Prologis(US:PLD)2023-04-18 19:57Financial Data and Key Metrics Changes - Core FFO excluding promotes was $1.23 per share, and including promotes was $1.22 per share, benefiting from higher NOI but offset by increased insurance expenses due to an active storm season [7][8] - Average occupancy remained flat at 98%, with record rent changes of 69% on a net effective basis and 42% on a cash basis [7][8] - Same-store growth reached 9.9% on a net effective basis and 11.4% on a cash basis, driven by strong market rent growth [8][12] Business Line Data and Key Metrics Changes - E-commerce leasing increased to 19% of all new leasing, indicating a recovery towards the five-year average [11] - Lease mark-to-market expanded to 68%, representing over $2.85 per share of incremental earnings as leases roll to market rates [8][12] Market Data and Key Metrics Changes - The current vacancy rate in US markets is 3.5%, expected to rise to the low 4s by year-end before declining back to mid-3s by late 2024 due to limited incoming supply [11][12] - Appraised values in US funds declined by 1% and by 2% in Europe during the quarter, with a significant drop from peak values [13][14] Company Strategy and Development Direction - The company is maintaining a disciplined approach to development, with a guidance of $2.5 billion to $3 billion for the year, focusing on high-quality opportunities [16][17] - The company plans to redeem units in open-ended funds as appraisals near fair value, indicating a strategy to invest more capital into its vehicles [14][18] Management's Comments on Operating Environment and Future Outlook - Management expressed a cautious outlook on demand due to macroeconomic concerns but noted strong fundamentals in logistics real estate [6][9] - The company anticipates a normalization of demand and supply dynamics, with expectations of continued rent growth despite potential delays in customer decisions [10][11] Other Important Information - The company ranks as the 68th largest in the S&P 500 and has paid over $15 billion in dividends since its IPO, with a 15% CAGR [18] - An upcoming Investor Day is scheduled for December at the New York Stock Exchange to showcase the company's strengths [19] Q&A Session Summary Question: Development starts and metrics driving growth - Management indicated a disciplined approach to development starts, with a potential ramp-up later in the year based on market conditions [21][22] Question: Risks to occupancy and rent growth - Management acknowledged risks in the current environment but noted that demand is normalizing rather than declining significantly [25][26] Question: Acquisitions and distressed opportunities - Management stated there is little distress in the marketplace and emphasized looking for opportunities reflecting the increased cost of capital [29][30] Question: Demand related to near-shoring - Management highlighted Northern Mexico as a key area benefiting from near-shoring trends, with limited vacancy [33][34] Question: Market conditions and rental growth - Management confirmed that while overall market conditions are good, there is a wide dispersion in rental growth across different markets [41][42] Question: Construction loan availability - Management noted a significant pullback in the availability of construction loans, impacting development starts [57][59] Question: Tenant demand and financial decision-making - Management observed that high utilization rates indicate limited slack in the system, with no significant space being returned by tenants [65][66] Question: Full-year development start yield expectations - Management indicated that yields are expected to be lower than the high 7% seen in the first quarter, with most starts in the 6% range [87][89] Question: Concerns about customer stability - Management reported a historically low bad debt ratio, indicating strong tenant health despite economic uncertainties [92][93]