Prologis, Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Leadership and Culture: Prologis' leadership goes beyond scale, focusing on excellence, long-term relationships, and anticipating future needs. Culture defined by commitment to best-in-class operation.
• Priorities: 1. Extend leadership as best-in-class operator using data analytics, energy solutions, and venture initiatives. 2. Capture value in logistics real estate and data centers with disciplined approach. 3. Enhance shareholder returns through growth in assets under management.
• Results and Momentum: Strong fourth quarter with 57 million sq ft of leases signed, occupancy near 96%. Core FFO details, capital deployment (sales of $900M, acquisitions of $625M, development starts), energy business lifting installed capacity to 1.1 gigawatts.
• Market Conditions: U.S. vacancy declined to 7.4%, market rents declining at slowest rate in 2023. Demand strong in large space formats. International markets outperform (Latin America, Europe, Japan).
• Strategic Capital: Achieved IPO of China AMC Prologis Logistics REIT, added new development-focused vehicle, anchor closing for U.S. Agility Fund.
• Data Centers Progress: Procuring power, securing build-to-suit leases, delivering world-class facilities, harvesting value through asset sales.

Segment Performance

• Logistics: Fourth quarter core FFO was $1.44 per share including net promote expense and $1.46 per share excluding net promote expense. Owned and managed average occupancy was 95.3% for the quarter and 95% for the full year. Net effective rent change was 44% for the quarter, contributing approximately $60 million of annualized NOI. Same-store NOI growth was 4.7% on a net effective basis and 5.7% on a cash basis. Development starts were $1.1 billion in the quarter (all logistics projects, over 48% build-to-suit) and $3.1 billion for the year (61% build-to-suit).
• Data Centers: Expanded power access to 5.7 gigawatts, stabilized 72 megawatts of projects, sold a state-of-the-art turnkey facility. Pipeline includes 1.2 gigawatts in LOI or pending lease execution. Development starts guidance includes approximately 40% of $4 billion - $5 billion range for data centers.

Guidance

• Occupancy: Forecasted average occupancy to range between 94.75% and 95.75%, including seasonal drop in Q1.
• Same-store Growth: Net effective same-store growth forecasted 4.25% - 5.25%, cash same-store growth 5.75% - 6.75%.
• G&A: Forecasted $500 million - $520 million.
• Strategic Capital Revenue: Forecasted $650 million - $670 million.
• Deployment: Development starts $4 billion - $5 billion (40% data centers), acquisitions $1 billion - $1.5 billion, contribution and disposition $3.25 billion - $4.25 billion.
• GAAP Earnings: Initial GAAP earnings guidance $3.7 - $4 per share; Core FFO including net promote expense $6 - $6.2 per share; excluding net promote expense $6.05 - $6.25 per share.

Risks

• Market Uncertainties: Tariff policy, market rent fluctuations, supply chain issues impacting demand.
• Execution Risks: Delays in development due to entitlements or construction issues, leasing challenges, difficulties in procuring power for data centers.

Question and Answer

Q: Can you speak about changes in strategic initiatives and strategic capital, including potential data center focused fund?

A: Dan Letter emphasized focus on core logistics business, leaning into development in data centers and energy, expects significant growth in strategic capital AUM. Tim Arndt mentioned dialoguing with investors on data center fund, meaningfully through process, expecting more news in coming months.

Q: Dive deeper into market rent growth assumption for 2026?

A: Tim Arndt passed to Chris Caton, who stated market vacancies poised to improve, net absorption expected to approach 200 million sq ft in 2026, deliveries down, leading to vacancy decline and positive rent growth emerging.

Q: Walk through data center 1.2 gigawatts in LOI and development start guidance?

A: Tim Arndt said small handful of near-term starts expected, 40% of $4 billion - $5 billion development start guidance for data centers. Logistics starts could outperform, data center mix includes Powered Shell and Turnkey.

Q: Update on 10 gigawatt power outlook?

A: Dan Letter stated 10 gigawatt pipeline remains, land and power bank distributed across Tier 1 and 2 markets in U.S. and Europe, lumpy in readiness but no update to 10 gigawatt goal.

Q: Color on occupancy pickup in Europe and Asia, especially Japan?

A: Tim Arndt and Chris Caton mentioned strong occupancies in Europe and Japan, portfolio has been high for some time, momentum building globally.

Q: Pipeline and ramp of capital deployment on industrial side?

A: Dan Letter and Tim Arndt stated significant opportunities, decisions made week by week at investment committee based on market conditions, teams decide ramp accordingly.

Q: Land bank mark to market and geographic mix of development starts?

A: Tim Arndt said land bank 110% fair market value to book value. Dan Letter stated two-thirds of 2026 logistics development starts in U.S., strong markets in Latin America, Europe (Northern Europe).

Q: Data center power advanced stages and turnkey/powered shell mix?

A: Tim Arndt said data center program likely 60% - 70% powered shell, deals in near future still working through discussions. Dan Letter explained advanced stages as preliminary utility agreement, secured power as binding energy service agreement with utility.

Q: Sensitivity in 2026 outlook and health of Southern California market?

A: Tim Arndt said FFO per share range widens due to high FFO base. Chris Caton said Southern California market showing tone shift, back half of year improving, Inland Empire outperforming, Class A over Class B.

Q: Fund contribution expectations and same store growth drivers?

A: Tim Arndt said Agility Fund contribution included in guidance. Nick Thillman asked about same store growth drivers, Tim Arndt said rent change decreasing, lighter FPLA from Duke acquisition dragging, occupancy drag less, rent change in high 30s.

Q: Cadence of stabilizations and deployment drag?

A: Tim Arndt said speculative business leases up 7-9 months, build-to-suits come online immediately, deployment drag related to project stabilization years.

Q: Power access fragmentation and largest blocks?

A: Dan Letter said power access distributed across Tier 1 and 2 markets in U.S. (Northern Virginia, Silicon Valley, etc.) and Europe (Amsterdam, London, etc.), very dispersed.

Q: Same store growth by geography and solar contribution?

A: Tim Arndt said occupancy gains dispersed across geographies. John Kim asked about solar contribution, Tim Arndt said solar revenues growing but nominal, will become more meaningful in future years.