Q124 PLD earnings

earnings summary

Earnings Results: • Core FFO per share (excluding promotes) of $1.31, in line with forecast • Occupancy ended at 97%, decline of 80 bps since peak in summer 2022 • Net effective rent change of 68% on commencements, 70% on new signings • Same-store growth of 5.7% on cash basis, 4.1% on net effective basis • $270M of new developments started in Q1

Future Guidance: • Average occupancy guidance reduced to 95.75%-96.75% • Same-store growth (net effective basis) revised to 5.5%-6.5% • Strategic capital revenue (excluding promotes) maintained at $530M-$550M • Development starts guidance adjusted to $2.5B-$3B • Core FFO guidance (including net promote expense) of $5.37-$5.47 per share • Core FFO guidance (excluding promotes) of $5.45-$5.55 per share

The earnings call highlighted that while Prologis delivered strong rent growth and occupancy slightly ahead of forecast in Q1, persistent inflation and high interest rates have caused customers to focus more on controlling costs, resulting in delayed decision-making and below-average net absorption. This is expected to translate to lower leasing volume and occupancy in the near term, particularly in high rent markets like Southern California which is seeing a more pronounced correction.

However, new supply starts continue to be disciplined, limiting new supply in late 2024 and 2025. When considered alongside muted demand, the operating environment has only changed modestly overall, with demand expected to be pushed out by a few quarters. Prologis believes this may accelerate the move towards long-term normalized occupancy levels this year, setting up for a better 2025.

The company is lowering average occupancy and same-store growth guidance to reflect the near-term headwinds, but maintains a positive long-term outlook. Notably, the in-place lease mark-to-market stands at 50%, representing significant embedded rent growth even without further market rent increases.

Notable quotes: “Persistent inflation and high interest rates have kept more customers focused on controlling costs. The resulting delay in decision-making easily observed through the first quarter’s below-average net absorption will translate to lower leasing volume within the year.” - Timothy Arndt, CFO

”This is punctuated of course, by a more pronounced period of correction still underway in Southern California.” - Timothy Arndt, CFO

”New starts, however, continues to be surprisingly disciplined, adding to the expectation for limited new supply in the back half of ‘24, but also extending deeper into ‘25. When considered alongside muted demand, we arrive at a view that the operating environment has only changed modestly in aggregate and that demand is simply pushing out by a few quarters.” - Timothy Arndt, CFO