Pacific Basin Shipping (SEHK:02343) Q3 2025 Earnings Call October 16, 2025 06:00 AM ET Speaker0Welcome to today's Pacific Basin twenty twenty five Third Quarter Trading Update Conference Call. I'm pleased to present the Chief Executive Officer, Mr. Martin Fragaard and Chief Financial Officer, Mr. Jimmy Ng. For the first part of this call, all participants will be in listen only mode.And afterwards, there will be a question and answer session. Mr. Fragaard, please begin.Speaker1Thank you. Yes, and welcome, l ...

Financial Highlights - Third quarter revenue increased 10.1% sequentially to $33.1 billion, slightly above guidance, driven by strong demand for leading-edge process technologies [3][11] - Gross margin rose 0.9 percentage points sequentially to 59.5%, primarily due to cost improvements and higher capacity utilization [3][7] - Operating margin increased 1.0 percentage point sequentially to 50.6% [3] - EPS was TWD 17.44, up 39% year-over-year, with ROE at 37.8% [3] - Cash and marketable securities totaled TWD 2.8 trillion ($90 billion) at the end of the quarter [4] Business Line Performance - 3 nm process technology contributed 23% of wafer revenue, while 5 nm and 7 nm accounted for 37% and 14% respectively [4] - Revenue from the smartphone segment increased 19% to account for 30% of total revenue, while IoT and automotive segments grew by 20% and 18% respectively [4] - Data Center Equipment (DCE) revenue decreased by 20% to account for 1% of total revenue [4] Market Data - The company expects fourth quarter revenue to be between $32.2 billion and $33.4 billion, representing a 1% sequential decrease or a 22% year-over-year increase at the midpoint [6][7] - Full-year 2025 revenue is expected to increase by close to mid-30% year-over-year in U.S. dollar terms [11] Company Strategy and Industry Competition - TSMC is focusing on maintaining technology leadership and manufacturing excellence while investing in advanced process technologies to support AI-related demand [9][12] - The company is narrowing its 2025 CapEx range to $40 billion to $42 billion, with 70% allocated for advanced process technologies [10] - TSMC is expanding its global manufacturing footprint, including capacity expansion in Arizona and Japan, to meet strong multi-year AI-related demand [17][18] Management Commentary on Operating Environment and Future Outlook - Management remains optimistic about AI-related demand, expecting it to continue driving growth [11][13] - There are uncertainties regarding tariff policies that could impact consumer-related markets, but management is focused on technology leadership and customer trust [12] - The company is preparing for a structural increase in long-term market demand, particularly in AI applications [15] Other Important Information - TSMC's advanced packaging revenue is approaching 10% of total revenue, highlighting its importance in the competitive landscape [102] - The company is working closely with customers to ensure capacity meets demand, particularly in the AI sector [15][16] Q&A Session Summary Question: AI Demand Growth - Management confirmed that AI demand continues to be strong, with expectations for growth rates potentially exceeding previous mid-40% CAGR forecasts [26][27] Question: CapEx Outlook - Management indicated that CapEx will correlate with business opportunities, and they expect to continue investing to support growth [29][30] Question: CoWoS Capacity - Management is working to narrow the gap between demand and supply for CoWoS capacity, with updates expected next year [32] Question: Advanced Packaging Expansion - TSMC is building two advanced packaging fabs in Arizona and collaborating with partners to meet customer needs [75] Question: Revenue Growth Drivers - Growth is expected to be driven by technology migration, ASP increases, and volume growth [76][78] Question: AI Data Center Capacity - Management noted that 1 GW of AI data center capacity could require significant investment, but specific wafer demand figures are not yet available [89] Question: Competition and Strategic Initiatives - TSMC is focusing on system performance and advanced packaging to strengthen its competitive position in the Foundry 2.0 landscape [102] Question: Concerns about Prebuilt Inventory - Management expressed no concerns about prebuilt inventory levels, indicating they are at healthy seasonal levels [105]

Financial Highlights - In Q3 2025, revenue increased by 6% sequentially in NT and by 10.1% in USD to $33.1 billion, slightly exceeding guidance [5][6] - Gross margin rose by 0.9 percentage points sequentially to 59.5%, driven by cost improvements and higher capacity utilization [6][12] - Operating margin increased by 1.0 percentage point sequentially to 50.6% [6] - EPS was up 39% year over year, and ROE was 37.8% [6] Business Line Performance - Three nanometer process technology contributed 23% of wafer revenue, while five nanometer and seven nanometer accounted for 37% and 14% respectively [7] - Advanced technologies (seven nanometer and below) made up 74% of wafer revenue [7] - Revenue contribution by platform: HPC remained flat at 57%, smartphone increased by 19% to 30%, IoT grew by 20% to 5%, automotive rose by 18% to 5%, while DCE decreased by 20% to 1% [7][8] Market Data - Cash and marketable securities at the end of Q3 were NT2.8 trillion (approximately $90 billion) [8] - Current liabilities decreased by NT101 billion quarter over quarter, mainly due to a reduction in accrued liabilities [8] Company Strategy and Industry Competition - TSMC is narrowing its 2025 CapEx guidance to between $40 billion and $42 billion, with 70% allocated for advanced process technologies [14] - The company aims to leverage its manufacturing technology leadership and large-scale production to remain the most efficient and cost-effective manufacturer [13] - TSMC is expanding its global manufacturing footprint, with significant investments in Arizona, Japan, and Europe to meet strong AI-related demand [22][24] Management Commentary on Operating Environment and Future Outlook - Management expects continued strong demand for leading-edge process technologies, particularly in AI, with full-year 2025 revenue projected to increase by close to mid-thirties percent year over year in USD terms [16][17] - There are uncertainties regarding tariff policies that could impact consumer-related markets, but TSMC remains focused on technology leadership and customer trust [17][20] - The company is preparing for a structural increase in long-term market demand, particularly in AI applications, and is employing a disciplined capacity planning process [20][21] Other Important Information - TSMC's two nanometer technology is on track for volume production later this quarter, with expectations for a faster ramp in 2026 [25][26] - The company is also introducing N2P as an extension of its N2 family, with volume production scheduled for the second half of 2026 [26] Q&A Session Summary Question: AI Demand Growth - Management confirmed that AI demand continues to be strong, with expectations for growth rates potentially exceeding previous mid-forties CAGR guidance [34][35] Question: CapEx Outlook - Management indicated that CapEx will correlate with growth opportunities, and while it is unlikely to drop significantly, it may increase in response to strong demand [38][40] Question: AI Infrastructure and Token Growth - Management acknowledged that token growth is expected to be exponential, and TSMC's technology will enable customers to handle increased demand effectively [78][84] Question: Competition and Strategic Initiatives - TSMC is focusing on Foundry 2.0 to enhance system performance and is working closely with customers to maintain competitive advantages [112][113] Question: Smartphone Demand and Prebuild Concerns - Management expressed no concerns about prebuild inventory levels, indicating that they are currently healthy and at seasonal levels [117]

Financial Highlights - Third quarter revenue increased 10.1% sequentially to $33.1 billion, slightly exceeding guidance, driven by strong demand for leading-edge process technologies [3][10] - Gross margin rose 0.9 percentage points sequentially to 59.5%, attributed to cost improvements and higher capacity utilization, despite foreign exchange challenges [3][6] - Operating margin increased 1.0 percentage point sequentially to 50.6% [3] - Earnings per share (EPS) was 17.44 NT, up 39% year over year, with a return on equity (ROE) of 37.8% [3] Business Line Performance - Revenue contribution from 3-nanometer process technology was 23%, while 5-nanometer and 7-nanometer accounted for 37% and 14% respectively [4] - High-Performance Computing (HPC) remained flat at 57% of revenue, while smartphone revenue increased 19% to 30%, IoT grew 20% to 5%, and automotive rose 18% to 5% [4] - Data Center Equipment (DCE) revenue decreased 20% to 1% [4] Market Data - The company ended the third quarter with cash and marketable securities of 2.8 trillion NT ($90 billion) [4] - Current liabilities decreased by 101 billion NT, mainly due to a reduction in accrued liabilities [4] Company Strategy and Industry Competition - TSMC is narrowing its 2025 capital expenditures (CAPEX) guidance to between $40 billion and $42 billion, with 70% allocated for advanced process technologies [9] - The company expects gross margin dilution from overseas fabs to be between 1% to 2% for the full year 2025, improved from previous estimates [7] - TSMC aims to leverage its manufacturing technology leadership and large-scale production to remain competitive [8] Management Commentary on Operating Environment and Future Outlook - Management noted strong AI-related demand and a mild recovery in non-AI segments, projecting full-year 2025 revenue growth of close to mid-30% year over year in U.S. dollar terms [10][11] - The company remains cautious about potential tariff impacts on consumer-related markets but is committed to investing in future megatrends [11] - TSMC is focused on technology leadership, manufacturing excellence, and customer trust to strengthen its competitive position [11] Other Important Information - TSMC is expanding its global manufacturing footprint, with significant progress in Arizona and plans for additional fabs in Japan and Germany [16][17] - The company is preparing for the ramp-up of its 2-nanometer technology, with volume production expected later this quarter [18] Q&A Session Summary Question: AI Demand Growth - Management confirmed that AI demand is stronger than previously anticipated, with an expected CAGR in the mid-40% range for AI accelerators [21][24] Question: CAPEX Outlook - Management indicated that CAPEX will correlate with business opportunities, and they will continue to invest as long as growth opportunities exist [26][27] Question: CoWoS Capacity - Management is working to increase CoWoS capacity to meet demand but did not provide specific numbers for 2026 [30] Question: Competition and Foundry 2.0 - TSMC is focusing on system performance and advanced packaging as part of its Foundry 2.0 strategy to enhance competitiveness [74][76] Question: Smartphone Prebuilt Concerns - Management expressed no concerns about prebuilt inventory levels, indicating they are healthy and seasonal [79]

Financial Highlights - In Q3 2025, revenue increased by 10.1% sequentially to $33.1 billion, slightly exceeding guidance [6][10] - Gross margin rose by 0.9 percentage points sequentially to 59.5%, driven by cost improvements and higher capacity utilization [6][11] - Operating margin increased by 1.0 percentage point sequentially to 50.6% [6] - EPS was up 39% year-over-year, and ROE stood at 37.8% [6] Business Line Performance - Three nanometer process technology contributed 23% of wafer revenue, while five nanometer and seven nanometer accounted for 37% and 14% respectively [7] - Advanced technologies (seven nanometer and below) represented 74% of wafer revenue [7] - Revenue from the smartphone segment increased by 19% to account for 30% of total revenue [7] - HPC remained flat at 57%, while IoT and automotive segments grew by 20% and 18% respectively [7] Market Data - Cash and marketable securities totaled NT$2.8 trillion (approximately $90 billion) at the end of Q3 2025 [8] - Current liabilities decreased by NT$101 billion quarter-over-quarter [8] - Accounts receivable turnover days increased by 2 days to 25 days, while days of inventory decreased by 2 days to 74 days [8] Company Strategy and Industry Competition - TSMC plans to narrow its 2025 CapEx guidance to between $40 billion and $42 billion, with 70% allocated for advanced process technologies [13][14] - The company aims to leverage its manufacturing technology leadership and large-scale production to remain competitive [12][13] - TSMC is expanding its global manufacturing footprint, including capacity expansions in Arizona, Japan, and Germany [21][24] Management Commentary on Operating Environment and Future Outlook - Management noted strong demand for leading-edge process technologies, particularly in AI-related markets [15][16] - The company expects full-year 2025 revenue to increase by close to mid-30s percent year-over-year [16] - Management remains cautious about potential impacts from tariff policies and is focused on maintaining technology leadership and customer trust [17][18] Other Important Information - TSMC's two nanometer technology is on track for volume production later this quarter, with expectations for a faster ramp in 2026 [26] - The company is also introducing N2P technology, which offers further performance benefits [26] Q&A Session Summary Question: AI Demand and Growth Forecast - Management confirmed that AI demand is stronger than previously anticipated, with an updated CAGR expected to be better than mid-40s [35] - They emphasized that CapEx will correlate with business opportunities, and growth in revenue should outpace CapEx growth [37] Question: Capacity Expansion Plans - Management indicated that they are working hard to narrow the gap between demand and supply, with plans to increase capacity in 2026 [42] Question: Advanced Packaging and Revenue Drivers - Management stated that growth will be driven by a combination of technology migration, ASP increases, and volume growth [84] Question: Competition and Strategic Initiatives - TSMC is focusing on a holistic approach to system performance, integrating front-end and back-end processes to enhance competitiveness [99] Question: Concerns about Prebuild Inventory - Management expressed no concerns about prebuild inventory levels, noting that inventory is at healthy seasonal levels [101]

Financial Data and Key Metrics Changes - Revenue was roughly flat year over year, while operating income improved by 8% and diluted earnings per share improved by 18% compared to the prior year period [10][11] - Despite inflation in insurance, wages, employee benefits, and equipment costs, productivity and cost management efforts offset these headwinds [10][11] Business Line Data and Key Metrics Changes - Intermodal volumes declined by 1% year over year, but the company outperformed the broader truckload market decline due to customers converting freight to intermodal [15][32] - The final mile business faced challenges with soft demand for furniture, exercise equipment, and appliances, but positive demand was noted in the fulfillment network driven by off-price retail [20][21] - Integrated Capacity Solutions (ICS) saw modest sequential improvement in volumes, with rates up low to mid-single digits and winning volume with new customers [22] Market Data and Key Metrics Changes - Overall demand trended below normal seasonality for much of the quarter, with truckload capacity continuing to exit the market [14] - Truckload spot rates remained under pressure throughout the quarter, but recent regulatory developments are impacting capacity [14][66] Company Strategy and Development Direction - The company is focused on operational excellence, scaling investments, and repairing margins to drive stronger financial performance [5][6] - A significant emphasis is placed on lowering the cost to serve, with a goal of removing $100 million in structural costs from the business [12][13] - The company aims to leverage its reputation for service excellence to drive strategic growth and maximize returns on investments [6][8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to adapt to rail consolidation and emphasized the importance of long-term agreements with major rail providers [7][31] - The company expects to continue generating significant cash flow and remains focused on strong returns with deployed capital [12][13] - Management acknowledged the challenges in the current market but remains optimistic about future growth opportunities [10][34] Other Important Information - The company has made progress in its initiative to lower costs, having eliminated over $20 million in the quarter [12] - The company is leveraging technology and automation to improve operational efficiency and customer satisfaction [81][84] Q&A Session Questions and Answers Question: Can you provide details on the $20 million cost savings and how it played out by segment? - Management indicated progress across all areas of the business, with improvements in efficiency and productivity noted in intermodal and dedicated services [37] Question: What is the outlook for pricing and how does it relate to the cost savings initiative? - Management clarified that while the rate environment has been challenging, the cost savings initiative is expected to enhance performance durability when the market improves [44][46] Question: How do you expect loads and volumes to trend in the upcoming quarter? - Management noted that while the ocean peak season may have ended, domestic demand is expected to remain strong as customers prepare for the holiday season [75]

Financial Data and Key Metrics Changes - Revenue was roughly flat year-over-year, while operating income improved by 8% and diluted earnings per share improved by 18% compared to the prior year period [10] - Inflation in insurance, wages, employee benefits, and equipment costs were all up, but productivity and cost management efforts offset these headwinds [10][11] - The company is on track to achieve a $100 million savings goal from its cost reduction initiative, having eliminated over $20 million in the quarter [13] Business Line Data and Key Metrics Changes - Intermodal volumes declined by 1% year-over-year, but the company believes its volumes held up better relative to the broader truckload market decline [16] - The final mile business faced soft demand for furniture, exercise equipment, and appliances, but positive demand was noted in the fulfillment network driven by off-price retail [22] - Dedicated Contract Services saw strong demand, selling approximately 280 trucks of new deals, maintaining double-digit margins despite challenges [25][27] Market Data and Key Metrics Changes - Overall demand trended below normal seasonality for much of the quarter, with truckload capacity continuing to exit the market [15] - Truckload spot rates remained under pressure during the quarter, but recent regulatory developments are impacting capacity [15][16] - The company expects a peak season despite the earlier ocean peak season, as a large amount of freight imported early has yet to move through the inland supply chain [17][18] Company Strategy and Development Direction - The company is focused on operational excellence, scaling investments, and repairing margins to drive stronger financial performance [5][6] - J.B. Hunt aims to leverage its reputation for service excellence to drive strategic growth and maximize returns on investments [6][8] - The company is committed to adapting to industry changes, including rail consolidation, and believes its scale and relationships with rail providers will safeguard its leadership position [7][32] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to capitalize on growth opportunities while maintaining cost discipline [5][11] - The company anticipates that the majority of the benefits from its cost reduction initiative will be realized in 2026 [14] - Management noted that while the market hasn't returned yet, the improvement in financial performance is a testament to the organization's talent and execution of strategy [10][11] Other Important Information - The company is leveraging technology to improve operational efficiency, with significant automation efforts already in place [82][84] - The company is focused on maintaining a healthy balance sheet while being opportunistic with share repurchases [11][12] Q&A Session Summary Question: Can you provide details on the $20 million cost savings and how it played out by segment? - Management indicated progress across all business areas and emphasized that the initiative targets efficiency and productivity improvements [38] Question: What are the expectations for pricing across different modes next year? - Management clarified that recent bids showed success in pricing, particularly in ICS, but the overall rate environment remains challenged [44][46] Question: How sustainable is the sequential margin improvement in intermodal? - Management noted that improvements were driven by a combination of pricing strategies and operational efficiencies, and they expect to sustain these improvements moving forward [55][57] Question: What is driving the strong sales in Dedicated Contract Services despite market challenges? - Management attributed success to the company's customer value delivery program and ongoing initiatives to lower costs [62][64] Question: Are recent regulatory changes impacting spot rates? - Management confirmed that enforcement activity related to regulations has tightened capacity in certain markets, contributing to recent increases in spot rates [66][68]

Financial Data and Key Metrics Changes - Revenue was roughly flat year over year, while operating income improved by 8% and diluted earnings per share improved by 18% compared to the prior year period [11][12] - Despite inflation in insurance, wages, employee benefits, and equipment costs, productivity and cost management efforts offset these headwinds [11][12] Business Line Data and Key Metrics Changes - Intermodal volumes declined by 1% year over year, but the company outperformed the broader truckload market decline due to customers converting freight to intermodal [17][18] - The final mile business faced soft demand for furniture, exercise equipment, and appliances, but positive demand was noted in the fulfillment network driven by off-price retail [26][27] - Dedicated Contract Services (DCS) saw strong sales and maintained double-digit margins despite fleet losses and market dynamics [31][33] Market Data and Key Metrics Changes - Overall demand trended below normal seasonality for much of the quarter, with truckload capacity continuing to exit the market [16] - Truckload spot rates remained under pressure, but recent regulatory developments are impacting capacity [16][17] - The company expects a peak season despite challenges, as customers anticipate increased demand leading up to the holidays [20][21] Company Strategy and Development Direction - The company is focused on operational excellence, scaling investments, and repairing margins to drive stronger financial performance [5][6] - A cost-saving initiative aims to remove $100 million in structural costs, with over $20 million already eliminated in the quarter [12][13] - The company is committed to delivering exceptional intermodal service and adapting to industry changes, including rail consolidation [9][38] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to capitalize on growth opportunities while maintaining strong service levels [5][10] - The company anticipates that the current soft demand environment will persist through at least year-end, but remains focused on providing high service levels [27] - Management highlighted the importance of maintaining a healthy balance sheet and being opportunistic with share repurchases [12][14] Other Important Information - The company is leveraging technology to improve operational efficiency, with significant automation and AI integration across various processes [98][100] - Safety performance has been a key focus, with record-breaking safety metrics contributing to cost reductions [23][108] Q&A Session Summary Question: Can you provide details on the $20 million cost savings and how it played out by segment? - Management indicated progress across all business areas, with efficiency and productivity improvements noted [45][46] Question: What are the expectations for pricing across different modes next year? - Management discussed recent bid successes and emphasized the importance of balancing growth and pricing strategies [51][54] Question: How sustainable is the margin improvement seen in intermodal? - Management noted that improvements were driven by a combination of pricing and cost efficiencies, with expectations for continued sustainability [67][70] Question: What is driving strong sales in Dedicated Contract Services despite market challenges? - Management attributed success to the customer value delivery program and effective cost management strategies [74][76] Question: Are recent regulatory changes impacting spot rates? - Management confirmed that enforcement activity has tightened capacity in certain markets, contributing to recent increases in spot rates [80][81] Question: What is the outlook for peak season volumes? - Management expects a peak season driven by consumer demand, despite previous concerns about early imports affecting inland volumes [90][91]

Financial Data and Key Metrics Changes - Revenue was roughly flat year over year, while operating income improved by 8% and diluted earnings per share improved by 18% compared to the prior year period [9] - Despite inflation in insurance, wages, employee benefits, and equipment costs, productivity and cost management efforts offset these headwinds [9][10] - The company is on track to achieve a $100 million savings goal from its cost reduction initiative, having eliminated over $20 million in the quarter [11][12] Business Line Data and Key Metrics Changes - Intermodal volumes declined by 1% year over year, but the company outperformed the broader truckload market decline due to customer conversions to intermodal [15] - The final mile business faced challenges with soft demand for furniture and appliances, but positive demand was noted in the fulfillment network driven by off-price retail [20] - Dedicated Contract Services maintained double-digit margins despite facing fleet losses and startup costs from new business onboarding [26] Market Data and Key Metrics Changes - Overall demand trended below normal seasonality for much of the quarter, with truckload capacity exiting the market at an accelerating pace [13] - Truckload spot rates remained under pressure, but recent regulatory developments are impacting capacity [14] - The company expects a peak season despite the earlier ocean peak season, as there is still a large amount of freight that has not moved through the inland supply chain [16][17] Company Strategy and Development Direction - The company is focused on operational excellence, scaling investments, and repairing margins to drive stronger financial performance [4][5] - J.B. Hunt aims to leverage its reputation for service excellence to drive strategic growth and maximize returns on investments [6][7] - The company is adapting to industry changes, including rail consolidation, by maintaining strong relationships with major rail providers [6][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to capitalize on growth opportunities while maintaining operational efficiency [4][5] - The company anticipates that the majority of the benefits from its cost reduction initiative will be realized in 2026 [11] - Management acknowledged the challenges in the current freight environment but emphasized the importance of maintaining service quality and customer relationships [20][33] Other Important Information - The company is actively investing in technology and automation to improve operational efficiency and customer satisfaction [80][82] - J.B. Hunt's safety performance has been a key differentiator, with record-breaking safety metrics reported [18] Q&A Session Summary Question: Can you provide details on the $20 million cost savings and how it played out by segment? - Management indicated progress across all business areas, with improvements in efficiency and productivity noted [36][38] Question: What are the expectations for pricing across different modes next year? - Management discussed recent bid successes and emphasized the importance of focusing on less commoditized business for better pricing [42][43] Question: How sustainable is the margin improvement in intermodal? - Management clarified that the improvement was driven by a combination of pricing strategies and operational efficiencies, not solely by peak season surcharges [52][53] Question: What is driving the strong sales in Dedicated Contract Services despite market challenges? - Management attributed success to the company's customer value delivery program and improved cost management [61][64] Question: Are recent regulatory changes impacting spot rates? - Management confirmed that enforcement activity has tightened capacity in certain markets, contributing to recent increases in spot rates [66]

Financial Data and Key Metrics Changes - The third quarter marked a record leasing quarter with nearly 62 million square feet signed, an increase in portfolio occupancy to 95.3%, up 20 basis points [5][8] - Core FFO was $1.49 per share, exceeding forecasts, with net effective rent change at 49% and cash rent change at 29% [7][8] - Same-store growth for net effective and cash was 3.9% and 5.2% respectively [9] Business Line Data and Key Metrics Changes - The data center business saw an additional 1.5 GW of capacity moved to advanced stages, totaling 5.2 GW secured or in advanced stages [6] - The energy business delivered 28 MW of solar generation and storage, with a goal of reaching one gigawatt by year-end [10] Market Data and Key Metrics Changes - U.S. market absorption was estimated at 47 million square feet for the third quarter, with market vacancy steady at 7.5% [12][15] - E-commerce penetration in U.S. retail sales reached 24%, continuing to drive demand [11] Company Strategy and Development Direction - The company is focused on disciplined growth, operational excellence, and capitalizing on long-term trends in logistics and data centers [17] - There is an exploration of additional capitalization strategies to fully capture opportunities in the data center business [7][24] Management's Comments on Operating Environment and Future Outlook - Management noted improved customer sentiment and decision-making, with larger occupiers pursuing reconfiguration strategies [11][64] - The outlook for global logistics and demand for data centers remains strong, with expectations for occupancy and rent to improve [15][17] Other Important Information - The company is increasing its G&A guidance to $460 million-$470 million and strategic capital revenue guidance to $580 million-$590 million [16] - The company closed on $2.3 billion in financing activity, maintaining a strong balance sheet with a cost of debt at 3.2% [10] Q&A Session Summary Question: Data center capitalization strategies - Management is exploring various capitalization strategies for data centers, including potential funds for property acquisition upon completion [22][24] Question: Net absorption and demand sustainability - Net absorption of 47 million square feet reflects a catch-up from previous quarters, with a normal quarterly demand expected to be around 60 million square feet [29][30] Question: Supply and demand equilibrium - Demand is strengthening, and supply remains low, indicating a potential recovery in occupancy and rents [34][35] Question: Tenant categories and market performance - Demand has turned a corner, with strength noted in larger tenant categories and e-commerce, while cyclical spending categories show some softness [40][41] Question: Growth rate for data centers versus industrial - The growth rate for data centers is expected to be significant, with ongoing discussions about the best strategies for value creation [44][73] Question: Customer sentiment and long-term decisions - Customers are becoming desensitized to short-term volatility and are making long-term decisions, indicating a positive trend for occupancy [63][64] Question: Credit risk and portfolio health - The overall credit health of the portfolio has improved, with bad debt expense expected to remain below levels seen in past crises [68][69] Question: Transaction market and acquisition opportunities - The transaction market remains resilient, with increased volumes and stable pricing, indicating healthy market conditions [77] Question: Spec development leasing pace - The pace of spec development leasing is improving, returning to historical norms after a period of extension [80] Question: Rent change dynamics - Rent change has decreased slightly, but the potential for significant rent change remains due to upcoming lease expirations [84][86] Question: Customer categories and leasing strength - E-commerce and stable growth businesses are showing strength, while cyclical categories like automotive are subdued [90][91]