican values all rising. The company’s strategic capital business had a highly productive quarter, raising $460 million. Private market sentiment appears stronger than public markets, with increased transaction volumes and slightly compressed unlevered IRRs. The company has tightened its guidance for average occupancy, cash same store growth, and net effective same store growth due to anticipated higher bankruptcies. Additionally, it has adjusted its G&A guidance and strategic capital revenue outlook, while reducing its development starts guidance due to slow decision-making and disciplined deferral of new speculative developments.

The company is in a strong position with $8 billion in development opportunities and sees promising acquisition prospects. It has increased its acquisition guidance to $1.75 billion to $2.25 billion and raised its contribution and disposition activity forecast to $3 billion to $4 billion due to an improving transaction market. The positive spread between buying and selling IRRs is about 100 basis points, prompting an increase in GAAP earnings guidance to $3.35 to $3.45 per share. Core FFO, excluding net promote expense, has increased slightly, reflecting solid quarterly performance with high occupancy and rent growth in a challenging market. The company remains focused on logistics real estate demand and operational excellence, recently holding its annual GROUNDBREAKERS forum in London.

The paragraph discusses a conference called GROUNDBREAKERS, which featured prominent figures like Fred Smith of FedEx and Sir Tony Blair. The event focused on enhancing customer relationships and reinforcing thought leadership in the supply chain, clean energy, and digital infrastructure sectors. A replay is available on the website. During a follow-up call, Tom Catherwood from BTIG asks about mixed signals in industrial markets, noting increased vacancies and hesitancy among customers, despite strong leasing in Q3 and raised acquisition guidance. Tim Arndt responds by expressing confidence in long-term opportunities and a commitment to expanding and deepening market presence through acquisitions.

The paragraph discusses a company's approach to acquisitions, emphasizing their preference for unique and upmarket deals that offer a premium compared to current Internal Rate of Returns (IRRs). The speaker highlights that demand is currently limited by utilization rates but anticipates this will improve as customers exhaust available resources, leading to growth in occupancy. In response to Vikram Malhotra's questions, Dan Letter addresses the state of the market, noting that they are near an inflection point with ongoing uncertainty in rent growth forecasts, which remain stable compared to 90 days ago. Despite this, customer engagement is high, though decision-making is slow, and the current softness in rents is expected to persist.

The paragraph discusses the company's long-term strategy, emphasizing that short-term rental fluctuations have minimal impact on their earnings and business value due to their high percentage of leases rolling over in the next year. It highlights that rent growth will be driven by the gap between current market rents and higher replacement cost rents. The company expects peak vacancy to persist until late next year, with recovery accelerating thereafter. They are deferring development starts due to this uncertainty but remain disciplined. Despite this, they began construction on two buildings in Atlanta, where they see opportunity due to low competition and low vacancy in specific locations.

The paragraph discusses Prologis' development and financial activities. They have a large development pipeline worth $5.5 billion, involving 33 million square feet, and a land bank valued at $40 billion, with a significant portion ready for development. Despite the progress, they anticipate seeing more acceleration in the coming quarters. A Q&A session follows, where John Kim from BMO Capital Markets asks about a $0.06 beat on core FFO for the quarter, noting contributions from Prologis Ventures exit and currency gains. Tim Arndt responds that these were anticipated events, not a beat, and suggests further discussion offline due to complexities in FX gains.

The paragraph discusses a financial statement analysis, highlighting the importance of understanding realized earnings and stating that FX (foreign exchange) variance won't impact their FFO (Funds from Operations) as they hedge their earnings. It mentions a decrease in tax-related investment credits next quarter. The conversation shifts to real estate occupancy, noting a drop in smaller spaces, and an increase in lease percentages in Southern California, which has a strong market outlook due to its large economy and growing population and employment. Chris Caton emphasizes the region's economic strength and growth prospects.

The paragraph discusses the economic outlook for Southern California, emphasizing its role as a growing gateway for international goods. Since 2019, container imports at the LA and Long Beach ports have increased by 12%, and Asian imports to the U.S. have risen by 21% on an inflation-adjusted basis. Despite a slight decline in imports from China, there is significant growth in imports from other Asian countries, up 40%, showcasing the China Plus One strategy. However, Southern California faces barriers to supply due to scarce land, strict municipal requirements, and new state restrictions under State Bill AB 98, limiting future development. In the short-term, demand in LA remains soft with a preference for Class A properties over Class B. The Inland Empire is benefiting from port growth, while Orange County has low market vacancy and a better recovery outlook. The paragraph concludes by mentioning emerging trends and challenges discussed by Steve and Tim, before transitioning the topic to Dan for further details.

The paragraph discusses how smaller-sized spaces in China have underperformed in occupancy compared to other segments, with minor declines observed in most categories. Michael Goldsmith from UBS inquires about the impact of macroeconomic and political uncertainties on customer demand and how quickly it might recover once these uncertainties diminish. Chris Caton responds by emphasizing the importance of a cautious outlook. He notes that while customer engagement is ongoing, decision-making is slow. However, he points out that supply chain utilization has improved from below 84% to mid-84%s, indicating a potential positive catalyst for future demand.

The paragraph features a Q&A session from a conference call involving individuals named Craig Mailman from Citi and Tim Arndt, discussing capital deployment related to development and acquisition strategies. Craig Mailman asks about the status of land ready for development based on current rents, and seeks insight into the global focus for acquisitions, including how they will be funded. Tim Arndt responds by emphasizing the company's strong balance sheet, noting their substantial debt proceeds raised in recent years, despite slower-than-expected capital recycling, and defers to another colleague, Dan, for more details on capital deployment.

The paragraph discusses the company's strong financial health, emphasizing consistent and robust credit ratios supported by EBITDA and earnings growth. They anticipate continued success in strategic capital fundraising, indicating a return to normal capital recycling levels. Dan Letter notes that the company has substantial land ownership in over 50 global markets, creating significant opportunities as they manage their land bank and undergo the entitlement process. They adopt a strategic, market-value-based approach to deals without regional preference, focusing on high-quality transactions.

In the earnings call, Caitlin Burrows from Goldman Sachs asks about Prologis's progress in their digital and energy infrastructure initiatives. Tim Arndt discusses the company's solar energy efforts, noting over 50 megawatts of new energy starts in the quarter and expansion of their solar program globally, aiming for a 1-gigawatt goal by 2025. Dan Letter provides an update on data centers, mentioning that 2024 developments have exceeded expectations. Prologis has secured 1.6 gigawatts of power, with 490 megawatts under construction and substantial progress on an additional 1.4 gigawatts. Applications for over 1.5 gigawatts are submitted across various global locations.

In the paragraph, Chris Caton addresses Vince Tibone's questions about the U.S. portfolio's net absorption and supply completions for the quarter, as well as the full-year outlook on supply and demand. Caton confirms that the quarter met expectations, with 40 million square feet of net absorption and 63 million square feet of completions. He discusses the overall direction for the year, noting that net absorption is projected at 160 million square feet against 300 million square feet in deliveries, which is causing market vacancies to rise to 6.8%. He emphasizes that while 6.8% is historically low, there is an underlying trend of supply chains emptying that is not receiving enough attention.

The paragraph discusses a decline in construction deliveries, which have dropped from a peak of 135 million square feet per quarter a year ago to 63 million this quarter. The starts are also low, at 40 to 42 million square feet per quarter, leading to an under-construction pipeline of 215 million square feet—the lowest since 2017. This situation is expected to result in a low supply level entering 2025, presenting an opportunity for improved demand amid uncertainty and spare capacity. In response to a question from Ronald Kamdem of Morgan Stanley, Chris Caton clarifies that market vacancies are expected to peak later this year, with a gradual recovery anticipated to begin next year and accelerate into 2026. Additionally, he advises taking a cautious stance on demand uncertainty.

In this paragraph, Tim Arndt addresses a question about cash same store metrics, explaining that lease termination fees are excluded from the reported figures and that there may be minimal impact from free rent normalizing back to market norms. He shares that market rent declines are expected to continue into the next year, with occupancy remaining stable for several quarters. Moving forward, he suggests considering the past rent changes on both a cash and net effective basis for forming a same store view for the following year. He estimates that net effective rent change will likely contribute 5.5% to 6% to the same store metrics, but notes that adjustments, such as those related to the Duke portfolio, could reduce this figure to around 5%. Additionally, he mentions the importance of considering occupancy trends in these assessments.

The paragraph discusses the impact of strong demand from Asian e-commerce and third-party logistics (3PL) companies on leasing activities. Chris Caton confirms that they are leasing with these tenants and expects continued leasing into 2025 and beyond. He clarifies that this demand is not primarily due to tariff concerns. Instead, it is rooted in the rapid growth of Chinese e-commerce platforms and their accompanying 3PL companies, which are experiencing annual growth rates between 25% to 50%. These companies are diversifying their businesses and account for about 20% of net absorption this year, positioning themselves for future growth beyond just Chinese e-commerce.

The paragraph discusses the impact of tariffs and changing business models on Asian imports to the US. Companies are adapting by bypassing traditional import distributors to counteract margin pressures from tariffs, contributing to growth in the ecosystem that connects Asian manufacturers with American consumers. Asian imports have increased significantly since 2019, driven by the China Plus One strategy and imports from Asia excluding China. The de minimis provision, which allows certain low-value goods to enter the US without tariffs, accounts for only 3% of Asian imports and may be reduced in the future. The speaker reassures that the company applies rigorous credit evaluations for customers in this growing category. The paragraph closes with a transition to a question from Nick Thillman, who observed an increase in short-term lease commencements in the company's core portfolio.

The paragraph is a transcript of a discussion during an investor call. Nick asks about tenant behavior and short-term renewals in response to macroeconomic uncertainty. Tim Arndt mentions strategic rent levels and the opportunity for shorter leases due to expected rent recovery in some markets. Josh Dennerlein, filling in for Jeff, inquires about occupancy trends in Asia and Latin America, noting a setback compared to the stabilizing U.S. Dan Letter attributes this primarily to impacts from China and some issues in Japan, though the portfolio remains strong. Mike Mueller questions about regions driving higher development stabilization, and Dan explains that the development is globally spread with no specific trend to highlight.

The paragraph is a transcription of a financial conference call where Nicholas Yulico from Scotiabank asks about the decline in global market rents, noting a 3% decrease this quarter and questioning if it aligns with a previous forecast of a 2% to 5% decline over the next 12 months. Chris Caton clarifies that the numbers refer to different time periods and acknowledges ongoing rent softness, with the expectation of continued weakness into next year. Tim Arndt adds that the observed decline may indicate reaching the higher end of the forecasted range. The conversation then shifts to an unidentified analyst asking about an increase in CapEx this quarter, but Tim Arndt did not catch the specifics of the question.

The paragraph features a discussion between several people about leasing demand and property expenses in Southern California. Tim Arndt mentions high rents and commissions in SoCal, noting that property improvement costs can vary significantly between quarters. Todd Thomas from KeyBanc Capital Markets asks about leasing demand and space utilization trends. Chris Caton responds, saying demand was steady throughout the quarter and notes an upward trend in utilization starting below 84%, reflecting stable leasing conditions without major changes.

The paragraph features a discussion about supply chain restocking amidst resilient consumer demand that keeps utilization below normal levels. Following this, Brendan Lynch from Barclays asks about reconciling the company's December Investor Day guidance, noting that rent growth is expected to remain flat through 2026 and vacancy rates may peak higher than anticipated. Tim Arndt responds by suggesting that current market changes require a fresh perspective. He highlights the significance of a 34% lease mark-to-market, which will support earnings, despite a temporary rent decline expected over the next year, followed by an increase. This would contribute to robust mid-single-digit same-store growth for several years, driven by rent growth.

The paragraph discusses Prologis's long-term growth strategy, emphasizing the importance of financial and operating leverage despite near-term challenges from rising interest rates. It highlights the company's focus on growth areas such as capital deployment, data centers, strategic capital, ventures, and energy, which are complementary and synergistic to the core business. Following this, a Q&A session takes place where Steve Sakwa seeks clarification on a previous statement regarding demand from Asian 3PL companies, confirmed to be a market-wide observation. The session concludes with Tim Arndt summarizing that Prologis met quarterly expectations, is in a downtrend in completions, sees improving capital values and fundraising, and is committed to long-term business investment.

The teleconference has ended, and participants are instructed to disconnect, with good wishes for the remainder of the day.

This summary was generated with AI and may contain some inaccuracies.