The paragraph is the introduction to Prologis's First Quarter 2025 Earnings Conference Call. The call is hosted by Justin Meng, Senior Vice President and Head of Investor Relations, who mentions that the meeting will include forward-looking statements and financial measures such as FFO and EBITDA, with reconciliation provided. Tim Arndt, the CFO, will discuss the company's results, market conditions, and guidance. Prologis had a strong quarter, leasing 58 million square feet, starting several build-to-suit developments, and increasing power capacity by 400 megawatts, reflecting growing data center demand. The company's leadership team, including the CEO and President, are also present on the call.

In the paragraph, the company discusses its performance, noting it exceeded expectations in earnings and occupancy before facing potential disruptions from global tariffs. Despite uncertainties, Prologis is maintaining its earnings guidance for 2025. The paragraph highlights the wide range of potential outcomes, including a recession or a quick resolution, and emphasizes Prologis' resilience due to its global footprint, diversified revenue streams, and strong financial position. The company remains optimistic about opportunities arising from market disruptions and continues its strategy of investing in consumer markets rather than production locations.

The paragraph outlines strong financial and operational performance for the quarter, with Core FFO slightly exceeding forecasts. Occupancy ended at 95.2%, with robust tenant retention and rent growth. The company has initiated $650 million in new developments, primarily long-term build-to-suit projects, demonstrating strong demand for space despite low volumes due to confidence issues. Over a dozen deals are in active discussions, with two new transactions signed for 1.1 million square feet. In their data center business, 400 megawatts of power have advanced to an advanced stage, with a total of 2 gigawatts in this category and 1.4 gigawatts already secured. The company is also working towards its 1 gigawatt solar and storage goal, with over 900 megawatts either operational or under development.

The paragraph discusses the company's financial activities and market conditions. They raised approximately $400 million for their flagship funds, balancing out with similar redemptions, and issued $550 million in debt with a 4.1% interest rate, including a Canadian bond transaction. Their balance sheet is strong, evidenced by a Moody's upgrade to an A2 rating, making them one of only two public REITs with such an A-flat rating from both agencies. They observed steady leasing activity despite tariff uncertainties affecting decision-making. Conversations with over 300 customers revealed challenges due to the unstable business environment caused by tariff threats.

The paragraph discusses how customers are adapting to tariff volatility by accelerating shipments, rerouting volumes, and seeking short-term flexibility, often turning to third-party logistics (3PL) companies. Utilization of flexible warehouse space has increased, with some 3PLs reporting over 90% usage. Strategies like using free trade zones and bonded warehouses are being evaluated. Sectors less reliant on China-based production, such as food and beverage, are more confident, though all are concerned about a potential recession affecting demand. Despite uncertainty, customer flexibility and adaptability remain crucial. The company has signed approximately 80 leases for over 6 million square feet, reflecting a 20% decrease in pace, yet the market remains active. Looking forward, businesses are expected to increase inventory levels for resilience, and e-commerce may gain more market share due to consumer preferences for product availability.

The paragraph discusses the company's expectations for global markets, highlighting Canada, India, Brazil, and Mexico as key beneficiaries. It anticipates benefits from port markets and addresses potential inflationary effects of tariffs. Despite first-quarter results suggesting a need for updated guidance, the company is choosing to maintain most of its guidance unchanged due to current uncertainties, except for lowering its development start, contribution, and disposition guidance. It also reduces its development gain expectations and increases its general and administrative (G&A) guidance. Despite these adjustments, the company's core funds from operations (FFO) guidance remains unchanged.

The paragraph discusses the company's approach to assessing its financial guidance and stress-testing against past crises like the Global Financial Crisis (GFC), Brexit, and early COVID-19. The GFC scenario, involving significant occupancy loss, rent declines, and defaults, was modeled to evaluate earnings outcomes, which remained within the company's range. Despite potential uncertainties, they maintain confidence in their strategy and plan to reassess in the second quarter. The company is focused on disciplined management, staying customer-centric, and wisely using their balance sheet. They emphasize leveraging strengths in securing build-to-suits, particularly in logistics and data centers, and taking advantage of profitable adjacent businesses. The company's success is attributed to its dedicated employees. Following this, the paragraph transitions to a Q&A session with a question from Tom Catherwood of BTIG, regarding the impact of changing customer interactions and demand driven by consumption on the industrial sector.

In the paragraph, Hamid Moghadam discusses the impact of potential economic downturns and past tariffs on consumption and demand. He notes that while consumption and GDP growth are closely linked, consumption typically decreases during recessions. Referring to the 2017 tariffs, he mentions that they had minimal impact on overall consumption in the U.S. Instead, U.S. production increased slightly, and imported goods from China, Mexico, and Europe contributed to the rise in overall consumption. He emphasizes that while consumption trends can shift, they generally tend to increase over the long term.

In the paragraph, Steve Sakwa from Evercore ISI questions Tim Arndt about occupancy rates and leasing activity. Tim explains that there was a significant number of leases expiring in the first quarter, causing an occupancy drop. He states that retention was strong at 73%, but the lease expirations impacted occupancy. Tim adds that the drop was expected and consistent with historical trends. Initially, they planned for occupancy to recover by year's end, but stress testing shows it will remain low through the year.

In the paragraph, Ronald Kamdem from Morgan Stanley asks about the impact of third-party logistics providers (3PLs), particularly those from Asia, on the Inland Empire West. Christopher Caton responds, indicating that while these Asian 3PLs face new risks, they constitute just over 1.5% of the company's rent. He emphasizes that these companies are adapting by advancing inventories, diversifying production sources, and expanding their domestic customer base amidst growing e-commerce demand. Hamid Moghadam adds that while demand is strong, as evidenced by shortages of items like phone chargers on major e-commerce sites, meeting this demand hinges on inventory availability. The paragraph concludes with the operator introducing a question from Michael Goldsmith with UBS.

The paragraph features a discussion about Amazon's recent activity in the market and its impact on demand and pricing. Dan Letter mentions that Amazon is actively making deals, which has positively affected the e-commerce segment, leading to strong leasing activity, comprising 20% of their overall business. The conversation then shifts to potential market opportunities, with Hamid Moghadam noting that current pressures on rents and uncertainty in the capital markets make it too soon to pursue significant market transactions. Most stakeholders are likely to adopt a wait-and-see approach, with opportunities potentially emerging in 6 to 9 months, depending on market conditions. Caitlin Burrows from Goldman Sachs is mentioned as the next in line to ask a question.

In the paragraph, Christopher Caton and Hamid Moghadam discuss the decision-making trends among customers in the context of leasing and space requirements. Elevated decision-making activity was noted in the first quarter, influenced by seasonal factors and preelection opportunities. Customers have growth needs but require economic clarity to make decisions. Some are acting quickly due to supply chain issues, while others remain cautious. However, there has been surprising momentum, with several leases and build-to-suit agreements signed in recent weeks, which is seen as encouraging despite ongoing uncertainties.

The paragraph outlines a discussion during a call, where recent trends in signed build-to-suits are noted to be larger in square footage and rent than usual for a two-week period, suggesting potential market activity despite uncertainty about its sustainability. Vikram Malhotra from Mizuho asks about stress test scenarios and market metrics, including occupancy and net absorption. Timothy Arndt explains that during the Global Financial Crisis (GFC), there was a 170 basis point decline in market occupancy and an 18% drop in market rents, both of which have been factored into current forecasts. Additionally, bad debt is considered at a higher rate of 75 basis points annually, reflecting a conservative stress test approach.

In the paragraph, Christopher Caton reports that in the quarter, 21 million square feet were absorbed, and there was a global decline of 1.5% in rent prices, largely due to Southern California, while rents globally, excluding Southern California, only dipped slightly. William Catherwood emphasizes that they are not making predictions but are examining worst-case scenarios based on past downturns, noting the unpredictability of the current environment. Ki Bin Kim from Truist Securities asks about the impact of import tariffs on customers. Catherwood responds that while there haven't been recent discussions about such tariffs, customers were anticipating around a 10% tariff and seem relieved that it isn’t higher.

The paragraph discusses the impact of economic changes, particularly tariffs and geopolitical events like Brexit, on inventory routing and warehouse space demand. It suggests that a 10% tariff could lead to shifts in supply chains, potentially benefiting countries like Mexico, Brazil, and those around China, while Europe might see a decline. William Catherwood uses the example of Brexit to illustrate how such transitions increase the need for more warehouse space, as supply chains that were once optimized need to be rebuilt, resulting in increased inventory requirements. Despite the initial market reaction to Brexit, warehouse occupancy in the U.K. remained high, demonstrating the sustained demand for space.

In the paragraph, Blaine Heck from Wells Fargo asks about the changes in demand from fund investors regarding allocations to the industrial sector and potential increases in redemption requests. William Catherwood responds by explaining that there was strong interest up to April 2, but afterwards, investors are cautious, waiting to see the impact of the denominator effect due to the stock market decline. He mentions that while real estate allocations might increase, the absolute dollars available could decrease because of these market conditions. Additionally, institutions may have overcommitted to private asset classes, causing a reduction in liquidity due to fewer IPOs and liquidity events in the uncertain environment. The focus is on how the denominator effect, rather than the interest in industrial real estate, will determine how much money will be pulled out.

The paragraph features a series of responses during a business Q&A session. Michael Mueller asks how UPS reducing its exposure to Amazon will affect their company, to which William Catherwood responds that it's not a concern as significant leases with UPS have continued. Samir Khanal inquires about the relatively low occupancy rates for spaces under 100,000 square feet, expecting them to perform better. Dan Letter explains that lower occupancy for that customer base is normal and there's no particular issue this quarter, while Christopher Caton highlights strong international markets and notes strength in various American regions like the Southeast, Sunbelt, Seattle, Nashville, Houston, Dallas, and an improvement in the Midwest, specifically mentioning Indianapolis.

The paragraph discusses the challenges faced by smaller businesses, particularly in leasing smaller spaces with shorter lease terms and lower credit, making them more vulnerable in a recession scenario. William Catherwood notes that while replacement costs for such spaces are rising significantly due to inflation and increased development yield requirements, this also leads to less supply, which may offer some long-term protection. The conversation then shifts to Ki Bin Kim asking about the company's strong 6.2% cash same-store NOI in the first quarter, compared to an annual guidance of 4.5%. Timothy Arndt explains that future performance will largely depend on occupancy and variations in free rent for leases commencing within each quarter.

The paragraph presents a discussion during an earnings call, where various speakers address aspects of industrial leasing and occupancy. Hamid Moghadam notes that occupancy changes influence the market, which is currently experiencing a downward trend. Michael Carroll from RBC inquires about how long it typically takes from when an industrial lease is signed to when it commences, and if recent slowdowns will affect leasing and occupancy in the second or third quarter. Christopher Caton and William Catherwood explain that the timeline varies depending on the type and size of the lease, with renewals being faster and new leases potentially taking up to 45 days or longer for new buildings. John Kim of BMO Capital Markets references a Bloomberg interview with Hamid, noting a change in market tone despite it not yet being visible in data.

The paragraph features a conversation about market demand and net absorption data in the context of economic uncertainty due to tariffs. William Catherwood is uncertain if demand will completely recover if tariff issues are resolved and states that predicting short-term market directions is challenging. Nicholas Yulico from Scotiabank questions the decrease in net absorption from the previous year, noting that this year's first-quarter figure is $21 million compared to last year's $27 million. Christopher Caton agrees with Yulico's assessment that the first quarter is typically a low season and emphasizes that their focus is more on customer conversations and growth outlook rather than these fluctuating numbers.

The paragraph discusses the current and projected leasing activity and occupancy levels. Last year, leasing decisions were delayed due to election-related uncertainties, which impacted the typical seasonal pattern where absorption and occupancy increase throughout the year. Dan Letter mentions that Prologis has successfully secured 7% of their 12% rent roll for the year, with only 5% left, indicating strong progress. During the Q&A, Steve Sakwa asks about leasing activity assumptions for the rest of the year. Timothy Arndt responds that it's challenging to specify a precise number but anticipates a more significant and prolonged occupancy drop due to decreased retention and slower new leasing.

The paragraph concludes a teleconference with Dan Letter addressing the unknowns in the current fluid environment but expressing confidence in the company's preparedness and the effectiveness of their stress tests in driving occupancy and earnings. He thanks the team for their work and execution, and the call ends with the operator thanking participants and announcing the conclusion of the session.

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