Prologis(US:PLD)2024-01-17 19:48Financial Data and Key Metrics Changes - Prologis achieved nearly 11% earnings growth in 2023, with a 12-year earnings CAGR since merger at 10.3% [5] - Core FFO for Q4 was $1.29 per share, bringing the full year to $5.10 per share, at the top end of guidance [7] - Market occupancy declined by approximately 100 basis points, while the portfolio gained 10 basis points to end the year at 97.6% [7] - Net effective rent change for the quarter was 74%, with a full-year record of 77% [7] Business Line Data and Key Metrics Changes - Same-store net effective rent growth was 7.8%, while cash same-store growth was 8.5% [8] - Over $2 billion of new developments were started in Q4 across 46 projects in 27 markets, with nearly 50% in build-to-suit [8] - The company ended the year with approximately 515 megawatts of solar and storage in operation, with an additional 70 under construction [8] Market Data and Key Metrics Changes - Market vacancy increased in Q4, driven by moderate demand and record completions [9] - Global market rents declined by 90 basis points in Q4, with a full-year growth of 6% [10] - Southern California experienced a 7% decline in rents, while the overall portfolio was only 2.6% vacant at year-end [11] Company Strategy and Development Direction - The company anticipates annual market rent growth of 4% to 6% over the next three years, with 2024 expected to be modestly positive [6] - Prologis plans to guide development starts between $3 billion and $3.5 billion for 2024, with a build-to-suit mix of 40% [14] - The company has a significant land bank with $40 billion worth of opportunities across 50 markets globally [33] Management's Comments on Operating Environment and Future Outlook - Management noted challenges in some submarkets but remains optimistic about strong market rent growth due to a supply cliff converging with normalized demand [6] - The company expects occupancy to range between 96.5% and 97.5% in 2024, with cash same-store growth between 8% and 9% [14] - Management highlighted improved customer sentiment and increased proposal volumes, indicating a potential recovery in leasing activity [28] Other Important Information - The company raised approximately $300 million in Q4, closing the year with over $12 billion in financing activity at a weighted average rate of 4.5% [8] - U.S. property values declined approximately 5.5% during the quarter, aligning with expectations [12] - The company plans to take sale portfolios to market with expected proceeds between $800 million and $1.2 billion [14] Q&A Session Summary Question: Expectations for leasing spreads and U.S. performance - Management expects the gap in performance between Prologis and overall portfolio performance to remain wide, as lease mark-to-market effects will sustain for a while [19] Question: Market vacancy rates in Sun Belt vs. Coastal markets - Vacancy rates are lower on the coasts compared to higher rates in the Sun Belt, with better pricing and rent growth observed in Sun Belt markets [22] Question: Timing of market rent growth acceleration - Management confirmed expectations for an acceleration in market rent growth in 2025 and 2026 as supply decreases [24] Question: CapEx increase in Q4 - The increase in property improvements in CapEx was attributed to timing issues, with higher levels of activity typically seen in Q4 [26] Question: Tenant sentiment and leasing activity - Tenant sentiment has improved, with 45% of available space currently in discussion with active proposals, indicating a positive trend in leasing activity [28] Question: Development start guidance breakdown - The majority of development starts will be traditional industrial, with data centers being a smaller part of the overall strategy [36] Question: Supply and demand trends - Management projects a rise in vacancy rates in the first half of the year, with a subsequent decline expected as demand picks up [42] Question: Valuations and cap rates - Management believes that real pricing and returns have not changed significantly, and they expect to see more volume in real deals as valuations stabilize [50] Question: Tenants' inventory strategies - Tenants are likely to adopt a more conservative inventory strategy due to recent disruptions, which may drive demand for logistics space [59]