Prologis, Inc. Q2 FY2025 earnings call

• Second quarter exceeded expectations with outperformance in occupancy and rent change. - Lease mark-to-market at 22% due to purchase accounting from M&A. - Over $900 million in new development starts, 65% build-to-suit, including 7 additional projects in U.S. and Europe. - $300 million data center start in Austin. - Procured 200 MW of power, adding to advanced stages. - Leasing pipeline at 130 million sq ft, historically high and diverse. - Build-to-suit pipeline full with over 30 projects over 25 million sq ft.

Core FFO, including net promote income was $1.46 per share, and excluding net promotes was $1.47 per share, each ahead of forecast. Occupancy ended the quarter at 95.1%, down just 10% sequentially and further widening outperformance to the market at 290 basis points. Net effective and cash same-store growth during the quarter were 4.8% and 4.9%, respectively. Monetized $75 million of NOI through rent change. Started over $900 million in new development starts, 65% build-to-suit, with first half total $1.1 billion. $300 million of starts relate to data center development in Austin. Procured 200 megawatts of power, totaling 2.2 gigawatts in advanced stages. Energy business has nearly 1.1 gigawatts of solar production and storage in operation or under development.

Average occupancy range 94.75% - 9.25%. Rent change strong in second half, full year low to mid-50s. Same-store NOI growth: net effective 3.75% - 4.25%, cash 4.25% - 4.75%. G&A guidance $450M - $470M, strategic capital revenue $570M - $590M. Development starts range $2.25B - $2.75B, disposition/contribution $1B - $1.75B. GAAP earnings $3 - $3.15 per share, core FFO including net promote $5.75 - $5.80, excluding $5.80 - $5.85.

Macro uncertainty affecting decision-making and leasing velocity. Tariff uncertainty impacting tenant decisions. Volatility in occupancy and rent growth due to economic and policy changes. Credit losses and bad debt risks, though NPV positive due to mark-to-market. Power constraints and automation increasing energy demands.

Q: Ronald Camden asks about post-Liberation Day impact on leasing pipeline and development starts.

A: Christopher Caton and Dan Letter discuss pipeline diversity, build-to-suit activity, and development locations.

Q: Steve Sakwa asks about leasing cadence from 1Q to June.

A: Dan Letter and Hamid Moghadam talk about leasing acceleration in May-June, down ~10% from normal.

Q: Caitlin Burrows asks about guidance increase drivers.

A: Timothy Arndt explains higher NOI and strategic capital revenues drive FFO guidance increase.

Q: Michael Goldsmith asks about timing of pipeline converting to signed leases.

A: Christopher Caton and Timothy Arndt discuss deliberate decision-making and need for macro clarity.

Q: William Catherwood asks about bifurcation in metrics like space utilization and IBI activity index.

A: Christopher Caton explains full picture view of metrics, including utilization increase and IVI activity index decline.

Q: Craig Mailman asks about tenants running business despite uncertainty.

A: Hamid Moghadam talks about tenants deferring decisions but water building up behind the dam.

Q: Ki Bin Kim asks about leasing proposal breakdown by renewals and new demand.

A: Hamid Moghadam and Christopher Caton discuss renewal leasing strength, new leasing slower, and strong build-to-suit activity.

Q: Vikram Malhotra asks about rent inflection and normalized net absorption.

A: Hamid Moghadam talks about vacancy rate near peak, pricing power at 5% vacancy, and normal net absorption ~250 million sq ft.

Q: Nicholas Thillman asks about bad debt update.

A: Timothy Arndt says bad debt elevated, ~35-40 basis points, monitoring tenant health.

Q: Blaine Heck asks about geographies flipping from choppy to competitive.

A: Hamid Moghadam and Christopher Caton discuss Southern California and international markets flipping due to fundamentals.

Q: Michael Mueller asks about tariff dynamics and regional markets.

A: Hamid Moghadam and Dan Letter talk about regional market considerations and focus on high-barrier geographies.

Q: Samir Khanal asks about transaction opportunities and underwriting.

A: Dan Letter discusses value add acquisitions and focus on higher WALT assets.

Q: Vince Tibone asks about cash same-store growth deceleration in back half.

A: Timothy Arndt and Hamid Moghadam talk about comps, occupancy drag, and onetime items in back half.

Q: Brandon Lynch asks about Asia occupancy expectations.

A: Hamid Moghadam and Timothy Arndt discuss Asia occupancy volatility and recent leasing success.

Q: Jonathan Petersen asks about automation and power demands.

A: Hamid Moghadam and Dan Letter talk about increased power demands from automation and new energy generation solutions.

Q: Todd asks about 3PL leasing activity and near-term trends.

A: Christopher Caton and Dan Letter discuss 3PL leasing growth and pipeline trends.

Q: John Kim asks about lease terms and termination income.

A: Timothy Arndt and Hamid Moghadam talk about lease term normalization and termination income as NPV positive.

Q: James Feldman asks about key overhangs on decision-making.

A: Hamid Moghadam talks about comfort in seeing others make decisions and confusion over inflationary environment.