Prologis(PLD) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Core FFO including net promote income was $1.46 per share and excluding net promotes was $1.47 per share, both ahead of forecasts [7] - Occupancy ended the quarter at 95.1%, down just 10 basis points sequentially, outperforming the market by 290 basis points [7] - Net effective same store growth was strong, with rent change across the global portfolio monetizing an additional $75 million of NOI, reflecting a 53% net effective basis and 35% cash [7][8] Business Line Data and Key Metrics Changes - Build to suit activity saw significant growth, with $1.1 billion in starts for the first half, the largest start to a year ever [9] - The company signed agreements for an additional three build to suits post quarter end, indicating strong demand from major customers [9] - The leasing pipeline reached historically high levels, up 19% year on year, with a good balance across different deal stages and types [24][25] Market Data and Key Metrics Changes - In the U.S., net absorption was subdued at 28 million square feet, with market vacancy ticking up 10 basis points to 7.4% [13] - Market rents declined approximately 1.4% during the quarter, while values remained essentially flat [12] - The leasing pipeline stands at 130 million square feet, reflecting significant interest and need for space [14] Company Strategy and Development Direction - The company remains committed to its strategy of serving customers at the center of consumption, focusing on logistics real estate as a strategic asset [18][19] - There is a strong emphasis on expanding the distributed energy platform, with a goal of one gigawatt of solar production and storage by year-end [10] - The company is increasing development starts to a new range of $2.25 billion to $2.75 billion, reflecting improved visibility in logistics starts [16][17] Management's Comments on Operating Environment and Future Outlook - Management noted that while conditions remain choppy, the market is holding up reasonably well, with expectations for improved demand as clarity on policy emerges [15][18] - The company expressed confidence in long-term trends driving the business, despite short-term uncertainties [18] - Management highlighted that the current environment has calmed significantly since April, providing improved visibility for guidance [35] Other Important Information - The company closed on $5.8 billion in financing activity, contributing to over $7 billion of liquidity held at quarter end [11] - Strategic capital business saw net outflows of approximately $300 million during the quarter, with teams developing new offerings [12] - Bad debt trends were better than expected, with expectations of around 40 basis points for the balance of the year [71] Q&A Session Summary Question: Impact of Liberation Day on Leasing Pipeline - The leasing pipeline is promising, up 19% year on year, with good balance across different deal stages and types [24][25] Question: Cadence of Leasing Activity - Leasing activity accelerated through May and June, with the quarter ending only down about 10% from normal [31] Question: Guidance Details - The increase in guidance is due to improved visibility and outperformance in the quarter, with confidence in landing at the stronger end of the range [36] Question: Timing of Growing Pipelines to Signed Leases - Decision-making remains deliberate, with clarity on the macro front needed to convert the pipeline into signed leases [39] Question: Bad Debt Trends - Bad debt is trending better than expectations, with elevated levels around 35-40 basis points [71] Question: Geographic Market Dynamics - Strong long-term fundamentals in certain markets like Southern California could lead to a quick recovery as demand increases [78][79]