Prologis, Inc. Q3 FY2025 earnings call

• Record leasing quarter with 62 million sq ft signed, contributing to occupancy growth to 95.3%. - Strong rent change with net effective at 49% and cash at 29%. - Data center business made progress with 1.5 gigawatts of additional capacity to advanced stages. - Energy business on track to achieve one-gigawatt solar storage goal. - Capital deployment: Third quarter had lighter development starts, but fourth quarter expected to be strong with build-to-suits. - Global markets: Latin America, Europe, and Japan showed positive performance with Latin America having high same-store growth in Brazil and Mexico, Europe maintaining higher occupancy, and Japan having exceptional occupancy. - Customer sentiment strengthened with improved leasing velocity and build-to-suit activity, indicating a more positive market tone.

The third quarter saw Prologis achieve a record leasing quarter with signings of nearly 62 million square feet. Portfolio occupancy increased to 95.3%, a 20 basis point rise. Rent change was strong, with net effective at 49% and cash at 29%. In the data center business, an additional 1.5 gigawatts of capacity was moved to advanced stages, with 5.2 gigawatts of power either secured or in advanced stages. The energy business delivered 28 megawatts of solar generation and storage in the quarter, on track to reach the one-gigawatt goal by year-end. Revenue contribution % details weren't explicitly broken down per segment in absolute terms beyond the described performance.

• Average occupancy at the midpoint remains unchanged at 95%. - Rent change will average in the low 50s for the full year. - Same-store NOI growth range is adjusted to 4.25% - 4.75% on a net effective basis and 4.5% - 5.25% on a cash basis. - G and A guidance is increased to a range of $460 million to $470 million, and strategic capital revenue guidance is increased to a range of $580 million to $590 million. - Development starts at share are increased to a new range of $2.75 billion to $3.25 billion. - Combined disposition and contribution guidance is increased by $500 million to a range of $1.5 billion to $2.25 billion at the share level. - GAAP earnings are guided to range between $3.40 and $3.50 per share, Core FFO including net promote expense ranges between $5.78 and $5.81 per share, and core FFO excluding net promote expense ranges between $5.83 and $5.86 per share, with a $0.02 increase from prior guidance.

• Interest rate changes could impact the financial results as the company has a significant amount of debt with an average remaining life of more than eight years. - Market supply and demand dynamics could still pose challenges, although supply is currently below pre-COVID levels. - Uncertainties in the macroeconomic environment could affect customer decision-making and market conditions.

Q: Can you talk more about what additional capitalization strategies for data centers might look like?

A: Dan Letter stated they are exploring strategies, have a strong team and operational synergies with the core business, but no specific details can be shared at present.

Q: How much of the net absorption was pent-up demand?

A: Tim Arndt said there was some catch-up from the second quarter, but there was a clear step higher in demand with a full pipeline.

Q: What are the expectations for supply and demand and market rent growth over the next year or so?

A: Dan Letter and Chris Caton said demand is strengthening, supply is low, vacancy rates are topping out around current levels, and rent growth will follow as the market recovers.

Q: Thoughts on customer sentiment and their ability to make long-term decisions?

A: Dan Letter said customers are more comfortable making long-term decisions despite short-term noise.

Q: What is the pace of data center development starts and comfort level with owning and operating?

A: Tim Arndt said 3 billion is an easy amount to handle with build-to-suits and the balance sheet capacity, and they are not constraining themselves.

Q: Impact of lease mark to market and its relation to rent change?

A: Tim Arndt explained the lease mark to market at 19% and how it relates to potential rent changes, highlighting the expiration schedule and positive rent change potential.

Q: Details on the revised guidance and moving pieces affecting it?

A: Tim Arndt said timing of sales of investment tax credits and G and A timing caused a sequential decrease, but the full-year forecast remains unchanged.

Q: Comparison of growth rate expectations between data center and industrial from an owned perspective?

A: Tim Arndt said focus is on value creation reinvestment into the core business rather than comparing same-store growth metrics directly.

Q: When can we expect average occupancy to inflect quickly?

A: Tim Arndt said average occupancy guidance suggests sustaining around current levels and looking to build from there into 2026.