The paragraph is from the Prologis Fourth Quarter 2024 Earnings Conference Call. The operator begins with a greeting, indicating the listen-only mode for participants, with a Q&A session to follow. Justin Meng, Senior VP and Head of Investor Relations, introduces the call, mentioning that it contains forward-looking statements and non-GAAP financial measures, with reconciliations provided. Tim Arndt, the CFO, will discuss results, market conditions, and guidance, and acknowledges the impact of ongoing wildfires in Los Angeles on Prologis's portfolio, colleagues, and communities. Other executives present are the CEO Hamid Moghadam, President Dan Letter, and Managing Director Chris Caton.

The paragraph discusses the company's optimistic outlook despite ongoing challenges, highlighting a strong leasing performance with a record 60 million square feet signed and diverse interest. The market is expected to stabilize with rents increasing later in the year. Financial results are strong, with Core FFO at $1.42 per share (or $1.50 including net promotes), representing an 8.4% growth over 2023. Occupancy rates were high, and net effective rent changes contributed significantly to NOI. The company was active in capital recycling, contributing $2 billion to strategic ventures and raising $1.7 billion across the platform, despite challenging capital flows. They disposed of $900 million in assets and acquired $450 million.

The paragraph discusses the company's financial activities over the past year, highlighting their ability to self-fund through disposing of $2.1 billion and acquiring $2.3 billion in assets, ensuring positive returns. A significant transaction was the sale of the Elk Grove data center in Chicago, yielding a $112 million value creation fee not previously anticipated. The company's capabilities in data center development are emphasized, with future plans involving significant power procurement and development potential. The text also notes positive market conditions, particularly outside the U.S., with expectations of rent growth and recovery in net absorption, especially in regions like Japan, the U.K., Southern Europe, and Latin America.

The paragraph discusses improved customer engagement, particularly among larger global clients, leading to increased proposal conversions and a positive leasing pattern. A forecasted 20% net absorption improvement in 2025, alongside a 35% decline in completions, is expected to reduce vacancy rates and drive rent growth. The capital markets saw transaction volumes return to pre-COVID levels, with unlevered IRRs around mid-7% and slight increases in global valuations. Although capital raising was subdued in Q4, growth is expected in 2025 due to a solid pipeline and active investor conversations. The forecast for occupancy predicts a temporary dip followed by recovery to around 96% by year-end.

The article paragraph provides a financial forecast for the company, noting an expected net effective same-store growth of 3.5% to 4.5% and cash growth of 4% to 5%, largely driven by rent changes. The company anticipates G&A expenses of $440 million to $460 million and strategic capital revenue of $560 million to $580 million. Development starts are projected to range from $2.25 billion to $2.75 billion, excluding data centers due to their variability. New data center projects are expected to start in 2025, with a capacity of 200 to 400 megawatts. Acquisitions are forecasted at $750 million to $1.25 billion, and combined contribution and disposition activity between $2.5 billion and $3.5 billion. The development portfolio is valued at $4.7 billion with an estimated value creation of $1.1 billion, of which $450 million to $600 million is expected to be realized this year. The company aims to achieve its 1-gigawatt solar generation and storage goal by the end of 2025. They provide an initial GAAP earnings guidance of $3.45 to $3.70 per share, with core FFO, including net promote expense, ranging from $5.65 to $5.81 per share, and excluding it, from $5.70 to $5.86 per share. The company attributes its over 8% growth to the resilience of its operations, despite the challenges of the post-COVID era.

The paragraph is part of a conference call where Tim Arndt provides insights into the company's 2025 guidance. He indicates that rent spreads are expected to be in the 50% range, suggesting continued strong lease mark-to-market rates despite slower market rent growth recently. The company anticipates bad debt within the 20-30 basis points range, with a few known tenant issues but expects normalization by the year's end. Regarding occupancy, the company projects similar average and ending occupancy rates for both the overall portfolio and the same-store pool. The paragraph concludes with a prompt for the next question in the Q&A session.

The paragraph is from a conference call where Samir Khanal from Evercore ISI questions Chris Caton about the discrepancy between positive leasing comments and the decrease in space utilization. Chris Caton explains that while utilization is slightly lower than usual, at around 84% compared to a more typical 85% or higher, this is due to unexpected consumption growth and holiday sales in December, which temporarily pulled goods from the supply chain. This dip in utilization doesn't reflect the true trend, as customers report rising utilization and anticipate inventory building in 2025. Vikram Malhotra from Mizuho then asks about market rent growth, to which Chris Caton responds that rents declined by roughly 2% in the quarter.

The paragraph discusses the differential between coastal and non-coastal markets, noting it has narrowed recently. Looking ahead to 2025, there is uncertainty about rent trends, with scenarios predicting rents could be flat, down, or up. Dan Letter highlights that 90% of their leases extend beyond the next 12 months, indicating short-term rent fluctuations won't affect the company's long-term earnings or business value. He also notes that replacement cost rents significantly exceed market and in-place rents, suggesting this gap will drive future rent growth. Ronald Kamdem from Morgan Stanley asks about development starts and leasing acceleration, and Dan Letter responds that they intentionally slowed starts last year and maintain a disciplined approach to their speculative program.

The paragraph discusses the improvement in market conditions, with a notable decrease in project starts. There's an expectation for higher rents and better returns, as there is $5 billion currently under development and a significant land portfolio with $41.5 billion worth of opportunities globally. Investments in infrastructure have been made to expedite vertical build processes. A conversation ensues where Michael Goldsmith inquires about leasing acceleration after the U.S. election, asking for details on the improvement and the factors driving it, such as increased certainty or willingness to spend. Dan Letter begins to respond, noting a contrast in market activity before and after the election.

The paragraph discusses the state of the leasing market, highlighting a recovery in decision-making after several quarters of delay due to cost and geopolitical concerns. Following a recent election, there has been a surge in decision-making and the conclusion of stalled deals, particularly in sectors such as e-commerce, electronics, and food and beverage. It also notes contrasting trends where some customers focus on cost containment while 3PLs (third-party logistics providers) set a leasing record, with nearly 50 million square feet leased in the second half of the year. Tim and Chris mention record lease signings and a 17% increase in the pipeline from January to January, with Tim emphasizing that this growth occurred during typically slow periods. Craig Mailman from Citi inquires about occupancy, asking Tim to differentiate between fluctuations due to seasonality and potential bad debt.

The paragraph discusses the company's approach to managing its portfolio in light of a potential market rent increase by the end of the year. Tim Arndt describes the company's historical success in exceeding market occupancy rates by 100 to 150 basis points over the past 10-15 years, with recent performance nearly doubling that outperformance. The company anticipates maintaining this high level of outperformance, despite some short-term dips due to specific lease situations. The strategy involves balancing rent growth and occupancy rate management, with considerations for market and submarket conditions down to individual leases, supported by the company's revenue management capabilities.

In the paragraph, Hamid Moghadam discusses credit loss statistics, noting that during major financial crises like the global financial crisis and the onset of COVID, credit losses spiked but remained manageable. He mentions a strategy of capitalizing on credit losses by re-leasing spaces within 15 months, potentially turning losses into long-term value. Caitlin Burrows from Goldman Sachs then inquires about leasing trends, particularly renewals, to which Chris Caton responds by highlighting continued strong interest in renewals alongside an increase in new leasing inquiries. The company is experiencing growth in both renewals and new leases.

The paragraph is a Q&A segment from a discussion involving several participants about the impact of space needs and financial elements on business operations. Hamid Moghadam explains that customers may relocate for various space needs, but a high occupancy rate limits options. Despite this, customers prefer to renew leases due to cost benefits. Nicholas Yulico questions the financial implications for the year, focusing on lower development NOI due to changes in stabilizations compared to last year, and the effects of capitalized interest and development starts. Tim Arndt responds by confirming the identified elements and adds that the difference between top line and bottom line earnings is influenced by interest rates and suboptimal development start volumes.

The paragraph discusses rent trends at a market level, highlighting differences in performance between international and U.S. markets. International markets, including Japan, Europe, and Latin America, outperformed domestic markets. Within the U.S., Southern California experienced a significant decline in rents, down 25% on a net basis, while the rest of the U.S. saw only modest decreases. The best-performing markets saw single-digit increases in rents, whereas other markets, excluding Southern California, faced single-digit declines. The conversation emphasizes the challenges specific to the Southern California market.

The paragraph discusses topics related to real estate and construction economics. Vince mentions concerns over immigration's impact on labor supply and rising construction costs due to pressures on material supplies and labor, predicting that replacement costs will significantly increase. Blaine Heck from Wells Fargo then asks about the mark-to-market situation of a portfolio and the expected trajectory of same-store Net Operating Income (NOI) in 2025, questioning if it will decrease from a previous 6.7% to below 4.5%. Tim Arndt responds that the lease mark-to-market is at about 30% at the end of 2024, which generally applies across the United States. Regarding same-store growth, Arndt predicts that rent changes will remain stable, but occupancy might decrease slightly in the upcoming quarters.

The paragraph discusses Prologis' plans and expectations for data center development over the next decade. Dan Letter confirms that the company's goal is to achieve 10 gigawatts of data center capacity in the next ten years, utilizing their extensive portfolio of properties. They have 1.4 gigawatts of secured power and another 1.6 gigawatts in advanced procurement stages. The universe of opportunities for further development is expansive, stemming from their ownership of 6,000 buildings and 15,000 acres of land. Tim Arndt adds that the company aims to optimize spending through strategies like recycling and monetizing assets, as exemplified by their project in Elk Grove.

The paragraph discusses the company's approach to managing capital and development projects. They plan to free up capital and have an internal risk budget for their business. Although it is challenging to convert megawatts into dollars, they feel confident in managing their capital needs. In terms of future development projects, they expect an increase in U.S. development starts and an improvement in build-to-suit projects, aiming for them to constitute about 40% of overall development starts. Additionally, some significant build-to-suit projects have been moved from 2024 to 2025, and they are monitoring opportunities on a deal-by-deal basis.

In the paragraph, Mike Mueller from JPMorgan asks about the solar FFO (Funds From Operations) contribution in 2024 and the assumptions for 2025, given the business growth. Tim Arndt responds that they project a contribution of $0.10 to $0.14 in 2025, mainly from solar and the operating essentials business, with mobility having limited contribution. The 2024 contribution was $0.07 to $0.08. Jeff Spector from Bank of America then asks about executive orders and tariffs. Chris Caton answers, saying it is too early to predict the outcomes, but emphasizes that their business focuses on consumer consumption. He notes that trade has grown 30% over eight years, and supply chains have adapted to policy changes, as discussed in a previous call and a published white paper.

The paragraph discusses the stagnation of U.S.-China trade over eight years, noting that trade with other parts of Asia has increased by 75% and with Mexico by 40%, while U.S. domestic production has grown only 3%. It highlights that the U.S. lacks the labor force to increase domestic production, making tariffs inflationary. The discussion suggests that trade policy should support a strong economy because tariffs can harm it. Hamid Moghadam comments that immigration is central to labor issues, predicting that labor is likely to come from Mexico under new immigration policies, rather than China Plus One. He also notes that geopolitics, not economics, drives decisions about trade with countries like China and Vietnam. Tariffs are deemed inflationary, but their implementation will likely be tempered by political goals. Justin Meng then thanks Jeff and opens the floor for the next question from Brendan Lynch of Barclays.

The paragraph involves a discussion about tariffs and their impact on inventory movement into the U.S. Hamid Moghadam suggests that some businesses have increased trade into the U.S. in anticipation of tariffs, potentially affecting short-term volumes but not long-term fundamentals, which are expected to stabilize by the second quarter. The conversation shifts to Michael Carroll from RBC Capital Markets, who questions Tim Arndt about promote income recognized from a data center sale by Prologis (PLD). Arndt explains how their funds usually allow for promote income through successful development projects, highlighting a significant development opportunity in Elk Grove as an example of their business strategy.

In the paragraph, Hamid Moghadam and Justin Meng discuss the strategies and advantages of their data center business. They explain that the company incurs the general and administrative costs but has structured compensation methods. One advantage they have is the ability to pre-procure resources, allowing them to quickly capitalize on leasing opportunities and create value, supported by multiple data center opportunities. They work transparently with independent advisory councils to earn fees based on their contributions. John Kim from BMO Capital Markets inquires about the potential for establishing a data center fund or structure for recurring income and asks about promoting income from their partners' $100 million share in the pipeline. Hamid Moghadam addresses the future capitalization strategy of their data center business, noting that no decision has been made yet.

The company is currently focused on developing assets that they will monetize and sell to expand their core logistics business. They are considering incorporating a fund management strategy, possibly integrating data centers into existing or new open-end funds, but this decision is still under review. They have no plans to retain 100% ownership of data centers due to their significant capital requirements. During the conference call, Tim Arndt clarified that current activities are on the company's balance sheet, not within funds. Todd Thomas from KeyBanc Capital Markets asked about post-election leasing and future occupancy and net absorption expectations. Hamid Moghadam stated that the business plan for the upcoming year is typically prepared in October or November.

The paragraph features a discussion among various individuals regarding real estate trends, performance metrics, and projections. Tim Arndt and Chris Caton provide insights into net absorption rates, expecting it to increase, with projections for 185-190 million square feet by 2025. They also address GAAP and cash NOI growth, noting differences influenced by free rent levels returning to normal expectations. Meanwhile, Vikram Malhotra inquires about GAAP versus cash NOI and the impact of the interest rate environment on net absorption. These factors are crucial for their projections and performance evaluations, against a backdrop of potential interest rate stability or hikes.

The paragraph discusses how the anticipated decline in uncertainty due to a new administration is expected to improve decision-making and increase net absorption in 2025. Justin Meng then asks a question about the impact of higher treasury rates on unlevered IRRs and stabilized cap rates, as well as determining appropriate yields for new U.S. speculative developments. Dan Letter responds, noting the volatility of the 10-year treasury and its limited direct correlation with property values. Despite fluctuations, property deal volumes have grown to pre-COVID levels, with values increasing in open-ended funds and a strong transaction market anticipated, especially within the logistics sector.

In the paragraph, the speaker discusses the yield and spread expectations for real estate investments. They emphasize seeking a 125 to 150 basis point spread over market cap rates, regardless of historical low treasury rates when money appeared "free." Historically, treasuries have traded around 200 basis points above the implied inflation rate. With current inflation expectations, treasuries are projected to be 4% to 5%, leading to expected unlevered IRRs of 7% to 8%, providing a substantial inflation-adjusted return. Although the market became accustomed to low-cost money, institutional real estate investments have always accounted for realistic returns. Additionally, tighter cap rates of recent years have ironically widened margins, even amidst recent market weaknesses.

The paragraph involves a discussion about the company's financial outlook and the challenges in forecasting due to various external factors like political changes, natural disasters, and economic uncertainties. Hamid Moghadam, likely an executive in the company, acknowledges the complexities in making these projections and admits there is some conservatism in their approach, hinting at cautious optimism for market improvement in the latter half of the year. While he personally believes the market will do better than expected, he concedes that not everyone in the company shares this view, emphasizing a cautious approach in their outlook.

The paragraph is a part of concluding remarks from a conference call. The speaker acknowledges differing views on certain topics but expresses optimism about recent activities and improving customer sentiment, anticipating stronger momentum throughout the year. They highlight progress in the data center business, referencing a significant transaction in Elk Grove Village, and express confidence in the company's long-term earnings potential. The call is wrapped up with thanks and an invitation for future engagements.

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