Prologis(US:PLD)2024-04-17 19:27Financial Data and Key Metrics Changes - Core FFO, excluding promotes, was $1.31 per share, and including net promote expense was $1.28 per share, in line with forecasts [9] - Occupancy in the portfolio ended the quarter at 97%, with a decline of 80 basis points since the peak in summer 2022 [9] - Same-store growth on a cash basis was 5.7% and on a net effective basis was 4.1% [10] - Rent growth captured for the quarter was approximately $110 million on an annualized basis [10] - The company raised nearly $5 billion in capital, including $750 million in strategic capital [7] Business Line Data and Key Metrics Changes - The Energy business signed 405 megawatts of long-term storage-related contracts with investment-grade utilities [11] - New developments started in the quarter amounted to over $270 million, bringing the portfolio to approximately $7.5 billion at the company's share [10] Market Data and Key Metrics Changes - Net absorption in the US was low at just 27 million square feet for the quarter [12] - Overall leasing activity and net absorption are running below expectations due to persistent inflation and high interest rates [7][12] - Southern California and the Inland Empire are experiencing the most acute leasing slowdowns, with rents generally flat in most US markets [14][15] Company Strategy and Development Direction - The company is adjusting its guidance early to reflect expected occupancy below forecasts in the near term [8] - Focus remains on the development of the land bank, providing an opportunity for over $38 billion of build-out with an approximate return on incremental capital of 8.5% [17] - The company is actively looking at acquisition opportunities across all markets while maintaining a disciplined approach to speculative starts [19] Management's Comments on Operating Environment and Future Outlook - Management noted that persistent inflation and high interest rates have led to delays in customer decision-making, impacting leasing volume [7] - The overall economic data remains strong, but the company expects continued headwinds on overall absorption in the next few quarters [12][13] - Management expressed confidence in long-term demand despite short-term challenges, indicating that deferred demand is building up [20] Other Important Information - The company raised $4.1 billion of debt at a weighted average rate of 4.7% with a term of 10 years [11] - Global market rents declined slightly over 1% in the quarter, primarily driven by Southern California [15] - The company has liquidity of over $5.8 billion at the end of the quarter [11] Q&A Session Summary Question: Could you go through how much or what pieces might be more macro driven and how much is certain markets weighing on the outlook? - Management indicated that the softness in leasing velocity is due to both macroeconomic factors and specific market conditions, particularly in Southern California [22][23] Question: Can you help kind of flush out the timing of when some of these things became a little bit more evident? - Management clarified that while there may be a perception of an acute change, their long-term outlook remains consistent, with the first year of their three-year forecast being the only adjustment [25][26] Question: What evidence do you have that would support the delayed rebound in demand? - Management noted that while economic indicators are strong, the conversion of customer inquiries into signed leases has not yet materialized broadly across the market [28][29] Question: Can you discuss the markets of relative strength in your portfolio in terms of demand and market rents? - Management highlighted that the strongest markets include Mexico, Texas, parts of the Southeast US, and Europe, while Southern California remains the weakest [51] Question: Are you seeing any changes in CapEx or concessions that might not be so apparent in the headline face rents? - Management acknowledged an increase in free rent but noted that it is still below long-term averages [54] Question: How are you seeing supply chain disruption and geopolitical risks impacting customer behavior? - Management indicated that while geopolitical risks are causing caution, the overall impact on customer decisions remains manageable [59] Question: Can you provide additional color on the weaker net absorption due to tenants becoming more cost-conscious? - Management confirmed that demand has shifted from Southern California to adjacent markets, but overall demand has been deferred rather than lost [71][72]